SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
------ THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended March 30, 1995
-----------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------- ------------
Commission file number 0-5485
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ENVIRODYNE INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-2677354
- ------------------------------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Harger Road, Suite 190, Oak Brook, Illinois 60521
- ----------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 571-8800
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check
mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes X No
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As of May 12, 1995, there were 13,515,000 shares outstanding
of the registrant's Common Stock, $.01 par value.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
---------------------
The financial information included in this quarterly report has
been prepared in conformity with the accounting principles and
practices reflected in the financial statements included in the
annual report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 29, 1994 (1994 Form 10-K).
These quarterly financial statements should be read in conjunction
with the financial statements and the notes thereto included in the
1994 Form 10-K. The accompanying financial information, which is
unaudited, reflects all adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the
interim periods presented.
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 30, December 29,
1995 1994
-------- -----------
(unaudited)
(in thousands)
ASSETS
Current assets:
Cash and equivalents $ 7,209 $ 7,289
Receivables, net 89,007 86,868
Inventories 124,470 110,483
Other current assets 30,311 19,466
-------- --------
Total current assets 250,997 224,106
Property, plant and equipment,
including those under capital
lease 518,958 506,099
Less accumulated depreciation
and amortization 46,166 35,761
-------- --------
Property, plant and equipment, net 472,792 470,338
Deferred financing costs 9,130 9,143
Other assets 45,842 47,181
Excess reorganization value 143,252 145,868
-------- --------
$922,013 $896,636
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current
portion of long-term debt and
obligation under capital lease $ 28,221 $ 25,798
Accounts payable 34,680 34,335
Accrued liabilities 73,805 72,246
-------- --------
Total current liabilities 136,706 132,379
Long-term debt including obligation
under capital lease 510,944 489,358
Accrued employee benefits 56,927 56,217
Deferred and noncurrent income taxes 83,426 83,333
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
13,515,000 shares issued and
outstanding 135 135
Paid in capital 134,865 134,865
Accumulated (deficit) (7,507) (3,612)
Cumulative foreign currency
translation adjustments 6,517 3,961
-------- --------
Total stockholders' equity 134,010 135,349
-------- --------
$922,013 $896,636
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
----------------------------------
March 30, March 31,
1995 1994
--------- ----------
(in thousands, except for number of
shares and per share amounts)
NET SALES $155,824 $142,593
COSTS AND EXPENSES
Cost of sales 113,689 102,119
Selling, general
and administrative 29,536 26,918
Amortization of intangibles
and excess reorganization value 3,910 3,846
------- -------
OPERATING INCOME 8,689 9,710
Interest income 64 61
Interest expense 13,434 12,059
Other income, net 591 281
Minority interest in loss
of subsidiary 50
------- -------
(LOSS) BEFORE INCOME TAXES (4,090) (1,957)
Income tax provision (benefit) (195) 550
------- -------
NET (LOSS) $ (3,895) $ (2,507)
======== ========
WEIGHTED AVERAGE
COMMON SHARES 13,515,000 13,500,000
PER SHARE AMOUNTS:
NET (LOSS) $(.29) $(.19)
===== =====
The accompanying notes are an integral part of the consolidated
financial statements.
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
----------------------------
March 30, March 31,
1995 1994
--------- --------
(in thousands)
Cash flows from operating activities:
Net (loss) $(3,895) $(2,507)
Adjustments to reconcile net (loss)
to net cash provided by operating
activities:
Depreciation and amortization
under capital lease 9,986 9,000
Amortization of intangibles
and excess reorganization value 3,910 3,846
Amortization of deferred financing
fees and discount 549 362
Decrease in deferred and
noncurrent income taxes (907) (936)
Foreign currency transaction gain (1,586) (837)
Changes in operating assets
and liabilities:
Increase in accounts receivable (438) (7,798)
Increase in inventories (12,192) (7,719)
Increase in other current assets (10,615) (9,529)
Increase in accounts payable and
accrued liabilities 254 1,954
Other 398 949
-------- --------
Total adjustments (10,641) (10,708)
-------- --------
Net cash used in
operating activities (14,536) (13,215)
Cash flows from investing activities:
Capital expenditures (7,631) (7,354)
Proceeds from sale of property,
plant and equipment 20
Purchase of minority interest
in subsidiary (4,200)
-------- --------
Net cash (used in)
investing activities (7,631) (11,534)
Cash flows from financing activities:
Proceeds from revolving loan
and long-term borrowings 42,249 25,836
Deferred financing costs (464) (10)
Repayment of revolving loan,
long-term borrowings
and capital lease obligations (19,973) (5,058)
-------- --------
Net cash provided by
financing activities 21,812 20,768
Effect of currency exchange
rate changes on cash 275 175
-------- --------
Net decrease in cash and equivalents (80) (3,806)
Cash and equivalents at
beginning of period 7,289 7,743
------- --------
Cash, restricted cash and equivalents
at end of period $ 7,209 $ 3,937
======= ========
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Supplemental cash flow information:
Interest paid $16,330 $16,420
Income taxes paid $1,045 $ 479
The accompanying notes are an integral part of the consolidated
financial statements.
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CHAPTER 11 REORGANIZATION PROCEEDINGS
On January 6, 1993, a group of bondholders filed an involuntary petition
for reorganization of Envirodyne Industries, Inc. under Chapter 11 of
the U.S. Bankruptcy Code. On January 7, 1993 Viskase Corporation,
Viskase Sales Corporation, Viskase Holding Corporation, Clear Shield
National, Inc., Sandusky Plastics of Delaware, Inc., Sandusky Plastics,
Inc. and Envirodyne Finance Company each filed voluntary petitions under
Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy
Court for the Northern District of Illinois, Eastern Division (the
Bankruptcy Court). On December 17, 1993, the Bankruptcy Court confirmed
the First Amended Joint Plan of Reorganization as twice modified (Plan
of Reorganization) with respect to Envirodyne Industries, Inc.
(Envirodyne) and certain of its subsidiaries. The Plan of Reorganization
was consummated and Envirodyne and certain of its subsidiaries emerged
from Chapter 11 on December 31, 1993 (Effective Date). For accounting
purposes, the Plan of Reorganization was deemed to be effective as of
December 31, 1993.
The Plan of Reorganization provided for the initial issuance of
approximately 13,500,000 shares of Envirodyne common stock, warrants to
purchase an additional 1,500,000 shares (subject to adjustment) and
$219,262,000 principal amount of 10-1/4% Senior Notes Due 2001 (10-1/4%
Notes).
Holders of allowed general unsecured claims of Envirodyne (as opposed to
subsidiaries of Envirodyne) became entitled to receive 32.28 shares of
common stock for each $500 amount of their prepetition claims, or a
total of 8,070 shares of common stock, representing .06% of the common
stock initially issued pursuant to the Plan of Reorganization. These
claims totaled approximately $125,000. If the allowed amount of general
unsecured claims of Envirodyne exceeds $125,000, for example upon the
resolution of disputed claims, additional shares of common stock will
have to be issued to the holders of allowed general unsecured claims of
Envirodyne in order to provide equitable allocation of value among
Envirodyne's unsecured creditors under the Plan of Reorganization. Such
additional shares of common stock would be distributed with respect to
allowed general unsecured claims of Envirodyne as follows: (i)
approximately 2.58 additional shares per $500 in claims in the event
allowed general unsecured claims of Envirodyne are between $125,000 and
$25,000,000; (ii) approximately 5.61 additional shares per $500 in
claims in the event allowed general unsecured claims of Envirodyne are
between $25,000,000 and $50,000,000; (iii) approximately 9.22 additional
shares per $500 in claims in the event allowed general unsecured claims
of Envirodyne are between $50,000,000 and $75,000,000; and (iv)
approximately 13.58 additional shares per $500 in claims in the event
allowed general unsecured claims of Envirodyne are between $75,000,000
and $100,000,000. Refer to Note 5 for a discussion of disputed claims
which, if determined adversely to Envirodyne, would result in the
issuance of common stock.
The Company accounted for the reorganization using the principles of
fresh start reporting in accordance with the American Institute of
Certified Public Accountants Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code."
Accordingly, all assets and liabilities were restated to reflect their
reorganization value. A reorganization value of the Company's equity of
$135,000,000 was based on the consideration of many factors and various
valuation methods, including discounted cash flows, comparable multiples
of earnings and other applicable measurements and valuation techniques
believed by management and its financial advisors to be representative
of the Company's business and industry. The excess of the reorganization
value over the fair value of net assets and liabilities has been
reported as excess reorganization value and is being amortized over a
fifteen-year period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Envirodyne
and its subsidiaries.
3. INVENTORIES
Inventories consisted of:
March 30, December 29,
1995 1994
--------- -----------
(in thousands)
Raw materials $ 24,077 $ 20,358
Work in process 41,732 37,613
Finished products 58,661 52,512
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$124,470 $110,483
======== ========
Approximately 54% of the inventories at March 30, 1995 were valued at
Last-In, First-Out (LIFO). These LIFO values exceeded current
manufacturing cost by approximately $4.4 million at March 30, 1995.
4. DEBT OBLIGATIONS
As described in Note 1, Chapter 11 Reorganization Proceedings,
Envirodyne and certain of its domestic Subsidiaries emerged from Chapter
11 on December 31, 1993.
The $219,262,000 principal amount of 10-1/4% Notes were issued pursuant
to an Indenture dated as of December 31, 1993 (10-1/4% Note Indenture)
between Envirodyne and Bankers Trust Company, as Trustee. The 10-1/4%
Notes are the unsecured senior obligations of Envirodyne, bear interest
at the rate of 10-1/4% per annum, payable on each June 1 and December 1,
and mature on December 1, 2001. The 10-1/4% Notes are redeemable, in
whole or from time to time in part, at the option of Envirodyne, at the
percentages of principal amount specified below plus accrued and unpaid
interest to the redemption date, if the 10-1/4% Notes are redeemed
during the 12-month period commencing on January 1 of the following
years:
Year Percentage
---- ----------
1995 105%
1996 104%
1997 103%
1998 102%
1999 101%
2000 and thereafter 100%
The 10-1/4% Note Indenture contains covenants with respect to Envirodyne
and its subsidiaries limiting (subject to a number of important
qualifications), among other things, (i) the ability to pay dividends on
or redeem or repurchase capital stock, (ii) the incurrence of
indebtedness, (iii) certain affiliate transactions and (iv) the ability
of the Company to consolidate with or merge with or into another entity
or to dispose of substantially all its assets.
In connection with the consummation of the Plan of Reorganization,
Envirodyne and certain of its subsidiaries (Borrowers) entered into a
Credit Agreement dated December 31, 1993 (Credit Agreement) with the
lenders party thereto (Lenders) and with Bank of America Illinois
(formerly Continental Bank N.A.), Citibank International PLC and
Citicorp North America, Inc., as agents for the Lenders. The Credit
Agreement provides for a $195,000,000 facility, consisting of a
$100,000,000 domestic term loan facility, a $65,000,000 domestic
revolving credit facility (which includes a $27,000,000 domestic letter
of credit facility) and a $30,000,000 amortizing multicurrency revolving
credit facility (which includes a $3,000,000 multicurrency letter of
credit facility). The commitment under the amortizing multicurrency
revolver was $27,300,000 at March 30, 1995. The initial borrowings under
the Credit Agreement were used (i) to pay indebtedness under the
Postpetition Credit Agreement dated as of February 5, 1993 among the
Debtors, the lenders party thereto (DIP Lenders) and Continental Bank
N.A., as agent for the DIP Lenders, (ii) to pay indebtedness under
certain foreign credit facilities, (iii) to pay the claims of subsidiary
trade creditors under the Plan of Reorganization and (iv) to pay certain
fees and expenses relating to the Plan of Reorganization and the Credit
Agreement. Obligations under the Credit Agreement are collateralized by
substantially all of the assets of Envirodyne and its domestic
subsidiaries and by the pledge of the capital stock of substantially all
of Envirodyne's subsidiaries. Availability of funds under the Credit
Agreement is subject to a borrowing base measured by certain assets of
Envirodyne and its subsidiaries.
The available borrowing capacity under the Credit Agreement was
approximately $11 million at March 30, 1995.
Borrowings under the domestic term loan facility and the domestic
revolving credit facility bear interest, at the Company's election, at
a rate per annum equal to (i) the Bank of America Illinois base rate
plus 1.5% or (ii) the Eurodollar rate plus 2.75%, subject to step downs
of up to 0.5% if the Company meets certain debt and interest coverage
tests. The domestic term loan facility terminates on December 31, 1999
and is subject to quarterly repayments of principal as follows:
Calendar Quarterly Total Repayment
Year Repayment Amount for Calendar Year
--------- ---------------- -----------------
1995 $2,775,000 $11,100,000
1996 4,075,000 16,300,000
1997 4,450,000 17,800,000
1998 4,625,000 18,500,000
1999 6,300,000 25,200,000
The domestic revolving credit facility expires on December 31, 1999,
with a commitment fee of 0.5% per annum on the unused portion of the
commitment. The domestic letter of credit facility expires December 16,
1999, with fees on the outstanding amount of the domestic letters of
credit of 0.25% per annum to the issuers and 2.5% per annum to the
domestic Lenders, subject to step downs of up to 0.5% if the Company
meets certain debt and interest coverage tests.
The multicurrency revolving credit facility permits borrowings in U.S.
Dollars, German Marks, French Francs or Pounds Sterling at an interest
rate per annum equal to the applicable Eurocurrency rate plus 2.75%,
subject to step downs of up to 0.5% if the Company meets certain debt
and interest coverage tests. The multicurrency revolving credit facility
expires on December 31, 1999 and the commitments thereunder are subject
to mandatory quarterly reductions as follows:
Calendar Quarterly Total Reduction
Year Commitment Reduction for Calendar Year
-------- -------------------- -----------------
1995 $ 500,000 $2,000,000
1996 950,000 3,800,000
1997 1,075,000 4,300,000
1998 1,150,000 4,600,000
1999 775,000 3,100,000
There is a commitment fee of 0.5% per annum on the unused portion of the
multicurrency revolving credit facility. The multicurrency letter of
credit facility expires December 16, 1999, with fees on the outstanding
amount of the multicurrency letters of credit of 0.25% per annum to the
issuers and 2.5% per annum to the multicurrency Lenders, subject to step
downs of up to 0.5% if the Company meets certain debt and interest
coverage tests.
Envirodyne's obligations under the Credit Agreement bear interest at
rates that are expected to fluctuate over time. Envirodyne is required
under the Credit Agreement to enter into interest rate protection
agreements with respect to a significant portion of the amounts
outstanding from time to time thereunder. Envirodyne has entered into
$50 million of interest rate protection agreements that cap the
Company's LIBOR interest component (excludes spread) at an average rate
of 6.50% until January 1997. The fair value of interest rate cap
agreements is estimated by obtaining quotes from banks. At March 30,
1995, the carrying amount and estimated fair value of interest rate cap
agreements were $1,021,000 and $353,000, respectively.
The Borrowers have made certain representations and have agreed to
certain covenants that restrict the operations of the Borrowers and
their subsidiaries' businesses. Among other things, the Borrowers may
not, with limited exceptions, place liens on their properties or assets,
incur additional indebtedness, make dividend or other distributions on
capital stock, make investments (other than cash equivalent
investments), merge or consolidate with any other person, dispose of
assets outside the ordinary course of business or exceed stated levels
of capital expenditures. The Credit Agreement also contains a number of
financial covenants, including covenants relating to cash flow, interest
and fixed charge coverage ratios, net worth and debt to cash flow
levels.
Unless cured within any applicable grace period, events of default
include failure to pay principal, interest or other amounts due to the
Lenders, a material breach of a representation or warranty, certain
events related to employee benefit plans, certain events of bankruptcy
or insolvency, defaults on other indebtedness having a principal amount
in the aggregate in excess of $5,000,000, failure to discharge judgments
in an amount in excess of $5,000,000, a change of control (as defined)
and failure to comply with covenants, including the financial covenants
described above.
The Company and the Lenders entered into an amendment of the Credit
Agreement as of January 24, 1995 easing certain financial covenants and
permanently waiving the event of default arising from the ownership by
the Malcolm I. Glazer Trust (Trust) of more than 30% of the Company's
Common Stock, provided that the Trust's ownership does not later exceed
49% of the Company's outstanding Common Stock. The Company is currently
in compliance with the terms of the Credit Agreement, including the
financial covenants.
Outstanding short-term and long-term debt consisted of:
March December
30, 1995 29, 1994
--------- ----------
(in thousands)
Short-term debt, current maturity of
long-term debt, and capital
lease obligation:
Current maturity of Bank Term Loan (9.3%) $11,100 $11,100
Current maturity of Viskase
Capital Lease Obligation 6,012 5,450
Current maturity of
Viskase Limited Term Loan (5.9%) 2,062 1,882
Other 9,047 7,366
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Total short-term debt $28,221 $25,798
======= =======
Long-term debt:
Bank Credit Agreement:
Term Loan due 1999 (9.3%) $77,800 $ 80,575
Revolving Loan due 1999 (8.9%) 62,112 32,524
10.25% Senior Notes due 2001 219,262 219,262
Viskase Capital Lease Obligation 141,182 147,194
Viskase Limited Term Loan (5.9%) 9,279 8,466
Other 1,309 1,337
------- -------
Total long-term debt $510,944 $489,358
======== ========
The fair value of the Company's debt obligation (excluding capital lease
obligation) is estimated based upon the quoted market prices for the
same or similar issues or on the current rates offered to the Company
for the debt of the same remaining maturities. At March 30, 1995, the
carrying amount and estimated fair value of debt obligations (excluding
capital lease obligation) were $391,971 and $352,504, respectively.
On December 28, 1990, Viskase and GECC entered into a sale and leaseback
transaction. The sale and leaseback of assets included the production
and finishing equipment at Viskase's four domestic casing production and
finishing facilities. The facilities are located in Chicago, Illinois;
Loudon, Tennessee; Osceola, Arkansas and Kentland, Indiana. Viskase, as
the Lessee under the relevant agreements, will continue to operate all
of the facilities. The lease has been accounted for as a capital lease.
The principal terms of the sale and leaseback transaction include: (a)
a 15 year basic lease term (plus selected renewals at Viskase's option);
(b) annual rent payments in advance beginning in February 1991; and (c)
a fixed price purchase option at the end of the basic 15 year term and
fair market purchase options at the end of the basic term and each
renewal term. Further, the Lease Documents contain covenants requiring
maintenance by the Company of certain financial ratios and restricting
the Company's ability to pay dividends, make payments to affiliates,
make investments and incur indebtedness.
Annual rental payments under the Lease will be approximately $19.2
million through 1997, $21.4 million in 1998 and $23.5 million through
the end of the basic 15-year term. Viskase is required to provide credit
support consisting of a standby letter of credit in an amount up to one
year's rent through at least 1997. This credit support can be reduced up
to $4,000,000 currently if the Company achieves and maintains certain
financial ratios. As of March 30, 1995, the Company had met the required
financial ratios and the letter of credit has been reduced by
$4,000,000. The letter can be further reduced in 1997 or eliminated
after 1998 if the Company achieves and maintains certain financial
ratios. Envirodyne and its other principal subsidiaries guaranteed the
obligations of Viskase under the Lease.
The following is a schedule of minimum future lease payments under the
capital lease together with the present value of the net minimum lease
payments as of March 30, 1995:
Year ending December (000's)
--------------
1996 $ 19,227
1997 19,227
1998 21,363
1999 23,499
2000 23,499
Thereafter 117,495
--------
Net minimum lease payments 224,310
Less:
Amount representing interest (77,116)
--------
$147,194
========
The 1995 rental payment of $19,227,000 was paid on February 28, 1995.
Principal payments under the capital lease obligation for the years
ended 1995 through 1999 range from approximately $5 million to $13
million.
5. CONTINGENCIES
A class action lawsuit by former employees of subsidiary corporations
comprising most of the Company's former steel and mining division (SMD)
was pending as of the commencement of the bankruptcy case in which the
plaintiffs are seeking substantial damages. The Company and the
plaintiffs are currently participating in a mediation process to attempt
to resolve the case. Envirodyne denies liability and in the absence of
successful mediation or other settlement negotiations will continue to
vigorously defend these claims. However, inasmuch as the Plan of
Reorganization provides for the issuance of common stock with respect to
prepetition Envirodyne general unsecured claims (refer to Note 1), an
adverse finding of liability and damages could result in substantial
dilution to the holders of the common stock.
Litigation has been initiated with respect to events arising out of the
bankruptcy cases and the 1989 acquisition of Envirodyne by Emerald
Acquisition Corporation (Emerald) with respect to which, although
Envirodyne is not presently a party to such litigation, certain
defendants have asserted indemnity rights against Envirodyne. In ARTRA
-----
Group Incorporated v. Salomon Brothers Holding Company Inc, Salomon
- --------------------------------------------------------------------
Brothers Inc, D.P. Kelly & Associates, L.P., Donald P. Kelly, Charles K.
- ------------------------------------------------------------------------
Bobrinskoy, James L. Massey, William Rifkind and Michael Zimmerman, Case
- ------------------------------------------------------------------
No. 93 A 1616, United States Bankruptcy Court for the Northern District
of Illinois, Eastern Division (Bankruptcy Court), ARTRA Group
Incorporated (ARTRA) alleges breach of fiduciary duty and tortious
inference in connection with the negotiation and consummation of the
Plan of Reorganization. In ARTRA Group Incorporated v. Salomon Brothers
--------------------------------------------
Holding Company Inc, Salomon Brothers Inc, D.P. Kelly & Associates,
- -------------------------------------------------------------------
L.P., Donald P. Kelly, Charles K. Bobrinskoy and Michael Zimmerman,
- ------------------------------------------------------------------
Case No. 93 L 2198, Circuit Court of the Eighteenth Judicial Circuit,
County of DuPage, State of Illinois, ARTRA alleges negligence, breach of
fiduciary duty, fraudulent misrepresentation and deceptive business
practices in connection with the 1989 acquisition of Envirodyne by
Emerald. The plaintiff seeks damages in the total amount of $136,200,000
plus interest and punitive damages of $408,600,000. D.P. Kelly &
Associates, L.P. and Messrs. Kelly, Bobrinskoy, Massey, Rifkind and
Zimmerman have asserted common law and contractual rights of indemnity
against Envirodyne for attorneys' fees, costs and any ultimate liability
relating to the claims set forth in the complaints. Upon the undertaking
of D.P. Kelly & Associates, L.P. to repay such funds in the event it is
ultimately determined that there is no right to indemnity, Envirodyne is
advancing funds to D.P. Kelly & Associates, L.P. and Mr. Kelly for the
payment of legal fees in the case pending before the Bankruptcy Court.
Although the case is in a preliminary stage and the Company is not a
party thereto, the Company believes that the plaintiff's claims raise
similar factual issues to those raised in the bankruptcy cases which, if
adjudicated in a manner similar to that in the bankruptcy cases, would
render it difficult for the plaintiff to establish liability.
Accordingly, the Company believes that the indemnification claims would
not have a material adverse effect upon the business or financial
position of the Company, even if the claimants were ultimately
successful in establishing their right to indemnification.
In the Envirodyne bankruptcy case the United States Environmental
Protection Agency (USEPA), the Economic Development Authority (EDA), and
Navistar International Transportation Corp. (Navistar Transportation)
filed proofs of claim with respect to unreimbursed environmental
response costs at the location of the former SMD operations. The parties
have agreed in principle, subject to the negotiation of a definitive
settlement agreement, Bankruptcy Court approval and public comment
pursuant to regulations applicable to EDA and USEPA, to settle the
claims against Envirodyne through the payment of $5,000 to the USEPA and
the issuance of 64,460 shares of common stock to Navistar
Transportation. In the event that the settlement is not completed,
Envirodyne believes that it has valid defenses to the claims and will
continue its objections to the claims. To the extent that USEPA, EDA or
Navistar Transportation were able to establish liability and damages as
to their respective proofs of claim, such parties would receive Common
Stock under the Plan of Reorganization in satisfaction of their claims.
Certain of Envirodyne's stockholders prior to the acquisition of
Envirodyne by Emerald failed to exchange their certificates representing
old Envirodyne common stock for the $40 per share cash merger
consideration specified by the applicable acquisition agreement. In the
Envirodyne bankruptcy case, Envirodyne is seeking to equitably
subordinate the interests of the holders of untendered shares, in which
event such holders would receive no distribution pursuant to the Plan of
Reorganization. The Bankruptcy Court granted Envirodyne's motion for
summary judgment to equitably subordinate the holders of untendered
shares. Certain holders have appealed the summary judgment to the United
States District Court for the Northern District of Illinois. If such
holders were ultimately successful, Envirodyne believes that the maximum
number of shares of common stock that it would be required to issue to
such claimants is approximately 106,000.
In August 1993, Clear Shield National, Inc. received a subpoena from the
Antitrust Division of the United States Department of Justice relating
to a grand jury investigation of the disposable plastic cutlery
industry. Clear Shield National, Inc. has cooperated fully with the
investigation.
The Company and its subsidiaries are involved in various legal
proceedings arising out of Its business and other environmental matters,
none of which is expected to have a material adverse effect upon its
results of operations, cash flows or financial position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
The accompanying management's discussion and analysis of financial
condition and results of operations should be read in conjunction with
the following table:
Three Months Ended
------------------------------
March 30, March 31,
1995 1994
---------- ---------
(in thousands)
(unaudited)
Net sales:
Food packaging products $138,596 $126,864
Disposable foodservice supplies 17,228 15,875
Other and eliminations (146)
-------- --------
$155,824 $142,593
======== ========
Operating income:
Food packaging products $ 8,990 $10,153
Disposable foodservice supplies 1,264 1,148
Other and eliminations (1,565) (1,591)
------- -------
$ 8,689 $ 9,710
======= =======
under capital lease and amorti-
zation of intangible expense:
Food packaging products $12,768 $11,499
Disposable foodservice supplies 1,110 1,333
Other 18 14
------- -------
$13,896 $12,846
======= =======
Capital expenditures:
Food packaging products $6,053 $ 6,638
Disposable foodservice supplies 1,578 709
Other 7
------ -------
$7,631 $ 7,354
====== =======
Results of Operations
- ---------------------
The Company's sales for the first three months of 1995 were $155.8
million, which represented an increase of 9.3% from the first three
months of 1994. Net sales at Viskase increased due to the expansion of
Latin American sales, selected sales price increases, strong worldwide
film sales, combined with the favorable effects of foreign currency
translation. Net sales at Clear Shield increased 8.5% from the prior
year primarily due to selling price increases. Sandusky sales declined
21.2% due to the loss of the baby wipe business combined with some
reduced dairy and deli container sales.
Operating income for the first three months of 1995 was $8.7 million,
which represented a decline of $1 million from the first quarter of
1994. The decline in operating income in 1995 is due to the continued
increase in resin prices, price competition in some foreign markets
coupled with additional selling, general and administrative expenses
resulting from strategic expansions in foreign markets, including
Europe, Latin America and Australia and the decline in Sandusky's sales.
First quarter 1995 net interest expense totaled $13.4 million, which
represented an increase of $1.4 million from the first quarter of 1994.
The increase is primarily the result of both increased borrowings and
higher interest rates on the term and revolving loan facilities,
combined with additional amortization of deferred financing fees.
The tax benefit in the 1995 first quarter resulted from the benefit of
U.S. losses partially offset by the provision related to income from
foreign subsidiaries. Due to the permanent differences in the U.S.
resulting from non-deductible amortization and foreign losses for which
no tax benefit is provided, a benefit of $.2 million was provided on a
loss before income taxes of $4.1 million. The U.S. tax benefit is
recorded as a reduction of the deferred tax liability, and does not
result in a refund of income taxes.
Liquidity and Capital Resources
- -------------------------------
Envirodyne and certain of its subsidiaries are parties to a $195,000,000
Credit Agreement (Credit Agreement) with a group of banks and financial
institutions (Lenders). The Credit Agreement provides for a $100,000,000
term loan facility, a $65,000,000 domestic revolving credit facility and
a $30,000,000 amortizing multicurrency revolving credit facility.
Borrowings are subject to borrowing base availability.
The Company expects to have sufficient funds available from cash flow
from operations and borrowings to meet its liquidity needs. The
availability of funds under the domestic and multicurrency revolving
credit facilities are subject to a borrowing base limitation measured by
certain assets of the Company. The available borrowing capacity under
the Credit Agreement was approximately $11 million at March 30, 1995.
The Company and the Lenders entered into an amendment of the Credit
Agreement as of January 24, 1995 easing certain financial covenants and
permanently waiving the event of default arising from the ownership by
the Malcolm I. Glazer Trust (Trust) of more than 30% of the Company's
Common Stock, provided that the Trust's ownership does not later exceed
49% of the Company's outstanding Common Stock. The Company is currently
in compliance with the terms of the Credit Agreement, including the
financial covenants. In the event that the Company is unable to maintain
compliance with the covenants, it will be necessary to seek a waiver or
amendment of such covenants from the respective lenders. There can be no
assurance that the Company will be able to obtain such waivers or
amendments.
Capital expenditures for the first quarter of 1995 and 1994 totaled $7.6
million and $7.4 million, respectively. In 1995 and future years,
capital expenditures are expected to be approximately $30 million
annually.
The Company has spent approximately $12 million to $17 million annually
on research and development programs, including product and process
development, and on new technology development during each of the past
three years, and the 1995 research and development and product
introduction expenses are expected to be approximately $16 million.
Among the projects included in the current research and development
efforts is the application of certain patents and technology recently
licensed by Viskase to manufacture cellulosic casings. The
commercialization of these applications and the related fixed asset
expenditures associated with such commercialization may require
substantial financial commitments in future periods.
The Company is contemplating the private placement of up to $160 million
of series A and $50 million of series B senior secured notes. Up to $50
million of the proceeds of the private placement are expected to be used
to finance the purchase, in the open market or in private transactions,
of 10-1/4% Senior Notes, subject to price and market conditions, while
the rest of the proceeds would be used to repay the Company's domestic
term loan facility, reduce the amount of the Company's revolving credit
obligations and pay the fees and expenses of the private placement. The
Company may reduce the amount of the private placement by up to $50
million if the Company is unable to purchase the 10-1/4% Senior Notes at
prices acceptable to the Company. No assurance can be given that the
Company will consummate the contemplated private placement, what the
terms and conditions of the private placement would be, or whether the
proceeds of the private placement would be used as the Company currently
expects.
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
-----------------
For a description of pending litigation and other contingencies, see
Part 1, Note 5, Contingencies.
Item 2 - Changes in Securities
---------------------
No reportable events occurred during the quarter ended March 30, 1995.
Item 3 - Defaults Upon Senior Securities
-------------------------------
None.
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its Annual Meeting of Stockholders (the "Meeting") on
May 10, 1995. The business conducted at the Meeting included (i) the
election of directors, (ii) the ratification of the Company's 1993 Stock
Option Plan and (iii) the ratification of the appointment of Coopers &
Lybrand L.L.P. as the Company's independent accountants for the fiscal
year ended December 28, 1995. The results were as follows:
Election of Directors For Against Abstaining
- --------------------- ----------- --------- ----------
Robert N. Dangremond 12,093,097 80,437 299,146
Avram A. Glazer 12,108,450 65,084 299,146
Malcolm I. Glazer 12,108,950 64,584 299,146
F. Edward Gustafson 12,136,930 36,604 299,146
Michael E. Heisley 12,113,889 59,645 299,146
Donald P. Kelly 12,094,297 79,237 299,146
Gregory R. Page 12,138,732 34,802 299,146
Mark D. Senkpiel 10,980,980 1,465,222 26,478
Ratification of 1993
Stock Option Plan For Against Abstaining
- -------------------- ----------- ---------- ----------
12,273,561 175,944 23,175
Ratification of Appointment
of Coopers & Lybrand For Against Abstaining
- --------------------------- ----------- ---------- ----------
12,442,506 25,122 5,052
There were no broker non-votes on any of the matters presented.
Item 5 - Other Information
-----------------
None.
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K
On February 17, 1995 the Company filed a Form 8-K to file a copy of
its Amended and Restated By-Laws.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENVIRODYNE INDUSTRIES, INC.
---------------------------
Registrant
By: /s/
----------------------------
John S. Corcoran
Executive Vice President and
Chief Financial Officer
(Duly authorized officer
and principal financial
officer of the registrant)
Date: May 12, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-START> DEC-30-1994
<PERIOD-END> MAR-30-1995
<CASH> 7,209,000
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<RECEIVABLES> 91,453,000
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<OTHER-SE> 127,358,000
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