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
For the quarterly period ended September 24, 1998
------------------
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
----------
VISKASE COMPANIES, INC.
-----------------------------------------------------
(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.)
6855 West 65th Street, Chicago, Illinois 60638
- -------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 496-4200
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
------ ------
As of November 6, 1998, there were 14,859,467 shares
outstanding of the registrant's Common Stock, $.01 par value.
Page 1 of 34 Pages
INDEX TO FINANCIAL STATEMENTS
VISKASE COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets at September 24, 1998 (unaudited)
and December 25, 1997 4
Unaudited consolidated statements of operations for the
three months ended September 24, 1998 and September 25,
1997 and for the nine months ended September 24, 1998
and September 25, 1997 5
Unaudited consolidated statements of cash flows for the
nine months ended September 24, 1998
and September 25, 1997 6
Notes to consolidated financial statements 7
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets at September 24, 1998 (unaudited)
and December 25, 1997 22
Unaudited consolidated statements of operations for
the three months ended September 24, 1998 and
September 25, 1997 and for the nine months ended
September 24, 1998 and September 25, 1997 23
Unaudited consolidated statements of cash flows
for the nine months ended September 24, 1998
and September 25, 1997 24
Notes to consolidated financial statements 25
<PAGE>
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 25, 1997 (1997 Form 10-K). These quarterly financial
statements should be read in conjunction with the financial statements
and the notes thereto included in the 1997 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.
The condensed consolidated balance sheet as of December 25, 1997 was
derived from the audited consolidated financial statements in the
Company's annual report on Form 10-K.
Reported interim results of operations are based in part on estimates
which may be subject to year-end adjustments. In addition, these
quarterly results of operations are not necessarily indicative of those
expected for the year.
<PAGE>
<PAGE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 24, December 25,
1998 1997
------------- -------------
(unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 17,559 $ 24,407
Receivables, net 50,265 75,039
Inventories 97,295 97,802
Other current assets 26,218 25,286
-------- --------
Total current assets 191,337 222,534
Property, plant and equipment,
including those under capital leases 534,418 580,981
Less accumulated depreciation
and amortization 164,075 145,855
-------- --------
Property, plant and equipment, net 370,343 435,126
Deferred financing costs, net 1,514 4,574
Other assets 35,172 39,193
Excess reorganization value, net 112,426
-------- --------
Total assets $598,366 $813,853
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current portion
of long-term debt and obligations
under capital leases $ 71,013 $ 12,880
Accounts payable 28,423 41,734
Accrued liabilities 128,872 71,589
Current deferred income taxes 10,516 10,516
-------- --------
Total current liabilities 238,824 136,719
Long-term debt including obligations
under capital leases 334,860 511,183
Accrued employee benefits 48,211 48,521
Deferred and noncurrent income taxes 22,113 26,510
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
14,851,152 shares issued and
outstanding at September 24, 1998 and
14,753,442 shares at December 25, 1997 149 148
Paid in capital 136,681 136,183
Accumulated (deficit) (187,200) (48,458)
Cumulative foreign currency
translation adjustments 4,748 3,098
Unearned restricted stock issued
for future service (20) (51)
-------- --------
Total stockholders' equity (45,642) 90,920
-------- --------
Total liabilities and stockholders' equity $598,366 $813,853
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended September Ended September Ended September Ended September
24, 1998 25, 1997 24, 1998 25, 1997
--------------- -------------- -------------- ----------------
(in thousands, except for number of shares and per share amounts)
<S> <C> <C> <C> <C>
NET SALES $102,567 $125,682 $309,233 $377,287
COSTS AND EXPENSES
Cost of sales 76,629 92,900 229,177 277,655
Selling, general
and administrative 22,164 24,376 65,813 70,552
Amortization of intangibles
and excess reorganization value 3,469 3,566 10,408 10,598
Unusual charge 148,569 3,500 150,069 3,500
-------- -------- -------- --------
OPERATING INCOME (LOSS) (148,264) 1,340 (146,234) 14,982
Interest income 283 97 585 855
Interest expense 12,461 13,902 40,488 42,255
Other expense, net 374 296 840 1,593
-------- -------- -------- --------
(LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (160,816) (12,761) (186,977) (28,011)
Income tax (benefit) (10,714) (8,393) (19,252) (16,128)
-------- -------- -------- --------
NET (LOSS) FROM CONTINUING
OPERATIONS (150,102) (4,368) (167,725) (11,883)
DISCONTINUED OPERATIONS:
Income from discontinued operations
net of income taxes (Note 5) 264 615 320 1,072
Gain on sale of discontinued
operations net of income tax
benefit of $23,667 and $22,669 37,016 35,456
-------- -------- -------- --------
NET (LOSS) BEFORE
EXTRAORDINARY ITEM (112,822) (3,753) (131,949) (10,811)
Extraordinary (loss)
on early extinguishment of debt
net of income tax benefit of $4,343 (6,793) (6,793)
-------- -------- -------- --------
NET (LOSS) $(119,615) $(3,753) $(138,742) $(10,811)
========= ======== ========= ========
WEIGHTED AVERAGE COMMON
SHARES - BASIC AND DILUTED 14,846,420 14,645,809 14,812,897 14,587,810
========== ========== ========== ==========
PER SHARE AMOUNTS:
EARNINGS (LOSS) PER SHARE
- basic and diluted
Continuing operations $(10.11) $(.30) $(11.32) $(.81)
Discontinued operations:
Income from discontinued operations .02 .04 .02 .07
Gain on sale of discontinued operations 2.49 2.39
-------- -------- -------- --------
Net (loss) before extraordinary item (7.60) (.26) (8.91) (.74)
Extraordinary (loss) (.46) (.46)
-------- -------- -------- --------
NET (LOSS) $(8.06) $(.26) $(9.37) $(.74)
======== ======== ======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
September 24, September 25,
1998 1997
------------- -------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(138,742) $(10,811)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization under capital leases 29,808 32,024
Amortization of intangibles and excess
reorganization value 10,408 12,064
Amortization of deferred financing fees and discount 1,449 1,298
(Decrease) in deferred and
noncurrent income taxes (1,952) (17,392)
Foreign currency transaction loss (gain) (155) 1,231
(Gain) on disposition of assets (58,221) (928)
Bad debt provision 740 222
Impairment loss excess reorganization 91,169
Extraordinary loss on debt extinguishment 11,136
Changes in operating assets and liabilities:
Accounts receivable 17,084 (1,033)
Inventories (20,110) (9,171)
Other current assets (3,353) (5,833)
Accounts payable and accrued liabilities 49,110 6,116
Other (10,103) (202)
-------- --------
Total adjustments 117,010 18,396
-------- --------
Net cash provided by (used in) operating activities (21,732) 7,585
Cash flows from investing activities:
Capital expenditures (24,028) (36,036)
Proceeds from disposition of assets 163,758 11,873
-------- --------
Net cash provided by (used in) investing activities 139,730 (24,163)
Cash flows from financing activities:
Issuance of common stock 530 813
Deferred financing costs (604) (522)
Proceeds from revolving loan and long-term
borrowings 1,475 314
Repayment of revolving loan, long-term borrowings
and capital lease obligation (117,178) (8,043)
Premium on early extinguishment of debt (8,927)
-------- --------
Net cash (used in) financing activities (124,704) (7,438)
Effect of currency exchange rate changes on cash (142) (1,006)
-------- --------
Net (decrease) in cash and equivalents (6,848) (25,022)
Cash and equivalents at beginning of period 24,407 41,794
-------- --------
Cash and equivalents at end of period $ 17,559 $ 16,772
======== ========
- ----------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $36,013 $33,706
Income taxes paid $ 4,831 $ 3,908
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES (dollars in thousands)
Inventories consisted of:
September December
24, 1998 25, 1997
---------- ----------
Raw materials $11,446 $16,847
Work in process 36,411 29,297
Finished products 49,438 51,658
------- -------
$97,295 $97,802
======= =======
Approximately 57% of the inventories at September 24, 1998 were valued at
Last-In, First-Out (LIFO). These LIFO values exceeded current manufacturing
cost by approximately $6.3 million at September 24, 1998.
2. DEBT OBLIGATIONS (dollars in thousands)
Outstanding short-term and long-term debt consisted of:
September December
24, 1998 25, 1997
---------- ----------
Short-term debt, current maturity
of long-term debt, and capital
lease obligation:
12% Senior Secured Notes $55,000
Current maturity of Viskase
Capital Lease Obligation 13,031 $ 9,675
Current maturity of Viskase
Limited Term Loan (3.2%) 1,753 1,629
Other 1,229 1,576
-------- --------
Total short-term debt $71,013 $12,880
======= =======
Long-term debt:
12% Senior Secured Notes $160,000
10.25% Senior Notes due 2001 $219,262 219,262
Viskase Capital Lease Obligation 111,842 124,873
Viskase Limited Term Loan (3.2%) 1,721 2,443
Other 2,035 4,605
-------- --------
Total long-term debt $334,860 $511,183
======== ========
On August 24, 1998, the Company redeemed $105.0 million of the aggregate
principal amount of its 12% Senior Secured Notes using proceeds from the
Clear Shield National, Inc. (Clear Shield) divestiture. The notes were
redeemed at approximately 108.5% of principal amount, plus accrued interest
to the date of redemption. The Company recognized an extraordinary after-tax
loss of $6.8 million on the partial redemption of its 12% Senior Secured
Notes. The extraordinary loss is comprised of $8.9 million of yield
maintenance premiums and $2.2 million write-off of deferred debt issuance
costs; net of a $4.3 million income tax benefit. The remaining $55.0 million
of principal outstanding on the 12% Senior Secured Notes is due and payable
at par on June 15, 1999.
3. CONTINGENCIES (dollars in thousands)
In late 1993, Viskase commenced a legal action against American National Can
Company (ANC) in Federal District Court for the Northern District of
Illinois, Eastern Division, 93C7651. Viskase claimed that ANC's use of two
different very low density polyethylene plastic resins in the manufacture of
ANC's multi-layer barrier shrink film products was infringing various Viskase
patents relating to multi-layer barrier plastic films used for fresh red
meat, processed meat and poultry product applications. In November 1996,
after a three-week trial, a jury found that ANC had willfully infringed
Viskase's patents and awarded Viskase $102.4 million in compensatory damages.
The Court also entered an order permanently enjoining ANC from making or
selling infringing products.
In September 1997, the Court set aside the jury verdict in part and ordered
a retrial on certain issues. The Court upheld the jury finding on the
validity of all of Viskase's patents and the jury finding that ANC had
willfully infringed Viskase's patents by ANC's use of Dow Chemical Company's
"Attane" brand polyethylene plastic resin in ANC's products. However, the
Court ordered a new trial on the issue of whether ANC's use of Dow Chemical
Company's "Affinity" brand polyethylene plastic resin infringed Viskase's
patents and whether such conduct was willful. Because the jury rendered one
general damage verdict, the Court ordered a retrial of all damage issues. By
operation of the Court's order, the injunction in respect of ANC's future use
of the "Affinity" brand resin was removed.
On August 19, 1998, the Court granted Viskase's motion for partial summary
judgment finding that ANC's use of the "Affinity" brand resin infringed
Viskase's patents. The Court also reinstated the permanent injunction. Patent
validity and infringement having been established, the remaining issues for
trial are whether ANC willfully infringed Viskase's patents by using
"Affinity" brand resin and the determination of the amount of compensatory
damages. Viskase has filed a motion to have the jury verdict as to
compensatory damages reinstated. The motion has been fully briefed and the
parties are awaiting the Court's ruling. If the motion is not granted, the
Company expects the trial on damages to occur in the first quarter of 1999.
In addition, ANC has challenged two of the five Viskase patents in suit by
filing requests for reexamination with the United States Patent and Trademark
Office (USPTO). With respect to the first request for reexamination, on
September 25, 1998, the USPTO, after initially rejecting Viskase's claims,
gave notice of its intent to reissue Viskase's patent in its entirety. With
respect to the second request for reexamination, the USPTO has preliminarily
rejected Viskase's claims under another patent. Viskase is preparing its
response. If the USPTO ultimately disallows the claims of the second Viskase
patent, the effect upon the Court action will not be significant.
The Company expects ANC to vigorously contest this matter in the Court and the
USPTO and to appeal any final judgment. No part of the pending claims has been
recorded in the Company's financial statements. Through September 24, 1998,
$4,631 in patent defense costs had been accrued and capitalized.
In March 1997 Viskase Corporation received a subpoena from the Antitrust
Division of the United States Department of Justice relating to a grand jury
investigation of the sausage casings industry. Viskase Corporation is
cooperating fully with the investigation.
The Company and its subsidiaries are involved in various legal proceedings
arising out of their business and other environmental matters, none of which
is expected to have a material adverse effect upon results of operations,
cash flows or financial position.
4. UNUSUAL CHARGE (dollars in millions)
During the third quarter, due to the business conditions leading to the
Viskase plan of restructuring, the Company evaluated the recoverability of
long-lived assets including property, plant and equipment, patents and excess
reorganization. Based upon the analysis, the Company recognized an impairment
because the estimated undiscounted future cash flows derived from long-lived
assets were determined to be less than their carrying value. The amount of
the impairment was calculated using the present value of the Company's
estimated future net cash flows to determine the assets' fair value. Based on
this analysis, an impairment charge of $91.2 million for excess
reorganization and $7.3 million for the write-down of the Chicago facility
was taken. In addition, the Viskase plan of restructuring included charges
for the decommissioning of the Chicago plant and the decommissioning of some
of its foreign operations.
The Company recognized a third quarter unusual charge of $148.6 million
consisting of the following:
Impairment of excess reorganization value $ 91.2
Write-down of assets to net realizable value 7.3
Cash severance and decommissioning costs 6.0
Write-down of Chicago plant assets 32.8
Write-down of spare parts 1.5
Write-down of inventory 1.5
Allowance for shutdown of foreign operations 8.3
------
Unusual Charge: Third Quarter 1998 148.6
Restructuring Reserve: Second Quarter 1998 1.5
------
Unusual Charge: Nine Months 1998 $150.1
======
During the third quarter, cash provisions to the reserve were $.7 million. A
restructuring reserve of $58.2 is included in accrued liabilities on the
balance sheet.
5. DISCONTINUED OPERATIONS (dollars in thousands)
In June 1998 the Company's Board of Directors agreed to sell the Clear Shield
and Sandusky Plastics, Inc. (Sandusky) subsidiaries. Sandusky was sold on
June 12, 1998 and Clear Shield was sold on July 24, 1998. Accordingly, the
operating results from both subsidiaries have been segregated from continuing
operations and reported as a separate line item, Results of Discontinued
Operations, on the Statements of Operations.
<PAGE>
<PAGE>
Operating results from discontinued operations are as follows:
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended September Ended September Ended September Ended September
24, 1998 25, 1997 24, 1998 25, 1997
--------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Net sales $5,536 $29,322 $62,317 $88,785
Costs and expenses
Cost of sales 4,176 23,434 50,810 72,406
Selling, general and administrative 725 4,158 9,457 12,182
Amortization of intangibles and
excess reorganization value 136 400 863 1,466
------ ------- ------- -------
Operating income 499 1,330 1,187 2,731
Interest income
Interest expense 7 25 50 80
Other expense (income), net (12) 67 91 221
------ ------- ------- -------
Income from discontinued
operations before taxes 504 1,238 1,046 2,430
Income tax provision 240 623 726 1,358
------ ------- ------- -------
Net Income from discontinued
operations $ 264 $ 615 $ 320 $ 1,072
====== ======= ======= =======
</TABLE>
<PAGE>
The net assets of the discontinued operations included in the December 25,
1997 Balance Sheet consisted of the following:
December 25, 1997
-----------------
Accounts receivable, net $ 9,731
Inventories 17,427
Other current assets 2,782
--------
Total current assets 29,940
Property, plant and equipment, net 61,805
Long-term assets 15,128
--------
Total assets 106,873
Accounts payable and other
current liabilities 9,802
Short-term debt 558
--------
Total current liabilities 10,360
Long-term debt and lease obligations 1,956
--------
Total liabilities 12,316
Net Assets $ 94,557
========
6. COMPREHENSIVE INCOME (dollars in thousands)
The Financial Accounting Standard Board (SFAS) established Statement No. 130,
"Reporting Comprehensive Income." This pronouncement established new
standards for reporting comprehensive income and its components; however, the
adoption of SFAS No. 130 has had no effect on the Company's net income or
shareholders' equity. For the Company, the difference between net income, as
historically reported in the statements of consolidated income, and
comprehensive income is foreign currency translation recorded in
stockholders' equity. Comprehensive income, net of tax, for the first nine
months and third quarter of 1998 was $(137,736) and $(118,444), respectively,
and for comparable periods in 1997 was $(13,865) and $(4,375), respectively.
7. EARNINGS PER SHARE
In February 1997 the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which became effective for both interim and
annual financial statement periods ending after December 15, 1997. As
required by this Statement, the Company adopted the new standards for
computing and presenting earnings per share (EPS) in fiscal 1997, and for all
period earnings per share data presented. Following are the reconciliations
of the numerators and denominators of the basic and diluted EPS.
<PAGE>
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended September Ended September Ended September Ended September
24, 1998 25, 1997 24, 1998 25, 1997
--------------- -------------- -------------- ----------------
(in thousands, except for weighted average shares outstanding)
<S> <C> <C> <C> <C>
NUMERATOR):
Net (loss) available
to common stockholders:
From continuing operations: $(150,102) $(4,368) $(167,725) $(11,883)
Discontinued operations:
Income from discontinued
operations: 264 615 320 1,072
Gain on disposal 37,016 35,456
--------- ------- --------- --------
Net (loss) before
extraordinary item (112,822) (3,753) (131,949) (10,811)
Extraordinary (loss) (6,793) (6,793)
--------- ------- --------- --------
Net loss available to common
stockholders for basic and
diluted EPS $(119,615) $(3,753) $(138,742) $(10,811)
========= ======= ========= ========
DENOMINATOR:
Weighted average shares
outstanding
for basic EPS 14,846,420 14,645,809 14,812,897 14,587,810
Effect of dilutive securities 0 0 0 0
---------- ---------- ---------- ----------
Weighted average shares
outstanding
for diluted EPS 14,846,420 14,645,809 14,812,897 14,587,810
========== ========== ========== ==========
</TABLE>
Common stock equivalents are excluded from the loss per share calculations
as the result is antidilutive since the numerator is a loss from continuing
operations.
<PAGE>
8. ACCOUNTING STANDARDS
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS No. 131), which will be effective for fiscal
years beginning after December 15, 1997. SFAS No. 131 specifies revised
guidelines for determining an entity's operating segments and the type and
level of financial information to be disclosed. Management believes that
adoption of SFAS No. 131 will not have a significant effect on the Company's
financial statements.
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits" (SFAS No. 132), which will be effective for
fiscal years beginning after December 15, 1997. SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits,
requires additional information on changes in the benefit obligation and fair
values of plan assets, and eliminates certain disclosures that are no longer
useful. Management believes the adoption of SFAS No. 132 will not have a
significant effect on the Company's financial statements.
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS No. 133), which will be effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires recognition of all derivative instruments
as either assets or liabilities in the statement of financial condition and
the measurement of those instruments at fair value. Management believes the
adoption of SFAS No. 133 will not have a significant effect on the Company's
financial statements.
9. SUBSIDIARY GUARANTORS
The Company's payment obligations under the Senior Secured Notes are fully
and unconditionally guaranteed on a joint and several basis (collectively,
Subsidiary Guarantees) by Viskase Corporation, Viskase Holding Corporation,
Viskase Sales Corporation, and Viskase Films, Inc., each a direct or indirect
wholly owned subsidiary of Viskase Companies, Inc. and each a "Guarantor."
These subsidiaries represent substantially all of the operations of Viskase
Companies, Inc. conducted in the United States. The remaining subsidiaries of
Viskase Companies, Inc. generally are foreign subsidiaries or otherwise
relate to foreign operations.
The obligations of each Guarantor under its Subsidiary Guarantee are the senior
obligation of such Guarantor, and are collateralized, subject to certain
permitted liens, by substantially all of the domestic assets of the Guarantor
and, in the case of Viskase Holding Corporation, by a pledge of 65% of the cap-
ital stock of Viskase Europe Limited. The Subsidiary Guarantees and security are
shared with the lenders under the Amended and Restated Credit Agreement on a
pari passu basis and are subject to the priority interest of the holders of
obligations under the Letter of Credit Facility, each pursuant to an
intercreditor agreement.
The following consolidating condensed financial data illustrate the
composition of the combined Guarantors. No single Guarantor has any signifi-
cant legal restrictions on the ability of investors or creditors to obtain
access to its assets in the event of default on the Subsidiary Guarantee
other than its subordination to senior indebtedness described above. Separate
financial statements of the Guarantors are not presented because management
has determined that these would not be material to investors. Based on the
book value and the market value of the pledged securities of Viskase
Corporation, Viskase Sales Corporation and Viskase Films, Inc., these
Subsidiary Guarantors do not constitute a substantial portion of the
collateral and, therefore, the separate financial statements of these
subsidiaries have not been provided. Separate unaudited interim financial
statements of Viskase Holding Corporation are being filed within this
quarterly report.
Investments in subsidiaries are accounted for by the parent and Subsidiary
Guarantors on the equity method for purposes of the supplemental
consolidating presentation. Earnings of subsidiaries are therefore reflected
in the parent's and Subsidiary Guarantors' investment accounts and earnings.
The principal elimination entries eliminate investments in subsidiaries and
intercompany balances and transactions.
<PAGE>
<PAGE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
SEPTEMBER 24, 1998
(unaudited)
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations (1) Total
-------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 8,615 $ 778 $ 8,166 $ 17,559
Receivables and advances, net 97,997 45,745 38,810 $(132,287) 50,265
Inventories 55,411 43,460 (1,576) 97,295
Other current assets 4,835 11,408 9,975 26,218
--------- --------- -------- --------- --------
Total current assets 111,447 113,342 100,411 (133,863) 191,337
Property, plant and equipment including
those under capital lease 149 380,237 154,032 534,418
Less accumulated depreciation
and amortization 140 117,417 46,518 164,075
--------- --------- -------- --------- --------
Property, plant and equipment, net 9 262,820 107,514 370,343
Deferred financing costs 1,190 324 1,514
Other assets 33,126 2,046 35,172
Investment in subsidiaries (118,790) 92,106 26,684
Excess reorganization value
--------- --------- -------- --------- --------
Total assets $ (6,144) $501,394 $210,295 $(107,179) $598,366
========= ========= ======== ========= ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current
portion of long-term debt and
obligation under capital lease $ 55,000 $ 13,031 $ 2,982 $ 71,013
Accounts payable and advances 35 115,304 45,371 $(132,287) 28,423
Accrued liabilities 11,716 96,232 20,924 128,872
Current deferred taxes 10,581 (65) 10,516
--------- --------- -------- --------- --------
Total current liabilities 66,751 235,148 69,212 (132,287) 238,824
Long-term debt including obligation
under capital lease 219,262 111,842 3,756 334,860
Accrued employee benefits 45,461 2,750 48,211
Deferred and noncurrent income taxes 28,108 (26,721) 20,726 22,113
Intercompany loans (274,623) 264,994 9,629
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
14,851,152 shares issued and
outstanding 149 1 32,739 (32,740) 149
Paid in capital 136,681 79,898 88,359 (168,257) 136,681
Accumulated earnings (deficit) (187,200) (213,917) (21,564) 235,481 (187,200)
Cumulative foreign currency
translation adjustments 4,748 4,688 4,688 (9,376) 4,748
Unearned restricted stock issued
for future services (20) (20)
--------- --------- -------- --------- --------
Total stockholders' equity (45,642) (129,330) 104,222 25,108 (45,642)
--------- --------- -------- --------- --------
Total liabilities and
stockholders' equity $ (6,144) $ 501,394 $210,295 $(107,179) $598,366
========= ========= ======== ========= ========
<FN>
(1) Elimination of intercompany receivables, payables and investment accounts.
</TABLE>
<PAGE>
<PAGE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
DECEMBER 25, 1997
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations (1) Total
-------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 19,004 $ 865 $ 4,538 $ 24,407
Receivables and advances, net 59,223 58,201 44,221 $ (86,606) 75,039
Inventories 63,967 35,029 (1,194) 97,802
Other current assets 1,746 12,612 10,928 25,286
--------- --------- -------- --------- --------
Total current assets 79,973 135,645 94,716 (87,800) 222,534
Property, plant and equipment including
those under capital lease 145 442,506 138,330 580,981
Less accumulated depreciation
and amortization 119 113,672 32,064 145,855
--------- --------- -------- --------- --------
Property, plant and equipment, net 26 328,834 106,266 435,126
Deferred financing costs 4,100 474 4,574
Other assets 36,779 2,414 39,193
Investment in subsidiaries 53,619 120,824 (174,443)
Excess reorganization value 79,595 32,831 112,426
--------- --------- -------- --------- --------
Total assets $137,718 $ 701,677 $236,701 $(262,243) $813,853
========= ========= ======== ========= ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current
portion of long-term debt and
obligation under capital lease $ 10,233 $ 2,647 $ 12,880
Accounts payable and advances $ 121 86,514 41,706 $ (86,607) 41,734
Accrued liabilities 5,836 46,595 19,158 71,589
Current deferred taxes 10,581 (65) 10,516
--------- --------- -------- --------- --------
Total current liabilities 5,957 153,923 63,446 (86,607) 136,719
Long-term debt including obligation
under capital lease 379,262 126,830 5,091 511,183
Accrued employee benefits 46,018 2,503 48,521
Deferred and noncurrent income taxes 13,084 (7,396) 20,822 26,510
Intercompany loans (1) (351,505) 339,995 11,510
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
14,753,442 shares issued and
outstanding 148 3 32,738 (32,741) 148
Paid in capital 136,183 88,816 88,280 (177,096) 136,183
Accumulated earnings (deficit) (48,458) (49,550) 9,273 40,277 (48,458)
Cumulative foreign currency
translation adjustments 3,098 3,038 3,038 (6,076) 3,098
Unearned restricted stock issued
for future services (51) (51)
--------- --------- -------- --------- --------
Total stockholders' equity 90,920 42,307 133,329 (175,636) 90,920
--------- --------- -------- --------- --------
Total liabilities and
stockholders equity $137,718 $701,677 $236,701 $(262,243) $813,853
========= ========= ======== ========= ========
<FN>
(1) Elimination of intercompany receivables, payables and investment accounts.
</TABLE>
<PAGE>
<PAGE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR NINE MONTHS ENDED SEPTEMBER 24, 1998
(unaudited)
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
NET SALES $ 189,517 $150,852 $(31,136) $309,233
COSTS AND EXPENSES
Cost of sales 146,282 113,700 (30,805) 229,177
Selling, general and administrative $3,158 34,460 28,195 65,813
Amortization of intangibles and
excess reorganization value 8,146 2,262 10,408
Unusual charge 119,436 30,633 150,069
--------- --------- -------- --------- --------
OPERATING INCOME (LOSS) (3,158) (118,807) (23,938) (331) (146,234)
Interest income 372 213 585
Interest expense 31,640 7,745 1,103 40,488
Intercompany interest expense (income) (27,367) 25,691 1,676
Management fees (income) (3,286) 2,375 911
Other expense (income), net (53) (254) 1,147 840
Equity loss (income) in subsidiary 165,136 30,399 (195,535)
--------- --------- -------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES (168,856) (184,763) (28,562) 195,204 (186,977)
Income tax provision (benefit) (1,451) (19,638) 1,837 (19,252)
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS (167,405) (165,125) (30,399) 195,204 (167,725)
DISCONTINUED OPERATIONS:
Income from operations net of an income tax
provision of $726 320 320
Gain on disposal net of an income tax provision
of $22,669 35,456 35,456
--------- --------- -------- --------- --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (131,949) (164,805) (30,399) 195,204 (131,949)
EXTRAORDINARY (LOSS):
on early extinguishment of debt
net of income tax benefit of $4,343 (6,793) (6,793)
--------- --------- -------- --------- --------
NET INCOME (LOSS) $(138,742) $(164,805) $(30,399) $195,204 $(138,742)
========= ========= ======== ========= ========
</TABLE>
<PAGE>
<PAGE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED SEPTEMBER 24, 1998
(unaudited)
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
NET SALES $ 64,261 $50,600 $(12,294) $102,567
COSTS AND EXPENSES
Cost of sales 50,833 37,582 (11,786) 76,629
Selling, general and administrative $ 1,034 11,425 9,705 22,164
Amortization of intangibles and
excess reorganization value 2,715 754 3,469
Unusual charge 117,936 30,633 148,569
--------- --------- -------- --------- --------
OPERATING INCOME (LOSS) (1,034) (118,648) (28,074) (508) (148,264)
Interest income 146 137 283
Interest expense 9,441 2,710 310 12,461
Intercompany interest expense (income) (8,096) 6,999 1,097
Management fees (income) (949) 645 304
Other expense (income), net (117) 68 421 2 374
Equity loss (income) in subsidiary 149,125 30,754 (179,879)
--------- --------- -------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES (150,292) (159,824) (30,069) 179,369 (160,816)
Income tax provision (benefit) (456) (10,943) 685 (10,714)
--------- --------- -------- --------- --------
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS (149,836) (148,881) (30,754) 179,369 (150,102)
DISCONTINUED OPERATIONS:
Income from operations net of an income tax
provision of $240 264 264
Gain on disposal net of an income tax benefit
of $23,667 37,016 37,016
--------- --------- -------- --------- --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (112,820) (148,617) (30,754) 179,369 (112,822)
EXTRAORDINARY (LOSS):
on early extinguishment of debt
net of income tax benefit of $4,343 (6,793) (6,793)
--------- --------- -------- --------- --------
NET INCOME (LOSS) $(119,613) $(148,617) $(30,754) $179,369 $(119,615)
========= ========= ======== ========= ========
</TABLE>
<PAGE>
<PAGE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR NINE MONTHS ENDED SEPTEMBER 25, 1997
(unaudited)
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
NET SALES $223,547 $184,711 $(30,971) $377,287
COSTS AND EXPENSES
Cost of sales 168,255 140,313 (30,913) 277,655
Selling, general and administrative $3,735 33,525 33,292 70,552
Amortization of intangibles and
excess reorganization value 8,200 2,398 10,598
Unusual charge 3,500 3,500
--------- --------- -------- --------- --------
OPERATING INCOME (LOSS) (3,735) 10,067 8,708 (58) 14,982
Interest income 584 271 855
Interest expense 32,410 8,687 1,158 42,255
Intercompany interest expense (income) (30,380) 28,135 2,245
Management fees (income) (3,393) 2,615 778
Other expense (income), net 1,392 (42) 243 1,593
Equity loss (income) in subsidiary 8,868 (2,407) (6,461)
--------- --------- -------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES (12,048) (26,921) 4,555 6,403 (28,011)
Income tax provision (benefit) (1,237) (17,039) 2,148 (16,128)
--------- --------- -------- --------- --------
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS (10,811) (9,882) 2,407 6,403 (11,883)
DISCONTINUED OPERATIONS:
Income from discontinued operations
net of an income tax provision of $1,358 1,072 1,072
--------- --------- -------- --------- --------
NET INCOME (LOSS) $(10,811) $(8,810) $2,407 $6,403 $(10,811)
========= ========= ======== ========= ========
</TABLE>
<PAGE>
<PAGE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED SEPTEMBER 25, 1997
(unaudited)
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
NET SALES $75,543 $59,905 $(9,766) $125,682
COSTS AND EXPENSES
Cost of sales 57,570 45,164 (9,834) 92,900
Selling, general and administrative $1,320 12,100 10,956 24,376
Amortization of intangibles and
excess reorganization value 2,733 833 3,566
Unusual charge 3,500 3,500
--------- --------- -------- --------- --------
OPERATING INCOME (LOSS) (1,320) (360) 2,952 68 1,340
Interest income 93 4 97
Interest expense 10,697 2,853 352 13,902
Intercompany interest expense (income) (10,145) 9,435 710
Management fees (income) (1,050) 854 196
Other expense (income), net 529 1,031 (1,264) 296
Equity loss (income) in subsidiary 2,983 (1,727) (1,256)
--------- --------- -------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES (4,241) (12,806) 2,962 1,324 (12,761)
Income tax provision (benefit) (488) (9,139) 1,234 (8,393)
--------- --------- -------- --------- --------
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS (3,753) (3,667) 1,728 1,324 (4,368)
DISCONTINUED OPERATIONS:
Income from discontinued operations
net of an income tax provision of $623 615 615
--------- --------- -------- --------- --------
NET INCOME (LOSS) $(3,753) $(3,052) $ 1,728 $1,324 $(3,753)
========= ========= ======== ========= ========
</TABLE>
<PAGE>
<PAGE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
FOR NINE MONTHS ENDED SEPTEMBER 24, 1998
(unaudited)
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(119,303) $84,554 $13,017 $(21,732)
Cash flows from investing activities:
Capital expenditures (4) (17,670) (6,354) (24,028)
Proceeds from disposition of assets 146,032 17,711 15 163,758
--------- --------- -------- --------- --------
Net cash provided by (used in)
investing activities 146,028 41 (6,339) 139,730
Cash flows from financing activities:
Issuance of common stock 530 530
Proceeds from revolving loan and
long-term borrowings 1,475 1,475
Deferred financing costs (604) (604)
Repayment of revolving loan,
long-term borrowings and
capital lease obligations (105,000) (9,676) (2,502) (117,178)
Premium on early extinguishment of debt (8,927) (8,927)
Increase (decrease) in Envirodyne loan 76,887 (75,006) (1,881)
--------- --------- -------- --------- --------
Net cash provided by (used in)
financing activities (37,114) (84,682) (2,908) (124,704)
Effect of currency exchange rate
changes on cash (142) (142)
--------- --------- -------- --------- --------
Net (decrease) in cash and equivalents (10,389) (87) 3,628 (6,848)
Cash and equivalents at beginning of period 19,004 865 4,538 24,407
--------- --------- -------- --------- --------
Cash and equivalents at end of period $ 8,615 $ 778 $ 8,166 $17,559
========= ========= ======== ========= ========
</TABLE>
<PAGE>
<PAGE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
FOR NINE MONTHS ENDED SEPTEMBER 25, 1997
(unaudited)
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(10,997) $31,008 $(12,426) $7,585
Cash flows from investing activities:
Capital expenditures (11) (26,285) (9,740) (36,036)
Proceeds from disposition of assets 1,151 10,722 11,873
--------- --------- -------- --------- --------
Net cash provided by (used in)
investing activities (11) (25,134) 982 (24,163)
Cash flows from financing activities:
Issuance of common stock 813 813
Proceeds from revolving loan and
long-term borrowings 314 314
Deferred financing costs (522) (522)
Repayment of revolving loan,
long-term borrowings and
capital lease obligations (7,047) (996) (8,043)
Increase (decrease) in Envirodyne loan (5,357) 5,357
--------- --------- -------- --------- --------
Net cash provided by (used in)
financing activities (5,066) (7,047) 4,675 (7,438)
Effect of currency exchange rate
changes on cash (1,006) (1,006)
--------- --------- -------- --------- --------
Net (decrease) in cash and equivalents (16,074) (1,173) (7,775) (25,022)
Cash and equivalents at beginning of period 25,785 (162) 16,171 41,794
--------- --------- -------- --------- --------
Cash and equivalents at end of period $ 9,711 $(1,335) $ 8,396 $16,772
========= ========= ======== ========= ========
</TABLE>
<PAGE>
<PAGE>
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
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 25, 1997 (1997 Form 10-K). These quarterly financial
statements should be read in conjunction with the financial statements
and the notes thereto included in the 1997 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.
The condensed consolidated balance sheet as of December 25, 1997 was
derived from the audited Viskase Holding Corporation's consolidated
financial statements included in Viskase Companies, Inc.'s annual report
on Form 10-K.
Reported interim results of operations are based in part on estimates
which may be subject to year-end adjustments. In addition, these
quarterly results of operations are not necessarily indicative of those
expected for the year.
<PAGE>
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 24, December 25,
1998 1997
------------- -------------
(unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 8,166 $ 4,538
Receivables, net 32,265 38,081
Receivables, affiliates 52,145 51,796
Inventories 43,460 35,029
Other current assets 9,896 10,928
--------- ---------
Total current assets 145,932 140,372
Property, plant and equipment
including those under capital lease 154,032 138,330
Less accumulated depreciation
and amortization 46,518 32,064
--------- ---------
Property, plant and equipment, net 107,514 106,266
Deferred financing costs 324 474
Other assets 2,046 2,414
Excess reorganization value 32,831
--------- ---------
Total assets $255,816 $282,357
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current
portion of long-term debt and obligation
under capital lease $ 2,982 $ 2,647
Accounts payable 10,967 15,438
Accounts payable and advances, affiliates 39,637 34,210
Accrued liabilities 20,924 19,158
Current deferred income taxes (65) (65)
--------- ---------
Total current liabilities 74,445 71,388
Long-term debt 3,756 5,091
Accrued employee benefits 2,750 2,503
Deferred and noncurrent income taxes 20,726 20,822
Intercompany loans 47,639 49,520
Commitments and contingencies
Stockholders' equity:
Common stock, $1.00 par value,
1,000 shares authorized;
100 shares issued and outstanding
Paid in capital 103,464 103,463
Accumulated (deficit) (1,688) 26,496
Cumulative foreign currency
translation adjustments 4,724 3,074
--------- ---------
Total stockholders' equity 106,500 133,033
--------- ---------
Total liabilities and
stockholders' equity $255,816 $282,357
========= =========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
/TABLE
<PAGE>
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended September Ended September Ended September Ended September
24, 1998 25, 1997 24, 1998 25, 1997
--------------- -------------- -------------- ----------------
(in thousands)
<S> <C> <C> <C> <C>
NET SALES $50,600 $59,905 $150,852 $184,711
COSTS AND EXPENSES
Cost of sales 37,582 45,164 113,700 140,313
Selling, general
and administrative 8,251 9,554 23,703 29,017
Amortization of intangibles
and excess reorganization value 754 833 2,262 2,398
Unusual charge 30,633 30,633
-------- ------- -------- --------
OPERATING INCOME (26,620) 4,354 (19,446) 12,983
Interest income 137 4 213 271
Interest expense 310 352 1,103 1,158
Intercompany interest expense 1,097 710 1,676 2,245
Management fees 304 196 911 778
Other expense (income), net 421 (1,264) 1,147 (757)
-------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (28,615) 4,364 (24,070) 9,830
Income tax provision 1,328 1,790 3,675 4,225
-------- ------- -------- --------
NET INCOME (LOSS) $(29,943) $ 2,574 $(27,745) $ 5,605
======== ======= ======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
September 24, September 25,
1998 1997
------------- -------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $(27,745) $ 5,605
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 8,070 7,488
Amortization of intangibles and excess
reorganization value 2,262 2,398
Amortization of deferred financing fees and discount 144 152
(Decrease) in deferred and
noncurrent income taxes 100 (254)
Loss (Gain) on disposition of assets 190 (878)
Bad debt provision 334 165
Impairment loss excess reorganization 30,633
Changes in operating assets and liabilities:
Accounts receivable 7,597 (3,360)
Accounts receivable, affiliates (8,520) (5,741)
Inventories (5,834) (492)
Other current assets 1,492 (691)
Accounts payable and accrued liabilities (3,320) (285)
Accounts payable, affiliates 7,614 (17,134)
Other (399)
-------- --------
Total adjustments 40,762 (19,031)
-------- --------
Net cash provided by (used in) operating activities 13,017 (13,426)
Cash flows from investing activities:
Capital expenditures (6,354) (9,740)
Proceeds from disposition of assets 15 11,722
-------- --------
Net cash provided by (used in) investing activities (6,339) 1,982
Cash flows from financing activities:
Proceeds from revolving loan and long-term borrowings 1,475 314
Repayment of revolving loan and long-term borrowings (2,502) (996)
Increase (decrease) in Envirodyne loan and advances (1,881) 5,357
-------- --------
Net cash provided by (used in) financing activities (2,908) 4,675
Effect of currency exchange rate changes on cash (142) (1,006)
-------- --------
Net (decrease) in cash and equivalents 3,628 (7,775)
Cash and equivalents at beginning of period 4,538 16,171
-------- --------
Cash and equivalents at end of period $ 8,166 $ 8,396
======== ========
- ------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $160 $186
Income taxes paid $3,125 $3,579
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
/TABLE
<PAGE>
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES (dollars in thousands)
Inventories consisted of:
September 24, December 25,
1998 1997
------------ -----------
Raw materials $ 3,585 $ 4,418
Work in process 13,736 10,511
Finished products 26,139 20,100
------- -------
$43,460 $35,029
======= =======
2. CONTINGENCIES (dollars in thousands)
In late 1993, Viskase commenced a legal action against American National Can
Company (ANC) in Federal District Court for the Northern District of
Illinois, Eastern Division, 93C7651. Viskase claimed that ANC's use of two
different very low density polyethylene plastic resins in the manufacture of
ANC's multi-layer barrier shrink film products was infringing various Viskase
patents relating to multi-layer barrier plastic films used for fresh red
meat, processed meat and poultry product applications. In November 1996,
after a three-week trial, a jury found that ANC had willfully infringed
Viskase's patents and awarded Viskase $102.4 million in compensatory damages.
The Court also entered an order permanently enjoining ANC from making or
selling infringing products.
In September 1997, the Court set aside the jury verdict in part and ordered
a retrial on certain issues. The Court upheld the jury finding on the
validity of all of Viskase's patents and the jury finding that ANC had
willfully infringed Viskase's patents by ANC's use of Dow Chemical Company's
"Attane" brand polyethylene plastic resin in ANC's products. However, the
Court ordered a new trial on the issue of whether ANC's use of Dow Chemical
Company's "Affinity" brand polyethylene plastic resin infringed Viskase's
patents and whether such conduct was willful. Because the jury rendered one
general damage verdict, the Court ordered a retrial of all damage issues. By
operation of the Court's order, the injunction in respect of ANC's future use
of the "Affinity" brand resin was removed.
On August 19, 1998, the Court granted Viskase's motion for partial summary
judgment finding that ANC's use of the "Affinity" brand resin infringed
Viskase's patents. The Court also reinstated the permanent injunction. Patent
validity and infringement having been established, the remaining issues for
trial are whether ANC willfully infringed Viskase's patents by using
"Affinity" brand resin and the determination of the amount of compensatory
damages. Viskase has filed a motion to have the jury verdict as to
compensatory damages reinstated. The motion has been fully briefed and the
parties are awaiting the Court's ruling. If the motion is not granted, the
Company expects the trial on damages to occur in the first quarter of 1999.
In addition, ANC has challenged two of the five Viskase patents in suit by
filing requests for reexamination with the United States Patent and Trademark
Office (USPTO). With respect to the first request for reexamination, on
September 25, 1998, the USPTO, after initially rejecting Viskase's claims,
gave notice of its intent to reissue Viskase's patent in its entirety. With
respect to the second request for reexamination, the USPTO has preliminarily
rejected Viskase's claim under another patent. Viskase is preparing its
response. If the USPTO ultimately disallows the claims of the second Viskase
patent, the effect upon the Court action will not be significant.
The Company expects ANC to vigorously contest this matter in the Court and the
USPTO and to appeal any final judgment. No part of the pending claims has been
recorded in the Company's financial statements. Through September 24, 1998,
$4,631 in patent defense costs had been accrued and capitalized.
In March 1997 Viskase Corporation received a subpoena from the Antitrust
Division of the United States Department of Justice relating to a grand jury
investigation of the sausage casings industry. Viskase Corporation is
cooperating fully with the investigation.
The Company and its subsidiaries are involved in various legal proceedings
arising out of their business and other environmental matters, none of which
is expected to have a material adverse effect upon results of operations,
cash flows or financial position.
3. ACCOUNTING STANDARDS
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS No. 131), which will be effective for fiscal
years beginning after December 15, 1997. SFAS No. 131 specifies revised
guidelines for determining an entity's operating segments and the type and
level of financial information to be disclosed. Management believes that
adoption of SFAS No. 131 will not have a significant effect on the Company's
financial statements.
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits" (SFAS No. 132), which will be effective for
fiscal years beginning after December 15, 1997. SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits,
requires additional information on changes in the benefit obligation and fair
values of plan assets, and eliminates certain disclosures that are no longer
useful. Management believes the adoption of SFAS No. 132 will not have a
significant effect on the Company's financial statements.
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS No. 133), which will be effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires recognition of all derivative instruments
as either assets or liabilities in the statement of financial condition and
the measurement of those instruments at fair value. Management believes the
adoption of SFAS No. 133 will not have a significant effect on the Company's
financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Results of Operations
- ---------------------
The Company's net sales from continuing operations for the first nine months
and third quarter of 1998 were $309.2 million and $102.6 million,
respectively, which represented decreases of 18.0% and 18.4%, respectively,
from comparable periods of 1997. After excluding the sales of both the
oriented polystyrene (OPS) business (which was sold in January 1997) and the
polyvinyl chloride (PVC) business (which was sold in December 1997) of $39.4
million and $13.7 million for the first nine months and third quarter of
1997, respectively, the effective decreases were 8.5% and 8.4%, respectively.
The decline in net sales is principally due to declines in casing volume in
both the domestic and European markets as a result of the effect of the
Company's strategy to increase casing prices and to adverse conditions in the
Russian and Southeast Asian economies.
Operating loss from continuing operations for the first nine months and third
quarter of 1998 was $146.2 million and $148.3 million, respectively. The
operating losses resulted primarily from a third quarter unusual charge
comprised of a $91.2 million excess reorganization impairment and a $57.4
million restructuring due to previously announced restructuring of Viskase'
worldwide operations, neither of which had a significant effect on cash flow.
The impairment and restructuring charges were the result of business
conditions leading to the Viskase plan of restructuring. (See Note 4.)
Net interest expense from continuing operations for the nine month period
totaled $39.9 million representing a decrease of $1.5 million from the first
nine months of 1997. The decrease is primarily due to interest savings from
the redemption of $105 million of the 12% Senior Secured Notes on August 24,
1998.
Other expense from continuing operations approximated $.8 million and $1.6
million for the first nine months of 1998 and 1997, respectively. The 1998
expense consists of losses on the disposition of assets and foreign exchange
losses. The 1997 expense consists principally of foreign exchange losses.
The extraordinary loss for the third quarter of 1998 of $6.8 million, net of
a tax benefit of $4.3 million, represents the loss on the early
extinguishment of $105 million of the 12% Senior Secured Notes. The
extraordinary loss before taxes is comprised of a $8.9 million prepayment
penalty and a $2.2 million write-off of the unamortized portion of financing
fees attributable to the debt.
The Company has entered into forward foreign exchange contracts to hedge
certain foreign currency transactions on a continuing basis for periods
consistent with its committed foreign exchange exposures. This practice seeks
to minimize the effect of foreign exchange rate movements on the Company's
operating results. The Company's hedging activities do not subject the
Company to additional exchange risk because gains and losses on these
contracts offset losses and gains on the transactions being hedged. The cash
flows from forward contracts are classified consistent with the cash flows
from the transactions or events being hedged.
The tax benefit for the first nine months of 1998 resulted from the benefit
of US losses partially offset by the provision related to income from foreign
subsidiaries. Due to the permanent differences in the US resulting from the
non-deductible write-off of the excess reorganization impairment and foreign
losses for which no tax benefit is provided, a benefit of $(19.3) million was
provided on a loss from continuing operations of $(187.0) million. The US tax
benefit is recorded as a reduction of the deferred tax liability and does not
result in a refund of income taxes.
Discontinued operations
- -----------------------
On June 8, 1998, the Company's Board of Directors approved the sale of two of
the Company's subsidiaries, Clear Shield and Sandusky. Accordingly, the
operating results of the two subsidiaries have been segregated from
continuing operations and reported as a separate line item on the income
statement under the heading Discontinued Operations. The Company has restated
its prior financial statements to present the operating results as
discontinued operations.
The sale of Sandusky and Clear Shield was completed on June 12, 1998 and July
24, 1998, respectively. A $35.5 million gain, net of taxes, was recognized on
these sales.
Other
- -----
In September 1997 the Company announced that it had retained Donaldson,
Lufkin and Jenrette Securities Corporation to assist the Board of Directors
in evaluating the Company's strategic alternatives. Such alternatives
included, among other things, sale of the entire company, sale of business
units or recapitalization. In June 1998, the Company sold its wholly owned
subsidiary Sandusky, and in July 1998 the Company sold its wholly owned
subsidiary Clear Shield. The Company is still reviewing strategic and
recapitalization alternatives available.
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS No. 131), which will be effective for fiscal
years beginning after December 15, 1997. SFAS No. 131 specifies revised
guidelines for determining an entity's operating segments and the type and
level of financial information to be disclosed. Management believes that
adoption of SFAS No. 131 will not have a significant effect on the Company's
financial statements.
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits" (SFAS No. 132), which will be effective for
fiscal years beginning after December 15, 1997. SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits,
requires additional information on changes in the benefit obligation and fair
values of plan assets, and eliminates certain disclosures that are no longer
useful. Management believes the adoption of SFAS No. 132 will not have a
significant effect on the Company's financial statements.
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS No. 133), which will be effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires recognition of all derivative instruments
as either assets or liabilities in the statement of financial condition and
the measurement of those instruments at fair value. Management believes the
adoption of SFAS No. 133 will not have a significant effect on the Company's
financial statements.
Liquidity and Capital Resources
- -------------------------------
Cash and equivalents decreased by $6.8 million during the nine months ended
September 24, 1998. Cash flows used in operating activities of $21.7 million
and financing activities of $124.7 million exceeded funds provided by
investing activities of $139.7 million. Cash flows used in operating
activities were principally attributable to the Company's loss from
operations and an increase in working capital usage offset by the effect of
depreciation, amortization, the write-off of the excess reorganization value
and the recognition of the restructuring reserve. Cash flows used in
financing activities were principally due to the repayment of the $105
million 12% Senior Secured Notes, the $8.9 million prepayment penalty on the
12% Senior Secured Notes repayment and a $9.7 million principal payment under
the GECC lease. Cash flows provided by investing activities consist
principally of capital expenditures for property, plant and equipment, net of
proceeds from the sale of Sandusky and Clear Shield.
The Company finances its working capital needs through a combination of
internally generated cash from operations and borrowings under its $30
million domestic Revolving Credit Facility and the residual proceeds from
previously completed asset sales. The availability of funds under the
Revolving Credit Facility is subject to the Company's compliance with certain
covenants (which are substantially similar to those included in the Indenture),
to borrowing base limitations measured by accounts receivable and inventory of
the Company and to reserves that may be established in the discretion of the
lenders. Currently, there are no borrowings under the $30 million domestic
Revolving Credit Facility.
The Company's Senior Secured Notes, Revolving Credit Facility and Letter of
Credit Facility contain a number of financial covenants that, among other
things, require the maintenance of a minimum level of tangible net worth,
maximum ratios of debt and senior debt to total capitalization, and a minimum
fixed charge coverage. As described in more detail below, the Company
solicited and has received the required consents from the holders of Senior
Secured Notes for an amendment to, and waiver under, the Indenture effective
as of June 25, 1998. In addition, the Company has amended and received a
similar waiver under the Amended and Restated Credit Agreement. The Company
determined that, as a result of the write-off of the excess reorganization
value, without the amendment and waiver, it would not have been in compliance
with the covenant level for the maximum level of debt to total
capitalization. The Company is currently in compliance with the amended
covenants under the Indenture and Amended and Restated Credit Agreement.
On July 24, 1998, the Company completed the divestiture of the capital stock of
Clear Shield. The aggregate purchase price for the capital stock was $140.0
million and is subject to a working capital adjustment. The gain, net of taxes,
was $37.0 million.
Concurrent with the Clear Shield divestiture, the Company mailed a notice of
redemption to holders of its 12% Senior Secured Notes to redeem $105 million of
aggregate principal amount of the $160 million outstanding together with accrued
interest payable and yield maintenance premium thereon. The notes were redeemed
on August 24, 1998 at a price of 108.5%. The Company used $116.3 million of the
proceeds for the redemption of the 12% Senior Secured Notes. In addition, the
remainder of the proceeds, after deducting taxes and transaction expenses, were
used to repay balances outstanding under the Company's Revolving Credit
Facility.
There are no significant restrictions on the Company's ability to transfer funds
among its operations under the terms of its principal debt agreements.
The Company anticipates that its current cash position, operating cash flows,
residual proceeds from completed asset sales and the available borrowings under
its Revolving Credit Facility will be sufficient to meet its operating expenses
and to service its interest payments on the Senior Secured Notes, the 10.25%
Notes and its other outstanding indebtedness. The Company will be required to
satisfy its $55 million mandatory redemption obligation with respect to the
Senior Secured Notes in June 1999. The Company expects that in order to make the
payment it will be required to pursue one or more alternative strategies, such
as refinancing of the 12% Senior Secured Notes or selling additional equity
capital. Additionally, the Company's 10.25% Notes, of which $219.3 million
principal amount is outstanding, will mature in December 2001. There can be no
assurance that any of these strategies will be effected on satisfactory terms,
if at all.
Capital expenditures for continuing operations for the first nine months of 1998
and 1997 totaled $24.0 million and $29.5 million, respectively. Capital
expenditures for discontinued operations for the first nine months of 1998 and
1997 totaled $9.0 million and $6.5 million, respectively. Significant 1998 and
1997 capital expenditures for continuing operations included a new information
technology system at Viskase, costs associated with the Nucel(R) project, and
additional production capacity for specialty films. Capital expenditures for
discontinued operations included the construction of Clear Shield's Twin Falls,
Idaho facility. Capital expenditures for continuing operations for 1998 are
expected to be approximately $35 million. Capital expenditures for continuing
operations for 1999 are expected to be $25 million.
The Company has spent approximately $7 million to $11 million annually on
research and development programs, including product and process development,
and on new technology development during each of the past three years. The 1998
research and development and product introduction expenses are expected to be
in the $8 million range. Among the projects included in the current research and
development efforts is the application of certain patents and technology
licensed by Viskase to the manufacture of cellulosic casings under the Nucel(R)
process. The commercialization of these applications and the related fixed asset
expense associated with such commercialization may require substantial financial
commitments in future periods.
Year 2000
- ---------
The Year 2000 (Y2K) issue concerns the inability of information systems to
properly recognize and process date-sensitive information beyond January 1,
2000. Businesses are at risk for possible miscalculations or systems failures
that may disrupt their business operations due to the Year 2000 issue.
In order to address the Y2K issue, the Company has formed a Year 2000 committee
(Y2K Committee) that has segregated the Company's risk into three categories:
significant business information technology (IT) systems, internal non-
information technology (Non-IT) systems and external noncompliance by customers
and vendors.
Significant Business Information Technology Systems
In January 1996, the Company began a system conversion which incorporated Y2K
compliance. The following table shows the status of the business system
conversions by country:
Country Implementation Date Status
- -------------- ------------------- --------
United States January 1, 1998 Complete
France October 1, 1998 Complete
United Kingdom March 1, 1999 Planned completion by March 1, 1999
Brazil January 1, 1998 Complete
Canada Unknown Action Plan in process
The Y2K Committee is in the planning stage to bring Canada into compliance.
Because the Company is in the information gathering phase, the Company does not
currently have a contingency plan in place for Canada.
The Company's significant business IT system is run on servers and a wide-area
network outsourced to IBM Global Services. IBM has been certified Y2K compliant
for all its system components. All of the Company's personal computers, network
server hardware and software are being checked for Y2K compatibility with the
vendors. The targeted completion date is February 28, 1999. The Company has
capitalized the costs necessary to upgrade its significant business systems.
Internal Non-IT Systems
The Non-IT systems consist primarily of PC-based manufacturing systems and
process control units. The Y2K Committee has designated a member at each plant
to inventory its systems and determine the status of its Y2K compliance. This
process is ongoing and the plan is to have these systems tested for compliance
by March 31, 1999. The Company does not, at this time, have sufficient data to
estimate the cost of achieving Y2K compliance for its non-financial systems. If
the Company is unable to achieve Y2K compliance for its major Non-IT systems,
the Y2K issue could have a material impact on the operations of the Company.
Because the Company is in the information gathering phase, the Company does not
currently have a contingency plan in place for its Non-IT systems.
Y2K Compliance by Customers and Vendors
The Y2K Committee is in the process of developing a questionnaire that is
expected to be mailed to material third party vendors by November 30, 1998 to
address material third party compliance with Y2K. The responses to the
questionnaires will be reviewed by the Committee and appropriate action will be
taken on a timely basis.
Should responses to the questionnaires indicate that suppliers, service
providers or contractors are not Y2K compliant, the Company will change to those
vendors who have demonstrated Y2K readiness. The Company cannot be assured that
it will be successful in finding such alternative suppliers, service providers
and contractors.
Forward-looking Statements
- --------------------------
Forward-looking statements in this report are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties that could cause actual results and Company
plans and objectives to differ materially from those projected. Such risks and
uncertainties include, but are not limited to, general business and economic
conditions; competitive pricing pressures for the Company's products; changes
in other costs; and opportunities that may be presented to and pursued by the
Company; determinations by regulatory and governmental authorities; and the
ability to achieve synergistic and other cost reductions and efficiencies.
<PAGE>
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
-----------------
For a description of pending litigation and other contingencies, see Part 1,
Note 3, Contingencies in Notes to Consolidated Financial Statements for Viskase
Companies, Inc. and Subsidiaries.
Item 2 - Changes in Securities
---------------------
No reportable events occurred during the quarter ended September 24, 1998.
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 August
27, 1998. The following business was conducted at the Meeting: (i) the election
of six (6) directors; (ii) the ratification of the appointment of
PricewaterhouseCoopers as the Company's independent accountants for the fiscal
year ended December 31, 1998; and (iii) the approval of a stockholder proposal
to change the name of the Company. The results were as follows:
Election of Directors For Withheld
- ------------------------- ---------- ----------
Robert N. Dangremond 13,529,012 7,001
Avram A. Glazer 13,063,783 472,230
Malcolm I. Glazer 13,063,783 472,230
F. Edward Gustafson 13,529,012 7,001
Gregory R. Page 13,529,012 7,001
Mark D. Senkpiel 13,529,012 7,001
Ratification of Appointment of For Against Abstaining
- ------------------------------ ---------- --------- ----------
PricewaterhouseCoopers
- ------------------------------
13,533,411 200 2,402
Approval of Stockholder Proposal For Against Abstaining
- -------------------------------- ---------- --------- ----------
10,462,447 7,106 3,344
There were 3,063,116 broker non-votes.
Item 5 - Other Information
-----------------
None.
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.14 Amendment dated July 2, 1998, to the Amended and Restated
Credit Agreement, dated June 1, 1998, among Viskase Companies,
Inc., the Lenders identified therein and BT Commercial
Corporation, as Agent (incorporated herein by reference to
Exhibit 10.14 to Form 10-Q filed June 25, 1998, of Viskase
Companies, Inc.).
10.23 Third Supplemental Indenture, dated as of July 2, 1998, between
Viskase Companies, Inc. and State Street Bank and Trust Company
of Connecticut, N.A. (formerly Fleet National Bank Connecticut
and previously Shawmut Bank Connecticut, National Association),
as Trustee.
27 Financial Data Schedules.
(b) Reports on Form 8-K
(1) On July 24, 1998, the Company filed a Form 8-K to report that
on June 24, 1998 the Company completed the sale of its wholly
owned subsidiary, Clear Shield National, Inc., to Solo Cup
Company.
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.
VISKASE COMPANIES, INC.
--------------------------
Registrant
By: /s/
--------------------------
Gordon S. Donovan
Vice President, Chief Financial
Officer and Treasurer
(Duly authorized officer
and principal financial
officer of the registrant)
Date: November 9, 1998
ENVIRODYNE INDUSTRIES, INC.
701 HARGER ROAD, SUITE 190
OAK BROOK, ILLINOIS 60523
July 2, 1998
TO: BT Commercial Corporation, Holders of the First Priority Senior
as Collateral Agent under Secured Notes due 2000
the Intercreditor Agreement CUSIP No. 294037 AJ5
referred to below CUSIP No. 294037 AK2
233 South Wacker Drive
Chicago, Illinois 60606
and
The First Priority Notes Indenture Trustee,
The Requisite First Priority Noteholders, the
Majority Noteholders, the LC Agent, the
LC Lender, the Revolving Lender, and the
Requisite Working Capital Lenders, as
defined in the Intercreditor Agreement
referred to below or as otherwise
defined below
Re: Proposed Disposition of Clear Shield National, Inc.
--------------------------------------------------
Ladies and Gentlemen:
Envirodyne Industries, Inc. (the "Company") hereby solicits (the
"Solicitation"), by this letter ("Consent"), consent from (i) the
holders (the "Holders") of First Priority Senior Secured Notes due 2000
(the "Notes") of the Company issued pursuant to an Indenture (the
"Indenture"), dated as of June 20, 1995 and amended as of October 13,
1995 and on September 2, 1997, between the Company and State Street Bank
and Trust Company of Connecticut, N.A. (formerly Fleet National Bank
Connecticut and previously Shawmut Bank Connecticut, National
Association), as trustee (the "Trustee"), to the Company's entering into
a transaction more fully described below (the "Transaction") and the use
of proceeds of the Transaction and (ii) the lenders identified in the
Amended and Restated Credit Agreement (the "Credit Agreement"), dated as
of June 1, 1998, among the Company, the lenders identified therein (the
"Lenders," and collectively with the Holders, the "Creditors") and BT
Commercial Corporation, as Agent, to the Company's entering into the
Transaction and the use of proceeds of the Transaction.
The Company hereby simultaneously solicits, by this same
Solicitation and Consent, consent from (i) the Holders to certain
amendments to, and waivers under, the Indenture and (ii) the Lenders to
certain amendments to, and waivers under, the Credit Agreement.
THIS SOLICITATION COMMENCES ON JULY 2, 1998 AND WILL EXPIRE AT 5:00
P.M., CHICAGO TIME, ON JULY 15, 1998 (THE "SOLICITATION PERIOD") UNLESS
OTHERWISE EXTENDED BY THE COMPANY. THE COMPANY RESERVES THE RIGHT TO
EXTEND THE SOLICITATION AT ANY TIME AND FROM TIME TO TIME, WHETHER OR
NOT EXECUTED COUNTERPARTS TO THIS CONSENT HAVE BEEN RECEIVED, BY WRITTEN
NOTICE TO THE CREDITORS OR BY PRESS RELEASE OR OTHER PUBLIC
ANNOUNCEMENT. IN ADDITION, THE COMPANY RESERVES THE RIGHT, IN ITS SOLE
DISCRETION, SUBJECT TO APPLICABLE LAW, TO TERMINATE THIS SOLICITATION,
BY WRITTEN NOTICE TO THE CREDITORS OR BY PRESS RELEASE OR OTHER PUBLIC
ANNOUNCEMENT, UPON FAILURE TO RECEIVE THE NECESSARY EXECUTED
COUNTERPARTS TO THIS CONSENT.
SUMMARY OF PROPOSED TRANSACTION AND RESTRICTIONS
Reference is hereby made to that certain Intercreditor and
Collateral Agency Agreement, dated as of June 20, 1995 (as may have been
heretofore amended or modified, "Intercreditor Agreement"), among BT
Commercial Corporation, in its capacities as "LC Agent," "LC Lender,"
"Collateral Agent" and "Revolving Lender" thereunder, and the Trustee.
Undefined capitalized terms which are used in this letter shall have the
meanings ascribed to such terms in the Intercreditor Agreement.
The Company has proposed to enter into a stock purchase agreement
(the "Sale Agreement") pursuant to which the Company will sell all of
the issued and outstanding capital stock of Clear Shield National, Inc.,
a California corporation ("Clear Shield"), to an unrelated third party
for cash consideration of $140,000,000, all of which would be payable to
the Company at the closing of such transaction subject to any purchase
price adjustments as provided in such Sale Agreement (the "Clear Shield
Sale"). The execution and delivery by the Company of the Sale Agreement
and the consummation of the Clear Shield Sale have been duly authorized
by a resolution of the Company's Board of Directors, subject to the
effectiveness of the waivers, approvals and authorizations set forth in
this letter. The Company intends to consummate the sale of Clear Shield
as soon as practicable following receipt of consents from the Lenders
under the Credit Agreement and Holders of a majority in aggregate
principal amount of the Notes. Of the $140,000,000 that the Company
expects to receive at the closing of the Clear Shield Sale, the Company
anticipates that its expenses, state and local taxes and Federal
alternative minimum taxes will equal approximately $7,000,000. The
remaining proceeds (approximately $133,000,000) will be used to make a
pro rata payment under the Credit Agreement and a pro rata redemption of
the outstanding Notes (such payments are collectively referred to herein
as the "Use of Proceeds"). The calculation of the pro rata amounts for
the Use of Proceeds shall be made as of the closing date of the Clear
Shield Sale, although the Company will not redeem the Notes until the
Transfer Redemption Date (the next business day following the 30th day
after the closing date of the Clear Shield Sale, as defined in the
Indenture). Upon receipt of the consideration for the Clear Shield
Sale, the Company intends to make a payment to BT Commercial Corporation
of $30,000,000 (the current amount outstanding under the Credit
Agreement) or such lesser amount then outstanding under the Credit
Agreement and will invest the remaining net proceeds of the Clear Shield
Sale in permitted Cash Equivalents until the Transfer Redemption Date.
The Company estimates that on the Transfer Redemption Date the
Noteholders will be entitled to receive approximately $112,000,000 (of
which approximately $105,000,000 will be applied to the retirement of
the principal amount of the outstanding Notes to be redeemed with the
remaining amount applied to satisfy the Yield Maintenance Amount
thereon).
The consummation of the Clear Shield Sale and the proposed Use of
Proceeds of the Clear Shield Sale would violate (a) Sections 4.06, 4.09
and 4.13 of the Indenture (the "Specified Indenture Restrictions"),
unless the Holders of a majority in aggregate principal amount of the
Notes, by notice to the Trustee, waive the Company's compliance with the
Specified Indenture Restrictions (excluding 4.06(e)(3) or any other
provision of Section 4.06, 4.09 or 4.13 that would require unanimous
written consent) with respect to the Clear Shield Sale (the "Majority
Noteholders") and (b) Sections 8.6, 8.9 and 8.13 of the Credit Agreement
(the "Specified Credit Agreement Restrictions"), unless waived in
writing by each of the sole existing LC Lender and the sole existing
Revolving Lender and the Clear Shield Sale would violate (a) Section 7
of the Company Pledge Agreement, dated as of June 20, 1995, by and
between the Company and the Collateral Agent, unless waived in writing
by the Collateral Agent (the "Specified Pledge Restriction") and (b)
Section 5(j) of the Company Security Agreement, dated as of June 20,
1995, by and between the Company and the Collateral Agent, unless waived
in writing by the Collateral Agent (the "Specified Sale Restriction").
Moreover, pursuant to the terms of Section 6 of the Intercreditor
Agreement, the Trustee is prohibited from waiving the Specified
Indenture Restrictions without the prior written consent of the
Requisite Working Capital Lenders, each of the LC Lender and the
Revolving Lender are prohibited from waiving the Specified Credit
Agreement Restrictions without the prior written consent of each of the
Requisite First Priority Noteholders and the Revolving Lender, and
pursuant to Section 2(e) of the Intercreditor Agreement, the Collateral
Agent is prohibited from waiving the Specified Pledge Restriction and
the Specified Sale Restriction without the prior written consent of the
Requisite First Priority Noteholders and the Requisite Working Capital
Lenders.
It is a condition precedent to the consummation of the Clear Shield
Sale that the capital stock and assets of Clear Shield be conveyed to
the purchaser under the Sale Agreement free and clear of all claims,
liens and security interests of the Secured Parties under the Financing
Agreements and the Collateral Documents. The outstanding capital stock
and assets of Clear Shield are currently subject to liens and security
interests in favor of the Collateral Agent pursuant to the Collateral
Documents, and the Secured Indebtedness of the Company under the
Financing Agreements is guaranteed by Clear Shield pursuant to the
Guaranty Agreement.
SUMMARY OF AMENDMENTS AND WAIVERS
The Company is considering a reorganization at Viskase Corporation,
a wholly-owned subsidiary of the Company, in which case the Company will
take a restructuring charge of approximately $25,000,000 for costs and
expenses relating thereto (the "Restructuring Charge"), and therefore
hereby seeks consent to amendments (collectively, the "Amendments") to
the terms of the Notes issued pursuant to the Indenture. The Amendments
would be effective for all purposes as of March 27,1998. A copy of the
proposed Third Supplemental Indenture is attached hereto as Attachment
B. The Company also seeks consent to amendments that are substantially
identical to the Amendments with respect to the Credit Agreement
(collectively, the "Additional Amendments").
The Amendments would modify the negative covenant in Section
4.01(b) of the Indenture to provide that the Fixed Charge Coverage Ratio
(as defined in the Indenture) may not be less than 1.35:1 for the period
from March 27, 1998 through June 30, 1999 (rather than 1.50:1 as
currently provided in the Indenture), and 1.55:1 for the period from
July 1, 1999 and thereafter. In addition, for purposes of determining
Consolidated Cash Flow (as defined in the Indenture) for the calculation
of the Fixed Charge Coverage Ratio (as defined in the Indenture) only
and notwithstanding any tax effect of such Restructuring Charge, the
Restructuring Charge will be added back to the calculation of
Consolidated Net Worth and Consolidated Net Income (as those terms are
defined in the Indenture) to the extent previously deducted therefrom.
In addition, the Amendments would modify Section 4.03(a) of the
Indenture to provide that at no time may (i) Consolidated Senior Debt
(as defined in the Indenture) be greater than 58.5% of Consolidated
Total Capitalization (as defined in the Indenture) (rather than 52.5% as
currently provided in the Indenture) or (ii) Consolidated Debt (as
defined in the Indenture) be greater than 92.5% of Consolidated Total
Capitalization (rather than 88% as currently provided in the Indenture).
The Company is also requesting that (i) Holders waive any prior
default by the Company of Section 4.01(a), 4.01(b), or 4.03(a) of the
Indenture (the "Specified Indenture Financial Covenants"), if any, and
(ii) the Revolving Lender and the LC Lender each waives any prior
default by the Company of Sections 8.1(a), 8.1(b) and 8.3 of the Credit
Agreement (the "Specified Credit Financial Covenants"), if any.
Pursuant to the terms of Section 6 of the Intercreditor Agreement,
the Trustee is prohibited from amending the Indenture or waiving the
Specified Indenture Financial Covenants without the prior written
consent of the Requisite Working Capital Lenders and each of the LC
Lender and the Revolving Lender are prohibited from amending the Credit
Agreement or waiving the Specified Credit Financial Covenants without
the prior written consent of each of the Requisite First Priority
Noteholders and the Revolving Lender.
The timing of receipt of the consents from the requisite holders
will ultimately affect the Yield Maintenance Amount on the redeemed
portion of the Notes. The Yield Maintenance Amount, assuming a constant
treasury rate, decreases approximately $0.15 per day for each $1,000 in
principal amount of outstanding Notes redeemed. Therefore, any delay in
the return of the requisite Consents reduces the overall yield on the
Notes (assuming that funds that are repaid are invested at a similar
rate of return). Please do not delay in returning your consent.
CONSENTS, WAIVERS AND AUTHORIZATIONS
The Company hereby requests and, subject to the terms and
conditions of this Consent, the parties signatory hereto respectively
agree (as applicable), that:
1. the Holders hereby (i) waive the Specified Indenture
Restrictions with respect to the Clear Shield Sale, (ii) waive the
Specified Indenture Financial Covenants and (iii) consent to the
Amendments;
2. the LC Lender and the Revolving Lender each hereby (i) waives
the Specified Credit Agreement Restrictions with respect to the Clear
Shield Sale, (ii) waives the Specified Credit Financial Covenants and
(iii) consents to the Additional Amendments;
3. the Collateral Agent hereby waives each of the Specified Pledge
Restriction and the Specified Sale Restriction with respect to the Clear
Shield Sale;
4. the Requisite Working Capital Lenders hereby consent to the
Trustee's and/or the Holders' (i) waiver of the Specified Indenture
Restrictions with respect to the Clear Shield Sale, (ii) waiver of the
Specified Indenture Financial Covenants and (iii) consent to the
Amendments;
5. the Requisite First Priority Noteholders and the Revolving
Lender each hereby consent to each of the LC Lender's and the Revolving
Lender's (i) waiver of the Specified Credit Agreement Restrictions with
respect to the Clear Shield Sale, (ii) waiver of the Specified Credit
Financial Covenants and (iii) consents to the Additional Amendments;
6. the Requisite First Priority Noteholders and the Requisite
Working Capital Lenders each hereby consent to the Collateral Agent's
waiver of the Specified Pledge Restriction and the Specified Sale
Restriction;
7. the Requisite First Priority Noteholders and the Requisite
Working Capital Lenders each hereby authorize and direct the Collateral
Agent, and the Collateral Agent simultaneously with the consummation of
the Clear Shield Sale, hereby (a) releases its security interests in and
liens securing the Secured Indebtedness on all Collateral consisting of
property or capital stock of Clear Shield, (b) releases Clear Shield
from all obligations under the Guaranty Agreement and all other
Collateral Documents to which it is a party, (c) agrees to deliver to
the Company all original stock certificates evidencing any of the
outstanding capital stock of Clear Shield and all stock powers relating
thereto, (d) agrees to execute and deliver to the Company such documents
and agreements as may be reasonably requested by the Company to fully
effectuate or evidence (of record or otherwise) such releases,
including, without limitation, UCC termination statements, mortgage
releases, intellectual property release and reconveyances, and
termination letters with respect to blocked account agreements, (e)
waives the Specified Pledge Restriction and (f) agrees to execute and
deliver this letter.
The foregoing consents, waivers, authorizations and agreements are
expressly subject to the condition precedent that counterparts of this
Consent be executed and delivered in accordance with the procedures
described in this Consent by the Company, the Collateral Agent, the
Majority Noteholders, the LC Lender, the LC Agent, the Revolving Lender,
the Requisite First Priority Noteholders, and the Requisite Working
Capital Lenders and, unless and until such parties have so executed and
delivered this Consent, this Consent shall have no force or effect.
COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company hereby represents, warrants and covenants to and with
the Collateral Agent and each of the Secured Parties that, as of March
26, 1998 (the most recent date on which detailed financial information
was available) and as of the date of consummation of the Clear Shield
Sale, in each case with the same effect as if made as of such date, no
Event of Default has occurred and is continuing, or will result from,
the consummation of the Clear Shield Sale. Detailed financial
information for the quarter ended June 26, 1998 is not yet available.
Additional Representations and Warranties
The undersigned further acknowledges that:
(i) except as expressly set forth above, (x) the execution and
delivery of this letter by the Collateral Agent and such other Secured
Parties shall in no way affect any of the respective rights, powers or
remedies of any of such Persons with respect to any Event of Default nor
constitute a waiver of any term or provision of any of the Financing
Agreements or Collateral Documents, and (y) all of the respective terms
and provisions of the Financing Agreements, the Collateral Documents and
all other documents, instruments, amendments and agreements executed or
delivered by the undersigned and any of the other Loan Parties pursuant
thereto or in connection therewith shall remain in full force and effect
and are hereby ratified and confirmed in all respects; and
(ii) the execution and delivery of this letter by the Collateral
Agent and such other Secured Parties shall in no way obligate the
Collateral Agent or any of such other Secured Parties, at any time
hereafter, to consent to any other modification of any term or provision
of any of the Financing Agreements or Collateral Documents, whether of
a similar or different nature.
CONSENT PROCEDURE
Only Holders of record (or their respective legal representatives)
as of June 24, 1998 (the "Record Date") may execute counterparts to this
Consent, and such Consent will be binding on all subsequent transferees
of the Notes. Any beneficial owner of Notes who is not a Holder or
record of such Notes must arrange with the person who, on the Record
Date, was the Holder of record of such Holder's assignee or nominee to
execute and deliver counterparts to this Consent on its behalf. For
purposes of this Solicitation, the term "Holder" shall be deemed to
include the participants ("DTC Participants") through which a beneficial
owner's Notes are held on the Record Date in The Depository Trust
Company ("DTC"). DTC has authorized DTC Participants to execute
counterparts to this Consent as if they were Holders.
The timing of receipt of the consents from the requisite holders
will ultimately affect the Yield Maintenance Amount on the redeemed
portion of the Notes. The Yield Maintenance Amount, assuming a constant
treasury rate, decreases approximately $0.15 per day for each thousand
dollars in principal amount of outstanding Notes redeemed. Therefore,
any delay in the return of the requisite Consents reduces the overall
yield on the Notes (assuming that funds that are repaid are invested at
a similar rate of return). Please do not delay in returning your
consent.
Each Holder that agrees with the terms and conditions of this
Consent should complete the appropriate information on Attachment A to
this Consent and return it, as soon as possible but no later than the
expiration of the Solicitation, by facsimile to Envirodyne Industries,
Inc., 701 Harger Road, Suite 190, Oak Brook, Illinois 60523, Attention:
Gordon S. Donovan, Tel. No. (630) 575-2400, Facsimile No. (630)
575-2401. Each of the Collateral Agent, the LC Agent, the LC Lender and
the Revolving Lender that agrees with the terms and conditions of this
Consent should execute and deliver an executed counterpart to this
Consent to the Company at its address indicated immediately above prior
to the expiration of the Solicitation. Once a consent is delivered to
the Company, it may not be revoked.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Securities
and Exchange Commission (the "Commission") are hereby incorporated by
reference:
(a) the Annual Report on Form 10-K for the year ended December 25,
1997, as amended pursuant to an amendment thereto filed on
April 27, 1998; and
(b) the Quarterly Report on Form 10-Q for the quarter ended
March 26, 1998; and
(c) the Company's Report on Form 8-K dated June 16, 1998; and
(d) the Company's Report of Form 8-K dated June 25, 1998.
All documents filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), subsequent to the date of this
Consent and prior to the termination thereof shall be deemed to be
incorporated by reference herein and to be a part hereof from the date
of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this
Consent to the extent that a statement contained herein or in any other
subsequently filed document which is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Consent.
The Company will provide without charge to each Holder, including
any beneficial holder, to whom this Consent is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents relating to the Company that are incorporated herein by
reference (other than exhibits to such documents unless such exhibits
are specifically incorporated by reference into such documents). Such
requests should be directed to Envirodyne Industries, Inc., 701 Harger
Road, Suite 190, Oak Brook, Illinois 60523 (Tel. No. (630) 575-2400),
Attention: Gordon S. Donovan.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports, proxy
statements and other information with the Commission. Such reports,
proxy statements and other information can be inspected and copied at
the Public Reference Section of the Commission located at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549, and at
regional public reference facilities maintained by the Commission
located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and Seven World Trade Center, New York, New
York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at prescribed rates. In addition,
the Commission maintains a World Wide Web site that contains reports,
proxy statements and other information regarding companies (including
the Company) that file electronically with the Commission. The address
of the Commission's Web site is http://www.sec.gov. The Company's Common
Stock is traded in the over-the-counter market on the Nasdaq SmallCap
Market, and reports, proxy statements and other information concerning
the Company may also be inspected at the offices of The Nasdaq Stock
Market, Inc., 1735 K Street, N.W., Washington D.C. 20006.
QUESTIONS AND REQUESTS
Questions and requests for additional information or additional
copies of this Consent may be directed to Envirodyne Industries, Inc.,
701 Harger Road, Suite 190, Oak Brook, Illinois 60523, Attention: Gordon
S. Donovan, Tel. No. (630) 575-2400, Facsimile No. (630) 575-2401.
Very truly yours,
ENVIRODYNE INDUSTRIES, INC.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
PRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS CONSENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
SOLICITATION IS NOT BEING MADE TO, AND NO COUNTERPARTS TO THIS CONSENT
ARE BEING SOLICITED FROM, HOLDERS OF NOTES OR OTHER CREDITORS OF THE
COMPANY IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION OR DELIVER SUCH COUNTERPARTS. THE DELIVERY OF COUNTERPARTS
TO THIS CONSENT AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
<PAGE>
ENVIRODYNE INDUSTRIES, INC.
701 HARGER ROAD, SUITE 190
OAK BROOK, ILLINOIS 60523
Letter Agreement dated
as of July 2, 1998
Re: Consent
ATTACHMENT A
The undersigned hereby agrees with the terms and conditions of the
foregoing Letter of Consent dated July 2, 1998. THE UNDERSIGNED
UNDERSTANDS THAT ONCE A CONSENT IS DELIVERED TO THE COMPANY, IT MAY NOT
BE REVOKED.
Holder:___________________________________________________________
(Please Type or Print)
By:_______________________________________________________________
(Sign Here)
Name:_____________________________________________________________
(Please Type or Print)
Title:____________________________________________________________
Address:_________________________________________________________
(Street) (Suite)
________________________________________________________________
(City) (State) (Zip)
Telephone
No.:____________________________________________________________
Aggregate Principal Amounts* of
Note(s):__________________________________________
* Unless otherwise indicated, the Holder will be deemed to have
consented in respect of the entire principal amount of Notes
held by such Holder.
<PAGE>
ENVIRODYNE INDUSTRIES, INC.
701 HARGER ROAD, SUITE 190
OAK BROOK, ILLINOIS 60523
Letter Agreement dated
as of July 2, 1998
Re: Consent
Signature Counterpart
---------------------
BT COMMERCIAL CORPORATION, in its respective
capacities as Collateral Agent and LC Agent, and in its
individual capacity as the sole LC Lender and as the sole
Revolving Lender
By: ___________________________
Name: ___________________
Title: ____________________
<PAGE>
ATTACHMENT B
THIRD SUPPLEMENTAL INDENTURE
THIS THIRD SUPPLEMENTAL INDENTURE, dated as of __________, 1998
(this "Supplemental Indenture"), between ENVIRODYNE INDUSTRIES INC., a
Delaware corporation (the "Company"), and STATE STREET BANK AND TRUST
COMPANY OF CONNECTICUT, N.A. (formerly Fleet National Bank Connecticut
and previously Shawmut Bank Connecticut, National Association), as
trustee (the "Trustee"), under the Indenture, dated as of June 20, 1995
and amended by the First Supplemental Indenture, dated as of October 13,
1995, and the Second Supplemental Indenture, dated as of September 2,
1997, between the Company and the Trustee (the "Indenture").
WHEREAS, the Company has issued, the Trustee has authenticated and
there have been delivered pursuant to the Indenture $160,000,000
aggregate principal amount of the Company's First Priority Senior
Secured Notes due 2000, all of which are currently outstanding;
WHEREAS, the Company desires, by this Supplemental Indenture, to
amend the negative covenants contained in Section 4.01(b) and Section
4.03(a) of the Indenture (collectively, the "Amendment");
WHEREAS, Section 8.02 of the Indenture provides that the Company
and the Trustee may enter into a supplemental indenture, with the
consent of the holders of not less than a majority in aggregate
principal amount of the then outstanding Securities (as defined
therein), for the purpose of changing any provisions of the Indenture
except as otherwise set forth therein;
WHEREAS, pursuant to Section 5.05 of the Indenture, the holders of
not less than a majority in aggregate principal of the then outstanding
Securities, as of 5:00 p.m., New York time, on June 24, 1998, the record
date for such purposes, have waived any prior default by the Company of
Section 4.01(a), 4.01(b) or 4.03(a) of the Indenture, if any;
WHEREAS, the holders of not less than a majority in principal
amount of the Securities outstanding, as of 5:00 p.m., New York City
time, on June 24, 1998, the record date for such purpose, have consented
to the Amendment; and
WHEREAS, the Company is legally empowered and has been duly
authorized by the necessary corporate action to make, execute and
deliver this Supplemental Indenture, and all acts and things whatsoever
necessary to make this Supplemental Indenture, when executed and
delivered by the Company and the Trustee, a valid, binding and legal
instrument have been taken.
NOW, THEREFORE, each party agrees as follows for the benefit of the
other party and for the equal and ratable benefit of the holders of the
Securities:
ARTICLE 1
DEFINITIONS
All terms used in this Supplemental Indenture which are defined in
the Indenture shall have the meanings assigned to them in the Indenture.
ARTICLE 2
AMENDMENT OF INDENTURE
2.1 Section 4.01(b) of the Indenture is amended by deleting
such section in its entirety and substituting in lieu thereof the
following:
(b) Fixed Charge Coverage Ratio. The Company covenants
---------------------------
that it will not cause or permit the ratio of (i) Consolidated Cash
Flow for the twelve month period ending at the end of any fiscal
quarter of the Company to (ii) Consolidated Fixed Charges for each
such twelve month period to be less than the ratio set forth below
for the period set forth below in which such fiscal quarter ends:
Ratio Period
----- ------
1.45:1 Effective Date through December 26, 1996
1.50:1 December 27, 1996 through March 26, 1998
1.35:1 March 27, 1998 through June 30, 1999
1.55:1 July 1, 1999 and thereafter
provided, however for purposes of determining Consolidated Cash Flow
for the calculation of the Fixed Charge Coverage Ratio only and
notwithstanding any tax effect of such restructuring charges,
restructuring charges in amounts not to exceed $25,000,000 shall be
added back to the calculation of the Consolidated Net Worth and
Consolidated Net Income to the extent previously deducted therefrom.
2.2 Section 4.03 (a) of the Indenture is hereby amended by
deleting the last clause of such section beginning with "provided,
however" and substituting in lieu thereof the following:
provided, however, that at no time shall (1) Consolidated Senior
-------- -------
Debt be more than 58.5% of Consolidated Total Capitalization, or
(2) Consolidated Debt be more than 92.5% of Consolidated Total
Capitalization.
ARTICLE 3
MISCELLANEOUS
3.1 This Supplemental Indenture may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original, and all of such counterparts shall together constitute one and
the same instrument.
3.2 The internal laws of the State of New York shall govern
this Supplemental Indenture without regard to principles of conflicts of
law.
3.3 All provisions of this Supplemental Indenture shall be
deemed to be incorporated in, and made a part of, the Indenture; and the
Indenture, as amended and supplemented by this Supplemental Indenture,
shall be read, taken and construed as one and the same instrument.
3.4 The provisions of Section 4.01(b) and Section 4.03(a), as
amended by Article 2 of this Supplemental Indenture, shall be deemed
effective for all purposes as of March 27, 1998; provided, however, that
this Supplemental Indenture shall not become effective as of such date
until the Company has entered into amendments that are substantially
identical to the Amendment contained herein with respect to the Amended
and Restated Credit Agreement, dated as of June 1, 1998, between the
Company, the lenders identified therein and BT Commercial Corporation,
as Agent. The Company shall provide to the Trustee written notice that
it has entered into such amendments and that this Supplemental Indenture
has become effective.
3.5 The recitals to this Supplemental Indenture shall not be
construed as representations of the Trustee and the Trustee makes no
representation as to the accuracy of such recitals.
3.6 The Trustee enters into this Supplemental Indenture in its
capacity as Trustee under the Indenture and in reliance on an Opinion of
Counsel and Officers' Certificate.
IN WITNESS WHEREOF, the parties have caused this Third Supplemental
Indenture to be duly executed, and their respective corporate seals to
be hereunto affixed and attested, all as of the day and year first above
written.
ENVIRODYNE INDUSTRIES, INC.
By: _________________________________
Gordon S. Donovan
Vice President, Chief Financial
Officer and Treasurer
Attest: __________________________
Stephen M. Schuster
Vice President and Secretary
STATE STREET BANK AND TRUST
COMPANY OF CONNECTICUT, N.A.
By: ________________________
Name: ________________________
Title: _______________________
Attest: ______________________
By: ______________________
Name: ______________________
Title: ______________________
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-24-1998
<CASH> 17,559,000
<SECURITIES> 0
<RECEIVABLES> 52,561,000
<ALLOWANCES> (2,296,000)
<INVENTORY> 97,295,000
<CURRENT-ASSETS> 191,337,000
<PP&E> 534,418,000
<DEPRECIATION> 164,075,000
<TOTAL-ASSETS> 598,366,000
<CURRENT-LIABILITIES> 238,824,000
<BONDS> 334,860,000
0
0
<COMMON> 149,000
<OTHER-SE> (50,539,000)
<TOTAL-LIABILITY-AND-EQUITY> 598,366,000
<SALES> 309,233,000
<TOTAL-REVENUES> 309,233,000
<CGS> 229,177,000
<TOTAL-COSTS> 229,177,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 716,000
<INTEREST-EXPENSE> 40,488,000
<INCOME-PRETAX> (186,977,000)
<INCOME-TAX> (19,252,000)
<INCOME-CONTINUING> (167,725,000)
<DISCONTINUED> 35,776,000
<EXTRAORDINARY> (6,793,000)
<CHANGES> 0
<NET-INCOME> (138,742,000)
<EPS-PRIMARY> (9.37)
<EPS-DILUTED> (9.37)
</TABLE>
