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 March 26, 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
----------
ENVIRODYNE INDUSTRIES, 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.)
701 Harger Road, Suite 190, Oak Brook, Illinois 60523
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 571-8800
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
------ -------
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check
mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes X No
------ ------
As of May 8, 1998, there were 14,815,511 shares outstanding of
the registrant's Common Stock, $.01 par value.
Page 1 of 25 Pages
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited consolidated balance sheets at March 26, 1998
and December 25, 1997 4
Unaudited consolidated statements of operations for the
three months ended March 26, 1998 and March 27, 1997 5
Unaudited consolidated statements of cash flows
for the three months ended March 26, 1998
and March 27, 1997 6
Notes to consolidated financial statements 7
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets at March 26, 1998 (unaudited)
and December 25, 1997 15
Unaudited consolidated statements of operations
for the three months ended March 26, 1998
and March 27, 1997 16
Unaudited consolidated statements of cash flows
for the three months ended March 26, 1998
and March 27, 1997 17
Notes to consolidated financial statements 18
<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>
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION> March 26, December 25,
1998 1997
------------- -------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 11,714 $ 24,407
Receivables, net 67,843 75,039
Inventories 112,189 97,802
Other current assets 31,739 25,286
--------- ---------
Total current assets 223,485 222,534
Property, plant and equipment,
including those under capital leases 600,267 580,981
Less accumulated depreciation
and amortization 162,865 145,855
--------- ---------
Property, plant and equipment, net 437,402 435,126
Deferred financing costs, net 4,141 4,574
Other assets 37,743 39,193
Excess reorganization value, net 110,027 112,426
--------- ---------
Total assets $812,798 $813,853
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current portion
of long-term debt and obligations
under capital leases $ 36,365 $ 12,880
Accounts payable 35,849 41,734
Accrued liabilities 79,135 71,589
Current deferred income taxes 10,516 10,516
--------- ---------
Total current liabilities 161,865 136,719
Long-term debt including obligations
under capital leases 497,661 511,183
Accrued employee benefits 48,309 48,521
Deferred and noncurrent income taxes 24,584 26,510
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
14,812,334 shares issued and
outstanding at March 26, 1998 and
14,753,442 shares at December 25, 1997 148 148
Paid in capital 136,480 136,183
Accumulated (deficit) (59,848) (48,458)
Cumulative foreign currency
translation adjustments 3,640 3,098
Unearned restricted stock issued
for future service (41) (51)
--------- ---------
Total stockholders' equity 80,379 90,920
--------- ---------
Total liabilities and stockholders' equity $812,798 $813,853
========= =========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
/TABLE
<PAGE>
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March March
26, 1998 27, 1997
-------------- -----------
(in thousands, except for number of shares
and per share amounts)
(S) <C> <C>
NET SALES $128,655 $154,539
COSTS AND EXPENSES
Cost of sales 96,566 115,998
Selling, general
and administrative 25,675 27,075
Amortization of intangibles
and excess reorganization value 3,801 4,052
-------- --------
OPERATING INCOME 2,613 7,414
Interest income 185 504
Interest expense 13,497 14,259
Other expense (income), net 1,333 (388)
-------- --------
(LOSS) BEFORE INCOME TAXES (12,032) (5,953)
Income tax (benefit) (642) (3,400)
-------- --------
NET (LOSS) $(11,390) $ (2,553)
======== ========
WEIGHTED AVERAGE
COMMON SHARES - BASIC AND DILUTED 14,773,346 14,547,378
========== ==========
PER SHARE AMOUNTS
NET (LOSS) BASIC AND DILUTED
EARNINGS PER SHARE $(.77) $ (.18)
===== ======
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
/TABLE
<PAGE>
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
March 26, March 27,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (11,390) $ (2,553)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization under capital lease 11,556 11,228
Amortization of intangibles and excess
reorganization value 3,801 4,052
Amortization of deferred financing fees and discount 428 379
(Decrease) in deferred and
noncurrent income taxes (1,582) (5,270)
Foreign currency transaction loss (gain) (106) 1,357
(Gain) loss on disposition of assets 103 (1,075)
Bad debt provision 248 313
Changes in operating assets and liabilities:
Accounts receivable 7,377 1,846
Inventories (14,581) (7,091)
Other current assets (6,545) (10,811)
Accounts payable and accrued liabilities 2,132 3,097
Other 590 (2,443)
-------- --------
Total adjustments 3,421 (4,418)
-------- --------
Net cash provided by (used in) operating activities (7,969) (6,971)
Cash flows from investing activities:
Capital expenditures (15,081) (10,399)
Proceeds from disposition of assets 37 11,827
-------- --------
Net cash provided by (used in) investing activities (15,044) 1,428
Cash flows from financing activities:
Issuance of common stock 307 59
Deferred financing costs (4) (72)
Proceeds from revolving loan and long-term
borrowings 20,069
Repayment of revolving loan, long-term borrowings
and capital lease obligation (9,994) (6,785)
-------- --------
Net cash provided by (used in)
financing activities 10,378 (6,798)
Effect of currency exchange rate changes on cash (58) (653)
-------- --------
Net (decrease) in cash and equivalents (12,693) (12,994)
Cash and equivalents at beginning of period 24,407 41,794
-------- --------
Cash and equivalents at end of period $ 11,714 $ 28,800
======== ========
- -----------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $11,773 $12,684
Income taxes paid $ 574 $ 319
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES (dollars in thousands)
Inventories consisted of:
March December
26, 1998 25, 1997
----------- -----------
Raw materials $ 17,649 $ 16,847
Work in process 35,298 29,297
Finished products 59,242 51,658
-------- --------
$112,189 $ 97,802
======== ========
Approximately 63% of the inventories at March 26, 1998 were valued at
Last-In, First-Out (LIFO). These LIFO values exceeded current
manufacturing cost by approximately $4.6 million at March 26, 1998.
<PAGE>
2. DEBT OBLIGATIONS (dollars in thousands)
Outstanding short-term and long-term debt consisted of:
<TABLE>
<CAPTION>
March December
26, 1998 25, 1997
----------- -----------
(S) <C> <C>
Short-term debt, current maturity of long-term
debt, and capital lease obligation:
Secured revolver $20,000
Current maturity of Viskase Capital Lease Obligation 13,031 $ 9,675
Current maturity of Viskase Limited Term Loan (3.2%) 1,629 1,629
Other 1,705 1,576
------- -------
Total short-term debt $36,365 $12,880
======= =======
Long-term debt:
12% Senior Secured Notes due 2000 $160,000 $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%) 2,398 2,443
Other 4,159 4,605
-------- --------
Total long-term debt $497,661 $511,183
======== ========
/TABLE
<PAGE>
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 after December 23, 1996.
On September 29, 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. The Court has not set a new trial date, but the
Company expects the trial in the fouth quarter of 1998. 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 one of the requests for reexamination,
the USPTO initially rejected Viskase's claims, to which Viskase has
filed a response. With respect to the other request for reexamination
the USPTO has not made its determination. If the USPTO ultimately
disallows the claims of the two Viskase patents, the effect upon the
Court action is uncertain.
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
March 26, 1998, $4,473 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. EARNINGS PER SHARE (dollars in thousands)
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>
13 weeks 13 weeks
December December
25, 1997 27, 1996
to to
March March
26, 1998 27, 1997
---------- ----------
<S> <C> <C>
Numerator:
Loss available to common stockholders
before extraordinary item $(11,390) $(2,553)
Extraordinary (loss)
---------- ----------
Net loss available to common stockholders
for basic and diluted EPS $(11,390) $(2,553)
Denominator:
Weighted average shares outstanding
for basic EPS 14,773,346 14,547,378
Effect of dilutive securities 0 0
---------- ----------
Weighted average shares outstanding
for diluted EPS 14,773,346 14,547,378
========== ==========
<FN>
The exercise of options and warrants is not assumed as the result
would be antidilutive, since the numerators in 1998 and 1997 are losses.
/TABLE
<PAGE>
5. 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 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.
6. SUBSIDIARY GUARANTORS
Envirodyne'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, Clear Shield National,
Inc., Sandusky Plastics, Inc. and Sandusky Plastics of Delaware, Inc.,
each a direct or indirect wholly-owned subsidiary of Envirodyne and each
a "Guarantor." These subsidiaries represent substantially all of the
operations of Envirodyne conducted in the United States. The remaining
subsidiaries of Envirodyne 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 capital stock of Viskase Europe Limited. The
Subsidiary Guarantees and security are shared with the lenders under the
Revolving 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
significant 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, Clear
Shield National, Inc., Sandusky Plastics, Inc. and Sandusky Plastics of
Delaware, 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>
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
MARCH 26, 1998
<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 $ 7,497 $ 153 $ 4,064 $11,714
Receivables and advances, net 101,424 52,111 43,683 $ (129,375) 67,843
Inventories 76,642 36,476 (929) 112,189
Other current assets 659 21,638 9,442 31,739
-------- -------- -------- --------- --------
Total current assets 109,580 150,544 93,665 (130,304) 223,485
Property, plant and equipment including
those under capital lease 149 454,861 145,257 600,267
Less accumulated depreciation
and amortization 126 122,764 39,975 162,865
-------- -------- -------- --------- --------
Property, plant and equipment, net 23 332,097 105,282 437,402
Deferred financing costs 3,725 416 4,141
Other assets 35,454 2,289 37,743
Investment in subsidiaries 43,017 120,768 (163,785)
Excess reorganization value 77,798 32,229 110,027
-------- -------- -------- --------- --------
Total assets $156,345 $716,661 $233,881 $(294,089) $812,798
======== ======== ======== ========= ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current
portion of long-term debt and
obligation under capital lease $20,000 $ 13,594 $ 2,771 $ 36,365
Accounts payable and advances 36 126,370 38,818 $ (129,375) 35,849
Accrued liabilities 15,018 43,525 20,593 (1) 79,135
Current deferred taxes 10,581 (65) 10,516
-------- -------- -------- --------- --------
Total current liabilities 35,054 194,070 62,117 (129,376) 161,865
Long-term debt including obligation
under capital lease 379,262 113,655 4,744 497,661
Accrued employee benefits 45,806 2,503 48,309
Deferred and noncurrent income taxes 12,817 (8,568) 20,335 24,584
Intercompany loans (350,900) 339,993 10,907
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
14,812,334 shares issued and
outstanding 148 3 32,738 (32,741) 148
Paid in capital 136,480 88,816 88,359 (177,175) 136,480
Accumulated earnings (deficit) (60,115) (60,694) 8,598 52,363 (59,848)
Cumulative foreign currency
translation adjustments 3,640 3,580 3,580 (7,160) 3,640
Unearned restricted stock issued
for future services (41) (41)
-------- -------- -------- --------- --------
Total stockholders' equity 80,112 31,705 133,275 (164,713) 80,379
Total liabilities and
stockholders' equity -------- -------- -------- --------- --------
$156,345 $716,661 $233,881 $(294,089) $812,798
======== ======== ======== ========= ========
<FN>
(1) Elimination of intercompany receivables, payables and investment accounts.
/TABLE
<PAGE>
<PAGE>
ENVIRODYNE INDUSTRIES, 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>
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED MARCH 26, 1998
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
NET SALES $88,753 $47,879 $(7,977) $128,655
COSTS AND EXPENSES
Cost of sales 69,192 35,617 (8,243) 96,566
Selling, general and administrative $ 989 14,978 9,708 25,675
Amortization of intangibles and
excess reorganization value 3,047 754 3,801
-------- -------- -------- --------- --------
OPERATING INCOME (LOSS) (989) 1,536 1,800 266 2,613
Interest income 139 46 185
Interest expense 10,921 2,229 347 13,497
Intercompany interest expense (income) (9,667) 9,359 308
Management fees (income) (1,184) 867 317
Other expense (income), net (80) 611 802 1,333
Equity loss (income) in subsidiary 10,878 677 (11,555)
-------- -------- -------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES (11,718) (12,207) 72 11,821 (12,032)
Income tax provision (benefit) (328) (1,063) 749 (642)
-------- -------- -------- --------- --------
NET INCOME (LOSS) $(11,390) $(11,144) $ (677) $ 11,821 $(11,390)
======== ======== ======== ========= ========
</TABLE>
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
FOR THREE MONTHS ENDED MARCH 26, 1998
<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 $(32,409) $21,873 $2,567 $(7,969)
Cash flows from investing activities:
Capital expenditures (4) (12,805) (2,272) (15,081)
Proceeds from disposition of assets 34 3 37
-------- -------- -------- --------- --------
Net cash provided by
(used in) investing activities (4) (12,771) (2,269) (15,044)
Cash flows from financing activities:
Issuance of common stock 307 307
Proceeds from revolving loan and
long-term borrowings 20,000 69 20,069
Deferred financing costs (4) (4)
Repayment of revolving loan, long-term
borrowings and capital lease obligations (9,814) (180) (9,994)
Increase (decrease) in Envirodyne loan 603 (603)
-------- -------- -------- --------- --------
Net cash provided by
(used in) financing activities 20,906 (9,814) (714) 10,378
Effect of currency exchange
rate changes on cash (58) (58)
-------- -------- -------- --------- --------
Net increase (decrease) in cash
and equivalents (11,507) (712) (474) (12,693)
Cash and equivalents at beginning of period 19,004 865 4,538 24,407
-------- -------- -------- --------- --------
Cash and equivalents at end of period $ 7,497 $ 153 $ 4,064 $11,714
======== ======== ======== ========= ========
/TABLE
<PAGE>
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED MARCH 27, 1997
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
NET SALES $101,378 $64,227 $(11,066) $154,539
COSTS AND EXPENSES
Cost of sales 78,568 48,383 (10,953) 115,998
Selling, general and administrative $1,097 14,553 11,425 27,075
Amortization of intangibles and
excess reorganization value 3,267 785 4,052
-------- -------- -------- --------- --------
OPERATING INCOME (LOSS) (1,097) 4,990 3,634 (113) 7,414
Interest income 383 121 504
Interest expense 11,027 2,846 386 14,259
Intercompany interest expense (income) (10,106) 9,351 755
Management fees (income) (1,170) 876 294
Other expense (income), net 1,481 (927) (942) (388)
Equity loss (income) in subsidiary 1,373 (1,952) 579
-------- -------- -------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES (3,319) (5,204) 3,262 (692) (5,953)
Income tax provision (benefit) (766) (3,944) 1,310 (3,400)
-------- -------- -------- --------- --------
NET INCOME (LOSS) $(2,553) $(1,260) $1,952 $ (692) $ (2,553)
======== ======== ======== ========= ========
</TABLE>
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
FOR THREE MONTHS ENDED MARCH 27, 1997
<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 $(7,705) $14,377 $(13,643) $(6,971)
Cash flows from investing activities:
Capital expenditures (10) (8,562) (1,827) (10,399)
Proceeds from disposition of assets 1,105 10,722 11,827
-------- -------- -------- --------- --------
Net cash provided by (used in)
investing activities (10) (7,457) 8,895 1,428
Cash flows from financing activities:
Issuance of common stock 59 59
Deferred financing costs (26) (46) (72)
Repayment of revolving loan, long-term
borrowings and capital lease obligations (6,772) (13) (6,785)
Increase (decrease) in Envirodyne loan (5,033) 5,033
-------- -------- -------- --------- --------
Net cash provided by (used in)
financing activities (5,000) (6,772) 4,974 (6,798)
Effect of currency exchange rate
changes on cash (653) (653)
-------- -------- -------- --------- --------
Net increase (decrease) in cash
and equivalents (12,715) 148 (427) (12,994)
Cash and equivalents at beginning of period 25,785 (162) 16,171 41,794
-------- -------- -------- --------- --------
Cash and equivalents at end of period $ 13,070 $ (14) $15,744 $28,800
======== ======== ======== ========= ========
</TABLE>
<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 Envirodyne Industries, 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>
March 26, December 25,
1998 1997
--------------- --------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 4,064 $ 4,538
Receivables, net 37,032 38,081
Receivables, affiliates 52,048 51,796
Inventories 36,476 35,029
Other current assets 9,442 10,928
-------- --------
Total current assets 139,062 140,372
Property, plant and equipment 145,257 138,330
Less accumulated depreciation 39,975 32,064
-------- --------
Property, plant and equipment, net 105,282 106,266
Deferred financing costs 416 474
Other assets 2,210 2,414
Excess reorganization value 32,229 32,831
-------- --------
Total assets $279,199 $282,357
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current
portion of long-term debt $ 2,771 $ 2,647
Accounts payable 11,399 15,438
Accounts payable and advances, affiliates 34,324 34,210
Accrued liabilities 20,593 19,158
Current deferred income taxes (65) (65)
-------- --------
Total current liabilities 69,022 71,388
Long-term debt 4,744 5,091
Accrued employee benefits 2,504 2,503
Deferred and noncurrent income taxes 20,335 20,822
Intercompany loans 48,917 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
Retained earnings 26,633 26,496
Cumulative foreign currency
translation adjustments 3,580 3,074
-------- --------
Total stockholders' equity 133,677 133,033
-------- --------
Total liabilities and
stockholders' equity $279,199 $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
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------
March 26, March 27,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
NET SALES $47,879 $64,227
COSTS AND EXPENSES
Cost of sales 35,617 48,383
Selling, general
and administrative 8,365 9,863
Amortization of intangibles
and excess reorganization value 754 785
-------- --------
OPERATING INCOME 3,143 5,196
Interest income 46 121
Interest expense 347 386
Intercompany interest expense 308 755
Management fees 317 294
Other expense (income), net 802 (1,942)
-------- --------
INCOME BEFORE INCOME TAXES 1,415 5,824
Income tax provision 1,278 1,925
-------- --------
NET INCOME $ 137 $ 3,899
======== ========
<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
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------
March 26, March 27,
1998 1997
----------- ------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 137 $ 3,899
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 2,834 2,847
Amortization of intangibles and excess
reorganization value 754 785
Amortization of deferred financing fees and discount 48
Increase (Decrease) in deferred and
noncurrent income taxes (191) (418)
Loss (Gain) on disposition of assets 110 (1,000)
Bad debt provision 80 185
Changes in operating assets and liabilities:
Accounts receivable 1,383 108
Accounts receivable, affiliates (3,223) 1,684
Inventories (772) (2,363)
Other current assets 1,809 535
Accounts payable and accrued liabilities (5,430) (6,436)
Accounts payable, affiliates 5,028 (14,469)
Other
-------- --------
Total adjustments 2,430 (18,542)
-------- --------
Net cash provided by (used in) operating activities 2,567 (14,643)
Cash flows from investing activities:
Capital expenditures (2,272) (1,827)
Proceeds from disposition of assets 3 11,722
-------- --------
Net cash provided by (used in) investing activities (2,269) 9,895
Cash flows from financing activities:
Proceeds from revolving loan and long-term borrowings 69
Deferred financing costs (46)
Repayment of revolving loan and long-term borrowings (180) (13)
Increase (decrease) in Envirodyne loan and advances (603) 5,033
-------- --------
Net cash provided by (used in) financing activities (714) 4,974
Effect of currency exchange rate changes on cash (58) (653)
Net (decrease) in cash and equivalents (474) (427)
Cash and equivalents at beginning of period 4,538 16,171
-------- --------
Cash and equivalents at end of period $4,064 $ 15,744
======== ========
- -----------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $ 40 $ 49
Income taxes paid $407 $153
<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:
March 26, December 25,
1998 1997
---------- -----------
Raw materials $ 3,627 $ 4,418
Work in process 10,575 10,511
Finished products 22,274 20,100
------- -------
$36,476 $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 after December 23, 1996.
On September 29, 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. The Court has not set a new trial date, but the
Company expects the trial in the fouth quarter of 1998. 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 one of the requests for reexamination,
the USPTO initially rejected Viskase's claims, to which Viskase has
filed a response. With respect to the other request for reexamination
the USPTO has not made its determination. If the USPTO ultimately
disallows the claims of the two Viskase patents, the effect upon the
Court action is uncertain.
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
March 26, 1998, $4,473 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 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (dollars in thousands)
---------------------------------------------------------
The accompanying management's discussion and analysis of financial
condition and results of operations should be read in conjunction
with the following table:
Three Months Ended
-----------------------
March 26, March 27,
1998 1997
---------- --------
(in thousands)
Net sales:
Food packaging products $107,558 $135,614
Disposable foodservice supplies 21,097 18,925
-------- --------
$128,655 $154,539
======== ========
Operating income:
Food packaging products $2,408 $7,037
Disposable foodservice supplies 1,245 1,474
Other and eliminations (1,040) (1,097)
-------- --------
$2,613 $7,414
======== ========
Depreciation and amortization
under capital lease
and amortization of intangible expense:
Food packaging products $13,853 $13,987
Disposable foodservice supplies 1,497 1,286
Other 7 7
-------- --------
$15,357 $15,280
======== ========
Capital expenditures:
Food packaging products $10,338 $ 9,632
Disposable foodservice supplies 4,739 757
Other 4 10
-------- --------
$15,081 $10,399
======== ========
Results of Operations
- ---------------------
The Company's net sales for the first three months of 1998 were
$128.7 million, which represented a decrease of 16.7% over the
first three months of 1997. Sales declined 6.8% after removing the
effects of the sale of the Company's oriented polystyrene (OPS) and
polyvinyl chloride (PVC) businesses and Sandusky's exit from the
injection molding business in 1997. Net sales at Viskase decreased
by 19.9% over the prior year. Removing the effects of the oriented
polystyrene (OPS) and the polyvinyl chloride (PVC) businesses,
which were sold in January and December 1997, respectively, sales
at Viskase decreased by 10.5%. The decline in sales is partially
due to the Southeast Asian economic condition and competitive
pressures in both the domestic and European markets. European sales
were also negatively affected by foreign currency translation due
to the strengthening of the U.S. dollar. First quarter net sales at
Clear Shield increased 11.5% from the prior year primarily due to
expansion into the Western Region of the United States. First
quarter net sales at Sandusky decreased by 29.9% from the prior
year. Sandusky exited the injection molding business in June 1997.
After excluding the effects of injection molding sales from the
1997 results, sales increased by 7.5%.
Operating income for the first three months of 1998 was $2.6
million, representing a decrease of 64.8% from the first three
months of 1997. The decrease in operating income resulted primarily
from declines in sales and gross margins caused by continued price
competition in the U.S., Europe and Southeast Asia. Contributing to
the decline in operating income in Europe was the influence of the
U.S. dollar on foreign currencies.
Net interest expense for the three-month period totaled $13.5
million, representing a decrease of $.8 million from the first
three months of 1997. The decrease results from a reduction in
amortization of deferred financing fees and the effects of
translation.
Other expense (income) approximated $1.3 million and $(.4) million
for the first three months of 1998 and 1997, respectively. The 1998
expense is primarily net foreign currency translation losses and
the loss on disposition of assets. The sale of the OPS business in
January of 1997 resulted in a $1.0 million gain. The gain was
offset by foreign exchange gains and losses.
Receivables and payables, which are denominated in non-functional
currencies, are translated to the functional currency at month end
and the resulting gain or loss is recognized as other
income/expense on the income statement. Gains and losses on hedges
of receivables and payables are marked to market. The result is
recongnized in other income and expense on the income statement.
The Company uses foreign exchange forward contracts to hedge some
of its non-functional currency receivables and payables, which are
denominated in major currencies that can be traded on open markets.
This strategy is used to reduce the overall exposure to the effects
of currency fluctuations on cash flows. The Company's policy is not
to speculate in financial instruments.
The tax benefit for the first three months resulted from the
benefit of U.S. taxes partially offset by the provision related to
income from foreign subsidiaries. Due to the permanent differences
in the U.S. resulting from non-deductible amortization and foreign
losses for which no tax benefit is provided, a benefit of $.6
million was provided on a loss before income taxes of $(12.0)
million. The U.S. tax benefit is recorded as a reduction of the
deferred tax liability and does not result in a refund of income
taxes.
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 may include, among other things,
sale of the entire company, sale of business units or
recapitalization. This process is continuing.
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 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.
Liquidity and Capital Resources
- -------------------------------
Cash and equivalents decreased by $12.7 million during the three
months ended March 26, 1998. Cash flows used in operating
activities of $8.0 million and investing activities of $15.1
million exceeded funds provided by financing activities of $10.4
million. Cash flows used in operating activities were principally
attributable to the Company's loss from operations and a seasonal
increase in working capital. Cash flows provided by financing
activities were principally due to a $20 million draw under the
Company's domestic revolving credit facility (Revolving Credit
Facility), offset by a (9.7 million principal repayment under the
GECC lease.
The Company finances its working capital needs using internally
generated cash from operations and borrowings under its $20 million
domestic Revolving Credit Facility. 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.
As of March 26, 1998, the Company had borrowed $20 million under
its Revolving Credit Facility. The Company has received approval
from a financial institution to increase its revolving credit
availability by $10 million, subject to customary conditions and
completion of documentation.
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. The
Company is currently in compliance with the covenants under the
Senior Secured Notes Indenture, Revolving Credit Facility and
Letter of Credit Facility. In the event that the Company is unable
to maintain compliance with the covenants, it will be necessary to
obtain a waiver or amendment of such covenants from the respective
lenders. There can be no assurance that the Company will be able to
obtain such waivers or amendments.
The Company anticipates that its current cash position, operating
cash flows, proceeds from future asset sales and the negotiated
increase in its current revolver will be sufficient to meet its
operating expenses and to service its June and December interest
payments on the Senior Secured Notes and Senior Notes. The Company
is relying in part on the consummation of pending asset sales to
meet those obligations. The Company will be required to satisfy its
$80 million mandatory redemption obligation with respect to the
Senior Secured Notes in 1999 and to pay the remaining principal
amount of the Senior Secured Notes in 2000. Additionally, the
Company's 10.25% Notes, of which $219.3 million principal amount is
outstanding, will mature in December 2001. The Company expects that
in order to make these payments it will be required to pursue one
or more alternative strategies, such as refinancing its
indebtedness, selling additional equity capital, reducing or
delaying capital expenditures, or selling assets. There can be no
assurance that any of these strategies could be effected on
satisfactory terms, if at all.
Capital expenditures for the first three months of 1998 and 1997
totaled $15.1 million and $10.4 million, respectively. Significant
1997 and 1998 capital expenditures included a new information
technology system at Viskase, costs associated with the Nucel(R)
project, additional production capacity for specialty films, and
construction of Clear Shield's Twin Falls, Idaho facility. Capital
expenditures for 1998 are expected to be approximately $40 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 $10 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.
In January 1996, the Company began a system conversion which
incorporated year 2000 compliance. Approximately 80% of the
Company's systems are compliant, with all systems expected to be
compliant by the end of 1999. The costs associated with the
remaining 20% of systems are not expected to be material.
<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 Envirodyne Industries, Inc. and
Subsidiaries.
Item 2 - Changes in Securities
---------------------
No reportable events occurred during the quarter ended March 26,
1998.
Item 3 - Defaults Upon Senior Securities
-------------------------------
None.
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5 - Other Information
-----------------
None.
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.9 Envirodyne Industries, Inc. Corporate Office
Management Incentive Plan for Fiscal Year 1998.
27 Financial Data Schedules.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ENVIRODYNE INDUSTRIES, INC.
-----------------------------
Registrant
By: /s/
--------------------------
Gordon S. Donovan
Vice President, Chief Financial
Officer and Treasurer
(Duly authorized officer
and principal financial
officer of the registrant)
Date: May 11, 1998
ENVIRODYNE INDUSTRIES, INC.
CORPORATE OFFICE
MANAGEMENT INCENTIVE PLAN
Fiscal Year 1998
I. Purpose
-------
The Envirodyne Industries, Inc. Management Incentive Plan (MIP) has
been established for Fiscal Year 1998 for those covered employees
defined under Section III below.
The purpose of this Management Incentive Plan is to provide
additional compensation to participants for their contribution to
the achievement of the objectives of the Company including:
- Assisting in attracting and retaining highly qualified
key employees.
- Encouraging and stimulating superior performance by
such personnel.
II. Definitions
-----------
A. Base Salary equals the salary earnings for the portion of the
-----------
Fiscal Year during which the participant was an active
employee in the particular level of management for which the
computation is being made. Salary earnings do not include
Plan awards, long-term incentive awards, imputed income from
such programs as executive life insurance or non-recurring
earnings such as moving expenses and is based on salary
earnings before reductions for such items as contributions
under Section 401-(K) of the Internal Revenue Code of 1986 as
amended.
B. Company means Envirodyne Industries, Inc., its successors and
-------
assigns.
C. Fiscal Year means the Company's Fiscal Year beginning January
-----------
1 and ending the last day of December.
D. Plan means the Envirodyne Industries, Inc. Management Incentive
----
Plan as from time to time amended.
E. Chairman of the Board and Chief Executive Officer means the
-------------------------------------------------
Chairman of the Board and Chief Executive Officer of Envirodyne
Industries, Inc.
F. Financial Targets are the financial goal(s) appropriate to the
-----------------
company for the Fiscal Year. These goals are identified in
Exhibit B and are specifically identified by participant in
Exhibit C.
G. Discretionary Goals refer to the personal goals and objectives
-------------------
set by each participant and his/her supervisor at the beginning
of each Fiscal Year against which performance is measured.
III. EMPLOYEES COVERED BY THIS PLAN
------------------------------
The Plan is applicable to those management employees and other key
personnel in the management levels specified in the attached
Exhibit C.
IV. FINANCIAL AWARD
---------------
A participant in the Plan shall be entitled to a Financial Award
computed in accordance with the following formula:
Base Financial Bonus Financial
Salary x Performance x Percent = Performance
Incentive Allocated Award
Earned To Financial
Targets
Where:
- - "Base Salary" is as defined in Section II A.
- - "Financial Performance Incentive Earned" is determined by the
relationship of actual achievement to targeted goals and can
range from target to maximum, with full attainment of the
financial goals equating to the target for each measure as set
forth in the business plan. The target/maximum range for each
participant is a function of management level slotting (See
Exhibit C). The relationship of actual achievement to the
performance range will be determined by using straight-line
interpolation for achievement between the target and the
maximum of the payout range as applicable (see Exhibit B).
Actual performance below target will result in no award being
paid on that particular financial measure.
- - "Bonus Percent Allocated To Financial Targets" shall range from
0% to 100%.
If a participant was in more than one management level during a
Fiscal Year, a separate computation shall be made for each level
applicable to the participant during such Fiscal Year; the sum of
the separate computations shall be the participant's Financial
Performance Award.
V. Personal Performance Award
--------------------------
Goals for each participant are to be developed jointly by the
participant and his/her supervisor at the beginning of a Fiscal
Year. It is anticipated that both quantifiable and non-
quantifiable goals will be developed in the process. Each goal
should be weighted from 0% to 100%, with the sum of the weights
equal to 100%.
A participant in the Plan shall be entitled to a Personal
Performance Award computed in accordance with the following
formula:
Base Personal Bonus Personal
Salary x Performance x Percent = Performance
Incentive Allocated Award
Earned To Personal
Objectives
Where:
- - "Base Salary" is as defined in Section II A.
- - "Percent of Personal Objectives Achieved" ranges from 0% to
100% and is determined by the agreed upon performance of the
individual against pre-established individual goals.
- - "Percent of Bonus Allocated to Personal Objectives" shall range
from 0% to 100%.
It is intended that the participant and his/her supervisor will
agree on meaningful individual goals. The following is a partial
list of the type of goals or objectives that may be developed:
- - Achievement of income goals
- - Development of subordinates
- - Successful development of new accounts/products
- - Improvement in product merchandising programs
- - Attainment of self-development objectives
- - Control or reduction of operating expenses
At the end of a Fiscal Year, each participant will review and
evaluate his/her accomplishment of personal goals and objectives.
The participant and his/her supervisor will then review the
preliminary rating. Thereafter, the supervisor will assign a
Personal Performance %, from 0% to 100%, reflecting the
participant's achievement of his/her goals during such Fiscal Year.
The Personal Performance % recommendation of the supervisor shall
be reviewed by the President of the Company, who shall recommend an
appropriate Personal Performance % to the Chairman of the Board and
Chief Executive Officer who shall approve the final Personal
Performance % for each participant.
VI. Performance Measures, Targets and Payout Ranges
-----------------------------------------------
The financial performance measures, targets and payout ranges used
for incentive purposes shall be established by the Company based on
the annual business plan. Those measures, targets and payout
ranges, as appropriate, shall be approved by the Chairman of the
Board and Chief Executive Officer. The performance measures,
targets and payout ranges are defined in Exhibit B.
VII. Participant Bonus Composition
-----------------------------
The composition of each participant's bonus shall be determined by
the President of the Company or his designee(s). The composition
may have a Discretionary portion and a Financial portion. The
composition of the bonuses are established in Exhibit C.
VIII. Computation and Disbursement of Funds
-------------------------------------
As soon as possible after the close of the Fiscal Year, the
President of the Company will recommend a final personal goal
achievement percentage and incentive award payment to the Chairman
of the Board and Chief Executive Officer. Once approved, payment
of the awards shall be made within sixty (60) days after the end of
the Fiscal Year.
If the participant dies before receiving his/her award, the amount
due will be paid to the designated beneficiaries on file with the
Company and, in the absence of such designation, to the
participant's estate. All payment awards shall be reduced by
amounts required to be withheld for taxes at the time payments are
made.
IX. Changes to Target
-----------------
The President of the Company may recommend to the Chairman of the
Board and Chief Executive Officer, at any time prior to the final
determination of awards, changes to the performance measures,
targets, and payout ranges used for incentive purposes. If, in the
judgment of the Chairman of the Board and Chief Executive Officer,
such change(s) is/are desirable in the interests of equitable
treatment of the participants and the Company as a result of
extraordinary or non-recurring events, changes in applicable
accounting rules or principles, changes in the Company's methods of
accounting, changes in applicable law, changes due to
consolidation, acquisitions, or reorganization, the Chairman of the
Board and Chief Executive Officer shall authorize and approve such
change(s) for immediate incorporation into the Plan. Further,
should actual performance on any one or all of the financial
measure(s) be less than or greater than target by twenty-five
percent (25%) or more, the award actually earned under that
measure(s) will be at the sole discretion of the Chairman of the
Board and Chief Executive Officer subject to approval by the
Compensation Committee of the Board.
X. Partial Awards
--------------
A participant shall be entitled to payment of a partial Financial
Award and a partial Personal Objectives Award, computed in
accordance with Sections IV and V, and based on Base Salary in a
Fiscal Year, if prior to the end of such Fiscal Year, a
participant:
- - Dies,
- - Retires (is eligible to immediately receive retirement benefits
under a Company sponsored retirement plan),
- - Becomes permanently disabled,
- - Transfers to a position with a salary grade not eligible for
participation in the Plan,
- - Enters military service,
- - Takes an approved leave of absence,
- - Is appointed or elected to public office,
- - Is terminated due to position elimination,
provided that the participant was an active employee for a minimum
of 30 consecutive calendar days during such Fiscal Year. Such
partial awards shall be paid when payments of non-deferred awards
for such Fiscal Year are made.
Participants hired during the course of a Fiscal Year and who are
employed through the end of such Fiscal Year shall be eligible for
an award based on their Base Salary during such Fiscal Year,
provided that such employees begin active service prior to February
1 of such Fiscal Year.
XI. Forfeiture of Bonus
-------------------
Except as provided in Section X, no participant who ceases to be an
employee of the Company prior to the end of a Fiscal Year shall be
entitled to any amounts under this Plan for such Fiscal Year unless
the Chairman of the Board and Chief Executive Officer, in
consultation with the Vice President, Human Resources, decides
otherwise.
Participants who cease to be an employee of the Company between the
end of a Fiscal Year and the payment date of awards for such Fiscal
Year shall be entitled to awards earned during such Fiscal Year.
XII. Administration
--------------
This Plan shall be administered by the Vice President, Human
Resources of Envirodyne Industries, Inc., subject to the control
and supervision of the Chairman of the Board and Chief Executive
Officer and the Compensation Committee of the Board of Directors of
Envirodyne Industries.
Any changes to the context of the Plan, the performance ranges,
Plan adjustments and actual payouts will be reviewed with and
approved by the Compensation Committee of the Board of Directors.
In the event of a claim or dispute brought forth by a participant,
the decision of the Chairman of the Board and Chief Executive
Officer as to the facts in the case and the meaning and intent of
any provision of the Plan, or its application, shall be final and
conclusive.
XIII. No Employment Contract; Future Plans
------------------------------------
Participation in this Plan shall not confer upon any participant
any right to continue in the employ of the Company nor interfere in
any way with the right of the Company to terminate any
participant's employment at any time. The company is under no
obligation to continue the Plan in future Fiscal Years.
XIV. Amendment or Termination
------------------------
The Company may at any time, or from time to time, (a) amend, alter
or modify the provisions of this Plan, (b) terminate this Plan, or
(c) terminate the participation of an employee or group of
employees in this Plan; provided, however, that in the event of the
termination of this Plan or a termination of participation, the
Company shall provide the partial awards to the affected
participant(s) for the portion of the Fiscal Year during which such
employee(s) were participants in this Plan, in a manner in which
the Company, in its sole judgment, determines to be equitable to
such participants and the Company.
XV. General Provisions
------------------
(a) No right under the Plan shall be assignable, either
voluntarily or involuntarily by way of encumbrance, pledge,
attachment, level or charge of any nature (except as may be
required by state or federal law).
(b) Nothing in the Plan shall require the Company to segregate or
set aside any funds or other property for the purpose of paying any
portion of an award. No participant, beneficiary or other person
shall have any right, title or interest in any amount awarded under
the Plan prior to the close of the Fiscal Year, or in any property
of the Company or its subsidiaries.
_____________________ ____________________________
Final Approval Date Chairman of the Board
and Chief Executive Officer
____________________________
Vice President
Human Resources
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<PERIOD-END> MAR-26-1998
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<COMMON> 148,000
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