1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 -------------------- DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 19, 1996 ZAPATA CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 1-4219 C-74-1339132 (State or other jurisdiction (Commission File No.) (I.R.S. Employer of incorporation) Identification No.) 1717 ST. JAMES PLACE SUITE 550 HOUSTON, TEXAS 77056 (Address of principal executive offices) (713) 940-6100 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name or former address, if changed since last report) 2 ITEM 5. OTHER EVENTS On June 19, 1996, Zapata Corporation, a Delaware corporation ("Zapata"), purchased 818,006 shares of common stock, par value $0.01 per share ("Envirodyne Common Stock"), of Envirodyne Industries, Inc., a Delaware corporation ("Envirodyne"), in a brokerage transaction (which settled on June 24, 1996) at a purchase price of $4.165 per share, including brokerage commissions. Also, on June 19, 1996, Zapata contracted to acquire, at a purchase price of $4.125 per share, all the shares of Envirodyne Common Stock held by a holder of 900,000 shares of Envirodyne Common Stock, subject to reductions in the number of shares held by such holder (estimated not to exceed 30,000 shares) effected prior to the closing of the transaction, which is to occur no later than June 30, 1996. Upon the closing of such transaction (assuming that 870,000 shares of Envirodyne Common Stock are acquired in such transaction and based upon the most recently available filing by Envirodyne with the Securities and Exchange Commission), Zapata will own approximately 40.6% of the outstanding shares of Envirodyne Common Stock. For additional information with respect to Envirodyne, reference is made to the audited consolidated financial statements of Envirodyne and subsidiaries as of December 28, 1995 and December 29, 1994 and for the 52-week periods ended December 28, 1995, December 29, 1994 and December 31, 1993 and to the unaudited interim consolidated financial statements of Envirodyne and subsidiaries as of March 28, 1996 and for the three months ended March 28, 1996 and March 30, 1995, all of which are included as an exhibit to this Current Report on Form 8-K and are incorporated herein by this reference. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (c) EXHIBITS. Exhibit 23 - Consent of independent accountants. Exhibit 99 - Financial statements of Envirodyne Industries, Inc. and subsidiaries, including independent accountant's report. 3 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 hereunto duly authorized. ZAPATA CORPORATION By: /s/ Joseph L. von Rosenberg III ---------------------------------- Joseph L. von Rosenberg III Executive Vice President, General Counsel and Corporate Secretary Date: June 24, 1996 2 4 EXHIBIT INDEX
Exhibit Description ------- ----------- 23 Consent of independent accountants. 99 Financial statements of Envirodyne Industries, Inc. and subsidiaries, including independent accountant's report.
1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of Zapata Corporation of Form S-3 (File No. 33-68034) and on Form S-8's (File Nos. 33-19085 and 33-45251) of our reports, which include explanatory paragraphs discussing the comprehensive financial restructuring through implementation of reorganization under Chapter 11 of the United States Bankruptcy Code, dated March 26, 1996, on our audits of the consolidated financial statements and financial statement schedules of Envirodyne Industries, Inc. and subsidiaries as of December 28, 1995 and December 29, 1994 and for the period December 30, 1994 to December 28, 1995 and January 1 to December 29, 1994 (Post-consummation) and January 1 to December 31, 1993 (Pre-consummation) and the consolidated financial statements and financial statement schedules of Viskase Holding Corporation and subsidiaries as of December 28, 1995 and December 29, 1994, and for the period December 30, 1994 to December 28, 1995 and January 1 to December 29, 1994 (Post-consummation) and January 1 to December 31, 1993 (Pre-consummation), which reports are included in this Form 8-K. Coopers & Lybrand L.L.P. Chicago, Illinois June 21, 1996
1 AUDITED FINANCIAL STATEMENTS 2 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Envirodyne Industries, Inc. We have audited the consolidated financial statements and the financial statement schedules of Envirodyne Industries, Inc. and Subsidiaries listed in Item 14(a) of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1 to the consolidated financial statements, on December 31, 1993, the Company completed a comprehensive financial restructuring through the implementation of reorganization under Chapter 11 of the United States Bankruptcy Code and applied fresh start reporting. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Envirodyne Industries, Inc. and Subsidiaries as of December 28, 1995 and December 29, 1994, and the consolidated results of their operations and their cash flows for the period December 30, 1994 to December 28, 1995 and January 1 to December 29, 1994 (Post-consummation) and January 1 to December 31, 1993 (Pre-consummation), in conformity with generally accepted accounting principles. In addition, in our opinion the schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Chicago, Illinois March 26, 1996 F-1 3 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS The accompanying notes are an integral part of the consolidated financial statements. F-2
DECEMBER 28, DECEMBER 29, 1995 1994 ------------ ------------ (in thousands) ASSETS Current assets: Cash and equivalents ........................ $ 30,325 $ 7,289 Receivables, net ............................ 89,454 86,868 Inventories ................................. 99,474 110,483 Other current assets ........................ 21,646 19,466 -------- -------- Total current assets .................... 240,899 224,106 Property, plant and equipment, including those under capital leases ........ 545,491 506,099 Less accumulated depreciation and amortization .......................... 75,987 35,761 -------- -------- Property, plant and equipment, net .......... 469,504 470,338 Deferred financing costs ...................... 8,090 9,143 Other assets .................................. 45,589 47,181 Excess reorganization value ................... 135,485 145,868 -------- -------- $899,567 $896,636 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligations under capital leases ...................... $ 12,504 $ 25,798 Accounts payable ............................ 39,117 34,335 Accrued liabilities ......................... 67,553 72,246 -------- -------- Total current liabilities .............. 119,174 132,379 Long-term debt including obligations under capital leases ....................... 530,181 489,358 Accrued employee benefits .................... 55,626 56,217 Deferred and noncurrent income taxes ......... 77,490 83,333 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 13,579,460 shares issued and outstanding at December 28, 1995 and 13,515,000 shares at December 29, 1994 ... 136 135 Paid in capital............................. 134,864 134,865 Accumulated (deficit) ...................... (25,131) (3,612) Cumulative foreign currency translation adjustments .................. 7,227 3,961 -------- -------- Total stockholders' equity 117,096 135,349 -------- -------- $899,567 $896,636 ======== ======== 4 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Due to the implementation of the Plan of Reorganization and Fresh Start Reporting, the consolidated statement of operations for the fiscal years ended December 28, 1995 and December 29, 1994 are not comparable to the fiscal year ended December 31, 1993. (Refer to Note 1 of Notes to Consolidated Financial Statements.) The accompanying notes are an integral part of the consolidated financial statements. F-3
52 WEEKS 52 WEEKS 52 WEEKS DECEMBER 30, JANUARY 1, JANUARY 1, 1994 TO TO TO DECEMBER 28, DECEMBER 29, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ (in thousands, except for number of shares and per share amounts) NET SALES ......................................... $ 650,212 $ 599,029 $ 587,385 Patent infringement settlement income ........... 9,457 COSTS AND EXPENSES Cost of sales ................................... 485,048 435,760 418,692 Selling, general and administrative ............. 111,230 108,437 99,350 Amortization of intangibles and excess reorganization value ................... 15,799 15,612 15,711 ---------- ----------- --------- OPERATING INCOME .................................. 38,135 48,677 53,632 Interest income ................................. 670 307 931 Interest expense ................................ 57,336 49,514 31,190 Other expense (income), net ..................... 1,710 (1,668) 5,540 Minority interest in loss of subsidiary ......... 50 717 ---------- ----------- --------- INCOME (LOSS) BEFORE INCOME TAXES, REORGANIZATION ITEMS AND EXTRAORDINARY ITEMS .... (20,241) 1,188 18,550 Reorganization items, net ....................... 104,745 ---------- ----------- --------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS ......................... (20,241) 1,188 (86,195) Income tax provision (benefit) .................. (2,918) 4,800 12,000 ---------- ----------- --------- (LOSS) BEFORE EXTRAORDINARY ITEMS ................. (17,323) (3,612) (98,195) Extraordinary gain (loss), net of tax ............ (4,196) 183,784 ---------- ----------- --------- NET INCOME (LOSS) ................................. $ (21,519) $ (3,612) $ 85,589 ========== =========== ========= WEIGHTED AVERAGE COMMON SHARES .................... 13,516,771 13,500,703 320 ========== =========== ========= PER SHARE AMOUNTS: (LOSS) BEFORE EXTRAORDINARY ITEMS ............... $ (1.28) $ (.27) $(306,859) ========== =========== ========= NET INCOME (LOSS) ................................. $ (1.59) $ (.27) $ 267,466 ========== =========== ========= 5 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) Due to the implementation of the Plan of Reorganization and Fresh Start Reporting, the stockholders' equity for the fiscal years ended December 28, 1995 and December 29, 1994 are not comparable to the fiscal year ended December 31, 1993. (Refer to Note 1 of Notes to Consolidated Financial Statements.) The accompanying notes are an integral part of the consolidated financial statements. F-4
CUMULATIVE FOREIGN TOTAL CURRENCY STOCKHOLDERS' COMMON PAID IN ACCUMULATED TRANSLATION EQUITY STOCK CAPITAL (DEFICIT) ADJUSTMENTS (DEFICIT) ------ -------- ----------- ----------- --------- (IN THOUSANDS) Balance December 31, 1992 . . . . . . $ 1 $ 12,900 $ (98,776) $ 2,330 $ (83,545) Net income . . . . . . . . . . . . . 85,589 85,589 Translation adjustments . . . . . . . (2,044) (2,044) Cancellation of preconsummation Common Stock . . . . . . . . . . . (1) (12,900) (12,901) Elimination of accumulated deficit and cumulative foreign currency translation adjustments . . . . . . 13,187 (286) 12,901 ------ -------- --------- -------- ---------- $ 0 $ 0 $ 0 $ 0 $ 0 ====== ======== ========= ======== ========== Issuance of new Common Stock . . . . $ 135 $134,865 $ 135,000 ------ -------- ---------- Balance December 31, 1993 . . . . . . 135 134,865 135,000 Net (loss) . . . . . . . . . . . . . $ (3,612) (3,612) Translation adjustments . . . . . . . $ 3,961 3,961 ------ -------- --------- -------- ---------- Balance December 29, 1994 . . . . . . 135 134,865 (3,612) 3,961 135,349 Net (loss) . . . . . . . . . . . . . (21,519) (21,519) Issuance of Common Stock . . . . . . 1 (1) Translation adjustments . . . . . . . 3,266 3,266 ------ -------- --------- -------- ---------- Balance December 28, 1995 $ 136 $134,864 $ (25,131) $ 7,227 $ 117,096 ====== ======== ========= ======== ========== 6 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Due to the implementation of the Plan of Reorganization and Fresh Start Reporting, the consolidated statement of cash flows for the fiscal years ended December 28, 1995 and December 29, 1994 are not comparable to the fiscal year ended December 31, 1993. (Refer to Note 1 of Notes to Consolidated Financial Statements.) The accompanying notes are an integral part of the consolidated financial statements. F-5
DECEMBER 30, JANUARY 1, JANUARY 1, 1994 TO TO TO DECEMBER 28, DECEMBER 29, DECEMBER 31, 1995 1994 1993 ----------- ------------ ------------ (IN THOUSANDS) Cash flows from operating activities: (Loss) before extraordinary item . . . . . . . . . . . . . . . . $ (17,323) $ (3,612) $ (98,195) Extraordinary gain (loss) . . . . . . . . . . . . . . . . . . . . (4,196) 183,784 --------- -------- --------- Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . (21,519) (3,612) 85,589 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization under capital leases . . . . . . 40,262 35,775 36,687 Amortization of intangibles and excess reorganization value . . 15,799 15,612 15,711 Amortization of deferred financing fees and discount . . . . . 2,196 1,569 2,418 Increase (decrease) in deferred and noncurrent income taxes . . (6,450) (52) 9,547 Loss on debt extinguishment . . . . . . . . . . . . . . . . . . 6,778 Foreign currency transaction loss (gain) . . . . . . . . . . . (1,233) (3,465) 3,380 Loss (gain) on sales of property, plant and equipment . . . . . 73 (9) 650 Reorganization items and fresh start reporting . . . . . . . . (79,039) Changes in operating assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . . . . . (839) (11,257) (1,319) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 12,741 (10,548) 4,163 Other current assets . . . . . . . . . . . . . . . . . . . . (1,837) (1,607) (2,152) Accounts payable and accrued liabilities . . . . . . . . . . (1,670) 3,774 15,894 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,334) (2,894) 672 --------- -------- --------- Total adjustments . . . . . . . . . . . . . . . . . . . . . . . 60,486 26,898 6,612 --------- -------- --------- Net cash provided by operating activities before reorganization expense . . . . . . . . . . . . . . . . . . 38,967 23,286 92,201 Net cash used for reorganization items . . . . . . . . . . . (14,929) --------- -------- --------- Total net cash provided by operating activities . . . . . . . 38,967 23,286 77,272 Cash flows from investing activities: Capital expenditures . . . . . . . . . . . . . . . . . . . . . . (34,465) (32,566) (40,887) Proceeds from sale of property, plant and equipment . . . . . . . 86 359 124 Purchase of minority interest in subsidiary . . . . . . . . . . . (4,200) --------- -------- --------- Net cash (used in) investing activities . . . . . . . . . . . (34,379) (36,407) (40,763) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings . . . . . . 207,922 37,668 106,003 Deferred financing costs . . . . . . . . . . . . . . . . . . . . (7,887) (1,608) (9,779) Repayment of revolving loan, long-term borrowings and capital lease obligations . . . . . . . . . . . . . . . . . . . (181,375) (22,617) (138,736) --------- -------- --------- Net cash provided by (used in) financing activities . . . . . 18,660 13,443 (42,512) Effect of currency exchange rate changes on cash . . . . . . . . . (212) (776) (316) --------- -------- --------- Net increase (decrease) in cash and equivalents . . . . . . . . . . 23,036 (454) (6,319) Cash and equivalents at beginning of period . . . . . . . . . . . . 7,289 7,743 14,062 --------- -------- --------- Cash and equivalents at end of period . . . . . . . . . . . . . . . $ 30,325 $ 7,289 $ 7,743 ========= ======== ========= - ------------------------------------------------------------------------------------------------------------------------- Supplemental cash flow information and noncash investing and financing activities: Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,030 $ 43,484 $ 28,001 Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . $ 4,895 $ 5,058 $ 1,154 Capital lease obligations (machinery and equipment) . . . . . . . $ 2,081 7 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. CHAPTER 11 REORGANIZATION PROCEEDINGS (DOLLARS IN THOUSANDS) On January 6, 1993, a group of bondholders filed an involuntary petition for reorganization of Envirodyne Industries, Inc. under Chapter 11 of the U.S. Bankruptcy Code. On January 7, 1993 Viskase Corporation, Viskase Sales Corporation, Viskase Holding Corporation, Clear Shield National, Inc., Sandusky Plastics of Delaware, Inc., Sandusky Plastics, Inc. and Envirodyne Finance Company each filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the Bankruptcy Court). On December 17, 1993, the Bankruptcy Court confirmed the First Amended Joint Plan of Reorganization as twice modified (Plan of Reorganization) with respect to Envirodyne Industries, Inc. (Envirodyne) and certain of its subsidiaries. The Plan of Reorganization was consummated and Envirodyne and certain of its subsidiaries emerged from Chapter 11 on December 31, 1993 (Effective Date). For accounting purposes, the Plan of Reorganization was deemed to be effective as of December 31, 1993. Pursuant to the Plan of Reorganization, Envirodyne's shares of common stock that were outstanding prior to the effective date were canceled. Emerald Acquisition Corporation, the sole stockholder of Envirodyne prior to the consummation of the bankruptcy, received no distribution pursuant to the Plan of Reorganization. The Plan of Reorganization provided for the initial issuance of approximately 13,500,000 new shares of Envirodyne common stock (subject to adjustment), warrants to purchase an additional 1,500,000 shares and distributions to major creditors as follows: -- Holders of Envirodyne's former Senior Discount Notes Due 1997 (14.5%) (Old Discount Notes) with an accreted value as of January 6, 1993 of $200,838 became entitled to receive a pro rata portion of $219,262 principal amount of 10 1/4% Senior Notes Due 2001 (10 1/4% Notes). -- Holders of Envirodyne's former $200,000 principal amount of 14% Senior Subordinated Debentures Due 2001 (Old 14% Debentures), with accrued but unpaid interest through January 6, 1993 of $42,812 became entitled to receive a pro rata portion of 12,142,737 shares of the Envirodyne common stock, par value $.01 per share, representing in the aggregate approximately 89.95% of the common stock initially issued pursuant to the Plan of Reorganization. -- Holders of the Envirodyne's former $91,350 principal amount of 13 1/2% Subordinated Notes Due 1996 (Old 13 1/2% Notes), with accrued but unpaid interest through January 6, 1993 of $13,604 became entitled to receive a pro rata portion of (i) 903,625 shares of Envirodyne common stock, representing in the aggregate approximately 6.69% of the common stock initially issued pursuant to the Plan of Reorganization, and (ii) warrants (Warrants) to purchase 1,500,000 shares of common stock. The Warrants were issued pursuant to a Warrant Agreement dated as of December 31, 1993 between Envirodyne and Bankers Trust Company, as Warrant Agent. The Warrants are exercisable at any time until December 31, 1998 at an exercise price of $17.25 per share. The number of shares of common stock for which a Warrant is exercisable, and the exercise price of the Warrants, are subject to adjustment upon the occurrence of certain events. In addition, holders of Old 13 1/2% Notes, other than Salomon Brothers Inc (Salomon Brothers) and certain of its affiliates, who elected to grant a limited release to Salomon Brothers and its affiliates pursuant to the Plan of Reorganization, of all claims arising out of the 1989 leveraged buyout acquisition of Envirodyne, the Old 13 1/2% Notes or Envirodyne, were entitled to share ratably in 445,928 shares of common stock, representing in the aggregate approximately 3.30% of the common stock initially issued pursuant to the Plan of Reorganization. -- Holders of allowed general unsecured claims of Envirodyne (as opposed to subsidiaries of Envirodyne) became entitled to receive 32.28 shares of common stock for each five hundred dollars amount of their prepetition claims, or a total of 8,070 shares of common stock, representing .06% of the common stock initially issued pursuant to the Plan of Reorganization. These claims totaled approximately $125. If the allowed amount of general unsecured claims of Envirodyne exceeds $125, for example upon the resolution of disputed claims, additional shares of common stock will have to be issued to the holders of allowed general unsecured claims of Envirodyne in order to provide equitable allocation of value among F-6 8 Envirodyne's unsecured creditors under the Plan of Reorganization. Such additional shares of common stock would be distributed with respect to allowed general unsecured claims of Envirodyne as follows: (i) approximately 2.58 additional shares per five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $125 and $25,000; (ii) approximately 5.61 additional shares per five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $25,000 and $50,000; (iii) approximately 9.22 additional shares per five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $50,000 and $75,000; and (iv) approximately 13.58 additional shares per five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $75,000 and $100,000. Refer to Note 23 for discussion on certain settled claims and open claims which, if determined adversely to Envirodyne, would result in the issuance of common stock. -- Holders of Envirodyne subsidiary allowed trade claims were paid in full. -- Salomon Brothers Holding Company Inc 11.25% Pay-in-Kind Notes issued by Envirodyne with an accreted value as of January 6, 1993 of $5,658 were canceled. The contracts constituting the sale and leaseback transaction with General Electric Capital Corporation were assumed by the relevant Envirodyne subsidiaries under the Plan of Reorganization with minor changes thereto. The Chapter 11 filing was related only to the Company's domestic operations and did not include the foreign subsidiaries and various inactive domestic subsidiaries. The Company accounted for the reorganization using the principles of fresh start reporting in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code." Accordingly, all assets and liabilities have been restated to reflect their reorganization value, which approximates fair value. The reorganization value of the Company's equity of $135,000 was based on the consideration of many factors and various valuation methods, including discounted cash flows and comparable multiples of earnings valuation techniques believed by management and its financial advisors to be representative of the Company's business and industry. Factors considered by the Company included the following: o Forecasted operating and cash flow results which gave effect to the estimated impact of debt restructuring and other operational reorganization. o Discounted residual value at the end of the forecasted period based on the capitalized cash flows for the last year of that period. o Competition and general economic considerations. o Projected sales growth. o Potential profitability. o Seasonality and working capital requirements. The excess of the reorganization value over the fair value of net assets and liabilities is reported as excess reorganization value and is being amortized over a fifteen-year period. The Company continues to evaluate the recoverability of excess reorganization value based on the operating performance and expected future undiscounted cash flows of the operating business units. F-7 9 The reorganization and the adoption of Fresh Start Reporting resulted in the following adjustments to the Company's Consolidated Statement of Operations for the period January 1 to December 31, 1993: Had the Fresh Start reporting and the Plan of Reorganization been implemented with the related financing at the beginning of 1993, the pro forma Envirodyne consolidated statement of operations would have been as follows: (IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES AND PER SHARE AMOUNTS)
INCOME (EXPENSE) --------- Reorganization Items - -------------------- Legal, financial advisory and other fees associated with the Chapter 11 proceedings............................................... $ (14,929) Write-off of deferred financing fees associated with the Bank Credit Agreement .................................................... (4,071) Write-off of existing excess investment over net assets acquired, net of excess reorganization value recorded, and fair market value adjustments to assets and liabilities ............................... (85,745) --------- $(104,745) ========= Extraordinary Gain - ------------------ Accreted value of the Old Discount Notes less unamortized deferred financing .......................................................... $ 197,379 Principal amount of Old 14% Debentures plus accrued interest less unamortized deferred financing ..................................... 237,125 Principal amount of Old 13 1/2% Notes plus accrued interest less unamortized deferred financing ..................................... 103,918 Accreted value of 11 1/4% Pay-in-Kind Notes due to Related Party ..... 5,658 Envirodyne untendered shares ......................................... 2,176 Envirodyne general unsecured creditors allowed claims ................ 90 Principal amount of 10 1/4% Notes exchanged for Old Discount Notes.... (219,262) Fair value of equity exchanged for Old 14% Debentures, Old 13 1/2% Notes and Envirodyne unsecured claims ...................... (135,000) --------- Extraordinary gain before tax provision .............................. 192,084 Tax provision on extraordinary gain................................... 8,300 --------- Extraordinary gain net of taxes ...................................... $ 183,784 ========= The pro forma information reflects the changes in interest cost and depreciation and amortization due to the implementation of the Plan of Reorganization and Fresh Start Reporting. F-8
PRO FORMA JANUARY 1 To DECEMBER 31, 1993 ----------------- (UNAUDITED) Net sales ......................................................... $ 587,385 Cost of sales ................................................... 417,780 Selling, general and administrative.............................. 99,350 Amortization of intangibles and excess reorganization cost....... 15,612 ---------- Operating income................................................... 54,643 Interest income ................................................. 931 Interest expense ................................................ 51,198 Other expense (income), net...................................... 5,540 Minority interest in loss of subsidiary.......................... 717 ---------- Income before income taxes......................................... (447) Income tax provision ............................................ 6,140 ---------- Net (loss) ........................................................ $ (6,587) ========== Weighted average common shares .................................... 13,500,703 Net (loss) per share .............................................. $ (.49) ========== 10 2. NATURE OF BUSINESS Envirodyne manufactures food packaging products and foodservice supplies through three primary operating subsidiaries -- Viskase, Sandusky and Clear Shield. The operations of these subsidiaries are primarily in North and South America and Europe. Viskase is a leading producer of cellulosic casings used in preparing and packaging processed meat products and is a major producer of heat shrinkable plastic bags and specialty films for packaging and preserving fresh and processed meat products, poultry and cheeses. The Company is also a leading domestic and international manufacturer of plasticized polyvinyl chloride (PVC) films, primarily for use in packaging food items. Through Sandusky, the Company is a producer of thermoformed and injection molded plastic containers, used in the packaging of cultured dairy and delicatessen products, and of horticultural trays and inserts. Finally, through Clear Shield, the Company is a major domestic producer of disposable plastic cutlery, drinking straws, custom dining kits and related products. INTERNATIONAL OPERATIONS Viskase has seven manufacturing facilities located outside the continental United States, in Beauvais, France; Thaon, France; Lindsay, Ontario, Canada; Sedgefield, England (Great Britain); Swansea, Wales (Great Britain); Guarulhos, Brazil and Nuevo Laredo, Mexico. The aggregate of domestic exports and net sales of foreign operations represents approximately 56% of Viskase's total net sales. International sales and operations may be subject to various risks including, but not limited to, possible unfavorable exchange rate fluctuations, political instability, governmental regulations (including import and export controls), restrictions on currency repatriation, embargoes, labor relations laws and the possibility of governmental expropriation. Viskase's foreign operations generally are subject to taxes on the repatriation of funds. International operations in certain parts of the world may be subject to international balance of payments difficulties which may raise the possibility of delay or loss in the collection of accounts receivable from sales to customers in those countries. Viskase believes that its allowance for doubtful accounts makes adequate provision for the collectibility of its receivables. Management believes that growth potential exists for many of Viskase's products outside the United States and that Viskase is well positioned to participate in these markets. All of Sandusky's and Clear Shield's operations are located in the United States. SALES AND DISTRIBUTION Viskase sells its products in virtually every country in the world with principal markets in North America, Europe, Latin America and Asia Pacific. In the United States, Viskase has a staff of technical sales representatives responsible for sales to fresh meat, processed meat and poultry producers. Approximately 50 distributors market Viskase products to customers in Europe, Africa, Asia, and Latin America. Its products are marketed through its own subsidiaries in the United Kingdom, Germany, France, Italy, Russia, Brazil, Mexico and Australia. In the United States, Viskase sells its PVC film products primarily to the retail grocery industry through packaging material distributors, food wholesalers and a direct sales force. Additionally the sales organization is supported by a technical service group. The United Kingdom operation sells directly and through distributors, primarily to the retail grocery and foodservice industries in Europe. In the United States, Viskase operates casings service centers in Atlanta, Georgia, and Bensalem, Pennsylvania, as well as service centers within the Chicago, Illinois, and Pauls Valley, Oklahoma, plants. In Europe, Viskase operates casings service centers in Milan, Italy, Pulheim, Germany, and Moscow, Russia. Viskase also operates a service center in Brisbane, Australia. These service centers provide finishing, inventory and delivery services to Viskase customers. Sandusky's and Clear Shield's sales are predominantly in the United States. F-9 11 COMPETITION Viskase is one of the world's leading producers of cellulosic casings and a major producer of films. From time to time, Viskase experiences reduced market share or reduced profits due to price competition; however, management believes that such market conditions will not result in any long-term material loss of business. The dairy and delicatessen containers industry is highly fragmented. Sandusky competes in the manufacture and sale of dairy and delicatessen containers with several domestic manufacturers of thermoformed and injection molded plastic containers. Major competitive factors in the dairy and delicatessen container business are price, quality and customer service. Major competitive factors in the specialized thermoformed container business are price and technical and customer service capabilities. Clear Shield's primary competitors include several major corporations, some of which are larger and better capitalized than Clear Shield and, in some cases, offer a wider product line than Clear Shield. Clear Shield's competitors periodically engage in aggressive price discounting to gain business. Clear Shield management believes, however, that such market conditions will not result in any long-term material loss of business for Clear Shield, although its profit margins may be affected from time to time. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) BASIS OF PRESENTATION Effective in 1990 Envirodyne adopted a 52/53 week fiscal year ending on the last Thursday of December. The 1993 financial statements include December 31, 1993 in order to present the effect of the consummation of the Plan of Reorganization. (B) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Envirodyne Industries, Inc. and its subsidiaries (the Company). Reclassifications have been made to the prior years' financial statements to conform to the 1995 presentation. (C) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. (D) CASH EQUIVALENTS (DOLLARS IN THOUSANDS) For purposes of the statement of cash flows, the Company considers cash equivalents to consist of all highly liquid debt investments purchased with an initial maturity of approximately three months or less. Due to the short-term nature of these instruments, the carrying values approximate the fair market value. Cash equivalents include $24,536 and $821 of short-term investments at December 28, 1995 and December 29, 1994, respectively. (E) INVENTORIES Domestic inventories are valued primarily at the lower of last-in, first-out (LIFO) cost or market. Remaining amounts, primarily foreign, are valued at the lower of first-in, first-out (FIFO) cost or market. (F) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from 3 to 32 years. Upon retirement or other disposition, cost and related accumulated depreciation are removed from the accounts, and F-10 12 any gain or loss is included in results of operations. Effective December 31, 1993 and in conjunction with the Fresh Start Reporting, property, plant and equipment was reported at the estimated fair value (refer to Note 1). (G) DEFERRED FINANCING COSTS Deferred financing costs are amortized on a straight-line basis over the expected term of the related debt agreement. Amortization of deferred financing costs is classified as interest expense. (H) PATENTS Patents are amortized on the straight-line method over an estimated average useful life of ten years. The carrying value of patents is periodically reviewed by the Company and impairments are recognized when the expected undiscounted future operating cash flows derived from such patents is less than the carrying value. If impairment is identified, valuation techniques deemed appropriate under the particular circumstances will be used to determine the asset's fair value. The loss will be measured based on the excess of carrying value over the determined fair value. The review for impairment is performed at least on a quarterly basis. (I) EXCESS REORGANIZATION VALUE AND EXCESS INVESTMENT OVER NET ASSETS ACQUIRED, NET Excess reorganization value is amortized on the straight-line method over 15 years. Accumulated amortization of excess reorganization value totaled $20 million and $10 million at December 28, 1995, and December 29, 1994, respectively. Cost in excess of net assets acquired, net was amortized on a straight-line method over 40 years in fiscal 1993. The Company continues to evaluate the recoverability of excess reorganization value based on operating performance and undiscounted cash flows of the operating business units. Impairment will be recognized when the expected undiscounted future operating cash flows derived from such intangible is less than its carrying value. If impairment is identified, valuation techniques deemed appropriate under the particular circumstances will be used to determine the intangible's fair value. The loss will be measured based on the excess of carrying value over the determined fair value. The review for impairment is performed at least on a quarterly basis. (J) PENSIONS The North American operations of Viskase and the Company's operations in Europe have defined benefit retirement plans covering substantially all salaried and full time hourly employees. Pension cost is computed using the projected unit credit method. The Company's funding policy is consistent with funding requirements of the applicable federal and foreign laws and regulations. (K) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The North American operations of Viskase have postretirement health care and life insurance benefits. Effective January 1, 1993, postretirement benefits other than pensions are accounted for in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions." (L) POSTEMPLOYMENT BENEFITS Effective December 31, 1993 and in conjunction with the Fresh Start Reporting, the Company adopted SFAS No. 112 "Employers Accounting for Postemployment Benefits." The impact of adopting SFAS No. 112 was not material. F-11 13 (M) INCOME TAXES Income taxes are accounted for in accordance with SFAS No. 109. Tax provisions and benefits are recorded at statutory rates for taxable items included in the consolidated statements of operations regardless of the period for which such items are reported for tax purposes. Deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities for which income tax benefits will be realized in future years. (N) NET INCOME (LOSS) PER SHARE Net income (loss) per share of common stock is based upon the weighted average number of shares of common stock outstanding during the year. No effect has been given to options outstanding under the Company's stock option plans and warrants issued pursuant to the Plan of Reorganization as their effect is anti-dilutive. (O) REVENUE RECOGNITION Sales to customers are recorded at the time of shipment net of discounts and allowances. (P) FOREIGN CURRENCY CONTRACTS The Company maintains a hedging program to partially hedge its forecasted foreign currency revenue cash flows. The hedging program principally addresses revenue cash flows within its European operations. The foreign exchange contracts are denominated predominantly in the major European currencies and have varying maturities up to eighteen months. The effect of this practice is 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 rate risk because gains and losses on these contracts offset losses and gains on the transactions being hedged. The cash flows from forward contracts accounted for as hedges of identifiable transactions or events are classified consistent with the cash flows from the transactions or events being hedged. (Q) STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options and other equity instruments to employees based on new fair value acounting rules. Although expense recognition for employee stock-based compensation is not mandatory, SFAS 123 requires companies that choose not to adopt the new fair value accounting to disclose pro forma net income and earnings per share under the new method. This new accounting principle is effective for the Company's fiscal year ending December 26, 1996. The Company believes that adoption is not expected to have a material impact on its financial condition as the Company will not adopt the fair value accounting, but will instead comply with the disclosure requirements. 4. RECEIVABLES (DOLLARS IN THOUSANDS) Receivables consisted primarily of trade accounts receivable and were net of allowances for doubtful accounts of $3,224 and $2,136 at December 28, 1995, and at December 29, 1994, respectively. Envirodyne has a broad base of customers, with no single customer accounting for more than 5% of sales. F-12 14 5. INVENTORIES (DOLLARS IN THOUSANDS) Inventories consisted of: Approximately 54% and 55% of the Company's inventories at December 28, 1995, and December 29, 1994, respectively, were valued at LIFO. These LIFO values exceeded current manufacturing cost by approximately $4,000 and $7,000 at December 28, 1995, and December 29, 1994, respectively. Inventories were net of reserves for obsolete and slow moving inventory of $3,818 and $5,353 at December 28, 1995, and December 29, 1994, respectively. Raw materials used by Viskase include cellulose (from wood pulp), fibrous paper, petroleum based resins, plasticizers and various other chemicals. Viskase generally purchases its raw materials from a single or small number of suppliers with whom it maintains good relations. Certain primary and alternative sources of supply are located outside the United States. Viskase believes, but there can be no assurance, that adequate alternative sources of supply currently exist for all of Viskase's raw materials or raw material substitutes that Viskase could modify its processes to utilize. The principal raw materials used by Sandusky and Clear Shield are thermoplastic resins, which are readily available from several domestic sources. 6. PROPERTY, PLANT AND EQUIPMENT (DOLLARS IN THOUSANDS)
DECEMBER 28, DECEMBER 29, 1995 1994 ------------ ------------ Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,150 $ 20,358 Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,800 37,613 Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,524 52,512 --------- --------- $ 99,474 $ 110,483 ========= ========= Maintenance and repairs charged to costs and expenses for 1995, 1994, and 1993 aggregated $33,227, $33,045 and $32,636, respectively. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from 3 to 32 years. 7. OTHER ASSETS (DOLLARS IN THOUSANDS) Other assets were comprised of:
DECEMBER 28, DECEMBER 29, 1995 1994 ------------ ------------ Property, plant and equipment: Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,369 $ 15,930 Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . 81,767 76,202 Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 292,176 256,621 Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . 15,938 20,178 Capital leases: Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 139,241 137,168 ---------- ---------- $ 545,491 $ 506,099 ========== ========== Patents are amortized on the straight-line method over an estimated average useful life of ten years. F-13
DECEMBER 28, DECEMBER 29, 1995 1994 ------------ ------------ Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,000 $ 50,000 Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . 10,000 5,000 ---------- ---------- Patents, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 45,000 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,589 2,181 ---------- ---------- $ 45,589 $ 47,181 ========== ========== 15 8. ACCRUED LIABILITIES (DOLLARS IN THOUSANDS) Accrued liabilities were comprised of: 9. DEBT OBLIGATIONS (DOLLARS IN THOUSANDS) On June 20, 1995, Envirodyne completed the sale of $160,000 aggregate principal amount of senior secured notes (Senior Secured Notes) to certain institutional investors in a private placement. The senior secured notes were issued pursuant to an indenture dated June 20, 1995 (Indenture) and consist of (i) $151,500 of 12% Senior Secured Notes due 2000 and (ii) $8,500 of Floating Rate Senior Secured Notes due 2000 (collectively, the Senior Secured Notes). Envirodyne used the net proceeds of the offering primarily to (i) repay the Company's $86,125 domestic term loan, (ii) repay the $68,316 of obligations under the Company's domestic and foreign revolving loans and (iii) pay transaction fees and expenses. Concurrently with the June 20, 1995 placement, Envirodyne entered into a new $20,000 domestic revolving credit facility (Revolving Credit Facility) and a new $28,000 letter of credit facility (Letter of Credit Facility). The Senior Secured Notes and the obligations under the Revolving Credit Facility and the Letter of Credit Facility are guaranteed by Envirodyne's significant domestic subsidiaries and secured by a collateral pool (Collateral Pool) comprised of: (i) all domestic accounts receivable (including intercompany receivables) and inventory; (ii) all patents, trademarks and other intellectual property (subject to non-exclusive licensing agreements); (iii) substantially all domestic fixed assets (other than assets subject to a lease agreement with General Electric Capital Corporation); and (iv) a senior pledge of 100% of the capital stock of Envirodyne's significant domestic subsidiaries and 65% of the capital stock of Viskase S.A. Such guarantees and security are shared by the holders of the Senior Secured Notes and the holders of the obligations under the Revolving Credit Facility on a pari passu basis pursuant to an intercreditor agreement. Pursuant to such intercreditor agreement, the security interest of the holders of the obligations under the Letter of Credit Facility has priority over all other liens on the Collateral Pool. The Company finances its working capital needs through a combination of cash generated through operations and borrowings under the 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), borrowing base limitations measured by accounts receivable and inventory of the Company and reserves which may be established at the discretion of the lenders. Currently, there are no drawings under the Revolving Credit Facility. The available borrowing capacity under the Revolving Credit Facility was $20 million at December 28, 1995. The Company recognized an extraordinary loss of $6,778 representing the write-off of deferred financing fees related to the June 20, 1995 debt refinancing. The extraordinary loss, net of applicable income taxes of $2,582, was included in the Company's Statement of Operations for the quarter ended June 29, 1995. The $151,500 tranche of Senior Secured Notes bears interest at a rate of 12% per annum and the $8,500 tranche bears interest at a rate equal to the six month London Interbank Offered Rate (LIBOR) plus 575 basis points. The current interest rate on the floating rate tranche is approximately 11.4%. The interest rate on the floating rate tranche is reset semi-annually on June 15 and December 15. Interest on the Senior Secured Notes is payable each June 15 and December 15. On June 15, 1999, $80,000 of the aggregate principal amount of the Senior Secured Notes is subject to a mandatory redemption. The remaining principal amount outstanding will mature on June 15, 2000. In the event the Company has Excess Cash Flow (as defined) in excess of $5,000 in any fiscal year, beginning with fiscal 1995, Envirodyne will be required to make an offer to purchase Senior Secured Notes F-14
DECEMBER 28, DECEMBER 29, 1995 1994 ------------ ------------ Compensation and employee benefits . . . . . . . . . . . . . . . . . . . $31,997 $33,521 Taxes, other than on income . . . . . . . . . . . . . . . . . . . . . . 6,535 6,454 Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,535 3,630 Accrued volume and sales discounts . . . . . . . . . . . . . . . . . . . 13,218 11,958 Accrued reorganization fees and expenses . . . . . . . . . . . . . . . . 2,027 3,167 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,241 13,516 ------- ------- $67,553 $72,246 ======= ======= 16 together with any borrowed money obligations outstanding under the Revolving Credit Facility, on a pro rata basis, in an amount equal to the Excess Cash Flow at a purchase price of 100% plus any accrued interest to the date of purchase. There was no Excess Cash Flow for fiscal 1995. The Senior Secured Notes are redeemable, in whole or from time to time in part, at Envirodyne's option, at the greater of (i) the outstanding principal amount or (ii) the present value of the expected future cash flows from the Senior Secured Notes discounted at a rate equal to the Treasury Note yield corresponding closest to the remaining average life of the Senior Secured Notes at the time of prepayment plus 100 basis points; plus accrued interest thereon to the date of purchase. Upon the occurrence of a Change of Control (which includes the acquisition by any person of more than 50% of Envirodyne's Common Stock), each holder of the Senior Secured Notes has the right to require the Company to repurchase such holder's Senior Secured Notes at a price equal to the greater of (i) the outstanding principal amount or (ii) the present value of the expected cash flows from the Senior Secured Notes discounted at a rate equal to the Treasury Note yield corresponding closest to the remaining average life of the Senior Secured Notes at the time of prepayment plus 100 basis points; plus accrued interest thereon to the date of purchase. The Indenture contains covenants with respect to Envirodyne and its subsidiaries limiting (subject to a number of important qualifications), among other things, (i) the ability to pay dividends or redeem or repurchase common stock, (ii) the incurrence of indebtedness, (iii) the creation of liens, (iv) certain affiliate transactions and (v) the ability to consolidate with or merge into another entity and to dispose of assets. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to the three month London Interbank Offered Rate (LIBOR) on the first day of each calendar quarter plus 300 basis points. The Revolving Credit Facility expires on June 20, 1998. Envirodyne has entered into interest rate agreements that cap $50 million of interest rate exposure at an average LIBOR rate of 6.50% until January 1997. These interest rate cap agreements were entered into under terms of the senior bank financing that was repaid on June 20, 1995. Interest expense includes $613 of amortization of the interest rate cap premium during fiscal 1995. Envirodyne has not received any payments under the interest rate protection agreements. The Letter of Credit Facility expires on June 20, 1998. Fees on the outstanding amount of letters of credit are 2.0% per annum, with an issuance fee of 0.5% on the face amount of the letter of credit. There is a commitment fee of 0.5% per annum on the unused portion of the Letter of Credit Facility. Had the refinancing taken place at the beginning of 1995, the pro forma Envirodyne consolidated statement of operations would have been: (IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES AND PER SHARE AMOUNTS) F-15
PRO FORMA DECEMBER 30, 1994 TO DECEMBER 28, 1995 ----------------- Net sales ........................................................... $ 650,212 Cost of sales ..................................................... 485,048 Selling, general and administrative................................ 111,230 Amortization of intangibles and excess reorganization cost ...................................... 15,799 ---------- Operating income..................................................... 38,135 Interest income.................................................... 670 Interest expense................................................... 60,213 Other expense (income), net........................................ 1,710 ---------- (Loss) before income taxes .......................................... (23,118) Income tax (benefit) ................................................ (4,040) ---------- Net (loss) .......................................................... $ (19,078) ========== Weighted average common shares....................................... 13,516,771 Net (loss) per share................................................. $ (1.41) ========== 17 The pro forma information reflects the change in interest expense and related tax effect due to the issuance of $160 million principal amount of Senior Secured Notes and the refinancing of the Company's bank debt. The $219,262 principal amount of 10 1/4% Notes were issued pursuant to an Indenture dated as of December 31, 1993 (10 1/4% Note Indenture) between Envirodyne and Bankers Trust Company, as Trustee. The 10 1/4% Notes are the unsecured senior obligations of Envirodyne, bear interest at the rate of 10 1/4% per annum, payable on each June 1 and December 1, and mature on December 1, 2001. The 10 1/4% Notes are redeemable, in whole or from time to time in part, at the option of Envirodyne, at the percentages of principal amount specified below plus accrued and unpaid interest to the redemption date, if the 10 1/4% Notes are redeemed during the twelve-month period commencing on January 1 of the following years: The 10 1/4% Note Indenture contains covenants with respect to Envirodyne and its subsidiaries limiting (subject to a number of important qualifications), among other things, (i) the ability to pay dividends on or redeem or repurchase capital stock, (ii) the incurrence of indebtedness, (iii) certain affiliate transactions and (iv) the ability of the Company to consolidate with or merge with or into another entity or to dispose of substantially all its assets. Outstanding short-term and long-term debt consisted of:
YEAR PERCENTAGE ---- ---------- 1996 . . . . . . . . . . . . . . . . . . . . . . . . 104% 1997 . . . . . . . . . . . . . . . . . . . . . . . . 103% 1998 . . . . . . . . . . . . . . . . . . . . . . . . 102% 1999 . . . . . . . . . . . . . . . . . . . . . . . . 101% 2000 and thereafter . . . . . . . . . . . . . . . . . 100% The fair value of the Company's debt obligation (excluding capital lease obligations) is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for the debt of the same remaining maturities. At December 28, 1995, the carrying amount and estimated fair value of debt obligations (excluding capital lease obligations) were $393,432 and $318,053, respectively. The average interest rate on short-term borrowing during 1995 was 10.1%. On December 28, 1990, Viskase and GECC entered into a sale and leaseback transaction. The sale and leaseback of assets included the production and finishing equipment at Viskase's four domestic casing production and finishing facilities. The facilities are located in Chicago, Illinois; Loudon, Tennessee; Osceola, Arkansas and Kentland, Indiana. Viskase, as the Lessee under the relevant agreements, will continue to operate all of the facilities. Sales proceeds on the sale-leaseback transaction were $171.5 million; proceeds were used to repay approximately $154 million of bank debt and a $15 million convertible note outstanding at the time. The lease has been accounted for as a capital lease. F-16
DECEMBER 28, DECEMBER 29, 1995 1994 ------------ ------------ Short-term debt, current maturity of long-term debt and capital lease obligations: Current maturity of Bank Term Loan ................................ $ 11,100 Current maturity of Viskase Capital Lease Obligation .............. $ 6,012 5,450 Current maturity of Viskase Limited Term Loan (4.7%) .............. 2,033 1,882 Other.............................................................. 4,459 7,366 --------- ---------- Total short-term debt .................................. $ 12,504 $ 25,798 ========= ========== Long-term debt: Bank Credit Agreement: Term Loan due 1999 .............................................. $ 80,575 Revolving Loan due 1999.......................................... 32,524 12% Senior Secured Notes due 2000.................................. $ 160,000 10.25% Senior Notes due 2001....................................... 219,262 219,262 Viskase Capital Lease Obligation................................... 141,182 147,194 Viskase Limited Term Loan (4.7%) .................................. 7,115 8,466 Other.............................................................. 2,622 1,337 --------- ---------- Total long-term debt.................................... $ 530,181 $ 489,358 ========= ========== 18 The principal terms of the sale and leaseback transaction include: (a) a 15 year basic lease term (plus selected renewals at Viskase's option); (b) annual rent payments in advance beginning in February 1991; and (c) a fixed price purchase option at the end of the basic 15 year term and fair market purchase options at the end of the basic term and each renewal term. Further, the Lease Documents contain covenants requiring maintenance by the Company of certain financial ratios and restricting the Company's ability to pay dividends, make payments to affiliates, make investments and incur indebtedness. Annual rental payments under the Lease will be approximately $19.2 million through 1997, $21.4 million in 1998 and $23.5 million through the end of the basic 15-year term. Viskase is required to provide credit support consisting of a standby letter of credit in an amount up to one year's rent through at least 1997. This credit support can be reduced up to $4 million currently if the Company achieves and maintains certain financial ratios. As of December 28, 1995, the Company had met the required financial ratios and the letter of credit has been reduced by $4 million. The letter can be further reduced in 1997 or eliminated after 1998 if the Company achieves and maintains certain financial ratios. Envirodyne and its other principal subsidiaries guaranteed the obligations of Viskase under the Lease. The 1996 GECC lease payment of $19,227 was paid on February 28, 1996. Principal payments under the capital lease obligations for the years ended 1996 through 2000 range from approximately $6 million to $14 million. The following is a schedule of minimum future lease payments under the capital lease obligations together with the present value of the net minimum lease payments as of December 28, 1995: Aggregate maturities of remaining long-term debt for each of the next five fiscal years are:
YEAR ENDING DECEMBER -------------------- 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,714 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,658 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,636 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,766 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,766 Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,028 -------- Net minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . 226,568 Less: Amount representing interest . . . . . . . . . . . . . . . . . . . (77,315) -------- $149,253 ======== 10. OPERATING LEASES (DOLLARS IN THOUSANDS) The Company has operating lease agreements for machinery, equipment and facilities. The majority of the facilities leases require the Company to pay maintenance, insurance and real estate taxes. Future minimum lease payments for operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 28, 1995, are:
TOTAL ------- 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,019 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,418 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,313 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,477 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,669 Total rent expense during 1995, 1994 and 1993 amounted to $6,749, $5,982 and $5,401, respectively. F-17
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,033 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,291 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,708 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 588 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375 Total thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------ Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . $7,995 ====== 19 11. RETIREMENT PLANS The Company and its subsidiaries have defined contribution and defined benefit plans varying by country and subsidiary. At December 28, 1995, the North American operations of Viskase maintained several non-contributory defined benefit retirement plans. The Viskase plans cover substantially all salaried and full-time hourly employees, and benefits are based on final average compensation and years of credited service. The Company's policy is to fund the minimum actuarially computed annual contribution required under the Employee Retirement Income Security Act of 1974 (ERISA). As of the Viskase acquisition date, the former owner assumed the liability for the accumulated benefit obligation under its plans. The effect of expected future compensation increases on benefits accrued is recorded as a liability on the Company's consolidated balance sheet. PENSIONS -- NORTH AMERICA (DOLLARS IN THOUSANDS): Net pension cost for the Viskase North American plans consisted of: F-18
DECEMBER 30, JANUARY 1, JANUARY 1, 1994 TO TO TO DECEMBER 28, DECEMBER 29, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ Service cost -- benefits earned during the year..... $ 3,238 $ 3,662 $ 3,186 Interest cost on projected benefit obligation....... 4,794 4,249 4,000 Actual (gain) loss on plan assets................... (7,012) 874 (2,306) Net amortization and deferral....................... 4,086 (3,696) (74) --------- ------- ------- Net pension cost ................................... $ 5,106 $ 5,089 $ 4,806 ========= ======= ======= 20 The amounts included in the consolidated balance sheet for the North American plans of Viskase were: SAVINGS PLANS (DOLLARS IN THOUSANDS): The Company also has defined contribution savings and similar plans, which vary by subsidiary, and, accordingly, are available to substantially all full-time U.S. employees not covered by collective bargaining agreements. The Company's aggregate contributions to these plans are based on eligible employee contributions and certain other factors. The Company expense for these plans was $2,134, $2,109 and $2,026 in 1995, 1994, and 1993, respectively. INTERNATIONAL PLANS (DOLLARS IN THOUSANDS): The Company maintains various pension and statutory separation pay plans for its European employees. The expense for these plans in 1995, 1994 and 1993 was $1,383, $1,043 and $864, respectively. As of their most recent valuation dates, in plans where vested benefits exceeded plan assets, the actuarially computed value of vested benefits exceeded those plans' assets by approximately $2,856; conversely, plan assets exceeded the vested benefits in certain other plans by approximately $2,346. OTHER POSTRETIREMENT BENEFITS (DOLLARS IN THOUSANDS): The Company provides postretirement health care and life insurance benefits to Viskase's North American employees. The Company does not fund postretirement health care and life benefits in advance, and has the right to modify these plans in the future. Effective January 1, 1993, the company adopted the provisions of SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 106 requires that the expected cost of these benefits must be charged to expense during the years that the employee renders service. In connection with the 1989 acquisition of the Company, an accrual of $15,000 had been recorded for the estimated postretirement benefits liability at the acquisition date. On January 1, 1993, an additional liability and transition obligation was recorded on a prospective basis for $6,500. The transaction obligation was to be amortized over 20 years. Subsequently, Fresh Start Reporting resulted in the write-off of the transition obligation and statement of the F-19
DECEMBER 28, DECEMBER 29, 1995 1994 ------------ ------------ Actuarial present value of benefit obligation: Vested benefits ................................................. $ 45,208 $ 39,165 Nonvested benefits .............................................. 4,435 4,316 ---------- --------- Accumulated benefit obligation..................................... 49,643 43,481 Effect of projected future compensation increases.................. 16,566 16,651 ---------- --------- Projected benefit obligation....................................... 66,209 60,132 Plan assets at fair value, primarily listed stocks and investment grade corporate bonds ........................................... 43,190 33,678 ---------- --------- Amount underfunded ................................................ 23,019 26,454 Unrecognized gain (loss)........................................... 7,578 3,778 Unrecognized prior service costs................................... 63 71 ---------- --------- Accrued liability included in consolidated balance sheet........... $ 30,660 $ 30,303 ========== ========= Assumed discount rate.............................................. 7.5% 8.0% Assumed long-term compensation factor.............................. 4.5% 5.0% Assumed long-term return on plan assets............................ 8.5% 8.5% 21 liability for postretirement health care and life insurance benefits at fair value. Net periodic postretirement benefit cost for 1995 and 1994 includes the following components: The postretirement benefit obligation was determined by application of the terms of the various plans, together with relevant actuarial assumptions. The effect of a 1% annual increase in these assumed cost trend rates would increase the accumulated postretirement benefit obligation at December 28, 1995 and December 29, 1994 by $178 and $198, respectively, and the service and interest cost components for 1995 and 1994 by a total of $16 and $22, respectively. EMPLOYEE RELATIONS The Company generally maintains productive and amicable relationships with its 4,900 employees worldwide. One of Viskase's domestic plants, located in Loudon, Tennessee, is unionized, and all of its Canadian and European plants have unions. Employees at the Company's European plants are unionized with negotiations occurring at both local and national levels. Contracts have recently been reached with certain of the European unions. Based on past experience and current conditions, the Company does not expect a protracted work stoppage to occur; however, national events outside of the Company's control may give rise to such risk. From time to time union organization efforts have occurred at other individual plant locations. Unions represent a total of approximately 1,500 of Viskase's 4,000 employees. None of Clear Shield's approximate 514 employees are represented by unions. Certain of the hourly production personnel at Sandusky's Ohio thermoforming facility are members of a union. As of December 28, 1995, approximately 1,675 of the Company's employees are covered by collective bargaining agreements that will expire within one year. F-20
MEDICAL LIFE TOTAL ---------------- ----------------- ------------------ 1995 1994 1995 1994 1995 1994 ------- ------- ------- ------- ------- ------- Components of net periodic postretirement benefit cost: Service cost -- benefits earned during the current year.............................. $ 413 $ 511 $ 162 $ 176 $ 575 $ 687 Interest cost -- on accumulated post- retirement benefit obligation................. 1,182 1,208 472 442 1,654 1,650 Amortization of unrecognized transition benefit ...................................... (73) (17) (90) ------- ------- ------ ------ ------- ------- Net periodic benefit cost ...................... $ 1,522 $ 1,719 $ 617 $ 618 $ 2,139 $ 2,337 ======= ======= ====== ====== ======= ======= Actuarial present value of benefit obligations: Retirees ....................................... $ 6,937 $ 6,836 $2,745 $2,184 $ 9,682 $ 9,020 Fully eligible active participants ............. 2,309 2,238 2,409 2,435 4,718 4,673 Other active participants ...................... 7,411 7,660 1,624 1,612 9,035 9,272 ------- ------- ------ ------ ------- ------- Total ................................... 16,657 16,734 6,778 6,231 23,435 22,965 Unrecognized gains.............................. 1,616 979 622 581 2,238 1,560 Unrecognized prior service costs ............... (109) (109) ------- ------- ------ ------ ------- ------- Accumulated postretirement benefit obligation .... $18,164 $17,713 $7,400 $6,812 $25,564 $24,525 ======= ======= ====== ====== ======= ======= Assumed discount rate............................. 7.50% Assumed medical trend rate ....................... 11.00% in 1995 decreasing to 6.50% in 2004 Assumed long-term compensation factor............. 4.50% 22 12. INCOME TAXES (DOLLARS IN THOUSANDS) The provision (benefit) for income taxes consisted of: The income tax benefit for the 1995 period was allocated between loss before extraordinary loss for $2,918 and to the extraordinary loss for $2,582. The income tax expense for the 1993 period was allocated between loss before extraordinary gain for $12,000 and to the extraordinary gain for $8,300. A reconciliation from the statutory federal tax rate to the consolidated effective tax rate follows:
DECEMBER 30, JANUARY 1, JANUARY 1, 1994 TO TO TO DECEMBER 28, DECEMBER 29, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ Current: Federal . . . . . . . . . . . . . . . . . . . . . . $ 200 Foreign . . . . . . . . . . . . . . . . . . . . . . $ 950 4,652 $ 2,453 State and local . . . . . . . . . . . . . . . . . . ------- --------- -------- $ 950 4,852 2,453 ------- --------- -------- Deferred: Federal . . . . . . . . . . . . . . . . . . . . . . (7,219) (194) 17,188 Foreign . . . . . . . . . . . . . . . . . . . . . . 2,098 128 (1,434) State and local . . . . . . . . . . . . . . . . . . (1,329) 14 2,093 ------- --------- -------- (6,450) (52) 17,847 ------- --------- -------- $(5,500) $ 4,800 $ 20,300 ======= ========= ======== Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities for 1995 are as follows:
DECEMBER 30, JANUARY 1, JANUARY 1, 1994 TO TO TO DECEMBER 28, DECEMBER 29, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ Statutory federal tax rate . . . . . . . . . . . . . . . . . . (35.0)% 35.0% 35.0% Increase (decrease) in tax rate due to: State and local taxes net of related federal tax benefit . . (3.2) .8 1.3 Net effect of taxes relating to foreign operations .8 140.3 1.5 Intangibles amortization . . . . . . . . . . . . . . . . . . 9.4 214.1 2.3 Non-taxable debt discharge income, fresh start accounting and other bankruptcy related expenses . . . . . . . . . . . (22.9) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 13.8 2.0 ----- ----- ----- Consolidated effective tax rate . . . . . . . . . . . . . . . . (20.4)% 404.0% 19.2% ===== ===== ====== F-21
TEMPORARY DIFFERENCE TAX EFFECTED --------------------------- ---------------------------- DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX ASSETS LIABILITIES ASSETS LIABILITIES ------------- ----------- --------- ----------- Depreciation basis differences . . . . . . $296,263 $113,094 Inventory basis differences . . . . . . . 28,097 10,976 Intangible basis differences . . . . . . . 37,603 14,665 Lease transaction. . . . . . . . . . . . . $147,194 $57,406 Pension and healthcare . . . . . . . . . . 56,545 22,067 Employee benefits accruals . . . . . . . . 13,544 5,282 Valuation allowances . . . . . . . . . . . 3,209 1,252 Other accruals and reserves. . . . . . . . 6,673 2,602 Foreign exchange and other . . . . . . . . 648 70,720 216 27,580 -------- -------- ------- -------- $227,813 $432,683 $88,825 $166,315 ======== ======== ======= ======== 23 12. INCOME TAXES (DOLLARS IN THOUSANDS)--(CONTINUED) At December 28, 1995, the Company had $11,136 of undistributed earnings of foreign subsidiaries considered permanently invested for which deferred taxes have not been provided. At December 28, 1995, the Company had federal income tax net operating loss carryforwards of approximately $28 million. Such losses will expire in the year 2009, if not previously utilized. In addition the Company has alternative minimum tax credit carryforwards of $3.5 million. Alternative minimum tax credits have an indefinite carryforward period. Significant limitations on the utilization of the net operating loss carryforwards and the alternative minimum tax credit carryforwards exist under federal income tax rules. Domestic earnings or (losses) after extraordinary gain or loss and before income taxes were approximately $(30,138), $(7,705) and $107,622 in 1995, 1994 and 1993, respectively. Foreign earnings or (losses) before income taxes were approximately $3,118, $8,893 and $(1,733) in 1995, 1994 and 1993, respectively. The Company joins in filing a U.S. consolidated federal income tax return including all of its domestic subsidiaries. 13. COMMITMENTS As of December 28, 1995, the Company had capital expediture commitments outstanding of approximately $3.7 million. 14. CONTINGENCIES (DOLLARS IN THOUSANDS) A class action lawsuit by former employees of subsidiary corporations comprising most of the Company's former steel and mining division (SMD) was pending as of the commencement of the bankruptcy case in which the plaintiffs were seeking substantial damages. In March 1996, Envirodyne completed a settlement of the lawsuit under which Envirodyne was released and discharged from all claims in exchange for 900,000 shares of Envirodyne common stock without any admission or finding of liability or wrongdoing. Litigation has been initiated with respect to events arising out of the bankruptcy cases and the 1989 acquisition of Envirodyne by Emerald with respect to which, although Envirodyne is not presently a party to such litigation, certain defendants have asserted indemnity rights against Envirodyne. In ARTRA Group Incorporated v. Salomon Brothers Holding Company Inc, Salomon Brothers Inc, D.P. Kelly & Associates, L.P., Donald P. Kelly, Charles K. Bobrinskoy, James L. Massey, William Rifkind and Michael Zimmerman, Case No. 93 A 1616, United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (Bankruptcy Court), ARTRA Group Incorporated (ARTRA) alleges breach of fiduciary duty and tortious inference in connection with the negotiation and consummation of the Plan of Reorganization. In ARTRA Group Incorporated v. Salomon Brothers Holding Company Inc, Salomon Brothers Inc, D.P. Kelly & Associates, L.P., Donald P. Kelly, Charles K. Bobrinskoy and Michael Zimmerman, Case No. 93 L 2198, Circuit Court of the Eighteenth Judicial Circuit, County of DuPage, State of Illinois, ARTRA alleges breach of fiduciary duty, fraudulent and negligent misrepresentation and breach of contract in connection with the 1989 acquisition of Envirodyne by Emerald. The plaintiff seeks damages in the total amount of $136.2 million plus interest and punitive damages of $408.6 million. D.P. Kelly & Associates, L.P. and Messrs. Kelly, Bobrinskoy, Massey, Rifkind and Zimmerman have asserted common law and contractual rights of indemnity against Envirodyne for attorneys' fees, costs and any ultimate liability relating to the claims set forth in the complaints. Upon the undertaking of D.P. Kelly & Associates, L.P. to repay such funds in the event it is ultimately determined that there is no right to indemnity, Envirodyne is advancing funds to D.P. Kelly & Associates, L.P. and Mr. Kelly for the payment of legal fees in the case pending before the Bankruptcy Court. Although the Company is not a party to either case, the Company believes that the plaintiff's claims raise similar factual issues to those raised in the bankruptcy cases which, if adjudicated in a manner similar to that in the bankruptcy cases, would render it difficult for the plaintiff to establish liability. Accordingly, the Company believes that the indemnification claims would not have a material adverse effect upon the business or financial position of the Company, even if the claimants were ultimately successful in establishing their right to indemnification. Certain of Envirodyne's stockholders prior to the acquisition of Envirodyne by Emerald failed to exchange their certificates representing old Envirodyne common stock for the $40 per share cash merger consideration F-22 24 14. CONTINGENCIES (DOLLARS IN THOUSANDS)--(CONTINUED) specified by the applicable acquisition agreement. In the Envirodyne bankruptcy case, Envirodyne sought to equitably subordinate the claims of the holders of untendered shares, so that such holders would not receive a distribution under the Plan of Reorganization. The Bankruptcy Court granted Envirodyne's motion for summary judgment and equitably subordinated the claims of the holders of untendered shares to the claims of other general unsecured creditors. Certain of the affected holders appealed and both the U.S. District Court and the U.S. Seventh Circuit Court of Appeals affirmed the Bankruptcy Court decision. The time period for further appeal has not passed. Envirodyne believes that, even in the event of further appeal, if any, and reversal of the prior decisions, the maximum number of shares of common stock that it would be required to issue to such claimants is approximately 106,000. Clear Shield National, Inc. and some of its employees have received subpoenas from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the disposable plastic cutlery industry. The U.S. Department of Justice has advised a former officer and an existing employee that they are targets of the investigation. Both individuals were invited to appear and testify before the grand jury but both declined. Clear Shield National is cooperating fully with the investigation. In February 1996 Clear Shield National and three other plastic cutlery manufacturers were named as defendants in the following three civil complaints: Eisenberg Brothers, Inc., on behalf of itself and all others similarly situated, v. Amcel Corp., Clear Shield National, Inc., Dispoz-O Plastics Corp. and Benchmark Holdings, Inc. t/a Winkler Products, Civil Action No. 96-728, United States District Court for the Eastern District of Pennsylvania; St. Cloud Restaurant Supply Company v. Amcel Corp., Clear Shield National, Inc., Dispoz-O Plastics Corp. and Benchmark Holdings, Inc. t/a Winkler Products, Case No. 96C 0777, United States District Court for the Northern District of Illinois, Eastern Division; and Servall Products, Inc., on behalf of itself and all others similarly situated, v. Amcel Corporation, Clear Shield National, Inc., Dispoz-O Plastics Corporation and Benchmark Holdings, Inc. t/a Winkler Products, Civil Action No. 96-1116, United States District Court for the Eastern District of Pennsylvania. Each of the complaints alleges, among other things, that from October 1990 through April 1992 the defendants unlawfully conspired to fix the prices at which plastic cutlery would be sold. The Company has informed the plaintiffs that such claims as they relate to Clear Shield were discharged by the order of the Bankruptcy Court and Plan of Reorganization and that the plaintiffs are permanently enjoined from pursuing legal action to collect discharged claims. On February 27, 1996, the plaintiff in the St. Cloud case voluntarily dismissed the action without prejudice and refiled its action in the U.S. District Court for the Eastern District of Pennsylvania but did not name Clear Shield National as a defendant. On March 14, 1996, Eisenberg Brothers Inc. filed a motion in Clear Shield National's Bankruptcy proceeding in the U.S. Bankruptcy Court for the Northern District of Illinois, Eastern Division. Eisenberg Brothers Inc.'s motion contends that the Bankruptcy Court's order did not discharge the plaintiff's claim. The Company and its subsidiaries are involved in various legal proceedings arising out of its business and other environmental matters, none of which is expected to have a material adverse effect upon its results of operations, cash flows or financial position. 15. CAPITAL STOCK, PAID IN CAPITAL, AND WARRANTS Authorized shares of preferred stock ($.01 par value per share) and common stock ($.01 par value per share) for the reorganized Envirodyne are 25,000,000 shares and 50,000,000 shares, respectively. 13,579,460 shares of common stock were issued and outstanding as of December 28, 1995. In accordance with the Plan of Reorganization, an additional 64,460 shares of common stock and 15,000 shares of common stock were issued to the general unsecured creditors of Envirodyne during 1995 and 1994, respectively. (Refer to Note 1.) Prior to the December 31, 1993 reorganization, the authorized shares of preferred stock and common stock were 1,000 shares and 320 shares, respectively. Envirodyne issued 1,500,000 warrants pursuant to the Plan of Reorganization, exercisable at any time until December 31, 1998. Each warrant was initially exercisable for one share of common stock at an initial exercise price of $17.25 per share. The exercise price and the number of shares of common stock for which a warrant is F-23 25 15. CAPITAL STOCK, PAID IN CAPITAL, AND WARRANTS--(CONTINUED) exercisable were adjusted as a result of the issuance of certain shares of Envirodyne after the consummation of the Plan of Reorganization, including the issuance of shares in settlement of the SMD lawsuit discussed in Note 14. Under terms of the warrant agreement, the exercise price has been adjusted from $17.25 to $16.08 per share and the number of common shares for which each warrant is exercisable has been adjusted from 1.000 share to 1.073 shares. 16. STOCK OPTIONS At December 28, 1995, the Company had outstanding options under the 1993 Stock Option Plan. Options were issued to certain employees to purchase shares at not less than the fair market value of the shares on the grant date. The plan options generally vest in three equal annual amounts beginning one year from the grant date and expire ten years from the grant date, subject to the acceleration of exercisability upon the occurrence of certain events. Such an acceleration event occurred in both November 1994 and August 1995. During 1995, each non-employee director of the Company received options to purchase 2,000 shares of stock at not less than the fair market value of the shares on the date of grant. The non-employee director options are fully exercisable upon issuance. Pursuant to the 1993 Stock Option Plan, on the date of each subsequent annual meeting of stockholders, non-employee directors will automatically be granted non-qualified options to purchase 1,000 shares of Common Stock at an option exercise price equal to the fair market value of a share of Common Stock on the date of grant. Stock option activity for the years ended December 28, 1995 and December 29, 1994 were: 17. FAIR VALUE OF FINANCIAL INSTRUMENTS (DOLLARS IN THOUSANDS) The following table presents the carrying value and estimated fair value as of December 28, 1995 of the Company's financial instruments. (Refer to Notes 3 and 9.)
NUMBER OF OPTION OPTION PRICE SHARES PER SHARE ---------- ------------- Outstanding, December 31, 1993 Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402,020 $5.06 Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . Terminated . . . . . . . . . . . . . . . . . . . . . . . . . . (13,100) 5.06 --------- Outstanding, December 29, 1994 . . . . . . . . . . . . . . . . . 388,920 5.06 Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,200 5.06 Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . Terminated . . . . . . . . . . . . . . . . . . . . . . . . . . (61,890) 5.06 ---------- Outstanding, December 28, 1995 . . . . . . . . . . . . . . . . . 424,230 5.06 ========== 18. PATENT LITIGATION SETTLEMENT (DOLLARS IN THOUSANDS) In 1989 certain competitors of Viskase filed a declaratory action challenging the validity and enforceability of a Viskase patent relating to casings used in the manufacture of food products. In May 1994, the trial court upheld the validity and enforceability of the Viskase patent and found infringement of the patent. Before the trial F-24
CARRYING ESTIMATED VALUE FAIR VALUE -------- ------------ Assets: Cash and equivalents . . . . . . . . . . . . . . . . . . . . . $ 30,325 $ 30,325 Foreign currency contracts . . . . . . . . . . . . . . . . . . 3,397 3,377 Interest rate agreements . . . . . . . . . . . . . . . . . . . 561 3 Liabilities: Long-term debt (excluding capital leases) . . . . . . . . . . . 393,432 318,053 26 18. PATENT LITIGATION SETTLEMENT (DOLLARS IN THOUSANDS)--(CONTINUED) on damages was conducted, Viskase entered into agreements to settle the claims and grant licenses to the competitors. Under the terms of these agreements Viskase received $9,457 for past infringement and advance royalties and established royalty rates for future patent use. 19. RESEARCH AND DEVELOPMENT COSTS (DOLLARS IN THOUSANDS) Research and development costs are expensed as incurred and totaled $11,034, $16,852 and $15,216, for 1995, 1994, and 1993, respectively. 20. RELATED PARTY TRANSACTIONS (DOLLARS IN THOUSANDS) During fiscal 1995, 1994 and 1993, the Company paid DPK $770 for management services. In fiscal 1995, 1994 and 1993, the Company made payments of approximately $156, $560 and $354, respectively, to an affiliate of DPK for the use of a jet aircraft on an as-needed basis. During fiscal 1995, 1994, and 1993, the Company purchased product and services from affiliates of DPK in the amounts of approximately $1,537, $1,367 and $941, respectively. During fiscal 1995, 1994, and 1993, the Company sublet office space from DPK for which it paid approximately $151, $151 and $150, respectively, in rent. During fiscal 1995, the Company reimbursed a non-affiliated medical plan in the aggregate amount of $79,344 for medical claims of Messrs. Kelly, Gustafson and Corcoran. During fiscal 1995 and 1994, the Company advanced funds to and made payments on behalf of DPK and Donald P. Kelly in the amounts of approximately $52 and $118, respectively, for legal fees related to the litigation involving ARTRA Group Incorporated (refer to Note 14). 21. BUSINESS SEGMENT INFORMATION AND GEOGRAPHIC AREA INFORMATION (DOLLARS IN THOUSANDS) Envirodyne primarily manufactures and sells polymeric food casings and plastic packaging films and containers (food packaging products) and disposable foodservice supplies. The Company's operations are primarily in North/South America and Europe. Intercompany sales and charges (including royalties) have been reflected as appropriate in the following information. Other income for 1995, 1994, and 1993 includes net foreign exchange transaction gains (losses) of approximately $(61), $2,707, and $(4,631), respectively. F-25 27 BUSINESS SEGMENT INFORMATION F-26
DECEMBER 30, JANUARY 1, JANUARY 1, 1994 TO TO TO DECEMBER 28, DECEMBER 29, DECEMBER 31, 1995 1994 1993 ----------- ---------- ----------- Net sales: Food packaging products . . . . . . . . . . . . . $ 574,266 $ 530,179 $ 522,363 Disposable foodservice supplies . . . . . . . . . 76,138 68,996 66,383 Other and eliminations . . . . . . . . . . . . . (192) (146) (1,361) ----------- ----------- ----------- $ 650,212 $ 599,029 $ 587,385 =========== =========== =========== Earnings before income taxes: Operating income: Food packaging products . . . . . . . . . . . . . $ 39,183 $ 48,145 $ 53,432 Disposable foodservice supplies . . . . . . . . . 4,959 6,514 5,223 Unallocated expenses, net -- primarily corporate (6,007) (5,982) (5,023) ----------- ----------- ----------- 38,135 48,677 53,632 Interest expense, net . . . . . . . . . . . . . . . 56,666 49,207 30,259 Other expense (income), net . . . . . . . . . . . . 1,710 (1,668) 5,540 Minority interest in loss of subsidiary . . . . . . 50 717 ----------- -------- ----------- $ (20,241) $ 1,188 $ 18,550 =========== ======== =========== Identifiable assets: Food packaging products . . . . . . . . . . . . . $ 796,655 $ 814,731 $ 790,125 Disposable foodservice supplies . . . . . . . . . 69,812 71,530 64,879 Corporate and other, primarily cash equivalents . 33,100 10,375 12,676 ----------- ----------- ----------- $ 899,567 $ 896,636 $ 867,680 =========== =========== =========== Depreciation and amortization under capital lease and amortization of intangibles expense: Food packaging products . . . . . . . . . . . . . $ 51,404 $ 47,207 $ 46,715 Disposable foodservice supplies . . . . . . . . . 4,581 4,125 5,624 Corporate and other . . . . . . . . . . . . . . . 76 55 59 ----------- ----------- ----------- $ 56,061 $ 51,387 $ 52,398 =========== =========== =========== Capital expenditures: Food packaging products . . . . . . . . . . . . . $ 30,744 $ 28,534 $ 37,673 Disposable foodservice supplies . . . . . . . . . 3,687 4,012 3,100 Corporate and other . . . . . . . . . . . . . . . 34 20 114 ----------- ----------- ----------- $ 34,465 $ 32,566 $ 40,887 =========== =========== =========== 28 GEOGRAPHIC AREA INFORMATION The total assets and net assets of foreign businesses were approximately $282,383 and $107,023 at December 28, 1995. 22. QUARTERLY DATA (UNAUDITED) Quarterly financial information for 1995 and 1994 is as follows (in thousands, except for per share amounts):
DECEMBER 30, JANUARY 1, JANUARY 1, 1994 TO TO TO DECEMBER 28, DECEMBER 29, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ Net sales: North/South American operations . . . . . . . . . $ 440,539 $ 423,049 $ 426,644 European operations . . . . . . . . . . . . . . . 213,618 184,395 164,717 Other and eliminations . . . . . . . . . . . . . (3,945) (8,415) (3,976) ----------- ----------- ----------- $ 650,212 $ 599,029 $ 587,385 =========== =========== =========== Operating profit: North/South American operations . . . . . . . . . $ 23,028 $ 28,124 $ 37,495 European operations . . . . . . . . . . . . . . . 15,373 20,553 16,137 Other and eliminations . . . . . . . . . . . . . (266) ----------- ----------- ----------- $ 38,135 $ 48,677 $ 53,632 =========== =========== =========== Identifiable assets: North/South American operations . . . . . . . . . $ 677,377 $ 667,358 $ 669,240 European operations . . . . . . . . . . . . . . . 219,802 229,278 198,440 Other and eliminations . . . . . . . . . . . . . 2,388 ----------- ----------- ----------- $ 899,567 $ 896,636 $ 867,680 =========== =========== =========== The second quarter net (loss) includes an extraordinary loss of $(4.2) million on debt extinguishment. Net income (loss) per share amounts are computed independently for each of the quarters presented using weighted average shares outstanding during each quarter. The sum of the quarterly per share amounts in 1995 do not equal the total for the year because of rounding and 1995 stock issuances, as shown on the Consolidated Statement of Stockholders' Equity.
FIRST SECOND THIRD FOURTH FISCAL 1995 QUARTER QUARTER QUARTER QUARTER ANNUAL - ----------- ------- ------- ------- ------- ------ Net Sales . . . . . . . . . . . . . . $155,824 $165,184 $166,688 $162,516 $650,212 Operating Income . . . . . . . . . . 8,689 10,089 8,653 10,704 38,135 Net income (loss) . . . . . . . . . . (3,895) (7,513) (4,475) (5,636) (21,519) Net income (loss) per share . . . . . (0.29) (0.56) (0.33) (0.42) (1.59) The 1994 second quarter operating income benefitted from a $9.5 million settlement of a patent infringement suit. F-27
FIRST SECOND THIRD FOURTH FISCAL 1994 QUARTER QUARTER QUARTER QUARTER ANNUAL - ----------- ------- ------- ------- ------- ------ Net Sales . . . . . . . . . . . . . . $142,593 $150,788 $151,883 $153,765 $599,029 Operating Income . . . . . . . . . . 9,710 18,739 9,755 10,473 48,677 Net income (loss) . . . . . . . . . . (2,507) 3,448 (3,261) (1,292) (3,612) Net income (loss) per share . . . . . (0.19) 0.26 (0.24) (0.10) (0.27) 29 22. QUARTERLY DATA (UNAUDITED)--(CONTINUED) Net income (loss) per share amounts are computed independently for each of the quarters presented using weighted average shares outstanding during each quarter. 23. SUBSEQUENT EVENTS (DOLLARS IN THOUSANDS) On February 23, 1996, the United States Bankruptcy Court for the Northern District of Illinois, Eastern District entered an order approving a settlement agreement resolving all claims of the former union employees of Wisconsin Steel Company which shut down in March 1980. Under terms of the approved settlement of Frank Lumpkin, et al. v. Envirodyne Industries, Inc. (Lumpkin) and without any admission or finding of liability or wrongdoing, Envirodyne was released and discharged from all claims in exchange for 900,000 shares of common stock. The distribution is in accordance with the terms of Envirodyne's Plan of Reorganization under which common stock was distributed to Envirodyne's general unsecured creditors in satisfaction of their allowed claims (Refer to Note 1). The Company issued additional shares of common stock for the Lumpkin settlement and to the holders of general unsecured claims of Envirodyne (as opposed to the subsidiaries of Envirodyne) under terms of the Plan of Reorganization. The total number of shares outstanding after issuance of common stock for the Lumpkin settlement and for additional distribution to holders of general unsecured claims of Envirodyne is 14,479,721. Under terms of the Plan of Reorganization, Envirodyne issued warrants to purchase 10% of the fully diluted common stock. The issuance of common stock pursuant to the Lumpkin settlement, together with other issuances of common stock since the consummation of the Plan of Reorganization, caused an adjustment to the exercise price of the warrants and the number of shares of common stock for which a warrant is exercisable. The exercise price was adjusted from $17.25 to $16.08 per share and the number of common shares for which each warrant is exercisable was adjusted from 1.000 share to 1.073 shares. On March 15, 1996 the United States Court of Appeals for the Seventh Circuit affirmed the decisions of the U.S. District Court and the Bankruptcy Court to equitably subordinate the claims of holders of untendered shares to claims of the other general unsecured creditors (refer to Note 14). The time period for further appeal has not passed. Envirodyne believes that even in the event of further appeal, if any, and reversal of the prior decisions, the maximum number of shares of common stock that it would be required to issue to such claimants is approximately 106,000. 24. 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 S.A. 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 F-28 30 24. SUBSIDIARY GUARANTORS--(CONTINUED) 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 audited financial statements of Viskase Holding Corporation are being filed within. 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. F-29 31 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEETS - --------------------- (1) Elimination of intercompany receivables, payables and investment accounts. F-30
DECEMBER 28, 1995 --------------------------------------------------------------------------- GUARANTOR NONGUARANTOR CONSOLIDATED PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS(1) TOTAL ------ ------------ ------------ --------------- ------------- (IN THOUSANDS) ASSETS Current assets: Cash and equivalents . . . . . . . . . . . . . $ 18,013 $ 486 $ 11,826 $ 30,325 Receivables and advances, net . . . . . . . . . 52,462 70,458 57,082 $ (90,548) 89,454 Inventories . . . . . . . . . . . . . . . . . . 63,355 38,233 (2,114) 99,474 Other current assets . . . . . . . . . . . . . 176 12,364 9,106 21,646 ----------- ----------- ----------- ----------- --------- Total current assets . . . . . . . . . . . . 70,651 146,663 116,247 (92,662) 240,899 Property, plant and equipment including those under capital lease . . . . . . . . . . . . 261 394,813 150,417 545,491 Less accumulated depreciation and amortization . . . . . . . . . . . . . . . 150 55,620 20,217 75,987 ----------- ----------- ----------- ----------- --------- Property, plant and equipment, net . . . . . . . 111 339,193 130,200 469,504 Deferred financing costs . . . . . . . . . . . . . 7,048 1,042 8,090 Other assets . . . . . . . . . . . . . . . . . . . 43,720 1,869 45,589 Investment in subsidiaries . . . . . . . . . . . . 77,766 133,634 (211,400) Excess reorganization value . . . . . . . . . . . . 94,968 40,517 135,485 ----------- ----------- ----------- ----------- --------- $ 155,576 $ 758,178 $ 289,875 $ (304,062) $ 899,567 =========== =========== =========== =========== ========= LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease . . . . . . . $ 6,407 $ 6,097 $ 12,504 Accounts payable and advances . . . . . . . . . $ 80 78,848 50,737 $ (90,548) 39,117 Accrued liabilities . . . . . . . . . . . . . . 8,126 37,488 21,939 67,553 ----------- ----------- ----------- ----------- --------- Total current liabilities . . . . . . . . . . 8,206 122,743 78,773 (90,548) 119,174 Long-term debt including obligation under capital lease . . . . . . . . . . . . . . . 379,262 143,198 7,721 530,181 Accrued employee benefits . . . . . . . . . . . . . 51,345 4,281 55,626 Deferred and noncurrent income taxes . . . . . . . 34,088 17,507 25,895 77,490 Intercompany loans . . . . . . . . . . . . . . . . (383,076) 340,000 43,083 (7) Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 13,579,460 shares issued and outstanding . . . . . . . . . . . . . . . . . . 136 3 32,738 (32,741) 136 Paid in capital . . . . . . . . . . . . . . . . . 134,864 103,955 87,871 (191,826) 134,864 Accumulated earnings (deficit) . . . . . . . . . (25,131) (27,752) 2,334 25,418 (25,131) Cumulative foreign currency translation adjustments . . . . . . . . . . . . 7,227 7,179 7,179 (14,358) 7,227 ----------- ----------- ----------- ----------- --------- Total stockholders' equity . . . . . . . . . 117,096 83,385 130,122 (213,507) 117,096 ----------- ----------- ----------- ----------- --------- $ 155,576 $ 758,178 $ 289,875 $ (304,062) $ 899,567 =========== =========== =========== =========== ========= 32 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEETS - --------------------- (1) Elimination of intercompany receivables, payables and investment accounts. F-31
DECEMBER 29, 1994 --------------------------------------------------------------------------- GUARANTOR NONGUARANTOR CONSOLIDATED PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS(1) TOTAL ----------- ------------ ------------ --------------- ------------- (IN THOUSANDS) ASSETS Current assets: Cash and equivalents . . . . . . . . . . . . . $ 555 $ 1,853 $ 4,881 $ 7,289 Receivables and advances, net . . . . . . . . . 33,508 63,949 49,378 $ (59,967) 86,868 Inventories . . . . . . . . . . . . . . . . . . 68,719 43,725 (1,961) 110,483 Other current assets . . . . . . . . . . . . . 181 12,999 6,286 19,466 ----------- ----------- ----------- ----------- -------- Total current assets . . . . . . . . . . . . 34,244 147,520 104,270 (61,928) 224,106 Property, plant and equipment including those under capital lease . . . . . . . . . . . . 189 367,880 138,030 506,099 Less accumulated depreciation and amortization . . . . . . . . . . . . . . . 55 26,739 8,967 35,761 ----------- ----------- ----------- ----------- -------- Property, plant and equipment, net . . . . . . . 134 341,141 129,063 470,338 Deferred financing costs . . . . . . . . . . . . . 8,062 1,081 9,143 Other assets . . . . . . . . . . . . . . . . . . . 45,757 1,424 47,181 Investment in subsidiaries . . . . . . . . . . . . 91,576 116,360 (207,936) Excess reorganization value . . . . . . . . . . . . 102,230 43,638 145,868 ----------- ----------- ----------- ----------- -------- $ 134,016 $ 753,008 $ 279,476 $ (269,864) $896,636 =========== =========== =========== =========== ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease . . . . . . . $ 11,100 $ 7,720 $ 6,978 $ 25,798 Accounts payable and advances . . . . . . . . . 726 53,193 40,383 $ (59,967) 34,335 Accrued liabilities . . . . . . . . . . . . . . 10,254 36,634 25,358 72,246 ----------- ----------- ----------- ----------- -------- Total current liabilities . . . . . . . . . . 22,080 97,547 72,719 (59,967) 132,379 Long-term debt including obligation under capital lease . . . . . . . . . . . . . . . 327,437 147,898 14,023 489,358 Accrued employee benefits . . . . . . . . . . . . . 52,248 3,969 56,217 Deferred and noncurrent income taxes . . . . . . . 29,006 31,927 22,400 83,333 Intercompany loans . . . . . . . . . . . . . . . . (379,856) 340,000 39,856 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 13,515,000 shares issued and outstanding . . . . . . . . . . . . . . . . . . 135 4 32,608 (32,612) 135 Paid in capital . . . . . . . . . . . . . . . . . 134,865 87,805 87,440 (175,245) 134,865 Accumulated earnings (deficit) . . . . . . . . . (3,612) (8,333) 2,549 5,784 (3,612) Cumulative foreign currency translation adjustments . . . . . . . . . . . . 3,961 3,912 3,912 (7,824) 3,961 ----------- ----------- ----------- ----------- -------- Total stockholders' equity . . . . . . . . . 135,349 83,388 126,509 (209,897) 135,349 ----------- ----------- ----------- ----------- -------- $ 134,016 $ 753,008 $ 279,476 $ (269,864) $896,636 =========== =========== =========== =========== ======== 33 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS F-32
FOR THE YEAR ENDED DECEMBER 28, 1995 ----------------------------------------------------------------------------- GUARANTOR NONGUARANTOR CONSOLIDATED PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------- ------------ ------------ ------------ ------------ (IN THOUSANDS) NET SALES . . . . . . . . . . . . . . . . . . . . . $ 417,756 $ 267,212 $ (34,756) $ 650,212 COSTS AND EXPENSES Cost of sales . . . . . . . . . . . . . . . . . . 312,419 207,232 (34,603) 485,048 Selling, general and administrative . . . . . . . $ 6,004 65,318 39,908 111,230 Amortization of intangibles and excess reorganization value . . . . . . . . . . 12,466 3,333 15,799 ----------- --------- ----------- ----------- --------- OPERATING INCOME (LOSS) . . . . . . . . . . . . . . (6,004) 27,553 16,739 (153) 38,135 Interest income . . . . . . . . . . . . . . . . . 203 12 455 670 Interest expense . . . . . . . . . . . . . . . . 40,081 13,902 3,353 57,336 Intercompany interest expense (income) . . . . . (38,218) 34,007 4,211 Management fees (income) . . . . . . . . . . . . (8,086) 6,377 1,709 Other expense (income), net . . . . . . . . . . . (2,400) 52 4,058 1,710 Equity Loss (income) in subsidiary . . . . . . . 19,571 216 (19,787) ----------- --------- ----------- ----------- --------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM . . . . . . . . . . . . . (16,749) (26,989) 3,863 19,634 (20,241) Income tax provision (benefit) . . . . . . . . . 1,264 (7,570) 3,388 (2,918) ----------- --------- ----------- ----------- --------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM . . . . . . (18,013) (19,419) 475 19,634 (17,323) Extraordinary loss, net of tax . . . . . . . . . 3,506 690 4,196 ----------- --------- ----------- ----------- --------- NET (LOSS) . . . . . . . . . . . . . . . . . . . . $ (21,519) $ (19,419) $ (215) $ 19,634 $ (21,519) =========== ========= =========== =========== ========= 34 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS F-33
FOR THE YEAR ENDED DECEMBER 28, 1995 --------------------------------------------------------------------------- GUARANTOR NONGUARANTOR CONSOLIDATED PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------ ------------ ------------ ------------ ---------- (IN THOUSANDS) Net cash provided by (used in) operating activities . . . . . . . . . . . . . $ (13,276) $ 32,242 $ 20,001 $ 38,967 Cash flows from investing activities: Capital expenditures . . . . . . . . . . . . . (34) (27,842) (6,589) (34,465) Proceeds from sale of property, plant and equipment . . . . . . . . . . . . . . . . . . 39 47 86 --------- ---------- ----------- ----------- -------- Net cash (used in) investing activities . . (34) (27,803) (6,542) (34,379) Cash flows from financing activities: Proceeds from revolving loan and long term borrowings . . . . . . . . . . . . 164,000 1,706 42,216 207,922 Deferred financing costs . . . . . . . . . . . (6,721) (1,166) (7,887) Repayment of revolving loan, long-term borrowings and capital lease obligations . . (123,275) (7,512) (50,588) (181,375) Increase (decrease) in Envirodyne loan . . . . (3,236) 3,236 --------- ---------- ----------- ----------- -------- Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . 30,768 (5,806) (6,302) 18,660 Effect of currency exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . (212) (212) --------- ---------- ----------- ----------- -------- Net increase (decrease) in cash and equivalents . . . . . . . . . . . . . . . . 17,458 (1,367) 6,945 23,036 Cash and equivalents at beginning of period . . . 555 1,853 4,881 7,289 --------- ---------- ----------- ----------- -------- Cash and equivalents at end of period . . . . . . $ 18,013 $ 486 $ 11,826 $ 30,325 ========= ========== =========== =========== ======== 35 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS F-34
FOR THE YEAR ENDED DECEMBER 29, 1994 --------------------------------------------------------------------------------- GUARANTOR NONGUARANTOR CONSOLIDATED PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL -------- ------------ ------------ ------------ ------------ (IN THOUSANDS) NET SALES . . . . . . . . . . . . . . . . . $ 406,988 $ 220,787 $ (28,746) $ 599,029 Patent infringement settlement income . . 9,457 9,457 COSTS AND EXPENSES Cost of sales . . . . . . . . . . . . . . 295,356 168,891 (28,487) 435,760 Selling, general and administrative . . . $ 6,015 71,092 31,330 108,437 Amortization of intangibles and excess reorganization value . . . . . . 12,266 3,346 15,612 ---------- ---------- ---------- ----------- ---------- OPERATING INCOME (LOSS) . . . . . . . . . . (6,015) 37,731 17,220 (259) 48,677 Interest income . . . . . . . . . . . . . 13 46 248 307 Interest expense . . . . . . . . . . . . 31,937 14,124 3,453 49,514 Intercompany interest expense (income) . (35,077) 31,170 3,907 Management fees (income) . . . . . . . . (7,400) 6,544 856 Other expense (income), net . . . . . . . (3,448) 7 1,923 (150) (1,668) Equity loss (income) in subsidiary . . . 8,392 (2,549) (5,843) Minority interest in loss of subsidiary . 50 50 ---------- ---------- --------- ----------- ---------- INCOME (LOSS) BEFORE INCOME TAXES . . . . . (406) (11,519) 7,329 5,784 1,188 Income tax provision . . . . . . . . . . 3,206 (3,186) 4,780 4,800 ---------- ---------- ---------- ----------- ---------- NET INCOME (LOSS) . . . . . . . . . . . . . $ (3,612) $ (8,333) $ 2,549 $ 5,784 $ (3,612) ========== ========== ========== =========== ========== 36 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS F-35
FOR THE YEAR ENDED DECEMBER 29, 1994 --------------------------------------------------------------------------------- GUARANTOR NONGUARANTOR CONSOLIDATED PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ----------- ------------ ------------ ------------ ------------ (IN THOUSANDS) Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . $ (1,414) $ 13,575 $ 11,125 $ 23,286 Cash flows from investing activities: Capital expenditures . . . . . . . . . . (20) (21,666) (10,880) (32,566) Proceeds from sales of property, plant and equipment . . . . . . . . . . 239 120 359 Purchase of minority interest in subsidiary . . . . . . . . . . . . . . . (4,200) (4,200) ---------- ---------- ---------- ----------- ---------- Net cash (used in) investing activities . . . . . . . . . . . . (20) (25,627) (10,760) (36,407) Cash flows from financing activities: Proceeds from revolving loan and long term borrowings . . . . . . . . . 27,600 10,068 37,668 Deferred financing costs . . . . . . . . (1,608) (1,608) Repayment of revolving loan, long-term borrowings and capital lease obligations . . . . . . . . . . . . . . (8,325) (5,180) (9,112) (22,617) Increase (decrease) in Envirodyne loan . (16,608) 17,163 (555) ---------- ---------- ------ --- ----------- ---------- Net cash provided by (used in) financing activities . . . . . . . 1,059 11,983 401 13,443 Effect of currency exchange rate changes on cash . . . . . . . . . . . . . . . . (776) (776) --------- ---------- ---------- ----------- ---------- Net (decrease) in cash and equivalents . . (375) (69) (10) (454) Cash and equivalents at beginning of period . . . . . . . . . . . . . . . 930 1,922 4,891 7,743 ---------- ---------- ---------- ----------- ---------- Cash and equivalents at end of period . . . $ 555 $ 1,853 $ 4,881 $ 7,289 ========== ========== ========== =========== ========== 37 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS F-36
FOR THE YEAR ENDED DECEMBER 31, 1993 -------------------------------------------------------------------------- GUARANTOR NONGUARANTOR CONSOLIDATED PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------- ------------ ------------ ------------ ------------ (IN THOUSANDS) NET SALES . . . . . . . . . . . . . . . . . . . . . $ 408,872 $ 195,291 $ (16,778) $587,385 COSTS AND EXPENSES Cost of sales . . . . . . . . . . . . . . . . . . 283,743 151,694 (16,745) 418,692 Selling, general and administrative . . . . . . . $ 5,021 65,992 28,337 99,350 Amortization of intangibles and excess reorganization value . . . . . . . . . . 13,170 2,541 15,711 ----------- ----------- ----------- ----------- -------- OPERATING INCOME (LOSS) . . . . . . . . . . . . . . (5,021) 45,967 12,719 (33) 53,632 Interest income . . . . . . . . . . . . . . . . . 1 20 910 931 Interest expense . . . . . . . . . . . . . . . . 10,388 14,589 6,213 31,190 Intercompany interest expense (income) . . . . . (21,970) 61,416 (39,446) Management fees (income) . . . . . . . . . . . . (7,600) 6,748 852 Other expense (income), net . . . . . . . . . . . 3,432 (86) 2,194 5,540 Minority interest in subsidiary . . . . . . . . . 717 717 ----------- ----------- ----------- ----------- -------- INCOME (LOSS) BEFORE INCOME TAXES, REORGANIZATION ITEMS AND EXTRAORDINARY ITEM . . . 10,730 (35,963) 43,816 (33) 18,550 Reorganization items, net . . . . . . . . . . . . 92,745 12,000 104,745 INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM . . . . . . . . . . . . . (82,015) (47,963) 43,816 (33) (86,195) Income tax provision (benefit) . . . . . . . . . (1,430) (4,442) 17,872 12,000 ----------- ----------- ----------- ------------ --------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM . . . . . . (80,585) (43,521) 25,944 (33) (98,195) Extraordinary gain, net of tax . . . . . . . . . 183,784 183,784 ----------- ----------- ----------- ------------ --------- NET INCOME (LOSS) . . . . . . . . . . . . . . . . . $ 103,199 $ (43,521) $ 25,944 $ (33) $ 85,589 =========== =========== =========== =========== ========= 38 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS F-37
FOR THE YEAR ENDED DECEMBER 31, 1993 ----------------------------------------------------------------------- GUARANTOR NONGUARANTOR CONSOLIDATED PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL -------- ------------ ------------ ------------ ------------ (IN THOUSANDS) Net cash provided by operating activities before reorganization expense . . . . . . . . $ 24,623 $ 33,840 $ 33,738 $ 92,201 Net cash used for reorganization items . . . . (2,929) (12,000) (14,929) --------- ---------- --------- ---------- --------- Net cash provided by operating activities . . . 21,694 21,840 33,738 77,272 Cash flows from investing activities: Capital expenditures . . . . . . . . . . (114) (27,289) (13,484) (40,887) Proceeds from sale of property, plant and equipment . . . . . . . . . . . . . . . . . 4 120 124 --------- ---------- --------- ---------- --------- Net cash (used in) investing activities . (114) (27,285) (13,364) (40,763) Cash flows from financing activities: Proceeds from revolving loan and long term borrowings . . . . . . . . . . . 100,000 6,003 106,003 Deferred financing costs . . . . . . . . . . (8,659) (1,120) (9,779) Repayment of revolving loan, long-term borrowings and capital lease obligations . (103,100) (4,698) (30,938) (138,736) Increase (decrease) in Envirodyne loan . . . (8,891) 10,519 (1,628) --------- ---------- --------- ---------- --------- Net cash provided by (used in) financing activities . . . . . . . . . . . . . . (20,650) 5,821 (27,683) (42,512) Effect of currency exchange rate changes on cash . . . . . . . . . . . . . . . . (316) (316) --------- ---------- --------- ---------- --------- Net increase (decrease) in cash and equivalents 930 376 (7,625) (6,319) Cash and equivalents at beginning of period . . 1,546 12,516 14,062 --------- ---------- --------- ---------- --------- Cash and equivalents at end of period . . . . . $ 930 $ 1,922 $ 4,891 $ 7,743 ========= ========== ========= ========== ========= 39 Financial statement schedules required by Regulation S-X VISKASE HOLDING CORPORATION AND SUBSIDIARIES Consolidated Financial Statements: F-38
Report of independent accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-39 Consolidated balance sheets, December 28, 1995 and December 29, 1994 . . . . . . . . . . . . . . . . . . . F-40 Consolidated Statements of operations, for December 30, 1994 to December 28, 1995 (Post-consummation); January 1 to December 29, 1994 (Post-consummation); and January 1 to December 31, 1993 (Pre-consummation); . . . . . . . . . . . . . . . . . . . . . . . . . F-41 Consolidated statements of stockholders' equity (deficit), for December 30, 1994 to December 28, 1995 (Post-consummation); January 1 to December 29, 1994 (Post-consummation); and January 1 to December 31, 1993 (Pre-consummation); . . . . . . . . . . . . . F-42 Consolidated statements of cash flows, for December 30, 1994 to December 28, 1995 (Post-consummation); January 1 to December 29, 1994 (Post-consummation); and January 1 to December 31, 1993 (Pre-consummation); . . . . . . . . . . . . . . . . . . . . . . . F-43 Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-44 40 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Viskase Holding Corporation We have audited the consolidated financial statements and the financial statement schedules of Viskase Holding Corporation and Subsidiaries. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1 to the consolidated financial statements, on December 31, 1993, Envirodyne Industries, Inc. and its domestic subsidiaries completed a comprehensive financial restructuring through the implementation of reorganization under Chapter 11 of the United States Bankruptcy Code and applied fresh start reporting. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Viskase Holding Corporation and Subsidiaries as of December 28, 1995 and December 29, 1994, and the consolidated results of their operations and their cash flows for the period December 30, 1994 to December 28, 1995 and January 1 to December 29, 1994 (Post-consummation) and January 1 to December 31, 1993 (Pre-consummation), in conformity with generally accepted accounting principles. In addition, in our opinion the schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Chicago, Illinois March 26, 1996 F-39 41 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS The accompanying notes are an integral part of the consolidated financial statements. F-40
DECEMBER 28, DECEMBER 29, 1995 1994 ---------------- --------------- (IN THOUSANDS) ASSETS Current assets: Cash and equivalents . . . . . . . . . . $ 11,826 $ 6,201 Receivables, net . . . . . . . . . . . . 53,022 46,834 Receivables, affiliates . . . . . . . . 51,829 48,138 Inventories . . . . . . . . . . . . . . 38,233 43,725 Other current assets . . . . . . . . . . 9,106 6,515 -------- -------- Total current assets . . . . . . . . 164,016 151,413 Property, plant and equipment . . . . . . 150,417 138,030 Less accumulated depreciation . . . . . 20,217 8,967 -------- -------- Property, plant and equipment, net . . . 130,200 129,063 Deferred financing costs . . . . . . . . . 1,042 1,081 Other assets . . . . . . . . . . . . . . . 1,869 1,424 Excess reorganization value . . . . . . . 40,517 43,638 -------- -------- $337,644 $326,619 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt . . . . . . $ 6,097 $ 6,978 Accounts payable . . . . . . . . . . . . 13,720 15,479 Accounts payable and advances, affiliates 54,152 43,233 Accrued liabilities . . . . . . . . . . 21,942 25,358 -------- -------- Total current liabilities . . . . . 95,911 91,048 Long-term debt . . . . . . . . . . . . . 7,721 14,023 Accrued employee benefits . . . . . . . . 4,281 3,969 Deferred and noncurrent income taxes . . . 25,895 22,400 Intercompany loans . . . . . . . . . . . . 81,094 77,866 Commitments and contingencies Stockholders' equity: Common stock, $1.00 par value, 1,000 shares authorized; 100 shares issued and outstanding Paid in capital . . . . . . . . . . . . 103,463 103,463 Retained earnings . . . . . . . . . . . 12,100 9,938 Cumulative foreign currency translation adjustments . . . . . . . 7,179 3,912 -------- -------- Total stockholders' equity . . . . . 122,742 117,313 -------- -------- $337,644 $326,619 ======== ======== 42 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Due to the implementation of the Plan of Reorganization and Fresh Start Reporting, the consolidated statement of operations for the fiscal years ended December 28, 1995 and December 29, 1994 are not comparable to the fiscal year ended December 31, 1993. (Refer to Note 1 of Notes to Consolidated Financial Statements.) The accompanying notes are an integral part of the consolidated financial statements. F-41
52 WEEKS 52 WEEKS 52 WEEKS DECEMBER 30, JANUARY 1, JANUARY 1, 1994 TO TO TO DECEMBER 28, DECEMBER 29, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ (IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES AND PER SHARE AMOUNTS) NET SALES . . . . . . . . . . . . . . . . . . . $ 267,212 $ 220,787 $ 195,291 Patent infringement settlement income . . . . 9,457 COSTS AND EXPENSES Cost of sales . . . . . . . . . . . . . . . . 207,232 168,891 151,694 Selling, general and administrative . . . . . 36,288 27,654 25,171 Amortization of intangibles and excess reorganization value . . . . . . . . 3,333 3,346 2,541 ---------- --------- --------- OPERATING INCOME . . . . . . . . . . . . . . . 20,359 30,353 15,885 Interest income . . . . . . . . . . . . . . . 455 248 910 Interest expense . . . . . . . . . . . . . . 3,353 3,453 6,213 Intercompany interest expense . . . . . . . . 4,199 3,861 6,084 Management fees . . . . . . . . . . . . . . . 1,709 856 852 Other expense (income), net . . . . . . . . . 3,754 2,518 1,723 Minority interest in loss of subsidiary . . . 50 717 ---------- --------- --------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM . . . . . . . . . . . . . 7,799 19,963 2,640 Income tax provision . . . . . . . . . . . . 4,947 10,025 2,645 ---------- --------- --------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM . . . . 2,852 9,938 (5) Extraordinary loss, net of tax . . . . . . . 690 ---------- --------- --------- NET INCOME (LOSS) . . . . . . . . . . . . . . . $ 2,162 $ 9,938 $ (5) ========== ========= ========= WEIGHTED AVERAGE COMMON SHARES . . . . . . . . 100 100 100 ========== ========= ========= PER SHARE AMOUNTS: NET INCOME (LOSS) . . . . . . . . . . . . . . . $ 21,620 $ 99,380 $ (50) ========== ========= ========= 43 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY Due to the implementation of the Plan of Reorganization and Fresh Start Reporting, the stockholders' equity for the fiscal years ended December 28, 1995 and December 29, 1994 are not comparable to the fiscal year ended December 31, 1993. (Refer to Note 1 of Notes to Consolidated Financial Statements.) The accompanying notes are an integral part of the consolidated financial statements. F-42
CUMULATIVE FOREIGN CURRENCY TOTAL COMMON PAID IN RETAINED TRANSLATION STOCKHOLDER'S STOCK CAPITAL EARNINGS ADJUSTMENTS EQUITY ----- ------- -------- ----------- ------------- (IN THOUSANDS) Balance December 31, 1992 . . . . . . . . . . . $ 20,119 $ 79,458 $ (2,356) $ 97,221 Net (loss) . . . . . . . . . . . . . . . . . . (5) (5) Capital contributions . . . . . . . . . . . . . 4,295 4,295 Fresh start revaluation adjustments . . . . . . 58,272 58,272 Translation adjustments . . . . . . . . . . . . (2,044) (2,044) Elimination of Viskase Holding Corporation accumulated earnings . . . . . . . . . . . . (79,453) 4,400 (75,053) ============================================================================================================================= Balance December 31, 1993 . . . . . . . . . . . $ 82,686 $ 0 $ 0 $ 82,686 Net income . . . . . . . . . . . . . . . . . . 9,938 9,938 Capital contributions . . . . . . . . . . . . . 16,056 16,056 Fresh start revaluation adjustments . . . . . . 4,721 4,721 Translation adjustments . . . . . . . . . . . . 3,912 3,912 -------- -------- -------- --------- Balance December 29, 1994 . . . . . . . . . . . $103,463 $ 9,938 $ 3,912 $ 117,313 Net income . . . . . . . . . . . . . . . . . . 2,162 2,162 Translation adjustments . . . . . . . . . . . . 3,267 3,267 -------- -------- -------- --------- Balance December 28, 1995 . . . . . . . . . . . $103,463 $ 12,100 $ 7,179 $ 122,742 ======== ======== ======== ========= 44 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Due to the implementation of the Plan of Reorganization and Fresh Start Reporting, the consolidated statement of cash flows for the fiscal years ended December 28, 1995 and December 29, 1994 are not comparable to the fiscal year ended December 31, 1993. (Refer to Note 1 of Notes to Consolidated Financial Statements.) Supplemental schedule of noncash investing and financing activities: Fiscal 1993 Viskase Holding Corporation's capital increased by $4.3 million due to the forgiveness of an Envirodyne loan. Viskase Holding Corporation contributed capital consisting of $160 thousand of equipment to Viskase Brasil Embalagens Ltda. Fiscal 1994 Viskase S.A. and its subsidiary Viskase Canada Inc.'s capital increased by $16 million due to the forgiveness of an Envirodyne loan. Viskase Corporation transferred equipment totaling $1.5 million, $174 thousand and $2.1 million to Viskase S.A., Viskase de Mexico S.A. de C.V., and Viskase Brasil Embalagens Ltda, respectively. Fiscal 1995 Viskase Corporation transferred equipment totaling $497 thousand to Viskase S.A. Viskase Holding Corporation contributed capital consisting of $250 thousand of equipment to Viskase de Mexico S.A. de C.V. The accompanying notes are an integral part of the consolidated financial statements. F-43
DECEMBER 30, JANUARY 1 JANUARY 1 1994 TO TO TO DECEMBER 28, DECEMBER 29, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ (IN THOUSANDS) Cash flows from operating activities: Income (loss) before extraordinary item ......................... $ 2,852 $ 9,938 $ (5) Extraordinary loss .............................................. 690 -------- -------- -------- Net income (loss) 2,162 9,938 (5) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation .................................................. 11,202 9,018 11,024 Amortization of intangibles and excess reorganization value.... 3,333 3,346 2,541 Amortization of deferred financing fees and discount .......... 208 210 935 Increase (decrease) in deferred and noncurrent income taxes ... 2,098 128 (1,436) Loss on debt extinguishment ................................... 1,030 Foreign currency transaction loss (gain) ...................... 159 (68) Loss (gain) on sales of property, plant and equipment ......... 30 32 424 Changes in operating assets and liabilities: Accounts receivable ......................................... (4,441) (9,076) (3,055) Accounts receivable, affiliates ............................. (5,183) (18,214) 9,373 Inventories ................................................. 7,224 (8,895) (1,467) Other current assets ........................................ (2,144) (1,462) (461) Accounts payable and accrued liabilities .................... (6,926) 8,314 3,219 Accounts payable, affiliates ................................ 10,719 21,739 13,359 Other ....................................................... (790) 288 (908) -------- -------- -------- Total adjustments ............................................. 16,519 5,428 33,480 -------- -------- -------- Net cash provided by operating activities ................... 18,681 15,366 33,475 Cash flows from investing activities: Capital expenditures ............................................ (6,589) (10,880) (13,484) Proceeds from sale of property, plant and equipment ............. 47 120 120 Purchase of minority interest in subsidiary ..................... (4,200) -------- -------- -------- Net cash (used in) investing activities ..................... (6,542) (14,960) (13,364) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings ........... 42,216 10,068 6,003 Deferred financing costs ........................................ (1,166) (1,120) Repayment of revolving loan and long-term borrowings ............ (50,588) (9,112) (30,938) Increase (decrease) in Envirodyne loan and advances ............. 3,236 (555) (1,628) -------- -------- -------- Net cash provided by (used in) financing activities ......... (6,302) 401 (27,683) Effect of currency exchange rate changes on cash .................. (212) (776) (316) -------- -------- -------- Net increase (decrease) in cash and equivalents ................... 5,625 31 (7,888) Cash and equivalents at beginning of period ....................... 6,201 6,170 14,058 -------- -------- -------- Cash and equivalents at end of period ............................. $ 11,826 $ 6,201 $ 6,170 ======== ======== ======== - -------------------------------------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid ................................................... $ 1,919 $ 1,808 $ 4,403 Income taxes paid................................................ $ 4,255 $ 3,548 $ 1,063 45 VISKASE HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL Viskase Holding Corporation is a wholly owned subsidiary of Viskase Corporation. Viskase Corporation, in turn, is a wholly owned subsidiary of Envirodyne Industries, Inc. Viskase Holding Corporation serves as the direct or indirect parent company for the majority of Viskase Corporation's non-domestic operations. These subsidiaries are as follows: Viskase Holding Corporation conducts its operations through its subsidiaries and, for the most part, has no assets or liabilities other than its investments, accounts receivable and payable with affiliates, and intercompany loan and advances. On January 6, 1993, a group of bondholders filed an involuntary petition for reorganization of Envirodyne Industries, Inc. under Chapter 11 of the U.S. Bankruptcy Code. On January 7, 1993, several of the subsidiaries of Envirodyne Industries, Inc., including Viskase Holding Corporation, each filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the Bankruptcy Court). None of the subsidiaries of Viskase Holding Corporation entered into Chapter 11. On December 17, 1993, the Bankruptcy Court confirmed the First Amended Joint Plan of Reorganization as twice modified (Plan of Reorganization) with respect to Envirodyne Industries, Inc. (Envirodyne) and certain of its subsidiaries, including Viskase Holding Corporation. The Plan of Reorganization was consummated and Envirodyne and certain of its subsidiaries emerged from Chapter 11 on December 31, 1993 (Effective Date). For accounting purposes, the Plan of Reorganization was deemed to be effective as of December 31, 1993. The Chapter 11 filing was related only to the Company's domestic operations and did not include the foreign subsidiaries and various inactive domestic subsidiaries. The Company accounted for the reorganization using the principles of fresh start reporting in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code." Accordingly, all assets and liabilities have been restated to reflect their reorganization value, which approximates fair value. The reorganization value of the Company's equity of $135,000 was based on the consideration of many factors and various valuation methods, including discounted cash flows and comparable multiples of earnings valuation techniques believed by management and its financial advisors to be representative of the Company's business and industry. Factors considered by the Company included the following: o Forecasted operating and cash flow results which gave effect to the estimated impact of debt restructuring and other operational reorganization. F-44
NAME OF SUBSIDIARY PARENT OF SUBSIDIARY COUNTRY OF BUSINESS - ------------------ -------------------- ------------------- Viskase Brasil Embalagens Ltda. Viskase Holding Corporation Brazil Viskase Australia Limited Viskase Holding Corporation Australia Viskase de Mexico S.A. de C.V. Viskase Holding Corporation Mexico Viskase S.A. Viskase Holding Corporation France Viskase Gmbh Viskase S.A. Germany Viskase SPA Viskase S.A. Italy Viskase Canada Inc. Viskase S.A. Canada Viskase ZAO Viskase S.A. Russia Viskase Holdings Limited Viskase S.A. United Kingdom Filmco International Limited Viskase Holdings Limited United Kingdom Viskase Limited Viskase Holdings Limited United Kingdom Viskase (UK) Limited Viskase Limited United Kingdom Envirodyne S.A.R.L. Viskase (UK) Limited France 46 o Discounted residual value at the end of the forecasted period based on the capitalized cash flows for the last year of that period. o Competition and general economic considerations. o Projected sales growth. o Potential profitability. o Seasonality and working capital requirements. The excess of the reorganization value over the fair value of net assets and liabilities is reported as excess reorganization value and is being amortized over a fifteen-year period. The Company continues to evaluate the recoverability of excess reorganization value based on the operating performance and expected future undiscounted cash flows of the operating business units. The reorganization and the adoption of Fresh Start Reporting resulted in no material adjustments to the Company's Consolidated Statement of Operations for the period January 1 to December 31, 1993. 2. NATURE OF BUSINESS Viskase Holding Corporation's subsidiaries manufacture food packaging products. The operations of these subsidiaries are primarily in Europe and South and North America. Through its subsidiaries, the Company is a leading producer of cellulosic casings used in preparing and packaging processed meat products and is a major producer of heat shrinkable plastic bags and specialty films for packaging and preserving fresh and processed meat products, poultry and cheeses. The Company is also a leading international manufacturer of plasticized polyvinyl chloride (PVC) films, primarily for use in packaging food items. INTERNATIONAL OPERATIONS Viskase Holding Corporation's subsidiaries have seven manufacturing facilities located outside the continental United States, in Beauvais, France; Thaon, France; Lindsay, Ontario, Canada; Sedgefield, England (Great Britain); Swansea, Wales (Great Britain); Guarulhos, Brazil and Nuevo Laredo, Mexico. International sales and operations may be subject to various risks including, but not limited to, possible unfavorable exchange rate fluctuations, political instability, governmental regulations (including import and export controls), restrictions on currency repatriation, embargoes, labor relations laws and the possibility of governmental expropriation. Viskase Holding Corporation's foreign operations generally are subject to taxes on the repatriation of funds. International operations in certain parts of the world may be subject to international balance of payments difficulties which may raise the possibility of delay or loss in the collection of accounts receivable from sales to customers in those countries. Viskase Holding Corporation believes that its subsidiaries' allowance for doubtful accounts makes adequate provision for the collectibility of its receivables. Management believes that growth potential exists for many of Viskase's products outside the United States and that Viskase is well positioned to participate in these markets. SALES AND DISTRIBUTION Viskase Holding Corporation's subsidiaries' principal markets are in Europe, Latin America, North America and Asia Pacific. The United Kingdom operation sells its PVC films directly and through distributors, primarily to the retail grocery and foodservice industries in Europe. In Europe, Viskase Holding Corporation's subsidiaries operate casings service centers in Milan, Italy, Pulheim, Germany, and Moscow, Russia. The Company also operates a service center in Brisbane, Australia. These service centers provide finishing, inventory and delivery services to customers. The subsidiaries also use outside distributors to market their products to customers in Europe, Africa, Asia and Latin America. F-45 47 COMPETITION From time to time, Viskase Holding Corporation's subsidiaries experience reduced market share or reduced profits due to price competition; however, management believes that such market conditions will not result in any long-term material loss of business. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) BASIS OF PRESENTATION Effective in 1990 Envirodyne Industries, Inc. adopted a 52/53 week fiscal year ending on the last Thursday of December. Viskase Holding Corporation's 1993 financial statements include December 31, 1993 in order to present the effect of the consummation of the Plan of Reorganization. (B) PRINCIPLES OF CONSOLIDATION The consolidated financial statements reflect the accounts of Viskase Holding Corporation and its subsidiaries. All significant intercompany transactions and balances between and among Viskase Holding Corporation and its subsidiaries have been eliminated in the consolidation. Reclassifications have been made to the prior years' financial statements to conform to the 1995 presentation. (C) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. (D) CASH EQUIVALENTS (DOLLARS IN THOUSANDS) For purposes of the statement of cash flows, the Company considers cash equivalents to consist of all highly liquid debt investments purchased with an initial maturity of approximately three months or less. Due to the short-term nature of these instruments, the carrying values approximate the fair market value. Cash equivalents include $8,074 and $821 of short-term investments at December 28, 1995 and December 29, 1994, respectively. (E) INVENTORIES Inventories, primarily foreign, are valued at the lower of first-in, first-out (FIFO) cost or market. (F) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from 3 to 32 years. Upon retirement or other disposition, cost and related accumulated depreciation are removed from the accounts, and any gain or loss is included in results of operations. Effective December 31, 1993 and in conjunction with the Fresh Start Reporting, property, plant and equipment was reported at the estimated fair value. F-46 48 (G) DEFERRED FINANCING COSTS Deferred financing costs are amortized on a straight-line basis over the expected term of the related debt agreement. Amortization of deferred financing costs is classified as interest expense. (H) EXCESS REORGANIZATION VALUE AND EXCESS INVESTMENT OVER NET ASSETS ACQUIRED, NET Excess reorganization value is amortized on the straight-line method over 15 years. Cost in excess of net assets acquired, net was amortized on a straight-line method over 40 years in fiscal 1993. The Company continues to evaluate the recoverability of excess reorganization value based on operating performance and undiscounted cash flows of the operating business units. Impairment will be recognized when the expected undiscounted future operating cash flows derived from such intangible is less than its carrying value. If impairment is identified, valuation techniques deemed appropriate under the particular circumstances will be used to determine the intangible's fair value. The loss will be measured based on the excess of carrying value over the determined fair value. The review for impairment is performed at least on a quarterly basis. (I) PENSIONS The Company's operations in Europe have defined benefit retirement plans covering substantially all salaried and full time hourly employees. Pension cost is computed using the projected unit credit method. The Company's funding policy is consistent with funding requirements of the applicable foreign laws and regulations. (J) POSTEMPLOYMENT BENEFITS Effective December 31, 1993 and in conjunction with the Fresh Start Reporting, the Company adopted SFAS No. 112 "Employers Accounting for Postemployment Benefits." The impact of adopting SFAS No. 112 was not material. (K) INCOME TAXES Income taxes are accounted for in accordance with SFAS No. 109. Tax provisions and benefits are recorded at statutory rates for taxable items included in the consolidated statements of operations regardless of the period for which such items are reported for tax purposes. Deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities for which income tax benefits will be realized in future years. (L) NET INCOME (LOSS) PER SHARE Net income (loss) per share of common stock is based upon the weighted average number of shares of common stock outstanding during the year. (M) REVENUE RECOGNITION Sales to customers are recorded at the time of shipment net of discounts and allowances. (N) FOREIGN CURRENCY CONTRACTS The Company maintains a hedging program to partially hedge its forecasted foreign currency revenue cash flows. The hedging program principally addresses revenue cash flows within its European operations. The foreign exchange contracts are denominated predominantly in the major European currencies and have varying maturities up to eighteen months. The effect of this practice is 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 rate risk because gains and losses on these contracts offset losses and gains on the F-47 49 transactions being hedged. The cash flows from forward contracts accounted for as hedges of identifiable transactions or events are classified consistent with the cash flows from the transactions or events being hedged. (O) STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options and other equity instruments to employees based on new fair value accounting rules. Although expense recognition for employee stock-based compensation is not mandatory, SFAS 123 requires companies that choose not to adopt the new fair value accounting to disclose pro forma net income and earnings per share under the new method. This new accounting principle is effective for the Company's fiscal year ending December 26, 1996. The Company believes that adoption is not expected to have a material impact on its financial condition as the Company will not adopt the fair value accounting, but will instead comply with the disclosure requirements. 4. RECEIVABLES (DOLLARS IN THOUSANDS) Receivables consisted primarily of trade accounts receivable and were net of allowances for doubtful accounts of $2,256 and $1,364 at December 28, 1995, and at December 29, 1994, respectively. 5. INVENTORIES (DOLLARS IN THOUSANDS) Inventories consisted of: Inventories were net of reserves for obsolete and slow moving inventory of $1,331 and $1,686 at December 28, 1995 and December 29, 1994, respectively. F-48
DECEMBER 28, DECEMBER 29, 1995 1994 ------------ ------------ Raw materials.......................................................... $ 5,299 $ 5,778 Work in process........................................................ 13,342 13,975 Finished products ..................................................... 19,592 23,972 ------- ------- $38,233 $43,725 ======= ======= 50 6. PROPERTY, PLANT AND EQUIPMENT (DOLLARS IN THOUSANDS) Maintenance and repairs charged to costs and expenses for 1995, 1994, and 1993 aggregated $10,288, $10,748 and $9,782, respectively. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from 3 to 32 years. 7. ACCRUED LIABILITIES (DOLLARS IN THOUSANDS) Accrued liabilities were comprised of:
DECEMBER 28, DECEMBER 29, 1995 1994 ------------ ------------ Property, plant and equipment: Land and improvements ................................................. $ 5,319 $ 4,982 Buildings and improvements............................................. 30,236 28,588 Machinery and equipment................................................ 114,212 103,293 Construction in progress .............................................. 283 1,167 Capital Leases: Machinery and equipment ............................................... 367 -------- -------- $150,417 $138,030 ======== ======== 8. DEBT OBLIGATIONS (DOLLARS IN THOUSANDS) As described in Note 1, Chapter 11 Reorganization Proceedings, Envirodyne and certain of its domestic Subsidiaries (including Viskase Holding Corporation) emerged from Chapter 11 on December 31, 1993. On June 20, 1995, Envirodyne completed the sale of $160,000 aggregate principal amount of senior secured notes to certain institutional investors in a private placement. The senior secured notes were issued pursuant to an indenture dated June 20, 1995 (Indenture) and consist of (i) $151,500 of 12% Senior Secured Notes due 2000 and (ii) $8,500 of Floating Rate Senior Secured Notes due 2000 (collectively, the Senior Secured Notes). Envirodyne used the net proceeds of the offering primarily to (i) repay the Company's $86,125 domestic term loan, (ii) repay the $68,316 of obligations under the Company's domestic and foreign revolving loans and (iii) pay transaction fees and expenses. Concurrently with the June 20, 1995 placement, Envirodyne entered into a new $20,000 domestic revolving credit facility (Revolving Credit Facility) and a new $28,000 letter of credit facility (Letter of Credit Facility). The Senior Secured Notes and the obligations under the Revolving Credit Facility and the Letter of Credit Facility are guaranteed by Envirodyne's significant domestic subsidiaries and secured by a collateral pool (Collateral Pool) comprised of: (i) all domestic accounts receivable (including intercompany receivables) and inventory; (ii) all patents, trademarks and other intellectual property (subject to non-exclusive licensing agreements); (iii) substantially all domestic fixed assets (other than assets subject to a lease agreement with General Electric Capital Corporation); and (iv) a senior pledge of 100% of the capital stock of Envirodyne's significant domestic subsidiaries and 65% of the capital stock of Viskase S.A. Such guarantees and security are shared by the holders of the Senior Secured Notes and the holders of the obligations under the Revolving Credit Facility on a pari passu basis pursuant to an intercreditor agreement. Pursuant to such intercreditor agreement, the security interest of the holders of the obligations under the Letter of Credit Facility has priority over all other liens on the Collateral Pool. F-49
DECEMBER 28, DECEMBER 29, 1995 1994 ------------ ------------ Compensation and employee benefits ...................................... $ 9,446 $10,408 Taxes, other than on income ............................................. 1,585 2,006 Accrued volume and sales discounts ...................................... 5,320 5,445 Other ................................................................... 5,591 7,499 ------- ------- $21,942 $25,358 ======= ======= 51 8. DEBT OBLIGATIONS (DOLLARS IN THOUSANDS)--(CONTINUED) The Company finances its working capital needs through a combination of cash generated through operations and borrowings local unsecured credit facilities and intercompany loans. The Company recognized an extraordinary loss of $1,030 representing the write-off of deferred financing fees related to the June 20, 1995 debt refinancing. The extraordinary loss, net of applicable income taxes of $340, was included in the Company's Statement of Operations for the quarter ended June 29, 1995. The Viskase Limited term facility is with a foreign financial institution. The term facility, which is collateralized by substantially all of the assets of Viskase Limited, bears a variable interest rate and is payable in 16 equal semiannual installments that began in December 1992. Outstanding short-term and long-term debt consisted of: The fair value of the Company's debt obligation is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for the debt of the same remaining maturities. At December 29, 1994, the fair value of debt obligations approximated their carrying value. Aggregate maturities of remaining long-term debt for each of the next five fiscal years are:
DECEMBER 28, DECEMBER 29, 1995 1994 ------------ ------------ Short-term debt and current maturity of long-term debt: Current maturity of Viskase Limited Term Loan (4.7%) .................. $2,033 $ 1,882 Other ................................................................. 4,064 5,096 ------ ------- Total short-term debt ................................................. $6,097 $ 6,978 ====== ======= Long-term debt: Bank Credit Agreement: Multicurrency Loan due 1999 (8.9%) ................................. 4,924 Viskase Limited Term Loan (4.7%) ...................................... 7,115 8,466 Other ................................................................. 606 633 ------ ------- Total long-term debt .................................................. $7,721 $14,023 ====== ======= 9. OPERATING LEASES (DOLLARS IN THOUSANDS) The Company has operating lease agreements for machinery, equipment and facilities. The majority of the facilities leases require the Company to pay maintenance, insurance and real estate taxes. Future minimum lease payments for operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 28, 1995, are:
TOTAL ------- 1996 ........................................................................... $2,612 1997 ........................................................................... 2,383 1998 ........................................................................... 2,233 1999 ........................................................................... 2,033 2000 ........................................................................... 1,016 Total rent expense during 1995, 1994 and 1993 amounted to $3,750, $2,350 and $2,140, respectively. F-50
1996 ........................................................................ $1,357 1997 ........................................................................ 1,092 1998 ........................................................................ 886 1999 ........................................................................ 450 2000 ........................................................................ 372 Total thereafter ............................................................ ------ Total minimum lease payments ................................................ $4,157 ====== 52 10. RETIREMENT PLANS (DOLLARS IN THOUSANDS) The Company maintains various pension and statutory separation pay plans for its European employees. The expense for these plans in 1995, 1994 and 1993 was $1,383, $1,043 and $864, respectively. As of their most recent valuation dates, in plans where vested benefits exceeded plan assets, the actuarially computed value of vested benefits exceeded those plans' assets by approximately $2,856; conversely, plan assets exceeded the vested benefits in certain other plans by approximately $2,346. The Company's postretirement benefits are not material. 11. CONTINGENCIES (DOLLARS IN THOUSANDS) The Company and its subsidiaries are involved in various legal proceedings arising out of its business and other environmental matters, none of which is expected to have a material adverse effect upon its results of operations, cash flows or financial position. 12. INCOME TAXES (DOLLARS IN THOUSANDS) The provision (benefit) for income taxes consisted of: A reconciliation from the statutory federal tax rate to the consolidated effective tax rate follows:
DECEMBER 30, JANUARY 1, JANUARY 1, 1994 TO TO TO DECEMBER 29, DECEMBER 29, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ Current: Federal .............................................. $ 1,316 $ 4,479 $1,368 Foreign .............................................. 950 4,652 2,453 State and local ...................................... 243 766 258 ------- ------- ------ 2,509 9,897 4,079 ------- ------- ------ Deferred: Federal .............................................. 2,098 128 (1,434) Foreign .............................................. ------- ------- ------ State and local ...................................... 2,908 128 (1,434) ------- ------- ------ $ 4,607 $10,025 $2,645 ======= ======= ====== F-51
DECEMBER 30, JANUARY 1, JANUARY 1, 1994 TO TO TO DECEMBER 28, DECEMBER 29, DECEMBER 31, 1995 1994 1993 ------------ ------------ ------------ Statutory federal tax rate ................................. 35.0% 35.0% 35.0% Increase (decrease) in tax rate due to: State and local taxes net of related federal tax benefit.. 2.3 2.5 6.4 Net effect of taxes relating to foreign operations........ 30.4 11.1 61.6 Other .................................................... .4 1.6 (2.8) ---- ---- ------ Consolidated effective tax rate ............................ 68.1% 50.2% 100.2% ==== ==== ====== 53 12. INCOME TAXES (DOLLARS IN THOUSANDS)--(CONTINUED) Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities for 1995 are as follows: At December 28, 1995, the Company had $11,136 of undistributed earnings of foreign subsidiaries considered permanently invested for which deferred taxes have not been provided. Domestic earnings or (losses) after extraordinary gain or loss and before income taxes were approximately $3,937, $12,634 and $4,373 in 1995, 1994 and 1993, respectively. Foreign earnings or (losses) before income taxes were approximately $2,832, $7,329 and $(1,733) in 1995, 1994 and 1993, respectively. 13. RESEARCH AND DEVELOPMENT COSTS (DOLLARS IN THOUSANDS) Research and development costs are expensed as incurred and totaled $1,106, $1,562 and $1,180, for 1995, 1994, and 1993, respectively. 14. RELATED PARTY TRANSACTIONS (DOLLARS IN THOUSANDS) INTERCOMPANY LOANS AND ADVANCES:
TEMPORARY DIFFERENCE TAX EFFECTED ------------------------------ ------------ ------------- DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX ASSETS LIABILITIES ASSETS LIABILITIES ------------- ------------ ------------ ------------- Depreciation basis differences ............... $72,219 $25,717 Pension and healthcare........................ 600 220 Other accruals, reserves, and other........... $ 648 399 $ 216 174 ----- ------- ----- ------- $ 648 $73,218 $ 216 $26,111 ===== ======= ===== ======= The Viskase S.A. 12% promissory note due to Envirodyne is payable on demand. Interest is payable semiannually on June 30 and December 31. The Viskase S.A. promissory note due to Envirodyne is payable on demand and bears interest at a rate of 10.00%. Interest is payable semiannually on June 30 and December 31. The $2.5 million Viskase United Kingdom Limited promissory note due to Envirodyne is payable on demand and bears interest at a rate of 8.00%. The promissory note was repaid in 1995. The Viskase Corporation advance to Viskase Holding Corporation is payable on demand. F-52
DECEMBER 28, DECEMBER 29, 1995 1994 ----------- ----------- Viskase S.A. 12% promissory note due to Envirodyne ............. $25,142 Viskase S.A. promissory note due to Envirodyne ................. 17,440 $35,249 Accrued interest on Viskase S.A. promissory note ............... 83 1,688 Viskase United Kingdom Limited promissory note due to Envirodyne, including accrued interest ................ 419 2,919 Advances: Envirodyne to Viskase S.A. ................................... Viskase Corporation to Viskase Holding Corporation ........... 38,010 38,010 ------- ------- $81,094 $77,866 ======= ======= 54 14. RELATED PARTY TRANSACTIONS (DOLLARS IN THOUSANDS)--(CONTINUED) LICENSE AGREEMENTS Viskase Holding Corporation has been granted the right to license Viskase Corporation's patents and technology pursuant to a license agreement between Viskase Corporation and Viskase Holding Corporation. INTERCOMPANY TRANSACTIONS In 1995, 1994 and 1993, the Company paid $1,022, $756 and $752, respectively, to Viskase Corporation for management services. During 1995, 1994 and 1993, the Company accrued $687, $100 and $100, respectively, payable to Envirodyne for management services. During 1995, 1994 and 1993, the Company purchased semi-finished and finished inventory from Viskase Sales Corporation in the amount of $26,953, $23,114 and $15,439, respectively. In addition, during 1995, 1994 and 1993, the Company had sales of inventory to Viskase Sales Corporation in the amount of $7,329, $5,632 and $1,338, respectively. 15. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying value and estimated fair value as of December 28, 1995 of the Company's financial instruments. (Refer to Notes 3 and 8.) F-53
CARRYING ESTIMATED VALUE FAIR VALUE -------- ----------- Assets: Cash and equivalents. . . . . . . . . . . $11,826 $11,826 Foreign currency contracts. . . . . . . . 3,397 3,377 Liabilities: Long-term debt. . . . . . . . . . . . . . 7,721 7,721 55 SCHEDULE II ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS) - -------------------- (1) Foreign currency translation. F-54
BALANCE AT PROVISION BALANCE BEGINNING CHARGED TO AT END DESCRIPTION OF PERIOD EXPENSE WRITE-OFFS RECOVERIES OTHER(1) OF PERIOD - ----------- ---------- ----------- ---------- ---------- -------- --------- 1995 for the year ended December 28 Allowance for doubtful accounts............ $2,136 $1,403 $ (472) $ 6 $151 $3,224 1994 for the year ended December 29 Allowance for doubtful accounts............ 2,872 939 (1,824) 21 128 2,136 1993 for the year ended December 31 Allowance for doubtful accounts............ 2,175 1,166 (334) 70 (205) 2,872 1995 for the year ended December 28 Reserve for obsolete and slow moving inventory...................... 5,353 1,264 (2,868) 69 3,818 1994 for the year ended December 29 Reserve for obsolete and slow moving inventory...................... 5,425 2,936 (3,123) 115 5,353 1993 for the year ended December 31 Reserve for obsolete and slow moving inventory...................... 3,178 4,973 (2,660) (66) 5,425 56 UNAUDITED INTERIM FINANCIAL STATEMENTS F-55 57 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS The accompanying notes are an integral part of the consolidated financial statements. F-56
March 28, December 28, 1996 1995 ---------------- --------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 23,002 $ 30,325 Receivables, net 86,348 89,454 Inventories 105,239 99,474 Other current assets 32,073 21,646 -------- -------- Total current assets 246,662 240,899 Property, plant and equipment, including those under capital leases 549,638 545,491 Less accumulated depreciation and amortization 86,604 75,987 -------- -------- Property, plant and equipment, net 463,034 469,504 Deferred financing costs 7,448 8,090 Other assets 44,327 45,589 Excess reorganization value 132,889 135,485 -------- -------- $894,360 $899,567 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligations under capital leases $ 12,014 $ 12,504 Accounts payable 41,429 39,117 Accrued liabilities 78,851 67,553 -------- -------- Total current liabilities 132,294 119,174 Long-term debt including obligations under capital leases 523,113 530,181 Accrued employee benefits 55,944 55,626 Deferred and noncurrent income taxes 73,156 77,490 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 14,479,721 shares issued and outstanding at March 28, 1996 and 13,579,460 shares at December 28, 1995 145 136 Paid in capital 134,855 134,864 Accumulated (deficit) (31,058) (25,131) Cumulative foreign currency translation adjustments 5,911 7,227 -------- -------- Total stockholders' equity 109,853 117,096 -------- -------- $894,360 $899,567 ======== ======== 58 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS The accompanying notes are an integral part of the consolidated financial statements. F-57
Three Months Ended ---------------------------------- March 28, March 30, 1996 1995 --------------- -------------- (in thousands, except for number of shares and per share amounts) NET SALES $159,736 $155,824 COSTS AND EXPENSES Cost of sales 119,709 114,955 Selling, general and administrative 26,642 28,270 Amortization of intangibles and excess reorganization value 4,091 3,910 -------- --------- OPERATING INCOME 9,294 8,689 Interest income 391 64 Interest expense 14,876 13,434 Other expense (income), net 3,036 (591) -------- --------- (LOSS) BEFORE INCOME TAXES (8,227) (4,090) Income tax provision (benefit) (2,300) (195) -------- --------- NET (LOSS) $ (5,927) $ (3,895) ======== ========= WEIGHTED AVERAGE COMMON SHARES 13,737,748 13,515,000 PER SHARE AMOUNTS: NET (LOSS) $(.43) $ (.29) ===== ======= 59 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS The accompanying notes are an integral part of the consolidated financial statements. F-58
Three Months Ended ---------------------------------- March 28, March 30, 1996 1995 ------------- -------------- (in thousands) Cash flows from operating activities: Net (loss) $ (5,927) $ (3,895) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation and amortization under capital lease 10,974 9,986 Amortization of intangibles and excess reorganization value 4,091 3,910 Amortization of deferred financing fees and discount 579 549 Increase (decrease) in deferred and noncurrent income taxes (3,866) (907) Foreign currency transaction loss (gain) 47 (1,586) (Gain) on sales of property, plant and equipment (2) Changes in operating assets and liabilities: Accounts receivable 2,307 (438) Inventories (6,212) (12,192) Other current assets (10,558) (10,615) Accounts payable and accrued liabilities 14,243 254 Other 191 398 -------- -------- Total adjustments 11,794 (10,641) -------- -------- Net cash provided by operating activities 5,867 (14,536) Cash flows from investing activities: Capital expenditures (6,543) (7,631) Proceeds from sale of property, plant and equipment 49 -------- ------- Net cash (used in) investing activities (6,494) (7,631) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings 42,249 Deferred financing costs (464) Repayment of revolving loan, long-term borrowings and capital lease obligation (7,202) (19,973) -------- -------- Net cash provided by financing activities (7,202) 21,812 Effect of currency exchange rate changes on cash 506 275 -------- -------- Net (decrease) in cash and equivalents (7,323) (80) Cash and equivalents at beginning of period 30,325 7,289 -------- -------- Cash and equivalents at end of period $ 23,002 $ 7,209 ======== ======== - ---------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $13,379 $16,330 Income taxes paid $ 453 $ 1,405 60 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. INVENTORIES (dollars in thousands) Inventories consisted of: Approximately 56% of the inventories at March 28, 1996 were valued at Last-In, First-Out (LIFO). These LIFO values exceeded current manufacturing cost by approximately $5 million at March 28, 1996. 2. DEBT OBLIGATIONS (dollars in thousands) On June 20, 1995, Envirodyne Industries, Inc. (Envirodyne or the Company) completed the sale of $160,000 aggregate principal amount of senior secured notes pursuant to an indenture dated June 20, 1995 (Indenture) consisting of (i) $151,500 of 12% Senior Secured Notes due 2000 and (ii) $8,500 of Floating Rate Senior Secured Notes due 2000 (collectively, the Senior Secured Notes). Envirodyne used the net proceeds of the offering primarily to refinance senior bank debt and pay transaction fees and expenses. Concurrently with the June 20, 1995 financing, Envirodyne entered into a $20,000 domestic revolving credit facility (Revolving Credit Facility) and a $28,000 letter of credit facility (Letter of Credit Facility). The Senior Secured Notes and the obligations under the Revolving Credit Facility and the Letter of Credit Facility are guaranteed by Envirodyne's significant domestic subsidiaries and secured by a collateral pool (Collateral Pool) comprised of: (i) all domestic accounts receivable (including intercompany receivables) and inventory; (ii) all patents, trademarks and other intellectual property (subject to non-exclusive licensing agreements); (iii) substantially all domestic fixed assets (other than assets subject to a lease agreement with General Electric Capital Corporation); and (iv) a senior pledge of 100% of the capital stock of Envirodyne's significant domestic subsidiaries and 65% of the capital stock of Viskase S.A. Such guarantees and security are shared by the holders of the Senior Secured Notes and the holders of the obligations under the Revolving Credit Facility on a pari passu basis pursuant to an intercreditor agreement. Pursuant to such intercreditor agreement, the security interest of the holders of the obligations under the Letter of Credit Facility has priority over all other liens on the Collateral Pool. The Company finances its working capital needs through a combination of cash generated through operations and borrowings under the 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), borrowing base limitations measured by accounts receivable and inventory of the Company and reserves which may be established at the discretion of the lenders. Currently, there are no drawings under the Revolving Credit Facility. The available borrowing capacity under the Revolving Credit Facility was $20 million at March 28, 1996. The Company recognized an extraordinary loss of $6,778 representing the write-off of deferred financing fees related to the June 20, 1995 debt refinancing. The extraordinary loss, net of applicable F-59
March 28, December 28, 1996 1995 ----------- --------------- Raw materials $ 17,605 $ 17,150 Work in process 32,695 32,800 Finished products 54,939 49,524 -------- ------- $105,239 $ 99,474 ======== ======== 61 income taxes of $2,582, was included in the Company's Statement of Operations for the quarter ended June 29, 1995. The $151,500 tranche of Senior Secured Notes bears interest at a rate of 12% per annum and the $8,500 tranche bears interest at a rate equal to the six month London Interbank Offered Rate (LIBOR) plus 575 basis points. The interest rate on the floating rate tranche is approximately 11.4%. The interest rate on the floating rate tranche is reset semi-annually on June 15 and December 15. Interest on the Senior Secured Notes is payable each June 15 and December 15. On June 15, 1999, $80,000 of Senior Secured Notes is subject to a mandatory redemption. The remaining principal amount outstanding will mature on June 15, 2000. In the event the Company has Excess Cash Flow (as defined) in excess of $5,000 in any fiscal year, Envirodyne is required to make an offer to purchase Senior Secured Notes together with any borrowed money obligations outstanding under the Revolving Credit Facility, on a pro rata basis, in an amount equal to the Excess Cash Flow at a purchase price of 100% plus any accrued interest to the date of purchase. There was no Excess Cash Flow for fiscal 1995. The Senior Secured Notes are redeemable, in whole or from time to time in part, at Envirodyne's option, at the greater of (i) the outstanding principal amount or (ii) the present value of the expected future cash flows from the Senior Secured Notes discounted at a rate equal to the Treasury Note yield corresponding closest to the remaining average life of the Senior Secured Notes at the time of prepayment plus 100 basis points; plus accrued interest thereon to the date of purchase. Upon the occurrence of a Change of Control (which includes the acquisition by any person of more than 50% of Envirodyne's Common Stock), each holder of the Senior Secured Notes has the right to require the Company to repurchase such holder's Senior Secured Notes at a price equal to the greater of (i) the outstanding principal amount or (ii) the present value of the expected cash flows from the Senior Secured Notes discounted at a rate equal to the Treasury Note yield corresponding closest to the remaining average life of the Senior Secured Notes at the time of prepayment plus 100 basis points; plus accrued interest thereon to the date of purchase. The Indenture contains covenants with respect to Envirodyne and its subsidiaries limiting (subject to a number of important qualifications), among other things, (i) the ability to pay dividends or redeem or repurchase common stock, (ii) the incurrence of indebtedness, (iii) the creation of liens, (iv) certain affiliate transactions and (v) the ability to consolidate with or merge into another entity and to dispose of assets. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to the three month London Interbank Offered Rate (LIBOR) on the first day of each calendar quarter plus 300 basis points. The Revolving Credit Facility expires on June 20, 1998. Envirodyne has entered into interest rate agreements that cap $50 million of interest rate exposure at an average LIBOR rate of 6.50% until January 1997. These interest rate cap agreements were entered into under terms of the senior bank financing that was repaid on June 20, 1995. Interest expense includes $153 of amortization of the interest rate cap premium during the three-month period ended March 28, 1996. Envirodyne has not received any payments under the interest rate protection agreements. The Letter of Credit Facility expires on June 20, 1998. Fees on the outstanding amount of letters of credit are 2.0% per annum, with an issuance fee of 0.5% on the face amount of the letter of credit. There is a commitment fee of 0.5% per annum on the unused portion of the Letter of Credit Facility. F-60 62 Had the refinancing taken place at the beginning of 1995, the pro forma Envirodyne consolidated statement of operations would have been: (in thousands, except for number of shares and per share amounts) The pro forma information reflects the change in interest expense and related tax effect due to the issuance of $160 million principal amount of Senior Secured Notes and the refinancing of the Company's bank debt. The $219,262 principal amount of 10-1/4% Notes were issued pursuant to an Indenture dated as of December 31, 1993 (10-1/4% Note Indenture) between Envirodyne and Bankers Trust Company, as Trustee. The 10-1/4% Notes are the unsecured senior obligations of Envirodyne, bear interest at the rate of 10-1/4% per annum, payable on each June 1 and December 1, and mature on December 1, 2001. The 10-1/4% Notes are redeemable, in whole or from time to time in part, at the option of Envirodyne, at the percentages of principal amount specified below plus accrued and unpaid interest to the redemption date, if the 10-1/4% Notes are redeemed during the twelve-month period commencing on January 1 of the following years:
Pro Forma Three Months Ended March 30, 1995 ------------------------ Net sales $155,824 Cost of sales 114,955 Selling, general and administrative 28,270 Amortization of intangibles and excess reorganization cost 3,910 -------- Operating income 8,689 Interest income 64 Interest expense 14,981 Other expense (income), net (591) -------- (Loss) before income taxes (5,637) Income tax (benefit) (798) -------- Net (loss) $ (4,839) ======== Weighted average common shares 13,515,000 Net (loss) per share $(.36) ===== The 10-1/4% Note Indenture contains covenants with respect to Envirodyne and its subsidiaries limiting (subject to a number of important qualifications), among other things, (i) the ability to pay dividends on or redeem or repurchase capital stock, (ii) the incurrence of indebtedness, (iii) certain affiliate transactions and (iv) the ability of the Company to consolidate with or merge with or into F-61
Year Percentage ---- ---------- 1996 104% 1997 103% 1998 102% 1999 101% 2000 and thereafter 100% 63 another entity or to dispose of substantially all its assets. Outstanding short-term and long-term debt consisted of: The fair value of the Company's debt obligation (excluding capital lease obligation) is estimated based upon the quoted market prices for the same or similar issues or upon the current rates offered to the Company for the debt of the same remaining maturities. At March 28, 1996 the carrying amount and estimated fair value of debt obligations (excluding capital lease obligation) were $391,974 and $348,818, respectively. On December 28, 1990, Viskase and GECC entered into a sale and leaseback transaction. The sale and leaseback of assets included the production and finishing equipment at Viskase's four domestic casing production and finishing facilities. The facilities are located in Chicago, Illinois; Loudon, Tennessee; Osceola, Arkansas and Kentland, Indiana. Viskase, as the Lessee under the relevant agreements, continues to operate all of the facilities. The lease has been accounted for as a capital lease. The principal terms of the sale and leaseback transaction include: (a) a 15-year basic lease term (plus selected renewals at Viskase's option), (b) annual rent payments in advance beginning in February 1991, and (c) a fixed price purchase option at the end of the basic 15-year term and fair market purchase options at the end of the basic term and each renewal term. Further, the Lease Documents contain covenants requiring maintenance by the Company of certain financial ratios and restricting the Company's ability to pay dividends, make payments to affiliates, make investments and incur indebtedness. Annual rental payments under the Lease will be approximately $19.2 million through 1997, $21.4 million in 1998 and $23.5 million through the end of the basic 15-year term. Viskase is required to provide credit support consisting of a standby letter of credit in an amount up to one year's rent through at least 1997. F-62
March 28, December 28, 1996 1995 ---------- ------------ Short-term debt, current maturity of long-term debt, and capital lease obligation: Current maturity of Viskase Capital Lease Obligation $ 6,633 $ 6,012 Current maturity of Viskase Limited Term Loan (4.7%) 1,977 2,033 Other 3,404 4,459 -------- --------- Total short-term debt $12,014 $12,504 ======= ======= 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 134,549 141,182 Viskase Limited Term Loan (4.7%) 6,917 7,115 Other 2,385 2,622 -------- --------- Total long-term debt $523,113 $530,181 ======== ======== 64 This credit support can be reduced up to $4 million currently if the Company achieves and maintains certain financial ratios. As of March 28, 1996 the Company had met the required financial ratios and the letter of credit has been reduced by $4 million. The letter can be further reduced in 1997 or eliminated after 1998 if the Company achieves and maintains certain financial ratios. Envirodyne and its other principal subsidiaries guaranteed the obligations of Viskase under the Lease. The 1996 rental payment of $19,227 was paid on February 28, 1996. Principal payments under the capital lease obligation for the years ended 1996 through 1999 range from approximately $6 million to $14 million. Aggregate maturities of remaining long-term debt for each of the next five fiscal years are: F-63
Total --------------- 1996 $ 9,019 1997 9,418 1998 12,313 1999 95,477 2000 95,669 65 3. CONTINGENCIES (dollars in thousands) A class action lawsuit by former employees of subsidiary corporations comprising most of the Company's former steel and mining division (SMD) was pending as of the commencement of the bankruptcy case in which the plaintiffs were seeking substantial damages. In March 1996, Envirodyne completed a settlement of the lawsuit under which Envirodyne was released and discharged from all claims in exchange for 900,000 shares of Envirodyne common stock without any admission or finding of liability or wrongdoing. Litigation has been initiated with respect to events arising out of the bankruptcy cases and the 1989 acquisition of Envirodyne by Emerald Acquisition Corporation (Emerald) with respect to which, although Envirodyne is not presently a party to such litigation, certain defendants have asserted indemnity rights against Envirodyne. In ARTRA Group Incorporated v. Salomon Brothers Holding Company Inc, Salomon Brothers Inc, D.P. Kelly & Associates, L.P., Donald P. Kelly, Charles K. Bobrinskoy, James L. Massey, William Rifkind and Michael Zimmerman, Case No. 93 A 1616, United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (Bankruptcy Court), ARTRA Group Incorporated (ARTRA) alleges breach of fiduciary duty and tortious inference in connection with the negotiation and consummation of Envirodyne's plan of reorganization (Plan of Reorganization) in 1993. In ARTRA Group Incorporated v. Salomon Brothers Holding Company Inc, Salomon Brothers Inc, D.P. Kelly & Associates, L.P., Donald P. Kelly, Charles K. Bobrinskoy and Michael Zimmerman, Case No. 93 L 2198, Circuit Court of the Eighteenth Judicial Circuit, County of DuPage, State of Illinois, ARTRA alleges breach of fiduciary duty, fraudulent and negligent misrepresentation and breach of contract in connection with the 1989 acquisition of Envirodyne by Emerald. The plaintiff seeks damages in the total amount of $136.2 million plus interest and punitive damages of $408.6 million. D.P. Kelly & Associates, L.P. and Messrs. Kelly, Bobrinskoy, Massey, Rifkind and Zimmerman have asserted common law and contractual rights of indemnity against Envirodyne for attorneys' fees, costs and any ultimate liability relating to the claims set forth in the complaints. Envirodyne is continuing its evaluation of the merits of the indemnification claims against Envirodyne and the underlying claims in the litigation. Upon the undertaking of D.P. Kelly & Associates, L.P. to repay such funds in the event it is ultimately determined that there is no right to indemnity, Envirodyne is advancing funds to D.P. Kelly & Associates, L.P. and Mr. Kelly for the payment of legal fees in the case pending before the Bankruptcy Court. Although the Company is not a party to either case, the Company believes that the plaintiff's claims raise similar factual issues to those raised in the Envirodyne bankruptcy case which, if adjudicated in a manner similar to that in the Envirodyne bankruptcy case, would render it difficult for the plaintiff to establish liability. Accordingly, the Company believes that the indemnification claims would not have a material adverse effect upon the business or financial position of the Company, even if the claimants were ultimately successful in establishing their right to indemnification. Certain of Envirodyne's stockholders prior to the acquisition of Envirodyne by Emerald failed to exchange their certificates representing old Envirodyne common stock for the $40 per share cash merger consideration specified by the applicable acquisition agreement. In the Envirodyne bankruptcy case, Envirodyne sought to equitably subordinate the claims of the holders of untendered shares, so that such holders would not receive a distribution under the Plan of Reorganization. The Bankruptcy Court granted Envirodyne's motion for summary judgment and equitably subordinated the claims of the holders of untendered shares to the claims of other general unsecured creditors. Certain of the affected holders appealed and both the U.S. District Court and the U.S. Seventh Circuit Court of Appeals affirmed the Bankruptcy Court decision. The time period for further appeal has not passed. Envirodyne believes F-64 66 that even in the event of further appeal, if any, and reversal of the prior decisions, the maximum number of shares of common stock that it would be required to issue to such claimants is approximately 106,000. Clear Shield National, Inc. and some of its employees have received subpoenas from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the disposable plastic cutlery industry. The U.S. Department of Justice has advised a former officer and an existing employee that they are targets of the investigation. Both individuals were invited to appear and testify before the grand jury but both declined. Clear Shield National is cooperating fully with the investigation. In February 1996 Clear Shield National and three other plastic cutlery manufacturers were named as defendants in the following three civil complaints: Eisenberg Brothers, Inc., on behalf of itself and all others similarly situated, v. Amcel Corp., Clear Shield National, Inc., Dispoz-O Plastics Corp. and Benchmark Holdings, Inc. t/a Winkler Products, Civil Action No. 96-728, United States District Court for the Eastern District of Pennsylvania; St. Cloud Restaurant Supply Company v. Amcel Corp., Clear Shield National, Inc., Dispoz-O Plastics Corp. and Benchmark Holdings, Inc. t/a Winkler Products, Case No. 96C 0777, United States District Court for the Northern District of Illinois, Eastern Division; and Servall Products, Inc., on behalf of itself and all others similarly situated, v. Amcel Corporation, Clear Shield National, Inc., Dispoz-O Plastics Corporation and Benchmark Holdings, Inc. t/a Winkler Products, Civil Action No. 96-1116, United States District Court for the Eastern District of Pennsylvania. Each of the complaints alleges, among other things, that from October 1990 through April 1992 the defendants unlawfully conspired to fix the prices at which plastic cutlery would be sold. The Company has informed the plaintiffs that such claims as they relate to Clear Shield were discharged by the order of the Bankruptcy Court and Plan of Reorganization and that the plaintiffs are permanently enjoined from pursuing legal action to collect discharged claims. On February 27, 1996, the plaintiff in the St. Cloud case voluntarily dismissed the action without prejudice and refiled its action in the U.S. District Court for the Eastern District of Pennsylvania but did not name Clear Shield National as a defendant. On March 14, 1996, Eisenberg Brothers Inc. filed a motion in Clear Shield National's Bankruptcy proceeding in the U.S. Bankruptcy Court for the Northern District of Illinois, Eastern Division. Eisenberg Brothers Inc.'s motion contends that the Bankruptcy Court's order did not discharge the plaintiff's claim. The Company and its subsidiaries are involved in various legal proceedings arising out of its business and other environmental matters, none of which is expected to have a material adverse effect upon its results of operations, cash flows or financial position. 4. CAPITAL STOCK, PAID IN CAPITAL, AND WARRANTS On February 23, 1996, the United States Bankruptcy Court for the Northern District of Illinois, Eastern District entered an order approving a settlement agreement resolving all claims of the former union employees of Wisconsin Steel Company which shut down in March 1980. Under terms of the approved settlement of Frank Lumpkin, et al. v. Envirodyne Industries, Inc. (Lumpkin) and without any admission or finding of liability or wrongdoing, Envirodyne was released and discharged from all claims in exchange for 900,000 shares of common stock. The distribution is in accordance with the terms of Envirodyne's Plan of Reorganization under which common stock was distributed to Envirodyne's general unsecured creditors in satisfaction of their allowed claims. F-65 67 The Company issued additional shares of common stock for the Lumpkin settlement and to the holders of general unsecured claims of Envirodyne (as opposed to the subsidiaries of Envirodyne) under the terms of the Plan of Reorganization. The total number of shares outstanding after issuance of common stock for the Lumpkin settlement and for the additional distribution to holders of general unsecured claims of Envirodyne is 14,479,721. Under the terms of the Plan of Reorganization, Envirodyne issued warrants to purchase 10% of the fully diluted common stock. The issuance of common stock pursuant to the Lumpkin settlement, together with other issuances of common stock since the consummation of the Plan of Reorganization, caused an adjustment to the exercise price of the warrants and the number of shares of common stock for which a warrant is exercisable. The exercise price was adjusted from $17.25 to $16.08 per share and the number of common shares for which each warrant is exercisable was adjusted from 1.000 share to 1.073 shares. 5. 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 S.A. 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. F-66 68 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEETS MARCH 28, 1996 (1) Elimination of intercompany receivables, payables and investment accounts. F-67
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total -------- ------------ ------------ ---------------- ------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 16,489 $ (1,923) $ 8,436 $ 23,002 Receivables and advances, net 73,219 67,508 52,060 $ (106,439) 86,348 Inventories 68,570 38,124 (1,455) 105,239 Other current assets 510 22,090 9,473 32,073 -------- -------- -------- --------- -------- Total current assets 90,218 156,245 108,093 (107,894) 246,662 Property, plant and equipment including those under capital lease 265 400,668 148,705 549,638 Less accumulated depreciation and amortization 176 63,569 22,859 86,604 -------- -------- -------- --------- -------- Property, plant and equipment, net 89 337,099 125,846 463,034 Deferred financing costs 6,497 951 7,448 Other assets 42,672 1,655 44,327 Investment in subsidiaries 71,972 117,371 (189,343) Excess reorganization value 93,152 39,737 132,889 -------- -------- -------- --------- -------- $168,776 $746,539 $276,282 $(297,237) $894,360 ======== ======== ======== ========= ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 7,051 $ 4,963 $ 12,014 Accounts payable and advances $ 15 99,213 48,640 $ (106,439) 41,429 Accrued liabilities 19,868 36,273 22,710 78,851 -------- -------- -------- --------- -------- Total current liabilities 19,883 142,537 76,313 (106,439) 132,294 Long-term debt including obligation under capital lease 379,262 136,462 7,389 523,113 Accrued employee benefits 51,649 4,295 55,944 Deferred and noncurrent income taxes 33,330 15,015 24,811 73,156 Intercompany loans (373,552) 340,000 33,504 48 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 14,479,721 shares issued and outstanding 145 3 32,738 (32,741) 145 Paid in capital 134,855 87,899 87,871 (175,770) 134,855 Accumulated earnings (deficit) (31,058) (32,889) 3,498 29,391 (31,058) Cumulative foreign currency translation adjustments 5,911 5,863 5,863 (11,726) 5,911 -------- -------- -------- --------- -------- Total stockholders' equity 109,853 60,876 129,970 (190,846) 109,853 -------- -------- -------- --------- -------- $168,776 $746,539 $276,282 $(297,237) $894,360 ======== ======== ======== ========= ======== 69 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEETS DECEMBER 28, 1995 (1) Elimination of intercompany receivables, payables and investment accounts. F-68
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total -------- ------------ ------------ ---------------- ------------ (in thousands) ASSETS Current assets: Cash and equivalents $ 18,013 $ 486 $ 11,826 $ 30,325 Receivables and advances, net 52,462 70,458 57,082 $ (90,548) 89,454 Inventories 63,355 38,233 (2,114) 99,474 Other current assets 176 12,364 9,106 21,646 -------- -------- -------- --------- -------- Total current assets 70,651 146,663 116,247 (92,662) 240,899 Property, plant and equipment including those under capital lease 261 394,813 150,417 545,491 Less accumulated depreciation and amortization 150 55,620 20,217 75,987 -------- -------- -------- --------- -------- Property, plant and equipment, net 111 339,193 130,200 469,504 Deferred financing costs 7,048 1,042 8,090 Other assets 43,720 1,869 45,589 Investment in subsidiaries 77,766 117,578 (195,344) Excess reorganization value 94,968 40,517 135,485 -------- -------- -------- --------- -------- $155,576 $742,122 $289,875 $(288,006) $899,567 ======== ======== ======== ========= ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $6,407 $6,097 $ 12,504 Accounts payable and advances $ 80 78,848 50,737 $ (90,548) 39,117 Accrued liabilities 8,126 37,488 21,939 67,553 -------- -------- -------- --------- -------- Total current liabilities 8,206 122,743 78,773 (90,548) 119,174 Long-term debt including obligation under capital lease 379,262 143,198 7,721 530,181 Accrued employee benefits 51,345 4,281 55,626 Deferred and noncurrent income taxes 34,088 17,507 25,895 77,490 Intercompany loans (383,076) 340,000 43,083 (7) Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 13,579,460 shares issued and outstanding 136 3 32,738 (32,741) 136 Paid in capital 134,864 87,899 87,871 (175,770) 134,864 Accumulated earnings (deficit) (25,131) (27,752) 2,334 25,418 (25,131) Cumulative foreign currency translation adjustments 7,227 7,179 7,179 (14,358) 7,227 -------- -------- -------- --------- -------- Total stockholders' equity 117,096 67,329 130,122 (197,451) 117,096 -------- -------- -------- --------- -------- $155,576 $742,122 $289,875 $(288,006) $899,567 ======== ======== ======== ========= ======== 70 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 28, 1996 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR THREE MONTHS ENDED MARCH 28, 1996
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total ------- ------------ ------------ ------------ ------------ (in thousands) NET SALES $102,481 $66,212 $ (8,957) $159,736 COSTS AND EXPENSES Cost of sales 78,867 50,458 (9,616) 119,709 Selling, general and administrative $1,546 14,921 10,175 26,642 Amortization of intangibles and excess reorganization value 3,228 863 4,091 -------- -------- ------- -------- -------- OPERATING INCOME (LOSS) (1,546) 5,465 4,716 659 9,294 Interest income 216 175 391 Interest expense 10,940 3,343 593 14,876 Intercompany interest expense (income) (10,513) 9,379 1,134 Management fees (income) (1,591) 1,218 373 Other expense (income), net 2,210 173 653 3,036 Equity Loss (income) in subsidiary 4,478 (1,164) (3,314) ------- -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES (6,854) (7,484) 2,138 3,973 (8,227) Income tax provision (benefit) (927) (2,347) 974 (2,300) ------- -------- -------- -------- -------- NET INCOME (LOSS) $(5,927) $ (5,137) $ 1,164 $ 3,973 $(5,927) ======= ======== ======= ======== ======= F-69
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------ (in thousands) Net cash provided by (used in) operating activities $(11,061) $ 9,527 $7,401 $ 5,867 Cash flows from investing activities: Capital expenditures (3) (5,919) (621) (6,543) Proceeds from sale of property, plant and equipment 35 14 49 -------- -------- ------- -------- ------- Net cash (used in) investing activities (3) (5,884) (607) (6,494) Cash flows from financing activities: Repayment of revolving loan, long-term borrowings and capital lease obligations (6,052) (1,150) (7,202) Increase (decrease) in Envirodyne loan 9,540 (9,540) -------- -------- -------- -------- ------- Net cash provided by (used in) financing activities 9,540 (6,052) (10,690) (7,202) Effect of currency exchange rate changes on cash 506 506 -------- -------- -------- -------- ------- Net increase (decrease) in cash and equivalents (1,524) (2,409) (3,390) (7,323) Cash and equivalents at beginning of period 18,013 486 11,826 30,325 -------- -------- ------- -------- ------- Cash and equivalents at end of period $16,489 $ (1,923) $ 8,436 $23,002 ======= ======== ======= ======== ======= 71 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 30, 1995 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR THREE MONTHS ENDED MARCH 30, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------ (in thousands) NET SALES $102,289 $ 62,520 $ (8,985) $155,824 COSTS AND EXPENSES Cost of sales 75,069 48,903 (9,017) 114,955 Selling, general and administrative $1,573 17,354 9,343 28,270 Amortization of intangibles and excess reorganization value 3,066 844 3,910 ------- -------- -------- -------- -------- OPERATING INCOME (LOSS) (1,573) 6,800 3,430 32 8,689 Interest income 55 9 64 Interest expense 9,084 3,522 828 13,434 Intercompany interest expense (income) (9,352) 8,502 850 Management fees (income) (1,850) 1,558 292 Other expense (income), net (2,152) (43) 1,604 (591) Equity loss (income) in subsidiary 5,540 756 (6,296) ------- -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES (2,843) (7,440) (135) 6,328 (4,090) Income tax provision 1,052 (1,868) 621 (195) ------- -------- -------- -------- -------- NET INCOME (LOSS) $(3,895) $ (5,572) $ (756) $ 6,328 $ (3,895) ======= ======== ======== ======== ======== F-70
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------ (in thousands) Net cash provided by (used in) operating activities $(23,043) $12,237 $(3,730) $(14,536) Cash flows from investing activities: Capital expenditures (5,826) (1,805) (7,631) ------- -------- -------- -------- -------- Net cash (used in) investing activities (5,826) (1,805) (7,631) Cash flows from financing activities: Proceeds from revolving loan and long term borrowings 13,900 28,349 42,249 Deferred financing costs (464) (464) Repayment of revolving loan, long-term borrowings and capital lease obligations (2,837) (5,450) (11,686) (19,973) Increase (decrease) in Envirodyne loan 14,705 (14,705) ------- -------- -------- -------- -------- Net cash provided by (used in) financing activities 25,304 (5,450) 1,958 21,812 Effect of currency exchange rate changes on cash 275 275 ------- -------- -------- -------- -------- Net increase (decrease) in cash and equivalents 2,261 961 (3,302) (80) Cash and equivalents at beginning of period 555 1,853 4,881 7,289 ------- -------- -------- -------- -------- Cash and equivalents at end of period $ 2,816 $ 2,814 $ 1,579 $ 7,209 ======= ======== ======== ======== ======== 72 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 28, 1995 (1995 Form 10-K). These quarterly financial statements should be read in conjunction with the financial statements and the notes thereto included in the 1995 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 28, 1995 was derived from the audited Viskase Holding Corporation's consolidated financial statements included in Envirodyne Industries, Inc.'s annual report of 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. F-71 73 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS The accompanying notes are an integral part of the consolidated financial statements. F-72
March 28, December 28, 1996 1995 ---------------- --------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 8,436 $ 11,826 Receivables, net 49,351 53,022 Receivables, affiliates 51,328 51,829 Inventories 38,124 38,233 Other current assets 9,473 9,106 -------- ------- Total current assets 156,712 164,016 Property, plant and equipment 148,705 150,417 Less accumulated depreciation 22,859 20,217 ---------- -------- Property, plant and equipment, net 125,846 130,200 Deferred financing costs 951 1,042 Other assets 1,655 1,869 Excess reorganization value 39,737 40,517 -------- -------- $324,901 $337,644 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt $ 4,963 $ 6,097 Accounts payable 15,819 13,720 Accounts payable and advances, affiliates 50,044 54,152 Accrued liabilities 22,711 21,942 --------- ---------- Total current liabilities 93,537 95,911 Long-term debt 7,389 7,721 Accrued employee benefits 4,295 4,281 Deferred and noncurrent income taxes 24,811 25,895 Intercompany loans 71,514 81,094 Commitments and contingencies Stockholders' equity: Common stock, $1.00 par value, 1,000 shares authorized; 100 shares issued and outstanding Paid in capital 103,463 103,463 Retained earnings 14,029 12,100 Cumulative foreign currency translation adjustments 5,863 7,179 --------- ---------- Total stockholders' equity 123,355 122,742 -------- -------- $324,901 $337,644 ======== ======== 74 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS The accompanying notes are an integral part of the consolidated financial statements. F-73
Three Months Ended ------------------------------ March 28, March 30, 1996 1995 --------- --------- (in thousands, except for number of shares and per share amounts) NET SALES $66,212 $62,520 COSTS AND EXPENSES Cost of sales 50,458 48,903 Selling, general and administrative 8,912 8,846 Amortization of intangibles and excess reorganization value 863 844 ------- ------- OPERATING INCOME 5,979 3,927 Interest income 175 39 Interest expense 593 858 Intercompany interest expense 1,134 838 Management fees 373 292 Other expense, net 653 1,299 ------- ------- INCOME BEFORE INCOME TAXES 3,401 679 Income tax provision 1,472 848 ------- ------- NET INCOME (LOSS) $ 1,929 $ (169) ======= ======= WEIGHTED AVERAGE COMMON SHARES 100 100 PER SHARE AMOUNTS: NET INCOME (LOSS) $19,290 $(1,690) ======= ======= 75 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS The accompanying notes are an integral part of the consolidated financial statements. F-74
Three Months Ended ----------------------------------- March 28, March 30, 1996 1995 ------------ ------------ (in thousands) Cash flows from operating activities: Net income $ 1,929 $ (169) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,982 2,808 Amortization of intangibles and excess reorganization value 863 844 Amortization of deferred financing fees and discount 57 54 Increase (decrease) in deferred and noncurrent income taxes (536) (91) (Gain) on sales of property, plant and equipment (14) Changes in operating assets and liabilities: Accounts receivable 2,872 (88) Accounts receivable, affiliates 97 (2,325) Inventories (338) (6,652) Other current assets 591 1,276 Accounts payable and accrued liabilities 2,865 (1,321) Accounts payable and advances, affiliates (3,964) 1,225 Other (3) (689) -------- -------- Total adjustments 5,472 (4,959) -------- -------- Net cash provided by (used in) operating activities 7,401 (5,128) Cash flows from investing activities: Capital expenditures (621) (1,805) Proceeds from sale of property, plant and equipment 14 -------- -------- Net cash (used in) investing activities (607) (1,805) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings 28,349 Repayment of revolving loan and long-term borrowings (1,150) (11,686) Increase (decrease) in Envirodyne loan (9,540) (14,627) -------- -------- Net cash provided by (used in) financing activities (10,690) 2,036 Effect of currency exchange rate changes on cash 506 275 -------- -------- Net (decrease) in cash and equivalents (3,390) (4,622) Cash and equivalents at beginning of period 11,826 6,201 -------- -------- Cash and equivalents at end of period $ 8,436 $ 1,579 ======== ======== - ---------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $138 $ 250 Income taxes paid $250 $ 685 76 VISKASE HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. INVENTORIES (dollars in thousands) Inventories consisted of: 2. CONTINGENCIES (dollars in thousands) Viskase Holding Corporation and its subsidiaries are involved in various legal proceedings arising out of its business and other environmental matters, none of which is expected to have a material adverse effect upon its results of operations, cash flows or financial position. F-75
March 28, December 28, 1996 1995 --------- ------------ Raw materials $ 4,653 $ 5,299 Work in process 13,045 13,342 Finished products 20,426 19,592 -------- ------- $38,124 $38,233 ======= =======