ITEM 1. BUSINESS
(a) General Development of Business
NVF Company, a Delaware corporation, was incorporated in 1904. Reference herein to "NVF" or the "Company" includes collectively NVF Company and its wholly-owned subsidiaries unless the context indicates otherwise.
On August 27, 1993, three creditors of NVF filed an involuntary bankruptcy petition against NVF under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware ("Bankruptcy Court"), Case No. 93-1020. On September 15, 1993, NVF filed its answer to the involuntary petition, and an order for relief was entered by the Bankruptcy Court. NVF continues to operate its business and is in possession of its assets as a debtor in possession in accordance with the Bankruptcy Code. No trustee or examiner has been appointed.
On April 13, 1994, the Company filed its Disclosure Statement and Plan of Reorganization. The hearing on the adequacy of the Disclosure Statement was set for June 15, 1994. On June 6, 1994, the Disclosure Statement hearing was continued until June 30, 1994. The hearing was subsequently taken off calendar. On July 15, 1994, the Company filed its First Amended Disclosure Statement and First Amended Plan of Reorganization. A copy of the Plan was filed as Exhibit 2.1 to Form 8-K by the Company on August 4, 1994. A hearing on the adequacy of the First Amended Disclosure Statement was set for September 13, 1994. On September 7, 1994, the Company filed its Second Amended Disclosure Statement and Second Amended Plan of Reorganization. On September 13, 1994, the hearing on the adequacy of the Second Amended Disclosure was taken off calendar due to the agreement (the "Joint Agreement") reached before the Bankruptcy Court between NVF and the Official Committee of Unsecured Creditors of NVF (the "Committee") to jointly retain an investment banking firm for the purpose of marketing and selling or recapitalizing the Company.
The investment banking firm, Alex. Brown & Sons Incorporated ("Alex. Brown"), made procedural recommendations that were agreed upon by NVF and the Committee and approved by the Bankruptcy Court. Alex. Brown implemented those procedures and recommended to NVF and the Committee what they believe to be the highest and best offer which would realize the greatest value to the creditors. In accordance with the procedures approved by the Bankruptcy Court, Alex. Brown contacted a total of 147 potential purchasers for NVF. On July 24, 1995 Alex. Brown submitted its recommendation to the Bankruptcy Court under seal. On August 3, 1995 a hearing was held in the Bankruptcy Court on an Emergency Motion of First Security and Investment Corporation ("First Security") and Security Management Corporation for Examination of Alex. Brown & Sons, Inc. Pursuant to Federal Rule of Bankruptcy Procedure 2004. As a result of this hearing, the Court had permitted the mover to review the findings and conclusions of Alex. Brown's decision. Eventually, Alex Brown determined that the bid by First Security was the highest and the best bid. On October 27, 1995, NVF and the Committee filed their motion with the Bankruptcy Court seeking approval to enter into and execute a stock purchase agreement with First Security. On December 29, 1995 the Bankruptcy Court signed an order approving the bid of First Security as the highest and best bid. On January 29, 1996 the Joint Plan of Reorganization of NVF Company and The Official Committee of Unsecured Creditors ("the Plan") and the Disclosure Statement was filed with the Bankruptcy Court (See Form 8-K dated January 29, 1996, Exhibits 2 and 99). On March 4, 1996 the Bankruptcy Court approved the Disclosure Statement. The Plan has been submitted to the creditors for ratification. A hearing date in Bankruptcy Court concerning confirmation of the Plan has been scheduled for April 25, 1996.
On June 25, 1993 an involuntary bankruptcy petition was filed against APL Corporation ("APL"), the Company's 68% owned subsidiary. On July 23, 1993, APL filed a motion in the Bankruptcy Court for the Southern District of Florida and obtained an order on July 27, 1993 converting the involuntary petition to a voluntary case under Chapter 11 of the Bankruptcy Code. On or about February 24, 1995, a Disclosure Statement For Creditors' Committee's Plan of Reorganization was filed in the APL bankruptcy case. A hearing on the Disclosure Statement in the APL case was held on April 6, 1995 and the Disclosure Statement was approved on April 15, 1995. The Plan was confirmed on June 8, 1995. Due to the fact that NVF no longer has control over APL, statements presented herein have been restated to reflect APL as a discontinued operation and to reflect the deconsolidation of APL effective June 30, 1993. The Company had approximately $2.5 million face value of APL's 10-3/4% Subordinated Sinking Fund Debentures. However a settlement of litigation commenced by the Committee (See Note 18 of notes to consolidated financial statements) called for the holders of 11- 3/4% Secured NVF Promissory Notes to return such notes in exchange for the return of the APL 10-3/4% Subordinated Sinking Fund Debentures. Other income of approximately $2,609,000 was recognized in 1995 as a result of the settlement.
As part of a series of transactions on April 23, 1993 Insurance and Risk Management ("IRM") repurchased from DWG Corporation ("DWG") 25% of the issued and outstanding stock of IRM. As a result of this purchase, NVF's ownership of IRM increased from 45% to 60% as IRM recorded the purchase of the shares from DWG as treasury stock thus reducing the outstanding shares. In a related transaction IRM sold to DWG all of its 2.7% stake in CFC Holdings for $8.4 million resulting in an approximate $7 million gain on the sale. The result of this gain was IRM's equity went from negative to positive, therefore NVF, as a 60% owner, recorded its share of the equity in IRM, approximately $1.5 million. NVF's equity in IRM was then reduced by dividends paid by IRM in 1993, 1994 and 1995 of $1,066,667, $133,333 and $240,000, respectively. IRM, DWG and NVF were affiliated as a result of common ownership and control by Victor Posner. As a result of the April 23, 1993 transactions DWG was no longer affiliated with NVF and IRM.
IRM is now in the process of being liquidated. The decision to liquidate IRM was due to the fact that IRM's business was almost entirely conducted with affiliated companies. With DWG, the largest of such affiliated companies, becoming disaffiliated and electing not to use IRM for insurance placements and claims management, IRM's business became too small to be useful or profitable, thus the decision to liquidate. The decision to liquidate did not have a material impact on the Company's financial statements. Due to the fact that IRM has not taken any new business after June 30, 1993 and will be liquidated as soon as is practicable, NVF has elected to continue to account for IRM under the equity method on a quarter lag basis.
For the year ended December 31, 1995 and 1994 NVF had no income from its equity investment in IRM and NVF has a carrying value of its investment in IRM at December 31, 1995 and December 31, 1994 of $102,000 and $342,000, respectively. NVF has also received liquidating dividends of $240,000, $133,333 and $1,066,667 in 1995, 1994 and 1993, respectively.
(b) Financial Information About Industry Segments
The Company's business is presently carried out in two principal operating segments: Industrial laminated plastics and vulcanized fibre.
The Company does not have any customer that makes up 10% of the Company's total consolidated revenue.
Segment information for the three years ended December 31, 1995 is set forth in Note 13 of the Notes to Consolidated Financial Statements.
(c) Narrative Description of the Business
The Company is engaged in the manufacture and sale of vulcanized fibre (a converted cellulose product) and industrial laminated plastics. NVF is also engaged to a lesser extent in the manufacture and sale of material handling containers and correspondence and business papers.
INDUSTRIAL LAMINATED PLASTICS SEGMENT
The industrial laminated plastic products segment manufactures products which have their principal application in the electronics field such as for printed circuit boards. In addition, this segment produces industrial plastic sheet and tube materials for use as electrical insulation and for other applications.
Industrial laminated plastics are marketed by manufacturer's representatives located in major commercial centers throughout the United States, who receive incentive compensation for sales. The plastic laminate industry is highly competitive and this segment has many competitors, none of which is dominant in the industry and many of which are larger than the Company. The principal elements of competition are price, quality and customer service. Research and development expenditures have been insignificant in the industrial laminated plastics segment.
VULCANIZED FIBRE SEGMENT
The Company is the largest manufacturer of vulcanized fibre in the United States. Vulcanized fibre is an extremely sturdy and lightweight converted cellulose product widely used in such applications as backing for abrasive discs (consumed principally by the automotive industry) and in the manufacture of electrical insulation, such as railway track insulation, fuses and lightning arresters. Vulcanized fibre also serves as a structural material for such applications as textile bobbins, material handling containers and building construction. NVF is the exclusive producer of YorkiteTM, a vulcanized fibre product used for furniture surfaces, cross-banding and edge-banding.
Vulcanized fibre products are marketed by manufacturer's representatives, located in major commercial centers throughout the United States, who receive incentive compensation for sales. NVF has two foreign principal competitors in the vulcanized fibre industry. The vulcanized fibre industry, in turn, competes against numerous manufacturers of materials which may be alternatives to vulcanized fibre, many of which are larger than the Company. Research and development expenditures have been insignificant in the vulcanized fibre segment.
OTHER SEGMENTS
A division of NVF also manufacturers material handling containers used in a wide variety of applications including the transportation of components to assembly points in factories, the movement of goods in retail stores, reusable shipping containers and containers for shipping delicate instruments. The containers are fabricated from vulcanized fibre, plastic and steel. There are many competitors in the container segment, none of which is dominant.
In addition, NVF through Parsons Paper, a subsidiary 100% owned by NVF Canada, which in turn is a 100% owned subsidiary of NVF located in Toronto, Canada, manufacturers paper which includes, among other products, bond and writing papers for communication and correspondence; ledger paper for durable and/or permanent records; index and bristol stock for record keeping and mechanized postings; and covers and text papers of Lunar LaidTM and parchment for distinctive announcements and presentations. There are many competitors in the paper segment, none of which is dominant. In 1995, one customer accounted for 19.7% of paper products sales. The Company does not believe that the loss of this customer would have a material adverse effect on the business of NVF taken as a whole.
NVF Canada is also engaged in the warehousing, fabrication and sale of industrial laminated plastics and vulcanized fibre and in the manufacture and sale of material handling containers. NVF's foreign operations are not significant. Research and development expenditures have been insignificant in the container, paper and foreign segments.
OTHER INFORMATION
Other than its brand names and trademarks referred to above, patents, licenses, franchises and concessions are not material to the business of the Company. No portion of the Company's business is subject to renegotiation of profits or termination of contracts at the sole election of the Government. The business of the Company's industry segments is not seasonal. Most raw materials for the Company's business segments are available from a number of sources, however the plastic products segment uses production quantities of natural gas, fuel oil and electricity in their production processes and currently does not have significant emergency or alternative capability. Although the Company has increased energy storage capacity at all of its plants, prolonged energy shortages or marked price increases in energy supplies and materials could adversely affect operations in this segment. No segment of the Company's business is dependent upon a single customer or a few customers, the loss of any one or more of which would a have a material adverse effect on such segment, and no customer accounted for 10% or more of the Company's consolidated revenues in 1995.
The Company has taken steps to retrofit its boilers to burn gas and/or oil at its two largest plants (Kennett Square, Pennsylvania and Yorklyn, Delaware) in an effort to protect its operations from variations in availability and prices for energy supplies and raw materials. The Kennett Square plant retrofit has been completed and the Yorklyn plant is to be completed in 1996.
The Company's backlog at December 31, 1995 and 1994 was as follows: 1995 1994 (thousands of dollars)
Industrial laminated plastics $ 7,162 5,736 Vulcanized fibre 6,855 14,421 Containers, papers and foreign segments 1,119 2,401 $ 15,136 22,558
The backlog represents approximately two months of production.
LABOR RELATIONS
At December 31, 1995, NVF employed approximately 230 salaried and 543 hourly employees. The hourly employees are primarily represented by the United Paper Workers International ("United Paper Workers"). The contract between NVF and the hourly workers represented by the United Paper Workers expires April 28, 1996. NVF is currently in negotiations for a new contract with the United Paper Workers although no assurance can be given that such a contract will be negotiated or ratified or what the terms and conditions thereof will be. If such contract is not successfully negotiated, it could result in a strike which may have a material adverse effect on NVF. Group life insurance and medical benefits are in effect for most employees. NVF believes that relations with its employees are generally satisfactory. There have been no significant strikes or work stoppages during the past five years.
ENVIRONMENTAL MATTERS
The Company's operations are subject to regulation by all levels of government designed to protect the environment. NVF is engaged in a continuing program of installing environmental control equipment at its facilities to meet the requirement of applicable environmental quality regulations. For the five years from 1991 through 1995, NVF spent approximately $328,000 on environmental control equipment. NVF presently estimates that it will spend approximately $1,000,000 for such equipment during the three-year period 1996-1998. Additional expenditures, however, will or may be required in connection with the matters set forth below. As requirements for pollution control are subject to revision and control and technology is constantly evolving, it is not possible at this time to estimate the full extent of future expenditures which may be required for pollution abatement equipment or the resulting effect of such expenditures on earnings.
As discussed fully elsewhere herein (See "Item 1 - Business - General Development"), NVF has filed for bankruptcy protection which could affect certain environmental claims pending against the Company. The Company and the EPA, subject to obtaining necessary approvals, had reached agreement in principle with respect to treatment of environmental claims under the Debtor's plan. Under this agreement, among other things, if the purchase option of the plan is approved all prepetition environmental claims will be paid by the reorganized Company on an equal basis with the amount to be paid to the unsecured creditors.
Tybouts Corner Landfill
In October 1980, the Environmental Protection Agency (the "EPA") filed suit against New Castle County, Delaware and others with respect to the disposal of waste at the Tybouts Corner Landfill which is adjacent to the Army Creek Landfill described below. The EPA sought injunctive relief and recovery of its clean up costs. The Company and numerous other alleged potentially responsible parties ("PRP") were named in the suit as third party defendants in 1985. A Consent Decree was approved by the court resolving the Company's liability.
The Company was also named as a defendant in an action brought by certain residents in the vicinity of the Tybouts Corner Landfill arising out of the alleged contamination of the site. In November 1992, the Company entered into a settlement of such action with the Andrews Generator Settlement Group providing for the payment by the Company of approximately $122,000 in twelve equal monthly installments (of which three payments in the aggregate amount of $30,419.58 remain outstanding). The underlying action has been dismissed. In the event of nonpayment by the Company, the settlement with the Andrews Group provides for a lien on the Company's property in New Castle County as a remedy.
Army Creek Landfill
In a November 4, 1993 demand letter sent by the New Castle County Finance Legal Office to the Company and all other non- settling potentially responsible parties, New Castle County demanded $9 million for costs related to the installation and operation of a water treatment plant and oversight costs attributable to both the Army Creek Landfill and the Delaware Sand and Gravel Superfund sites which are located in close proximity to each other in New Castle County, Delaware. On January 27, 1994, the New Castle County Finance Legal Office filed an Addendum to Chapter 11 Proof of Claim of New Castle County, Delaware, against the Company for unliquidated costs attributable to both the Army Creek Landfill and the Delaware Sand and Gravel Superfund sites as follows:
1) $3 million pursuant to the terms of a Consent Decree related to the clean up of both sites, and
2) $6 million (exclusive of interest) in clean up costs at both sites prior to entry of the Consent Decree.
Following court ordered mediation, the Company settled all of its liability in the Delaware Sand and Gravel Superfund site for $300,000. A Consent Decree incorporating the settlement was approved and signed by the court on June 14, 1995. By paying this amount, the Company received a complete release from liability related to this site. Further, the Delaware Sand and Gravel Consent Decree also released its signatories, including NVF, from any groundwater remedy costs associated with Army Creek. The County may or may not have additional liability claims related to the soil or other remedial activities at the Army Creek Landfill. However, at present no claim, demand or other notice has been issued by the County to the Company for any other costs related to the Army Creek Landfill.
Kennett Square Plant Site and Noznesky Junk Yard
The Company was notified in 1984 by the Pennsylvania Department of Environmental Resources ("DER") of a discharge containing PCBs from an outfall from its Kennett Square plant in Chester County, Pennsylvania to an unnamed tributory of the west branch of Red Clay Creek. The Company responded with an investigation and clean up of the potential source. The Company entered into a consent order and agreement with the EPA with respect to on-site clean up and the EPA advised the Company that it has fully complied with the order. The DER subsequently requested that the Company clean up PCBs in the unnamed tributory. With respect to alleged off-site contaminations, the EPA issued two unilateral orders requiring testing and removal by the Company of certain contaminated soils. The Company filed a final report with the EPA under the second unilateral order, which expressly superseded the first order, stating that the Company believed its terms had been complied with. The Company had remediated the swale by the removal of tons of soil, testing and developing a solution to the PCBs in the rail road ditch. The Company also discussed with the EPA a possible settlement with respect to additional elevated concentrations of PCBs that were detected in an off-site drainage ditch. On November 10, 1992, the EPA sent to the Company a unilateral order requiring the prompt development and implementation of a response action plan for (1) the evacuation and disposal of PCB contaminated soils, sediments and debris from the off-site drainage ditch and (2) the "swale/tributory PCB report" described above. The Company declined to undertake the order for several reasons including financial and technical ones. Through September 23, 1994, the EPA reports it has incurred costs of approximately $2,298,189 in performing part or all of the work. $1,035,047 of those costs are reported to have been incurred prepetition with the remainder subsequent to the filing. The EPA could seek to impose fines of $25,000 per day and/or treble damages for non-compliance with the order due to the Company's refusal to perform the work.
The EPA is evaluating possible investigation and cleanup of the site. In addition the EPA has suggested to the Company that it reclaim a sedimentation pond. Further, the EPA has advised the Company that it is reviewing Kennett Square and/or adjacent areas for possible listing on the National Priorities List ("NPL") as a Superfund site. The EPA informed the Company that costs related to Kennett Square could be $10 million dollars or higher if Kennett Square is named as a Superfund site. The EPA has declined to provide any additional information other than such evaluation is ongoing.
In approximately March, 1995, the Company also received notice of violation letters and/or information requests from governmental agencies regarding alleged hazardous waste management, air emission, and wastewater discharge violations. The Company is seeking to retain consultants to advise it about the substance of those claims and the potential compliance costs, if any.
EPA recently investigated and cleaned up a site known as the Noznesky Junkyard which is adjacent to the Kennett Square Plant. EPA incurred costs of approximately $1.8 million in the clean up. Because EPA has not served demand letters on or proceeded with any formal action against potentially responsible parties, NVF is uncertain of its connection to this site.
Lipari Landfill
The three principal defendants/third-party plaintiffs at the Lipari landfill site, Rohm & Haas, Owens-Illinois, and Manor Health Care, settled with the United States and the State of New Jersey in 1994 and agreed to pay most of the government's costs and to perform the remedy at the site. Additionally, numerous potentially responsible parties named as third-party defendants by the principal defendants settled their liability as well. Ten (10) third-party defendants remain in the litigation, including the Company, with the third-party plaintiffs. The third-party defendants generally are substantial companies. The three third- party plaintiffs and the ten third-party defendants participated in court ordered mediation to resolve the matter throughout much of 1994 and 1995. This mediation failed and trial schedule is expected to be set. The three third-party plaintiffs allege joint and several liability, and seek approximately $6 to $9 million from the third-party defendants.
GEMS Landfill
The Company, along with the numerous other parties, is a recipient of a unilateral 106 order directing it to perform certain remedial actions at the GEMS Landfill site in New Jersey as a result of alleged waste disposal at such site. The Company has also been named a defendant in litigation commenced by NJDEP with respect to the GEMS site and had entered into a partial settlement with respect to Phase I of the GEMS site remediation, for which it paid approximately $150,000. Subsequently, New Jersey issued a directive to existing PRPs including the Company, relating to the GEMS site Phase II (final) remediation. The Company believes there may be a reallocation of waste volumes attributable to participating parties which could affect the Company's share for both Phase I and Phase II settlement cost. Additionally, a class action involving 200 to 900 property owners received class certification and litigation is proceeding against some PRPs at this site.
Helen Kramer Landfill, Marvin Jones Transfer Station, P.J.P Landfill
On May 31, 1989, NJDEP issued a directive to 48 potentially responsible parties, including the Company, requesting reimbursement for the state's expected share of remedial and administrative costs at the Helen Kramer Landfill. Thereafter, both the United States and NJDEP filed separate complaints in October, 1989, alleging joint and several liability. U.S. v. Helen Kramer, Civil No. 89-4340(6) filed October 16, 1989; and New Jersey v. Almo Anti-pollution Services Corp., Civil No. 89-4380(6), filed October 10, 1989. Those actions were joined by the Court. New Jersey and the United States seek an alleged $184,373,549.18, plus interest and costs, against some 48 direct defendants, including the Company, and approximately 265 third-party defendants. Through court ordered mediation last year, the magistrate attempted to settle the case for substantially less than the government's demand. The settlement process failed and the magistrate has recently ruled that the direct defendants are to proceed in the litigation as jointly and severally liable, but that the third- party defendants may be only severally liable.
In May 1990, the NJDEP also issued a multi-site directive and notice to insurers under the New Jersey Spill Act to numerous parties with respect to the Helen Kramer Landfill, the so-called Marvin Jones Transfer Station in Sewell, New Jersey and the P.J.P. Landfill in Jersey City, New Jersey seeking reimbursement of New Jersey's expected share of costs to implement remedial actions at such sites as a result of the generation or transportation of hazardous substance allegedly disposed of at such sites by the parties named in such directive, including the Company.
Yorklyn Plant Site and Newark Site
In June 1993, the Company received notification from the State of Delaware regarding potential liability for zinc contamination of the Yorklyn plant site on the Red Clay Creek and adjacent area. The State contends that historical plant operations have contributed levels of zinc in the stream and sediment. The Company proposes to enter into a Consent Decree with the state to investigate the alleged contamination.
The NVF Newark site is located along the banks of the White Clay Creek in Newark, Delaware. NVF ceased all production operations at this facility in December 1991. In January 1989 the Delaware Department of Natural Resources and Environmental Control ("DNREC") conducted a "Preliminary Assessment" of the Newark facility. This was followed by a June 1989 "Site Inspection" (SI) conducted by DNREC in conjunction with EPA. EPA scored all data from the "SI" using the National Hazardous Ranking System model and concluded that the site scores below the minimum score requiring an "Extensive Site Inspection". The Newark site status with EPA is "No Further Action". The DNREC has included this Newark site on their list of "Potential State Super Fund Sites" (a listing of sites needing further investigation).
Buzby Brothers Landfill
In October 1991, the NJDEP issued a directive to more than one hundred PRPs, including the Company, notifying them that they are responsible for cleanup of the Buzby Brothers Landfill in Voorhees, New Jersey, and ordering the PRPs, including the Company, to reimburse NJDEP for the estimated costs of the remedial investigation and feasibility study. The PRPs have discussed settlement of the directive, and an intra-group allocation has been proposed pursuant to which the Company paid $10,000 to settle its liability under the directive for reimbursement of the estimated costs of such investigation and feasibility study. To date, approximately $8.5 million has been spent by owner/operators to remediate the site and there is pending Federal and state court litigation against some of the PRPs, not including the Company, in which those who incurred costs performing a remedy seek reimbursement from others. It is possible that such an action could be pursued against the Company.
Boarhead Farms Site
On June 10, 1988 and May 26, 1993, the EPA sent the Company requests for information connecting the Company to the Boarhead Farms Site, Bridgeton Township, Bucks County Pennsylvania. The Company knows of no information directly linking it to this site and has provided a response to that effect to the EPA on August 8, 1994.
Spectron Site
The EPA named 400 to 500 potentially responsible parties at this site, including the Company as a generator. Clean up of this site has been divided into three operable units, and the Company previously has settled all claims with respect to two of those units. On or about October 1, 1995, NVF received an EPA notice letter indicating the EPA's intention to proceed with a remedial investigation and feasibility study for the final unit and inviting the Company's participation. The Company is presently investigating this development and has no information about the extent of its additional liability, if any.
McAdoo Associates Site
The Company was named as a PRP at the McAdoo Associates Site in Pennsylvania and entered into a Consent Decree with 63 other PRPs on June 3, 1988 to settle its liability at the site. Clean up costs are estimated at $3.18 million, of which the Company agreed to pay .59% or $22,484.90.
Bolsenski Landfill, Mountaintop Landfill, and Rivere Chemical Site
The Company received PRP Notice letters from the EPA with respect to each of these three sites as follows:
. Bolsenski Landfill Site, Chester County, PA, Sept. 6,
. Mountaintop Landfill, Lancaster County, PA. March 4, 1988
. Rivere Chemical Site, Bucks County, PA, Sept. 8, 1987 and April 12, 1988.
The Company responded to these notices denying liability.
Other Sites
The Company may have been, or may in the future be, alleged to be liable for environmental costs at other sites in various states, including Pennsylvania, New Jersey, and Delaware, and such potential liability arises out of the Company's alleged use of waste hauling entities related to Marvin Jonas, whose waste disposal practices have caused both governmental and private parties to bring cost recovery actions against any and all former Jonas customers when there is an allegation that Jonas disposed of waste at a particular site.
Summary
The Company's consolidated financial statements at December 31, 1995 included elsewhere herein, include accruals of approximately $6.8 million for costs in connection with the environmental matters described above. As detailed below, it is the Company's current belief that the referenced and known environmental proceedings will not have a material adverse effect on its financial position or its results of operations. The Company believes that the $6.8 million accrual should provide an adequate amount to resolve these known liabilities. However, because of the uncertain nature of its environmental liabilities, particularly those related to the Kennett Square facility and the Yorklyn Plant, the Company is unable to assure that the outcome of the environmental matters will not have a material adverse effect on its financial position or the results of operations.
At the off site areas, the Company belongs to PRP Groups which typically pay costs and expenses on a basis reflecting each individual PRP's allocated share. While the Company's allocated share varies from site to site, at most sites it is approximately 1% or less. To devise an estimated range for accrual purposes, the Company assessed its allocated share against the range of total site costs considered by the PRP Group for each site. Because literally hundreds of other PRPs exist at these other sites, and those companies are jointly and severally liable, the Company does not have the resources or the ability to assess the financial condition of these other parties. In light of the multiple parties, the Company does not believe that the financial condition of other companies will affect its liability.
For Company owned sites, the Company employed ranges of costs for known problems at Kennett Square and Yorklyn. As discussed below, those ranges do not include other speculative future environmental developments which could have a material impact on the Company. By applying this criterion for off site and owned sites, the Company estimated its environmental liabilities in the range of approximately $3 million to approximately $15 million. Based upon its settlement experience at certain sites and an internal assessment of the total clean up costs at each site, the Company determined an accrual amount for the range of potential environmental costs of $6.8 million. The Company's actual cost for these liabilities may well be closer to the lower end of the range due to the fact that the Company is in bankruptcy and due to the bankruptcy treatment of certain of these claims. The $6.8 million accrual does not include any offset for potential insurance recoveries. While the Company is hopeful that it will recover some funds for environmental expenses, it has not reached any agreements on its insurance claims. The Company has asserted claims against its insurers for all off site environmental liabilities and all environmental liabilities for the Kennett Square facility. In those actions, the Company seeks recovery of all costs incurred in connection with those environmental matters.
Finally, future environmental matters could have a material impact on the Company. Specifically, the United States Environmental Protection Agency ("EPA") is evaluating the Kennett Square site and/or surrounding areas for possible listing on the National Priorities Listing ("NPL"). However, the EPA has provided no indication of whether it intends to do so. If the EPA were to list the site and/or surrounding areas on the NPL and a cleanup were to be required, such a development could have a material impact on the Company. Because of the wholly speculative nature of this issue, the Company has not considered it in the $6.8 million accrual.
ITEM 2.
ITEM 2. PROPERTIES
The Company and its subsidiaries maintain a large number of diverse properties. Management believes that these properties, taken as a whole, are adequate for current and foreseeable business needs. The majority of the properties are owned. Substantially all of the Company's materially important physical properties are being fully utilized with the exception of inactive properties described below. Certain information about the major facilities maintained by each segment is set forth in the following table:
Owned or Approximate Location leased Use square feet
NVF FACILITIES
Multi-Segment Facilities Kennett Square, PA (1)(3) Owned Manufacturing/Fabrication 342,000 Yorklyn, DE (2) Owned Manufacturing/Fabrication 552,000 Wilmington, DE (1)(2)(3) Owned Fabrication 186,000 Hartwell, GA (2)(5)(6) Owned Manufacturing/Fabrication 144,000 Chicago, IL (1)(2) Owned Fabrication 27,000 Toronto, Canada (1)(2) (expires 4/96) Manufacturing/Fabrication 40,000
Paper Products Segment
Holyoke, MA Owned Manufacturing 313,000
Inactive Newark, DE (4) Owned Closed 356,000 Yorklyn, DE (3) Owned Unimproved Land 130 acres
Investment Property Kennett Township Owned Unimproved Land 88 acres
(1) Industrial Laminated Plastic Segment
(2) Vulcanized Fibre Segment
(3) Subject to First Mortgage lien securing NVF's 10% Secured Notes.
(4) Newark, DE operations were terminated in September, 1991 and such operations were transferred to the Yorklyn, DE facility.
(5) Subject to First Mortgage lien securing NVF's UDAG loan.
(6) Subject to Second Mortgage lien securing NVF's 10% Secured Notes.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
By order of the Bankruptcy Court all litigation against NVF has been stayed pursuant to 11 USC Section 362 and unless otherwise ordered such proceedings will be resolved in context of the bankruptcy case.
On August 27, 1993 three creditors of NVF filed an involuntary bankruptcy petition against NVF under the Bankruptcy Code Bankruptcy Court, Case No. 93-1020. On September 15, 1993, NVF filed its answer to the involuntary petition, and an order for relief was entered by the Bankruptcy Court. NVF continues to operate its business and is in possession of its assets as a debtor in possession in accordance with the Bankruptcy Code. No trustee or examiner has been appointed.
On April 13, 1994, the Company filed its Disclosure Statement and Plan of Reorganization. The hearing on the adequacy of the Disclosure Statement was set for June 15, 1994. On June 6, 1994, the Disclosure Statement hearing was continued until June 30, 1994. The hearing was subsequently taken off calendar. On July 15, 1994, the Company filed its First Amended Disclosure Statement and First Amended Plan of Reorganization. A copy of the Plan was filed as Exhibit 2.1 to Form 8 by the Company on August 4, 1994. A hearing on the adequacy of the First Amended Disclosure Statement was set for September 13, 1994. On September 7, 1994, the Company filed its Second Amended Disclosure Statement and Second Amended Plan of Reorganization. On September 13, 1994, the hearing on the adequacy of the Second Amended Disclosure was taken off calendar due to the agreement (the "Joint Agreement") reached before the Bankruptcy Court between NVF and the Official Committee of Unsecured Creditors of NVF (the "Committee") to jointly retain an investment banking firm for the purpose of marketing and selling or recapitalizing the Company.
The investment banking firm, Alex. Brown & Sons Incorporated ("Alex. Brown"), made procedural recommendations that were agreed upon by NVF and the Committee and approved by the Bankruptcy Court. Alex. Brown has implemented those procedures and recommended to NVF and the Committee what they believe to be the highest and best offer which will realize the greatest value to the creditors. In accordance with the procedures approved by the Bankruptcy Court, Alex. Brown contacted a total of 147 potential purchasers for NVF. On July 24, 1995 Alex. Brown submitted its recommendation to the Bankruptcy Court under seal. On August 3, 1995 a hearing was held in the Bankruptcy Court on an Emergency Motion of First Security and Investment Corporation ("First Security") and Security Management Corporation for Examination of Alex. Brown & Sons, Inc. Pursuant to Federal Rule of Bankruptcy Procedure 2004. As a result of this hearing, the Court had permitted the mover to review the findings and conclusions of Alex. Brown's decision. Eventually, Alex Brown determined that the bid by First Security was the highest and the best bid. On October 27, 1995, NVF and the Committee filed their motion with the Bankruptcy Court seeking approval to enter into and execute a stock purchase agreement with First Security. On December 29, 1995 the Bankruptcy Court signed an order approving the bid of First Security as the highest and best bid. On January 29, 1996 the Joint Plan of Reorganization ("the Plan") of NVF Company and The Official Committee of Unsecured Creditors and the Disclosure Statement was filed with the Bankruptcy Court (See Form 8-K dated January 29, 1996, Exhibits 2 and 99). On March 4, 1996 the Bankruptcy Court approved the Disclosure Statement. The Plan has been submitted to the creditors for ratification. A hearing date in Bankruptcy Court concerning confirmation of the Plan has been scheduled for April 25, 1996.
On June 25, 1993 an involuntary bankruptcy petition was filed against APL Corporation ("APL"), the Company's 68% owned subsidiary. On July 23, 1993, APL filed a motion in the Bankruptcy Court for the Southern District of Florida and obtained an order on July 27, 1993 converting the involuntary petition to a voluntary case under Chapter 11 of the Bankruptcy Code. On or about February 24, 1995, a Disclosure Statement For Creditors' Committee's Plan of Reorganization was filed in the APL bankruptcy case. A hearing on the Disclosure Statement in the APL case was held on April 6, 1995 and the Disclosure Statement was approved on April 15, 1995. The Plan was confirmed on June 8, 1995. Due to the fact that NVF no longer has control over APL, statements presented herein have been restated to reflect APL as a discontinued operation and to reflect the deconsolidation of APL effective June 30, 1993. The Company had approximately $2.5 million face value of APL's 10-3/4% Subordinated Sinking Fund Debentures. However a settlement of litigation commenced by the Committee (See Note 18) called for the holders of 11-3/4% Secured NVF Promissory Notes to return such notes for the return of the APL 10-3/4% Subordinated Sinking Fund Debentures. Other income of approximately $2,609,000 was recognized in 1995 as a result of the settlement.
On December 1, 1993, in an action brought by the Securities & Exchange Commission not involving the Company, a judge in the United States District Court for the Southern District of New York issued a decision stating that the Court would issue a decree, among other things, barring Victor Posner and Steven Posner from serving as officers and directors of any reporting company under the Securities Exchange Act of 1934, as amended, and ordering that the stock Victor Posner and Steven Posner own in reporting companies which they control (as defined in that Act) be placed in voting trusts. On December 29, 1993 such decree was issued. On January 4, 1994 Victor Posner resigned his positions as Director, President and Chief Executive Officer of the Company. The United States Court of Appeals for the Second Circuit has affirmed the lower court's judgment and certiorari has been denied by the United States Supreme Court.
On June 8, 1994, Richard L. Beltzhoover, as Trustee of The Employees' Pension and Investment Plan of Insulation Represen- tatives, Inc. filed suit against NVF in the Court of Chancery of the State of Delaware In and For New Castle County. The suit requested that the Court of Chancery summarily order an annual meeting of the shareholders of the Debtor. On June 17, 1994, the plaintiff filed a Motion to Expedite the Proceeding on the grounds that it is a summary proceeding under 8 Del. C. 211(c) and based upon allegations in the complaint. Subsequently, Vice Chancellor Berger directed the Debtor to file its answer in the Chancery Court Action on or before June 27, 1994. On June 27, 1994, the Debtor filed its answer in the Chancery Court Action. On July 6, 1994, Beltzhoover filed a Motion for Relief From Stay, or in the Alternative, To Compel Annual Shareholders Meeting. Beltzhoover requested an expedited hearing on the matter. On July 19, 1994 Beltzhoover filed the same motion in Bankruptcy Court. It was then decided that this case would be heard in Bankruptcy Court rather than in Chancery Court where the action has been stayed. A trial to hear the Application to Compel an Annual Meeting of NVF Shareholders was scheduled for October 3, 1994, however Beltzhoover requested a continuance on that date and all parties agreed to adjourn such action until November 28, 1994. On December 5, 1994 the Board of Directors of the Company approved a settlement proposal whereby Beltzhoover withdrew his motions and covenants not to refile, initiate, commence or resurrect any of the motions at any time before July 31, 1995. Beltzhoover also agreed not to seek reimbursement from the Company for any expenses incurred as a result of his efforts. In turn, Richard Beltzhoover and Kim Del Fabro were elected to its Board of Directors effective December 5, 1994.
On June 4, 1993 Insurance Company of North America ("INA") filed suit against the Company claiming INA was indemnified by NVF on certain self insured workers compensation and mining reclamation obligations written for Sharon Steel Corporation and its subsidiaries. By virtue of NVF's bankruptcy action, this suit has been stayed. INA had filed a proof of claim against the Company in the amount of approximately $4,500,000 in the Bankruptcy Court which has been resolved by allowance of INA's unsecured claim in the amount of $4.385 million. The Company has accrued the entire amount of the claim under "Liabilities Subject to Compromise".
On March 17, 1993, New Castle County filed an action in the Superior Court of the State of Delaware against the Company claiming that the Company owed New Castle $1,566,956.81 for sewer service provided to the Company's Yorklyn, Delaware plant. New Castle County has agreed to the treatment of their claim as set forth in the Plan. Under this proposal an aggregate amount of $1,813,507.27 claim of principal and interest shall be recognized. Interest shall accrue at 9% per annum from November 1, 1995 until the consummation date of the Plan. On the consummation date, or as soon as practicable thereafter, the holder of the claim shall receive twelve payments at monthly intervals of interest only at 8% per annum on the sum of $1,813,507.27 plus interest accrued between November 1, 1995 and the date of the first payment. Thereafter the remaining balance will be amortized over forty-eight months at a rate of 8% per annum. The Company reserved the right to contest this claim under this proposal and has filed such with Court on .
The Company and the EPA, subject to obtaining necessary approvals, had reached agreement in principle with respect to treatment of environmental claims under the Debtor's plan. Under this agreement, among other things, if the purchase option of the plan is approved all prepetition environmental claims will be paid by the reorganized Company pari passu with the amount to be paid to the unsecured creditors.
The Creditor's Committee commenced an adversary action in the United States District Court for the District of Delaware against certain present and former directors of the Company (including Messrs. Victor and Steven Posner), Triarc Companies, Inc. (formerly known as DWG), RC/Arby's Corporation, American Financial Corporation, Great American Insurance Company and Mid-Continent Casualty Company (the "Litigation"). The First Amended Complaint in the action alleged causes of action based on allegations of breach of fiduciary duty, waste, fraudulent transfers, preference payments, and violations of the Racketeer influence and Corrupt Organizations Act ("RICO"). The District Court subsequently dismissed the Committee's RICO claims on the grounds that defendants' alleged acts of mail and wire fraud did not proximately cause injury to NVF. The District Court also held that Delaware's three-year limitations period set forth in 10 Del. C. 8016 might apply to some causes of action and allowed the Committee to file a second amended complaint to plead facts showing why its claims are not time-barred. In its second amended complaint, the Committee named NVF Company as a nominal defendant. The Committee had also filed a motion seeking leave to file a third amended complaint and a motion seeking reconsideration of the order dismissing the RICO claims. Following extensive discovery and pre-trial preparation, on May 9, 1995, the parties to the litigation reached a settlement of their disputes before a United States Magistrate. Pursuant to the settlement, which is subject to approval by the Bankruptcy Court, the parties have agreed, among other things, to the following: A) Victor Posner has agreed to pay $20,750,000 to the NVF estate; B) the Committee has agreed that the claim of the 10% secured notes will be allowed in the approximate amount of $8.2 million; C) the holders of the 11-3/4% Secured NVF notes have agreed to return such notes in exchange for the return of approximately $2,538,000 principal amount of the APL 10-3/4% Subordinated Sinking Fund Debentures held by NVF; D) DWG will withdraw its unsecured claims of approximately $210,000; and E) the parties have agreed to exchange mutual releases. On November 22, 1995 an Order and Final Judgment approving the settlement was signed by the Bankruptcy Court. A Stipulation and Order of Dismissal was ordered by the United States District Court on December 15, 1995.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal market for NVF's common stock was the Pacific Stock Exchange. In July 1992, NVF was informed that the Equity Listing Committee of the Pacific Stock Exchange voted unanimously to delist the securities of the Company and suspended its common stock from trading as of July 14, 1992. NVF is informed that such Committee based its decision upon the Company's failure to meet the Exchange's net tangible assets and "going concern" maintenance standards. Since then the Company's stock has been traded between brokers. To estimate the sales price of the Company's stock would be unreliable and not all inclusive of trading activity, therefore no estimate can be made.
The approximate number of equity security holders is as follows:
Number of Stockholders of Title of Class Record as of April 5, 1994
Common Stock, $.01 par value 14,227
Under the Delaware Corporation Law, dividends may be paid only out of surplus, or if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. There were no cash dividends or stock distributions in 1995 or 1994.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31, 1995 1994 1993(2) 1992(1) 1991(1) (In thousands of dollars except per share amounts)
Selected Income Statement Information:
Net sales and operating revenues $ 96,891 93,981 90,046 94,868 95,973 Operating income from continuing operations $ 1,165 4,616 2,133 3,676 88 Debt costs $ (1,116) (2,207) (5,599) (7,070) (7,474) Income (loss) from continuing operations $ 17,369 (10,813) (701) (6,088) (7,856) Loss from discontinued operations $ - - (5,304) (22,697) (22,803) Net income (loss) $ 17,369 (10,813) (6,005) (28,785) (30,659)
Primary per share data:
Income (loss) from continuing operations $ .19 (.12) (.01) (.07) (.09) Loss from discontinued operations $ - - (.06) (.24) (.24)
Net income (loss) $ .19 (.12) (.07) (.31) (.33)
Market price at year-end $ N/A N/A N/A .005 .016
Selected Balance Sheet Information:
Year Ended December 31, 1995 1994 1993 1992 1991
Current assets $ 45,915 31,018 31,465 30,127 36,245 Current liabilities $ 22,319 24,327 21,460 80,375 30,748 Working capital (deficit) $ 23,596 6,691 10,005 (50,248) 5,497 Total assets $ 67,571 52,261 53,911 54,850 64,978 Long-term debt $ 176 35 36 10,090 10,423 Total stockholders' deficiency $(45,542) (63,220) (52,237) (122,514) (92,592)
The foregoing "Selected Financial Data" should be read in conjunction with "Item 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TRENDS
The vulcanized fibre segment declined during 1995 as a result of the main part of the plant being shutdown temporarily for a capital expansion project and higher cost of materials and benefits. The industrial laminated plastics segment rebounded due to a slight improvement in the economy, operating efficiencies and a lessening of competition.
CAPITAL RESOURCES
Capital expenditures for the years 1995, 1994 and 1993 were $180,000, $326,000 and $230,000, respectively, for the industrial laminated plastics segment; $2,418,000, $1,231,000 and $650,000, respectively, for the vulcanized fibre segment and $310,000, $109,000 and $460,000, respectively, for the Company's other operations. The Company presently anticipates capital expenditures for 1996 will be less than those in 1995. The Company anticipates financing its future capital expenditure through cash flow from operations, from capitalized leases, possible sales of assets and from its accounts receivable financing arrangements.
On September 20, 1994, the Company filed a Motion For Order Authorizing Debtor To Make Expenditures Pursuant to Section 363(b). The Company requested authority to spend $2.15 million to expand its production capacity for vulcanized fibre due to a serious backlog problem caused by increased demand for vulcanized fibre. The Committee agreed to the capital expenditure in the full amount and the Bankruptcy Court authorized the expenditures on October 27, 1994. The Company has completed the capital expenditure project.
LIQUIDITY
NVF's consolidated working capital at December 31, 1995 increased by approximately $16,905,000 from December 31, 1994. Proceeds from a settlement of litigation entitled the Official Creditors' Committee of NVF Company v. Victor Posner, et al. (See Note 18 of Notes to Consolidated Financial Statements) of $20,750,000 and other terms of such settlement, i.e., the return to the Company of its 11-3/4% Secured Promissory Notes in exchange for previously written off APL 10-3/4% Subordinated Sinking Fund Debentures, were principally responsible for the increase. However, terms of the settlement also dictate that such proceeds may only be used in matters relating to the bankruptcy, resulting in the restricted cash (See Note 2 of Notes to Consolidated Financial Statements) of $16,336,000.
Cash provided by operating activities and cash used for financing activities came principally from the settlement of the lawsuit entitled Official Creditors' Committee of NVF Company v. Victor Posner et al. (See Note 18 of Notes to Consolidated Financial Statements). Cash used for investing activities resulted from a capital expenditure program to increase vulcanized fibre production. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY (Contd.)
On August 27, 1993 three creditors of NVF filed an involuntary bankruptcy petition against NVF under Chapter 11 of the Bankruptcy Code in Bankruptcy Court, Case No. 93-1020. On September 15, 1993, NVF filed its answer to the involuntary petition, and an order for relief was entered by the Bankruptcy Court. NVF continues to operate its business and is in possession of its assets as a debtor in possession in accordance with the Bankruptcy Code. No trustee or examiner has been appointed.
On April 13, 1994, the Company filed its Disclosure Statement and Plan of Reorganization. The hearing on the adequacy of the Disclosure Statement was set for June 15, 1994. On June 6, 1994, the Disclosure Statement hearing was continued until June 30, 1994. The hearing was subsequently taken off calendar. On July 15, 1994, the Company filed its First Amended Disclosure Statement and First Amended Plan of Reorganization. A copy of the Plan was filed as Exhibit 2.1 to Form 8-K by the Company on August 4, 1994. A hearing on the adequacy of the First Amended Disclosure Statement was set for September 13, 1994. On September 7, 1994, the Company filed its Second Amended Disclosure Statement and Second Amended Plan of Reorganization. On September 13, 1994, the hearing on the adequacy of the Second Amended Disclosure was taken off calendar due to the agreement (the "Joint Agreement") reached before the Bankruptcy Court between NVF and the Official Committee of Unsecured Creditors of NVF (the "Committee") to jointly retain an investment banking firm for the purpose of marketing and selling or recapitalizing the Company.
The investment banking firm, Alex. Brown & Sons Incorporated ("Alex. Brown"), made procedural recommendations that were agreed upon by NVF and the Committee and approved by the Bankruptcy Court. Alex. Brown has implemented those procedures and recommended to NVF and the Committee what they believe to be the highest and best offer which will realize the greatest value to the creditors. In accordance with the procedures approved by the Bankruptcy Court, Alex. Brown contacted a total of 147 potential purchasers for NVF. On July 24, 1995 Alex. Brown submitted its recommendation to the Bankruptcy Court under seal. On August 3, 1995 a hearing was held in the Bankruptcy Court on an Emergency Motion of First Security and Investment Corporation ("First Security") and Security Management Corporation for Examination of Alex. Brown & Sons, Inc. Pursuant to Federal Rule of Bankruptcy Procedure 2004. As a result of this hearing, the Court had permitted the mover to review the findings and conclusions of Alex. Brown's decision. Eventually, Alex Brown determined that the bid by First Security was the highest and the best bid. On October 27, 1995, NVF and the Committee filed their motion with the Bankruptcy Court seeking approval to enter into and execute a stock purchase agreement with First Security. On December 29, 1995 the Bankruptcy Court signed
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY (Contd.)
an order approving the bid of First Security as the highest and best bid. On January 29, 1996 the Joint Plan of Reorganization ("the Plan") of NVF Company and The Official Committee of Unsecured Creditors and the Disclosure Statement was filed with the Bankruptcy Court (See Form 8-K dated January 29, 1996, Exhibits 2 and 99). On March 4, 1996 the Bankruptcy Court approved the Disclosure Statement. The Plan has been submitted to the creditors for ratification. A hearing date in Bankruptcy Court concerning confirmation of the Plan has been scheduled for April 25, 1996.
NVF did not make sinking fund payments of $4.8 million due on January 1, 1993 and $43.2 million due January 1, 1994 nor did it make $1.2 million interest payments due July 1, 1993 and January 1,1994 on its 5% Subordinated Debentures. NVF did not make sinking fund payments of approximately $284,375 on November 14, 1993, November 14, 1994 and November 14, 1995 nor did it make interest payments of $568,757 on its 10% Subordinated Debentures due November 14, 1993, May 14, 1994, November 14, 1994, May 14, 1995 and November 14, 1995. The Company did not make interest payments of approximately $373,000 due November 22, 1993, May 22, 1994, November 22, 1994, May 22, 1995 and November 22, 1995 on its 10% Secured Notes.
The Company reduced long-term debt by exchanging its APL 10- 3/4% Subordinated Sinking Fund debentures for 11-3/4% Secured NVF notes. During 1993 APL went into bankruptcy. The Company's investment in APL 10-3/4% Subordinated Sinking Fund Debentures plus interest was deemed uncollectable and no determination could be made what part, if any, would be collected, therefore the entire $2,786,000 was written off in 1993. The above exchange provided approximately $2,609,000 of Other Income in 1995. The Company anticipates that the remainder of the current portion of long term debt will be restructured as part of its reorganization plan to emerge from bankruptcy. The 5% and 10% Subordinated Debentures and the remainder of the Company's unsecured debt are expected to be compromised within the course of the bankruptcy and paid from a pool created by the sale of the Company and the proceeds from litigation entitled as the Official Creditor's Committee of NVF Company v. Victor Posner, et al. The short-term financing needs of the Company will be satisfied by an accounts receivable financing facility which the Company is confident, but cannot assure, it will obtain.
The Company has an accounts receivable financing arrangement with CIT Group ("CIT") covering substantially all of its accounts receivable. Such arrangement provides the Company a line of credit up to the lesser of $8,000,000 or 80% of the eligible accounts receivable at an interest rate of prime (8.75% at December 31, 1995) plus 1/2%, a line of credit fee of 1/2% per annum on the unused balance and a $3,000 per month collateral management fee.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY (Contd.)
At December 31, 1995 the Company had open a balance of $3.6 million under this arrangement. On , 1996 CIT advised the Company that it would not be interested in financing arrangement after the Company emerges from bankruptcy. The Company believes it will be successful in finding alternative financing, however there can be no assurance that the Company will be able to obtain such financing or that it will be available on terms the Company deems acceptable.
The Company's consolidated financial statements at December 31, 1995 included elsewhere herein, include reserves of approximately $6.8 million for costs in connection with the known environmental matters except for future speculative matters relating to Kennett Square and Yorklyn. This accrual has been recorded on a gross basis and has not been adjusted for third party recoveries. However environmental liabilities are inherently uncertain and future events and/or additional information may require adjustments to this reserve figure. In connection with the various claims asserted against NVF by the EPA and others in connection with environmental matters, NVF has commenced an action against various insurance carriers for coverage of some or all of the amount for which NVF might be held liable in connection therewith and the defense costs thereof. Except as noted above, NVF is unable at this time to predict the outcome of such action or the amounts, if any, which may be paid by such insurers. NVF believes that the outcome of such environmental matters described above will not have a material adverse effect on its financial position or its results of operations.
Future environmental matters though could have a material impact on the Company. The Company notes that (1) the Company was advised by the EPA that it is reviewing the Kennett Square Plant area and/or adjacent areas for possible listing on the NPL as a Superfund Site (the "Potential Superfund Area") and (2) the Company has received notification from the EPA seeking information regarding potential liability for zinc contamination related to the Yorklyn Plant site (the "Yorklyn Contamination"). The Company further notes that in the event that (1) the Potential Superfund Area is, in fact, named as a Superfund Site or (2) remediation of the Yorklyn Contamination is required, and it is determined that the Company is liable for costs thereof, the Company would likely expect to incur significant additional expenses with respect to environmental matters for those areas. In a letter dated April 13, 1995, the EPA informed the Company that costs related to Kennett Square could be $10 million or higher if Kennett Square is named as a Superfund Site. The likelihood (1) that the Kennett Square and/or adjacent areas will be named as a Superfund Site or (2) that remediation of the Yorklyn Contamination will be required and that a determination will be made that the Company is responsible for the costs therefore cannot be predicted with certainty at the present time. In connection with the various claims against the ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY (Contd.)
Company by the EPA and others in connection with environmental matters, the Company has commenced an action against various insurance carriers for coverage of some or all of the amount for which the Company might be held liable in connection therewith and the defense costs thereof. The Company is unable at this time to predict the outcome of such action or the amounts, if any, which may be paid by such carriers.
NVF's ability to meet its cash requirements in the next twelve months is dependent upon increased cash flow being generated from NVF's operations, the continuing of financing of accounts receivable, available borrowings, the compromising of liabilities within the framework of bankruptcy and possible sale of any assets. No assurance can be given that any of such conditions can be achieved or, if achieved, what the terms and conditions thereof will be. NVF believes, but cannot assure, that cash generated from operations and funds from accounts receivable financing will be sufficient to enable NVF to maintain its operations until such time as a plan can be confirmed by the Bankruptcy Court. The financial statements included herein have been prepared on a going concern basis and, accordingly, do not include any adjustments relating to the recoverability and classification of recorded asset amounts nor the amounts and classification of liabilities that might be necessary should NVF be unable to continue in existence or be required to sell its assets. As a result of the uncertainties described above, reference is made to Note 16 included elsewhere herein for information concerning the estimated liquidation value of NVF on a consolidated basis.
Inflation and Changing Prices
Management believes that inflation did not have a significant effect on gross margins during the last three years through September 1995, since during such period inflation rates generally remained at relatively low historical levels. However, since then energy price increases have had a significant effect on gross margins. The Company is seeking to combat these higher energy prices by increasing energy storage capacity by retrofiting boilers at certain locations to use either oil or gas.
The Company has consolidated its raw material purchases among a few strong suppliers who in return for the increased volume have provided a specific warning period prior to price increases. At no time is the Company dependent on just one supplier base (wherever possible) for its critical material. However, certain raw materials (fiberglass, copperfoil) are presently being allocated to consumers world-wide and such demand has increased prices of this material, however the Company has so far successfully passed on such increases to its customers.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
Year Ended December 31, 1995 Compared with 1994
Net Sales and Operating Revenues Operating Income (Loss) Percent Percent 1995 1994 Change 1995 1994 Change (thousands of dollars)
Industrial laminated plastics $ 55,258 47,667 15.9% 3,760 2,976 26.3% Vulcanized fibre 29,581 32,451 (8.8)% 4,371 7,397 (40.9)% Other segments 12,052 13,836 (13.1)% (1,973) (659) (199.4)% General corporate expenses - - - (4,993) (5,098) 0.0%
Net sales and operating revenues $ 96,891 93,981 3.1%
Operating income 1,165 4,616
Other income (expense), net 24,644 (6,433) Debt costs (1,116) (2,207)
Income (loss) before reorganization items, taxes, equity in earnings of affiliates, and discontinued operations $ 24,693 (4,024)
Net sales increased 3.1% or approximately $2,910,000 mainly due to better marketing conditions and effort in the industrial laminated plastics segment which increased sales 15.9% or approximately $7,591,000. Net sales declined in the vulcanized fibre segment 8.8% or approximately $2,870,000 as a plant shutdown for capital renovations caused reduced production. Container sales declined 25.8% or approximately $1,221,000 as a result of textile industries converting from fibre containers to less expensive plastic containers. Paper sales declined 10.6% or approximately $730,000 due to increased competition and depressed market conditions.
Operating income declined approximately $3.5 million. Generally, higher energy and benefit (workmen's compensation, pension, medical) costs were attributable for such decline. Industrial laminated plastics segment operating profit increased 26.3% or approximately $784,000 due to increased volume and operating efficiencies. Vulcanized fibre segment operating profit declined 40.9% or approximately $3,026,000 due to decreased production caused by a plant shutdown for capital renovations and higher costs for raw materials. Container and paper losses increased by approximately $331,000 and approximately $408,000 respectively, mainly due to volume decreases.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (continued)
Other income (expense) was impacted by the settlement of the Creditors' Committee adversary action against Victor Posner, et al (See Note 19 of the Notes to Consolidated Financial Statements) which provided for payment by Victor Posner of $20,750,000 to the NVF estate. The settlement also provided that the holders of the 11-3/4% Secured NVF notes exchange such notes for the previously written off APL 10-3/4% Subordinated Sinking Fund Debentures held by NVF resulting in $2,609,000 of other income. In addition there was a favorable settlement with an insurance carrier for an environmental claim (approximately $1 million). Also losses incurred in 1994 for indemnification of workmen's compensation claims of companies formerly affiliated with NVF (approximately $4.5 million) and environmental accruals (approximately $1.2 million) did not recur.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
Year Ended December 31, 1994 Compared with 1993
Net Sales and Operating Revenues Operating Profits (Loss) Percent Percent 1994 1993 Change 1994 1993 Change (thousands of dollars)
Industrial laminated plastics $ 47,667 46,561 2.4% 2,976 2,446 21.7% Vulcanized fibre 32,451 29,231 11.0% 7,397 6,722 10.0% Other segments 13,863 14,254 -2.7% (659) (4) - General corporate expenses - - - (5,098) (7,031) 68.6%
Net sales and operating revenues $ 93,981 90,046 4.4%
Operating profit 4,616 2,133
Other income (expense), net (6,433) 4,805 Debt costs (2,207) (5,599)
Income (loss) before reorganization items, taxes, equity in earnings of affiliates, and discontinued operations $(4,024) (1,339)
Vulcanized fibre segment sales increased by $3,220,000 between 1993 and 1994. Volume represented $2,201,000 of such increase and price represented $1,019,000. Sales increases in the industrial laminated plastic segment were the result of marketing effort/increased volume, not price increases. Paper segment sales decreased due to increased competition and depressed market conditions.
Operating profits in the valcanized fibre segment increased by $675,000 between 1993 and 1994. Price increases as noted above directly increased profits by the same amount, $1,019,000. Volume increases contributed $901,000 to profits. However, these increases were partially offset by increased cost of $1,245,00. Union contracted labor rate increases for 1994 as well as benefit increases and increases in raw materials were the major components on the increased costs in 1994. Operating profits in the industrial laminated plastics segment increased as a result of the efficiency gained by increased volume. Operating profits in the paper segment decreased due to volume decrease. General corporate expense decreased as salaries, insurance, executive administration and bad debt expenses were reduced.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (continued)
In 1993 Other Income (Expense) was positively impacted by non- recurring events, i.e., $3.6 million gain on proceeds from fire losses, $3.6 million gain on sale of CFC Holding stock and $.7 million gain on sale of property whereas in 1994 Other Income (Expense) was negatively impacted by non-recurring events, i.e., accrued reserves for a workmen's compensation indemnification claim by Insurance Company of the North America of $4.5 million and additional reserves provided for potential EPA liabilities of $2.8 million.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
NVF COMPANY AND SUBSIDIARIES
Page
Report of Independent Public Accountants
Consolidated Balance Sheets December 31, 1995 and 1994
Consolidated Statements of Operations Three Years Ended December 31, 1995
Consolidated Statements of Cash Flows Three Years Ended December 31, 1995
Consolidated Statements of Changes in Stockholders' Deficit Three Years Ended December 31, 1995
Notes to Consolidated Financial Statements
Schedules are omitted either because they are not applicable or because the information is included in the Consolidated Financial Statements or notes thereto.
ARTHUR ANDERSEN & COMPANY 101 Eisenhower Parkway Roseland, New Jersey 07068
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NVF Company:
We have audited the accompanying consolidated balance sheets of NVF Company (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1994 and the related consolidated statements of operations, cash flows and changes in stockholders' deficit for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards required 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 statements presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NVF Company and subsidiaries as of December 31, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 1 and 15 to the consolidated financial statements, the Company suffered recurring losses from operations through 1994 and has a net capital deficiency. In addition, as described in Note 15 to the accompanying consolidated financial statements, in September 1993 the Company filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. Management's plans in regard to these matters including its submission of a plan of reorganization to the Bankruptcy Court and the Company's creditors are also described in Notes 1 and 15. In the event that this plan of reorganization is confirmed, continuation of the business thereafter is dependent on the Company's ability to achieve successful future operations. The
accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Roseland, New Jersey April 5, 1996
NVF COMPANY AND SUBSIDIARIES (Debtor-in-Possession) Consolidated Balance Sheets December 31, 1995 and 1994 (thousands of dollars)
Assets 1995 1994 Current assets: Cash and equivalents $ 652 1,274 Restricted cash 16,336 - Receivables, less allowance for doubtful accounts of $366 and $380 13,583 14,884 Inventories 13,888 14,389 Other current assets 1,456 471 Total current assets 45,915 31,018
Investment in affiliate 102 342
Properties, at cost 88,269 85,652 Less accumulated depreciation and amortization (69,465) (67,068) Net properties 18,804 18,584 Other assets 2,750 2,317
$ 67,571 52,261
Liabilities and Stockholders' Deficiency Current liabilities: Current portion of long-term debt $ 7,584 9,849 Accounts receivable financing 3,616 3,641 Accounts payable 2,700 1,558 Accrued professional liabilities 3,032 5,214 Accrued interest payable 1,385 1,336 Accrued taxes 1,502 - Accrued wages and other employee costs 2,074 1,865 Other current liabilities 426 864 Total current liabilities 22,319 24,327
Other noncurrent liabilities 2,865 2,770 Long-term debt 176 35 Liabilities subject to compromise (A) 87,753 88,349
Stockholders' Equity: Common stock, $.01 par value; authorized 200,000,000 shares; issued 95,563,461 shares 956 956 Capital in excess of par value 234,943 234,943 Accumulated deficit (273,089) (290,767) Treasury common stock, 2,292,544 shares at cost (8,352) (8,352) Total stockholders' deficiency (45,542) (63,220)
$ 67,571 52,261
See accompanying notes to consolidated financial statements
NVF COMPANY AND SUBSIDIARIES (Debtor-in-Possession) Consolidated Balance Sheets December 31, 1995 and 1994 (thousands of dollars)
1995 1994
(A) Liabilities subject to compromise consist of the following:
Trade and other miscellaneous claims $ 9,079 9,445 Accrued interest 2,076 2,076 Pension obligations 5,355 5,378 Post retirement benefit obligations, net 513 527 Subordinated debentures, 5% 48,046 48,046 Subordinated debentures, 10% 11,375 11,375 Other accrued liabilities 11,282 11,340 Current portion of long-term debt 16 39 Noncurrent portion of long term debt 11 123
$ 87,753(B) 88,349(B)
(B) Certain liabilities have been separately classified in the Plans of Reorganization filed on April 13, 1994 and July 14, 1994.
NVF COMPANY AND SUBSIDIARIES (Debtor-in-Possession) Consolidated Statements of Operations Three Years Ended December 31, 1995 (thousands of dollars)
1995 1994 1993
Net sales and operating revenues $ 96,891 93,981 90,046
Cost of goods sold 81,546 75,904 72,786 Depreciation and amortization 2,597 2,828 3,099 Selling, general and administrative expenses 11,583 10,633 12,028 95,726 89,365 87,913 Operating income from continuing operations 1,165 4,616 2,133
Other income (expense): Settlement with principal shareholder 23,359 - - Other income (expense), net 1,285 (6,433) 4,805 Debt costs, other (contractual interest of $4,656, $6,001 and $6,631) (1,116) (2,207) (5,599) 23,528 (8,640) (794) Income (loss) from continuing operations before reorganization items, taxes on income, equity in net earnings of affiliates and discontinued operations 24,693 (4,024) 1,339
Reorganization items: Professional fees 5,822 6,916 1,000 Bond discount - - 1,143 5,822 6,916 2,143 Income (loss) from continuing operations before taxes on income, equity in net earnings of affiliates and discontinued operations 18,871 (10,940) (804)
Provision for (benefit from) taxes on income 1,502 (38) 77
Income (loss) from continuing operations before equity in net earnings of affiliates and discontinued operations 17,369 (10,902) (881)
Equity in net earnings of affiliates - 89 180
Income (loss) from continuing operations before discontinued operations 17,369 (10,813) (701)
Loss from discontinued operations - - (5,304)
Net Income (Loss) $ 17,369 (10,813) (6,005)
Weighted average number of common shares outstanding, in thousands of shares 93,271 93,271 93,271
Income (loss) per share: From continuing operations $ .19 (.12) (.01) Discontinued operations - - (.06)
Net income (loss) per share $ .19 (.12) (.07)
See accompanying notes to consolidated financial statements. NVF COMPANY AND SUBSIDIARIES (Debtor-in-Possession) Consolidated Statements of Cash Flows Three Years Ended December 31, 1995 (thousands of dollars)
1995 1994 1993
Cash flows from operations:
Net income (loss) $ 17,369 (10,813) (6,005)
Loss from discontinued operations - - 5,304
Income (loss) from continuing operations 17,369 (10,813) (701)
Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,597 2,828 3,099 Reduction (Excess) of additional minimum liability over prior service cost 309 (170) (833) Amortization of deferred debt discount - - 1,511 Exchange of long term debt (2,305) - - Write-off of investment - - 2,786 Equity in earnings of affiliates - (89) (180)
Total Adjustments 601 2,569 6,383 17,970 (8,244) 5,682
(Increase) decrease in assets: Receivables, net 1,301 (1,245) 632 Inventories 501 888 (1,411) Other current assets (985) 99 (355) Other assets long-term (433) 46 202
Increase (decrease) in liabilities: Accounts payable 751 (141) (922) Due to affiliates - - (3,381) Accrued interest payable 49 752 1,224 Accrued professional liabilities (2,182) 4,958 256 Accrued wages and other employee costs 2,044 206 (441) Accrued taxes 1,502 - - Other current liabilities (496) 7,507 510 Other noncurrent liabilities (1,752) (758) 883
Total 300 12,312 (2,803)
Net cash provided by operating activities 18,270 4,068 2,879
Cash flows from investing activities: Capital expenditures (2,810) (1,614) (1,283) Net disposals: Proceeds from asset sales 7 47 753 Book value of assets sold (14) (15) (511) Net gain (loss) on disposal (7) 32 242 Liquidating dividends in affiliates 240 - -
Net cash used for investing activities (2,577) (1,582) (1,041)
See accompanying notes to consolidated financial statements.
NVF COMPANY AND SUBSIDIARIES (Debtor-in-Possession) Consolidated Statements of Cash Flows Three Years Ended December 31, 1995 (thousands of dollars)
1995 1994 1993
Cash flows financing from activities: Proceeds (repayments) from accounts receivable financing (25) (3,232) (1,438) Payment of long term debt - - (376) New capital leases 98 106 137 Payment of capital leases (52) (52) (57) Retirement of capital leases - (13) (97) Proceeds from sale of CFC Holdings - - 197
Net cash used for financing activities 21 (3,191) (1,634)
Net (decrease) increase in cash and equivalents 15,714 (705) 204
Cash and equivalents at beginning of year 1,274 1,979 1,775
Cash and equivalents and restricted cash at end of year $ 16,988 1,274 1,979
Supplemental disclosures of cash flow information: Cash (received) paid during the year for:
Interest $ 811 1,472 3,923
Income taxes $ (40) (60) 258
Supplemental schedule of noncash investing and financing activities: Capital expenditures, net of capitalized leases: Total capital expenditures $ 2,908 1,666 1,340
Amounts representing capital leases (98) (52) (57)
Capital expenditures paid in cash $ 2,810 1,614 1,283
See accompanying notes to consolidated financial statements.
NVF COMPANY AND SUBSIDIARIES (Debtor-in-Possession) Consolidated Statements of Changes in Stockholder's Deficit Three Years Ended December 31, 1995 (thousands of dollars)
Capital In Treasury Common Excess of Accumulated Common Stock Par Value Deficit Stock
Balance at December 31, 1992 $ 956 234,943 (350,061) (8,352)
Reduction (excess) of additional minimum liability over unrecognized prior service cost - - (833) -
Net effect of deconsolidation of APL - - 77,115 -
Net loss - - (6,005) -
Balance at December 31, 1993 $ 956 234,943 (279,784) (8,352)
Reduction (excess) of additional minimum liability over unrecognized prior service cost - - (170) -
Net loss - - (10,813) -
Balance at December 31, 1994 $ 956 234,943 (290,767) (8,352)
Reduction (excess) of additional minimum liability over unrecognized prior service cost - - 309 -
Net income - - 17,369 -
Balance at December 31, 1995 $ 956 234,943 (273,089) (8,352)
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1995, 1994 and 1993
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of NVF Company and its wholly-owned subsidiaries, ("NVF" or the "Company") unless the context otherwise indicates. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Basis of Presentation
On August 27, 1993 three creditors of NVF filed an involuntary bankruptcy petition against NVF under Chapter 11 of the Bankruptcy Code in Bankruptcy Court, Case No. 93-1020. On September 15, 1993, NVF filed its answer to the involuntary petition, and an order for relief was entered by the Bankruptcy Court. NVF continues to operate its business and is in possession of its assets as a debtor in possession in accordance with the Bankruptcy Code. No trustee or examiner has been appointed.
The accompanying financial statements have been prepared in accordance with AICPA Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code". The Company's subsidiaries, Parsons Paper and NVF Canada, are not part of the bankruptcy thus there was no change made in the manner they are accounted for. Stand alone statements for NVF can be found in Note 19.
NVF's ability to meet its cash requirements in the next twelve months is dependent upon increased cash flow being generated from NVF's operations, the continuing of financing of accounts receivable, available borrowings, the compromising of liabilities within the framework of bankruptcy and possible sale of any assets. No assurance can be given that any of such conditions can be achieved or, if achieved, what the terms and conditions thereof will be. NVF believes, but cannot assure, that cash generated from operations and funds from the CIT Group revolving credit line facility (See Note 3) or alternate facility will be sufficient to enable NVF to maintain its operations until such time as a plan can be confirmed by the Bankruptcy Court. The consolidated financial
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued December 31, 1995, 1994 and 1993
Note 1 - Summary of Significant Accounting Policies - (continued)
statements included herein have been prepared on a going concern basis and, accordingly, do not include any adjustments relating to the recoverability and classification of recorded assets amounts nor the amounts and classification of liabilities that might be necessary should NVF be unable to continue in existence or be required to sell its assets. As a result of the uncertainties described above, reference is made to Note 16 included elsewhere herein for information concerning the estimated liquidation value of NVF on a consolidated basis.
On April 23, 1993 Insurance and Risk Management ("IRM"), repurchased from DWG Corporation ("DWG") 25% of the issued and outstanding common stock of IRM. (See Note 5). As a result of such purchase, NVF's ownership of the issued and outstanding common stock of IRM increased from 45% to 60%. Due to the fact that IRM has not taken any new business after June 30, 1993 and will be liquidated as soon as is practicable, NVF has elected to continue to account for IRM under the equity method on a quarter lag basis.
The decision to liquidate IRM was due to the fact that IRM's business was almost entirely conducted with affiliated companies. With DWG, the largest of such affiliated companies, becoming disaffiliated and electing not to use IRM for insurance placements and claims management, IRM's business became too small to be useful or profitable, thus the decision to liquidate. The decision to liquidate did not have a material impact on the Company's financial statements.
On June 25, 1993 an involuntary bankruptcy petition was filed against APL Corporation ("APL"), the Company's 68% owned subsidiary. On July 23, 1993, APL filed a motion in the Bankruptcy Court for the Southern District of Florida and obtained an order on July 27, 1993 converting the involuntary petition to a voluntary case under Chapter 11 of the Bankruptcy Code. On or about February 24, 1995, a Disclosure Statement For Creditors' Committee's Plan of Reorganization was filed in the APL bankruptcy case. A hearing on the Disclosure Statement in the APL case was held on April 6, 1995 and the Disclosure Statement was approved on April 15, 1995. The Plan was confirmed on June 8, 1995. Due to the fact that NVF no longer has control over APL, statements presented herein have been restated to reflect APL as a discontinued operation and to reflect the deconsolidation of APL effective June 30, 1993. The Company had approximately $2.5 million face value of APL's 10-3/4% Subordinated Sinking Fund Debentures as of December 31, 1994. However a November 1995 settlement of litigation commenced by the Committee (See Note 18) called for the holders of 11-3/4% Secured NVF Promissory Notes to return such notes in exchange for the return of the APL 10-3/4% Subordinated Sinking Fund Debentures. Other income of approximately $2,609,000 was recognized in 1995 as a result of the settlement.
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued December 31, 1995, 1994 and 1993
Note 1 - Summary of Significant Accounting Policies - (continued)
Inventories
Inventories are valued at the lower of average cost or market on a first-in, first-out (FIFO) basis. Inventory costs generally include materials, labor costs, manufacturing overhead and depreciation.
Depreciation and Amortization
In general, depreciation and amortization of buildings, machinery and equipment is provided on the straight-line method over the estimated useful lives of depreciable properties, principally eleven years on equipment, forty-five years on buildings and ten years on building improvements.
Retirement and Disposal of Properties
The cost of properties retired or otherwise disposed of is eliminated from the accounts. When units of depreciable property are retired or disposed of, the net gain or loss is recognized in other income.
Maintenance and Repairs
Routine maintenance, repairs and replacements are charged to operations. Expenditures that materially increase values, change capacities or extend useful lives are capitalized. Capitalized renewals or replacements are charged to the property accounts. The properties that were renewed or replaced are correspondingly removed from the property accounts.
Revenue Recognition
Revenue from the sale of products is recognized upon passage of title to the customer, which in most cases coincides with shipment of the related products.
Retirement and Pension Plans
The Company and its subsidiaries have non contributory pension plans covering substantially all its hourly employees. Company contributions are actuarially determined using the projected unit credit method, taking into consideration estimated future salary increases where applicable.
In December 1990, the Financial Accounting Standards Board issued a new standard on accounting for postretirement benefits other than pensions. This new standard requires that the expected cost of these benefits must be charged to expense during the years
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 1 - Summary of Significant Accounting Policies - (continued)
that employees render service. This was a significant change from the Company's policy of recognizing these costs on the cash basis. The Company adopted the new standard effective January 1, 1993. The Company is amortizing the discounted present value of the obligation, $4,851,259, to expense over a twenty year period of which seventeen years remain.
Income Taxes
The Financial Accounting Standards Board issued statement of Financial Accounting Standards No. 109 ("SFAS No. 109") "Accounting for Income Taxes". The Company adopted the new standard effective January 1, 1993 and the new standard did not have a material effect on the Company's consolidated financial position.
Income (loss) Per Share
Income (loss) per share has been computed by dividing net income (loss) by the weighted average number of outstanding shares of common stock during each period. Common stock equivalents were not used to compute the loss per share in 1994 and 1993 because such inclusion would be antidilutive. Such common stock equivalents (options) expired in 1995. (See Note 11).
Cash and Equivalents
The Company classifies as cash and equivalents all highly liquid investments with a maturity of three months or less when purchased.
Liquidity
As discussed more fully in Note 15 - Liquidity, the Company has sustained losses in each of the last seven years prior to 1995. For a discussion of the ability of the Company to meet its cash requirements see Note 15.
Reclassification
Certain prior year amounts have been reclassified in order to conform to the current year presentation.
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 2 - Restricted Cash
Restricted cash of approximately $16,336,000 represents the settlement paid by the Company's principal shareholder of $20,750,000 (See Note 18) plus net interest accrued since payment (approximately $626,000) less payments made to professionals incurred in the bankruptcy matter (approximately $5,040,000). This cash is held in an escrow account which the Company can only access with approval of the Unsecured Creditors' Committee. The funds are restricted for use in resolving claims associated with the bankruptcy.
Note 3 - Accounts Receivable
The Company has an accounts receivable financing arrangement with CIT Group ("CIT") covering substantially all of its accounts receivable. Such arrangement provides the Company a line of credit up to the lesser of $8,000,000 or 80% of the eligible accounts receivable at an interest rate of prime (8.75% at December 31, 1995) plus 1/2%, a line of credit fee of 1/2% per annum on the unused balance and a $3,000 per month collateral management fee. At December 31, 1995 the Company had open a balance of $3.6 million under this arrangement. On , 1996 CIT advised the Company that it would not be interested in financing arrangement after the Company emerges from bankruptcy. The Company believes it will be successful in finding alternative financing, however there can be no assurance that the Company will be able to obtain such financing or that it will be available on terms the Company deems acceptable.
Note 4 - Inventories
The following is a summary of the major classifications of inventories: December 31, 1995 1994 (thousands of dollars)
Raw materials and supplies $ 5,520 3,984 Work in process 2,023 3,177 Finished goods 6,345 7,228
$ 13,888 14,389
Note 5 - Investment in Affiliates
On April 23, 1993, the Company sold to DWG Corporation, which up until that date may have been deemed to be an affiliate of the Company as a result of common ownership and control by Victor Posner, all 141,000 shares of common stock of CFC Holdings Corp., a subsidiary of DWG, held by the Company representing 1.4% of the
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 5 - Investment in Affiliates (continued)
issued and outstanding capital stock of CFC Holdings for $3.6 million. At December 31, 1992, the aggregate book value of the 141,000 shares of CFC Holdings Common Stock sold by the Company was approximately $270,000. DWG made payment of the purchase price to the Company. Substantially all of these proceeds were used to pay DWG amounts owed by the Company under cost sharing arrangements. A gain of approximately $3.4 million is recorded in Other Income (Expense) for 1993.
The Company's investment in CFC Holdings was accounted for on the equity method on a quarter lag basis. The Company's equity in net earnings of CFC Holdings amounted to $73,000 in 1993.
As part of a series of transactions on April 23, 1993, Insurance and Risk Management ("IRM") repurchased from DWG Corporation ("DWG") 25% of the issued and outstanding stock of IRM. As a result of this purchase, the Company's ownership of IRM increased from 45% to 60% as IRM recorded the purchase of the shares from DWG as treasury stock thus reducing the outstanding shares of IRM. In a related transaction, IRM sold to DWG all of its 2.7% stake in CFC Holdings for $8.4 million resulting in an approximate $7 million gain on the sale. The result of this gain was that IRM's equity went from negative to positive, therefore, the Company, as a 60% owner, recorded its share of the equity in IRM, approximately $1.5 million. The Company's equity in IRM was then reduced by dividends paid by IRM in 1993, 1994 and 1995 of $1,066,667, $133,333 and $240,000, respectively. As a result of the April 23, 1993 transactions, DWG is no longer affiliated with the Company and IRM.
The decision to liquidate IRM was due to the fact that IRM's business was almost entirely conducted with affiliated companies.With DWG, the largest of such affiliated companies, becoming disaffiliated and electing not to use IRM for insurance placements and claims management, IRM's business became too small to be useful or profitable, thus the decision to liquidate. The decision to liquidate did not have a material impact on the Company's financial statements
For the years ended December 31, 1995, 1994 and 1993 NVF had income of $-0-, $89,000 and $180,000 respectively, from its equity investment in IRM and NVF had a carrying value of its investment in IRM at December 31, 1995 and 1994 of $102,000 and $342,000, respectively. NVF has also received liquidating dividends of $1,066,667 in 1993, $133,333 in 1994 and $240,000 in 1995.
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 6 - Properties
Properties are recorded at cost, less accumulated depreciation. Management continuously reviews the carrying value of its properties based on its review of third party appraisals, market trends, changes in the way the property is used and physical changes in the property. If Management determines the property has been impaired the property is written down to a new carrying value and an impairment loss is recognized.
In March 1995, the Financial Accounting Standards Board issued Statement of Financial Standards No. 121 "Accounting for the Impairment of Long Lived Assets to be Disposed Of" (SFAS 121). SFAS 121 establishes accounting standards for the impairment of related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS 121 is effective for the year ended December 31, 1996. Management has not yet determined how the adoption of SFAS 121 will impact its financial statements.
At December 31, 1995 and 1994, the major classifications of properties (at cost) consisted of the following:
1995 1994 (thousands of dollars)
Land and land improvements $ 1,994 1,989 Buildings, machinery and equipment 85,047 82,443 Buildings, machinery and equipment under capitalized leases 305 247 Construction in progress 923 973
Total properties at cost $ 88,269 85,652
Amortization of properties under capitalized leases is included with depreciation expense. At December 31, 1995 and 1994, the accumulated amortization of properties under capitalized leases was $89,000 and $78,000, respectively.
Note 7 - Taxes on Income
NVF and Parsons Paper file separate consolidated federal income tax returns. The difference between the reported provision and the computed expected tax (benefit) based on book income (loss) at the federal income tax rate for the three years ended December 31, 1995 are reconciled as follows:
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 7 - Taxes on Income (continued)
Year Ended December 31, 1995 1994 1993 (thousands of dollars)
Federal taxes (benefit) at statutory rates 6,168 (3,829) (2,137) Increase (decrease) in taxes resulting from: State taxes net of federal benefit 1,249 - - Net operating loss (utilized) not currently realizable (4,420) 3,829 2,137 Alternative minimum taxes 253 - - Contractual interest (1,225) - - Insurance settlement (350) - - Other, net (173) (38) -
Provision for taxes on income $ 1,502 (38) 77
As described in Note 1, the Company adopted SFAS No. 109 effective January 1, 1993.
At December 31, 1995 and 1994, the deferred tax assets and liabilities are comprised of:
12/31/94 12/31/95 Deferred Deferred Tax Tax (Benefit) Assets/ Assets Expense (Liabilities) Current: Allowance for doubtful accounts $ 133 $ (7) $ 126 Inventory overhead capitalization 141 (42) 99 Unrealized loss on securities 104 - 104 Insurance recovery - (350) (350) Accrued vacation 337 9 346
Noncurrent: Contractual interest - (1,225) (1,225) Pension costs 662 - 662 Accelerated depreciation 213 (426) (213) Environmental reserves 2,394 (174) 2,220 Contingency reserves 1,575 - 1,575 Net operating loss carryforward 37,987 (4,420) 33,567 Capital loss carryforward 33,064 - 33,064 ITC credit carryforward 531 - 531 Other, net - (173) (173) Less valuation reserve (77,142) 6,808 (70,334)
$ 0 0 0
Based on the weight of available evidence, management has determined that it is more likely than not that none of the deferred tax assets identified above will be realized and therefore has recorded a valuation allowance of $69,983 against the entire amount.
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 7 - Taxes on Income (continued)
In June 1989, NVF obtained an appeal bond in favor of the Commonwealth of Pennsylvania in connection with certain taxes for the year 1985 in the amount of $1.3 million which was reduced subsequent to September 30, 1989 to $320,000. The taxes of approximately $250,000 were paid in May 1993 to facilitate the sale of the Company's Willow Grove property. In January, 1995, the Company resolved this matter with the Commonwealth and received an $82,000 refund.
Note 8 - Notes Payable and Long-Term Debt
At December 31, 1995 and 1994, long-term debt consisted of the following: 1995 1994 (thousands of dollars) NVF Company: 11-3/4% Secured amortizing promissory notes $ - 2,305 10% Secured notes payable 7,461 7,461 Capitalized lease obligations 210 164 Urban Development Action Grant 116 116 7,787 10,046 Less: Amounts included in liabilities subject to compromise 27 162 Current portion of long-term debt 7,584 9,849 Long-term debt $ 176 35
A settlement of litigation commenced by the Committee (See Note 18) called for interest on the 10% Secured Notes to be fixed at $765,000 through September 30, 1995 plus additional interest at a rate of 10% per annum (simple interest with no compounding) from September 30, 1995 until (1) the consummation date of the plan which brings the Company out of bankruptcy or (2) May 22, 1996 which is the date the first semi-annual payment is due. As of December 31, 1995 the Company has accrued $951,000 of interest on the 10% Secured Notes in "Accrued Interest Payable". The settlement also called for the holders of 11-3/4% Secured NVF Promissory Notes to return such notes for the return of the APL 10-3/4% Subordinated Sinking Fund Debentures. Other income of approximately $2,609,000 was recognized in 1995 as a result of the settlement.
The scheduled principal payments on notes payable and long- term debt outstanding at December 31, 1995 (other than subordinated indebtedness) for each of the succeeding five years, without regard to bankruptcy proceedings, are as follows:
1996 1997 1998 1999 2000
$7,584 108 52 37 6
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 9 - Subordinated Indebtedness
At December 31, 1995 and 1994, subordinated indebtedness consisted of the following:
1995 1994 (thousands of dollars) NVF Company: 5% Subordinated sinking fund debentures due 1994 less unamortized deferred discount of $-0- and $-0- $ 48,046 48,046 10% Subordinated sinking fund debentures due 2003 less unamortized deferred discount of $-0- and $-0- 11,375 11,375 59,421 59,421 Total subordinated indebtedness 59,421 59,421 Current portion of subordinated indebtedness 59,421 59,421
Long term subordinated indebtedness $ - -
NVF did not make sinking fund payments of $4.8 million due on January 1, 1993 and $43.2 million due January 1, 1994 nor did it make $1.2 million interest payments due July 1, 1993 and January 1, 1994 on its 5% Subordinated Debentures. According to the terms of the debentures, the debentures are in default and may be called for 100% of principal plus interest. The aggregate principal amount of the 5% Subordinated Notes at December 31, 1995 and 1994 was approximately $48,046,000. NVF did not make sinking fund payments of approximately $284,375 on November 14, 1993, November 14, 1994 and November 14, 1995 nor did it make interest payments of $568,757 on November 14, 1993, May 14, 1994, November 14, 1994, May 14, 1995 and November 14, 1995 on its 10% Subordinated Debentures. According to the terms of the debentures, the debentures are in default and may be called for 100% of principal plus interest. The aggregate principal amount of the 10% Subordinated Notes at December 31, 1995 and 1994 was approximately $11,375,000. The 5% and 10% Subordinated Debentures are expected to be compromised within the course of the bankruptcy and paid from a pool created by the sale of the Company and the proceeds from litigation entitled as the Official Creditor's Committee of NVF Company v. Victor Posner, et al.
Amortization of deferred debt discount, amounting to $368,000 in 1993, is classified with "debt costs" in the Company's statements of operations. Amortization of deferred debt discount on the 5% and 10% Subordinated Debentures was on the "Bonds outstanding" method. In accordance with AICPA Statement of Position 90-7 the remaining unamortized deferred debt discount of $1,143,000 was expensed in 1993.
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 9 - Subordinated Debentures (continued)
The scheduled principal payments on subordinated indebtedness outstanding at December 31, 1995 for each of the succeeding five years, without regard to bankruptcy proceedings, are as follows:
1996 1997 1998 1999 2000
$ 59,421 - - - -
Note 10 - Stockholders' Equity
NVF has authorized 10,000,000 shares of $1 par value preferred stock, with no shares issued or presently contemplated to be issued.
Note 11 - Stock Option Plans
All options under the 1970 Stock Option Plan for officers and key employees of NVF and its subsidiaries have expired. No stock options remain outstanding at December 31, 1995.
Note 12 - Retirement and Incentive Compensation Plans
At December 31, 1995 and 1994, the Company recorded additional minimum liabilities of $3,381,000 and $3,906,000, respectively, included in "Liabilities subject to compromise", and intangible assets of $1,851,000 and $2,067,000, respectively, included in noncurrent "Other assets", and a credit to equity of $309,000 and a charge to equity of $170,000 at December 31, 1995 and December 31, 1994, respectively. The additional minimum liabilities represent the excess of the estimated accumulated benefit obligations over the estimated fair value of plan assets and the unfunded accrued pension costs at December 31, 1995, 1994 and 1993. In general, the Company's funding policy is to contribute the minimum required by the Employee Retirement Income Security Act of 1974.
The components of the 1995, 1994 and 1993 pension expense are as follows: Year Ended December 31, 1995 1994 1993 (thousands of dollars)
Service cost $ 561 510 498 Interest cost on projected benefit obligation 2,367 2,350 2,381 Actual return on plan assets (1,879) 841 (2,302) Amortization and deferral 205 (2,780) 367
Net periodic pension cost $ 1,254 921 944
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 12 - Retirement and Incentive Compensation Plans (continued)
The following table sets forth a reconciliation of the funding status of the plans as of December 31, 1995 and 1994:
Aggregate of Plans Whose Assets Exceed Accumulated Accumulated Benefits Benefits Exceed Assets 1995 1994 1995 1994 (thousands of dollars) Actuarial present value of service obligations: Vested benefit obligation $ 13,887 13,455 18,729 17,343 Projected (and accumulated) benefit obligation $ 13,991 13,556 19,139 17,661
Plan assets at fair value 14,953 13,688 12,712 11,143
Reconciliation of funded status: Projected benefit obligation less than (in excess of) plan assets 962 132 (6,427) (6,518) Unrecognized prior service costs - - 400 436 Unrecognized net loss (gain) from plan experience (19) 910 1,513 1,819 Unamortized net (asset) obligation at transition (124) (140) 1,433 1,612
Prepaid (accrued pension cost) $ 819 902 (3,081) (2,651)
An assumed discount rate of 7.5%, an expected long-term rate of return on assets of 8%, and a rate of increase in future compensation levels of 6% where applicable, were used in developing this data for 1995 and 1994. The actuary's calculations resulted in a $309,000 credit, $170,000 charge and a $333,000 charge to equity in 1995, 1994 and 1993, respectively. Plan assets are invested in a managed portfolio consisting primarily of corporate bonds and common stock of unaffiliated issuers.
Included in the accompanying balance sheets under the captions "Accrued wages and other employee costs", "Other noncurrent liabilities" and "Liabilities subject to compromise" were pension liabilities of approximately $129,000, $159,000 and $5,355,000 respectively, at December 31, 1995 and $69,000, $207,000 and $5,378,000, respectively at December 31, 1994.
NVF adopted a 401(k) defined contribution plan effective January 1, 1990 for eligible employees who elect to participate. Employees may contribute from 1% to 15% of their compensation subject to certain limitations. At its discretion, NVF will determine how much, if anything, it will contribute to such plan. In 1995 and 1994 the Company accrued a matching contribution of $.25 for each dollar contributed by employees at a cost of approximately $78,000 and $65,000, respectively. There were no contributions in 1993. NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 12 - Retirement and Incentive Compensation Plans (continued)
NVF provides certain health care and life insurance benefits for retired employees. Substantially all of the Company's employees may become eligible for those benefits if they reach normal retirement age while working for NVF. Postretirement medical benefits are self-insured by the Company and administered by Delaware Blue Cross and Blue Shield. Postretirement life insurance benefits are provided through an insurance company whose premiums are based on the benefits paid during the year. Prior to adopting FAS 106, the Company expensed the related cost on a pay- as-you-go basis. The Company has not funded the Accumulated Postretirement Benefit Obligation because the Plan is not pay- related there are no Plan assets.
The effect of a one-percentage point increase in the assumed health cost trend rates on the aggregate of the service and interest cost component of net periodic postretirement health care costs for 1995 would be an increase of approximately $38,000. The related effect on the accumulated postretirement benefit obligation for health care benefits would be an increase of approximately $43,000.
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 12 - Retirement and Incentive Compensation Plans (continued)
In December 1990, the Financial Accounting Standards Board issued a new standard on accounting for postretirement benefits other than pensions. This standard requires that the expected cost of these benefits must be charged to expense during the years that employees render service. The Company adopted the new standard prospectively effective January 1, 1993. The Company is amortizing the discounted present value of the transition obligation, $4,851,259, to expense over a twenty year period of which seventeen years remain. At December 31, 1995 and 1994 a net liability of $564,000 and $551,000 respectively, is recorded in "Liabilities subject to compromise" on the balance sheet for postretirement benefits. The following table reconciles the plan's funded status to the accrued postretirement benefit cost liability as reflected on the consolidated balance sheet as of December 31, 1995 and 1994:
1995 1994 (000's) (000's)
Accumulated Postretirement Benefit Obligation: Retirees $ (2,659) (2,707) Other fully eligible participants (318) (836) Other active participants (1,215) (1,421) (4,192) (4,964)
Reduction of prior service cost (861) - Unrecognized actuarial loss 365 47 Unrecognized transition obligation 4,124 4,366
Accrued postretirement health care cost liability $ (564) $ (551)
Net postretirement health care cost included the following components: Service cost - benefits attributed to service during the period $ 69 109 Interest cost on accumulated postretirement benefit obligation 286 385 Amortization of transition obligation over 20 years 243 243 Amortization of unrecognized prior service cost (54) - Amortization of unrecognized net (gain)/loss (5) -
Net postretirement health care cost $ 539 $ 737
For measurement purposes, a twelve percent annual rate of increase in the per capita cost of covered health care claims was assumed for 1993; the rate was assumed to decrease gradually in increments of 1 percent per year to an ultimate rate of 6 percent and remain at that level thereafter.
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 12 - Retirement and Incentive Compensation Plans (continued)
Incentive Compensation
In October 1988, the new Ad Hoc Intercorporate Transactions and Common Officer Committee, NVF's Compensation Committee and NVF's Board of Directors approved, subject to the approval of stockholders, a new Management Incentive Plan of NVF, and terminated NVF's prior incentive compensation plans. The new plan, which was approved by the stockholders on December 28, 1990, became effective for the year ending December 31, 1988. The new plan provides for the establishment for each fiscal year for two separate incentive compensation funds, the first to be used primarily based on net operating earnings and not to exceed 10% of such earnings, and the second to be based on net earnings from sales or other disposition of assets, such as sales of subsidiaries, divisions, investments, and other assets not in the ordinary course of business, and not to exceed 10% of earnings from such sources. The new plan is to be administered by NVF's Compensation Committee and awards for elected corporate officers of NVF are to be approved by NVF's Board of Directors following review and recommendation by NVF's Compensation Committee after review by the new Ad Hoc Intercorporate Transactions and Common Officer Compensation Committee where such review is required. The new plan sets forth certain objective factors used in determining the allocation of awards to persons eligible to participate in such plan. Among such factors are experience, level of responsibility, efforts expended, participation in decision making, contribution of the employee to the achievement of profits, past performance, duties and responsibilities and length of employment. The objectives of the new plan are to encourage the development of aggressive, growth-oriented business plans and strategies consistent with philosophies of the Board of Directors, to motivate exemplary commitment and performance of managerial personnel, to provide a competitive level of remuneration to those managerial personnel who have made a meaningful contribution to NVF's financial results and business objectives and to provide NVF's stockholders with an optimum return on their investment by maximizing the long term growth and profitability of NVF. NVF did not accrue any amounts under such plan with respect to 1995, 1994 and 1993.
Note 13 - Industry Segments
The Company is engaged in the manufacture and sale of industrial laminated plastic products which have their principal application in the electronic fields such as for printed circuit boards; manufacture and sale of vulcanized fibre which is an extremely sturdy and lightweight converted cellulose widely used in such applications as backing abrasive disks, electrical insulation, material handling containers and furniture surfaces and, to a lesser extent, the manufacture of material handling containers and
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 13 - Industry Segments (continued)
correspondence and business papers. The Company principally markets its products in the North American market. Less than 10% is exported.
Year ended December 31, 1995 1994 1993 (thousands of dollars) Amount % Amount % Amount % Net Sales and Operating Revenues Industrial laminated plastics $ 56,233 58 48,650 52 47,758 53 Vulcanized fibre 31,656 33 35,064 37 31,382 35 Other 12,052 12 13,836 15 14,254 16 Total segment net sales and operating revenues 99,941 97,577 93,394
Elimination of intersegment sales (transferred at market prices): Industrial laminated plastics $ (975)(1) (983)(1) (1,197)(1) Vulcanized fibre (2,075)(2) (2,613)(3) (2,151)(3)
Consolidated net sales and operating revenues $ 96,891 100 93,981 100 90,046 100
Operating Income (Losses): Industrial laminated plastics $ 3,760 2,976 2,446 Vulcanized fibre 4,371 7,397 6,722 Other (1,973) (659) (4) General corporate expenses, net (4,993) (5,098) (7,031)
Operating income 1,165 4,616 2,133 Reorganization expenses (5,822) (6,916) (2,143) Adversary action settlement 23,359 - - Other income (expense) 1,285 (6,433) 4,805 Debt costs (1,116) (2,207) (5,599) Provision for taxes on income (1,502) - - Consolidated income (loss) before taxes on income, equity in net earnings (loss) of affiliates and discontinued operations $ 17,369 (10,940) (804)
Year ended December 31, 1995 1994 1993 (thousands of dollars) Identifiable assets: Industrial laminated plastics $ 23,942 25,424 27,327 Vulcanized fibre 16,968 16,317 14,442 Other 7,253 8,630 9,307 Total identifiable assets 48,163 50,371 51,076
General corporate assets 21,599 4,440 5,107 Elimination of intersegment receivables (2,191) (2,550) (2,272)
Consolidated assets $ 67,571 52,261 53,911
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 13 - Industry Segments (continued)
Year ended December 31, 1995 1994 1993 (thousands of dollars) Capital expenditures: Industrial laminated plastics $ 180 326 230 Vulcanized fibre 2,418 1,231 650 Other 143 76 400 General corporate 167 33 60
$ 2,908 1,666 1,340
Depreciation and amortization: Industrial laminated plastics $ 1,358 1,687 1,880 Vulcanized fibre 770 648 684 Other 418 435 480 General corporate 51 58 55
$ 2,597 2,828 3,099
NVF's foreign operation (which is not significant) has been grouped with other segments in the foregoing industry segment data because it is not practical to isolate the industrial laminated plastics or vulcanized fibre portion of the foreign operation.
Note 14 - Transactions with Related Parties
Pursuant to a Stock Purchase Agreement entered into by Victor Posner and certain entities controlled by him (collectively, the "Sellers") with respect to the sale and exchange of all of the shares of common stock of DWG owned by them, Sellers agreed to terminate or cause to be terminated all such cost sharing arrangements within six months after April 23, 1993 and agreed that DWG would be reimbursed for any space or service provided to Seller's affiliates, including the Company during the period from April 23, 1993 to the date of termination at commercially reasonable rates no less than the rate DWG would charge an unaffiliated third party. The sale and exchange of shares contemplated by the Stock Purchase Agreement was consummated on April 23, 1993 and as a result the Sellers ceased to hold any shares of DWG and DWG and its subsidiaries ceased on such date to be affiliates of the Company. DWG and NVF were affiliated as a result of common ownership and control by Victor Posner. DWG provided management services, office facilities (including the cost of space leased from a trust for the benefit of Victor Posner and his children) and other services to the Company in 1993 at a cost of approximately $529,000. In addition, the Company incurred interest expense to DWG of $73,000 in 1993.
The Company maintained certain insurance coverage with Chesapeake Insurance, a subsidiary of DWG with whom the Company was affiliated with until April 23, 1993. Premiums attributable to such insurance coverage which consisted principally of property
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 14 - Transactions with Related Parties (continued)
coverage amounted to approximately $70,000 in 1993. In addition, the Company maintained insurance coverage with unaffiliated insurance companies for which a subsidiary of Chesapeake Insurance reinsured a portion of the risk. Net premiums attributable to such reinsurance were approximately $1,465,000 in 1993. In addition, IRM acts as agent or broker in connection with insurance coverage obtained by the Company and provides claims processing services for the Company. The commissions and payments for services paid to such Company were $14,000 in 1993 after which the Company discontinued utilizing IRM. Included in "Liabilities subject to compromise" on the accompanying balance sheet was approximately $43,000 the Company owed IRM at December 31, 1995.
Note 15 - Liquidity
NVF's consolidated working capital at December 31, 1995 increased by approximately $16,905,000 from December 31, 1994. Proceeds from a settlement of litigation entitled as the Official Creditors' Committee of NVF Company v. Victor Posner, et al. (See Note 18) of $20,750,000 and other terms of such settlement, i.e., the return to the Company of its 11-3/4% Secured Promissory Notes in exchange for previously written off APL 10-3/4% Subordinated Sinking Fund Debentures, were principally responsible for the increase. However, the terms of the settlement also dictate that such proceeds may only be used in matters relating to the bankruptcy, which results in the restricted cash (See Note 2) of $16,336,000.
On August 27, 1993 three creditors of NVF filed an involuntary bankruptcy petition against NVF under Chapter 11 of the Bankruptcy Code in Bankruptcy Court, Case No. 93-1020. On September 15, 1993, NVF filed its answer to the involuntary petition, and an order for relief was entered by the Bankruptcy Court. NVF continues to operate its business and is in possession of its assets as a debtor in possession in accordance with the Bankruptcy Code. No trustee or examiner has been appointed.
On April 13, 1994, the Company filed its Disclosure Statement and Plan of Reorganization. The hearing on the adequacy of the Disclosure Statement was set for June 15, 1994. On June 6, 1994, the Disclosure Statement hearing was continued until June 30, 1994. The hearing was subsequently taken off calendar. On July 15, 1994, the Company filed its First Amended Disclosure Statement and First Amended Plan of Reorganization. A copy of the Plan was filed as Exhibit 2.1 to Form 8-K by the Company on August 4, 1994. A hearing on the adequacy of the First Amended Disclosure Statement was set for September 13, 1994. On September 7, 1994, the Company filed NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 15 - Liquidity (continued)
its Second Amended Disclosure Statement and Second Amended Plan of Reorganization. On September 13, 1994, the hearing on the adequacy of the Second Amended Disclosure Statement was taken off calendar due to the agreement (the "Joint Agreement") reached before the Bankruptcy Court between NVF and the Official Committee of Unsecured Creditors of NVF (the "Committee") to jointly retain an investment banking firm for the purpose of marketing and selling or recapitalizing the Company.
The investment banking firm, Alex. Brown & Sons Incorporated ("Alex. Brown"), made procedural recommendations that were agreed upon by NVF and the Committee and approved by the Bankruptcy Court. Alex. Brown has implemented those procedures and recommended to NVF and the Committee what they believe to be the highest and best offer which will realize the greatest value to the creditors. In accordance with the procedures approved by the Bankruptcy Court, Alex. Brown contacted a total of 147 potential purchasers for NVF. On July 24, 1995 Alex. Brown submitted its recommendation to the Bankruptcy Court under seal. On August 3, 1995 a hearing was held in the Bankruptcy Court on an Emergency Motion of First Security and Investment Corporation ("First Security") and Security Management Corporation for Examination of Alex. Brown & Sons, Inc. Pursuant to Federal Rule of Bankruptcy Procedure 2004. As a result of this hearing, the Court had permitted the mover to review the findings and conclusions of Alex. Brown's decision. Eventually, Alex Brown determined that the bid by First Security was the highest and the best bid. On October 27, 1995, NVF and the Committee filed their motion with the Bankruptcy Court seeking approval to enter into and execute a stock purchase agreement with First Security. On December 29, 1995 the Bankruptcy Court signed an order approving the bid of First Security as the highest and best bid. On January 29, 1996 the Joint Plan of Reorganization ("the Plan") of NVF Company and The Official Committee of Unsecured Creditors and the Disclosure Statement was filed with the Bankruptcy Court (See Form 8-K dated January 29, 1996, Exhibits 2 and 99). On March 4, 1996 the Bankruptcy Court approved the Disclosure Statement. The Plan has been submitted to the creditors for ratification. A hearing date in Bankruptcy Court concerning confirmation of the Plan has been scheduled for April 25, 1996.
NVF did not make sinking fund payments of $4.8 million due on January 1, 1993 and $43.2 million due January 1, 1994 nor did it make $1.2 million interest payments due July 1, 1993 and January 1,1994 on its 5% Subordinated Debentures. NVF did not make sinking fund payments of approximately $284,375 on November 14, 1993, November 14, 1994 and November 14, 1995 nor did it make interest payments of $568,757 on its 10% Subordinated Debentures due November 14, 1993, May 14, 1994, November 14, 1994, May 14, 1995 and November 14, 1995. The Company did not make interest payments
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 15 - Liquidity (continued)
of approximately $373,000 due November 22, 1993, May 22, 1994, November 22, 1994, May 22, 1995 and November 22, 1995 on its 10% Secured Notes. The 5% and 10% Subordinated Debentures are expected to be compromised within the course of the bankruptcy and paid from a pool created by the sale of the Company and the proceeds from litigation entitled as the Official Creditor's Committee of NVF Company v. Victor Posner, et al.
The Company has an accounts receivable financing arrangement with CIT Group ("CIT") covering substantially all of its accounts receivable. Such arrangement provides the Company a line of credit up to the lesser of $8,000,000 or 80% of the eligible accounts receivable at an interest rate of prime (8.75% at December 31, 1995) plus 1/2%, a line of credit fee of 1/2% per annum on the unused balance and a $3,000 per month collateral management fee. At December 31, 1995 the Company had open a balance of $3.6 million under this arrangement. On , 1996 CIT advised the Company that it would not be interested in financing arrangement after the Company emerges from bankruptcy. The Company believes it will be successful in finding alternative financing, however there can be no assurance that the Company will be able to obtain such financing or that it will be available on terms the Company deems acceptable.
NVF's ability to meet its cash requirements in the next twelve months is dependent upon increased cash flow being generated from NVF's operations, the continuing of financing of accounts receivable, available borrowings, the compromising of liabilities within the framework of bankruptcy and possible sale of any assets. No assurance can be given that any of such conditions can be achieved or, if achieved, what the terms and conditions thereof will be. NVF believes, but cannot assure, that cash generated from operations and funds from accounts receivable financing facility or alternative facility will be sufficient to enable NVF to maintain its operations until such time as a plan can be confirmed by the Bankruptcy Court. The financial statements included herein have been prepared on a going concern basis and, accordingly, do not include any adjustments relating to the recoverability and classification of recorded asset amounts nor the amounts and classification of liabilities that might be necessary should NVF be unable to continue in existence or be required to sell its assets. As a result of the uncertainties described above, reference is made to Note 16 included elsewhere herein for information concerning the estimated liquidation value of NVF on a consolidated basis.
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 16 - Pro Forma Liquidating Balance Sheet - NVF (Unaudited)
Because of the uncertainties concerning the Company's ability to continue operations on a going concern basis described elsewhere herein, set forth below is certain unaudited pro forma information concerning the estimated liquidating value of the Company on a consolidated basis. Such estimated values are the Company's best estimates of the recoverability of asset amounts upon a liquidation. No assurance can be given that actual liquidation values will approximate those set forth below. Values obtainable upon liquidation can vary widely depending upon various factors, including general business and market conditions and the manner and time of sales. No adjustment has been made with respect to any liabilities for any compromise or other settlement thereof in connection with a liquidation or the related cost of such liquidation to reflect that the liabilities of the Company substantially exceed its assets.
The assumptions and methodology in estimating the liquidating value of NVF assets were as follows; Current assets are made up primarily of cash, accounts receivable and inventory. Most of the Company's inventory is either in process or finished goods. If liquidated, the Company would have difficulty selling the inventory without deep discounts. NVF's product is the base material in electrical components, etc. A large amount of NVF's inventory is in the circuit board industry. The Company believes customers are unlikely to purchase this inventory because it is technical in nature and requires tight compliance to military specifications. For these reasons, inventory was valued at 40% of book value. The majority of the receivables will be difficult to collect because of the simple fact that the Company is in liquidation, customers will not want to pay or may want to return materials, etc. Management feels that there would be a 75% recovery. Properties were valued at current market values and do not reflect a true liquidation valuation. Liabilities are recorded at book value.
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 16 - Pro Forma Liquidating Balance Sheet - NVF (Unaudited)
December 31, 1995 Historical ProForma Assets (In thousands) Current assets $ 45,915 33,730 Properties, net 18,804 11,832 Other assets 2,852 -
$ 67,571 45,562
Liabilities and Stockholders' Deficiency Current liabilities 20,817 20,817 Long-term debt and other liabilities 90,794 90,794 Stockholders' deficiency (44,040) (66,049)
$ 67,571 45,562
Note 17 - Supplementary Income Statement Information
Year Ended December 31, 1995 1994 1993 (In thousands)
Maintenance and Repairs $ 5,651 5,561 4,908
Rent and Lease Commitments
The Company has capital leases for a manufacturing facility and certain manufacturing equipment. The Company is committed through 1997 on a lease for the manufacturing facility located in Canada at $32,000 per year.
The future minimum lease payments under capital leases at December 31, 1995 are as follows:
Year Ending December 31, Capital Leases (In thousands)
1996 $ 91 1997 78 1998 63 1999 41 Thereafter 5 Total minimum lease payments 278
Less amounts representing interest 68
Present value of minimum lease payments $ 210
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 18 - Legal Matters
By order of the Bankruptcy Court all litigation against NVF has been stayed pursuant to 11 USC Section 362 and unless otherwise ordered such proceedings will be resolved in the context of the bankruptcy case.
On August 27, 1993 three creditors of NVF filed an involuntary bankruptcy petition against NVF under the Bankruptcy Code Bankruptcy Court, Case No. 93-1020. On September 15, 1993, NVF filed its answer to the involuntary petition, and an order for relief was entered by the Bankruptcy Court. NVF continues to operate its business and is in possession of its assets as a debtor in possession in accordance with the Bankruptcy Code. No trustee or examiner has been appointed.
On April 13, 1994, the Company filed its Disclosure Statement and Plan of Reorganization. The hearing on the adequacy of the Disclosure Statement was set for June 15, 1994. On June 6, 1994, the Disclosure Statement hearing was continued until June 30, 1994. The hearing was subsequently taken off calendar. On July 15, 1994, the Company filed its First Amended Disclosure Statement and First Amended Plan of Reorganization. A copy of the Plan was filed as Exhibit 2.1 to Form 8-K by the Company on August 4, 1994. A hearing on the adequacy of the First Amended Disclosure Statement was set for September 13, 1994. On September 7, 1994, the Company filed its Second Amended Disclosure Statement and Second Amended Plan of Reorganization. On September 13, 1994, the hearing on the adequacy of the Second Amended Disclosure was taken off calendar due to the agreement (the "Joint Agreement") reached before the Bankruptcy Court between NVF and the Official Committee of Unsecured Creditors of NVF (the "Committee") to jointly retain an investment banking firm for the purpose of marketing and selling or recapitalizing the Company.
The investment banking firm, Alex. Brown & Sons Incorporated ("Alex. Brown"), made procedural recommendations that were agreed upon by NVF and the Committee and approved by the Bankruptcy Court. Alex. Brown has implemented those procedures and recommended to NVF and the Committee what they believe to be the highest and best offer which will realize the greatest value to the creditors. In accordance with the procedures approved by the Bankruptcy Court, Alex. Brown contacted a total of 147 potential purchasers for NVF. On July 24, 1995 Alex. Brown submitted its recommendation to the Bankruptcy Court under seal. On August 3, 1995 a hearing was held in the Bankruptcy Court on an Emergency Motion of First Security and Investment Corporation ("First Security") and Security Management Corporation for Examination of Alex. Brown & Sons, Inc. Pursuant to Federal Rule of Bankruptcy Procedure 2004. As a result of this hearing, the Court had permitted the mover to review the findings and conclusions of Alex. Brown's decision. Eventually,
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 18 - Legal Matters (continued)
Alex Brown determined that the bid by First Security was the highest and the best bid. On October 27, 1995, NVF and the Committee filed their motion with the Bankruptcy Court seeking approval to enter into and execute a stock purchase agreement with First Security. On December 29, 1995 the Bankruptcy Court signed an order approving the bid of First Security as the highest and best bid. On January 29, 1996 the Joint Plan of Reorganization ("the Plan") of NVF Company and The Official Committee of Unsecured Creditors and the Disclosure Statement was filed with the Bankruptcy Court (See Form 8-K dated January 29, 1996, Exhibits 2 and 99). On March 4, 1996 the Bankruptcy Court approved the Disclosure Statement. The Plan has been submitted to the creditors for ratification. A hearing date in Bankruptcy Court concerning confirmation of the Plan has been scheduled for April 25, 1996.
On June 25, 1993 an involuntary bankruptcy petition was filed against APL Corporation ("APL"), the Company's 68% owned subsidiary. On July 23, 1993, APL filed a motion in the Bankruptcy Court for the Southern District of Florida and obtained an order on July 27, 1993 converting the involuntary petition to a voluntary case under Chapter 11 of the Bankruptcy Code. On or about February 24, 1995, a Disclosure Statement For Creditors' Committee's Plan of Reorganization was filed in the APL bankruptcy case. A hearing on the Disclosure Statement in the APL case was held on April 6, 1995 and the Disclosure Statement was approved on April 15, 1995. The Plan was confirmed on June 8, 1995. Due to the fact that NVF no longer has control over APL, statements presented herein have been restated to reflect APL as a discontinued operation and to reflect the deconsolidation of APL effective June 30, 1993. The Company had approximately $2.5 million face value of APL's 10-3/4% Subordinated Sinking Fund Debentures. However a settlement of litigation commenced by the Committee (See Note 18) called for the holders of 11-3/4% Secured NVF Promissory Notes to return such notes for the return of the APL 10-3/4% Subordinated Sinking Fund Debentures. Other income of approximately $2,609,000 was recognized in 1995 as a result of the settlement.
On December 1, 1993, in an action brought by the Securities & Exchange Commission not involving the Company, a judge in the United States District Court for the Southern District of New York issued a decision stating that the Court would issue a decree, among other things, barring Victor Posner and Steven Posner from serving as officers and directors of any reporting company under the Securities Exchange Act of 1934, as amended, and ordering that the stock Victor Posner and Steven Posner own in reporting companies which they control (as defined in that Act) be placed in voting trusts. On December 29, 1993 such decree was issued. On January 4, 1994 Victor Posner resigned his positions as Director, President and Chief Executive Officer of the Company. The United
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 18 - Legal Matters (continued)
States Court of Appeals for the Second Circuit has affirmed the lower court's judgment and centiorari has been denied by the United States Supreme Court.
On June 8, 1994, Richard L. Beltzhoover, as Trustee of The Employees' Pension and Investment Plan of Insulation Represen- tatives, Inc. filed suit against NVF in the Court of Chancery of the State of Delaware In and For New Castle County. The suit requested that the Court of Chancery summarily order an annual meeting of the shareholders of the Debtor. On June 17, 1994, the plaintiff filed a Motion to Expedite the Proceeding on the grounds that it is a summary proceeding under 8 Del. C. 211(c) and based upon allegations in the complaint. Subsequently, Vice Chancellor Berger directed the Debtor to file its answer in the Chancery Court Action on or before June 27, 1994. On June 27, 1994, the Debtor filed its answer in the Chancery Court Action. On July 6, 1994, Beltzhoover filed a Motion for Relief From Stay, or in the Alternative, To Compel Annual Shareholders Meeting. Beltzhoover requested an expedited hearing on the matter. On July 19, 1994 Beltzhoover filed the same motion in Bankruptcy Court. It was then decided that this case would be heard in Bankruptcy Court rather than in Chancery Court where the action has been stayed. A trial to hear the Application to Compel an Annual Meeting of NVF Shareholders was scheduled for October 3, 1994, however Beltzhoover requested a continuance on that date and all parties agreed to adjourn such action until November 28, 1994. On December 5, 1994 the Board of Directors of the Company approved a settlement proposal whereby Beltzhoover withdrew his motions and covenants not to refile, initiate, commence or resurrect any of the motions at any time before July 31, 1995. Beltzhoover also agreed not to seek reimbursement from the Company for any expenses incurred as a result of his efforts. In turn, the Company elected Richard Beltzhoover and Kim Del Fabro to its Board of Directors effective December 5, 1994.
On June 4, 1993 Insurance Company of North America ("INA") filed suit against the Company claiming INA was indemnified by NVF on certain self insured workers compensation and mining reclamation obligations written for Sharon Steel Corporation and its subsidiaries. By virtue of NVF's bankruptcy action, this suit has been stayed. INA has filed a proof of claim against the Company in the amount of approximately $4,500,000 in the Bankruptcy Court which has been resolved by allowance of INA's unsecured claim in the amount of $4.385 million. The Company has accrued the entire amount of the claim under "Liabilities Subject to Compromise".
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 18 - Legal Matters (continued)
On March 17, 1993, New Castle County filed an action in the Superior Court of the State of Delaware against the Company claiming that the Company owed New Castle $1,566,956.81 for sewer service provided to the Company's Yorklyn, Delaware plant. New Castle County has agreed to the treatment of their claim as set forth in the Plan. Under this proposal an aggregate amount of $1,813,507.27 claim of principal and interest shall be recognized. Interest shall accrue at 9% per annum from November 1, 1995 until the consummation date of the Plan. On the consummation date, or as soon as practicable thereafter, the holder of the claim shall receive twelve payments at monthly intervals of interest only at 8% per annum on the sum of $1,813,507.27 plus interest accrued between November 1, 1995 and the date of the first payment. Thereafter the remaining balance will be amortized over forty-eight months at a rate of 8% per annum. The Company reserved the right to contest this claim under this proposal and has filed such with Court on .
The Company and the EPA, subject to obtaining necessary approvals, have reached agreement in principle with respect to treatment of environmental claims under the Plan. Under this agreement, among other things, environmental obligations will pass through to NVF after reorganization. The Company and the EPA, subject to obtaining necessary approvals, had reached agreement in principle with respect to treatment of environmental claims under the Debtor's plan. Under this agreement, among other things, if the purchase option of the plan is approved all prepetition environmental claims will be paid by the reorganized Company pari passu with the amount to be paid to the unsecured creditors.
The Creditor's Committee commenced an adversary action in the United States District Court for the District of Delaware against certain present and former directors of the Company (including Messrs. Victor and Steven Posner), Triarc Companies, Inc. (formerly known as DWG), RC/Arby's Corporation, American Financial Corporation, Great American Insurance Company and Mid-Continent Casualty Company (the "Litigation"). The First Amended Complaint in the action alleged causes of action based on allegations of breach of fiduciary duty, waste, fraudulent transfers, preference payments, and violations of the Racketeer influence and Corrupt Organizations Act ("RICO"). The District Court subsequently dismissed the Committee's RICO claims on the grounds that defendants' alleged acts of mail and wire fraud did not proximately cause injury to NVF. The District Court also held that Delaware's three-year limitations period set forth in 10 Del. C. 8016 might apply to some causes of action and allowed the Committee to file a second amended complaint to plead facts showing why its claims are not time-barred. In its second amended complaint, the Committee named NVF Company as a nominal defendant. The Committee had also
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 18 - Legal Matters (continued)
filed a motion seeking leave to file a third amended complaint and a motion seeking reconsideration of the order dismissing the RICOclaims. Following extensive discovery and pre-trial preparation, on May 9, 1995, the parties to the litigation reached a settlement of their disputes before a United States Magistrate. Pursuant to the settlement, which was approved by the Bankruptcy Court on November 22, 1995, the parties have agreed, among other things, to the following: A) Victor Posner has agreed to pay $20,750,000 to the NVF estate; B) the Committee has agreed that the claim of the 10% secured notes will be allowed in the approximate amount of $8.2 million; C) the holders of the 11-3/4% Secured NVF notes have agreed to return such notes in exchange for the return of approximately $2,538,000 principal amount of the APL 10-3/4% Subordinated Sinking Fund Debentures held by NVF; D) DWG will withdraw its unsecured claims of approximately $210,000; and E) the parties have agreed to exchange mutual releases. A stipulation and Order of Dismissal was ordered by the United States District Court on December 15, 1995.
NVF is also involved in certain litigation and proceedings with respect to matters related to the environment (See "Item 1 - Business - Environmental Matters") and certain other litigation as either plaintiff or defendant as a result of claims that arise in the ordinary course of its business. NVF does not believe any of such litigation will have a material adverse effect on its consolidated financial position or results of operations.
The Company's consolidated financial statements at December 31, 1995 and December 31, 1994 included elsewhere herein, include accruals of approximately $6.8 million for costs in connection with the environmental matters. As detailed below, it is the Company's current belief that the referenced and known environmental proceedings will not have a material adverse effect on its financial position or its results of operations. The Company believes that the $6.8 million accrual should provide an adequate amount to resolve these known liabilities. However, because of the uncertain nature of its environmental liabilities, particularly those related to the Kennett Square facility and the Yorklyn Plant, the Company is unable to assure that the outcome of the environmental matters will not have a material adverse effect on its financial position or the results of operations. The amounts the Company will ultimately have to pay to resolve these matters could differ from the estimate in the near term.
At the off site areas, the Company belongs to ("Potentially Responsible Party") Groups which typically pay costs and expenses on a basis reflecting each individual PRP's allocated share. While the Company's allocated share varies from site to site, at most sites it is approximately 1% or less. To devise an estimated range
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 18 - Legal Matters (continued)
for accrual purposes, the Company assessed its allocated share against the range of total site costs considered by the PRP Group for each site. Because literally hundreds of other PRPs exist at these other sites, and those companies are jointly and severally liable, the Company does not have the resources or the ability to assess the financial condition of these other parties. In light of the multiple parties, the Company does not believe that the financial condition of other companies will affect its liability.
For Company owned sites, the Company employed ranges of costs for known problems at Kennett Square and Yorklyn. As discussed below, those ranges do not include other speculative future environmental developments which could have a material impact on the Company. By applying this criterion for off site and owned sites, the Company estimated its environmental liabilities in the range of approximately $3 million to approximately $15 million. Based upon its settlement experience at certain sites and an internal assessment of the total clean up costs at each site, the Company determined an accrual amount for the range of potential environmental costs of $6.8 million. The Company's actual cost for these liabilities may well be closer to the lower end of the range due to the fact that the Company is in bankruptcy and due to the bankruptcy treatment of certain of these claims. The $6.8 million accrual does not include any offset for potential insurance recoveries. While the Company is hopeful that it will recover some funds for environmental settlements, it has not reached any agreements on its insurance claims. The Company has asserted claims against its insurers for all off site environmental liabilities and all environmental liabilities for the Kennett Square facility. In those actions, the Company seeks recovery of all costs incurred in connection with those environmental matters.
Finally, future environmental matters could have a material impact on the Company. Specifically, the United States Environmental Protection Agency ("EPA") is evaluating the Kennett Square site and/or surrounding areas for possible listing on the NPL". However, the EPA has provided no indication of whether it intends to do so. If the EPA were to list the site and/or surrounding areas on the ("National Priorities Listing") and a cleanup were to be required, such a development could have a material impact on the Company. Because of the wholly speculative nature of this issue, the Company has not considered it in the $6.8 million accrual.
Note 19 - NVF Stand Alone Financial Statements - Unaudited
The Company's subsidiaries, Parsons Paper and NVF Canada, are not part of the bankruptcy thus there was no change in the manner they are accounted for. The accompanying financial statements have been prepared in accordance with AICPA Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code". NVF COMPANY (Debtor-in-Possession) Balance Sheet December 31, 1995 (thousands of dollars) Unaudited December 31, Assets 1995 Current assets: Cash and equivalents $ 526 Restricted cash 16,336 Receivables, less allowance for doubtful accounts of $360 12,379 Intercompany receivables, net 8,159 Inventories 12,323 Other current assets 1,448 Total current assets 51,171 Investment in affiliate 102
Properties, at cost 87,716 Less accumulated depreciation and amortization (68,941) Net properties 18,775 Other assets 2,662 $ 72,710 Liabilities and Stockholders' Deficiency Current liabilities not subject to compromise: Current portion of long-term debt $ 7,583 Accounts receivable financing 3,616 Accounts payable 1,679 Accrued interest payable 1,385 Accrued payroll and benefits 1,807 Accrued professional liabilities 3,032 Accrued taxes 1,502 Other current liabilities 293 Total current liabilities 20,897
Investment in subsidiaries 6,619 Other long-term liabilities 2,752 Long-term debt 176 Liabilities subject to compromise (A) 87,753 Stockholders' deficiency: Common stock, $.01 par value; authorized 200,000,000 shares; issued 95,563,461 shares 956 Capital in excess of par value 234,943 Accumulated deficit (273,034) Treasury common stock, 2,292,544 shares, at cost (8,352) Total stockholders' deficiency (45,487) $ 72,710
Note 19 - NVF Stand Alone Financial Statements - Unaudited
NVF COMPANY (Debtor-in-Possession) Balance Sheet December 31, 1995 (thousands of dollars) Unaudited
December 31,
(A) Liabilities subject to compromise consist of the following:
Trade and other miscellaneous claims $ 9,079 Accrued interest 2,076 Pension obligations 5,355 Post retirement benefit obligations, net 513 Subordinated debentures, 5% 48,046 Subordinated debentures, 10% 11,375 Other accrued liabilities 11,282 Current portion of long-term debt 16 Noncurrent portion of long term debt 11
$ 87,753 (B)
(B) Certain liabilities have been separately classified in the Plan of Reorganization filed on April 13, 1994 and July 14, 1994.
Note 19 - NVF Stand Alone Financial Statements - Unaudited
NVF COMPANY (Debtor-in-Possession) Statements of Operations (In thousands except per share amounts) Unaudited
Twelve Months Ended December 31, 1995
Net sales and operating revenues $ 89,526
Cost of goods sold 74,339 Depreciation and amortization 2,585 Selling, general and administrative expenses 10,272 87,196
Income from operations 2,330
Other income (expense): Settlement with principal shareholder 23,359 Other income (expense), net 2,346 Debt costs (1,005)
24,700
Income from operations before reorganization items, taxes and equity in net loss of affiliates 27,030
Reorganization items:
Professional fees 5,822
Income (loss) before taxes and equity in net loss of affiliates 21,208
Tax provision 1,502
Income (loss) before equity in net loss of affiliates 19,706
Equity in net loss of affiliates (2,337)
Net income $ 17,369
Weighted average number of common and common equivalent shares outstanding, in thousands of shares 93,271
Net income per share 0.19
NVF COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements - Continued
Note 20 - Subsequent Events
In January 1996, a flooding of Red Clay Creek resulted in approximately four feet of water in certain plants and offices of the Company located in Yorklyn, Delaware. This caused numerous production delays including the shutdown of the papermill facility for approximately two months. Estimated damages are approximately $2 million. The Company has submitted approximately $2 million in claims to various insurance carriers and has received an advance of $250,000 from one such carrier.
On January 29, 1996 the Bankruptcy Court approved the First Amended Disclosure Statement to Accompany the First Amended Joint Plan of Reorganization of NVF Company and the Official Committee of Unsecured Creditors under Chapter 11 of the Bankruptcy Code.
On CIT has advised the Company that it would not be interested in this financing arrangement after the Company emerges from bankruptcy. The Company believes it will be successful in obtaining alternative financing, however there can be no assurance that the Company will be able to obtain such financing or that it will be available on terms the Company deems acceptable.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS OF FORM 8-K
(A) FINANCIAL STATEMENTS See INDEX TO FINANCIAL STATEMENTS - ITEM 8. for Financial Statements and Financial Statements Schedules.
(B) REPORTS ON FORM 8-K - NONE
(C) EXHIBITS Copies of the following exhibits are available at a charge of $.25 per page upon written request to the Secretary of the Company at 6917 Collins Avenue, Miami Beach, Florida 33141.
3.1 - Composite Certificate of Incorporation, and all amendments thereto, of NVF Company, incorporated herein by reference to NVF Company Form 10-K for 1980, Exhibit 3.1. 3.2 - By-laws of NVF Company as amended to date, incorporated herein by reference to NVF Company Registration Statement on Form S-16 (No.2-57235), Exhibit 1(e). 4.1 - Indenture, dated as of November 15, 1973 between NVF Company and Sterling National Bank, as Trustee, relating to NVF's 10% Subordinated Debentures due November 15, 2003, incorporated herein by reference to NVF Company Form 10-K for 1986, Exhibit 4.1. 4.2 - Indenture, dated as of January 1, 1969 between NVF Company and Bankers Trust, as Trustee, relating to NVF's Subordinated Debentures due January 1, 1994, incorporated herein by reference to NVF Company Form 10-K for 1986, Exhibit 4.2. 10.1 - NVF Company 1970 Stock Option Plan, as amended, incorporated herein by reference to Appendix B of the NVF Company Proxy Statement dated May 29, 1980. 10.2 - Revolving Credit Agreement among NVF Company and The CIT Group/Business Credit, Inc. dated as of April 27, 1995.* 10.3 - Agreement between Parsons Paper Division of NVF Company Hourly Workers and the United Paper Workers International Union, AFL-CIO and Its Affiliates dated June 1, 1993, incorporated herein by reference to NVF Company From 10-K for 1993, Exhibit 10.3. 10.4 - Agreement between NVF Company and the United Paper Workers International Union, AFL-CIO and Its Affiliates dated April 28, 1993, incorporated herein by reference to NVF Company From 10-K for 1993, Exhibit 10.4. 10.5 - Agreement between NVF Industries of Canada Ltd. and National Automobile, Aerospace and Agricultural Implement Workers Union of Canada dated .*
(C) EXHIBITS (Continued)
10.6 - NVF Management Incentive Plan, incorporated by reference to Appendix A to the Notice of Annual Meeting of Stockholders and Proxy Statement dated November 29, 1990, incorporated herein by reference to NVF Company Form 10- K for 1990, Exhibit 10.8. 22.1 - Listing of subsidiaries of NVF Company *
* being filed separately on Form SE.
(D) FINANCIAL STATEMENT SCHEDULES SEE INDEX TO FINANCIAL STATEMENTS - ITEM 8. for Financial Statements Schedules.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 12, 1996 NVF COMPANY
By:/s/ Robert W. Flack Robert W. Flack Acting Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 12th day of April, 1996 by the following persons on behalf of the registrant in the capacities indicated:
Signatures Title
Principal Financial Officer:
/s/ Robert W. Flack Acting Chief Financial Officer and Robert W. Flack Principal Accounting Officer
/s/ Richard L. Beltzhoover Director Richard L. Beltzhoover
/s/ Brenda N. Castellano Executive Vice President and Director Brenda N. Castellano
/s/ Melvin R. Colvin Director Melvin R. Colvin
/s/ Kim Del Fabro Director Kim Del Fabro
/s/ Marco B. Loffredo, Jr. Director Marco B. Loffredo, Jr.
/s/ Bernard I. Posner Director Bernard I. Posner
/s/ Martin J. Posner Executive Vice President and Director Martin J. Posner
/s/ Willie C. Robinson Director Willie C. Robinson
/s/ Thomas M. Thompson Director Thomas M. Thompson