10-K 1 0001.txt FORM 10-K YR ENDED 12/31/99 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------- FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ----- SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 --------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- -------------- Commission file number 0-5485 ---------- VISKASE COMPANIES, INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-2677354 --------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6855 W. 65th Street, Chicago, Illinois 60638 ----------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (708) 496-4200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ----- As of March 30, 2000, the aggregate market value of the voting stock held by non-affiliates of the registrant was $14,724,774. As of March 30, 2000, there were 15,089,790 shares outstanding of the registrant's Common Stock, $.01 par value. DOCUMENTS INCORPORATED BY REFERENCE: None. VISKASE COMPANIES, INC. Form 10-K Annual Report - 1999 Table of Contents PART I Page Item 1. Business 1 Item 2. Properties 7 Item 3. Legal Proceedings 8 Item 4. Submission of Matters to a Vote of Security Holders 9 PART II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters 10 Item 6. Selected Financial Data 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 7a. Quantitative and Qualitative Disclosures about Market Risk 18 Item 8. Financial Statements and Supplementary Data 18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 19 PART III Item 10. Directors and Executive Officers of the Registrant 20 Item 11. Executive Compensation 22 Item 12. Security Ownership of Certain Beneficial Owners and Management 27 Item 13. Certain Relationships and Related Transactions 29 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 30 i PART I ------ ITEM 1. BUSINESS -------- (a) General development of business: ------------------------------- General Viskase Companies, Inc. (formerly Envirodyne Industries, Inc.) is a Delaware corporation organized in 1970. As used herein, the "Company" means Viskase Companies, Inc. and its subsidiaries. The Company, through Viskase Corporation (Viskase), operates in the film and casing packaging product segments of the food industry. Viskase is a major producer of cellulosic casings used in preparing and packaging processed meat products and is a leading producer of heat shrinkable specialty plastic bags for packaging and preserving fresh and processed meat products, poultry and cheese. The market positions of the Company's subsidiaries set forth in this Form 10-K represent management's belief based upon internally generated information. No independent marketing information has been used to confirm the stated market positions. In September 1997 the Company retained Donaldson, Lufkin and Jenrette Securities Corporation to assist the Board of Directors in evaluating the Company's strategic alternatives. Such alternatives included, among other things, sale of the entire company, sale of business units or recapitalization. In June 1998, the Company sold its wholly owned subsidiary Sandusky Plastics, Inc. (Sandusky), and in July 1998 the Company sold its wholly owned subsidiary Clear Shield National, Inc. (Clear Shield). In January 2000, the Company announced its intention to sell its plastic barrier and non-barrier shrink film business. (See Part IV, Item 14, Note 25 of Notes to Consolidated Financial Statements.) (b) Financial information about industry segments: --------------------------------------------- Reference is made to Part IV, Item 14, Note 23 of Notes to Consolidated Financial Statements. (c) Description of business ----------------------- General Viskase invented the basic process for producing casings from regenerated cellulose for commercial production in 1925. Management believes that Viskase has been a leading worldwide producer of cellulosic casings since that time. In 1964 Viskase entered the specialty films business and it has continued to introduce new specialty film products to customers in the fresh and processed meat, poultry and cheese industries. CASINGS Cellulosic Casings Cellulosic casings are used in the production of processed meat and poultry products, such as hot dogs, salami and bologna. To manufacture these products, meat is stuffed into a casing, which is then cooked and smoked. The casings, which are non-edible, serve to hold the shape of the product during these processes. For certain products, such as hot dogs, the casings are removed and discarded prior to retail sale. Casings made of regenerated cellulose were developed by Viskase to replace casings made of animal intestines. Cellulosic casings generally afford greater uniformity, lower cost and greater reliability of supply and also provide producers with the ability to cook and smoke products in the casing. Cellulosic casings are required for the high speed production of many processed meats. The production of regenerated cellulose casings generally involves four principal steps: (i) production of a viscose slurry from wood pulp, (ii) regeneration of cellulosic fibers, (iii) extrusion of a continuous tube during the regeneration process, and (iv) "shirring" of the final product. Shirring is a finishing process that involves pleating and compressing the casing in tubular form for subsequent use in high-speed stuffing machines. The production of regenerated cellulose casings involves a complex and continuous series of chemical and manufacturing processes, and Viskase believes that its facilities and expertise in the manufacture of extruded cellulose are important factors in maintaining its product quality and operating efficiencies. Viskase's product line includes both NOJAX(R) cellulosic casings for small-diameter processed meat products, such as hot dogs, and fibrous or large-diameter casings, which are paper-reinforced cellulosic casings, used in the production of large-diameter sausages, salami, hams and other processed meat products. FILMS Specialty Film Products Since developing technology for the extrusion of bi-oriented plastic films in 1964, Viskase has continued to expand its product line of heat shrinkable bags made from specialty plastic films. Viskase's heat-shrinkable plastic bags, sold primarily under the brand name PERFLEX(R), are used by major producers of fresh and processed meat products, poultry and cheese to package and preserve their products during wholesale and retail distribution. Viskase also manufactures thin-gauge plastic films used for industrial packaging. This film is sold under the brand name CLEAR-LOC(R). The production of specialty plastic bags involves four principal steps: (i) plastic resin pellets are melted and extruded into a tubular film; (ii) the tube is "bi-oriented" whereby it is stretched along its length and width to enhance the heat-shrink characteristics of the final product; (iii) the tube is irradiated to improve its strength and sealability characteristics; and (iv) the tube is processed through a bag machine to form individual bags. Specialty plastic films are divided into two types: single layer and multilayer. Single layer specialty plastic films are used primarily to protect fresh and frozen whole turkeys and chickens from moisture loss and handling damage. Multilayer specialty plastic films, referred to in the food industry as "barrier films," are made of layers of co-extruded films, each of which contributes a specific product characteristic. For example, individual layers can provide mechanical strength, puncture resistance or can reduce the transmission of moisture, gases or ultraviolet light and can protect bagged products, such as fresh meats, from weight loss and spoilage. As part of its service orientation, Viskase also provides graphic art and design services to its customers. Viskase's ability to print designs, illustrations and text in up to eight colors directly on the bags and films further enhances the appeal of its customers' products. Oriented Polypropylene Film Products Viskase converts oriented polypropylene (OPP) films for use in packaging bakery goods. These films are sold under the brand name CRUSTPAK(R). International Operations Viskase has six manufacturing facilities located outside the continental United States, in Beauvais, France; Thaon, France; Lindsay, Ontario, Canada; Newton Aycliffe, England; Swansea, Wales; and Guarulhos, Brazil. The aggregate of domestic exports and net sales of foreign operations represents approximately 53% of Viskase's total net sales. International sales and operations may be subject to various risks including, but not limited to, possible unfavorable exchange rate fluctuations, political instability, governmental regulations (including import and export controls), restrictions on currency repatriation, embargoes, labor relations laws and the possibility of governmental expropriation. Viskase's foreign operations generally are subject to taxes on the repatriation of funds. International operations in certain parts of the world may be subject to international balance of payments difficulties that may raise the possibility of delay or loss in the collection of accounts receivable from sales to customers in those countries. Viskase believes its allowance for doubtful accounts makes adequate provision for the collectibility of receivables. Management believes that growth potential exists for many of Viskase's products outside the United States and that Viskase is well positioned to participate in these markets. While overall consumption of processed meat products in North America and Western Europe is stable, there is a potential for market growth in Eastern Europe, Latin America and Southeast Asia. Flexible packaging is growing due to the movement towards product differentiation. Sales and Distribution Viskase has a broad base of customers, with no single customer accounting for more than 9% of sales. Viskase sells its products in virtually every country in the world. In the United States, Viskase has a staff of technical sales teams responsible for sales to fresh meat, processed meat and poultry producers. Approximately 75 distributors market Viskase products to customers in Europe, Africa, Middle East Asia, and Latin America. Its products are marketed through its own subsidiaries in the United Kingdom, Germany, France, Italy, Brazil, Chile, Canada and Poland. At the end of the years 1999 and 1998, Viskase had backlog orders of $53 million and $38 million, respectively. Viskase maintains nine service and distribution centers worldwide. The service centers perform limited product finishing and provide sales, customer service, warehousing and distribution. Distribution centers provide only warehousing and distribution. In the United States, Viskase operates distribution centers in Chicago, Illinois and Bensalem, Pennsylvania; as well as a center within the Pauls Valley, Oklahoma, plant. In Latin America, Viskase operates a service center within the Guarulhos, Brazil plant and a distribution center in Santiago, Chile. In Europe, Viskase operates service centers in Caronno, Italy and Pulheim, Germany and distribution centers in Dublin, Ireland and Warsaw, Poland. Competition Viskase is one of the world's leading producers of cellulosic casings and is a major producer of specialty plastic films. Viskase seeks to maintain a competitive advantage by manufacturing products having outstanding quality and superior performance characteristics over competitive products, by responding quickly to customer product requirements, by providing customers with assistance in production or formulation problems, by producing niche products to fill individual customer requirements, and by providing technical support services to its customers. From time to time, Viskase experiences reduced market share or reduced profits due to price competition. Viskase's principal competitors in cellulosic casings are Devro PLC, located in Scotland with plants in the United States and Belgium; Viscofan, S.A., located in Spain, Germany, Brazil, Czech Republic and the United States and Alfacel, located in Spain. Some of the other important competitors in the cellulosic casings industry are Kalle Nalo GmbH, located in Germany; Wolff Walsrode AG, a wholly owned subsidiary of Bayer AG, located in Germany; Oy Visko AB located in Finland; KoSa, located in Mexico and two Japanese manufacturers, Fujimori and Toho. In the specialty films area, the largest producer of heat shrinkable bags is the Cryovac Division of Sealed Air Corporation. Cryovac developed heat shrinkable films and a vacuumizing process for applying them in the early 1960's. Cryovac sells its bags worldwide to all segments of the food industry, including meat and poultry producers. Pechiney Plastic Packaging is another competitor in the specialty films area. Management believes that Viskase is in the number two position worldwide in the sale of heat shrinkable bags. Viskase's primary competitors include several major corporations that are larger and better capitalized than Viskase. Research and Development; Customer Support Viskase's continuing emphasis on research and development is central to its ability to maintain industry leadership. In particular, Viskase focuses on the development of new products that increase customers' operating efficiencies, reduce their operating costs and expand their markets. Viskase's projects include development of new processes and products to improve its manufacturing efficiencies. Viskase's research scientists, engineers and technicians are engaged in continuing product and equipment development and also provide direct technical and educational support to its customers. Viskase believes it has achieved and maintained its position as a leading producer of cellulosic casings and as a major worldwide producer of specialty films for packaging meats through significant expenditures on research and development. The Company expects to continue its research and development efforts. The commercialization of certain of these product and process applications and related capital expenditures to achieve commercialization may require substantial financial commitments in future periods. Should these activities be curtailed or if capital resources are not available to develop its projects, Viskase's ability to maintain its present market share could be materially impaired. Research and development costs from continuing operations are expensed as incurred and totaled $7,799 thousand, $7,375 thousand and $6,907 thousand for 1999, 1998 and 1997, respectively. Viskase founded its Food Science and Quality Institute (Institute) in 1941 to assist the meat and poultry industry in the development of new food items and more efficient production and packaging methods using Viskase products. The Institute's staff works closely with Viskase's sales and marketing professionals to provide responsible, high-quality technical service to, and in support of, Viskase customers. The Institute is able to reproduce customers' products and processes in order to help customers solve their problems and experiment with new foods and production techniques. The Institute conducts Meat Science Seminars that are attended by Viskase customers and production, research and quality assurance personnel, as well as food scientists from leading academic institutions. NUCEL(R) Technology In May 1997, Viskase announced a technological breakthrough in the production process of viscose for the manufacture of cellulosic casings using NUCEL(R) technology. Engineers at Viskase have adapted this NUCEL(R) technology for its use in the manufacture of cellulosic casings for food production. Viskase has determined that this technology is commercially viable and constructed a full-scale production line which will begin commercial production in 2000. Management believes that a sizable capital investment will be required to fully commercialize the NUCEL(R) technology. Seasonality Historically, domestic sales and profits of Viskase have been seasonal in nature, increasing in the spring and summer months due to casings and again near the year-end holiday season due to processed meat specialty films. Sales of specialty films to the fresh meat industry and sales outside of the United States follow a relatively stable pattern throughout the year. Raw Materials Raw materials used by Viskase include cellulose (from wood pulp), fibrous paper, petroleum-based resins, plasticizers and various other chemicals. Viskase generally purchases its raw materials from a single source or small number of suppliers with whom it maintains good relations. Certain primary and alternative sources of supply are located outside the United States. Viskase believes, but there can be no assurance, that adequate alternative sources of supply currently exist for all of Viskase's raw materials or raw material substitutes that Viskase could modify its processes to utilize. Employees The Company generally maintains productive and amicable relationships with its 2,940 employees worldwide. One of Viskase's domestic plants, located in Loudon, Tennessee, is unionized, and its Canadian and European plants have unions. From time to time union organization efforts have occurred at other individual plant locations. Unions represent a total of approximately 750 of Viskase's 2,940 employees. Trademarks and Patents Viskase holds patents on many of its major technologies, including those used in its manufacturing processes and the technology embodied in products sold to its customers. Because it believes its ongoing market leadership depends heavily upon its technology, Viskase vigorously protects and defends its patents against infringement by competitors on an international basis. As part of its research and development program, Viskase has developed and expects to continue to develop new proprietary technology and has licensed proprietary technology from third parties. Management believes these activities will enable Viskase to maintain its com- petitive position. Viskase also owns numerous trademarks and registered tradenames that are used actively in marketing its products. Viskase periodically licenses its process and product patents to competitors on a royalty basis. Environmental Regulations In manufacturing its products, the Company employs certain hazardous chemicals and generates toxic and hazardous wastes. The use of these chemicals and the disposal of such waste are subject to stringent regulation by several governmental entities, including the United States Environmental Protection Agency (USEPA) and similar state, local and foreign environmental control entities. The Company is subject to various environmental, health and safety laws, rules and regulations including those of the United States Occupational Safety and Health Administration and USEPA. These laws, rules and regulations are subject to amendment and to future changes in public policy or interpretation, which may affect the operations of the Company. The Company uses its best reasonable efforts to comply with promulgated laws, rules and regulations and participates in the rulemaking process. Certain of the Company's facilities are or may become potentially responsible parties with respect to other off-site waste disposal facilities. As noted above, new environmental and health and safety laws can impose significant compliance costs, including forthcoming rules. Under the Clean Air Act Amendments of 1990, various industries, including casings manufacturers, will be required to meet air emissions standards for certain chemicals based on use of the "maximum achievable control technology" (MACT). MACT standards for casings manufacturers have not yet been proposed or promulgated; therefore, at this time no estimate of the cost of complying with MACT standards can be made. Such rules, however, will likely impose similar costs on all casings manufacturers in the United States. Under the Resource Conservation and Recovery Act (RCRA), regulations have been proposed that, in the future, may impose design and/or operating requirements on the use of surface impoundments of wastewater. Two of Viskase's plants use surface impoundments. The Company does not foresee these regulations being imposed for several years. Various state, local and foreign governments have enacted or are considering enacting laws, rules or regulations concerning the disposal of plastic products. While such legislative action has had a minor effect on certain product sales and may have further effect in the future, the Company is not aware of any existing legislative action that it currently expects to have a material adverse effect on the Company. (d) Financial information about foreign and domestic operations ----------------------------------------------------------- and export sales ---------------- Reference is made to Part IV, Item 14, Note 23 of Notes to Consolidated Financial Statements. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names and ages of the Company's executive officers, together with the positions with the Company held by such executive officers, and a summary of their recent business experience. Under the Company's Amended and Restated By- Laws, the Company's officers are elected for such terms as may be determined from time to time by the Board of Directors. Emerald Acquisition Corporation (Emerald), the sole stockholder of Viskase Companies, Inc. prior to Viskase Companies, Inc.'s emergence from bankruptcy in 1993, filed a petition under Chapter 11 of the Bankruptcy Code on August 20, 1993. In March 1998, the bankruptcy petition was dismissed by the Bankruptcy Court. In addition to the positions with Viskase Companies, Inc. held by the persons specified below for the periods indicated, Mr. Gustafson has served as executive officer of Emerald since May 1989.
Name, Age and Office Business Experience ------------------------ --------------------------------------------------------------- F. Edward Gustafson, 58 Mr. Gustafson has been Chairman of the Board, President and Chairman of the Board, Chief Executive Officer of the Company since March 1996 and a President and Chief director of the Company since December 1993. Mr. Gustafson has Executive Officer been President and Chief Executive Officer of Viskase since June 1998, and previously from February 1990 to August 1994. From May 1989 to March 1996 Mr. Gustafson served as Executive Vice President and Chief Operating Officer of the Company. Mr. Gustafson has also served as Executive Vice President and Chief Operating Officer of D.P. Kelly and Associates, L.P. (DPK) since November 1988. Gordon S. Donovan, 46 Mr. Donovan has been Chief Financial Officer of the Company Vice President, Chief since January 1997 and Vice President and Chief Financial Financial Officer, Officer of Viskase since June 1998. Mr. Donovan has served as Treasurer and Treasurer and Assistant Secretary of the Company since November Assistant Secretary 1989 and as Vice President since May 1995. Kimberly K. Duttlinger, 36 Ms. Duttlinger has been Vice President, Secretary and General Vice President, Secretary Counsel of the Company since April 2000. From August 1998 and General Counsel through April 2000, Ms. Duttlinger served as Associate General Counsel of the Company. From May 1997 to August 1998, Ms. Duttlinger served as Corporate Counsel of the Company. From May 1993 to August 1996, Ms. Duttlinger served as Corporate Counsel to Alberto-Culver Company, a manufacturer and distributor of personal care and household products.
ITEM 2. PROPERTIES -----------
VISKASE FACILITIES LOCATION SQUARE FEET PRIMARY USE --------------------------- --------------- ---------------------------------- Manufacturing Facilities Beauvais, France (a) 235,000 Casings production and finishing Centerville, Iowa 223,000 Specialty films production and finishing Guarulhos, Brazil 81,000 Specialty films production and casings finishing Kentland, Indiana 125,000 Casings finishing Lindsay, Ontario, Canada 166,000 Specialty films finishing Loudon, Tennessee 250,000 Casings production Osceola, Arkansas 223,000 Casings production Pauls Valley, Oklahoma 110,000 Casings finishing, specialty films production and finishing Newton Aycliffe, England (a) 30,000 OPP conversion - films Swansea, Wales 275,000 Specialty films production and finishing Thaon, France 239,000 Casings production and finishing Distribution Centers - Domestic Bensalem, Pennsylvania Chicago, Illinois Pauls Valley, Oklahoma Service Centers - Foreign Guarulhos, Brazil Pulheim, Germany (a) Milan, Italy Distribution Centers - Foreign Santiago, Chile (a) Dublin, Ireland Warsaw, Poland (a) Headquarters Worldwide: Chicago, Illinois Europe: Paris, France (a) --------------------------------- (a) Leased. All other properties are owned.
The Company believes that its properties generally are suitable and adequate to satisfy the Company's present and anticipated needs. The Company's United States real property collateralizes the Company's obligations under various financing arrangements. For a discussion of these financing arrangements, refer to Part IV, Item 14, Note 8 of Notes to Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS ------------------ In late 1993, Viskase commenced a legal action against American National Can Company (ANC) in Federal District Court for the Northern District of Illinois, Eastern Division, 93C7651. Viskase claimed that ANC's use of two different very low density polyethylene plastic resins in the manufacture of ANC's multi-layer barrier shrink film products was infringing various Viskase patents relating to multi-layer barrier plastic films used for fresh red meat, processed meat and poultry product applications. In November 1996, after a three-week trial, a jury found that ANC had willfully infringed Viskase's patents and awarded Viskase $102.4 million in compensatory damages. The Court also entered an order permanently enjoining ANC from making or selling infringing products. In September 1997, the Court set aside the jury verdict in part and ordered a retrial on certain issues. The Court upheld the jury finding on the validity of all of Viskase's patents and the jury finding that ANC had willfully infringed Viskase's patents by ANC's use of Dow Chemical Company's "Attane" brand polyethylene plastic resin in ANC's products. However, the Court ordered a new trial on the issue of whether ANC's use of Dow Chemical Company's "Affinity" brand polyethylene plastic resin infringed Viskase's patents and whether such conduct was willful. Because the jury rendered one general damage verdict, the Court ordered a retrial of all damage issues. By operation of the Court's order, the injunction in respect of ANC's future use of the "Affinity" brand resin was removed. On August 19, 1998, the Court granted Viskase's motion for partial summary judgment finding that ANC's use of the "Affinity" brand resin infringed Viskase's patents. The Court also reinstated the permanent injunction. Viskase filed a motion to have the jury verdict as to compensatory damages reinstated. ANC filed a motion to dismiss the lawsuit claiming that Viskase's patents are invalid and Viskase failed to join an indispensable party to the lawsuit. On May 10, 1999, the Court granted Viskase's motion to have the jury verdict as to the compensatory damages reinstated. In May and June 1999, the parties briefed the issue of enhanced damages and on July 2, 1999, the Court awarded Viskase total damages of $164.9 million. ANC filed a motion for reconsideration which was denied. On May 3, 1999, ANC commenced legal action in the Federal District Court for the Northern District of Illinois seeking declaratory relief that one of the litigated patents is invalid. ANC also filed a motion to consolidate the declaratory action with the 1993 suit. ANC's motion to consolidate was granted and then the Court dismissed ANC's suit with prejudice at the same time the Court awarded Viskase total damages of $164.9 million. ANC has filed a notice of appeal to the United States Court of Appeals for the Federal Circuit. Oral arguments before the United States Circuit of Appeals for the Federal Circuit were held on June 6, 2000 and Viskase expects a decision during fourth quarter of 2000 or first quarter of 2001. In addition, ANC has challenged two of the five Viskase patents in suit by filing requests for reexamination with the United States Patent and Trademark office (USPTO). Both patents under reexamination have been rejected by the USPTO. In both cases, Viskase has filed appeals to the Board of Patent Appeals and Interferences of the USPTO. For the first patent, Viskase's brief was filed July 13, 2000, and the Examiner's Answer is awaited. For the second patent, Viskase's brief is due October 23, 2000. On January 14, 2000, Pechiney Plastic Packaging, Inc. and Pechiney Emballage Flexible Europe, Inc. (successors in interest in ANC) filed suit against the Company and Viskase in the United States District Court for the Northern District of Illinois, Eastern Division. This suit alleges infringement of U.S. Reissue Patent No. 35,567, which patent is set to expire on April 26, 2002, and further alleges patent interference with one of the five Viskase patents litigated in Viskase's legal action against ANC. In May 2000, the District Court dismissed the patent interference count. Pechiney filed an Amended Complaint on June 30, 2000 seeking to reinstate the dismissed count (Count III). On July 25, 2000, Viskase filed a Motion to Dismiss Count III of the Amended Complaint and also filed a Motion for Sanctions related thereto. On August 9, 2000, Viskase filed a Supplemental Motion for Sanctions. On August 24, 2000, Pechiney responded to these motions and Viskase filed its reply on September 14, 2000. Rulings on these motions are presently set for October 13, 2000. Viskase's Answer to the Amended Complaint is presently due October 23, 2000. No part of the pending claims has been recorded in the Company's finan- cial statements. Through December 31, 1999, $4.9 million in patent defense costs had been accrued and capitalized. In March 1997, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the sausage casings industry. In September 1999, Viskase Corporation received a subpoena from the Antitrust Division of the United States Department of Justice relating to the expansion of the grand jury investigation into the specialty films industry. Viskase is cooperating fully with the investigations. In November 1999, the Company and certain of its subsidiaries and one other sausage casings manufacturer were named in a civil complaint, Leon's Sausage Company, on behalf of itself and all others similarly -------------------------------------------------------------------- situated v. Viskase Companies, Inc., Envirodyne Industries, Inc., ----------------------------------------------------------------- Viskase Corporation, Devro-Teepak, Inc., Civil Action No. 99C7200, --------------------------------------- United States District Court for the Northern District of Illinois, Eastern Division. This complaint alleged that the defendants unlawfully conspired to fix prices and allocate business in the sausage casings industry. In December 1999, the plaintiff in this action voluntarily dismissed the complaint without prejudice. In late 1999 and early 2000, the Company and certain of its subsidiaries and one other sausage manufacturer were named in ten virtually identical civil complaints filed in the District of New Jersey by the following plaintiffs: Smith Provision Co., Inc.; Parks LLC (d/b/a Parks Sausage Company); Real Kosher Sausage Company, Inc.; Sahlen Packing Co., Inc.; Marathon Enterprises, Inc.; Ventures East, Inc.; Keniston's, Inc.; Smithfield Foods, Inc.; Clougherty Packing Co.; and Klement Sausage Co. The District Circuit ordered all of these cases consolidated in the District of New Jersey. Civil Action No. 99-5195-MLC (D.N.J.). Each complaint brought on behalf of a purported class of sausage casings customers alleges that the defendants unlawfully conspired to fix prices and allocate business in the sausage casings industry. The Company and its subsidiaries have filed answers to each of these complaints denying liability. The Company and its subsidiaries are involved in various legal proceedings arising out of their business and other environmental matters, none of which is expected to have a material adverse effect upon results of operations, cash flows or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- Not applicable. PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER ------------------------------------------------------------- MATTERS ------- (a) Market Information. Viskase Companies, Inc.'s Common Stock is ------------------ traded in the over-the-counter market. The high and low closing bid prices of the Common Stock during 1999 and 1998 are set forth in the following table. Such prices reflect interdealer prices without markup, markdown or commissions and may not represent actual transactions. 1999 First Quarter Second Quarter Third Quarter Fourth Quarter ------ ------------- -------------- ------------- -------------- High $4.25 $4.94 $4.75 $3.37 Low 3.31 2.88 2.62 1.50 1998 First Quarter Second Quarter Third Quarter Fourth Quarter High $8.75 $8.72 $6.75 $4.50 Low 6.68 6.50 3.56 2.88 (b) Holders. As of March 30, 2000, there were approximately 107 holders ------- of record and an approximate 1,300 beneficial holders of Viskase Companies, Inc.'s Common Stock. (c) Dividends. Viskase Companies, Inc. has never paid a cash dividend --------- on shares of its Common Stock. The payment of dividends is restricted by the terms of various financing agreements to which the Company is a party. The Company has no present intention of paying dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA -----------------------
53/52 week ending ------------------------------------------------------------- December December December December 1999 31, 1998 (1) 25, 1997 (1) 26, 1996 (1) 28, 1995 ---------- ------------ ------------ ------------- ------------ (in thousands, except for per share amounts) Net sales $385,653 $409,169 $498,333 $534,420 $650,212 Net (loss) from continuing operations (31,758) (181,673) (10,362) (14,580) Net income from discontinued operations 413 717 898 Gain on sales of discontinued operations 39,057 (Loss) before extraordinary item (2) (31,758) (142,203) (9,645) (13,682) (17,323) Net (loss) (3) (31,758) (148,996) (9,645) (13,682) (21,519) Per share net (loss) from continuing operations - basic and diluted (2.12) (12.25) (.71) (1.02) Per share net income from discontinued operations - basic and diluted .03 .05 .06 Gain on sales from discontinued operations 2.63 Per share (loss) before extraordinary item - basic and diluted Earnings per share (2) (2.12) (9.59) (.66) (.96) (1.28) Per share net (loss) - basic and diluted Earnings per share (3) (2.12) (10.05) (.66) (.96) (1.59) Cash and equivalents 6,243 9,028 24,407 41,794 30,325 Working capital 34,480 41,725 85,815 97,382 121,725 Total assets 493,818 531,069 813,853 873,747 899,567 Debt obligations: Short-term debt (4) 23,095 16,120 12,880 11,291 12,504 Long-term debt 404,151 388,880 511,183 521,179 530,181 Stockholders' (deficit) equity (89,442) (55,907) 90,920 103,645 117,096 Cash dividends none none none none none (1) Fiscal 1998, 1997, and 1996 net sales and net loss from continuing operations exclude the results of Sandusky and Clear Shield, which were sold in 1998. Fiscal 1995 has not been restated. (2) Includes $150,069 in unusual charges in 1998 and $3,500 in unusual charges in 1997. (3) Includes an extraordinary loss on debt extinguishment in 1998 and 1995. (4) Includes current portion of long-term debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- Results of Operations --------------------- The Company's 1999 net sales from continuing operations were $385.7 million, which represented a 5.7% decrease from the prior year's net sales from continuing operations of $409.2 million. The decline in net sales reflects the continuing effect of competitive selling prices in the worldwide casings industry partially offset by volume gains. Additionally, the decline in net sales reflects the translation effect of the strengthening U.S. dollar against the French franc and Brazilian real. Brazilian sales increased over the prior year due to significant volume gains in both the casing and plastic film segments. The Company's 1998 net sales from continuing operations were $409.2 million, which represented a 17.9% decrease from the prior year's net sales from continuing operations of $498.3 million. After excluding the sales of both the oriented polystyrene (OPS) business (which was sold in January 1997) and the polyvinyl chloride (PVC) business (which was sold in December 1997) of $48.8 million, the effective decrease was 9.0%. The decline in net sales is principally due to reduced worldwide casing volume brought by intense price competition and to the adverse economic conditions in the Russian and Southeast Asian markets. On June 8, 1998, the Company's Board of Directors approved the sale of two of the Company's subsidiaries, Clear Shield and Sandusky. Accordingly, the operating results of the two subsidiaries have been segregated from continuing operations and reported as a separate line item on the income statement under the heading Discontinued Operations. The Company has restated its prior financial statements to present the operating results as Discontinued Operations. The sales of Sandusky and Clear Shield were completed on June 11, 1998 and July 23, 1998, respectively. A $39.1 million combined gain, net of taxes, was recognized on these sales. Viscofan, S.A., a Spanish small-diameter casing producer, entered the United States market in November 1994. The Company and its domestic competitors have experienced significant pricing pressures and volume losses to Viscofan. Management believes that Viskase will continue to experience casing pricing pressures from its competitors. Viskase's management is aware of other smaller competitors that from time to time attempt to enter the casing market. Although the Company does not expect to experience signifi- cant volume loss to these competitors, management believes that additional pricing pressures will result. Operating income from continuing operations for 1999 of $16.4 million showed a significant improvement over 1998 operating income of $5.4 million after exclusion of the 1998 unusual charges of $150.1 million. Operating income benefitted from an increase of barrier shrink bag sales volume, the effect of cost cutting efforts undertaken during the fourth quarter of 1998 to reduce selling and administrative expenses of $13.1 million, and reduced amortization of $6.7 million. Savings in operating expenses were partially offset by the reduction in gross margin due to competitive selling prices in the worldwide casings industry. Operating loss from continuing operations for 1998 was $144.6 million. The operating loss resulted primarily from a third quarter unusual charge comprised of a $91.2 million excess reorganization impairment and a $57.4 million unusual charge due to the previously announced restructuring of Viskase's worldwide operations, neither of which had a significant effect on cash flow. The impairment and unusual charges were the result of business conditions leading to the Viskase plan of restructuring. Net interest expense from continuing operations for 1999 totaled $44.0 million, which represented a decrease of $5.8 million from 1998. The decrease is primarily due to interest savings from the August 1998 redemption of $105 million of the 12% Senior Secured Notes. Other expense from continuing operations of approximately $7.2 million and $1.2 million in 1999 and 1998, respectively, consists principally of foreign exchange losses. The extraordinary loss in 1998 of $6.8 million, net of a tax benefit of $4.3 million, represents the loss on the early extinguishment of $105 million of the 12% Senior Secured Notes. The extraordinary loss before taxes is comprised of a $8.9 million prepayment penalty and a $2.1 million write-off of the unamortized portion of financing fees attributable to the debt that was redeemed. The Company uses foreign exchange forward contracts to hedge some of its non-functional currency receivables and payables which are denominated in major currencies that can be traded on open markets. This strategy is used to reduce the overall exposure to the effects of currency fluctuations on cash flows. The Company's policy is not to speculate in financial instruments. There were no foreign currency contracts at year end. Receivables and payables which are denominated in non-functional currencies are translated to the functional currency at month end and the resulting gain or loss is taken to other income (expense) on the income statement. Gains and losses on hedges of receivables and payables are marked to market. The result is recognized in other net expense on the income statement. The 1999, 1998, and 1997 tax benefits from continuing operations consisted of the benefits of U.S. losses partially offset by the provision related to operations of foreign subsidiaries. A benefit of $3.1 million, $14.0 million, and $23.7 million, respectively, was provided on loss from continuing operations before income taxes of $34.8 million, $195.7 million, and $34.0 million, respectively, for 1999, 1998, and 1997. The Company's effective tax rate from continuing operations reflects the permanent differences in the U.S. resulting from non-deductible amortization, foreign losses for which no tax benefit is provided, and changes in the valuation allowance. The increase in the valuation allowance has affected the rate for the year. The U.S. benefit for income taxes from continuing operations is recorded as a reduction of the deferred tax liability and does not result in a refund of income taxes. The tax provision for income from operations discontinued in 1998 and 1997 was $0.6 million and $1.4 million, respectively. The tax provision with respect to the gain from the sale of operations discontinued in 1998 was $19.6 million. In addition, an extraordinary loss in 1998 provided an income tax benefit of $4.3 million. The total income tax provision (benefit) was $1.8 million and $(22.3) million, respectively, in 1998 and 1997. Domestic cash income taxes paid in 1999, 1998, and 1997 were $.01 million, $2.2 million, and $0.4 million, respectively. Foreign cash income taxes paid during the same periods were $3.5 million, $2.3 million, and $4.9 million, respectively. Discontinued Operations ----------------------- On January 17, 2000, the Company's Board of Directors announced its intent to sell the plastic barrier and non-barrier shrink film business. The business being sold includes production facilities in the United States, United Kingdom, and Brazil. The sale of the films business was completed on August 31, 2000. The aggregate purchase price of $245 million will be used principally to retire debt, including the Senior Secured Credit Facility and Junior Term Loans, pay GECC $47.0 million per the amended amortization schedule, and for general corporate purposes. The Company expects an approximate net gain on the sale in the amount of $52 million. The gain will be recorded in the third quarter 2000 results. In conjunction with the sale of the films business, the Company will shut down its oriented polypropylene (OPP) films business located in Newton Aycliffe, England and the films operation in Canada; the costs of this are included in the business discontinuance. Liquidity and Capital Resources ------------------------------- Cash and equivalents decreased by $2.8 million during the year ended December 31, 1999. Funds used in investing activities of $27.3 million exceeded funds provided by operating activities of $7.4 million and financing activities of $17.8 million. Cash flows provided by operating activities were principally attributable to the Company's loss from operations offset by the effect of depreciation, amortization, and a decrease in working capital usage. Cash flows used in investing activities consist principally of capital expenditures for property, plant and equipment. Cash flows provided by financing activities were principally due to the Company's June 1999 refinancing. The Company entered into a $100 million Senior Secured Credit Facility and secured $35 million of Junior Term Loans. The proceeds were used to redeem $55 million of its 12% Senior Secured Notes and the $30 million existing credit facility. In the first quarter of 1999, a $13 million principal repayment was made under the General Electric Capital Corporation (GECC) lease. During June 1999, Viskase Corporation and Viskase Sales Corporation entered into two-year secured credit agreements consisting of a $50 million senior revolving credit facility, including a $26 million sublimit for issuance of letters of credit (Senior Revolving Credit Facility), a $50 million senior term facility (Senior Term Facility), collectively the "Senior Secured Credit Facility," and a $35 million junior secured term loan (Junior Term Loan). The proceeds of the Senior Secured Credit Facility and the Junior Term Loan were used to repay the $55 million Senior Secured Notes outstanding and obligations outstanding under the Company's existing Revolving Credit Facility. The Senior Secured Credit Facility has a maturity date of June 30, 2001. The Company finances its working capital needs through a combination of internally generated cash from operations and borrowings under its $50 million Senior Revolving Credit Facility entered into in June 1999. The availability of funds under the Senior Revolving Credit Facility is subject to the Company's compliance with certain covenants, to borrowing base limitations measured by accounts receivable and inventory of the Company and to reserves that may be established in the discretion of the lenders. There is approximately $8.6 million outstanding under the Senior Revolving Credit Facility. The Company's Senior Secured Credit Facility contains a number of financial covenants that, among other things, require the maintenance of a minimum level of tangible net worth, a minimum fixed charge coverage leverage ratio of total liabilities to earnings before depreciation, interest, amortization, and taxes (EBDIAT) and a limitation on capital expenditures. The Company is in compliance with the covenants under the Company's Senior Secured Credit Facility and Junior Term Loans at December 31, 1999 and March 31, 2000. As of June 30, 2000, the Company received an amendment and waiver under the Company's Senior Secured Credit Facility and Junior Term Loans. The Company determined that, as of June 30, 2000, without the amendment and waiver, it would not have been in compliance with the tangible net worth and leverage ratio covenants. The sales of Sandusky and Clear Shield were completed on June 11, 1998 and July 23, 1998, respectively. The aggregate purchase price was $163.8 million. A $39.1 million combined gain, net of taxes, was recognized on these sales. Concurrent with the Clear Shield divestiture, the Company mailed a notice of redemption to holders of its 12% Senior Secured Notes to redeem $105 million of aggregate principal amount of the $160 million outstanding together with accrued interest payable and yield maintenance premium thereon. The notes were redeemed on August 24, 1998 at a price of 108.5%. The Company used $116.3 million of the proceeds for the redemption of the 12% Senior Secured Notes. In addition, the remainder of the proceeds, after deducting taxes and transaction expenses, were used to repay balances outstanding under the Company's Revolving Credit Facility. The Company anticipates that its current cash position, its operating cash flows and the availability under its credit agreement will be sufficient to meet its operating expenses and current debt service requirements. The Company's 10.25% Notes, of which $219.3 million principal amount is outstanding, will mature in December 2001. The Company anticipates it will refinance the 10.25% Notes or seek alternative strategies including, but not limited to, using proceeds from asset sales, litigation, or selling additional equity capital. Capital expenditures for continuing operations for fiscals 1999 and 1998 totaled $27.9 million and $35.4 million, respectively. Capital expenditures for discontinued operations for fiscal 1998 totaled $9.0 million. Significant 1999 and 1998 capital expenditures for continuing operations included a new information technology system at Viskase, costs associated with the Nucel(R) project, and additional production capacity for specialty films. Capital expenditures in fiscal 1998 for discontinued operations included the construction of Clear Shield's Twin Falls, Idaho facility. Capital expenditures are expected to approximate $13 million in 2000 and subsequent years for costs associated with casings, including Nucel(R). The Company has spent approximately $8.0 million annually on research and development programs, including product and process development, and on new technology development during each of the past three years. The 2000 research and development and product introduction expenses are expected to be in the $9.0 million range. Among the projects included in the current research and development efforts is the application of certain patents and technology licensed by Viskase to the manufacture of cellulosic casings under the Nucel(R) process. The commercialization of these applications and the related fixed asset expense associated with such commercialization may require substantial financial commitments in future periods. Year 2000 --------- In January 1996, the Company began a system conversion which incorporated Year 2000 (Y2K) readiness. Conversions by country were complete by December 1999. Significant Business Information Technology Systems The Company's significant business information technology (IT) system is run on servers and a wide-area network outsourced to IBM Global Services. IBM was certified Y2K compliant for all its system components. By September 30, 1999, all of the Company's personal computers, network server hardware and software had been checked for Y2K compatibility with the vendors. Of the equipment, 100% is compatible. The expenditures associated with this are approximately $100 thousand. The expenditures for the European implementation totaled approximately $5.1 million in fiscal 1998 and 1999. The Company has capitalized the costs necessary to upgrade its significant business systems. Internal Non-Information Technology (Non-IT) Systems The Non-IT systems consist primarily of PC-based manufacturing systems and process control units. These systems were tested and were compliant by September 30, 1999. The Company has estimated the cost of Y2K readiness to be approximately $.4 million for its non- financial systems. A contingency plan is in place. Y2K Compliance by Customers and Vendors Questionnaires were mailed to all material third party vendors in January 1999 to address Y2K readiness. Responses were received from most key suppliers and those failing to respond to the questionnaire were contacted. To date, no significant compliance issues have been uncovered. There have been no Y2K issues materially affecting the business subsequent to December 31, 1999. Other ------ In late 1993, Viskase commenced a legal action against American National Can Company (ANC) in Federal District Court for the Northern District of Illinois, Eastern Division, 93C7651. Viskase claimed that ANC's use of two different very low density polyethylene plastic resins in the manufacture of ANC's multi-layer barrier shrink film products was infringing various Viskase patents relating to multi-layer barrier plastic films used for fresh red meat, processed meat and poultry product applications. In November 1996, after a three-week trial, a jury found that ANC had willfully infringed Viskase's patents and awarded Viskase $102.4 million in compensatory damages. The Court also entered an order permanently enjoining ANC from making or selling infringing products. In September 1997, the Court set aside the jury verdict in part and ordered a retrial on certain issues. The Court upheld the jury finding on the validity of all of Viskase's patents and the jury finding that ANC had willfully infringed Viskase's patents by ANC's use of Dow Chemical Company's "Attane" brand polyethylene plastic resin in ANC's products. However, the Court ordered a new trial on the issue of whether ANC's use of Dow Chemical Company's "Affinity" brand polyethylene plastic resin infringed Viskase's patents and whether such conduct was willful. Because the jury rendered one general damage verdict, the Court ordered a retrial of all damage issues. By operation of the Court's order, the injunction in respect of ANC's future use of the "Affinity" brand resin was removed. On August 19, 1998, the Court granted Viskase's motion for partial summary judgment finding that ANC's use of the "Affinity" brand resin infringed Viskase's patents. The Court also reinstated the permanent injunction. Viskase filed a motion to have the jury verdict as to compensatory damages reinstated. ANC filed a motion to dismiss the lawsuit claiming that Viskase's patents are invalid and Viskase failed to join an indispensable party to the lawsuit. On May 10, 1999, the Court granted Viskase's motion to have the jury verdict as to the compensatory damages reinstated. In May and June 1999, the parties briefed the issue of enhanced damages and on July 2, 1999, the Court awarded Viskase total damages of $164.9 million. ANC filed a motion for reconsideration which was denied. On May 3, 1999, ANC commenced legal action in the Federal District Court for the Northern District of Illinois seeking declaratory relief that one of the litigated patents is invalid. ANC also filed a motion to consolidate the declaratory action with the 1993 suit. ANC's motion to consolidate was granted and then the Court dismissed ANC's suit with prejudice at the same time the Court awarded Viskase total damages of $164.9 million. ANC has filed a notice of appeal to the United States Court of Appeals for the Federal Circuit. Oral arguments before the United States Circuit of Appeals for the Federal Circuit were held on June 6, 2000 and Viskase expects a decision during fourth quarter of 2000 or first quarter of 2001. In addition, ANC has challenged two of the five Viskase patents in suit by filing requests for reexamination with the United States Patent and Trademark office (USPTO). Both patents under reexamination have been rejected by the USPTO. In both cases, Viskase has filed appeals to the Board of Patent Appeals and Interferences of the USPTO. For the first patent, Viskase's brief was filed July 13, 2000, and the Examiner's Answer is awaited. For the second patent, Viskase's brief is due October 23, 2000. On January 14, 2000, Pechiney Plastic Packaging, Inc. and Pechiney Emballage Flexible Europe, Inc. (successors in interest in ANC) filed suit against the Company and Viskase in the United States District Court for the Northern District of Illinois, Eastern Division. This suit alleges infringement of U.S. Reissue Patent No. 35,567, which patent is set to expire on April 26, 2002, and further alleges patent interference with one of the five Viskase patents litigated in Viskase's legal action against ANC. In May 2000, the District Court dismissed the patent interference count. Pechiney filed an Amended Complaint on June 30, 2000 seeking to reinstate the dismissed count (Count III). On July 25, 2000, Viskase filed a Motion to Dismiss Count III of the Amended Complaint and also filed a Motion for Sanctions related thereto. On August 9, 2000, Viskase filed a Supplemental Motion for Sanctions. On August 24, 2000, Pechiney responded to these motions and Viskase filed its reply on September 14, 2000. Rulings on these motions are presently set for October 13, 2000. Viskase's Answer to the Amended Complaint is presently due October 23, 2000. No part of the pending claims has been recorded in the Company's financial statements. Through December 31, 1999, $4.9 million in patent defense costs had been accrued and capitalized. In March 1997, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the sausage casings industry. In September 1999, Viskase Corporation received a subpoena from the Antitrust Division of the United States Department of Justice relating to the expansion of the grand jury investigation into the specialty films industry. Viskase is cooperating fully with the investigations. In November 1999, the Company and certain of its subsidiaries and one other sausage casings manufacturer were named in a civil complaint, Leon's Sausage Company, on behalf of itself and all --------------------------------------------------- others similarly situated v. Viskase Companies, Inc., Envirodyne ---------------------------------------------------------------- Industries, Inc., Viskase Corporation, Devro-Teepak, Inc., Civil --------------------------------------------------------- Action No. 99C7200, United States District Court for the Northern District of Illinois, Eastern Division. This complaint alleged that the defendants unlawfully conspired to fix prices and allocate business in the sausage casings industry. In December 1999, the plaintiff in this action voluntarily dismissed the complaint without prejudice. In late 1999 and early 2000, the Company and certain of its subsidiaries and one other sausage manufacturer were named in ten virtually identical civil complaints filed in the District of New Jersey by the following plaintiffs: Smith Provision Co., Inc.; Parks LLC (d/b/a Parks Sausage Company); Real Kosher Sausage Company, Inc.; Sahlen Packing Co., Inc.; Marathon Enterprises, Inc.; Ventures East, Inc.; Keniston's, Inc.; Smithfield Foods, Inc.; Clougherty Packing Co.; and Klement Sausage Co. The District Circuit ordered all of these cases consolidated in the District of New Jersey. Civil Action No. 99-5195-MLC (D.N.J.). Each complaint brought on behalf of a purported class of sausage casings customers alleges that the defendants unlawfully conspired to fix prices and allocate business in the sausage casings industry. The Company and its subsidiaries have filed answers to each of these complaints denying liability. The Company and its subsidiaries are involved in various legal proceedings arising out of their business and other environmental matters, none of which is expected to have a material adverse effect upon results of operations, cash flows or financial position. Forward-looking Statements -------------------------- Forward-looking statements in this report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results and Company plans and objectives to differ materially from those projected. Such risks and uncertainties include, but are not limited to, general business and economic conditions; competitive pricing pressures for the Company's products; changes in other costs; and opportunities that may be presented to and pursued by the Company; determinations by regulatory and governmental authorities; and the ability to achieve synergistic and other cost reductions and efficiencies. ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The Company is exposed to certain market risks related to foreign currency exchange rates. In order to manage the risk associated with this exposure to such fluctuations, the Company uses derivative financial instruments. The Company does not enter into derivatives for trading purposes. The Company also prepared sensitivity analyses to determine the impact of a hypothetical 10% devaluation of the U.S. dollar relative to the European receivables and payables denominated in U.S. dollars. Based on its sensitivity analyses at December 31, 1999, a 10% devaluation of the U.S. dollar would affect the Company's annual consolidated operating results, financial position and cash flows by approximately $0.2 million. The Company uses foreign exchange forward contracts to manage the risk associated with its exposure to foreign currency exchange rate fluctuations. At December 31, 1999, there were no foreign exchange forward contracts outstanding. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- Financial statements and supplementary financial information meeting the requirements of Regulation S-X are listed in the index to financial statements and schedules, as included under Part IV, Item 14 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ------------------------------------------------ ACCOUNTING AND FINANCIAL DISCLOSURE ----------------------------------- There were no disagreements on accounting and financial disclosure required to be disclosed under this Item. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Directors and Officers. The directors of the Company, their ages, ---------------------- principal occupations and certain other information with respect to the directors are provided below. Name Age Principal Occupation -------------------- ---- ------------------------------------- Robert N. Dangremond 57 Mr. Dangremond has been a managing principal with Jay Alix & Associates, a consulting and accounting firm specializing in corporate restructurings and turnaround activities, since August 1989. From June 1998 to December 31, 1999, Mr. Dangremond served as Restructuring Officer of Zenith Electronics Corporation, a manufacturer of televisions ("Zenith"). From December 1997 to June 1998, Mr. Dangremond held the position of Chief Financial Officer of Zenith. Previously, Mr. Dangremond held the positions of interim Chief Executive Officer and President of Forstmann & Company, Inc. ("Forstmann"), a producer of clothing fabrics. Mr. Dangremond is also a director of Multigraphics, Inc. (formerly AM International, Inc.), a provider of graphics arts and services. Mr. Dangremond has served as a director of the Company since 1993. Mr. Dangremond's appointments at Zenith, Forstmann and Multigraphics, all of which successfully confirmed plans of reorganization under Chapter 11 of the United States Bankruptcy Code, were made in connection with turnaround consulting services provided by Jay Alix & Associates. Avram A. Glazer 39 Mr. Glazer has served as the President and Chief Executive Officer of Zapata Corporation since March 1995. From 1985 to 1995, Mr. Glazer served as Vice President of First Allied Corporation ("First Allied"), an investment company. He is a director of Zapata Corporation and Specialty Equipment Companies, Inc. ("Specialty"), a food services equipment manufacturer. He is also a director and Chairman of the Board of Omega Protein Corp., a marine protein company. Avram A. Glazer is the son of Malcolm I. Glazer. Mr. Glazer has served as a director of the Company since 1998. Malcolm I. Glazer 72 Mr. Glazer has been a self-employed private investor, whose diversified portfolio consists of investments in television broadcasting, restaurant equipment, food services equipment, health care, banking, real estate, stocks, government securities and corporate bonds, for more than the past five (5) years. He is also the owner of the Tampa Bay Buccaneers, a National Football League franchise. Mr. Glazer has been President and Chief Executive Officer of First Allied since 1984. He is the Chairman of the Board of Directors of Zapata Corporation. He is also a director of Specialty. Malcolm I. Glazer is the father of Avram A. Glazer. Mr. Glazer has served as a director of the Company since 1998. F. Edward Gustafson 58 Mr. Gustafson has been Chairman of the Board, President and Chief Executive Officer of the Company since March 1996 and a director of the Company since 1993. Mr. Gustafson has also been the President and Chief Executive Officer of Viskase Corporation, a wholly owned subsidiary of the Company, since June 1998. Mr. Gustafson was Executive Vice President and Chief Operating Officer of the Company from May 1989 to March 1996 and President of Viskase Corporation from February 1990 to August 1994. Mr. Gustafson has also served as Executive Vice President and Chief Operating Officer of D.P. Kelly & Associates, L.P., a management services and private investment firm, since November 1988. Mr. Gustafson is Executive Vice President of Emerald Acquisition Corporation ("Emerald"), the former parent company of Viskase. On August 20, 1993, Emerald filed a petition under Chapter 11 of the United States Bankruptcy Code. In March 1998, the bankruptcy petition was dismissed by the Bankruptcy Court. Gregory R. Page 48 Mr. Page has been President and Chief Operating Officer of Cargill, Inc. (Cargill), a multinational trader and processor of foodstuffs and other commodities, since June 2000. From May 1998 to June 2000, Mr. Page served as Corporate Vice President and Section President of Cargill. From August 1995 to May 1998, Mr. Page served as President of the Red Meat Group of Cargill. Mr. Page has served as a director of the Company since 1993. For information regarding executive officers of the Company, see information set forth under "Executive Officers of the Registrant" in Part I of this report. Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) ------------------------------------------------------- of the Securities Exchange Act of 1934 requires the Company's officers, directors and persons who beneficially own more than 10% of the Company's outstanding Common Stock to file reports of ownership and changes in ownership of Common Stock with the Securities and Exchange Commission, NASDAQ and the Company. Based upon a review of relevant filings and written representations from the Company's officers, directors, and persons who own more than 10% of the Company's Common Stock, the Company believes that all required filings by such persons with respect to the year ended December 31, 1999 have been made on a timely basis. ITEM 11. EXECUTIVE COMPENSATION Summary of Cash and Certain Other Compensation of Executive Officers. -------------------------------------------------------------------- The Summary Compensation Table below provides certain summary information concerning compensation by the Company for 1999, 1998 and 1997 for services rendered by the Company's Chief Executive Officer and each of the other executive officers of the Company whose total annual salary and bonus exceeded $100,000 in 1999.
SUMMARY COMPENSATION TABLE Long-Term Annual Compensation Compensation Awards ------------------------------ ----------------------------- Other Annual Restricted All Other Name and Salary Bonus Compensation Stock Award Options Compensation Principal Position Year ($) ($) ($) ($) (#) ($) ------------------------ ------ --------- --------- ----------------- -------------- ----------- ------------ F. Edward Gustafson 1999 492,000 -- -- -- 175,000 (1) 18,479 (2) Chairman of the Board, 1998 470,000 117,500 -- -- 350,000 (3) 18,570 President and Chief 1997 465,231 -- 48,786 (4) -- -- 18,517 Executive Officer Gordon S. Donovan 1999 167,044 -- 19,302 (5) -- -- 7,535 (6) Vice President, Chief 1998 157,000 32,742 4,483 -- 36,000 (7) 9,567 Financial Officer, 1997 150,542 31,400 4,804 -- -- 7,254 Treasurer and Assistant Secretary ----------------------- (1) In 1999, Mr. Gustafson was granted a stock option to purchase up to 175,000 shares of Common Stock depending on the financial performance of the Company based on EBDIAT for fiscal year 1999. No part of this stock option became exercisable and it expired by its terms. See the "Option/SAR Grants in Last Fiscal Year" Table. (2) Includes $194 paid for group life insurance, $4,385 contributed to the Viskase SAVE Plan and $13,900 contributed to the Viskase Companies, Inc. Parallel Non-Qualified Savings Plan. (3) In March 1998, Mr. Gustafson was granted a stock option to purchase up to 175,000 shares of Common Stock depending on the financial performance of the Company based on EBDIAT for fiscal year 1998. In November 1998, this stock option was replaced with a stock option to purchase up to 175,000 shares of Common Stock upon the same terms and conditions of the original grant other than the exercise price and a revised EBDIAT performance level in part to reflect the divestiture of certain business operations. Based on the Company's EBDIAT for fiscal year 1998, a portion (i.e., 50,000 shares of Common Stock) of this stock option will vest in three equal annual installments commencing March 27, 2000. (4) Pursuant to his Amended and Restated Employment Agreement, effective March 27, 1996 (the "Employment Agreement"), in 1997, Mr. Gustafson received a cash payment of $30,000 in lieu of a Company automobile. (5) Includes an automobile allowance of $6,600. (6) Includes $43 paid for group life insurance, $5,494 contributed to the Viskase SAVE Plan and $1,998 contributed to the Viskase Companies, Inc. Parallel Non-Qualified Savings Plan. (7) In January 1998, Mr. Donovan was granted a stock option to purchase 18,000 shares of Common Stock contingent upon the Company's financial performance based on the Company's EBDIAT for fiscal year 1998. In November 1998, this stock option was replaced with a new stock option to purchase the same number of shares upon the same terms and conditions other than the exercise price. In addition, the new stock option granted was not contingent upon the financial performance of the Company.
Stock Option Grants. The following table provides information ------------------- concerning stock options granted to the persons named in the Summary Compenstion Table during the fiscal year ended December 31, 1999. No stock appreciation rights have been granted.
Option/SAR Grants in Last Fiscal Year Percent of Potential Realizable Number of Total Value at Assumed Annual Securities Options Rates of Stock Price Underlying Granted to Exercise Appreciation for Option Options Employees or Base Term (2) Granted in Fiscal Price Expiration ------------------------ Name (#)(1) Year ($/Share) Date 5% ($) 10% ($) ------------------------- ------------ ----------- ----------- ----------- ---------- ----------- F. Edward Gustafson (3) 175,000 100% $3.625 2/03/09 $398,955 $1,011,030 ------------------------- (1) Stock options are granted under the Viskase Companies, Inc. 1993 Stock Option Plan, as amended and restated (the "Stock Option Plan"). Stock options generally become exercisable on a cumulative basis in annual increments of one-third of the optioned shares, commencing on the first anniversary of the grant date. Upon a "Change of Control" of the Company, as defined in the Stock Option Plan, all outstanding stock options become immediately exercisable. (2) The potential realizable value is based on the term of the stock option at the date of grant (ten (10) years). It is calculated by assuming that the stock price on the date of grant appreciates at the indicated annual rate, compounded annually for the entire term, and that the stock option is exercised and sold on the last day of the stock option term for the appreciated stock price. These amounts represent certain assumed rates of appreciation only. Actual gains, if any, on stock option exercises and on the sale of shares of Common Stock acquired upon exercise are dependent on the future performance the Common Stock and overall stock market conditions. There can be no assurance that the amounts reflected in this table will be achieved. (3) Mr. Gustafson's stock option was granted pursuant to his Employment Agreement. See "Employment Agreements and Change-in -Control Arrangements." Mr. Gustafson's stock option is subject to and governed by the Stock Option Plan. Mr. Gustafson was granted a stock option to purchase up to 175,000 shares of Common Stock depending on the financial performance of the Company based on EBDIAT for fiscal year 1999. No portion of this stock option became exercisable and it expired pursuant to its terms.
Stock Option Exercises and Holdings. The following table provides ----------------------------------- information concerning the exercise of stock options during the fiscal year ended December 31, 1999 and the fiscal year-end value of stock options with respect to each of the persons named in the Summary Compensation Table. Aggregated Option/SAR Exercises in 1999 and December 31, 1999 Option Values
Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Shares Options at Options at Acquired Value 12/31/99 (#) 12/31/99 ($) on Exercise Realized Exercisable/ Exercisable/ Name (#) ($) Unexercisable Unexercisable --------------------------- -------------- ------------ ------------------- --------------- F. Edward Gustafson -- -- 79,334 / 61,666 0 / 0 Gordon S. Donovan -- -- 45,000 / 12,000 0 / 0
Pension Plan Table. The following table sets forth estimated annual ------------------ benefits payable upon retirement under the Retirement Program for Employees of Viskase Corporation (the "Retirement Plan") to employees of the Company and its wholly owned subsidiary, Viskase Corporation, in specified remuneration and years of service classifications.
Pension Plan Table Assumed Final Average Annual Benefits for Years of Service Indicated (2) Annual Salary (1) 15 20 25 30 35 -------------- ---------- ----------- ---------- ---------- ------------ 100,000 18,000 24,000 30,000 36,000 42,000 150,000 27,000 36,000 45,000 54,000 63,000 200,000 36,000 48,000 60,000 72,000 84,000 250,000 45,000 60,000 75,000 90,000 105,000 300,000 54,000 72,000 90,000 108,000 126,000 350,000 63,000 84,000 105,000 126,000 147,000 400,000 72,000 96,000 120,000 144,000 168,000 450,000 81,000 108,000 135,000 162,000 189,000 500,000 90,000 120,000 150,000 180,000 210,000 (1) Annual benefits payable under the Retirement Program are calculated based on the participant's average base salary for the consecutive thirty-six (36) month period immediately prior to retirement. (2) The annual benefits payable are based on straight-life annuity basis at normal retirement age. The benefits reported in this table are not subject to any reduction for benefits paid by other sources, including Social Security. As of December 31, 1999, Messrs. Gustafson and Donovan are credited with 10 and 12 years of service, respectively.
Compensation of Directors. Each director who is not an officer of the ------------------------- Company received an annual retainer of $20,000 in 1999 and a fee of $1,000 for each attended meeting of the Board of Directors. Chairmen of committees (other than the Interested Person Transaction Committee) of the Board of Directors received an annual retainer of $1,500 in 1999. Directors also received a fee for each attended meeting of a committee of the Board of Directors (other than the Interested Person Transaction Committee) of $1,000 ($500 in the case of committee meetings occurring immediately before or after meetings of the full Board of Directors). Members of the Interested Person Transaction Committee did not receive a fee in 1999. Directors who are officers of the Company do not receive compensation in their capacity as directors. Pursuant to Viskase Companies, Inc. 1993 Stock Option Plan, as amended, on the date of the 1999 Annual Meeting of Stockholders, non-employee directors were granted a stock option to purchase 1,000 shares of Common Stock at an option exercise price equal to the fair market value of the Common Stock on the date of grant. Pursuant to the Non-Employee Directors' Compensation Plan, non-employee directors may elect to receive their director fees in the form of shares of Common Stock. The number of shares received is based on the average of the closing bid and asked price of the Common Stock on the business day preceding the date the Common Stock is issued. Compensation Committee Interlocks and Insider Participation. The ----------------------------------------------------------- Compensation and Nominating Committee of the Board of Directors consists of Messrs. Dangremond and Page, each of whom is a non-employee director of the Company. Mr. Page is the President and Chief Operating Officer of Cargill, Inc. In fiscal year 1999, Viskase Corporation, a wholly owned subsidiary of the Company, had sales of $32,577 made in the ordinary course to Cargill, Inc. and its affiliates. Employment Agreements and Change-in-Control Arrangements Employment Agreement with F. Edward Gustafson. On March 27, 1996, the --------------------------------------------- Company entered into an Employment Agreement with Mr. F. Edward Gustafson. The Employment Agreement was amended and restated during 1997 (the "Employment Agreement"). Pursuant to the Employment Agreement, Mr. Gustafson has agreed to serve as Chairman of the Board, President and Chief Executive Officer of the Company, and the Company has agreed to use its best efforts to cause Mr. Gustafson to be elected as a director of the Company, during the term of the Agreement. The initial term of the Employment Agreement is three (3) years, provided, however, that on March 26, 1997 and each subsequent anniversary thereof, the term of the Employment Agreement will be automatically extended for a period of one (1) year unless the Company or Mr. Gustafson gives written notice to the other at least thirty (30) days prior to the anniversary date that the term shall not be so extended. Under the Employment Agreement, Mr. Gustafson will receive an initial annual base salary of at least $450,000 and $30,000 per year in lieu of a Company-provided automobile. Mr. Gustafson's base salary will be increased by the Compensation and Nominating Committee of the Board of Directors each year in a manner consistent with increases in base salary for other senior officers of the Company. In addition, the Employment Agreement provides that with respect to the fiscal year ended December 25, 1997, Mr. Gustafson would be eligible to receive a bonus based on a percentage of his base salary depending on the Company's performance based on EBDIAT. Mr. Gustafson will be eligible to receive an annual bonus for future fiscal years of the Company based on such financial performance or other performance-related criteria as established by the Compensation and Nominating Committee after consultation with Mr. Gustafson. For information concerning actual bonuses earned by Mr. Gustafson, see the "Summary Compensation Table." Mr. Gustafson is also entitled to participate in any employee benefit plans in effect for, and to receive other fringe benefits provided to, other executive officers. Pursuant to and upon execution of the Employment Agreement, Mr. Gustafson was granted two (2) stock options, each to purchase 35,000 shares of Common Stock. One (1) stock option becomes exercisable in cumulative annual increments of one-third commencing on the first anniversary of the date of grant. The other stock option becomes exercisable in cumulative annual increments of one-third commencing on the second anniversary of the date of grant. In addition, Mr. Gustafson was granted a stock option to purchase up to 75,000 shares of Common Stock depending on the financial performance of the Company based on EBDIAT for fiscal year 1996. The Company did not achieve the minimum goal for EBDIAT. Therefore, no portion of this stock option became exercisable or will become exercisable in the future. Lastly, Mr. Gustafson was granted 35,000 restricted shares of Common Stock which could not be transferred, and were subject to forfeiture, until March 27, 1999. If Mr. Gustafson's employment is terminated by the Company for Cause, as defined in the Employment Agreement, or by Mr. Gustafson other than for Good Reason or Disability, as defined in the Employment Agreement, Mr. Gustafson will be paid all Accrued Compensation, as defined in the Employment Agreement, through the date of termination of employment. If Mr. Gustafson's employment with the Company is terminated by the Company for any reason other than for Cause, death or Disability, or by Mr. Gustafson for Good Reason, (i) Mr. Gustafson will be paid all Accrued Compensation plus 300% of his base salary (or 200% in the event that D.P. Kelly & Associates, L.P., or a company in which D.P. Kelly & Associates, L.P. has a substantial interest, is the beneficial owner of the Company following a Change of Control) and the prorated amount of annual bonus that would have been payable to Mr. Gustafson with respect to the fiscal year in which Mr. Gustafson's employment is terminated, provided that the performance targets have been actually achieved as of the date of termination (unless such termination of employment follows a Change in Control, as defined in the Agreement, in which case Mr. Gustafson will receive a bonus equal to 50% of his base salary regardless of the Company's performance), (ii) Mr. Gustafson will continue to receive life insurance, medical, dental and hospitalization benefits for a period of twenty-four (24) months following termination of employment, and (iii) all outstanding stock options and restricted shares of Common Stock will become immediately exercisable, vested and nonforfeitable. Pursuant to the Employment Agreement, Mr. Gustafson is generally prohibited during the term of the Agreement, and for a period of two (2) years thereafter, from competing with the Company, soliciting any customer of the Company or inducing or attempting to persuade any employee of the Company to terminate his or her employment with the Company in order to enter into competitive employment. For purposes of the Employment Agreement, the Company includes Viskase Companies, Inc. and any of its subsidiaries over which Mr. Gustafson exercised, directly or indirectly, any supervisory, management, fiscal or operating control during the term of the Employment Agreement. Severance Pay Policies. Mr. Donovan is eligible for severance benefits ---------------------- as set forth in the Corporate Office Severance Pay Policy (the "Corporate Pay Policy") upon a Change of Control (as defined in the Corporate Pay Policy) or corporate office consolidation or elimination and the occurrence of one of the following events (an "Event"): (i) --- involuntary separation of employment from the Company for any reason other than death, disability or willful misconduct, (ii) voluntary separation of employment from the Company (a) following a reduction in base compensation or incentive bonus opportunity from that in effect on the day immediately before the effective date of a Change in Control, or office consolidation or elimination, or (b) following a reduction in the person's principal responsibilities from those in effect on the day immediately before the effective date of a Change in Control, or office consolidation or elimination. Upon the occurrence of an Event and subject to the Company obtaining a general release, Mr. Donovan would receive severance pay equal to the equivalent to twenty-four (24) months' salary (at the highest annual rate in effect during the three- year period prior to separation of employment) plus a target bonus under the Management Incentive Plan in effect at the time of separation. In addition, Mr. Donovan would continue to receive medical, life and dental insurance benefits in effect at the time of separation of employment for a period of time following such separation depending on form of payment of the severance pay elected (e.g., lump sum or installment) and whether he is covered by another employer's plan. The Corporate Pay Policy may be amended or terminated at any time by the Company except that in the event that a Change in Control or elimination or consolidation of all of part of the corporate office occurs during the term of the Corporate Pay Policy, the Corporate Pay Policy will be automatically extended for a period of twenty-four (24) months following the effective date of the Change in Control or office consolidation or elimination. In addition, Mr. Donovan is eligible for severance benefits as set forth in the Viskase Corporation Severance Pay Policy (the "Viskase Pay Policy"). The Viskase Pay Policy is substantially similar to the Corporate Pay Policy except that it applies only to a Change of Control (as defined in the Viskase Pay Policy) and not an office consolidation or elimination. Any benefits received by Mr. Donovan under either policy would be credited against benefits payable under the other policy. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- The following table sets forth the beneficial ownership of Common Stock as of September 15, 2000 of (a) each person or group of persons known to the Company to beneficially own more than 5% of the outstanding shares of Common Stock, (b) each director and nominee for director of the Company, (c) each executive officer of the Company listed in the Summary Compensation Table above, and (d) all executive officers and directors of the Company as a group. All information is taken from or based upon ownership filings made by such persons with the Securities and Exchange Commission or upon information provided by such persons to the Company. Percent Name and Address of Number of Shares of Class Beneficial Owner Beneficially Owned (1) (1) ------------------------------- ----------------------- -------- Malcolm I. Glazer 5,907,737 (2) 39.09% 1482 South Ocean Boulevard Palm Beach, Florida 33480 Zapata Corporation 5,877,304 38.89% 100 Meridian Centre, Suite 350 Rochester, New York 14618 Donald P. Kelly 2,070,287 (3) 13.70% 701 Harger Road, Suite 190 Oak Brook, Illinois 60523 Katana Fund LLC 1,996,052 (4) 13.21% Katana Capital Advisors LLC 1859 San Leandro Lane Santa Barbara, California 93108 F. Edward Gustafson 1,857,897 (3)(5)(6) 12.22% 6855 W. 65th Street Chicago, Illinois 60638 Volk Enterprises, Inc. 1,300,000 8.60% 618 S. Kilroy Turlock, California 95380 Robert N. Dangremond 43,606 (7) * Gordon S. Donovan 74,260 (5)(8) * Avram A. Glazer 31,244 (9) * Gregory R. Page 33,150 (7) * All directors and executive officers of the Company as a group (7 persons) 7,967,200 (10) 52.15% --------------------------- * Less than 1%. (1) Beneficial ownership is calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934 and the rules promulgated thereunder. Accordingly, the "Number of Shares Beneficially Owned" and the "Percent of Class" shown for each person listed in the table are based on the assumption that stock options which are exercisable currently or within 60 days of September 15, 2000, held by such person, have been exercised. Unless otherwise indicated, the persons listed in the table have sole voting and investment power over those securities listed for such person. (2) The ownership indicated includes 2,000 shares subject to stock options owned by Mr. Glazer. The ownership indicated also includes 5,877,304 shares owned by Zapata Corporation ("Zapata"), which shares may be deemed to be beneficially owned by Mr. Glazer because Mr. Glazer is the Chairman of the Board of Zapata and may be deemed to be a controlling stockholder of Zapata. Mr. Glazer disclaims beneficial ownership of such shares. (3) The ownership indicated includes 70,287 shares owned by D.P. Kelly & Associates, L.P. ("DPK"), of which Mr. Kelly and Mr. Gustafson are principals and officers. The general partner of DPK is C&G Management Company, Inc. ("C&G Management"), which is owned by Mr. Kelly and Mr. Gustafson. The ownership indicated also includes 1,300,000 shares owned by Volk Enterprises, Inc. ("Volk"). Volk is controlled by Volk Holdings L.P., whose general partner is Wexford Partners I L.P. ("Wexford Partners"). The general partner of Wexford Partners is Wexford Corporation, which is owned by Mr. Kelly and Mr. Gustafson. Mr. Kelly and Mr. Gustafson share voting and investment power over the shares owned by DPK and Volk. However, Mr. Kelly and Mr. Gustafson each disclaim beneficial ownership of shares owned by DPK and Volk except to the extent of their respective pecuniary interest in such entities. (4) Katana Capital Advisors LLC manages the Katana Fund LLC and therefore is deemed to indirectly own the shares owned by the Katana Fund LLC. (5) The ownership indicated includes 86,667 shares subject to stock options owned by Mr. Gustafson. The ownership indicated also includes 70,619 shares owned by Mr. Gustafson's spouse. Mr. Gustafson does not have or share voting or investment power over the shares owned by his spouse and disclaims beneficial ownership of such shares. (6) The ownership indicated also includes 193,000 and 2,998 shares acquired by Messrs. Gustafson and Donovan, respectively, pursuant to the Viskase Companies, Inc. Parallel Non-Qualified Savings Plan (the "Non-Qualified Plan"). (7) The ownership indicated includes 6,000 shares subject to stock options owned by each of Messrs. Dangremond and Page. (8) The ownership indicated includes 45,000 shares subject to stock options owned by Mr. Donovan, 8,000 shares held by Mr. Donovan as trustee for the benefit of his spouse, with whom Mr. Donovan shares voting and investment power over such shares and 1,000 shares owned by Mr. Donovan's spouse. Mr. Donovan does not have or share voting power over the 1,000 shares owned by his spouse. Mr. Donovan disclaims beneficial ownership of the shares held by him as trustee and the shares owned by his spouse. (9) The ownership indicated includes 2,000 shares subject to stock options owned by Mr. Glazer. (10) See Footnotes (2), (3), (5), (6), (7), (8) and (9). ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- During 1999, 1998 and 1997, the Company purchased product and services from affiliates of DPK in the amounts of approximately $9, $200 and $187, respectively. During fiscal 1998 and 1997, the Company sublet office space from DPK for which it paid approximately $77 and $133, respectively, in rent. During fiscal 1997, the Company reimbursed a non- affiliated medical and benefit plan in the aggregate amount of $34 for medical claims and benefits of certain officers. During 1997, the Company advanced funds to and made payments on behalf of DPK and Donald P. Kelly in the amount of $27 for legal fees related to litigation for the period when Mr. Kelly was an executive officer of the Company. During years 1999, 1998 and 1997, Viskase Corporation, a wholly owned subsidiary of the Company, had sales of $32,577, $21,804 and $21,825, respectively, to Cargill, Inc. and its affiliates. Such sales were made in the ordinary course of business. During 1999 Cargill Financial Services Corporation had beneficial ownership of less than 5% of the Company's outstanding Common Stock, and Gregory R. Page, President and Chief Operating Officer of Cargill, Inc., is a director of the Company. PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM ----------------------------------------------------------- 8-K --- (a) 1. Financial statements: PAGE -------------------- ------ Report of independent accountants F-2 Consolidated balance sheets, December 31, 1999 and December 31, 1998 F-3 Consolidated statements of operations, for the year ended December 31, 1999 and for the 53/52 week periods ending December 31, 1998, and December 25, 1997 F-4 Consolidated statements of stockholders' equity, for the year ended December 31, 1999 and for the 53/52 week periods ending December 31, 1998, and December 25, 1997 F-5 Consolidated statements of cash flows, for the year ended December 31, 1999 and for the 53/52 week periods ending December 31, 1998, and December 25, 1997 F-6 Notes to consolidated financial statements F-7 2. Financial statement schedules for the year ended ------------------------------------------------ December 31, 1999 and for the 53/52 week periods ------------------------------------------------ ending December 31, 1998, and December 25, 1997: ----------------------------------------------- II Valuation and qualifying accounts F-32 Schedules other than those listed are omitted because they are not required, are not applicable, or because equivalent information has been included in the financial statements and notes thereto or elsewhere herein. (b) Reports on Form 8-K. ------------------- None. (c) Exhibits: --------- Exhibit No. Description of Exhibits Page ------------------------------------------------------------------ 2.1 Debtors First Amended Joint Plan of Reorganization as Twice Modified dated December 15, 1993 of the Company and certain of its subsidiaries (incorporated herein by reference to Exhibit 2 to Form 8-K filed January 19, 1994). * 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to Form 8-K filed January 19, 1994). * 3.2 Certificate of Ownership and Merger of Viskase Companies, Inc. into Envirodyne Industries, Inc. * 3.3 Amended and Restated By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 to Form 8-K filed May 16, 1997). * 4.1 Indenture, dated as of December 31, 1993, between the Company and Bankers Trust Company, as Trustee, relating to the 10-1/4% Notes Due 2001 of the Company including form of 10-1/4% Note Due 2001 (incorporated herein by reference to Exhibit 4.1 to Form 8-K filed January 19, 1994). * 4.2 Indenture, dated as of June 20, 1995 (the "Indenture"), between the Company and Shawmut Bank Connecticut, National Association, as Trustee (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-4 filed July 20, 1995). * 4.3 Forms of the Notes issued pursuant to the Indenture (included in Exhibit 4.2). * 4.4 Guaranty Agreement, dated as of June 20, 1995, made by Clear Shield National, Inc., Sandusky Plastics, Inc., Sandusky Plastics of Delaware, Inc., Viskase Corporation, Viskase Holding Corporation and Viskase Sales Corporation, in favor of BT Commercial Corporation, as Collateral Agent (incorporated herein by reference to Exhibit 4.6 to the Registration Statement on Form S-4 filed July 20, 1995). * 4.5 Pledge Agreement, dated as of June 20, 1995, made by the Company to BT Commercial Corporation, as Collateral Agent (incorporated herein by reference to Exhibit 4.7 to Amendment No. 2 to the Registration Statement on Form S-4 filed September 21, 1995). * 4.6 Security Agreement, dated as of June 20, 1995, made by the Company in favor of BT Commercial Corporation, as Collateral Agent (incorporated herein by reference to Exhibit 4.8 to Amendment No. 2 to the Registration Statement on Form S-4 filed September 21, 1995). * 4.7 Form of Subsidiary Security Agreement, dated as of June 20, 1995, made by each applicable Subsidiary in favor of BT Commercial Corporation, as Collateral Agent (incorporated herein by reference to Exhibit 4.9 to Amendment No. 2 to the Registration Statement on Form S-4 filed September 21, 1995). * 4.8 Intellectual Property Security Agreement, dated as of June 20, 1995, made by Viskase Corporation in favor of BT Commercial Corporation, as Collateral Agent (incorporated herein by reference to Exhibit 4.10 to Amendment No. 2 to the Registration Statement on Form S-4 filed September 21, 1995). * 4.9 First Supplemental Indenture, dated as of October 13, 1995, between the Company and Shawmut Bank Connecticut, National Association, as Trustee (incorporated herein by reference to Exhibit 4.11 to Amendment No. 3 to the Registration Statement on Form S-4 filed October 17, 1995). * 4.10 Rights Agreement, dated as of June 26, 1996, between the Company and Harris Trust and Savings Bank, as Rights Agent (incorporated herein by reference to Exhibit 4.1 of Form 8-K dated June 26, 1996). * 4.11 Second Supplemental Indenture, dated as of September 2, 1997, between the Company and Fleet National Bank (formerly Shawmut Bank of Connecticut, National Association), as Trustee (incorporated herein by reference to Exhibit 10.23 to Form 10-Q for the fiscal quarter ended September 25, 1997 filed November 10, 1997). * 4.12 Third Supplemental Indenture, dated as of July 2, 1998, between the Company and State Street Bank and Trust Company of Connecticut, N.A. (formerly or successor to Fleet National Bank and Shawmut Bank of Connecticut, National Association), as Trustee (incorporated herein by reference to Exhibit 10.4 to Form 10-Q for the fiscal quarter ended September 24, 1998 filed November 9, 1998). * 4.13 Fourth Supplemental Indenture, dated as of October 26, 1998, between the Company and State Street Bank and Trust Company of Connecticut, N.A. (formerly Fleet National Bank and previously Shawmut Bank of Connecticut, National Association), as Trustee. * 4.14 Fifth Supplemental Indenture, dated as of March 17, 1999, between the Company and State Street Bank and Trust Company of Connecticut, N.A. (formerly Fleet National Bank Connecticut and previously Shawmut Bank Connecticut, National Association), as Trustee (incorporated herein by reference to Exhibit 4.14 to Form 10-Q for the fiscal quarter ended March 31, 1999). * 10.1 Participation Agreement, dated as of December 18, 1990, among Viskase Corporation, as Lessee, the Company, as Guarantor, General Electric Capital Corporation, as Owner Participant, and The Connecticut National Bank, as Owner Trustee (incorporated herein by reference to Exhibit 10.24 to Form 8-K filed January 22, 1991). * 10.2 Lease Agreement, dated as of December 18, 1990, between The Connecticut National Bank, Owner Trustee, as Lessor and Viskase Corporation, as Lessee (incorporated herein by reference to Exhibit 10.25 to Form 8-K filed January 22, 1991). * 10.3 Appendix A; Definitions relating to the Participation Agreement, the Lease and the Ground Lease (incorporated herein by reference to Exhibit 10.26 to Form 8-K filed January 22, 1991). * 10.4 Ground Lease, dated as of December 18, 1990, between Viskase Corporation, as Ground Lessor, and The Connecticut National Bank, as Ground Lessee (incorporated herein by reference to Exhibit 10.27 to Form 8-K filed January 22, 1991). * 10.5 Guaranty Agreement, dated as of December 18, 1990, among the Company; Clear Shield National, Inc.; Sandusky Plastics of Delaware, Inc.; Viskase Sales Corporation, all as Guarantors; The Connecticut National Bank, as Owner Trustee; and General Electric Capital Corporation, as Owner Partici- pant (incorporated herein by reference to Exhibit 10.28 to Form 8-K filed January 22, 1991). * 10.6 Trust Agreement, dated as of December 18, 1990, between General Electric Capital Corporation, as Owner Participant, and The Connecticut National Bank, as Owner Trustee (incorporated herein by reference to Exhibit 10.29 to Form 8-K, filed January 22, 1991, of Viskase Companies, Inc.). * 10.7 Non-Employee Directors' Compensation Plan (incorporated herein by reference to Appendix B of the Company's Proxy Statement for its 1996 Annual Meeting of Stockholders).+ * 10.8 1993 Stock Option Plan, as amended and restated through March 27, 1996 (incorporated herein by reference to Appendix A of the Company's Proxy Statement for its 1996 Annual Meeting of Stockholders). + * 10.9 Corporate Office Management Incentive Plan for Fiscal Year 1999 (incorporated herein by reference to Exhibit 10.23 to Form 10-Q for the fiscal quarter ended March 31, 1999). + * 10.10 Viskase Companies, Inc. Parallel Non-Qualified Thrift Plan (incorporated herein by reference to Exhibit 10.35 to Form 10-Q for the fiscal quarter ended June 27, 1991 filed August 12, 1001). + * 10.11 Note Agreement, dated as of June 20, 1995, between the Company and each of the purchasers identified therein (incorporated herein by reference to Exhibit 10.10 to the Registration Statement on Form S-4 filed July 20, 1995). * 10.12 Letter Agreement, dated as of June 20, 1995, between the Company and certain purchasers of the Notes (incorporated herein by reference to Exhibit 10.11 to the Registration Statement on Form S-4 filed July 20, 1995). * 10.13 Intercreditor and Collateral Agency Agreement, dated as of June 20, 1995, among BT Commercial Corporation, The Prudential Insurance Company of America, Shawmut Bank Connecticut, National Association, and certain other parties identified therein (incorporated herein by reference to Exhibit 10.14 to the Registration Statement on Form S-4 filed July 20, 1995). * 10.14 GECC Intercreditor Agreement, dated as of June 20, 1995, among BT Commercial Corporation, General Electric Capital Corporation, Shawmut Bank Connecticut, National Association, the Company and Viskase Corporation (incorporated herein by reference to Exhibit 10.15 to the Registration Statement on Form S-4 filed July 20, 1995). * 10.15 Amended and Restated Employment Agreement, effective March 27, 1996, between the Company and F. Edward Gustafson (incorporated herein by reference to Exhibit 10.20 to Form 10-Q for the fiscal quarter ended June 25, 1998 filed August 10, 1998).+ * 10.16 Corporate Office Severance Pay Policy (incorporated herein by reference to Exhibit 10.21 to Form 10-Q for the fiscal quarter ended June 26, 1997 filed August 11, 1997).+ * 10.17 Stock Purchase Agreement, dated June 5, 1998, between the Company and Solo Cup Company, as amended (incorporated herein by reference to Exhibit 2 to Form 8-K filed August 10, 1998). * 10.18 Amended and Restated Credit Agreement, dated June 1, 1998, among the Company, the Lenders identified therein and BT Commercial Corporation, as Agent (incorporated herein by reference to Exhibit 10.14 to Form 10-Q for the fiscal quarter ended June 25, 1998 filed August 10, 1998). * 10.19 Amendment, dated July 2, 1998, to the Amended and Restated Credit Agreement, dated June 1, 1998, among the Company, the Lenders identified therein and BT Commercial Corporation, as Agent (incorporated herein by reference to Exhibit 10.14 to Form 10-Q for the fiscal quarter ended September 24, 1998 filed November 9, 1998). * 10.20 Amendment No. 2, dated October 26, 1998, to the Amended and Restated Credit Agreement, dated June 1, 1998, among the Company, the Lenders identified therein and BT Commercial Corporation, as Agent (incorporated herein by reference to Exhibit 10.20 to Form 10-K for the fiscal year ended December 31, 1998). * 10.21 Letter Agreement, dated July 14, 1998, between the Company and Stephen M. Schuster (incorporated herein by reference to Exhibit 10.20 to Form 10-K for the fiscal year ended December 31, 1998). + * 10.22 Amendment No. 3 dated March 17, 1999, to the Amended and Restated Credit Agreement, dated June 1, 1999, among the Company, the Lenders identified therein, and BT Commercial Corporation, as Agent (incorporated herein by reference to Exhibit 10.22 to Form 10-Q for the fiscal quarter ended March 31, 1999). * 10.23 Financing Agreement, dated June 14, 1999, among Viskase Corporation, Viskase Sales Corporation and the CIT Group/Business Credit, Inc. on behalf of itself and certain Lenders (incorporated herein by reference to Exhibit 10.22 to Form 10-Q for the fiscal quarter ended June 30, 1999). * 10.24 Financing Agreement, dated June 14, 1999, among Viskase Corporation, Viskase Sales Corporation and the lenders listed on the signature page thereto (incorporated herein by reference to Exhibit 10.23 to Form 10-Q for the fiscal quarter ended June 30, 1999). * 10.25 Financing Agreement, dated June 14, 1999, among Viskase Corporation, Viskase Sales Corporation and D.P. Kelly & Associates, L.P. (incorporated herein by reference to Exhibit 10.24 to Form 10-Q for the fiscal quarter ended June 30, 1999). * 10.26 Form of Pledge Agreements made by Viskase Corporation to each of (i) the CIT Group/Business Credit, Inc. on behalf of itself and certain lenders, (ii) certain institutional lenders listed on the signature page thereto, and (iii) D.P. Kelly & Associates, L.P. (incorporated herein by reference to Exhibit 10.25 to Form 10-Q for the fiscal quarter ended June 30, 1999). * 10.27 Form of Pledge Agreements made by Viskase Sales Corporation to each of (i) the CIT Group/Business Credit, Inc. on behalf of itself and certain lenders, (ii) certain institutional lenders listed on the signature page thereto, and (iii) D.P. Kelly & Associates, L.P. (incorporated herein by reference to Exhibit 10.26 to Form 10-Q for the fiscal quarter ended June 30, 1999). * 10.28 Form of Pledge Agreements made by Viskase Holding Corporation to each of (i) the CIT Group/Business Credit, Inc. on behalf of itself and certain lenders, (ii) certain institutional lenders listed on the signature page thereto, and (iii) D.P. Kelly & Associates, L.P. (incorporated herein by reference to Exhibit 10.27 to Form 10-Q for the fiscal quarter ended June 30, 1999). * 10.29 Form of Parent Pledge Agreements made by Viskase Companies, Inc. to each of (i) the CIT Group/Business Credit, Inc. on behalf of itself and certain lenders, (ii) certain institutional lenders listed on the signature page thereto, and (iii) D.P. Kelly & Associates, L.P. (incorporated herein by reference to Exhibit 10.28 to Form 10-Q for the fiscal quarter ended June 30, 1999). * 10.30 Form of Security Agreements made by Viskase Holding Corporation in favor of each of (i) the CIT Group/Business Credit, Inc. on behalf of itself and certain lenders, (ii) certain institutional lenders listed on the signature page thereto, and (iii) D.P. Kelly & Associates, L.P. (incorporated herein by reference to Exhibit 10.29 to Form 10-Q for the fiscal quarter ended June 30, 1999). * 10.31 Form of Parent Security Agreements made by Viskase Companies, Inc. in favor of each of (i) the CIT Group/Business Credit, Inc. on behalf of itself and certain lenders, (ii) certain institutional lenders listed on the signature page thereto, and (iii) D.P. Kelly & Associates, L.P. (incorporated herein by reference to Exhibit 10.30 to Form 10-Q for the fiscal quarter ended June 30, 1999). * 10.32 Form of Joint and Several Guaranty of Viskase Corporation and Viskase Sales Corporation to each of (i) the CIT Group/Business Credit, Inc. on behalf of itself and certain lenders, (ii) certain institutional lenders listed on the signature page thereto, and (iii) D.P. Kelly & Associates, L.P. (incorporated herein by reference to Exhibit 10.31 to Form 10-Q for the fiscal quarter ended June 30, 1999). * 10.33 Amendment to Viskase Companies, Inc. 1999 Parallel Non- Qualified Savings Plan (incorporated herein by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-8, #333-33508, filed on March 29, 2000). + * 10.34 Viskase Corporation Severance Pay Policy. + ** 21.1 Subsidiaries of the registrant. ** 23.1 Consent of Independent Accountants. ** + Management contract or compensatory plan or arrangement. * Previously filed by the Company, incorporated by reference. ** Filed herewith. (d) Financial statement schedules required by Regulation S-X. F-1 -------------------------------------------------------- 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. VISKASE COMPANIES, INC. (Registrant) By: /s/ ---------------------------- F. Edward Gustafson Chairman, Chief Executive Officer and President By: /s/ ----------------------------- Gordon S. Donovan Vice President, Chief Financial Officer and Treasurer Date: September 22, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on this 22nd day of September 2000. /s/ /s/ ---------------------------- --------------------------- F. Edward Gustafson Gordon S. Donovan Chairman of the Board, Chief Vice President, Chief Financial Executive Officer and President Officer and Treasurer (Principal (Principal Executive Officer) Financial and Accounting Officer) /s/ /s/ ---------------------------- --------------------------- Robert N. Dangremond (Director) Avram A. Glazer (Director) /s/ /s/ ---------------------------- ---------------------------- Malcolm I. Glazer (Director) Gregory R. Page (Director) VISKASE COMPANIES, INC. AND SUBSIDIARIES INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Report of independent accountants F-2 Consolidated balance sheets, December 31, 1999 and December 31, 1998 F-3 Consolidated statements of operations, for the year ended December 31, 1999 and the 53/52 week periods ending December 31, 1998, and December 25, 1997 F-4 Consolidated statements of stockholders' equity, for the year ended December 31, 1999 and the 53/52 week periods ending December 31, 1998, and December 25, 1997 F-5 Consolidated statements of cash flows, for the year ended December 31, 1999 and for each of the 53/52 week periods ending December 31, 1998, and December 25, 1997 F-6 Notes to consolidated financial statements F-7 FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION S-X Schedule II - Valuation and Qualifying Accounts F-32 Exhibit 21.1 Subsidiaries of the Registrant F-33 Exhibit 21.3 Consent of Independent Accountants F-34 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Viskase Companies, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Viskase Companies, Inc. and its subsidiaries (the "Company") at December 31, 1999 and 1998, and the results of their operations and their cash flows for the year ended December 31, 1999 and the periods December 26, 1997 to December 31, 1998, and December 27, 1996 to December 25, 1997, in conformity with accounting principles generally accepted in the United States. 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 of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 8, the Company's 10.25% Notes, of which $219.3 million principal amount is outstanding, will mature in December 2001. The Company anticipates it will refinance the 10.25% Notes or seek alternative strategies including, but not limited to, using proceeds from asset sales, litigation, if any, or selling additional equity capital. PricewaterhouseCoopers LLP March 17, 2000, except as to Note 25, which is dated August 31, 2000. VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, December 31, 1999 1998 -------- -------- (in thousands) ASSETS Current assets: Cash and equivalents $ 6,243 $ 9,028 Receivables, net 48,971 47,718 Inventories 78,672 93,228 Other current assets 14,540 15,337 -------- -------- Total current assets 148,426 165,311 Property, plant and equipment, including those under capital leases 488,369 475,525 Less accumulated depreciation and amortization 178,122 145,680 -------- -------- Property, plant and equipment, net 310,247 329,845 Deferred financing costs, net 3,059 1,198 Other assets 32,086 34,715 -------- -------- Total Assets $493,818 $531,069 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligations under capital leases $ 23,095 $ 16,120 Accounts payable 35,202 36,337 Accrued liabilities 46,966 62,319 Current deferred income taxes 8,683 8,810 -------- -------- Total current liabilities 113,946 123,586 Long-term debt including obligations under capital leases 404,151 388,880 Accrued employee benefits 46,787 48,115 Deferred and noncurrent income taxes 18,376 26,395 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; issued and outstanding, 15,058,439 shares at December 31, 1999 and 14,859,467 shares at December 31, 1998 151 149 Paid in capital 137,454 136,715 Accumulated (deficit) (229,212) (197,454) Cumulative foreign currency translation adjustments 2,165 4,693 Unearned restricted stock issued for future service (10) -------- -------- Total stockholders' (deficit) (89,442) (55,907) -------- -------- Total Liabilities and Stockholders' Equity $493,818 $531,069 ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
53/52 Weeks Ended Year Ended ----------------------------- December 31, December 31, December 25, 1999 1998 1997 ------------------------------------------ (in thousands, except for number of shares and per share amounts) NET SALES $385,653 $409,169 $498,333 COSTS AND EXPENSES Cost of sales 293,154 307,913 366,744 Selling, general and administrative 71,064 84,159 91,722 Amortization of intangibles and excess reorganization value 5,000 11,655 14,138 Unusual charge 150,069 3,500 ------- --------- -------- OPERATING (LOSS) INCOME 16,435 (144,627) 22,229 Interest income 550 1,531 1,416 Interest expense 44,557 51,364 55,617 Other expense, net 7,244 1,217 2,064 ------- --------- -------- (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES (34,816) (195,677) (34,036) Income tax (benefit) (3,058) (14,004) (23,674) ------- --------- -------- NET (LOSS) FROM CONTINUING OPERATIONS (31,758) (181,673) (10,362) DISCONTINUED OPERATIONS: Income from discontinued operations net of income taxes (Note 12) 413 717 Gain on sale of discontinued operations net of income tax provision of $19,556 39,057 ------- --------- -------- NET (LOSS) BEFORE EXTRAORDINARY ITEM (31,758) (142,203) (9,645) Extraordinary (loss) on early extinguishment of debt net of income tax (benefit) of $(4,343) (6,793) ------- --------- -------- NET (LOSS) (31,758) (148,996) (9,645) ------- --------- -------- Other comprehensive income (loss), net of tax Foreign currency translation adjustments (1,542) 973 (2,566) ------- --------- -------- COMPREHENSIVE (LOSS) $(33,300) $(148,023) $(12,211) ======== ========= ======== WEIGHTED AVERAGE COMMON SHARES - BASIC AND DILUTED 14,949,965 14,824,885 14,617,540 ========== ========== ========== PER SHARE AMOUNTS: Earnings (loss) per share - basic and diluted Continuing operations $(2.12) $(12.25) $(.71) DISCONTINUED OPERATIONS: Income from discontinued operations .03 .05 Gain on sale from discontinued operations 2.63 ------- --------- -------- Net (loss) before extraordinary item (2.12) (9.59) (.66) Extraordinary (loss) (.46) ------- --------- -------- NET (LOSS) $(2.12) $(10.05) $(.66) ======= ======= ======== The accompanying notes are an integral part of the consolidated financial statements.
VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unearned Foreign Restricted Accumu- Currency Stock Common Paid in lated Translation Issued For Total Stock Capital (Deficit) Adjustment Future Service Equity(Deficit) ------- -------- ---------- ---------- -------------- --------------- (in thousands) Balance December 26, 1996 $145 $135,100 $(38,813) $ 7,305 $(92) $103,645 Net (loss) (9,645) (9,645) Issuance of Common Stock 3 1,083 41 1,127 Other comprehensive (loss) (4,207) (4,207) ---- -------- --------- ------ ----- -------- Balance December 25, 1997 148 136,183 (48,458) 3,098 (51) 90,920 Net (loss) (148,996) (148,996) Issuance of Common Stock 1 532 41 574 Other comprehensive income 1,595 1,595 ---- -------- --------- ------ ----- -------- Balance December 31, 1998 149 136,715 (197,454) 4,693 (10) (55,907) Net (loss) (31,758) (31,758) Issuance of Common Stock 2 739 10 751 Other comprehensive (loss) (2,528) (2,528) ---- -------- --------- ------ ----- -------- Balance December 31, 1999 $151 $137,454 $(229,212) $2,165 - $(89,442) ==== ======== ========= ====== ===== ======== The accompanying notes are an integral part of the consolidated financial statements.
VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
53/52 Weeks Ended Year Ended ----------------------------- December 31, December 31, December 25, 1999 1998 1997 ------------------------------------------ (in thousands) Cash flows from operating activities: Net (Loss) $(31,758) $(148,996) $(9,645) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation and amortization under capital leases 38,672 39,519 43,373 Amortization of intangibles and excess reorganization value 5,000 11,655 15,936 Amortization of deferred financing fees and discount 3,658 1,772 1,770 (Decrease) in deferred and noncurrent income taxes (4,989) (611) (24,893) Foreign currency transaction loss (gain) 190 (15) 135 Loss (gain) on disposition of assets 630 (58,562) (64) Bad debt provision 1,239 1,295 665 Impairment of excess reorganization value 91,169 Net property, plant and equipment write-off 41,765 Extraordinary loss on debt extinguishment 11,136 Changes in operating assets and liabilities: Accounts receivable (3,896) 19,587 1,890 Inventories 12,038 (15,952) (12,187) Other current assets 233 7,571 (3,916) Accounts payable and accrued liabilities (13,845) (9,537) (2,283) Other 192 (10,229) (5,135) ------- --------- -------- Total adjustments 39,122 130,563 15,291 ------- --------- -------- Total net cash provided by (used in) operating activities 7,364 (18,433) 5,646 Cash flows from investing activities: Capital expenditures (27,943) (35,354) (57,879) Proceeds from disposition of assets 623 164,236 41,867 ------- --------- -------- Net cash (used in) provided by investing activities (27,320) 128,882 (16,012) Cash flows from financing activities: Issuance of common stock 751 574 1,127 Proceeds from revolving loan and long-term borrowings 123,776 1,475 2,814 Deferred financing costs (5,796) (605) (523) Repayment of revolving loan, long-term borrowings and capital lease obligations (100,971) (118,173) (9,490) Premium on early extinguishment of debt (8,927) ------- --------- -------- Net cash provided by (used in) financing activities 17,760 (125,656) (6,072) Effect of currency exchange rate changes on cash (589) (172) (949) ------- --------- -------- Net (decrease) in cash and equivalents (2,785) (15,379) (17,387) Cash and equivalents at beginning of period 9,028 24,407 41,794 ------- --------- -------- Cash and equivalents at end of period $ 6,243 $ 9,028 $24,407 ======== ========= ======= ----------------------------------- Supplemental cash flow information and noncash investing and financing activities: Interest paid $43,190 $ 50,757 $54,937 Income taxes paid $ 3,531 $ 4,535 $ 5,291 Capital lease obligations (machinery and equipment) $ 345 $ 1,475 $ 2,814 The accompanying notes are an integral part of the consolidated financial statements.
VISKASE COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS Viskase Companies, Inc. manufactures food packaging products through its Viskase subsidiaries. The operations of these subsidiaries are primarily in North and South America and Europe. Viskase is a leading producer of cellulosic casings used in preparing and packaging processed meat products and is a major producer of heat shrinkable plastic bags and specialty films for packaging and preserving fresh and processed meat products, poultry and cheeses. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) Basis of presentation Effective in 1990 Viskase Companies, Inc. and its subsidiaries (the Company) adopted a 52/53 week fiscal year ending on the last Thursday of December. Commencing in 1999, the Company adopted a calendar year end. (B) Principles of consolidation The consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated in consolidation. (C) Reclassification Reclassifications have been made to the prior years' financial statements to conform to the 1999 presentation. (D) Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. (E) Cash equivalents (dollars in thousands) For purposes of the statement of cash flows, the Company considers cash equivalents to consist of all highly liquid debt investments purchased with an initial maturity of approximately three months or less. Due to the short-term nature of these instruments, the carrying values approximate the fair market value. Cash equivalents include $1,571 and $2,843 of short-term investments at December 31, 1999 and December 31, 1998, respectively. (F) Inventories Domestic inventories are valued primarily at the lower of last-in, first-out (LIFO) cost or market. Remaining amounts, primarily foreign, are valued at the lower of first-in, first-out (FIFO) cost or market. (G) Property, plant and equipment Property, plant and equipment are carried at cost less accumulated depreciation. Property and equipment additions include acquisition of property and equipment and costs incurred for computer software purchased for internal use including related external direct costs of materials and services and payroll costs for employees directly associated with the project. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from 2 to 32 years. Upon retirement or other disposition, cost and related accumulated depreciation are removed from the accounts, and any gain or loss is included in results of operations. (H) Deferred financing costs Deferred financing costs are amortized on a straight-line basis over the expected term of the related debt agreement. Amortization of deferred financing costs is classified as interest expense. (I) Patents Patents are amortized on the straight-line method over an estimated average useful life of ten years. Patent defense costs are capitalized and will be written off at the time of settlement. (J) Excess reorganization value, net Excess reorganization value is amortized on the straight-line method over 15 years. During 1998, based on an evaluation of long-lived assets, the Company wrote off the balance of $91.2 million for the excess reorganization value. (K) Long-lived assets The Company continues to evaluate the recoverability of long-lived assets including property, plant and equipment and patents. Impairments are recognized when the expected undiscounted future operating cash flows derived from long-lived assets are less than their carrying value. If impairment is identified, valuation techniques deemed appropriate under the particular circumstances will be used to determine the asset's fair value. The loss will be measured based on the excess of carrying value over the determined fair value. The review for impairment is performed at least once a year. (L) Accounts Payable The Company's cash management system provides for the daily replenishment of its bank accounts for check-clearing requirements. The outstanding check balances of $6.9 million and $3.8 million at December 31, 1999 and December 31, 1998, respectively, are not deducted from cash but are reflected in accounts payable in the consolidated balance sheets. (M) Pensions and other postretirement benefits The North American operations of Viskase and the Company's operations in Europe have defined benefit retirement plans covering substantially all salaried and full time hourly employees. Pension cost is computed using the projected unit credit method. The Company's funding policy is consistent with funding requirements of the applicable federal and foreign laws and regulations. The North American operations of Viskase have postretirement health care and life insurance benefits. (N) Income taxes Income taxes are accounted for in accordance with SFAS No. 109. Tax provisions and benefits are recorded at statutory rates for taxable items included in the consolidated statements of operations regardless of the period for which such items are reported for tax purposes. Deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities. (O) Net (loss) per share Net (loss) per share of common stock is based upon the weighted average number of shares of common stock outstanding during the year. No effect has been given to options outstanding under the Company's stock option plans and warrants issued pursuant to the Plan of Reorganization as their effect is anti-dilutive. (P) Other comprehensive income During 1998 the Company adopted SFAS No. 130, "Reporting Comprehensive Income," which requires the Company to disclose comprehensive income in addition to net income. Comprehensive income includes all other non- shareholder changes in equity. As of December 31, 1999, all such changes in equity resulted from changes in foreign currency translation adjustments. (Q) Revenue recognition Sales to customers are recorded at the time of shipment net of discounts and allowances. (R) Foreign currency contracts The Company uses foreign exchange forward contracts to hedge some of its non-functional currency receivables and payables which are denominated in major currencies that can be traded on open markets. This strategy is used to reduce the overall exposure to the effects of currency fluctuations on cash flows. The Company's policy is not to speculate in financial instruments. Receivables and payables which are denominated in non-functional currencies are translated to the functional currency at month end and the resulting gain or loss is taken to other income and expense on the statement of operations. Gains and losses on hedges of receivables and payables are marked to market. The result is recognized in other income (expense) on the statement of operations. (S) Stock-based compensation SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options and other equity instruments to employees based on new fair value accounting rules. Although expense recognition for employee stock-based compensation is not mandatory, SFAS 123 requires companies that choose not to adopt the new fair value accounting to disclose pro forma net income and earnings per share under the new method. The Company has not adopted fair value accounting, and, accordingly, no compensation cost has been recognized for employee stock-based compensation. The Company has complied with the disclosure requirements of SFAS 123 (refer to Note 18). (T) Accounting standards The Company will adopt the provisions of SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" (SFAS No. 137). SFAS No. 137 is effective for the Company's 2001 financial statements. It requires recognition of all derivative instruments as either assets or liabilities in the balance sheet and the measurement of those instruments at fair value. Management believes the adoption of SFAS No. 137 will not have a significant effect on the Company's financial statements. 3. RECEIVABLES (dollars in thousands) Receivables consisted primarily of trade accounts receivable and were net of allowances for doubtful accounts of $1,642 and $1,507 at December 31, 1999, and at December 31, 1998, respectively. Viskase Companies, Inc. has a broad base of customers, with no single customer accounting for more than 9.0% of sales. 4. INVENTORIES (dollars in thousands) Inventories consisted of: 1999 1998 --------- --------- Raw materials $10,361 $10,500 Work in process 31,039 38,291 Finished products 37,272 44,437 ------- ------- $78,672 $93,228 ======= ======= Approximately 60% and 58% of the Company's inventories at December 31, 1999, and December 31, 1998, respectively, were valued at LIFO. These LIFO values exceeded current manufacturing cost by approximately $7,100 and $7,178 at December 31, 1999, and December 31, 1998, respectively. Inventories were net of reserves for obsolete and slow moving inventory of $4,110 and $3,825 at December 31, 1999, and December 31, 1998, respectively. 5. PROPERTY, PLANT AND EQUIPMENT (dollars in thousands) 1999 1998 ----------- ------------ Property, plant and equipment: Land and improvements $ 7,284 $ 7,579 Buildings and improvements 53,818 55,694 Machinery and equipment 290,544 291,578 Construction in progress 47,786 31,737 Capital leases: Machinery and equipment 88,937 88,937 -------- -------- $488,369 $475,525 ======== ======== Capitalized interest in 1999, 1998 and 1997 is $3,206, $2,425, and $2,110, respectively. Maintenance and repairs charged to costs and expenses for 1999, 1998, and 1997 aggregated $25,070, $30,096, and $32,584, respectively. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Estimated useful lives of land and improvements range from 15 to 30 years; building and improvements range from 10 to 32 years; and machinery and equipment including capital leases range from 2 to 15 years. 6. OTHER ASSETS (dollars in thousands) Other assets were comprised of: 1999 1998 -------- -------- Patents $50,000 $50,000 Less accumulated amortization 30,000 25,000 ------- ------- Patents, net 20,000 25,000 Other 12,086 9,715 ------- ------- $32,086 $34,715 ======= ======= Patents are amortized on the straight-line method over an estimated average useful life of ten years. Capitalized patent defense costs totaled $4,889 and $4,644, respectively, in 1999 and 1998. 7. ACCRUED LIABILITIES (dollars in thousands) Accrued liabilities were comprised of: 1999 1998 Compensation and employee benefits $23,922 $27,645 Taxes 3,054 6,339 Accrued volume and sales discounts 7,755 10,460 Other 12,235 17,875 ------- ------- $46,966 $62,319 ======= ======= 8. DEBT OBLIGATIONS (dollars in thousands) During June 1999, Viskase Corporation and Viskase Sales Corporation entered into two-year secured credit agreements consisting of a $50 million senior revolving credit facility, including a $26 million sublimit for issuance of letters of credit (Senior Revolving Credit Facility), a $50 million senior term facility (Senior Term Facility), collectively the "Senior Secured Credit Facility," and $35 million of junior secured term loans (Junior Term Loans). The proceeds of the Senior Secured Credit Facility and the Junior Term Loans were used to repay the $55 million of its 12% Senior Secured Notes outstanding and obligations outstanding under the Company's existing Revolving Credit Facility. The Senior Secured Credit Facility and Junior Term Loans have a maturity date of June 30, 2001. The Senior Secured Credit Facility is guaranteed by Viskase Companies, Inc. and Viskase Holding Corporation and is collateralized by a collateral pool (Collateral Pool) comprised of: (i) all domestic accounts receivable (including intercompany receivables) and inventory; (ii) all patents, trademarks and other intellectual property and intangible assets; (iii) substantially all domestic fixed assets (other than assets subject to a lease agreement with General Electric Capital Corporation); and (iv) a senior pledge of 100% of the capital stock of Viskase Companies, Inc.'s significant domestic subsidiaries and 65% of the capital stock of Viskase Europe Limited and Viskase Brazil. Borrowings under the Senior Revolving Credit Facility bear interest either at the bank's prime interest rate plus a margin of 75 basis points or the London Interbank Offered Rate (LIBOR) plus a margin of 275 basis points. The Senior Term Facility bears interest at either the bank's prime interest rate plus a margin of 125 basis points or LIBOR plus a margin of 325 basis points. Fees on the outstanding amount of standby letters of credit are 2.25% per annum, with an issuance fee of 0.5% on the face amount of the letter of credit. The unused commitment fee for the Senior Revolving Credit Facility is 0.5% per annum. The Senior Term Facility is payable in six equal quarterly principal payments of $1.786 million beginning on January 4, 2000. The remaining principal balance outstanding under the Senior Term Facility is payable on the June 30, 2001 maturity date. In the event the Company has Surplus Cash (as defined) in any year, the Company is required to use an amount equal to 50% of the Surplus Cash to redeem Senior Term Facility obligations at par. The Company may elect, at its option, to prepay amounts due under the Senior Term Facility; such prepayments may be subject to a prepayment premium of 25 to 100 basis points of the principal amount redeemed depending on the source of funds used for such prepayment. The $35 million Junior Term Loans bear interest at an initial rate of 14% per annum, and increase .5% every six months thereafter, and mature on June 30, 2001. The Junior Term Loans are collateralized by the Collateral Pool for the Senior Secured Credit Facility; however, the Junior Term Loans are subordinated to the obligations outstanding under the Senior Secured Credit Facility. D.P. Kelly and Associates L.P., which owns approximately 14% of the outstanding common stock of Viskase Companies, Inc. is the lender under the Junior Term Loans. The Company's Senior Secured Credit Facility and Junior Term Loans contain a number of financial covenants that, among other things, require the maintenance of a minimum level of tangible net worth, a minimum fixed charge coverage ratio and a minimum leverage ratio of total liabilities to EBDIAT and a limitation on capital expenditures. As of December 31, 1999 and March 31, 2000, the Company is in compliance with the covenants under the Company's Senior Secured Credit Facility and Junior Term Loans. As of June 30, 2000, the Company received an amendment and waiver under the Company's Senior Secured Credit Facility and Junior Term Loans. The Company determined that, as of June 30, 2000, without the amendment and waiver, it would not have been in compliance with the tangible net worth and leverage ratio covenants. (See Note 25.) On August 24, 1998, the Company redeemed $105,000 of the aggregate principal amount of its 12% Senior Secured Notes using proceeds from the Clear Shield National, Inc. (Clear shield) divestiture. The notes were redeemed at approximately 108.5% of principal amount, plus accrued interest to the date of redemption. The Company recognized an extraordinary after-tax loss of $6,800 on the partial redemption of its 12% Senior Secured Notes. The extraordinary loss is comprised of $8,900 of yield maintenance premiums and $2,200 write-off of deferred debt issuance costs, net of a $4,300 income tax benefit. The Company finances its working capital needs through a combination of internally generated cash from operations and borrowings under its $50 million Senior Revolving Credit Facility entered into in June 1999. The availability of funds under the Senior Revolving Credit Facility is subject to the Company's compliance with certain covenants, borrowing base limitations measured by accounts receivable and inventory of the Company, and reserves that may be established at the discretion of the lenders. There is approximately $8.6 million outstanding under the Senior Revolving Credit Facility at December 31, 1999. The $219,262 principal amount of 10-1/4% Notes were issued pursuant to an Indenture dated as of December 31, 1993 (10-1/4% Note Indenture) between Viskase Companies, Inc. and Bankers Trust Company, as Trustee. The 10-1/4% Notes are the unsecured senior obligations of Viskase Companies, Inc., bear interest at the rate of 10-1/4% per annum, payable on each June 1 and December 1, and mature on December 1, 2001. The 10-1/4% Notes are redeemable, in whole or from time to time in part, at the option of Viskase Companies, Inc., at par, effective January 1, 2000, of the principal amount specified plus accrued and unpaid interest to the redemption date. The 10-1/4% Note Indenture contains covenants with respect to Viskase Companies, Inc. and its subsidiaries limiting (subject to a number of important qualifications), among other things, (i) the ability to pay dividends on or redeem or repurchase capital stock, (ii) the incurrence of indebtedness, (iii) certain affiliate transactions and (iv) the ability of the Company to consolidate with or merge with or into another entity or to dispose of substantially all its assets. The Company's 10.25% Notes, of which $219.3 million principal amount is outstanding, will mature in December 2001. The Company anticipates it will refinance the 10.25% Notes or seek alternative strategies including, but not limited to, using proceeds from asset sales, litigation, if any, or selling additional equity capital. Outstanding short-term and long-term debt consisted of:
December December 31, 1999 31, 1998 -------- -------- Short-term debt, current maturity of long-term debt and capital lease obligations: Senior Term Facility $ 7,144 Current maturity of Viskase Capital Lease Obligation 14,377 $13,031 Current maturity of Viskase Limited Term Loan (3.2%) 753 1,742 Other 821 1,347 -------- -------- Total short-term debt $23,095 $16,120 ======== ======== Long-term debt: Senior Revolving Credit Facility $ 8,551 Senior Term Facility 42,856 Junior Term Facility 35,000 12% Senior Secured Notes due 1999 $ 55,000 10.25% Senior Notes due 2001 219,262 219,262 Viskase Capital Lease Obligation 97,466 111,842 Viskase Limited Term Loan (3.2%) 868 Other 1,016 1,908 -------- -------- Total long-term debt $404,151 $388,880 ======== ========
The fair value of the Company's debt obligation (excluding capital lease obligations) is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for the debt of the same remaining maturities. At December 31, 1999, the carrying amount and estimated fair value of debt obligations (excluding capital lease obligations) were $313,628 and $225,923, respectively. The average interest rate on short-term borrowing during 1999 was 9.31%. On December 28, 1990, Viskase and GECC entered into a sale and leaseback transaction. The sale and leaseback of assets included the production and finishing equipment at Viskase's four domestic casing production and finishing facilities. The facilities are located in Chicago, Illinois; Loudon, Tennessee; Osceola, Arkansas and Kentland, Indiana. Viskase, as the Lessee under the relevant agreements, will continue to operate the facilities in Loudon, Tennessee; Osceola, Arkansas and Kentland, Indiana. The Chicago facility has been written down to net realizable value due to business conditions leading to the Viskase plan of restructuring (see Note 11). Sales proceeds on the sale-leaseback transaction were $171.5 million; proceeds were used to repay approximately $154 million of bank debt and a $15 million convertible note outstanding at the time. The lease has been accounted for as a capital lease. The principal terms of the sale and leaseback transaction include: (a) a 15-year basic lease term (plus selected renewals at Viskase's option); (b) annual rent payments in advance beginning in February 1991; and (c) a fixed price purchase option at the end of the basic 15-year term and fair market purchase options at the end of the basic term and each renewal term. Further, the Lease Documents contain covenants requiring maintenance by the Company of certain financial ratios and restricting the Company's ability to pay dividends, make payments to affiliates, make investments and incur indebtedness. The Company entered into an Agreement dated March 3, 2000, amended March 9, 2000, March 23, 2000 and March 30, 2000, that extended the grace period for the payment of its February 28, 2000 annual GECC lease payment in the amount of $23.5 million. On April 13, 2000 the Company entered into an Agreement and Amendment that extended the payment date to June 30, 2000 and waived the noncompliance of the Fixed Charge Coverage Ratio for the quarter ended December 31, 1999 and March 31, 2000. The June 30, 2000 payment extension date was subsequently modified to September 26, 2000 under an Agreement dated June 13, 2000. (See Note 25.) Under the terms of the April 13, 2000 Agreement and Amendment with GECC, the Company agreed to amend the amortization schedule of annual lease payments, maintain a letter of credit in the amount of $23.5 million at all times, limit additional borrowings and provide a subordinated security interest collateralized by the Collateral Pool. Holders of the Senior Secured Credit Facility and the Junior Term Loans consented to the payment extensions and the subordinated security interest granted to GECC. The revised amortization schedule is presented below. The required $47.0 million payment, per the amended amortization schedule, which was due no later than September 26, 2000, was made on August 31, 2000. (See Note 25.) August 31, 2000 $46,998 November 1, 2001 11,750 February 28, 2002 11,749 February 28, 2003 23,499 February 28, 2004 23,499 February 28, 2005 23,499 The following is a schedule of minimum future lease payments under all capital lease obligations together with the present value of the net minimum lease payments as of December 31, 1999. The revised amortization schedule is presented above and in the Subsequent Events Note. Year ending December 2000 $ 23,499 2001 23,499 2002 23,499 2003 23,499 2004 23,499 2005 23,500 -------- Net minimum lease payments 140,995 Less: Amount representing interest (29,153) -------- $111,842 ======== Aggregate maturities of remaining long-term debt for each of the next five years, after reflecting the refinancing are: Total -------- 2000 $ 23,095 2001 322,040 2002 17,825 2003 19,424 2004 21,300 9. OPERATING LEASES (dollars in thousands) The Company has operating lease agreements for machinery, equipment and facilities. The majority of the facilities leases require the Company to pay maintenance, insurance and real estate taxes. Future minimum lease payments for operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 1999, are: 2000 $1,783 2001 1,230 2002 806 2003 534 2004 482 Total thereafter 85 ------ Total minimum lease payments $4,920 ====== Total rent expense during 1999, 1998 and 1997 amounted to $2,561, $3,497, and $4,506, respectively. 10. RETIREMENT PLANS The Company and its subsidiaries have defined contribution and defined benefit plans varying by country and subsidiary. At December 31, 1999, the North American operations of Viskase maintained several non-contributory defined benefit retirement plans. The Viskase plans cover substantially all salaried and full-time hourly employees, and benefits are based on final average compensation and years of credited service. The Company's policy is to fund the minimum actuarially computed annual contribution required under the Employee Retirement Income Security Act of 1974 (ERISA). As of the Viskase acquisition date, the former owner assumed the liability for the accumulated benefit obligation under its plans. The effect of expected future compensation increases on benefits accrued is recorded as a liability on the Company's consolidated balance sheet. PENSIONS AND OTHER POSTRETIREMENT BENEFITS PLANS - NORTH AMERICA (dollars in thousands):
Pension Benefits Other Benefits -------------------- -------------------- 1999 1998 1999 1998 -------- ------- ------- -------- CHANGE IN BENEFIT OBLIGATION Projected benefit obligation at beginning of year $103,334 $88,939 $33,143 $29,958 Adjustment to actual (354) Plan Amendment 1,164 Service cost 3,574 3,695 1,026 739 Interest cost 6,799 6,599 2,640 2,179 Actuarial (gain) losses (824) 8,945 6,546 2,749 Benefits paid (4,545) (3,786) (1,609) (761) Effect of special termination benefits 901 Effect of settlement/curtailments (2,817) (1,574) Translation 255 (306) 120 (147) -------- -------- ------- ------- Estimated benefit obligation at end of year $108,239 $103,334 $41,866 $33,143 ======== ======== ======= ======= CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $76,901 $65,671 Adjustment to actual 4,531 Actual return on plan assets 7,447 6,779 Employer contribution 7,763 8,316 $ 1,609 $ 761 Transfer from other plan 296 Benefits paid (4,545) (3,786) (1,609) (761) Translation 316 (375) -------- -------- ------- ------- Estimated fair value of plan assets at end of year $92,413 $76,901 $ 0 $ 0 ======== ======== ======= ======= RECONCILIATION OF (ACCRUED), AT YEAR END Funded status $(15,826) $(26,433) $(41,866) $(33,143) Unrecognized actuarial (gain) loss (370) (397) 153 291 Unrecognized net pension obligation 231 262 Unrecognized net (gain) loss (1,720) 3,990 7,763 1,490 Unrecognized prior service cost 801 896 386 461 Translation (10) 15 14 (29) -------- -------- ------- ------- (Accrued) benefit cost $(16,894) $(21,667) $(33,550) $(30,930) ======== ======== ======= =======
The change in benefit obligation and change in plan assets ending balances are based on estimates and are retroactively adjusted to actual.
WEIGHTED AVERAGE ASSUMPTIONS AS OF END OF YEAR Discount rate 6.79% 7.26% 6.78% 6.79% Expected return on plan assets 8.90% 8.85% Rate of compensation increase 4.27% 4.27%
For measurement purposes, a 9% and 7% annual rate of increase in the per capita cost of covered health care benefits was assumed in 2000 for the U.S. and Canadian plans, respectively. The rates were assumed to decrease gradually to 6.5% and 5% in 2004 and remain at that level thereafter for the U.S. and Canadian plans, respectively.
Pension Benefits Other Benefits -------------------- -------------------- 1999 1998 1999 1998 -------- ------- ------- -------- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $3,575 $3,695 $1,026 $ 739 Interest cost 6,799 6,599 2,640 2,179 Expected return on plan assets (7,462) (6,166) Effect of settlement/curtailment 9 Amortization of net pension obligation 44 54 Amortization of prior service cost 95 105 70 73 Amortization of actuarial (gain) loss (7) 9 407 (27) -------- -------- ------- ------- Net periodic benefit cost 3,044 4,296 4,143 2,973 FAS No. 88 curtailment cost 1,047 (100) -------- -------- ------- ------- Total net periodic benefit cost $3,044 $5,343 $4,143 $2,873 ======== ======== ======= ======= During 1998, the Company restructured its Viskase operations including a workforce reduction resulting in a curtailment loss of $1.0 million. Assumed healthcare cost trend rates have a significant effect on the amounts reported for healthcare plans. A one-percentage point change in assumed healthcare cost trend rates would have the following effects: Effect of 1% change in medical trend cost Based on a 1% increase Change in accumulated postretirement benefit obligation $1,402 Change in service cost and interest 120 Based on a 1% decrease Change in accumulated postretirement benefit obligation $(1,600) Change in service cost and interest (138) SAVINGS PLANS (dollars in thousands): The Company also has defined contribution savings and similar plans, which vary by subsidiary, and, accordingly, are available to substantially all full-time United States employees not covered by collective bargaining agreements. The Company's aggregate contributions to these plans are based on eligible employee contributions and certain other factors. The Company expense for these plans was $1,348, $1,587, and $2,304 in 1999, 1998, and 1997, respectively. INTERNATIONAL PLANS (dollars in thousands): The Company maintains various pension and statutory separation pay plans for its European employees. The expense for these plans in 1999, 1998 and 1997 was $1,402, $1,431, and $1,216, respectively. As of their most recent valuation dates, in plans where vested benefits exceeded plan assets, the actuarially computed value of vested benefits exceeded those plans' assets by approximately $1,994; conversely, plan assets exceeded the vested benefits in certain other plans by approximately $2,218. EMPLOYEE RELATIONS The Company generally maintains productive and amicable relationships with its 2,940 employees worldwide. One of Viskase's domestic plants, located in Loudon, Tennessee, is unionized, and all of its Canadian and European plants have unions. Employees at the Company's European plants are unionized with negotiations occurring at both local and national levels. Based on past experience and current conditions, the Company does not expect a protracted work stoppage to occur stemming from union activities; however, national events outside of the Company's control may give rise to such risk. From time to time union organization efforts have occurred at other individual plant locations. Unions represent a total of approximately 750 of Viskase's 2,940 employees. As of December 31, 1999, approximately 750 of the Company's employees are covered by collective bargaining agreements that will expire after one year. 11. UNUSUAL CHARGES During the third quarter of 1998, due to the business conditions leading to the Viskase plan of restructuring, the Company evaluated the recoverability of long-lived assets including property, plant and equipment, patents and excess reorganization on a consolidated basis. Based upon the analysis, the Company recognized an impairment because the estimated consolidated undiscounted future cash flows derived from long-lived assets were determined to be less than their carrying value. The amount of the impairment was calculated using the present value of the Company's estimated future net cash flows to determine the assets' fair value. Based on this analysis, an impairment charge of $91.2 million for excess reorganization and $4.3 million for the write-down of the Chicago facility was taken. In addition, the Viskase plan of restructuring included charges for the decommissioning of the Chicago plant and the decommissioning of some of its foreign operations. During 1999 and 1998, cash payments against the reserve were $2.7 million and $6.5 million, respectively. A remaining restructuring reserve of $2.3 million is included in accrued liabilities on the balance sheet. This amount is expected to reverse by 2001. 12. DISCONTINUED OPERATIONS (dollars in thousands) On June 8, 1998, the Company's Board of Directors approved the sale of two of the Company's subsidiaries, Clear Shield and Sandusky. Accordingly, the operating results of the two subsidiaries have been segregated from continuing operations and reported as a separate line item on the income statement under the heading Discontinued Operations. The sale of Sandusky and Clear Shield was completed on June 11, 1998 and July 23, 1998, respectively. Operating results from discontinued operations for 1998 and 1997 are:
53 weeks 52 weeks December 26, December 27, 1997 to 1996 to December 31, December 25, 1998 1997 ------------ -------------- Net sales $62,317 $114,535 Costs and expenses Cost of sales 50,810 92,434 Selling, general and administrative 9,457 16,419 Amortization of intangibles and excess reorganization value 863 1,798 ------- ------- Operating income 1,187 3,884 Interest expense 50 102 Other expense, net 91 1,691 ------- ------- Income from discontinued operations before taxes 1,046 2,091 Income tax provision 633 1,374 ------- ------- Net Income from discontinued operations $ 413 $ 717 ======= =======
13. INCOME TAXES (dollars in thousands)
1999 1998 1997 ---------- ------------ ------------- Pre-tax income from continuing operations consisted of: Domestic $(28,670) $(152,539) $(36,366) Foreign (6,146) (43,138) 2,330 ------- -------- -------- Total $(34,816) $(195,677) $(34,036) ======= ======== ========
The provision (benefit) for income taxes from continuing operations consisted of:
1999 1998 1997 ------- ------- ------- Current: Federal $ 0 $ 0 $ 0 Foreign 5,090 2,401 2,593 State 0 150 0 ------- -------- -------- Total current 5,090 2,551 2,593 Deferred: Federal (2,774) (14,929) (23,290) Foreign (4,898) 723 (1,307) State (476) (2,349) (1,670) ------- -------- -------- Total deferred (8,148) (16,555) (26,267) ------- -------- -------- Total $(3,058) $(14,004) $(23,674) ======= ======== ========
The total provision (benefit) for income taxes was allocated to the following categories:
1999 1998 1997 ------- ------- ------- Continuing operations $(3,058) $(14,004) $(23,674) Income from discontinued operations 633 1,374 Gain on sale of discontinued operations 19,556 Extraordinary loss (4,343) ------- ------- ------- Total income tax provision (benefit) $(3,058) $ 1,842 $(22,300) ======= ======== ========
A reconciliation from the statutory federal tax rate to the effective tax rate for continuing operations follows:
1999 1998 1997 ------- ------- ------- Statutory federal tax rate 35.00% 35.00% 35.00% Increase (decrease) in tax rate due to: State and local taxes net of related federal tax benefit .89 1.73 3.16 Net effect of taxes relating to foreign operations (6.73) (9.31) (1.41) Intangibles amortization - (9.39) (6.71) Reversal of overaccrued taxes 7.97 1.77 9.66 Valuation allowance changes and other (28.35) (12.64) 29.85 ------- ------- ------- Effective tax rate from continuing operations 8.78% 7.16% 69.55% ======= ======== ========
Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities for 1999 and 1998 are as follows:
Year 1999 ------------------------------------------------------------ Temporary Difference Tax Effected ----------------------------- ---------------------------- Deferred Tax Deferred Tax Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities ------------- ------------ ----------- --------------- Depreciation basis differences $147,091 $ 57,366 Inventory basis differences 27,877 10,872 Intangible basis differences 20,000 7,800 Lease transaction $111,842 $43,618 Pension and healthcare 52,160 20,342 Employee benefits accruals 8,674 3,383 Loss and other carryforwards 139,640 54,460 Other accruals and reserves 15 6 Foreign exchange and other 49,628 19,355 Valuation allowances 137,117 53,475 -------- -------- -------- -------- $312,331 $381,713 $121,809 $148,868 ======== ======== ======== ========
Year 1998 ------------------------------------------------------------ Temporary Difference Tax Effected ----------------------------- ---------------------------- Deferred Tax Deferred Tax Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities ------------- ------------ ----------- --------------- Depreciation basis differences $189,104 $ 73,464 Inventory basis differences 28,346 11,078 Intangible basis differences 25,000 9,750 Lease transaction $124,873 $48,700 Pension and healthcare 53,145 20,727 Employee benefits accruals 12,841 5,008 Loss and other carryforwards 101,340 39,523 Other accruals and reserves 3,400 1,332 Foreign exchange and other 35,330 13,788 Valuation allowances 108,757 42,415 -------- -------- -------- -------- $295,599 $386,537 $115,290 $150,495 ======== ======== ======== ========
At December 31, 1999 and December 31, 1998, the Company had $4,273 and $15,922, respectively, of undistributed earnings of foreign subsidiaries considered permanently invested for which deferred taxes have not been provided. At December 31, 1999, the Company had federal income tax net operating loss carryforwards of approximately $140 million offset by a valuation allowance. At December 31, 1998, the Company had federal income tax net operating loss carryforwards of approximately $101 million, which have been substantially offset by a valuation allowance. Such losses will expire by 2019, if not previously utilized. In addition at December 31, 1999 and December 31, 1998, the Company had alternative minimum tax credit carryforwards of $3.9 million. Alternative minimum tax credits have an indefinite carryforward period. Significant limitations on the utilization of the net operating loss carryforwards and the alternative minimum tax credit carryforwards exist under federal income tax rules. Domestic (losses) after extraordinary loss and before income taxes were approximately $(28,670), $(104,016), and $(34,275) in 1999, 1998 and 1997, respectively. Foreign earnings or (losses) before income taxes were approximately $(6,146), $(43,138), and $2,330 in 1999, 1998 and 1997, respectively. The Company joins in filing a United States consolidated federal income tax return including all of its domestic subsidiaries. 14. COMMITMENTS As of December 31, 1999, the Company had capital expenditure commitments outstanding of approximately $1.8 million. 15. CONTINGENCIES In late 1993, Viskase commenced a legal action against American National Can Company (ANC) in Federal District Court for the Northern District of Illinois, Eastern Division, 93C7651. Viskase claimed that ANC's use of two different very low density polyethylene plastic resins in the manufacture of ANC's multi-layer barrier shrink film products was infringing various Viskase patents relating to multi-layer barrier plastic films used for fresh red meat, processed meat and poultry product applications. In November 1996, after a three-week trial, a jury found that ANC had willfully infringed Viskase's patents and awarded Viskase $102.4 million in compensatory damages. The Court also entered an order permanently enjoining ANC from making or selling infringing products. In September 1997, the Court set aside the jury verdict in part and ordered a retrial on certain issues. The Court upheld the jury finding on the validity of all of Viskase's patents and the jury finding that ANC had willfully infringed Viskase's patents by ANC's use of Dow Chemical Company's "Attane" brand polyethylene plastic resin in ANC's products. However, the Court ordered a new trial on the issue of whether ANC's use of Dow Chemical Company's "Affinity" brand polyethylene plastic resin infringed Viskase's patents and whether such conduct was willful. Because the jury rendered one general damage verdict, the Court ordered a retrial of all damage issues. By operation of the Court's order, the injunction in respect of ANC's future use of the "Affinity" brand resin was removed. On August 19, 1998, the Court granted Viskase's motion for partial summary judgment finding that ANC's use of the "Affinity" brand resin infringed Viskase's patents. The Court also reinstated the permanent injunction. Viskase filed a motion to have the jury verdict as to compensatory damages reinstated. ANC filed a motion to dismiss the lawsuit claiming that Viskase's patents are invalid and Viskase failed to join an indispensable party to the lawsuit. On May 10, 1999, the Court granted Viskase's motion to have the jury verdict as to the compensatory damages reinstated. In May and June 1999, the parties briefed the issue of enhanced damages and on July 2, 1999, the Court awarded Viskase total damages of $164.9 million. ANC filed a motion for reconsideration which was denied. On May 3, 1999, ANC commenced legal action in the Federal District Court for the Northern District of Illinois seeking declaratory relief that one of the litigated patents is invalid. ANC also filed a motion to consolidate the declaratory action with the 1993 suit. ANC's motion to consolidate was granted and then the Court dismissed ANC's suit with prejudice at the same time the Court awarded Viskase total damages of $164.9 million. ANC has filed a notice of appeal to the United States Court of Appeals for the Federal Circuit. Oral arguments before the United States Circuit of Appeals for the Federal Circuit were held on June 6, 2000 and Viskase expects a decision during fourth quarter of 2000 or first quarter of 2001. In addition, ANC has challenged two of the five Viskase patents in suit by filing requests for reexamination with the United States Patent and Trademark office (USPTO). Both patents under reexamination have been rejected by the USPTO. In both cases, Viskase has filed appeals to the Board of Patent Appeals and Interferences of the USPTO. For the first patent, Viskase's brief was filed July 13, 2000, and the Examiner's Answer is awaited. For the second patent, Viskase's brief is due October 23, 2000. On January 14, 2000, Pechiney Plastic Packaging, Inc. and Pechiney Emballage Flexible Europe, Inc. (successors in interest in ANC) filed suit against the Company and Viskase in the United States District Court for the Northern District of Illinois, Eastern Division. This suit alleges infringement of U.S. Reissue Patent No. 35,567, which patent is set to expire on April 26, 2002, and further alleges patent interference with one of the five Viskase patents litigated in Viskase's legal action against ANC. In May 2000, the District Court dismissed the patent interference count. Pechiney filed an Amended Complaint on June 30, 2000 seeking to reinstate the dismissed count (Count III). On July 25, 2000, Viskase filed a Motion to Dismiss Count III of the Amended Complaint and also filed a Motion for Sanctions related thereto. On August 9, 2000, Viskase filed a Supplemental Motion for Sanctions. On August 24, 2000, Pechiney responded to these motions and Viskase filed its reply on September 14, 2000. Rulings on these motions are presently set for October 13, 2000. Viskase's Answer to the Amended Complaint is presently due October 23, 2000. No part of the pending claims has been recorded in the Company's finan- cial statements. Through December 31, 1999, $4.9 million in patent defense costs had been accrued and capitalized. In March 1997, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the sausage casings industry. In September 1999, Viskase Corporation received a subpoena from the Antitrust Division of the United States Department of Justice relating to the expansion of the grand jury investigation into the specialty films industry. Viskase is cooperating fully with the investigations. In November 1999, the Company and certain of its subsidiaries and one other sausage casings manufacturer were named in a civil complaint, Leon's Sausage Company, on behalf of itself and all others similarly -------------------------------------------------------------------- situated v. Viskase Companies, Inc., Envirodyne Industries, Inc., ---------------------------------------------------------------- Viskase Corporation, Devro-Teepak, Inc., Civil Action No. 99C7200, --------------------------------------- United States District Court for the Northern District of Illinois, Eastern Division. This complaint alleged that the defendants unlawfully conspired to fix prices and allocate business in the sausage casings industry. In December 1999, the plaintiff in this action voluntarily dismissed the complaint without prejudice. In late 1999 and early 2000, the Company and certain of its subsidiaries and one other sausage manufacturer were named in ten virtually identical civil complaints filed in the District of New Jersey by the following plaintiffs: Smith Provision Co., Inc.; Parks LLC (d/b/a Parks Sausage Company); Real Kosher Sausage Company, Inc.; Sahlen Packing Co., Inc.; Marathon Enterprises, Inc.; Ventures East, Inc.; Keniston's, Inc.; Smithfield Foods, Inc.; Clougherty Packing Co.; and Klement Sausage Co. The District Circuit ordered all of these cases consolidated in the District of New Jersey. Civil Action No. 99-5195-MLC (D.N.J.). Each complaint brought on behalf of a purported class of sausage casings customers alleges that the defendants unlawfully conspired to fix prices and allocate business in the sausage casings industry. The Company and its subsidiaries have filed answers to each of these complaints denying liability. The Company and its subsidiaries are involved in various legal proceedings arising out of their business and other environmental matters, none of which is expected to have a material adverse effect upon results of operations, cash flows or financial position. 16. CAPITAL STOCK AND PAID IN CAPITAL Authorized shares of preferred stock ($.01 par value per share) and common stock ($.01 par value per share) for the reorganized Viskase Companies, Inc. are 25,000,000 shares and 50,000,000 shares, respectively. 15,058,439 shares of common stock were issued and outstanding as of December 31, 1999. A total of 198,972 shares were issued in 1999 for directors' compensation and shares conversion from a non-qualified employee benefit plan. On June 26, 1996, the Board of Directors adopted a Stockholder Rights Plan (Plan). Under the Plan, the Board declared a dividend of one Common Stock Purchase Right (Right) for each outstanding common share of the Company. Rights were issued to the stockholders of record on June 26, 1996. The Rights are attached to and automatically trade with the outstanding shares of the Company's common stock. The Rights will only become exercisable ten days after a public announcement that a person or group has acquired or obtained the right to acquire 41% or more of the Company's Common Stock or ten business days after a person or group commences a tender or offer that would result in such person or group owning 41% or more of the outstanding shares (even if no purchases actually occur). When the Rights first become exercisable, each Right will entitle the holder thereof to buy from the Company one share of Common Stock for $20.00, subject to adjustment. If any person acquires 41% or more of the Company's Common Stock, other than pursuant to a tender or exchange offer for all outstanding shares of the Company approved by a majority of the independent directors not affiliated with a 40%-or-more stockholder, after receiving advice from one or more investment banking firms, each Right not owned by a 41%-or-more stockholder would become exercisable for shares of the Company having a market value of two times the exercise price of the Right. If the Company is involved in a merger or other business combination, or sells 50% or more of its assets or earning power to another person, at any time after the Rights become exercisable, the Rights will entitle the holder thereof to buy shares of common stock of the acquiring company having a market value of twice the exercise price of each Right. Rights may be redeemed at a price of $0.001 per Right at any time prior to their expiration on June 26, 2006. 17. EARNINGS PER SHARE (dollars in thousands) In February 1997 the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share," which became effective for both interim and annual financial statement periods ending after December 15, 1997. As required by this Statement, the Company adopted the new standards for computing and presenting earnings per share (EPS) in 1997, and for all period earnings per share data presented. Following are the reconciliations of the numerators and denominators of the basic and diluted EPS.
53/52 Weeks Ended Year Ended ------------------------------ December December December 31, 1999 31, 1998 25, 1997 ---------- ---------- ---------- Numerator: Net (loss) available to common stockholders: From continuing operations $(31,758) $(181,673) $(10,362) Discontinued operations: Income from discontinued operations 413 717 Gain on disposal 39,057 ---------- ---------- ---------- Net (loss) before extraordinary item (31,758) (142,203) (9,645) Extraordinary (loss) (6,793) ---------- ---------- ---------- Net loss available to common stockholders for basic and diluted EPS $(31,758) $(148,996) $(9,645) ========== ========== ========== Denominator: Weighted average shares outstanding for basic EPS 14,949,965 14,824,885 14,617,540 Effect of dilutive securities 0 0 0 ---------- ---------- ---------- Weighted average shares outstanding for diluted EPS 14,949,965 14,824,885 14,617,540 ========== ========== ==========
Common stock equivalents are excluded from the loss-per-share calculations as the result is antidilutive since the numerator is a loss from continuing operations. 18. STOCK-BASED COMPENSATION (dollars in thousands) The Company maintains several stock option plans and agreements. The plans provide for the granting of incentive and nonqualified stock options to employees, officers, and directors. Stock options have been granted at prices at or above the fair market value on the date of grant. Options generally vest in three equal installments beginning one year from the grant date and expire ten years from the grant date. Non- employee director options, however, vest on the date of grant. The options are subject to acceleration upon the occurrence of certain events. The Company accounts for these plans under Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations. Accordingly, compensation expense is recognized using the intrinsic value-based method for options granted under the plans. The Company has adopted only the disclosure provisions required by SFAS No. 123, "Accounting for Stock Based Compensation." A summary of the Company's stock option activity during the year ended December 31, 1999, and the fiscal years ended December 31, 1998 and December 25, 1997 is presented below:
1999 1998 1997 ------------------------- ------------------------ ---------------------- Weighted Weighted Weighted Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price Outstanding at beginning of year 956,326 $4.57 735,024 $4.71 898,830 $4.60 Granted 4,000 4.50 557,200 5.21 65,000 6.46 Exercised (86,833) 4.84 (177,839) 4.89 Forfeited (313,566) 5.36 (249,065) 6.30 (50,967) 4.38 ------- -------- ------- Outstanding at year end 646,760 $4.19 956,326 $4.57 735,024 $4.71 ======= ======== ======= Options exercisable at year end 434,075 $4.43 584,655 $5.04 368,884 $4.84 ======= ======== ======= Future option grants available at year end 638,568 329,002 637,137 ======= ======== =======
As of December 31, 1999, total stock options outstanding have a weighted-average remaining contractual life of 7.19 years. The exercise price of options outstanding as of December 31, 1999 ranged from $3.50 to $7.25. The weighted average grant date fair value of options granted during fiscals 1999, 1998 and 1997 was $3.42, $2.74 and $2.07, respectively. Compensation expense associated with these plans has not been recognized to date in accordance with APB 25. Had the Company elected to apply the provisions of SFAS No. 123 regarding recognition of compensation expense to the extent of the calculated fair value of compensatory options, reported net loss and earnings per share would have been increased to the following amounts (only options granted in years 1995 and forward are included in the calculation of pro forma net income and earnings per share):
1999 1998 1997 ------------ ------------ ----------- (Loss) before extraordinary item $(31,758) $(142,203) $(9,645) Pro forma (loss) before extraordinary item (31,877) (142,317) (9,909) Net (loss) (31,758) (148,996) (9,645) Pro forma net (loss) (31,877) (149,110) (9,909) PER SHARE AMOUNTS: (Loss) before extraordinary item - basic and diluted EPS $(2.12) $(9.59) $(.66) Pro forma (loss) before extraordinary item - basic and diluted EPS (2.13) (9.60) (.68) Net (loss) - basic and diluted EPS (2.12) (10.05) (.66) Pro forma net (loss) - basic and diluted EPS (2.13) (10.06) (.68)
The effects of applying SFAS 123 in the above pro forma disclosure are not likely to be representative of the effects disclosed in future years as SFAS 123 does not apply to grants prior to 1995. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: (1) expected volatility of 91.81% in 1999, 52.61% in 1998 and 36.39% in 1997, (2) risk-free interest rate equaling the 5-year treasury yield on the grant date was 5.77% in 1999, ranging from 4.58% to 5.40% in 1998, and 5.77% to 6.50% in 1997, and (3) the expected life of 5 years in 1999, 1998 and 1997. The Company has never declared dividends, nor does it currently expect to declare dividends in the foreseeable future. Pursuant to the employment agreement between the Company and its chief executive officer, the Company issued 35,000 shares of common stock to its chief executive officer, which vested on March 27, 1999. The shares issued under the employment agreement have been recorded at fair market value on the date of grant with a corresponding charge to stockholders' equity for the unearned portion of the award. The fair market value per share was $3.50. The unearned portion was amortized as compensation expense on a straight-line basis over the related vesting period. Compensation expense related to the plan totaled $10, $41, and $41 during 1999, 1998, and 1997, respectively. The Company also has a stock compensation plan for the non-employee directors of the Company that was approved during fiscal 1996. These directors may elect to receive directors fees in the form of common stock of the Company based upon the average market price of the Company's common stock on the grant date. Under this plan, during 1999, 1998 and 1997, 32,616 shares of stock were issued at $3.65, 19,192 shares of stock were issued at $5.89 per share, and 30,496 shares of stock were issued at $7.12 per share, respectively. 19. COMPREHENSIVE INCOME (in thousands)
The following sets forth the components of other comprehensive (loss) income and the related income tax (benefit) provision: 53/52 Weeks Ended Year Ended ---------------------------- December 31, December 31, December 25, 1999 1998 1997 ----------- ----------- ------------ Foreign currency translation adjustment (1) $(1,542) $973 $(2,566) (1) Net of related tax (benefit) provision of $(986), $622, and $(1,641) for the year ended 1999 and the fiscal years ended 1998 and 1997, respectively.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS (dollars in thousands) The following table presents the carrying value and estimated fair value as of December 31, 1999 of the Company's financial instruments. (Refer to Notes 2 and 8.) Carrying Estimated Value Fair Value -------- ---------- Assets: Cash and equivalents $ 6,243 $ 6,243 Foreign currency contracts 0 0 Liabilities: Long-term debt (excluding capital lease obligations) $313,628 $225,923 21. RESEARCH AND DEVELOPMENT COSTS (dollars in thousands) Research and development costs from continuing operations are expensed as incurred and totaled $7,799, $7,375, and $6,907 for 1999, 1998, and 1997, respectively. 22. RELATED PARTY TRANSACTIONS (dollars in thousands) During 1999, 1998 and 1997, the Company purchased product and services from affiliates of DPK in the amounts of approximately $9, $200 and $187, respectively. During fiscal 1998 and 1997, the Company sublet office space from DPK for which it paid approximately $77 and $133, respectively, in rent. During fiscal 1997, the Company reimbursed a non- affiliated medical and benefit plan in the aggregate amount of $34 for medical claims and benefits of certain officers. During 1997, the Company advanced funds to and made payments on behalf of DPK and Donald P. Kelly in the amount of $27 for legal fees related to litigation for the period when Mr. Kelly was an executive officer of the Company. During years 1999, 1998 and 1997, Viskase Corporation, a wholly owned subsidiary of the Company, had sales of $32,577, $21,804 and $21,825, respectively, to Cargill, Inc. and its affiliates. Such sales were made in the ordinary course of business. During 1999 Cargill Financial Services Corporation had beneficial ownership of less than 5% of the Company's outstanding Common Stock, and Gregory R. Page, President and Chief Operating Officer of Cargill, Inc., is a director of the Company. 23. BUSINESS SEGMENT INFORMATION AND GEOGRAPHIC AREA INFORMATION (dollars in thousands) Viskase Companies, Inc. primarily manufactures and sells cellulosic food casings and plastic packaging films from continuing operations. The Company's operations are primarily in North, South America and Europe. Intercompany sales and charges (including royalties) have been reflected as appropriate in the following information. Certain items are maintained at the Company's corporate headquarters and are not allocated to the segments. They include most of the Company's debt and related interest expense and income tax benefits. Other expense for 1999, 1998, and 1997 includes net foreign exchange transaction (losses) of approximately $(5,680), $(880), and $(2,117), respectively. Business Segment Information
Year Ended 53/52 Weeks Ended December 31, December 31, December 25, 1999 1998 1997 ----------- ------------ ----------- Net sales from continuing operations: Casings $225,767 $246,932 $281,647 Films 159,886 162,237 216,686 -------- -------- -------- $385,653 $409,169 $498,333 ======== ======== ======== Earnings before income taxes: Operating income from continuing operations: Casings $15,834 $(109,242) $16,040 Films 601 (35,385) 6,189 -------- -------- -------- $16,435 $(144,627) $22,229 ======== ======== ======== Identifiable assets: Casings $313,044 $334,450 $444,239 Films 180,774 196,619 263,384 Discontinued operations 106,230 -------- -------- -------- $493,818 $531,069 $813,853 ======== ======== ======== Depreciation and amortization: Casings $26,922 $33,549 $34,158 Films 16,750 17,625 17,510 Discontinued operations 4,374 7,641 -------- -------- -------- $43,672 $55,548 $59,309 ======== ======== ======== Capital expenditures: Casings $19,181 $27,271 $36,625 Films 8,762 8,083 9,334 Discontinued operations 11,920 -------- -------- -------- $27,943 $35,354 $57,879 ======== ======== ========
Geographic Area Information
Year Ended 53/52 Weeks Ended December 31, December 31, December 25, 1999 1998 1997 ----------- ------------ ----------- Net sales from continuing operations: -------- -------- -------- North America $243,826 $257,093 $303,138 South America 32,523 33,681 40,169 Europe 132,445 138,231 174,008 Other and eliminations (23,141) (19,836) (18,982) -------- -------- -------- $385,653 $409,169 $498,333 ======== ======== ======== Operating (loss) profit from continuing operations: North America $10,065 $(151,117) $13,270 South America 4,978 3,615 2,108 Europe 1,322 3,530 10,817 Other and eliminations 70 (655) (3,966) -------- -------- -------- $16,435 $(144,627) $22,229 ======== ======== ======== Identifiable assets: North America $320,323 $335,313 $592,790 South America 30,123 32,102 33,389 Europe 142,713 162,683 184,659 Other and eliminations 659 971 3,015 -------- -------- -------- $493,818 $531,069 $813,853 ======== ======== ======== United States export sales: (reported in North America sales above) Asia $19,901 $19,861 $25,282 South and Central America 15,005 13,136 14,191 Other International 94 100 305 -------- -------- -------- $35,000 $33,097 $39,778 ======== ======== ========
The total assets and net assets of foreign businesses were approximately $183,335 and $86,793 at December 31, 1999. 24. QUARTERLY DATA (unaudited) Quarterly financial information for 1999 and 1998 is as follows (in thousands, except for per share amounts):
First Second Third Fourth Fiscal 1999 Quarter Quarter Quarter Quarter Annual ------------ -------- ------- ------- ------- ------ Net Sales $ 92,067 $ 97,098 $ 96,277 $100,211 $385,653 Gross profit 22,685 23,933 22,810 23,071 92,499 Operating Income 1,158 4,134 3,672 7,471 16,435 Net (loss) (11,336) (8,073) (7,605) (4,744) (31,758) Net (loss) per share - basic and diluted (.76) (.54) (.51) (.31) (2.12)
First Second Third Fourth Fiscal 1998 Quarter Quarter Quarter Quarter Annual ------------ -------- ------- ------- ------- -------- Net Sales $101,277 $105,389 $102,567 $99,936 $409,169 Gross profit 27,016 27,102 25,938 21,200 101,256 Operating Income (loss) 2,170 (140) (148,264) 1,607 (144,627) Net (loss) (11,390) (7,737) (119,615) (10,254) (148,996) Net (loss) per share - basic and diluted (.77) (.52) (8.06) (.69) (10.05)
Net (loss) income per share amounts are computed independently for each of the quarters presented using weighted average shares outstanding during each quarter. The sum of the quarterly per share amounts in 1998 does not equal the total for the year because of rounding and stock issuances, as shown on the Consolidated Statement of Stockholders' Equity. In the 1998 second and third quarter, the Company sold its Sandusky subsidiary and its Clear Shield subsidiary. As a result, the operating results of the two subsidiaries have been segregated from continuing operations and reported as a separate line item on the income statement under the heading discontinued operations. The 1998 first quarter has been restated to reflect results from discontinued operations. The effect of this change shows sales decreasing by $27.4 million; operating income decreasing by $.4 million. In the 1998 second quarter, the Company recognized an unusual charge of $1.5 million (see Note 11) In the 1998 third quarter, the Company recognized an unusual charge of $148.6 million (see Note 11) and an extraordinary loss, net of income taxes, of $6,793, or $.46 dollars per share, for the 1998 third and fourth quarters. 25. SUBSEQUENT EVENTS There have been no Y2K issues materially affecting the business. On January 17, 2000, the Company's Board of Directors announced its intent to sell the plastic barrier and non-barrier shrink film business. The business being sold includes production facilities in the United States, United Kingdom, and Brazil. The sale of the films business was completed on August 31, 2000. The aggregate purchase price of $245 million will be used principally to retire debt, including the Senior Secured Credit Facility and Junior Term Loans, pay GECC $47.0 million per the amended amortization schedule, and for general corporate purposes. The Company expects an approximate net gain on the sale in the amount of $52 million. The gain will be recorded in the third quarter 2000 results. In conjunction with the sale of the films business, the Company will shut down its oriented polypropylene (OPP) films business located in Newton Aycliffe, England and the films operation in Canada; the costs of this are included in the business discontinuance. The Company entered into an Agreement dated March 3, 2000, amended March 9, 2000, March 23, 2000 and March 30, 2000, that extended the grace period for the payment of its February 28, 2000 annual GECC lease payment in the amount of $23.5 million. On April 13, 2000 the Company entered into an Agreement and Amendment that extended the payment date to June 30, 2000 and waived the noncompliance of the Fixed Charge Coverage Ratio for the quarter ended December 31, 1999 and March 31, 2000. The June 30, 2000 payment extension date was subsequently modified to September 26, 2000 under an Agreement dated June 13, 2000. Under the terms of the April 13, 2000 Agreement and Amendment with GECC, the Company agreed to amend the amortization schedule of annual lease payments, maintain a letter of credit in the amount of $23.5 million at all times, limit additional borrowings and provide a subordinated security interest collateralized by the Collateral Pool. Holders of the Senior Secured Credit Facility and the Junior Term Loans consented to the payment extensions and the subordinated security interest granted to GECC. The revised amortization schedule is presented below. The required $47.0 million payment, per the amended amortization schedule, which was due no later than September 26, 2000, was made on August 31, 2000. August 31, 2000 $46,998 November 1, 2001 11,750 February 28, 2002 11,749 February 28, 2003 23,499 February 28, 2004 23,499 February 28, 2005 23,499 As of June 30, 2000, the Company received an amendment and waiver under the Company's Senior Secured Credit Facility and Junior Term Loans. The Company determined that, as of June 30, 2000, without the amendment and waiver, it would not have been in compliance with the tangible net worth and leverage ratio covenants. VISKASE COMPANIES, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Balance at Provision Balance Beginning Charged to at End Description of Period Expense Write-offs Recoveries Other(1) of Period ---------------------------- ---------- ------------ ---------- ---------- --------- --------- 1999 for the year ended December 31 Allowance for doubtful accounts $1,507 $1,239 $(1,097) $33 $(40) $1,642 1998 for the year ended December 31 Allowance for doubtful accounts 1,275 1,295 (910) 0 (153) 1,507 1997 for the year ended December 25 Allowance for doubtful accounts 2,051 665 (1,452) 13 (2) 1,275 1999 for the year ended December 31 Reserve for obsolete and slow moving inventory 3,825 2,483 (2,150) (48) 4,110 1998 for the year ended December 31 Reserve for obsolete and slow moving inventory 4,470 3,470 (3,499) (616) 3,825 1997 for the year ended December 25 Reserve for obsolete and slow moving inventory 4,397 1,944 (1,865) (6) 4,470 (1) Foreign currency translation and the disposition of Clear Shield and Sandusky.