10-K 1 edgform10k2000.txt VISKASE COMPANIES INC. 10K 2000 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, 2000 ------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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. - X As of March 30, 2001 the aggregate market value of the voting stock held by non-affiliates of the registrant was $13,051,596. As of March 30, 2001, there were 15,298,764 shares outstanding of the registrant's Common Stock, $.01 par value. DOCUMENTS INCORPORATED BY REFERENCE: The information required by Part III is incorporated by reference from the registrant's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. VISKASE COMPANIES, INC. Form 10-K Annual Report - 2000 Table of Contents PART I Page Item 1. Business 1 Item 2. Properties 6 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 8 PART II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters 9 Item 6. Selected Financial Data 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 7a. Quantitative and Qualitative Disclosures about Market Risk 16 Item 8. Financial Statements and Supplementary Data 16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 17 PART III Item 10. Directors and Executive Officers of the Registrant 18 Item 11. Executive Compensation 18 Item 12. Security Ownership of Certain Beneficial Owners and Management 18 Item 13. Certain Relationships and Related Transactions 18 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 19 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 casing product segment of the food industry. Viskase is a major producer of cellulosic and plastic casings used in preparing and packaging processed meat products. 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 recent years, the Company has sold certain of its operations in order to reduce indebtedness and increase its operational focus. As a result of these efforts, the Company sold its wholly owned subsidiary Sandusky Plastics, Inc. (Sandusky) in June 1998 and its wholly owned subsidiary Clear Shield National, Inc. (Clear Shield) in July 1998. In August 2000, the Company sold its plastic barrier and non-barrier shrink film business (Films Business). These divestitures have left the cellulosic and plastics casings business as the Company's primary operating activity. In addition, during this period the Company has announced a series of restructuring measures to reduce the fixed cost structure of its remaining business. In order to refocus on the Company's business activity, and to address competitive price pressures and increases in various production costs in the Company's business, the Company has announced a restructuring plan designed to reduce its fixed cost structure. (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. 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 NOJAX cellulosic casings for small- diameter processed meat products, such as hot dogs, Precision and Zephyr for large diameter processed meats and ham products, 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, and plastic casings used for water-cooked processed meat applications. International Operations Viskase has four manufacturing finishing facilities located outside the continental United States, in Beauvais, France; Thaon, France; Guarulhos, Brazil and Caronno, Italy. The aggregate of domestic exports and net sales of foreign operations represents approximately 52% 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. 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 processed meat and poultry producers. Approximately 70 distributors market Viskase products to customers in Europe, Africa, the Middle East, Asia, and Latin America. Its products are marketed through its own subsidiaries in France, Germany, Italy, Poland, Brazil, and Canada. As of December 31, 2000 and 1999, Viskase had backlog orders of $26 million and $20 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 North America, Viskase operates distribution centers in Atlanta, Georgia; Bensalem, Pennsylvania; Fresno, California; Remington, Indiana; and Toronto, Ontario, Canada. Viskase operates a service center in Guarulhos, Brazil, and in Europe, Viskase operates a service center in Caronno, Italy and distribution centers in Pulheim, Germany and Warsaw, Poland. Competition Viskase is one of the world's leading producers of cellulosic casings. 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 technical support services to its customers for production and formulation opportunities and by producing niche products to fill individual customer requirements. During the previous five years, Viskase has experienced reduced market share and reduced profits due to intense 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; Alfacel, located in Spain, Kalle Nalo GmbH, located in Germany; Case Tech, 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. 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 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. Research and development costs from continuing operations are expensed as incurred and totaled $5,474 thousand, $4,211 thousand, and $3,708 thousand for 2000, 1999, and 1998, respectively. Seasonality Historically, domestic sales and profits of Viskase have been seasonal in nature, increasing in the spring and summer months. 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), specialty fibrous paper, 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 that raw material substitutes are available, which Viskase could modify its processes to utilize. Employees The Company maintains productive and amicable relationships with its 1,500 employees worldwide. One of Viskase's domestic plants, located in Loudon, Tennessee, is unionized, and its European and Brazilian plants have unions. From time to time union organization efforts have occurred at other individual plant locations. Unions represent a total of approximately 500 of Viskase's 1,500 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 competitive 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 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 new and existing cellulose casing manufacturing sources were proposed by EPA on August 28, 2000. Viskase Corporation has submitted extensive comments to EPA during the public comment period objecting to certain aspects of the proposed rulemaking. Final rulemaking is expected sometime in the year 2001. Compliance will be required within 3 years of promulgation. MACT rules will apply to all casing 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. (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. Name, Age and Office Business Experience -------------------- ------------------- F. Edward Gustafson, 59 Mr. Gustafson has been Chairman of the Board, Chairman of the Board, President and Chief Executive Officer of the President and Chief Company since March 1996 and a director of Executive Officer the Company since December 1993. (Mr. Gustafson has 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. since November 1988. Gordon S. Donovan, 47, Mr. Donovan has been Chief Financial Officer Vice President, Chief of the Company since January 1997 and Vice Financial Officer, Treasurer President and Chief Financial Officer of and Assistant Secretary Viskase since June 1998. Mr. Donovan has served as Treasurer and Assistant Secretary of the Company since November 1989 and as Vice President since May 1995. Kimberly K. Duttlinger, 36, Ms. Duttlinger has been Vice President, Vice President, Secretary Secretary and General Counsel of the and General Counsel Company since April 2000. From August 1998 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 Caronno, Italy 73,000 Casings finishing Guarulhos, Brazil (a) 25,000 Casings finishing Kentland, Indiana 125,000 Casings finishing Loudon, Tennessee 250,000 Casings production Osceola, Arkansas 223,000 Casings production and casings finishing Thaon, France 239,000 Casings finishing Distribution Centers Atlanta, Georgia (a) Bensalem, Pennsylvania Fresno, California (a) Remington, Indiana (a) Pulheim, Germany (a) Toronto, Ontario, Canada Warsaw, Poland (a) Service Centers Guarulhos, Brazil (a) Caronno, Italy 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 United States District Court for the Northern District of Illinois, Eastern Division, 93C7651 (the "ANC Litigation"). 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 an 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 the first half of 2001. 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 (the "Newsome Litigation"). 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 six Viskase patents litigated in the ANC Litigation. 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. On September 29, 2000, the Company and Viskase entered into a Settlement and License Agreement (the "Agreement") with ANC, American National Can Group, Inc., Pechiney Plastic Packaging, Inc. and Pechiney Emballage Flexible Europe (collectively, "Pechiney") partially resolving the ANC Litigation and fully resolving the Newsome Litigation. Pursuant to the Agreement, Viskase received a payment of $54.75 million on October 2, 2000. In addition, an additional payment of $60.25 million will be made to Viskase if the United States Court of Appeals for the Federal Circuit affirms the monetary award in its entirety in the ANC Litigation. In October 2000, pursuant to the agreement, Viskase withdrew its Motions for Sanctions and the Amended Complaint in the Newsome Litigation was dismissed with prejudice. The Company recorded $54.75 million as patent infringement settlement income during the third quarter 2000 and expensed $7.85 million patent defense costs. No portion of the potential additional payment of $60.25 million was recorded in the Company's financial statements. In addition, in 1997 and 1998, ANC challenged two of the six Viskase patents in suit by filing requests for reexamination with the United States Patent and Trademark office (USPTO). In one of the reexaminations, the USPTO has issued, on February 14, 2001, a Notice of Intent to Issue a Reexamination Certificate. In the other reexamination, the patent has been rejected by the USPO, and Viskase appealed the rejection to the USPTO Board of Patent Appeals and Interferences. Viskase's Main Brief was filed July 13, 2000. On October 20, 2000, the Examiner filed her answer and modified the rejection to indicate that two dependent claims contained allowable subject matter. Viskase's Reply Brief and Request for Oral Hearing were filed December 20, 2000. Assignment of a hearing date is awaited. Pursuant to the Agreement, the parties have agreed that neither will, directly or indirectly, except as required by any court order or the USPTO, seek to obtain or assist any other person or entity in seeking or obtaining the further reexamination, or the invalidation or limitation of the patents licensed under the Agreement, including the two patents for which ANC had previously requested reexamination. 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 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. During 1999 and 2000, the Company and certain of its subsidiaries and one other sausage manufacturer were named in ten virtually identical civil complaints filed in the United States District Court for 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 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. In 2001, all of the consolidated cases were transferred to the United States District Court for the Northern District of Illinois, Eastern Division. The Company and its subsidiaries are involved in various other 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 --------------------------------------------------- The company held its Annual Meeting of Stockholders on November 15, 2000 for the election of five (5) directors. The results were as follows: Election of Directors For Withheld --------------------- --- -------- Robert N. Dangremond 14,069,268 27,890 Avram A. Glazer 13,349,624 747,534 Malcolm I. Glazer 13,349,579 747,579 F. Edward Gustafson 14,082,872 14,286 Gregory R. Page 14,084,872 12,286 PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER ------------------------------------------------------------- MATTERS ------- (a) Market Information. The Company's Common Stock is traded in the over- the-counter market. The high and low closing bid prices of the Common Stock during 2000 and 1999 are set forth in the following table. Such prices reflect interdealer prices without markup, markdown or commissions and may not represent actual transactions. 2000 First Quarter Second Quarter Third Quarter Fourth Quarter ---- ------------- -------------- ------------- -------------- High $2.81 $3.00 $3.00 $3.06 Low 1.00 1.75 1.06 .98 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 (b) Holders. As of March 30, 2001, there were approximately 109 holders of record and approximately 1,300 beneficial holders of the Company's Common Stock. (c) Dividends. The Company 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 -----------------------
Year Ending 53/ 52 Weeks Ending December December December December December 31, 2000(1) 31, 1999(1) 31, 1998(1) 25, 1997(1) 26, 1996(1) (in thousands, except for per share amounts) Net sales $200,142 $225,767 $246,932 $498,333 $534,420 Net (loss) from continuing operations (95,967) (29,927) (147,871) (10,362) (14,580) Net income (loss) from discontinued operations 3,435 (1,831) (33,389) 717 898 Gain on sales of discontinued operations 68,185 39,057 (Loss) before extraordinary item (2) (24,347) (31,758) (142,203) (9,645) (13,682) Net (loss) (3) (17,836) (31,758) (148,996) (9,645) (13,682) Per share net (loss) from continuing operations - basic and diluted (6.34) (2.00) (9.97) (.71) (1.02) Per share net income (loss) from discontinued operations - basic and diluted .23 (.12) (2.25) .05 .06 Gain on sale of discontinued operations 4.50 2.63 Per share (loss) before extraordinary item - basic and diluted Earnings per share (2) (1.61) (2.12) (9.59) (.66) (.96) Per share net (loss) - basic and diluted Earnings per share (3) (1.18) (2.12) (10.05) (.66) (.96) Cash and equivalents 55,350 6,243 9,028 24,407 41,794 Restricted cash 41,038 0 0 0 0 Working capital (106,958) 34,480 41,725 85,815 97,382 Total assets 322,364 493,818 531,069 813,853 873,747 Debt obligations: Short-term debt (4) 200,676 23,095 16,120 12,880 11,291 Long-term debt 73,183 404,151 388,880 511,183 521,179 Stockholders' (deficit) equity (107,397) (89,442) (55,907) 90,920 103,645 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. Year 2000 and 1999 and fiscal year 1998 net sales and net loss from continuing operations exclude the results of the Films Business, which was sold in 2000. (2) Includes $94,910, $119,579 and $3,500 in unusual charges in 2000, 1998 and 1997, respectively. (3) Includes extraordinary gain (loss) on debt extinguishment in 2000 and 1998, respectively. (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 2000 net sales from continuing operations was $200.1 million, which represents a decrease of 11.4% from 1999. The decline in sales reflects the continuing effect of reduced selling prices in the casings industry. European sales were also negatively affected by foreign currency translation due to a strong U.S. dollar. The Company's 1999 net sales from continuing operations were $225.8 million, which represented a 8.6% decrease from the prior year's net sales from continuing operations of $246.9 million. The decline in net sales reflected the continuing effect of competitive selling prices in the worldwide casings industry partially offset by volume gains. Additionally, the decline in net sales reflected the translation effect of the strengthening U.S. dollar against the French franc and Brazilian real. 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 significant volume loss to these competitors, management believes that additional pricing pressures will result. The operating loss from continuing operations for 2000 was $(93.7) million. The operating loss includes a restructuring charge of $94.9 million. Operating income from continuing operations, excluding the restructuring charge for 2000 was $1.2 million. This compares unfavorably to operating income from continuing operations for the comparable prior year period of $15.8 million. Reduced selling prices in the worldwide casings industry continue to negatively affect operating income. Operating income from continuing operations for 1999 of $15.8 million showed a significant improvement over 1998 operating income from continuing operations of $10.3 million after exclusion of the 1998 unusual charges from continuing operations of $119.6 million. Operating income benefited from the effect of cost cutting efforts undertaken during the fourth quarter of 1998 to reduce selling and administrative expenses of $5.9 million, and reduced amortization of $4.4 million. Savings in operating expenses were partially offset by the reduction in gross margin due to competitive selling prices in the worldwide casings industry. Net interest expense from continuing operations for 2000 totaled $43.1 million, which represented a decrease of $.9 million from 1999. The decrease is principally due to an increase in interest income on the invested proceeds from the sale of the Films Business and partial settlement of the ANC patent litigation of $1.8 million and by interest savings from the August redemption of $91.1 million of obligations outstanding under the Senior Term and Revolving Facilities and the Junior Term Facility of $3.2 million and interest savings from the early redemption of the 10.25% Senior Notes due 2001 of $.4 million offset by higher interest rates on the Senior Secured Credit Facility and Junior Term Facility during the first eight months of the year of $1.6 million, increase in GECC interest of $2.4 million and higher deferred financing fees of $1.2 million. Other expense from continuing operations of approximately $5.3 million and $3.9 million in 2000 and 1999, respectively, consists principally of foreign exchange losses. The company received a partial resolution of the ANC Litigation in the amount of $54.75 million, offset by patent litigation expenses of $7.85 million. 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 2000, 1999, and 1998, 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 provision (benefit) of $.7 million, $(2.2) million, and $(12.5) million, respectively, was provided on loss from continuing operations before income taxes of $95.2 million, $32.1 million, and $160.4 million, respectively, for 2000, 1999, and 1998. 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 (benefit) for income from discontinued operations in 2000, 1999 and 1998 was $.3 million, $(.9) million, and $(.8) million, respectively. The tax provision with respect to the gain from the sale of discontinued operations in 2000 and 1998 was $6.6 million and $19.6 million, respectively. In addition, an extraordinary gain in 2000 provided an income tax provision of $.6 million and in 1998 an extraordinary loss provided an income tax (benefit) of $(4.3) million. The total income tax provision (benefit) was $8.3 million, $(3.1) million, and $1.8 million, respectively, in 2000, 1999 and 1998. Domestic cash income taxes paid in 2000, 1999, and 1998, were $.5 million, $.01 million, and $2.2 million, respectively. Foreign cash income taxes paid during the same periods were $.3 million, $3.5 million, and $2.3 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 Films Business. The sale of the Films Business was completed on August 31, 2000. The aggregate purchase price of $245 million, subject to a working capital adjustment, which could result in additional amounts realized, was used to retire debt, including the Senior Secured Credit Facility and Junior Term Loans, pay GECC per the amended amortization schedule, and for general corporate purposes. The Company recognized a net gain in the amount of $68.2 million. The business sold includes production facilities in the United States, United Kingdom, and Brazil. In conjunction with the sale of the Films Business, the Company shut down its oriented polypropylene (OPP) films business located in Newton Aycliffe, England and the films operation in Canada; the costs of these are included in the business discontinuance (See Note 12). 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 their 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. Liquidity and Capital Resources ------------------------------- Cash and equivalents increased by $90.1 million during the year ended December 31, 2000. Cash flows provided by operating activities of $16.3 million and provided by investing activities of $222.1 million exceeded funds used in financing activities of $148.0 million. Cash flows provided by operating activities were principally attributable to the Company's net loss from operations, which includes non cash items of; the partial settlement of the patent litigation, the gain on the sale of assets and the extraordinary gain on debt extinguishment offset by the write-off of property, plant and equipment, and the effect of depreciation and amortization. Cash flows provided by investing activities were principally attributable to the Company's sale of the Films Business offset by capital expenditures for property, plant and equipment. Cash flows used in financing activities were principally due to the payment of $58.6 million for the Senior Secured Credit Facility, $35 million for the Junior Term Loans, $30.2 million principal payment under the GECC lease, and $27.6 million for the repurchase of 10.25% Senior Notes due 2001. In June 1999, Viskase Corporation and Viskase Sales Corporation entered into two-year secured credit agreements consisting of a $50 million senior term facility (Senior Term Facility), a $50 million senior revolving credit facility, including a $26 million sublimit for issuance of letters of credit (senior Revolving Credit Facility), collectively the "Senior Secured Credit Facility", and $35 million of junior secured term loans (Junior Term Loans). The Senior Secured Credit Facility has a maturity date of June 30, 2001. The Company used proceeds from the sale of Films Business to repay $56.1 million outstanding under the Senior Secured Credit Facility and $35 million of Junior Term Loans and to make a $47 million payment under the GECC Lease consisting of $30.2 million of principal and $16.8 million of interest. Currently, letters of credit in the amount of $25.3 million remain outstanding under the Senior Revolving Credit Facility. The Company anticipates it will enter into a new revolving credit facility to meet its working capital and letter of credit requirements. The Company finances its working capital needs through a combination of its current cash position and internally generated cash from operations. There were no borrowings outstanding under the Senior Revolving Credit Facility at December 31, 2000. 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 to reserves that may be established in the discretion of the lenders. 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: 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 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 ratio and a minimum leverage ratio of total liabilities to EBITDA, and a limitation on capital expenditures. As of December 31, 2000 the Company received a waiver under the Company's Senior Secured Credit Facility. The Company determined that, as of December 31, 2000, without the waiver, it would not have been in compliance with fixed charge coverage and leverage ratio covenants. The Company also received a waiver under the GECC lease. The Company will need to obtain additional debt covenant waivers in future quarters due to the effect of the Films Business sale. Capital expenditures for continuing operations for the year ended December 31, 2000 and 1999 totaled $12.5 million and $19.2 million, respectively. Capital expenditures for discontinued operations for 2000 totaled approximately $1.2 million. Significant 2000 and 1999 capital expenditures for continuing operations included costs associated with the Nucel(r) project, and a new information technology system at Viskase. Capital expenditures for discontinued operations included additional production capacity for specialty films. Capital expenditures for continuing operations for 2001 are expected to be approximately $5 million. The Company has spent approximately $8 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 2001 research and development and product introduction expenses are expected to be in the $5 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. 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's 10.25% Notes mature on December 1, 2001. The Company has from time to time purchased 10.25% Notes in open market or privately negotiated transactions, with the effect that as of December 31, 2000 there was $191.7 million principal amount of 10.25% Notes outstanding , net of repurchase. The Company recognized a $7.1 million gain on the repurchase of the 10.25% Notes at December 31, 2000. As of March 7, 2001, there is $163.2 million principal amount of 10.25% Notes outstanding. The Company does not presently anticipate that its current cash position and operating cash flows will be sufficient to pay the principal and accrued interest on the 10.25% Notes when they mature. In addition, the Company's payment obligations on the GECC lease remain substantial and the Senior Secured Credit Facility expires in June 2001. Accordingly, the Company is evaluating the strategic alternatives available to it with respect to its capital structure in general and the treatment of the 10.25% Notes between the date hereof and the date of their maturity. These alternatives could include public offerings or private placements of debt and/or equity securities, an exchange offer for the 10.25% Notes or other restructuring of the Company's indebtedness, the Company's entering into a new senior credit facility or the sale of the Company or its assets. There can be no assurance that any such transaction will be concluded or that any such additional financing will be available to the Company or that any such transaction or financing can be done on terms favorable to the Company's stockholders or creditors. Failure by the Company to refinance or restructure its obligations with respect to the 10.25% Notes would have a material adverse effect on the Company's results of operations and financial condition. 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 (the "ANC Litigation"). 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 an 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 the first quarter of 2001. 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 (the "Newsome Litigation"). 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 six Viskase patents litigated in the ANC Litigation. 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. On September 29, 2000, the Company and Viskase entered into a Settlement and License Agreement (the "Agreement") with ANC, American National Can Group, Inc., Pechiney Plastic Packaging, Inc. and Pechiney Emballage Flexible Europe (collectively, "Pechiney") partially resolving the ANC Litigation and fully resolving the Newsome Litigation. Pursuant to the Agreement, Viskase received a payment of $54.75 million on October 2, 2000. In addition, an additional payment of $60.25 million will be made to Viskase if the United States Court of Appeals for the Federal Circuit affirms the monetary award in its entirety in the ANC Litigation. In October 2000, pursuant to the agreement, Viskase withdrew its Motions for Sanctions and the Amended Complaint in the Newsome Litigation was dismissed with prejudice. The Company recorded $54.75 million as patent infringement settlement income during the third quarter 2000 and expensed $7.85 million patent defense costs. No portion of the potential additional payment of $60.25 million was recorded in the Company's financial statements. In addition, in 1997 and 1998, ANC challenged two of the six Viskase patents in suit by filing requests for reexamination with the United States Patent and Trademark office (USPTO). In one of the reexaminations, the USPTO has issued, on February 14, 2001, a Notice of Intent to Issue a Reexamination Certificate. In the other reexamination, the patent has been rejected by the USPO, and Viskase appealed the rejection to the USPTO Board of Patent Appeals and Interferences. Viskase's Main Brief was filed July 13, 2000. On October 20, 2000, the Examiner filed her answer and modified the rejection to indicate that two dependent claims contained allowable subject matter. Viskase's Reply Brief and Request for Oral Hearing were filed December 20, 2000. Assignment of a hearing date is awaited. Pursuant to the Agreement, the parties have agreed that neither will, directly or indirectly, except as required by any court order or the USPTO, seek to obtain or assist any other person or entity in seeking or obtaining the further reexamination, or the invalidation or limitation of the patents licensed under the Agreement, including the two patents for which ANC had previously requested reexamination. 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. During 1999 and 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. In 2001, all of the consolidated cases were transferred to the United States District Court for the Northern District of Illinois, Eastern Division. 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 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, 2000, a 10% devaluation of the U.S. dollar would affect the Company's annual consolidated operating results, financial position and cash flows by approximately $.1 million. The Company uses foreign exchange forward contracts to manage the risk associated with its exposure to foreign currency exchange rate fluctuations. As of December 31, 2000, 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. PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- The information required by this Item is set forth in the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report (Proxy Statement) in the section entitled "Election of Directors," the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" and in the third paragraph of the section entitled "Certain Relationships and Related Transactions," and is incorporated herein by reference to the Proxy Statement. For information regarding executive officers of the Company, see the information set forth under "Executive Officers of the Registrant" in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION ---------------------- The information required by this Item is set forth in the Proxy Statement in the section entitled "Compensation of Directors and Executive Officers" and is incorporated herein by reference to the Proxy Statement. The information set forth in the Proxy Statement in the sections entitled "Compensation Committee Report on Executive Compensation" and "Performance Graph" is not required by this item and is not incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- The information required by this Item is set forth in the Proxy Statement in the section entitled "Security Ownership" and is incorporated herein by reference to the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- The information required by this Item is set forth in the Proxy Statement in the section entitled "Certain Relationships and Related Transactions" and is incorporated by reference to the Proxy Statement. See also Part IV, Item 14, Note 22 of Notes to Consolidated Financial Statements. 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, 2000 and December 31, 1999 F-3 Consolidated statements of operations, for the years ended December 31, 2000 and December 31, 1999 and for the 53 week period ending December 31, 1998. F-4 Consolidated statements of stockholders' deficit, for the years ended December 31, 2000 and December 31, 1999 and for the 53 week period ending December 31, 1998. F-5 Consolidated statements of cash flows, for the year ended December 31, 2000 and December 31, 1999 and for the 53 week period ending December 31, 1998. F-6 Notes to consolidated financial statements F-7 (a)2. Financial statement schedules for the year ended December 31, 2000 and December 31, 1999 and for the 53 week period ending December 31, 1998: ------------------------------------------------------ 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. ------------------- 1. On October 6, 2000, the Company filed a Form 8-K to announce that its wholly owned subsidiary, Viskase Corporation, reached a partial resolution with American Can and Pechiney Plastic Packaging relating to the litigation between the partied entitled, Viskase Corporation v. American National Can, and Pechiney Plastic Packaging, Inc. and Pechiney Packaging, Inc. and Pechiney Emballage Flexible Europe v. Viskase Companies, Inc. and Viskase Corporation. Pursuant to the agreement reached, Viskase will receive a payment of $54.75 million immediately. In addition, an additional payment of $60.25 million will be made to Viskase if the appellate court affirms the monetary award in its entirety in the ANC Litigation. 2. On December 6, 2000, the Company filed a Form 8-K to announce that it is implementing significant cost reduction measures in an attempt to offset a projected shortfall in earnings before depreciation, interest, amortization and taxes for fiscal year 2001 from the estimated fiscal year 2000 for continuing operations. (c) Exhibits: -------- Exhibit No. Description of Exhibits Page ----------------------------------------------------------------------------- 2.0 Purchase Agreement, dated July 7, 2000 among the Company and certain of its subsidiaries and Bemis Company, Inc. (incorporated herein by reference to Exhibit 2 to Form 8-K filed September 25, 2000). * 2.1 Amendment No. 1 to Purchase Agreement, dated August 31, 2000, among the Company and certain of its subsidiaries and Bemis Company, Inc. (incorporated herein by reference to Exhibit 2.1 of Form 10-Q for the fiscal quarter ended September 30, 2000). * 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). * 4.3 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). * 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). * * Previously filed by the Company, incorporated by reference. Exhibit No. Description of Exhibits Page ----------------------------------------------------------------------------- 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 Participant (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 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, 1991). + * 10.10 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).+ * 10.11 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).+ * 10.12 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). * 10.13 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). * 10.14 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). * + Management contract or compensatory plan or arrangement. * Previously filed by the Company, incorporated by reference. Exhibit No. Description of Exhibits Page ----------------------------------------------------------------------------- 10.15 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). * 10.16 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). * 10.17 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). * 10.18 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). * 10.19 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). * 10.20 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). * 10.21 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). * 10.22 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). * + Management contract or compensatory plan or arrangement. * Previously filed by the Company, incorporated by reference. Exhibit No. Description of Exhibits Page ----------------------------------------------------------------------------- 10.23 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). + * 10.24 Viskase Corporation Severance Pay Policy. + * 10.25 Agreement dated as of March 3, 2000, between Viskase Corporation and State Street Bank and Trust Company relating to the Lease Agreement dated as of December 18, 1990, among Viskase Corporation (the Lessee), and State Street Bank and Trust Company (the Lessor), as successor trustee to Fleet National Bank formerly known as Shawmut Bank Connecticut, National Association, formerly known as The Connecticut National Bank as Owner Trustee under the Trust Agreement (incorporated by reference herein to Exhibit 10.35 to Form 10-Q for the fiscal quarter ended March 31, 2000). * 10.26 Extension executed March 9, 2000 of Agreement dated as of March 3, 2000, between Viskase Corporation and State Street Bank and Trust Company relating to the Lease Agreement dated as of December 18, 1990, among Viskase Corporation (the Lessee) and State Street Bank and Trust Company (the Lessor), as successor trustee to Fleet National Bank formerly known as Shawmut Bank Connecticut, National Association, formerly known as The Connecticut National Bank as Owner Trustee under the Trust Agreement (incorporated by reference herein to Exhibit 10.36 to Form 10-Q for the fiscal quarter ended March 31, 2000). * 10.27 Extension executed March 23, 2000 of Agreement dated as of March 3, 2000, between Viskase Corporation and State Street Bank and Trust Company relating to the Lease Agreement dated as of December 18, 1990, among Viskase Corporation (the Lessee) and State Street Bank and Trust Company (the Lessor), as successor trustee to Fleet National Bank formerly known as Shawmut Bank Connecticut, National Association, formerly known as The Connecticut National Bank as Owner Trustee under the Trust Agreement (incorporated by reference herein to Exhibit 10.37 to Form 10-Q for the fiscal quarter ended March 31, 2000). * 10.28 Extension executed March 30, 2000 of Agreement dated as of March 3, 2000, between Viskase Corporation and State Street Bank and Trust Company relating to the Lease Agreement dated as of December 18, 1990, among Viskase Corporation (the Lessee) and State Street Bank and Trust Company (the Lessor), as successor trustee to Fleet National Bank formerly known as Shawmut Bank Connecticut, National Association, formerly known as The Connecticut National Bank as Owner Trustee under the Trust Agreement (incorporated by reference herein to Exhibit 10.38 to Form 10-Q for the fiscal quarter ended March 31, 2000). * 10.29 Agreement and Amendment dated as of April 13, 2000, between Viskase Corporation (the Lessee) and State Street Bank and Trust Company (the Lessor) as Owner Trustee under the Trust Agreement relating to the Lease Agreement dated as of December 18, 1990 (as amended and supplemented to the date hereof, between the Lessee and the Lessor, as successor trustee to Fleet National Bank formerly known as Shawmut Bank Connecticut, National Association, formerly known as The Connecticut National Bank (incorporated herein by reference to Exhibit 10.39 to Form 10Q for the fiscal quarter ended June 30, 2000). * + Management contract or compensatory plan or arrangement. * Previously filed by the Company, incorporated by reference. Exhibit No. Description of Exhibits Page ----------------------------------------------------------------------------- 10.30 Letter Agreement dated June 13, 2000, from GECC re (i) Financing Agreement dated as of June 14, 1999, among The CIT Group/Business Credit, Inc., the lenders party thereto and Viskase Corporation and Viskase Sales Corporation, (ii) a Financing Agreement dated as of June 14, 1999 among D.P. Kelly & Associates, L.P. and Viskase, and (iii) a Financing Agreement dated as of June 14, 1999, among the lenders party thereto and Viskase (incorporated herein by reference to Exhibit 10.40 to Form 10Q for the fiscal quarter ended June 30, 2000). * 10.31 Letter Agreement dated June 13, 2000, from CIT Group re Financing Agreement dated as of June 14, 1999 by and among Viskase Corporation, Viskase Sales Corporation and CIT Group/Business Credit, Inc., as agents for the Lenders (incorporated herein by reference to Exhibit 10.41 to Form 10Q for the fiscal quarter ended June 30, 2000). * 10.32 Letter Agreement dated June 13, 2000, from Magten Asset Management Corporation re that certain Financing Agreement dated as of June 14, 1999, by and among Viskase Corporation, Viskase Sales Corporation, and the financial institutions that are or may from time to time become parties thereto (incorporated herein by reference to Exhibit 10.42 to Form 10Q for the fiscal quarter ended June 30, 2000). * 10.33 Letter Agreement dated June 13, 2000, from D.P. Kelly & Associates re that certain Financing Agreement dated as of June 14, 1999, by and among Viskase Corporation, Viskase Sales Corporation, and D.P. Kelly & Associates (incorporated herein by reference to Exhibit 10.43 to Form 10Q for the fiscal quarter ended June 30, 2000). * 10.34 Amendment No. 1 dated as of June 30, 2000, to the Letter Agreement and Amendment dated as of April 13, 2000, between Viskase Corporation and State Street Bank and Trust Company, as Owner Trustee under the Trust Agreement relating to the Lease Agreement dated as of December 18, 1990 (as amended and supplemented to the date hereof), (incorporated herein by reference to Exhibit 10.44 to Form 10Q for the fiscal quarter ended June 30, 2000). * 10.35 Viskase Corporation Management Incentive Plan for Fiscal Year 2000. + ** 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: April 6, 2001 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 6th day of April 2001. /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, 2000 and December 31, 1999 F-3 Consolidated statements of operations, for the years ending December 31, 2000 and December 31, 1999 and the 53 week period ending December 31, 1998....................................... F-4 Consolidated statements of stockholders' deficit, for the years ending December 31, 2000 and December 31, 1999 and the 53 week period ending ........................................ F-5 December 31, 1998 Consolidated statements of cash flows, for the years ending December 31, 2000 and December 31, 1999 and for the 53 week period ending December 31,1998........................................ F-7 Notes to consolidated financial statements............................. F-8 FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION S-X Schedule II - Valuation and qualifying accounts........................ F-34 Exhibit 21.1 Subsidiaries of the registrant............................ F-35 Exhibit 23.1 Consent of independent accountants........................ F-36
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, 2000 and 1999, and the results of their operations and their cash flows for the years ended December 31, 2000 and December 31, 1999 and the period December 26, 1997 to December 31, 1998, in conformity with accounting principles generally accepted in the United States of America. 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 of America 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. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 8 to the financial statements, the Company does not presently anticipate that its current cash position and operating cash flows will be sufficient to pay the principal and accrued interest on the 10.25% Notes when they mature. This raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 8. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. PricewaterhouseCoopers LLP March 26, 2001 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, December 31, 2000 1999 ----------- ----------- in thousands) ASSETS Current assets: Cash and equivalents $55,350 $ 6,243 Restricted cash 41,038 Receivables, net 27,334 48,971 Inventories 39,405 78,672 Other current assets 23,168 14,540 ------- ------ Total current assets 186,295 148,426 Property, plant and equipment, including those under capital leases 240,110 488,369 Less accumulated depreciation and amortization 110,845 178,122 ------- ------- Property, plant and equipment, net 129,265 310,247 Deferred financing costs, net 184 3,059 Other assets 6,620 32,086 ------- ------- Total Assets $322,364 $493,818 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Short-term debt including current portion of long-term debt and obligations under capital leases $200,676 $ 23,095 Accounts payable 15,887 35,202 Accrued liabilities 73,309 46,966 Current deferred income taxes 3,381 8,683 ------- ------- Total current liabilities 293,253 113,946 Long-term debt including obligations under capital leases 73,183 404,151 Accrued employee benefits 40,773 46,787 Deferred and noncurrent income taxes 22,552 18,376 Commitments and contingencies Stockholders' deficit: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; issued and outstanding, 15,276,764 shares at December 31, 2000 and 15,058,439 shares at December 31, 1999 153 151 Paid in capital 137,967 137,454 Accumulated (deficit) (247,048) (229,212) Cumulative foreign currency translation adjustments 1,840 2,165 Unearned restricted stock issued for future service (309) ------ ------- Total stockholders' (deficit) 107,397) (89,442) ------- ------- Total Liabilities and Stockholders' deficit $322,364 $493,818 ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
53 Years Ended Weeks Ended ------------------------- ----------- December 31, December 31, December 31, 2000 1999 1998 ----------- ----------- ----------- (in thousands, except for number of shares and per share amounts) NET SALES $200,142 $225,767 $246,932 COSTS AND EXPENSES Cost of sales 157,560 166,079 182,456 Selling, general and administrative 39,374 41,854 47,707 Amortization of intangibles and excess reorganization value 2,000 2,000 6,432 Restructuring charges 94,910 119,579 ------- ------- ------- OPERATING (LOSS) INCOME (93,702) 15,834 (109,242) Interest income 2,299 375 1,531 Interest expense 45,406 44,403 50,602 Other expense, net 5,330 3,923 2,093 Patent infringement settlement income, net 46,900 ------- ------- ------- (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES (95,239) (32,117) (160,406) Income tax provision (benefit) 728 (2,190) (12,535) ------- ------- ------- NET (LOSS) FROM CONTINUING OPERATIONS (95,967) (29,927) (147,871) DISCONTINUED OPERATIONS: Income (loss) from discontinued operations net of income taxes (Note 12) 3,435 (1,831) (33,389) Gain on sale of discontinued operations net of income tax provision of $6,633 in 2000 68,185 39,057 and $19,556 in 1998 ------- ------- ------- NET (LOSS) BEFORE EXTRAORDINARY ITEM (24,347) (31,758) (142,203) Extraordinary gain (loss) on early extinguishment of debt net of income tax provision (benefit) of $633 in 2000 and $(4,343) in 1998 6,511 (6,793) ------- ------- ------- NET (LOSS) (17,836) (31,758) (148,996) Other comprehensive (loss) income, net of tax Foreign currency translation adjustments (2,730) (1,542) 973 Reclassification adjustment for losses Included in the gain from discontinued 2,532 ------- ------- ------- operations Other comprehensive (loss) income net of tax (198) (1,542) 973 ------- ------- ------- COMPREHENSIVE (LOSS) $(18,034) $(33,300) (148,023) ======= ======= ======= WEIGHTED AVERAGE COMMON SHARES - BASIC AND DILUTED 15,126,670 14,949,965 14,824,885 ========== ========== ==========
VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Cont'd)
PER SHARE AMOUNTS: Earnings (loss) per share - basic and diluted Continuing operations $(6.34) $(2.00) $(9.97) DISCONTINUED OPERATIONS: Income from discontinued operations .23 (.12) (2.25) Gain on sale from discontinued operations 4.50 2.63 ----- ----- ----- Net (loss) before extraordinary item (1.61) (2.12) (9.59) Extraordinary gain (loss) .43 (.46) ----- ----- ----- NET (LOSS) $(1.18) $(2.12) $(10.05) ===== ===== ===== The accompanying notes are an integral part of the consolidated financial statements.
VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
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 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) Net (loss) (17,836) (17,836) Issuance of Common Stock 2 513 (309) 206 Other comprehensive (loss) (325) (325) ---- ------- ------- ----- ---- ------- Balance December 31, 2000 $153 $137,967 (247,048) $1,840 $(309) $(107,397) ==== ======== ======== ====== ===== ========= The accompanying notes are an integral part of the consolidated financial statements.
VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
53 Years Ended Weeks Ended ------------------------ ----------- December 31 December 31, December 31, 2000 1999 1998 ---------- ---------- ----------- (in thousands) Cash flows from operating activities: Net (Loss) $(17,836) $(31,758) $(148,996) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation and amortization under capital leases 30,427 38,672 39,519 Amortization of intangibles and excess reorganization value 4,000 5,000 11,655 Amortization of deferred financing fees and discount 4,860 3,658 1,772 Increase (decrease) in deferred and noncurrent 407 (4,989) (611) income taxes Foreign currency transaction loss (gain) 857 190 (15) (Gain) loss on disposition of assets (74,541) 630 (58,562) Bad debt provision 433 1,239 1,295 Impairment of excess reorganization value 91,169 Net property, plant and equipment write-off 55,482 41,765 Extraordinary (gain) loss on debt extinguishment (7,144) 11,136 Changes in operating assets and liabilities: Accounts receivable 20,431 3,896) 19,587 Inventories 8,617 12,038 (15,952) Other current assets (12,733) 233 7,571 Accounts payable and accrued liabilities (50) (13,845) (9,537) Other 3,064 192 (10,229) ------- ------- ------- Total adjustments 34,110 39,122 130,563 ------- ------- ------- Total net cash provided by (used in) operating activities 16,274 7,364 (18,433) Cash flows from investing activities: Capital expenditures (13,735) (27,943) (35,354) Proceeds from disposition of assets 235,844 623 164,236 ------- ------- ------- Net cash (used in) provided by investing activities 222,109 (27,320) 128,882 Cash flows from financing activities: Issuance of common stock 206 751 574 Proceeds from revolving loan and long-term borrowings 123,776 1,475 Deferred financing costs (2,092) (5,796) (605) Repayment of revolving loan, long-term borrowings and capital lease obligations (153,263) (100,971) (118,173) Discount (premium) on early extinguishment of debt 7,144 (8,927) ------- ------- ------- Net cash provided (used in) by financing activities (148,005) 17,760 (125,656) Effect of currency exchange rate changes on cash (233) (589) (172) ------- ------ ------- Net increase (decrease) in cash and equivalents 90,145 (2,785) (15,379) Cash and equivalents at beginning of period 6,243 9,028 24,407 ------- ------- ------- Cash and equivalents 55,350 6,243 9,028 Restricted cash 41,038 ------- ----- ------ Cash and equivalents and restricted cash at end of period $ 96,388 $ 6,243 $ 9,028 ======== ======== ======= Supplemental cash flow information and noncash investing and financing activities: Interest paid $50,327 $43,190 $50,757 Income taxes paid $750 $3,531 $ 4,535 Capital lease obligations (machinery and equipment) $694 $345 $ 1,475 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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) Basis of presentation Viskase Companies, Inc. and its subsidiaries (the Company) adopted a calendar year ending in 1999. The Company had previously adopted a 52/53 week fiscal year ending on the last Thursday of December in 1990. (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 2000 presentation. (D) Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America 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 $47,902 and $1,571 of short-term investments at December 31, 2000 and December 31, 1999, respectively. Pursuant to the Films Business sale Purchase Agreement, two escrow accounts were established. These escrow accounts are classified as restricted cash. The $1,016 escrow account is restricted pending the final approval of the purchase price adjustment pursuant to the Purchase Agreement and the $31,089 escrow account is restricted pending government approval of funds transfer from the Brazilian portion of the Films Business sale. The remaining $8,933 of restricted cash is collateral for outstanding letters of credit under the Senior Revolving Credit Facility. (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. Patent defense costs of $7.85 million were written off at the time of the Patent Infringement Settlement (See Note 6). (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 $2.1 million and $6.9 million at December 31, 2000 and December 31, 1999, 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 plan 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, 2000, all such changes in equity resulted from changes in foreign currency translation adjustments and a reclassification adjustment included in the gain on discontinued operations. (Q) Revenue recognition Sales to customers are recorded at the time of shipment which is F.O.B. shipping point, net of discounts and allowances. The Company records all related shipping and handling costs as a component of cost of goods sold. (R) Foreign currency contracts From time to time, the Company uses foreign exchange forward contracts to hedge some of its non-functional currency receivables and payables that 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 expense, net on the statements 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 In September 2000, the FASB issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement No. 125" ("Statement 140"). Statement 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. Management believes that adoption of Statement 140 will not have a material effect on the Company's financial statements. SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" and SFAS No. 138, "Accounting for Certain Hedging Activities" is effective for the Company as of January 1, 2001. 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. The adoption of SFAS No. 133 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 $1,675 and $1,642 at December 31, 2000 and December 31, 1999, respectively. Viskase Companies, Inc. has a broad base of customers, with no single customer accounting for more than 9% of sales. 4. INVENTORIES (dollars in thousands) Inventories consisted of: 2000 1999 ---- ---- Raw materials $ 2,867 $10,361 Work in process 17,827 31,039 Finished products 18,711 37,272 ------- ------ $39,405 $78,672 Approximately 56% and 60% of the Company's inventories at December 31, 2000, and December 31, 1999, respectively, were valued at LIFO. These LIFO values exceeded current manufacturing cost by approximately $4,521 and $7,100 at December 31, 2000, and December 31, 1999, respectively. Inventories were net of reserves for obsolete and slow moving inventory of $5,029 and $4,110 at December 31, 2000, and December 31, 1999, respectively. 5. PROPERTY, PLANT AND EQUIPMENT (dollars in thousands) 2000 1999 ---- ---- Property, plant and equipment: Land and improvements $ 4,925 $ 7,284 Buildings and improvements 32,159 53,818 Machinery and equipment 109,490 290,544 Construction in progress 4,599 47,786 Capital leases: Machinery and equipment 88,937 88,937 -------- ------- $240,110 $488,369 Capitalized interest in 2000, 1999, and 1998 is $443, $3,206, and $2,425, respectively. Maintenance and repairs charged to costs and expenses for 2000, 1999, and 1998, aggregated $22,836, $25,070, and $30,096, 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: 2000 1999 ---- ---- Patents $20,000 $50,000 Less accumulated amortization 14,000 30,000 Patents, net 6,000 20,000 Other 620 12,086 ------- ------- $ 6,620 $32,086 Patents are amortized on the straight-line method over an estimated average useful life of ten years. Capitalized patent defense costs totaling $7,850 were recognized as patent infringement expenses during the third quarter of 2000 in connection with the partial settlement of the ANC patent litigation. 7. ACCRUED LIABILITIES (dollars in thousands) Accrued liabilities were comprised of: 2000 1999 ---- ---- Compensation and employee benefits $19,715 $23,922 Taxes 8,255 3,054 Accrued volume and sales discounts 2,097 7,755 Restructuring (see Note 11) 27,138 Other 16,104 12,235 ------- ------- $73,309 $46,966 8. DEBT OBLIGATIONS (dollars in thousands) Outstanding short-term and long-term debt consisted of: December December 31, 2000 31, 1999 -------- -------- 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 $ 8,750 14,377 Current maturity of Viskase Limited Term Loan (3.2%) 753 10.25% Senior Notes due 2001 191,703 Other 223 821 -------- ------ Total short-term debt $200,676 $23,095 ======== ======= Long-term debt: Senior Revolving Credit Facility $ 8,551 Senior Term Facility 42,856 Junior Term Facility 35,000 10.25% Senior Notes due 2001 219,262 Viskase Capital Lease Obligation 72,854 97,466 Other 329 1,016 ------ ------- Total long-term debt $73,183 $404,151 ======= ======== Senior Secured Credit Facility/Junior Term Loans In June 1999, Viskase Corporation and Viskase Sales Corporation entered into two-year secured credit agreements consisting of a $50 million senior term facility (Senior Term Facility), a $50 million senior revolving credit facility, including a $26 million sublimit for issuance of letters of credit (Senior Revolving Credit Facility), collectively the "Senior Secured Credit Facility", and $35 million of junior secured term loans (Junior Term Loans). The Senior Secured Credit Facility has a maturity date of June 30, 2001. The Company used proceeds from the sale of Films Business to repay $56.1 million outstanding under the Senior Secured Credit Facility and $35 million of Junior Term Loans and to make a $47 million payment under the GECC Lease consisting of $30.2 million of principal and $16.8 million of interest. Currently, letters of credit in the amount of $25.3 million remain outstanding under the Senior Revolving Credit Facility. The Company anticipates it will enter into a new revolving credit facility to meet its working capital and letter of credit requirements. 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 $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 Senior Term Facility and Junior Term Loans were paid in full in August 2000. 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 ratio and a minimum leverage ratio of total liabilities to EBITDA and a limitation on capital expenditures. As of December 31, 2000, the Company received an amendment and waiver under the Company's Senior Secured Credit Facility. The Company determined that, as of December 31, 2000, without the amendment and waiver, it would not have been in compliance with the fixed charge, leverage ratio and tangible net worth and leverage ratio covenants. The Company will need to obtain additional debt covenant waivers in future quarters due to the effect of the Films Business sale. 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 are no borrowings outstanding under the Senior Revolving Credit Facility at December 31, 2000. GECC ---- 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. 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: November 1, 2001 $11,750 February 28, 2002 11,749 February 28, 2003 23,499 February 28, 2004 23,499 February 28, 2005 23,500 The following is a schedule of minimum future lease payments under the GECC capital lease obligations together with the present value of the net minimum lease payments as of December 31, 2000. Year ending December 2001 $11,750 2002 11,749 2003 23,499 2004 23,499 2005 23,500 ------ Net minimum lease payments 93,997 Less: Amount representing interest (12,393) ------ $81,604 ======= 10.25% Notes ------------ The 10.25% Notes were issued pursuant to an Indenture dated as of December 31, 1993 (10.25% Note Indenture) between Viskase Companies, Inc. and Bankers Trust Company, as Trustee. The 10.25% Notes are the unsecured senior obligations of Viskase Companies, Inc., bear interest at the rate of 10.25% per annum, payable on each June 1 and December 1, and mature on December 1, 2001. The 10.25% 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 10.25% 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 has from time to time purchased 10.25% Notes in open market or privately negotiated transactions, with the effect that as of December 31, 2000 there was $191.7 million principal amount of 10.25% Notes outstanding, net of repurchase. The Company recognized a $7.1 million gain on the repurchase of the 10.25% Notes at December 31, 2000. As of March 7, 2001, there is $163.2 million principal amount of 10.25% Notes outstanding. The Company does not presently anticipate that its current cash position and operating cash flows will be sufficient to pay the principal and accrued interest on the 10.25% Notes when they mature. In addition, the Company's payment obligations on the GECC lease remain substantial and the Senior Secured Credit Facility expires in June 2001. Accordingly, the Company is evaluating the strategic alternatives available to it with respect to its capital structure in general and the treatment of the 10.25% Notes between the date hereof and the date of their maturity. These alternatives could include public offerings or private placements of debt and/or equity securities, an exchange offer for the 10.25% Notes or other restructuring of the Company's indebtedness, the Company's entering into a new senior credit facility or the sale of the Company or its assets. There can be no assurance that any such transaction will be concluded or that any such additional financing will be available to the Company or that any such transaction or financing can be done on terms favorable to the Company's stockholders or creditors. Failure by the Company to refinance or restructure its obligations with respect to the 10.25% Notes would have a material adverse effect on the Company's results of operations and financial condition. 12% Senior Secured Notes ------------------------ 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 $6.8 million on the partial redemption of its 12% Senior Secured Notes. The extraordinary loss is comprised of $8.9 million of yield maintenance premiums and $2,200 write-off of deferred debt issuance costs, net of a $4.3 million income tax benefit. Other ----- 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, 2000, the carrying amount and estimated fair value of debt obligations (excluding capital lease obligations) were $191,766 and $138,089, respectively. The average interest rate on short-term borrowing during 2000 was 9.3%. Aggregate maturities of remaining long-term debt for each of the next five years are: Total ------ 2001 $200,676 2002 8,902 2003 19,419 2004 21,300 2005 23,500 Thereafter 62 ------- $273,859 ======== 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, 2000, are: 2001 $1,016 2002 653 2003 455 2004 388 2005 324 Total thereafter 73 Total minimum lease payments $2,909 Total rent expense during 2000, 1999, and 1998 amounted to $2,122, $2,561, and $3,497, respectively. 10. RETIREMENT PLANS The Company and its subsidiaries have defined contribution and defined benefit plans varying by country and subsidiary. At December 31, 2000, 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 sheets. PENSIONS AND OTHER POSTRETIREMENT BENEFITS PLANS - NORTH AMERICA (dollars in thousands):
Pension Benefits Other Benefits ----------------- --------------- 2000 1999 2000 1999 CHANGE IN BENEFIT OBLIGATION Projected benefit obligation at beginning of year $108,239 $103,334 $41,866 $33,143 Adjustment to actual (10,492) (354) (3,139) Service cost 2,888 3,574 971 1,026 Interest cost 7,347 6,799 3,106 2,640 Actuarial losses (gain) 2,772 (824) 5,100 6,546 Benefits paid (5,814) (4,545) (1,361) (1,609) Effect of special termination benefits 4,732 Effect of settlement/curtailments (5,849) 5,059) Translation (182) 255 (80) 120 ------ ------ ----- ------- Estimated benefit obligation at end of year $103,641 $108,239 $41,404 $41,866 ======== ======== ======= ======= CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $92,413 $76,901 Adjustment to actual (1,317) 4,531 Actual return on plan assets 3,671 7,447 Employer contribution 9,939 7,763 $1,361 $ 1,609 Benefits paid (5,814) (4,545) (1,361) (1,609) Translation (205) 316 ------ -------- ------- ------- Estimated fair value of plan assets at end of year $98,687 $92,413 $ 0 $ 0 ======= ======= ======= ======= RECONCILIATION OF (ACCRUED), AT YEAR END Funded status $(4,954) $(15,826) $(41,404) $(41,866) Unrecognized actuarial (gain) loss (370) 153 Unrecognized net pension obligation 231 Unrecognized net (gain) loss (3,673) (1,720) 3,796 7,763 Unrecognized prior service cost 566 801 386 Translation _______ (10) ______ 14 ------ ------ ------ ------- (Accrued) benefit cost $(8,061) $(16,894) $(37,608) $(33,550) ======= ======= ======== ======= 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 7.50% 6.79% 7.46% 6.78% Expected return on plan assets 9.00% 8.90% Rate of compensation increase 4.25% 4.27%
For measurement purposes, a 8.5% and 12% annual rate of increase in the per capita cost of covered health care benefits was assumed in 2001 for the U.S. and Canadian plans, respectively. The rates were assumed to decrease gradually to 6.5% and 5.0% in 2004 and remain at that level thereafter for the U.S. and Canadian plans, respectively. Pension Benefits Other Benefits ---------------- --------------- 2000 1999 2000 1999 ---- ---- ---- ----
COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $2,888 $3,575 $ 971 $1,026 Interest cost 7,347 6,799 3,106 2,640 Expected return on plan assets (8,541) (7,462) Amortization of net pension obligation 33 44 Amortization of prior service cost 126 95 53 70 Amortization of actuarial (gain) loss (119) (7) 443 407 Net periodic benefit cost 1,734 3,044 4,573 4,143 FAS No. 88 curtailment (gain) loss (950) 597 ----- ----- ----- ----- Total net periodic benefit cost $ 784 $3,044 $5,170 $4,143 ====== ====== ====== ====== 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 $1,642 Change in service cost and interest 148 Based on a 1% decrease Change in accumulated postretirement benefit obligation $(1,894) Change in service cost and interest (175) 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 Save Plans allow employees to choose among various investment alternatives, including Viskase Companies, Inc. common stock. 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 $1,158, $1,348, and $1,587, in 2000, 1999, and 1998, 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 2000, 1999, and 1998 was $202, $1,402, and $1,431, 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 $1,887; conversely, plan assets exceeded the vested benefits in certain other plans by approximately $491. EMPLOYEE RELATIONS The Company maintains productive and amicable relationships with its 1,500 employees worldwide. One of Viskase's domestic plants, located in Loudon, Tennessee, is unionized, and all of its 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 32% of Viskase's 1,500 employees. As of December 31, 2000, approximately 200 of the Company's employees are covered by collective bargaining agreements that will expire within one year. 11. RESTRUCTURING CHARGES During 2000, the Company committed to a restructuring plan to re-focus its remaining business. The Company wrote down $55.8 million of building and equipment to Net Realizable Value. The restructuring actions, which will reduce the Company's fixed cost structure, resulted in a before tax charge to continuing operations of $94.9 million consisting of: Employee costs $13.4 Write-down of building and equipment 13.4 Nucel(r) building and equipment 42.4 Nucel(r) other 24.2 Decommissioning 2.3 Reversal of excess reserve (.8) ----- Restructuring charge $94.9 ===== In 2000, cash payments were $5.2 million. A remaining restructuring reserve of $27.1 million is included in Accrued Liabilities on the Balance Sheet. Approximately 15% of the Company's worldwide workforce was laid off due to the restructuring plan. 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 2000, and 1999, cash payments against the 1998 reserve were $10.6, and $2.7 million, respectively. A remaining restructuring reserve of approximately $.2 million is included in accrued liabilities on the balance sheet. In 2000, an amount of $.8 million identified as an excess reserve was released and offset against the 2000 restructuring charges. 12. DISCONTINUED OPERATIONS (dollars in thousands) On January 17, 2000, the Company's Board of Directors announced its intent to sell the Company's plastic barrier and non-barrier shrink Films Business. The sale of the Films Business was completed on August 31, 2000. The aggregate purchase price of $245 million, subject to a working capital adjustment, which could result in additional amounts realized, was used to retire debt, including the Senior Secured Credit Facility and Junior Term Loans, pay GECC per the amended amortization schedule, and for general corporate purposes. The Company recognized a net gain in the amount of $68.2 million in 2000 results. The business sold includes production facilities in the United States, United Kingdom, and Brazil. In conjunction with the sale of the Films Business, the Company shut down its oriented polypropylene (OPP) films business located in Newton Aycliffe, England and the films operation in Canada; the costs of these are included in the business discontinuance. On June 8, 1998, the Company's Board of Directors approved the sale of two of the Company's subsidiaries, Clear Shield and Sandusky. The sale of Sandusky and Clear Shield was completed on June 11, 1998 and July 23, 1998, respectively. The operating results of the Films Business, Clear Shield, and Sandusky have been segregated from continuing operations and reported as a separate line item on the income statement under the heading Discontinued Operations. Operating results from discontinued operations for 2000, 1999 and 1998 are:
53 Weeks Years Ended Ending ------------------------- -------- December 31, December 31, December 31, 2000 1999 1998 ---- ---- ---- Net sales $110,017 $159,886 $224,554 Costs and expenses Cost of sales 83,502 127,075 176,267 Selling, general and administrative 19,096 29,210 45,909 Amortization of intangibles and excess reorganization value 2,000 3,000 6,086 Unusual charge 30,490 ------ ------- ------- Operating income (loss) 5,419 601 (34,198) Interest income 19 175 Interest expense 98 154 812 Other expense (income), net 1,608 3,321 (785) ------- ------ ----- Income (loss) from discontinued operations before taxes 3,732 (2,699) (34,225) Income tax provision (benefit) 297 (868) (836) ------- ------ ------- Net income (loss) from discontinued operations $ 3,435 $ (1,831) $ (33,389) ======== ======== ======== The net assets of the films segment included in the accompanying Balance Sheet as of December 31, 1999 consisted of the following: December 31, 1999 ----------------- Accounts receivable, net $ 19,537 Inventories 33,965 Other current assets 4,156 ------- Total current assets 57,658 Property, plant and equipment, net 110,657 Long-term assets 12,459 ------- Total assets 180,774 Accounts payable and other current liabilities 28,396 Short-term debt 1,016 ------ Total current liabilities 29,412 Long-term debt and lease obligations 465 Deferred and noncurrent income taxes 5,762 ------ Total liabilities 35,639 Net Assets $145,135 ========
13. INCOME TAXES (dollars in thousands) 2000 1999 1998 ---- ---- ---- Pre-tax income from continuing operations consisted of: Domestic $(70,065) $(29,232) $(153,145) Foreign (25,174) (2,885) (7,261) ------- ------- ------- Total $(95,239) $(32,117) $(160,406) ======= ======== ======== The provision (benefit) for income taxes from continuing operations consisted of: 2000 1999 1998 ---- ---- ---- Current: Federal $ $ $ Foreign 728 5,090 2,401 State 150 ------ ------ ------ Total current 728 5,090 2,551 Deferred: Federal (2,774) (14,929) Foreign (4,898) 723 State (476) (2,349) ------ ------ ----- Total deferred (8,148) (16,555) ------ ------ ------ Total $728 $(3,058) $(14,004) ====== ====== ====== The total provision (benefit) for income taxes was allocated to the following categories: 2000 1999 1998 ---- ---- ---- Continuing operations $728 $(2,190) $(12,535) Income (loss) from discontinued operations 297 (868) (836) Gain on sale of discontinued operations 6,633 19,556 Extraordinary gain (loss) 633 (4,343) ------ ----- ------ Total income tax provision (benefit) 8,291 $(3,058) $ 1,842 ===== ====== ====== A reconciliation from the statutory federal tax rate to the effective tax rate for continuing operations follows: 2000 1999 1998 ---- ---- ---- 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 Net effect of taxes relating to foreign operations (10.02) (6.73) (9.31) Intangibles amortization (9.39) Reversal of overaccrued taxes (25.74) 7.97 1.77 Valuation allowance changes and other (28.35) (12.64) ----- ----- ----- Effective tax rate from continuing operations (.76)% 8.78% 7.16% ==== ==== ==== Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities for 2000 and 1999 are as follows:
Year 2000 ------------------------------------------- Temporary Difference Tax Effected -------------------- ------------ Deferred Tax Deferred Tax Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities ------------- ----------- ------------ ------------ Depreciation basis differences $85,622 $33,393 Inventory basis differences 8,684 3,387 Intangible basis differences 6,000 2,340 Lease transaction $81,604 $31,826 Pension and healthcare 48,971 19,099 Employee benefits accruals 6,390 2,492 AMT carryover 15,300 5,967 2000 restructuring reserve 74,041 28,876 Other accruals and reserves 15 5 Foreign exchange and other 24,047 9,378 Valuation allowances 168,462 65,700 ------- ------- ------- ------- $226,321 $292,815 $88,265 $114,198 ======== ======== ======= ========
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 ======== ======== ======== ========
At December 31, 2000 and December 31, 1999, the Company had $(48,973) and $4,273 , respectively, of undistributed earnings of foreign subsidiaries considered permanently invested for which deferred taxes have not been provided. At December 31, 2000, the Company had federal income tax net operating loss carryforwards of approximately $140.0 million which had been substantially offset by a valuation allowance. The Company utilized such net operating loss carryforwards against income from discontinued operations and the extraordinary item during the year ended December 31, 2000. The tax benefits associated with the utilization of such net operating loss carryforwards were allocated to the tax provisions for discontinued operations and the extraordinary item. In addition, at December 31, 2000 and December 31, 1999, the Company had alternative minimum tax credit carryforwards of $6.0 million and $3.9 million, respectively. 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) from continuing operations, and before income taxes were approximately $(70,065), $(28,670), and $(104,016), in 2000, 1999, and 1998, respectively. Foreign earnings or (losses) from continuing operations before income taxes were approximately $(25,174), $(6,146), and $(43,138), in 2000, 1999, and 1998, 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, 2000, the Company had capital expenditure commitments outstanding of approximately $1.5 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 (the "ANC Litigation"). 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 an 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 the first quarter of 2001. 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 (the "Newsome Litigation"). 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 six Viskase patents litigated in the ANC Litigation. 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. On September 29, 2000, the Company and Viskase entered into a Settlement and License Agreement (the "Agreement") with ANC, American National Can Group, Inc., Pechiney Plastic Packaging, Inc. and Pechiney Emballage Flexible Europe (collectively, "Pechiney") partially resolving the ANC Litigation and fully resolving the Newsome Litigation. Pursuant to the Agreement, Viskase received a payment of $54.75 million on October 2, 2000. In addition, an additional payment of $60.25 million will be made to Viskase if the United States Court of Appeals for the Federal Circuit affirms the monetary award in its entirety in the ANC Litigation. In October 2000, pursuant to the agreement, Viskase withdrew its Motions for Sanctions and the Amended Complaint in the Newsome Litigation was dismissed with prejudice. The Company recorded $54.75 million as patent infringement settlement income during the third quarter 2000 and expensed $7.85 million patent defense costs. No portion of the potential additional payment of $60.25 million was recorded in the Company's financial statements. In addition, in 1997 and 1998, ANC challenged two of the six Viskase patents in suit by filing requests for reexamination with the United States Patent and Trademark office (USPTO). In one of the reexaminations, the USPTO has issued, on February 14, 2001, a Notice of Intent to Issue a Reexamination Certificate. In the other reexamination, the patent has been rejected by the USPO, and Viskase appealed the rejection to the USPTO Board of Patent Appeals and Interferences. Viskase's Main Brief was filed July 13, 2000. On October 20, 2000, the Examiner filed her answer and modified the rejection to indicate that two dependent claims contained allowable subject matter. Viskase's Reply Brief and Request for Oral Hearing were filed December 20, 2000. Assignment of a hearing date is awaited. Pursuant to the Agreement, the parties have agreed that neither will, directly or indirectly, except as required by any court order or the USPTO, seek to obtain or assist any other person or entity in seeking or obtaining the further reexamination, or the invalidation or limitation of the patents licensed under the Agreement, including the two patents for which ANC had previously requested reexamination. 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 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. During 1999 and 2000, the Company and certain of its subsidiaries and one other sausage manufacturer were named in ten virtually identical civil complaints filed in the United States District Court for 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 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. In 2001, all of the consolidated cases were transferred to the United States District Court for the Northern District of Illinois, Eastern Division. The Company and its subsidiaries are involved in various other 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. A total of 15,276,764 shares of common stock were issued and outstanding as of December 31, 2000. A total of 102,302 shares were issued in 2000 for directors' compensation and share conversion from a non-qualified employee benefit plan. The Company issued 116,025 shares of stock to its employees to celebrate its 75 year anniversary. The shares issued 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 at the date of grant is approximately $300 thousand. The unearned portion is amortized as compensation expense on a straight line basis over the related vesting period. Compensation expense related to the plan totaled $18 thousand in 2000. The shares issued under this plan are subject to forfeiture until October 27, 2003. 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 41%-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 Weeks Years Ended Ended ----------- ------- December December December 31, 2000 31, 1999 31, 1998 -------- -------- --------
Numerator: Net (loss) available to common stockholders: From continuing operations $(95,967) $(29,927) $(147,871) Discontinued operations: (Loss) Income from discontinued operations 3,435 (1,831) (33,389) Gain on disposal 68,185 39,057 ------ ------ ------- Net (loss) before extraordinary item (24,347) (31,758) (142,203) Extraordinary gain (loss) 6,511 (6,793) ------ ------- ------- Net loss available to common stockholders for basic and diluted EPS $(17,836) $(31,758) $(148,996) ======== ======== ========= Denominator: Weighted average shares outstanding for basic EPS 15,126,670 14,949,965 14,824,885 Effect of dilutive securities 0 0 0 ---------- ---------- ---------- Weighted average shares outstanding for diluted EPS 15,126,670 14,949,965 14,824,885 ========== ========== ========== Common stock equivalents are excluded from the loss-per-share calculations as the result is antidilutive.
18. STOCK-BASED COMPENSATION (dollars in thousands) The Company maintains a stock option plan. The plan provides 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, 2000, and December 31, 1999 and the fiscal year ended December 31, 1998 is presented below: 2000 1999 1998 ---------------------- ----------------------- -------------------- Weighted Weighted Weighted Average Exercise Average Exercise Average Exercise Shares Price Shares Price Shares Price ------ -------------- ------ -------------- ------ --------------
Outstanding at beginning of year 646,760 $4.19 956,326 $4.57 735,024 $4.71 Granted 550,000 1.78 4,000 4.50 557,200 5.21 Exercised (86,833) 4.84 Forfeited (251,050) 4.04 (313,566) 5.36 (249,065) 6.34 ------- ------- ------- Outstanding at year end 945,710 $2.83 646,760 $4.19 956,326 $4.57 ======= ======= ======= Options exercisable at year end 344,389 $4.28 434,075 $4.43 584,655 $5.04 ======= ======= ======= Future option grants available at year end 339,618 638,568 329,002 ======= ======= =======
As of December 31, 2000, total stock options outstanding have a weighted- average remaining contractual life of 8.20 years. The exercise price of options outstanding as of December 31, 2000 ranged from $1.78 to $7.25. The weighted average grant date fair value of options granted during years 2000, 1999, and fiscal 1998 was $1.45, $3.42, and $2.74, 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):
2000 1999 1998 ---- ---- ---- (Loss) before extraordinary item $(24,347) $(31,758) $(142,203) Pro forma (loss) before extraordinary item (24,507) 31,877) (142,317) Net (loss) (17,836) (31,758) (148,996) Pro forma net (loss) (17,996) (31,877) (149,110) PER SHARE AMOUNTS: (Loss) before extraordinary item - basic and diluted EPS $(1.61) $(2.12) $(9.59) Pro forma (loss) before extraordinary item - basic and diluted EPS (1.62) (2.13) (9.60) Net (loss) - basic and diluted EPS $(1.18) $(2.12) $(10.05) Pro forma net (loss) - basic and diluted EPS (1.19) (2.13) (10.06)
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 138.8% in 2000, 91.81% in 1999, and 52.61% in 1998, (2) risk-free interest rate equaling the 5-year treasury yield on the grant date ranged from 5.69% to 5.97% in 2000, 5.77% in 1999, and ranging from 4.58% to 5.40% in 1998, and (3) the expected life of 5 years in 2000, 1999, and 1998. 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, and $41, during 1999, and 1998, 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 2000, 1999, and 1998, 44,302 shares were issued at $2.29, 32,616 shares of stock were issued at $3.65, and 19,192 shares of stock were issued at $5.89, respectively. The Company issued shares of stock to its employees to celebrate its 75 year anniversary. The shares issued 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 at the date of grant is approximately $300 thousand. The unearned portion is amortized as compensation expense on a straight line basis over the related vesting period. Compensation expense related to the plan totaled $18 thousand in 2000. The shares issued under this plan are subject to forfeiture until October 27, 2003. 19. COMPREHENSIVE INCOME (in thousands) The following sets forth the components of other comprehensive (loss) income and the related income tax (benefit) provision: 53 Years Ended Weeks Ended -------------- ----------- December 31, December 31, December 31, 2000 1999 1998 ---- ---- ---- Other comprehensive (loss) income: Foreign currency translation Adjustment (1) $(2,730) $(1,542) $973 Less reclassification adjustment for losses included in the gain from discontinued operations (2) 2,532 ------ ------ ---- Other comprehensive (loss) income net of tax $ (198) $(1,542) $973 ====== ===== === (1) Net of related tax (benefit) provision of $(1,746), $(986) and $622 for the years ended 2000, 1999, and 1998, respectively. (2) Reclassification adjustment for losses due to sale of Films Business, included in net (loss) of $4,151, net of related tax provision of $1,619. 20. FAIR VALUE OF FINANCIAL INSTRUMENTS (dollars in thousands) The following table presents the carrying value and estimated fair value as of December 31, 2000 of the Company's financial instruments. (Refer to Notes 2 and 8.) Carrying Estimated Value Fair Value ------- ---------- Assets: Cash and equivalents $55,350 $55,350 Restricted cash $41,038 $41,038 Liabilities: Long-term debt (excluding capital lease obligations) $191,766 $138,089 21. RESEARCH AND DEVELOPMENT COSTS (dollars in thousands) Research and development costs from continuing operations are expensed as incurred and totaled $5,474, $4,211 and $3,708 for 2000, 1999, and 1998, respectively. 22. RELATED PARTY TRANSACTIONS (dollars in thousands) During 2000, 1999, and 1998, the Company purchased product and services from affiliates of DPK in the amounts of approximately $444, $9, and $200, respectively. During fiscal 1998, the Company sublet office space from DPK for which it paid approximately $77 in rent. During years 2000, 1999, and 1998, Viskase Corporation, a wholly owned subsidiary of the Company, had sales of $23,229, $32,577, and $21,804, respectively, to Cargill, Inc. and its affiliates. The majority of sales to Cargill, Inc. are related to the Films Business which was sold in August 2000. Such sales were made in the ordinary course of business. 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. 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 2000, 1999, and 1998, includes net foreign exchange transaction (losses) of approximately $(4,171), $(5,680), and $(880), respectively. Business Segment Information
53 Years Ended Weeks Ended ------------ ----------- December 31, December 31, December 31, 2000 1999 1998 ---- ---- ---- Net sales: Casings - Continuing operations $200,142 $225,767 $246,932 Films - Discontinued operations 110,017 159,886 162,237 Other - Discontinued operations _______ _______ 62,317 ------- ------- ------- $310,159 $385,653 $471,486 ======= ======= ======= Operating (loss) income: Casings - Continuing operations $(93,702) $15,834 $(109,242) Films - Discontinued operations 5,419 601 (35,385) Other - Discontinued operations _______ _______ 1,187 ------- ------- ------- $(88,283) $16,435 $(143,440) ======= ======= ======= Identifiable assets: Casings - Continuing operations $322,364 $313,044 $334,450 Films - Discontinued operations 146,318 180,774 196,619 Other - Discontinued operations _______ ------- ------- ------- $468,682 $493,818 $531,069 ======= ======= ======= Depreciation and amortization: Casings - Continuing operations $25,012 $26,922 $33,549 Films - Discontinued operations 9,415 16,750 17,625 Other - Discontinued operations _______ 4,374 ------- ------- ------- $34,427 $43,672 $55,548 ======= ======= ======= Capital expenditures: Casings - Continuing operations $12,350 $19,181 $27,271 Films - Discontinued operations 1,385 8,762 8,083 ------- ------- ------- $13,735 $27,943 $35,354 ======= ======= =======
Geographic Area Information
53 Years Ended Weeks Ended ----------- ----------- December 31, December 31, December 31, 2000 1999 1998 ---- ---- ---- Net sales: North America $202,362 $243,826 $319,410 South America 25,025 32,523 33,681 Europe 100,885 132,445 138,231 Other and eliminations (18,113) (23,141) (19,836) ------- ------- ------- $310,159 $385,653 $471,486 ======= ======= ======= Operating (loss) profit: North America $(74,282) $10,065 $(149,930) South America 4,146 4,978 3,615 Europe (18,228) 1,322 3,530 Other and eliminations 81 70 (655) ------- ------- ------- $(88,283) $16,435 $(143,440) ======= ======= ======= Identifiable assets: North America $326,876 $320,323 $335,313 South America 27,526 30,123 32,102 Europe 113,651 142,713 162,683 Other and eliminations 629 659 971 ------- ------- ------- $468,682 $493,818 $531,069 ======= ======= ======= United States export sales: (reported in North America sales above) Asia $15,319 $19,901 $19,861 South and Central America 14,515 15,005 13,136 Other International 72 94 100 ------- ------- ------- $29,906 $35,000 $33,097 ======= ======= ======= The total assets and net assets of foreign businesses were approximately $101,265 and $35,805, at December 31, 2000.
24. QUARTERLY DATA (unaudited) Quarterly financial information for 2000 and 1999 is as follows (in thousands, except for per share amounts):
First Second Third Fourth 2000 Quarter Quarter Quarter Quarter Annual ---- ------- ------- ------- ------- ------ Net Sales $51,770 $51,134 $48,389 $48,849 $200,142 Gross profit 13,065 10,449 11,425 7,643 42,582 Operating Income (loss) 1,379 (3,688) (7,501) (83,892) (93,702) Net Income (loss) (8,896) 15,191) 82,109 (75,858) (17,836) Net Income (loss) per share - basic and diluted (.59) (1.01) 5.43 (4.98) (1.18) First Second Third Fourth 1999 Quarter Quarter Quarter Quarter Annual ---- ------- ------- ------- ------- ------ Net Sales $55,136 $57,285 $55,296 $58,050 $225,767 Gross profit 14,643 16,780 15,290 12,975 59,688 Operating Income (loss) 1,858 5,823 3,505 4,648 15,834 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)
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 2000 does not equal the total for the year because of rounding and stock issuances, as shown on the Consolidated Statement of Stockholders' Equity. In 2000, the Company's Board of Directors announced its intention to sell the Company's plastic barrier and non-barrier shrink Films Business. The sale was completed on August 31, 2000. As a result, the operating results of the Films Business have been segregated from continuing operations and reported as a separate line item on the income statement under the heading discontinued operations. The 1999 results have been restated to reflect results from discontinued operations. In the 2000 second, third and fourth quarters, the Company recognized a restructuring charge of $2.7 million, $7.6 million and $84.6 million, respectively (see Note 11). In the third quarter, the Company recognized a $54.75 million patent infringement settlement income. Additionally, $7.85 million of patent infringement litigation expenses were recognized. The patent infringement settlement income, net of $46,900 was reclassed from the third quarter operating results. In the fourth quarter, an extraordinary gain on early extinguishment of debt of $6.5 million, net of income taxes of $.6 million or $.43 per share, was recognized. 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 ---------- --------- ---------- ---------- -------- --------- 2000 for the year ended December 31 Allowance for doubtful accounts $1,642 $433 $(269) $46 $(177) $1,675 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 2000 for the year ended December 31 Reserve for obsolete and slow moving inventory $4,110 $4,032 $(5,076) $1,963 $5,029 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 (1) Foreign currency translation and the disposition of Clear Shield, Sandusky and Films.