-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RdhMSg8lXXvv3jk4lUP1U+taG4fmNIisyYEkP397lQZY9/fyCbxRLt9mfoU+e41/ VIY7Czagdqz8Qu9GOkvp2Q== 0000033073-01-500035.txt : 20020410 0000033073-01-500035.hdr.sgml : 20020410 ACCESSION NUMBER: 0000033073-01-500035 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VISKASE COMPANIES INC CENTRAL INDEX KEY: 0000033073 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 952677354 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05485 FILM NUMBER: 1787927 BUSINESS ADDRESS: STREET 1: 6855 W. 65TH ST. CITY: CHICAGO STATE: IL ZIP: 60638 BUSINESS PHONE: 7084964200 FORMER COMPANY: FORMER CONFORMED NAME: ENVIRODYNE INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MGN INC DATE OF NAME CHANGE: 19790425 10-Q 1 sep01qtr.txt SEPTEMBER 2001 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______ ------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 ------------------ OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- -------------- Commission file number 0-5485 ------ VISKASE COMPANIES, INC. --------------------------- (Exact name of registrant as specified in its charter) Delaware 95-2677354 - ------------------------------ -------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 625 Willowbrook Centre Parkway, Willowbrook, Illinois 60527 - ----------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (630) 789-4900 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 As of November 14, 2001, there were 15,317,862 shares outstanding of the registrant's Common Stock, $.01 par value. INDEX TO FINANCIAL STATEMENTS VISKASE COMPANIES, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Page ---- Unaudited consolidated balance sheets at September 30, 2001 and December 31, 2000 4 Unaudited consolidated statements of operations and comprehensive loss for the three months ended September 30, 2001 and September 30, 2000 and for the nine months ended September 30, 2001 and September 30, 2000 5 Unaudited consolidated statements of cash flows for the nine months ended September 30, 2001 and September 30, 2000 7 Notes to consolidated financial statements 8 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS -------------------- The financial information included in this quarterly report has been prepared in conformity with the accounting principles and practices reflected in the financial statements included in the annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2000, as amended (2000 Form 10-K). These quarterly financial statements should be read in conjunction with the financial statements and the notes thereto included in the 2000 Form 10-K. The accompanying financial information, which is unaudited, reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The consolidated balance sheet as of December 31, 2000 was derived from the audited consolidated financial statements in the Company's annual report on the 2000 Form 10-K. Reported interim results of operations and comprehensive loss are based in part on estimates which may be subject to year-end adjustments. In addition, these quarterly results of operations and comprehensive loss are not necessarily indicative of those expected for the year. VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)
September 30, December 31, 2001 2000 ------------- ------------ (in thousands except for the number of shares) ASSETS Current assets: Cash and equivalents $32,895 $55,350 Restricted cash 26,662 41,038 Receivables, net 29,866 27,334 Inventories 34,491 39,405 Other current assets 8,750 23,168 -------- -------- Total current assets 132,664 186,295 Property, plant and equipment, including those under capital leases 239,295 240,110 Less accumulated depreciation and amortization 125,619 110,845 -------- -------- Property, plant and equipment, net 113,676 129,265 Deferred financing costs, net 1,086 184 Other assets 5,516 6,620 -------- -------- Total assets $252,942 $322,364 ======== ======== LIABILITIES AND STOCKHOLDERS' (DEFICIT) Current liabilities: Short-term debt including current portion of long-term debt and obligations under capital leases $244,824 $200,676 Accounts payable 10,776 15,887 Accrued liabilities 47,954 73,309 Current deferred income taxes 3,381 3,381 -------- -------- Total current liabilities 306,935 293,253 Long-term debt including obligations under capital leases 228 73,183 Accrued employee benefits 43,146 40,773 Deferred and noncurrent income taxes 22,965 22,552 Commitments and contingencies Stockholders' deficit: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 15,317,862 shares issued and outstanding at September 30, 2001 and 15,276,764 shares at December 31, 2000 153 153 Paid in capital 138,016 137,967 Accumulated (deficit) (260,605) (247,048) Accumulated other comprehensive gain 2,317 1,840 Unearned restricted stock issued for future service (213) (309) -------- -------- Total stockholders' (deficit) (120,332) (107,397) -------- -------- Total Liabilities and Stockholders' Deficit $252,942 $322,364 ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited)
Three Months Ended Nine Months Ended ------------------ ----------------- September September September September 30, 2001 30, 2000 30, 2001 30, 2000 --------- --------- --------- --------- (in thousands, except for number of shares and per share amounts) NET SALES $48,483 $48,389 $143,026 $151,293 COSTS AND EXPENSES Cost of sales 37,640 36,964 114,887 116,354 Selling, general and administrative 9,774 11,037 31,269 33,160 Amortization of intangibles 500 250 1,500 1,250 Restructuring charges 7,639 10,339 Patent infringement settlement income, net 46,900 46,900 -------- -------- -------- -------- OPERATING INCOME (LOSS) 569 39,399 (4,630) 37,090 Interest income 558 478 2,015 626 Interest expense 6,198 12,416 19,085 37,169 Other (income) expense, net (692) 2,598 3,770 3,222 -------- -------- -------- -------- (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (4,379) 24,863 (25,470) (2,675) Income tax provision (benefit) 317 473 (587) (1,043) -------- -------- -------- -------- NET (LOSS) INCOME FROM CONTINUING OPERATIONS (4,696) 24,390 (24,883) (1,632) DISCONTINUED OPERATIONS: Income from operations net of income taxes (Note 7) 1,085 3,020 Gain on disposal net of income taxes in 2001 and 2000 of $0 and $15,304 respectively 56,634 3,189 56,634 -------- -------- -------- -------- NET (LOSS) INCOME BEFORE (4,696) 82,109 (21,694) 58,022 EXTRAORDINARY ITEM Extraordinary gain on early extinguishment of debt, net ncome tax of $0 8,137 -------- -------- -------- -------- NET (LOSS) INCOME (4,696) 82,109 (13,557) 58,022 Other comprehensive income (loss), net of tax (see Note 8) Foreign currency translation adjustments 1,746 (1,829) 477 (3,919) Reclassification adjustment for losses included in net income 2,532 2,532 -------- -------- -------- -------- Other comprehensive income (loss) net of tax 1,746 703 477 (1,387) -------- -------- -------- -------- COMPREHENSIVE (LOSS) INCOME $(2,950) $82,812 $(13,080) $56,635 ======== ======== ======== ======== WEIGHTED AVERAGE COMMON SHARES - BASIC AND DILUTED 15,317,346 15,104,446 15,306,836 15,095,231 ========== ========== ========== ========== PER SHARE AMOUNTS: EARNINGS (LOSS) PER SHARE: - basic and diluted Continuing operations $(.31) $1.61 $(1.63) $(.11) Discontinued operations: Income from operations .07 .20 Gain on disposal 3.75 .21 3.75 -------- -------- -------- -------- Net (loss) income before extraordinary item (.31) 5.43 (1.42) 3.84 Extraordinary gain .53 -------- -------- -------- -------- Net (loss) income $(.31) $5.43 $(.89) $3.84 ======== ======== ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended --------------------------- September 30, September 30, 2001 2000 ------------- ------------- (in thousands) Cash flows from operating activities: Net (loss) income $(13,557) $58,022 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization under capital lease 16,314 27,026 Amortization of intangibles 1,500 3,500 Amortization of deferred financing fees and discount 91 4,825 (Decrease) increase in deferred and noncurrent income taxes (882) 9,372 Extraordinary (gain) on debt extinguishment (8,137) Foreign currency transaction loss 452 1,438 Loss (gain) on disposition of assets 1,950 (71,894) Bad debt provision 240 688 Changes in operating assets and liabilities: Receivables (2,913) 11,215 Inventories 4,643 2,186 Other current assets 14,299 (62,870) Accounts payable and accrued liabilities (29,822) (5,715) Other 4,656 3,400 -------- -------- Total adjustments 2,391 (76,829) -------- -------- Net cash (used in) operating activities (11,166) (18,807) Cash flows from investing activities: Capital expenditures (3,836) (10,935) Proceeds from disposition of assets 834 228,851 Restricted cash 14,376 (33,122) -------- -------- Net cash provided by investing activities 11,374 184,794 Cash flows from financing activities: Issuance of common stock 145 104 Deferred financing costs (1,015) (2,092) Repayment of revolving loan, long-term borrowings and capital lease obligation (20,660) (125,662) -------- -------- Net cash (used in) financing activities (21,530) (127,650) Effect of currency exchange rate changes on cash (1,133) (235) -------- -------- Net (decrease) increase in cash and equivalents (22,455) 38,102 Cash and equivalents at beginning of period 55,350 6,243 -------- -------- Cash and equivalents at end of period 32,895 44,345 ======== ======== Supplemental cash flow information: Interest paid $11,477 $39,252 Income taxes paid $ 5,140 $ 1,882 The accompanying notes are an integral part of the consolidated financial statements.
VISKASE COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION Viskase Companies, Inc. (VCI) consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business except for the classification of certain debt as discussed in Note 4. The consolidated financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustments that might be necessary should VCI be unable to continue as a going concern. 2. CASH AND CASH EQUIVALENTS (dollars in thousands) September December 30, 2001 31, 2000 --------- --------- Cash and cash equivalents $32,895 $55,350 Restricted cash 26,662 41,038 ------- ------- $59,557 $96,388 ======= ======= As of September 30, 2001, cash and cash equivalents of $31,780 and restricted cash of $26,662 are invested in short term investments. The restricted cash is principally cash held as collateral for outstanding letters of credit. 3. INVENTORIES (dollars in thousands) Inventories consisted of: September December 30, 2001 31, 2000 --------- -------- Raw materials $ 4,231 $ 2,867 Work in process 15,648 17,827 Finished products 14,612 18,711 ------- ------- $34,491 $39,405 ======= ======= Approximately 59% of the inventories at September 30, 2001 were valued at Last-In, First-Out (LIFO). These LIFO values exceeded current manufacturing cost by approximately $5,125 at September 30, 2001. 4. DEBT OBLIGATIONS (dollars in thousands) Outstanding short-term and long-term debt consisted of: September December 30, 2001 31, 2000 --------- -------- Short-term debt, current maturity of long-term debt, and capital lease obligation: Viskase Capital Lease Obligation $ 81,604 $ 8,750 10.25% Senior Notes due 2001 163,060 191,703 Other 160 223 -------- -------- Total short-term debt $244,824 $200,676 ======== ======== Long-term debt: Viskase Capital Lease Obligation $ 72,854 Other $ 228 329 -------- -------- Total long-term debt $ 228 $ 73,183 ======== ======== Letter of Credit Facility - --------------------------- Letters of credit in the amount of $25.8 million were outstanding under a letter of credit facility with a commercial bank, and were cash collateralized at September 30, 2001. The Company finances its working capital needs through a combination of internally generated cash from operations and cash on hand. GECC - ---- Under the terms of an 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. 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 has not made the November 1, 2001 payment to GECC of $11.75 million. On November 13, 2001, GECC gave notice of its intent to draw down under the letter of credit with the commercial bank in the amount of $11.75 million for the November 1, 2001 payment. The drawdown will reduce the Company's restricted cash by a like amount. As of September 30, 2001, (and as of the date of this report), the Company did not receive an amendment and waiver under the GECC Lease Agreement that waived non-compliance with the Fixed Charge Coverage Ratio. As a result, the Company was not in compliance with the Fixed Charge Coverage Ratio. The capital lease obligation has been classified as a current liability because the Company does not have waivers for the current or future quarters. 10.25% Notes - ------------ The 10.25% Notes mature on December 1, 2001. As of September 30, 2001 (and as of the date of this report), there was $163.1 million in principal amount of 10.25% Notes outstanding. The Company's current cash position and operating cash flows will not be sufficient to pay, or to arrange for the refinancing of, the principal and accrued interest on the 10.25% Notes when they mature. The Company has retained a financial advisor to assist in its review of its restructuring alternatives. The Company has engaged in negotiations with GECC regarding an extension or buy out or other restructuring of the GECC lease. The Company has also engaged in negotiations with an ad hoc committee of holders of the 10.25% Notes regarding a restructuring of the 10.25% Notes. To date, no agreement has been reached with GECC or the noteholders committee, and no assurances can be given that an agreement will be reached or what the terms of any such agreement would be. Under any restructuring plan, the Company believes that it is likely that such a restructuring would result in the substantial dilution or effective elimination of the current common stock of the Company. The Company believes, after consultation with its advisors, that it would be in the best interest of the Company to enter into a consensual (prepackaged) plan of restructuring, agreed to by GECC and the noteholders committee, that would be implemented in accordance with Chapter 11 of the United States Bankruptcy Code. The Company believes that this form of restructuring can be consummated more quickly and with less disruption than a Chapter 11 filing without any agreement with its creditors. If the Company is unable to reach an agreement with its creditors, the Company will be required to file under Chapter 11 to reorganize its capital structure. The Company expects that during the pendency of a Chapter 11 case it will operate in the ordinary course with respect to its customers, suppliers and employees. 5. 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. 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. The Company recorded $54.75 million as patent infringement settlement income during the third quarter 2000 and expensed $7.85 million of patent defense costs. On July 31, 2001, the Court of Appeals affirmed the lower court's decision in part, reversed the decision in part and remanded the case back to the District Court for the Northern District of Illinois. Under the agreement, Viskase Corporation was paid $54.75 million in partial settlement and agreed not to pursue the patent litigation further if the monetary damage award was not affirmed in its entirety. Because the monetary damages were not affirmed in its entirety, Viskase Corporation will not receive any additional payments under the agreement and no further legal proceedings will take place. The patents, which were the subject of the ANC Litigation, are part of the Company's Films Business which was sold in August 2000. 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 casing 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 these and 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. 6. RESTRUCTURING CHARGE (dollars in millions) During 2000, the Company committed to a restructuring plan to re-focus its remaining casing business. The Company wrote down $55.8 million of building and equipment to net realizable value. The restructuring actions, which were implemented to reduce the Company's fixed cost structure resulted in a before tax charge to continuing operations of $94.9 million. The following table provides details of the 2000 restructuring reserve for the nine months ended September 30, 2001:
Restructuring Restructuring Reserve as of Other Reserve as of December 31, 2000 Payments Adjustments September 30, 2001 ----------------- -------- ----------- ------------------ Employee severance costs $11.2 $(8.9) $.0 $ 2.3 Nucel(r) and other 15.3 (1.0) .1 14.4 Decommissioning .6 (.3) .0 .3 ----- ----- --- ----- Total restructuring reserve $27.1 $(10.2) $.1 $17.0 ===== ===== === ===== Approximately 15% of the Company's worldwide workforce was laid off due to the restructuring plan.
7. 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 proceeds of $255 million, including a Working Capital Adjustment of $10.3 million, were 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 $3.2 million in 2001 and $68.2 million in 2000. 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. Operating results from discontinued operations are as follows:
Three Months Ended Nine Months Ended ------------------ ----------------- September September 30, 2000 30, 2000 ------------------ ----------------- Net sales $30,290 $110,017 Costs and expenses Cost of sales 23,943 83,502 Selling, general and administrative 4,349 18,846 Amortization of intangibles 750 2,250 ------- -------- Operating income 1,248 5,419 Interest income 19 19 Interest expense 50 98 Other expense net (60) 1,608 ------- -------- Income from discontinued operations before taxes 1,277 3,732 Income tax provision 192 712 ------- -------- Net income from discontinued operations $ 1,085 $3,020 ======= ========
8. COMPREHENSIVE INCOME (LOSS) (dollars in thousands) The following sets forth the components of other comprehensive income (loss) and the related income taxes:
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September September September September 30, 2001 30, 2000 30, 2001 30, 2000 ------------ ------------ ----------- ----------- Foreign currency translation adjustment (1) $1,746 $(1,829) $477 $(3,919) Less reclassification adjustment for losses included in net income (2) 2,532 2,532 ------ ------- ------ ------- Other comprehensive income (loss) net of tax $1,746 $ 703 $477 $(1,387) ====== ======= ==== =======
(1) Net of related tax (benefit) of $0 and $(1,170) for the third quarter ended 2001 and 2000, respectively, and $0 and $(2,506) for the first nine months ended 2001 and 2000, respectively. (2) Reclassification adjustment for losses due to sale of Films Business, included in net income of $4,151 net of a related tax provision of $1,619. 9. EARNINGS PER SHARE (EPS) Following are the reconciliations of the numerators and denominators of the basic and diluted EPS.
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September September September September 30, 2001 30, 2000 30, 2001 30, 2000 ------------ ------------ ----------- ----------- (in thousands, except for weighted average shares outstanding) NUMERATOR: Net (loss) income available to common stockholders: From continuing operations: $(4,696) $24,390 $(24,883) $(1,632) Discontinued operations: Income from operations 1,085 3,020 Gain on disposal 56,634 3,189 56,634 ------- ------- -------- ------- Net (loss) income before (4,696) 82,109 (21,694) 58,022 extraordinary item Extraordinary gain 8,137 ------- ------- -------- ------- Net (loss) income available to common stockholders for basic and diluted EPS $(4,696) $82,109 $(13,557) $58,022 ======= ======= ======== ======= DENOMINATOR: Weighted average shares outstanding for basic EPS 15,317,346 15,104,446 15,306,836 15,095,231 Effect of dilutive securities ------- ------- ------- ------- Weighted average shares outstanding for diluted EPS 15,317,346 15,104,446 15,306,836 15,095,231 ========== ========== ========== ========== Common stock equivalents are excluded from the loss-per-share calculations as the result is antidilutive.
10. ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets". This Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets". The provisions of this Statement are required to be applied starting with fiscal years beginning after December 15, 2001. Management believes that adoption of Statement 142 will not have a material effect on the Company's financial statements. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supercedes FASB Statement 121. This statement addresses financial accounting and reporting for long-lived assets impaired and disposed of by sale. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. Management believes that adoption of Statement No. 144 will not have a material effect on the Company's financial statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- The accompanying management's discussion and analysis of financial condition and results of operations should be read in conjunction with the following table:
Three Months Ended Nine Months Ended ------------------ ----------------- September September September September 30, 2001 30, 2000 30, 2001 30, 2000 --------- --------- --------- --------- (in thousands) Net sales: Casings - continuing operations $48,483 $48,389 $143,026 $151,293 Films - discontinued operations 30,290 110,017 ------- ------- -------- -------- $48,483 $78,679 $143,026 $261,310 ======= ======= ======== ======== Operating income (loss): Casings - continuing operations $ 569 $39,399 $ (4,630) $37,090 Films - discontinued operations 1,248 5,419 ------- ------- -------- ------- $ 569 $40,647 $ (4,630) $42,509 ======= ======= ======== ======= September December 30, 2001 31, 2000 --------- --------- (in thousands) Identifiable assets: Casings - continuing operations $252,942 $322,364 Films - discontinued operations 146,318 -------- -------- $252,942 $468,682 ======== ========
Results of Operations - --------------------- The Company's net sales from continuing operations for the first nine months and third quarter of 2001 were $143.0 million and $48.5 million, respectively, which represents a decrease of 5.5% and a slight increase from comparable periods of 2000, respectively. The decline in sales reflects the continuing effect of reduced selling prices in the worldwide casings industry and lower sales volumes due to outbreaks of both mad cow disease and foot-and-mouth disease in Europe. Quarterly sales improved slightly due to increases in volumes offset by continued pricing pressures. Operating (loss) income from continuing operations for the first nine months and third quarter of 2001 was $(4.7) million and $.6 million, respectively. The 2000 operating income from continuing operations, excluding the ANC Litigation net gain and restructuring charges discussed below, for the first nine months and third quarter of 2000 were $.5 million and $.1 million, respectively. The decrease in operating income resulted primarily from declines in sales and gross margins caused by continued price competition in the worldwide casings industry. The 2000 operating income includes a net gain on a resolution of the ANC Litigation in the amount of $46.9 million for the nine months and quarter ended and a restructuring charge of $10.3 million for the nine months ended and $7.6 million for the quarter ended. Net interest expense from continuing operations for the nine-month period in 2001 totaled $17.1 million, representing a decrease of $19.4 million from the comparable period of 2000. The decrease is primarily due to reduced interest expense related to the repurchase of the 10.25% Notes, repayment of the Senior Term and Revolving loans and the Junior Term loans. Other expense from continuing operations of approximately $3.8 million and $3.2 million for the first nine months of 2001 and 2000, respectively, consists principally of foreign exchange losses; and in 2001 a write down of $1.6 million for land and buildings to net realizable value. The tax benefit for the first nine months of 2001 resulted from the benefit related to losses from foreign subsidiaries. A benefit of $.6 million was provided on a loss from continuing operations of $25.5 million. The foreign tax benefit is recorded as a reduction of the deferred tax liability and may result in a refund of income taxes. DISCONTINUED OPERATIONS - ----------------------- 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 proceeds of $255 million, including a Working Capital Adjustment of $10.3 million, were 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 $3.2 million in 2001 and $68.2 million in 2000. 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. Other - ----- In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets". This Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets". The provisions of this Statement are required to be applied starting with fiscal years beginning after December 15, 2001. Management believes that adoption of Statement 142 will not have a material effect on the Company's financial statements. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supercedes FASB Statement 121. This statement addresses financial accounting and reporting for long-lived assets impaired and disposed of by sale. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. Management believes that adoption of Statement No. 144 will not have a material effect on the Company's financial statements. Liquidity and Capital Resources - ------------------------------- Cash and equivalents decreased by $22.5 million during the nine months ended September 30, 2001. Cash flows used in operating activities were $11.2 million, provided by investing activities were $11.4 million, and used in financing activities were $21.5 million. Cash flows used in operating activities were principally attributable to the Company's loss from operations, an increase in working capital usage and the gain on the debt extinguishment offset by the effect of depreciation and amortization. Cash flows provided by investing activities were principally attributable to a release of restrictions on cash offset by capital expenditures for property, plant and equipment. Cash flows used in financing activities were principally due to the repurchase of the 10.25% Notes. Letters of credit in the amount of $25.8 million were outstanding under a letter of credit facility with a commercial bank, and were cash collateralized. The Company finances its working capital needs through a combination of internally generated cash from operations and cash on hand. 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. 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 has not made the November 1, 2001 payment to GECC of $11.75 million. On November 13, 2001, GECC gave notice of its intent to draw down under the letter of credit with the commercial bank in the amount of $11.75 million for the November 1, 2001 payment. The drawdown will reduce the Company's restricted cash by a like amount. As of September 30, 2001, (and as of the date of this report), the Company did not receive an amendment and waiver under the GECC Lease Agreement that waived non-compliance with the Fixed Charge Coverage Ratio. As a result, the Company was not in compliance with the Fixed Charge Coverage Ratio. The capital lease obligation has been classified as a current liability because the Company does not have waivers for the current or future quarters. The 10.25% Notes mature on December 1, 2001. As of September 30, 2001 (and as of the date of this report), there was $163.1 million in principal amount of 10.25% Notes outstanding. The Company's current cash position and operating cash flows will not be sufficient to pay, or to arrange for the refinancing of, the principal and accrued interest on the 10.25% Notes when they mature. The Company has retained a financial advisor to assist in its review of its restructuring alternatives. The Company has engaged in negotiations with GECC regarding an extension or buy out or other restructuring of the GECC lease. The Company has also engaged in negotiations with an ad hoc committee of holders of the 10.25% Notes regarding a restructuring of the 10.25% Notes. To date, no agreement has been reached with GECC or the noteholders committee, and no assurances can be given that an agreement will be reached or what the terms of any such agreement would be. Under any restructuring plan, the Company believes that it is likely that such a restructuring would result in the substantial dilution or effective elimination of the current common stock of the Company. The Company believes, after consultation with its advisors, that it would be in the best interest of the Company to enter into a consensual (prepackaged) plan of restructuring, agreed to by GECC and the noteholders committee, that would be implemented in accordance with Chapter 11 of the United States Bankruptcy Code. The Company believes that this form of restructuring can be consummated more quickly and with less disruption than a Chapter 11 filing without any agreement with its creditors. If the Company is unable to reach an agreement with its creditors, the Company will be required to file under Chapter 11 to reorganize its capital structure. The Company expects that during the pendency of a Chapter 11 case it will operate in the ordinary course with respect to its customers, suppliers and employees. The Company anticipates it will enter into a new revolving credit facility to meet its working capital and letter of credit requirements in connection with its restructuring. Capital expenditures for continuing operations for the first nine months of 2001 and 2000 were $3.8 million and $6.3 million, respectively. Capital expenditures during 2000 included $1.2 million from discontinued operations. Significant 2001 and 2000 capital expenditures from continuing operations included costs associated with the Visflex( plastic casing line and the Nucel(r) project. Capital expenditures from discontinued operations included additional production capacity for specialty films. Capital expenditures for continuing operations for 2001 are expected to be approximately $5 million. 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. 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; opportunities that may be presented to and pursued by the Company; determinations by regulatory and governmental authorities; and the ability to achieve synergistic and other cost reductions and efficiencies; and the effect of negotiations with the Company's creditors and the restructuring of the Company's indebtedness. The forward-looking statements contained in this report speak only as of the date of this report. We do not undertake any obligation to update or publicly release any revisions to forward-looking statements to reflect events or circumstances or changes in expectations after the date of this report or to reflect the occurrence of unanticipated events. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by the federal securities laws. 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 from time-to-time. Currently, there are no derivative financial instruments outstanding. 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 September 30, 2001, a 10% devaluation of the U.S. dollar would affect the Company's annual consolidated operating results, financial position and cash flows by an amount of approximately $.1 million. PART II. OTHER INFORMATION Item 1 - Legal Proceedings ----------------- For a description of pending litigation and other contingencies, see Part 1, Note 5, Contingencies in Notes to Consolidated Financial Statements for Viskase Companies, Inc. and Subsidiaries. Item 2 - Changes in Securities --------------------- No reportable events occurred during the quarter ended September 30, 2001. Item 3 - Defaults Upon Senior Securities ------------------------------- None. Item 4 - Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. Item 5 - Other Information ----------------- None. Item 6 - Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 10.38 Agreement and waiver dated August 2, 2001 between Viskase Corporation and State Street Bank and Trust Company as Owner Trustee, relating to the Participation Agreement dated as of December 18, 1990. (b) Reports on Form 8-K 1. On August 1, 2001, Viskase Companies, Inc. announced that the United States Court of Appeals for the Federal Circuit has rendered its decision in the patent litigation Viskase Corporation v. American National Can. The Court of Appeals affirmed the lower court's decision in part, reversed the decision in part and remanded the case back to the District Court for the Northern District of Illinois. Under an agreement reached last year among the parties, Viskase Corporation was paid $54.75 million in partial settlement and agreed not to pursue the patent litigation further if the monetary damage award was not affirmed in its entirety. Accordingly, Viskase Corporation will not receive any additional payments under the agreement and no further legal proceedings will take place. 2. On August 29, 2001, Viskase Companies, Inc. announced that Malcolm I. Glazer and Avram A. Glazer have resigned from the Board of Directors of the Company. Messrs. Glazer did not indicate any disagreement with the Company in their resignations. The Board of Directors does not intend, at this time, to fill these vacancies on the Board. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VISKASE COMPANIES, INC. ----------------------- Registrant By: /s/ ------------------------ Gordon S. Donovan Vice President, Chief Financial Officer and Treasurer (Duly authorized officer and principal financial officer of the registrant) Date: November 14, 2001 EX-99 3 ex1038waiver.txt EXHIBIT 1038 WAIVER AGREEMENT AND WAIVER dated as of August 2, 2001 (this "Agreement"), between Viskase Corporation, a Pennsylvania corporation (the "Lessee"), and State Street Bank and Trust Company, a Massachusetts trust company, not in its individual capacity but solely as Owner Trustee under the Trust Agreement (the "Lessor"), relating to the Participation Agreement dated as of December 18, 1990 among Viskase Corporation, as Lessee; Viskase Companies, Inc., formerly known as Envirodyne Industries, Inc.; as Guarantor, General Electric Capital Corporation, as Owner Participant; and State Street Bank and Trust Company, as Owner Trustee and Successor Trustee to Fleet National Bank, formerly known as Shawmut Bank Connecticut, National Association, formerly known as The Connecticut National Bank, not in its individual capacity (except as expressly provided therein) but solely as Owner Trustee under the Trust Agreement (capitalized terms used herein and not defined have the meanings assigned to such terms in the Lease Agreement). Whereas, the Guarantor was obligated to maintain a Fixed Charge Coverage Ratio under the Participation Agreement; Whereas, the Guarantor is not in compliance with the Fixed Charge Coverage Ratio; and Whereas, the Guarantor has requested that the Owner Trustee waive such non-compliance for the fiscal quarter ended June 30, 2001; Now therefore, in consideration of the mutual agreements herein contained and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Representations and Warranties. The Guarantor represents and warrants to the Lessor that after giving effect to this Agreement, no Event of Default or Default has occurred and is continuing. SECTION 2. Waiver. The Lessor hereby waives any Default or Event of Default arising by virtue of the Guarantor's failure to meet the Fixed Charge Coverage Ratio required under Section 5.09 of the Participation Agreement for the fiscal quarter ending on June 30, 2001. SECTION 3. Effectiveness and Termination. This Agreement shall become effective as of the date first above written when the parties hereto shall have received counterparts of this Agreement that, when taken together, bear the signatures of the Guarantor and the Lessor. SECTION 4. Expenses. The Guarantor agrees to reimburse the Owner Participant and the Lessor for its out-of-pocket expenses in connection with this Agreement. SECTION 5. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one agreement. Delivery of an executed signature page to this Agreement by facsimile transmission shall be effective as delivery of a manually signed counterpart of this Agreement. SECTION 7. Integration. This Agreement represents the entire agreement of the parties with respect to the subject matter hereof and there are no other promises or representations, written or oral, by the parties relative to the subject matter hereof not reflected or referred to herein. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly execute by their duly authorized officers, all as of the date and year first above written. STATE STREET BANK AND TRUST COMPANY, as Owner Trustee, By: --------------------------- Name: --------------------------- Title: --------------------------- VISKASE CORPORATION By: --------------------------- Name: Gordon S. Donovan --------------------------- Title: Vice President & CFO --------------------------- -----END PRIVACY-ENHANCED MESSAGE-----