10-Q 1 june0210q.txt VISKASE COMPANIES, INC. 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 June 30, 2002 ------------------------- 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 August 14, 2002, there were 15,316,062 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 ---- Consolidated balance sheets at June 30, 2002 and December 31, 2001 4 Consolidated statements of operations and comprehensive income (loss) for the three months ended June 30, 2002 and June 30, 2001 and for the six months ended June 30, 2002 and June 30, 2001 5 Consolidated statements of cash flows for the six months ended June 30, 2002 and June 30, 2001 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, 2001 (2001 Form 10-K). These quarterly financial statements should be read in conjunction with the financial statements and the notes thereto included in the 2001 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, 2001 was derived from the audited consolidated financial statements in the Company's annual report on the 2001 Form 10-K. Reported interim results of operations are based in part on estimates, which may be subject to year-end adjustments. In addition, these quarterly results of operations are not necessarily indicative of those expected for the year. VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)
June 30, December 31, 2002 2001 -------- ------------ (in thousands except for the number of shares) ASSETS Current assets: Cash and equivalents $ 14,261 $ 25,540 Restricted cash 29,146 26,558 Receivables, net 28,295 25,838 Inventories 30,870 29,064 Other current assets 9,901 9,691 -------- -------- Total current assets 112,473 116,691 Property, plant and equipment, including those under capital leases 237,366 233,637 Less accumulated depreciation and amortization 140,060 127,338 -------- -------- Property, plant and equipment, net 97,306 106,299 Deferred financing costs, net 2,018 2,024 Other assets 7,924 9,014 -------- -------- Total assets $219,721 $234,028 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Short-term debt including current portion of long-term debt and obligations under capital leases $227,321 $236,059 Accounts payable 9,310 9,784 Accrued liabilities 45,495 48,203 Current deferred income taxes 1,597 1,597 -------- -------- Total current liabilities 283,723 295,643 Long-term debt including obligations under capital leases 145 194 Accrued employee benefits 53,532 51,116 Noncurrent deferred income taxes 25,785 25,128 Commitments and contingencies Stockholders' deficit: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; issued and outstanding 15,316,062 shares at June 30, 2002 and 15,317,112 shares at December 31, 2001 153 153 Paid in capital 138,010 138,014 Accumulated (deficit) (279,326) (272,574) Accumulated other comprehensive (loss) (2,169) (3,461) Unearned restricted stock issued for future service (132) (185) --------- --------- Total stockholders' (deficit) (143,464) (138,053) --------- --------- Total liabilities and stockholders' deficit $219,721 $234,028 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (unaudited)
Three Months Ended Six Months Ended ---------------------- ---------------------- June June June June 30, 2002 30, 2001 30, 2002 30, 2001 -------- -------- -------- -------- (in thousands, except for number of shares and per share amounts) NET SALES $46,291 $46,503 $89,678 $94,543 COSTS AND EXPENSES Cost of sales 36,288 37,965 70,999 77,247 Selling, general and administrative 9,582 10,574 20,193 21,495 Amortization of intangibles 500 500 1,000 1,000 Restructuring (income) (6,132) (6,132) -------- -------- -------- -------- OPERATING INCOME (LOSS) 6,053 (2,536) 3,618 (5,199) Interest income 233 553 547 1,457 Interest expense 6,141 6,387 12,268 12,887 Other (income) expense, net (549) 3,377 (643) 4,462 -------- -------- -------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 694 (11,747) (7,460) (21,091) Income tax (benefit) provision (437) 2,470 (708) (904) -------- -------- -------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS 1,131 (14,217) (6,752) (20,187) DISCONTINUED OPERATIONS: Gain on disposal net of income taxes of $0 3,189 3,189 -------- -------- -------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 1,131 (11,028) (6,752) (16,998) Extraordinary gain on early extinguishment of debt, net of three month and six month income taxes of $3,152 and $0, respectively 3,207 8,137 -------- -------- -------- -------- NET INCOME (LOSS) 1,131 (7,821) (6,752) (8,861) Other comprehensive income (loss) Foreign currency translation adjustments 1,711 (247) 1,292 (1,269) -------- -------- -------- -------- COMPREHENSIVE INCOME (LOSS) $2,842 $(8,068) $(5,460) $(10,130) ======== ======== ======== ========= WEIGHTED AVERAGE COMMON SHARES - BASIC AND DILUTED 15,316,358 15,304,458 15,316,734 15,301,494 ========== ========== ========== ========== PER SHARE AMOUNTS: NET INCOME (LOSS) EARNINGS PER SHARE: - basic and diluted CONTINUING OPERATIONS $.07 $( .93) $(.44) $(1.32) DISCONTINUED OPERATIONS: Gain on disposal, net of tax .21 .21 ---- ------- ------ ------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM .07 (.72) (.44) (1.11) Extraordinary gain, net of tax .21 .53 ---- ------- ------ ------- Net Income (loss) $.07 $(.51) $(.44) $(.58)
The accompanying notes are an integral part of the consolidated financial statements. VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended -------------------------- June 30, June 30, 2002 2001 -------------------------- (in thousands) Cash flows from operating activities: Net (loss) $(6,752) $(8,861) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation and amortization under capital lease 10,455 10,874 Amortization of intangibles 1,000 1,000 Amortization of deferred financing fees 223 60 Increase (decrease) in deferred income taxes 122 (1,089) Extraordinary (gain) on debt extinguishment (8,137) Foreign currency transaction (gain) loss (252) 812 (Gain) loss on disposition of assets (7) 1,895 Bad debt (reduction) provision (61) 272 Net property, plant and equipment write-off 1,028 Changes in operating assets and liabilities: Receivables (1,438) (1,583) Inventories (867) 735 Other current assets (64) 442 Accounts payable and accrued liabilities (3,927) (22,313) Other 1,524 (678) -------- -------- Total adjustments 7,736 (17,710) -------- -------- Net cash provided by (used in) operating activities 984 (26,571) Cash flows from investing activities: Capital expenditures (795) (2,672) Proceeds from disposition of assets 548 799 Restricted cash (2,623) 14,415 -------- -------- Net cash (used in) provided by investing activities (2,870) 12,542 Cash flows from financing activities: Issuance of common stock 101 Deferred financing costs (216) (958) Repayment of long-term borrowings and capital lease obligation (8,810) (20,609) -------- -------- Net cash (used in) financing activities (9,026) (21,466) Effect of currency exchange rate changes on cash (402) (1,277) -------- -------- Net (decrease) in cash and equivalents (11,314) (36,772) Cash and equivalents at beginning of period 25,540 55,350 -------- -------- Cash and equivalents at end of period $14,226 $18,578 ======== ======== Supplemental cash flow information: Interest paid $3,127 $11,466 Income taxes paid $ 30 $ 5,094
The accompanying notes are an integral part of the consolidated financial statements. VISKASE COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GOING CONCERN PRESENTATION (dollars and shares in thousands, except per share amounts) Viskase Companies, Inc. (Company) 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 adjustment 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 the Company be unable to continue as a going concern. The Company's cash flows from operations were insufficient to pay the 10.25% Senior Notes (Senior Notes) when they matured on December 1, 2001, and accordingly the Company did not pay the $163,060 principal and $8,357 interest that became due at that time. In September 2001, certain of the holders of the Senior Notes formed an ad hoc committee (Ad Hoc Committee) to participate in the development of a plan to restructure the Company's capital structure and address its future cash flow needs. On July 15, 2002, the Company executed a restructuring agreement with the Ad Hoc Committee of the Company's Senior Notes due December 1, 2001 for the restructuring of the Senior Notes. Under the terms of the proposed restructuring, the Company's wholly owned operating subsidiary, Viskase Corporation, will be merged with and into the Company with the Company being the surviving corporation. The outstanding Senior Notes would be exchanged for new Senior Secured Notes (New Notes) and shares of Series A Preferred Stock (Preferred Stock) to be issued by the Company on a basis of $367.96271 principal amount of New Notes (i.e., $60,000) and 126.82448 shares of Preferred Stock (i.e., 20,680 shares or 94% of the Preferred Stock) for each one thousand dollar principal amount of Senior Notes. The Ad Hoc Committee retained legal counsel, the fees and expenses of which are being paid by the Company. Under the proposed restructuring, the Company will continue to provide an uninterrupted supply of products and services to customers worldwide. Trade creditors and vendors will be totally unaffected and will continue to be paid in the ordinary course of business, and the Company's employees will be paid all wages, salaries and benefits on a timely basis. The New Notes would bear interest at a rate of 8% per year, payable semi- annually (except annually with respect to year four and quarterly with respect to year five), with interest payable in the form of New Notes (pay- in-kind) for the first three years. Interest for years four and five will be payable in cash to the extent of available cash flow, as defined, and the balance in the form of New Notes (pay-in-kind). Thereafter, interest will be payable in cash. The New Notes would mature on December 1, 2008. The New Notes would be secured by a first lien in the assets of the Company, other than the assets subject to the GECC lease and certain real estate, post-merger. The New Notes will be subject to subordination of up to $25,000 for a secured working capital credit facility for the Company. The Preferred Stock will pay a 6% cumulative dividend. Its holders will vote on an as-converted basis on all matters together with the Company's common stockholders. The Preferred Stock will have a liquidation preference of $5.00 per share and will be convertible into common stock at any time at a price of $.20 per share. Upon conversion, the Preferred Stock would represent about 97% of the common stock. Accrued but unpaid dividends, at time of conversion, will be convertible into common stock upon the same basis. At the Company's option, the Preferred Stock would be automatically converted into common stock on the same basis in connection with a public offering of securities by the Company of not less than $50,000. Dividends on the Preferred Stock would be payable in cash to the extent the Company is legally, contractually and financially able to pay dividends. Under the proposed restructuring, 1,320 shares of Preferred Stock (or upon the request of Company management, options to purchase 1,320 shares of Preferred Stock), representing 6% of the Preferred Stock, will be reserved for Company management and employees. Such shares or options will be subject to a vesting schedule with acceleration upon the occurrence of certain events. The proposed exchange offer would be subject to acceptance by holders of 100% of the outstanding Senior Notes, unless waived by the Company and approved by the Ad Hoc Committee. The exchange offer would include a solicitation for a prepackaged plan of reorganization for the Company. If less than 100% of the outstanding Senior Notes accept the exchange offer but sufficient number and aggregate number of Senior Notes vote in favor of acceptance of the prepackaged plan of reorganization, the Company will commence a voluntary Chapter 11 petition and seek confirmation of the prepackaged plan of reorganization containing substantially the same terms as the exchange offer. In the event the restructuring is consummated through a bankruptcy proceeding, the Company's common stock will be canceled and new common stock will be issued, 94% to the holders of Senior Notes and 6% to the Company's management and employees. Holders of old common stock would receive warrants to purchase shares of new common stock equal to 2.7% of the Company's common stock. Assuming all warrants are exercised, holders of the Senior Notes would receive approximately 91.5% of the new common stock and approximately 5.8% would go to the Company's management and employees. Thus, the consideration received by all noteholders would be substantially the same regardless of whether the proposed restructuring occurs pursuant to an exchange offer or prepackaged plan of reorganization. Upon completion of the proposed restructuring the Board of Directors of the Company would be reconstituted to consist of five members, including the Company's Chief Executive Officer and four other persons designated by the Ad Hoc Committee. The Ad Hoc Committee members, holding in the aggregate approximately 54% of the Senior Notes, have agreed to accept the proposed exchange offer and vote in favor of the prepackaged plan of reorganization. The members of the Ad Hoc Committee have also agreed to take such other reasonable actions as necessary to consummate the proposed restructuring. In addition, the members of the Ad Hoc Committee have agreed not to transfer (other than to another member of the Ad Hoc Committee or an affiliate of a member) their shares of Preferred Stock (or common stock upon conversion) for a period of two years after the exchange offer is completed. For a period of one year thereafter, the Company would have a right of first refusal to either purchase or designate a purchaser for shares of Preferred Stock (or common stock upon conversion) to be transferred by a member of the Ad Hoc Committee to a person other than another member of the Ad Hoc Committee or their affiliates. The Company expects to complete the restructuring (either the exchange restructuring or the prepackaged) agreed to by the Ad Hoc Committee pursuant to the restructuring agreement, but can provide no assurances that any restructuring will be completed on the terms indicated in the restructuring agreement. The Company intends to mail both the Offer to Exchange and solicitation of the prepackaged plan of reorganization to holders of Senior Notes on or about August 21, 2002. Accordingly, the Company expects the restructuring to be completed sometime between November 4, 2002 and February 2, 2003. General Electric Capital Corporation (GECC), Viskase's equipment lessor, has agreed, subject to certain conditions, not to accelerate payment of amounts due because of any default or event of default under any of the lease documents arising from (i) Viskase's failure to meet the Fixed Charge Coverage Ratio for the fiscal quarters ending on March 31, 2002, June 30, 2002 and September 30, 2002, (ii) the Company becoming a debtor under Chapter 11 of the Bankruptcy Code; provided, however, that the waiver granted pursuant to the foregoing clause shall be rescinded if the Company shall be a debtor under Chapter 11 of the Bankruptcy Code on or after November 30, 2002. There is no agreement with GECC to extend the forbearance beyond November 30, 2002, and the Company can make no assurance that any extension would be received. 2. CASH AND CASH EQUIVALENTS (dollars in thousands)
June December 30, 2002 31, 2001 Cash and cash equivalents $14,261 $25,540 Restricted cash 29,146 26,558 ------- ------- $43,407 $52,098 ======= =======
As of June 30, 2002, cash and cash equivalents of $8,057 and restricted cash of $29,146 are invested in short term investments. The 2002 restricted cash is principally cash held as collateral for outstanding letters of credit with commercial banks. Included within restricted cash is a letter of credit of $2,109 which F. Edward Gustafson, Chairman of the Board, President and Chief Executive Officer, is the beneficiary. The letter of credit supports amounts payable under his Employment Agreements. 3. INVENTORIES (dollars in thousands) Inventories consisted of:
June December 30, 2002 31, 2001 -------- -------- Raw materials $ 3,476 $ 3,173 Work in process 14,032 13,131 Finished products 13,362 12,760 ------- ------- $30,870 $29,064 ======= =======
Approximately 49.9% of the inventories at June 30, 2002 were valued at Last- In, First-Out (LIFO). These LIFO values exceeded current manufacturing cost by approximately $1,686 at June 30, 2002. 4. DEBT OBLIGATIONS (dollars and shares in thousands, except per share amounts) Outstanding short-term and long-term debt consisted of:
June December 30, 2002 31, 2001 -------- -------- Short-term debt, current maturity of long-term debt, and capital lease obligation: Viskase Capital Lease Obligation $ 64,106 $ 72,855 10.25% Senior Notes due 2001 163,060 163,060 Other 155 144 -------- -------- Total short-term debt $227,321 $236,059 Long-term debt: Other 145 194 -------- -------- Total long-term debt $ 145 $ 194 ======== ========
10.25% Senior Notes ------------------- The Company's cash flows from operations were insufficient to pay the Senior Notes when they matured on December 1, 2001, and accordingly the Company did not pay the $163,060 principal and $8,357 interest that became due at that time. In September 2001, certain of the holders of the Senior Notes formed the Ad Hoc Committee to participate in the development of a plan to restructure the Company's capital structure and address its future cash flow needs. On July 15, 2002, the Company executed a restructuring agreement with the Ad Hoc Committee of the Company's Senior Notes due December 1, 2001 for the restructuring of the Senior Notes. Under the terms of the proposed restructuring, the Company's wholly owned operating subsidiary, Viskase Corporation, will be merged with and into the Company with the Company being the surviving corporation. The outstanding Senior Notes would be exchanged for New Notes and shares of Preferred Stock to be issued by the Company on a basis of $367.96271 principal amount of New Notes (i.e., $60,000) and 126.82448 shares of Preferred Stock (i.e., 20,680 shares or 94% of the Preferred Stock) for each one thousand dollar principal amount of Senior Notes. The Ad Hoc Committee retained legal counsel, the fees and expenses of which are being paid by the Company. Under the proposed restructuring, the Company will continue to provide an uninterrupted supply of products and services to customers worldwide. Trade creditors and vendors will be totally unaffected and will continue to be paid in the ordinary course of business, and the Company's employees will be paid all wages, salaries and benefits on a timely basis. The New Notes would bear interest at a rate of 8% per year, payable semi- annually (except annually with respect to year four and quarterly with respect to year five), with interest payable in principal amount of New Notes (pay-in-kind) for the first three years. Interest for years four and five will be payable in cash to the extent of available cash flow, as defined, and the balance in principal amount of New Notes (pay-in-kind). Thereafter, interest will be payable in cash. The New Notes would mature on December 1, 2008. The New Notes would be secured by a first lien in the assets of the Company, other than the assets subject to the GECC lease and certain real estate, post-merger. The New Notes will be subject to subordination of up to $25,000 for a secured working capital credit facility for the Company. The Preferred Stock will pay a 6% cumulative dividend. Its holders will vote on an as-converted basis on all matters together with the Company's common stockholders. The Preferred Stock will have a liquidation preference of $5.00 per share and will be convertible into common stock at any time at a price of $.20 per share. Upon conversion, the Preferred Stock would represent about 97% of the common stock. Accrued but unpaid dividends, at time of conversion, will be convertible into common stock upon the same basis. At the Company's option, the Preferred Stock would be automatically converted into common stock on the same basis in connection with a public offering of securities by the Company of not less than $50,000. Dividends on the Preferred Stock would be payable in cash to the extent the Company is legally, contractually and financially able to pay dividends. Under the proposed restructuring, 1,320 shares of Preferred Stock (or upon the request of Company management, options to purchase 1,320 shares of Preferred Stock), representing 6% of the Preferred Stock, will be reserved for Company management and employees. Such shares or options will be subject to a vesting schedule with acceleration upon the occurrence of certain events. The proposed exchange offer would be subject to acceptance by holders of 100% of the outstanding Senior Notes, unless waived by the Company and approved by the Ad Hoc Committee. The exchange offer would include a solicitation for a prepackaged plan of reorganization for the Company. If less than 100% of the outstanding Senior Notes accept the exchange offer but sufficient number and aggregate number of Senior Notes vote in favor of acceptance of the prepackaged plan of reorganization, the Company will commence a voluntary Chapter 11 petition and seek confirmation of the prepackaged plan of reorganization containing substantially the same terms as the exchange offer. In the event the restructuring is consummated through a bankruptcy proceeding, the Company's common stock will be canceled and new common stock will be issued, 94% to the holders of Senior Notes and 6% to the Company's management and employees. Holders of old common stock would receive warrants to purchase shares of new common stock equal to 2.7% of the Company's common stock. Assuming all warrants are exercised, holders of the Senior Notes would receive approximately 91.5% of the new common stock and approximately 5.8% would go to the Company's management and employees. Thus, the consideration received by all noteholders would be substantially the same regardless of whether the proposed restructuring occurs pursuant to an exchange offer or prepackaged plan of reorganization. Upon completion of the proposed restructuring the Board of Directors of the Company would be reconstituted to consist of five members, including the Company's Chief Executive Officer and four other persons designated by the Ad Hoc Committee. The Ad Hoc Committee members, holding in the aggregate approximately 54% of the Senior Notes, have agreed to accept the proposed exchange offer and vote in favor of the prepackaged plan of reorganization. The members of the Ad Hoc Committee have also agreed to take such other reasonable actions as necessary to consummate the proposed restructuring. In addition, the members of the Ad Hoc Committee have agreed not to transfer (other than to another member of the Ad Hoc Committee or an affiliate of a member) their shares of Preferred Stock (or common stock upon conversion) for a period of two years after the exchange offer is completed. For a period of one year thereafter, the Company would have a right of first refusal to either purchase or designate a purchaser for shares of Preferred Stock (or common stock upon conversion) to be transferred by a member of the Ad Hoc Committee to a person other than another member of the Ad Hoc Committee or their affiliates. The Company expects to complete the restructuring (either the exchange restructuring or the prepackaged) agreed to by the Ad Hoc Committee pursuant to the restructuring agreement, but can provide no assurances that any restructuring will be completed on the terms indicated in the restructuring agreement. The Company intends to mail both the Offer to Exchange and solicitation of the prepackaged plan of reorganization to holders of Senior Notes on or about August 21, 2002. Accordingly, the Company expects the restructuring to be completed sometime between November 4, 2002 and February 2, 2003. The Senior 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 Senior Notes in open market or privately negotiated transactions, with the effect that as of June 30, 2002 there was $163,060 principal amount of Senior Notes outstanding, net of repurchase. During the year-to-date period ended June 30, 2001, the Company recognized an $8,137 gain on the repurchase of the Senior Notes. GECC ---- The GECC capital lease obligations were classified as current in the financial statements due to covenant restrictions. The following lease payment maturities conform to contractual payments under the lease. February 28, 2003 $23,499 February 28, 2004 $23,499 February 28, 2005 $23,500 GECC, Viskase's equipment lessor, has agreed, subject to certain conditions, not to accelerate payment of amounts due because of any default or event of default under any of the lease documents arising from (i) Viskase's failure to meet the Fixed Charge Coverage Ratio for the fiscal quarters ending on March 31, 2002, June 30, 2002 and September 30, 2002, (ii) the Company becoming a debtor under Chapter 11 of the Bankruptcy Code; provided, however, that the waiver granted pursuant to the foregoing clause shall be rescinded if the Company shall be a debtor under Chapter 11 of the Bankruptcy Code on or after November 30, 2002. There is no agreement with GECC to extend the forbearance beyond November 30, 2002, and the Company can make no assurance that any extension would be received. Letter of Credit Facility ------------------------- Letters of credit in the amount of $28,354 were outstanding under a letter of credit facility with commercial banks, and were cash collateralized at June 30, 2002. The Company finances its working capital needs through a combination of internally generated cash from operations and cash on hand. The Company anticipates that it will enter into a new revolving credit facility to meet its working capital and letter of credit requirements during 2002. 5. CONTINGENCIES (dollars in thousands) In 1988, Viskase Canada Inc. (Viskase Canada), a subsidiary of the Company, commenced a lawsuit against Union Carbide Canada Limited and Union Carbide Corporation in the Ontario Superior Court of Justice, Court File No.: 292270188 seeking damages resulting from Union Carbide's breach of environmental representations and warranties under the Amended and Restated Purchase and Sale Agreement, dated January 31, 1986 (Agreement). Pursuant to the Agreement, Viskase Corporation and various affiliates (including Viskase Canada) purchased from Union Carbide and Union Carbide Films Packaging, Inc., its cellulosic casings business and plastic barrier films business (Business), which purchase included a facility in Lindsay, Ontario, Canada (Site). Viskase Canada claimed that Union Carbide breached several representations and warranties and deliberately failed to disclose to Viskase Canada the existence of contamination on the Site. In 1992, Union Carbide and Viskase Canada jointly put in place a continuous pumping program at the Site. In October 2001, the Canadian Ministry of the Environment (MOE) notified Viskase Canada that it had evidence to suggest that the Site was a source of polychlorinated biphenyl (PCB) contamination. Viskase Canada is working with the MOE in investigating the alleged PCB contamination and developing and implementing, if appropriate, a remedial plan for the Site. Viskase Canada has been granted leave to amend its lawsuit against Union Carbide to allege that any PCB contamination at or around the Site was generated from Union Carbide's plastics extrusion business, which was operated at the Site by Union Carbide prior to the purchase of the Business. Union Carbide's plastics extrusion business was not part of the Business purchased by Viskase Corporation and its affiliates. Viskase Canada will be asking the court to require Union Carbide to repurchase the Site from Viskase Canada and award Viskase Canada damages in excess of $2,000 (Canadian dollars). The lawsuit is still pending and is expected to proceed to trial sometime during the second half of 2003. 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 casings 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 (INCOME) CHARGE (dollars in millions) During the second quarter of 2002, the Company committed to a restructuring plan to address the industry's competitive environment. The plan resulted in a before tax charge of $3.2 million. Approximately 2% of the Company's worldwide workforce was laid off due to the 2002 restructuring plan. The Company also reversed an excess reserve of $9.3 million for Nucel(r) technology third party license fees that have been negotiated to a lower amount. The Nucel(r) technology license fees were originally reflected in the 2000 Restructuring Reserve.
Restructuring 2002 Reserve as of Charge Payments Writedown June 30, 2002 ------ -------- --------- ------------- Employee costs $1.4 $(.3) .0 $1.1 Nucel(r) equipment 1.0 .0 (1.0) .0 Decommissioning .8 .0 .0 .8 ------ ----- ------ ---- Total restructuring $ 3.2 $(.3) $(1.0) $1.9 ===== ====== ==== Reversal of 2000 excess reserve (9.3) ------ Restructuring (income) $(6.1) ======
The following table provides details of the 2000 restructuring reserve for the period ended June 30, 2002:
Restructuring Restructuring Reserve as of Other Reserve as of December 31, 2001 Payments Adjustments June 30, 2002 ----------------- -------- ----------- ------------- Employee costs $ 1.0 $ (.6) $ $ .4 Nucel(r) license fees 13.8 (1.1) (9.3) 3.4 Decommissioning .3 (.3) ----- ------ ------ ---- Total restructuring reserve $15.1 $(2.0) $(9.3) $3.8 ===== ====== ====== ====
In the second quarter of 2002 and the year-to-date period, the Company paid third party license fees of approximately $.6 million and $1.1 million, respectively. The renegotiated Nucel(r) technology third party license fee payments remaining are estimated at $1.1 million, $.9 million, $.4 million, $.3 million, $.2 million and $.5 million for the year periods 2002 to 2007 and are included in the 2000 restructuring reserve. 7. DISCONTINUED OPERATIONS (dollars in millions) 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 $8.1 million in the June year-to-date period of 2001 due to the finalization of a working capital adjustment. 8. EARNINGS PER SHARE (EPS) Following are the reconciliations of the numerators and denominators of the basic and diluted EPS.
Three Months Three Months Six Months Six Months Ended June Ended June Ended June Ended June 30, 2002 30, 2001 30, 2002 30, 2001 ------------ ------------ ---------- ---------- (in thousands, except for weighted average shares outstanding) NUMERATOR: Net income (loss) available to common stockholders: CONTINUING OPERATIONS: $1,131 $(14,217) $(6,752) $(20,187) DISCONTINUED OPERATIONS: Gain on disposal, net of tax 3,189 3,189 ------ --------- -------- --------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 1,131 (11,028) (6,752) (16,998) Extraordinary gain, net of tax 3,207 8,137 ------ --------- -------- --------- Net income (loss) available to common stockholders for basic and diluted EPS $1,131 $( 7,821) $(6,752) $( 8,861) ====== ========= ======== ========= DENOMINATOR: Weighted average shares outstanding for basic EPS 15,316,358 15,304,458 15,316,734 15,301,494 Effect of dilutive securities 0 0 0 0 ---------- ---------- ---------- ---------- Weighted average shares outstanding for diluted EPS 15,316,358 15,304,458 15,316,734 15,301,494 ========== ========== ========== ==========
Common stock equivalents are excluded from the calculations as the result is antidilutive. Options to purchase 871,930 shares of common stock at a range of $1.78 to $7.25 per share were outstanding during the first half of 2002 but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the common shares for the first half of 2002. The options, which expire in 2005 through 2010, were still outstanding at the end of June 30, 2002. These options will be canceled under the restructuring. 9. ACCOUNTING STANDARDS In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations." The statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. The provisions of this statement are required to be applied for fiscal years beginning after June 15, 2002. The Company is considering the Standard and its effect on the Company's financial statements. In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The statement updates, clarifies and simplifies existing accounting pronouncements. The provisions of this statement related to rescission of Statement 4 shall be applied in fiscal years beginning after May 15, 2002. The provisions in paragraphs 8 and 9(c) of the statement related to Statement 13 shall be effective for transactions occurring after May 15, 2002. The Company is considering the Standard and its effect on the Company's financial statements. In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement replaces previous accounting guidance provided by EITF (Emerging Issues Task Force) Issue No. 94-3. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company is considering the Standard and its effect on the Company's financial statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ---------------------------------------------------------------- Results of Operations --------------------- The Company's net sales from operations for the first six months and second quarter of 2002 were $89.7 million and $46.3 million, respectively, which represents a decrease of 5.1% and .5% from comparable periods of 2001. The decline in sales reflects the continuing effect of reduced selling prices in the casings industry offset by an increase in volume during the second quarter. Operating income for the first six months and second quarter of 2002 were $3.6 million and $6.1 million, respectively. The operating income includes a net restructuring income of $6.1 million recognized in the second quarter of 2002. The restructuring income is the result of a reversal of $9.3 million of excess reserve from the year 2000 for the reduction of the Nucel(r) technology third party license fees, offset by a year 2002 restructuring charge of $3.2 million (see Note 6). Operating income (loss), excluding the net restructuring income of $6.1 million for the first six months and second quarter of 2002 is $(2.5) million and $(.1) million, respectively. This compares favorably to operating loss from the comparable prior year periods of $(5.2) million and $(2.5) million, respectively. The improvement in the operating loss results primarily from operating efficiencies from previous cost saving measures, reduced raw material and energy costs. Net interest expense for the six month period in 2002 totaled $11.7 million representing an increase of $.3 million from the comparable period of 2001. The increase is primarily due to reduced interest income resulting from lower investment balances and lower interest rates. Other (income) expense is approximately $(.6) million and $4.5 million for the first six months of 2002 and 2001, respectively. The 2002 income consists principally of foreign exchange gains, and during 2001, includes foreign exchange losses and a write down of $1.6 million for land and buildings to net realizable value. The tax benefit for the first six months of 2002 resulted primarily from the benefit of an anticipated U.S. income tax refund resulting from the Job Creation Act enacted in March 2002, partially offset by the tax provision related to income from foreign subsidiaries. An income tax benefit of $.7 million was provided on a pre-tax loss of $(7.5) million for the six month period of 2002. 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 $8.1 million in the June year to date period of 2001 due to the finalization of a working capital adjustment. Liquidity and Capital Resources ------------------------------- Cash and equivalents decreased by $11.3 million during the year to date period ended June 30, 2002. Cash flows provided by operating activities were $1.0 million, used in investing activities were $2.9 million, and used in financing activities were $9.0 million. Cash flows provided by operating activities were principally attributable to the Company's loss from operations and seasonal working capital requirements, offset by the effect of depreciation and amortization. Cash flows used in investing activities were principally attributable to an increase in restricted cash and by capital expenditures for property, plant and equipment. Cash flows used in financing activities were principally due to the payment of the scheduled GECC Capital Lease obligation. The Company's cash flows from operations were insufficient to pay the Senior Notes when they matured on December 1, 2001, and accordingly the Company did not pay the $163.1 million principal and $8.4 million interest that became due at that time. In September 2001, certain of the holders of the Senior Notes formed the Ad Hoc Committee to participate in the development of a plan to restructure the Company's capital structure and address its future cash flow needs. On July 15, 2002, the Company executed a restructuring agreement with the Ad Hoc Committee of the Company's Senior Notes due December 1, 2001 for the restructuring of the Senior Notes. Under the terms of the proposed restructuring, the Company's wholly owned operating subsidiary, Viskase Corporation, will be merged with and into the Company with the Company being the surviving corporation. The outstanding Senior Notes would be exchanged for New Notes and shares of Preferred Stock to be issued by the Company on a basis of $367.96271 principal amount of New Notes (i.e., $60 million) and 126.82448 shares of Preferred Stock (i.e., 20.68 million shares or 94% of the Preferred Stock) for each one thousand dollar principal amount of Senior Notes. The Ad Hoc Committee retained legal counsel, the fees and expenses of which are being paid by the Company. Under the proposed restructuring, the Company will continue to provide an uninterrupted supply of products and services to customers worldwide. Trade creditors and vendors will be totally unaffected and will continue to be paid in the ordinary course of business, and the Company's employees will be paid all wages, salaries and benefits on a timely basis. The New Notes would bear interest at a rate of 8% per year, payable semi- annually (except annually with respect to year four and quarterly with respect to year five), with interest payable in the form of New Notes (pay- in-kind) for the first three years. Interest for years four and five will be payable in cash to the extent of available cash flow, as defined, and the balance in the form of New Notes (pay-in-kind). Thereafter, interest will be payable in cash. The New Notes would mature on December 1, 2008. The New Notes would be secured by a first lien in the assets of the Company, other than the assets subject to the GECC lease and certain real estate, post-merger. The New Notes will be subject to subordination of up to $25,000 for a secured working capital credit facility for the Company. The Preferred Stock will pay a 6% cumulative dividend. Its holders will vote on an as-converted basis on all matters together with the Company's common stockholders. The Preferred Stock will have a liquidation preference of $5.00 per share and will be convertible into common stock at any time at a price of $.20 per share. Upon conversion, the Preferred Stock would represent about 97% of the common stock. Accrued but unpaid dividends, at time of conversion, will be convertible into common stock upon the same basis. At the Company's option, the Preferred Stock would be automatically converted into common stock on the same basis in connection with a public offering of securities by the Company of not less than $50 million. Dividends on the Preferred Stock would be payable in cash to the extent the Company is legally, contractually and financially able to pay dividends. Under the proposed restructuring, 1.32 million shares of Preferred Stock (or upon the request of Company management, options to purchase 1.32 million shares of Preferred Stock), representing 6% of the Preferred Stock, will be reserved for Company management and employees. Such shares or options will be subject to a vesting schedule with acceleration upon the occurrence of certain events. The proposed exchange offer would be subject to acceptance by holders of 100% of the outstanding Senior Notes, unless waived by the Company and approved by the Ad Hoc Committee. The exchange offer would include a solicitation for a prepackaged plan of reorganization for the Company. If less than 100% of the outstanding Senior Notes accept the exchange offer but sufficient number and aggregate number of Senior Notes vote in favor of acceptance of the prepackaged plan of reorganization, the Company will commence a voluntary Chapter 11 petition and seek confirmation of the prepackaged plan of reorganization containing substantially the same terms as the exchange offer. In the event the restructuring is consummated through a bankruptcy proceeding, the Company's common stock will be canceled and new common stock will be issued, 94% to the holders of Senior Notes and 6% to the Company's management and employees. Holders of old common stock would receive warrants to purchase shares of new common stock equal to 2.7% of the Company's common stock. Assuming all warrants are exercised, holders of the Senior Notes would receive approximately 91.5% of the new common stock and approximately 5.8% would go to the Company's management and employees. Thus, the consideration received by all noteholders would be substantially the same regardless of whether the proposed restructuring occurs pursuant to an exchange offer or prepackaged plan of reorganization. Upon completion of the proposed restructuring the Board of Directors of the Company would be reconstituted to consist of five members, including the Company's Chief Executive Officer and four other persons designated by the Ad Hoc Committee. The Ad Hoc Committee members, holding in the aggregate approximately 54% of the Senior Notes, have agreed to accept the proposed exchange offer and vote in favor of the prepackaged plan of reorganization. The members of the Ad Hoc Committee have also agreed to take such other reasonable actions as necessary to consummate the proposed restructuring. In addition, the members of the Ad Hoc Committee have agreed not to transfer (other than to another member of the Ad Hoc Committee or an affiliate of a member) their shares of Preferred Stock (or common stock upon conversion) for a period of two years after the exchange offer is completed. For a period of one year thereafter, the Company would have a right of first refusal to either purchase or designate a purchaser for shares of Preferred Stock (or common stock upon conversion) to be transferred by a member of the Ad Hoc Committee to a person other than another member of the Ad Hoc Committee or their affiliates. The Company expects to complete the restructuring (either the exchange restructuring or the prepackaged) agreed to by the Ad Hoc Committee pursuant to the restructuring agreement, but can provide no assurances that any restructuring will be completed on the terms indicated in the restructuring agreement. The Company intends to mail both the Offer to Exchange and solicitation of the prepackaged plan of reorganization to holders of Senior Notes on or about August 21, 2002. Accordingly, the Company expects the restructuring to be completed sometime between November 4, 2002 and February 2, 2003. The Company has from time to time purchased Senior Notes in open market or privately negotiated transactions, with the effect that as of June 30, 2002 there was $163.1 million principal amount of Senior Notes outstanding, net of repurchased notes. During the year-to-date period ended June 30, 2001, the Company recognized an $8.1 million gain on the repurchase of the Senior Notes. Letters of credit in the amount of $28.4 million were outstanding under a letter of credit facility with commercial banks, and were cash collateralized at June 30, 2002. The Company finances its working capital needs through a combination of internally generated cash from operations and cash on hand. The Company anticipates that it will enter into a new revolving credit facility to meet its working capital and letter of credit requirements during 2002. The GECC capital lease obligations were classified as current in the financial statements due to covenant restrictions. The following lease payment maturities conform to contractual payments under the lease. February 28, 2003 $23.5 million February 28, 2004 $23.5 million February 28, 2005 $23.5 million GECC, Viskase's equipment lessor, has agreed, subject to certain conditions, not to accelerate payment of amounts due because of any default or event of default under any of the lease documents arising from (i) Viskase's failure to meet the Fixed Charge Coverage Ratio for the fiscal quarters ending on March 31, 2002, June 30, 2002 and September 30, 2002, (ii) the Company becoming a debtor under Chapter 11 of the Bankruptcy Code; provided, however, that the waiver granted pursuant to the foregoing clause shall be rescinded if the Company shall be a debtor under Chapter 11 of the Bankruptcy Code on or after November 30, 2002. There is no agreement with GECC to extend the forbearance beyond November 30, 2002, and the Company can make no assurance that any extension would be received. Capital expenditures for the first six months of 2002 and 2001 totaled $.8 million and $2.7 million, respectively. Significant capital expenditures during 2002 and 2001 included costs associated with the Viskase Food Science Quality Institute (FSQI) and the Visflex(tm) plastic casing line, respectively. Capital expenditures for 2002 are expected to be approximately $5 million. In 2001, the Company spent approximately $5 million on research and development programs, including product and process development, and on new technology development. Prior to 2001, the Company was spending approximately $8 million on research and development programs. The decrease is due to the sale of the Films Business. The 2002 research and development and product introduction expenses are expected to be in the $4 million range. The current research and development efforts are directed toward the application of certain patents and process technology to improve the manufacture of cellulosic casings. Contingencies ------------- In 1988, Viskase Canada Inc. (Viskase Canada), a subsidiary of the Company, commenced a lawsuit against Union Carbide Canada Limited and Union Carbide Corporation in the Ontario Superior Court of Justice, Court File No.: 292270188 seeking damages resulting from Union Carbide's breach of environmental representations and warranties under the Amended and Restated Purchase and Sale Agreement, dated January 31, 1986 (Agreement). Pursuant to the Agreement, Viskase Corporation and various affiliates (including Viskase Canada) purchased from Union Carbide and Union Carbide Films Packaging, Inc., its cellulosic casings business and plastic barrier films business (Business), which purchase included a facility in Lindsay, Ontario, Canada (Site). Viskase Canada claimed that Union Carbide breached several representations and warranties and deliberately failed to disclose to Viskase Canada the existence of contamination on the Site. In 1992, Union Carbide and Viskase Canada jointly put in place a continuous pumping program at the Site. In October 2001, the Canadian Ministry of the Environment (MOE) notified Viskase Canada that it had evidence to suggest that the Site was a source of polychlorinated biphenyl (PCB) contamination. Viskase Canada is working with the MOE in investigating the alleged PCB contamination and developing and implementing, if appropriate, a remedial plan for the Site. Viskase Canada has been granted leave to amend its lawsuit against Union Carbide to allege that any PCB contamination at or around the Site was generated from Union Carbide's plastics extrusion business, which was operated at the Site by Union Carbide prior to the purchase of the Business. Union Carbide's plastics extrusion business was not part of the Business purchased by Viskase Corporation and its affiliates. Viskase Canada will be asking the court to require Union Carbide to repurchase the Site from Viskase Canada and award Viskase Canada damages in excess of $2.0 million (Canadian dollars). The lawsuit is still pending and is expected to proceed to trial sometime during the second half of 2003. 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 casings 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. Other ----- In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations." The statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. The provisions of this statement are required to be applied for fiscal years beginning after June 15, 2002. The Company is considering the Standard and its effect on the Company's financial statements. In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The statement updates, clarifies and simplifies existing accounting pronouncements. The provisions of this statement related to rescission of Statement 4 shall be applied in fiscal years beginning after May 15, 2002. The provisions in paragraphs 8 and 9(c) of the statement related to Statement 13 shall be effective for transactions occurring after May 15, 2002. The Company is considering the Standard and its effect on the Company's financial statements. In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement replaces previous accounting guidance provided by EITF (Emerging Issues Task Force) Issue No. 94-3. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company is considering the Standard and its effects on the Company's financial statements. 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; the Company's ability to effectuate a restructuring of the Senior Notes and other effects of the restructuring on the Company; 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. 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 occasionally 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 June 30, 2002, a 10% devaluation of the U.S. dollar would affect the Company's annual consolidated operating results, financial position and cash flows by a minimal amount. 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 June 30, 2002. Item 3 - Defaults Upon Senior Securities ------------------------------- The Company did not pay the $163.1 million principal and $8.4 million interest on the 10.25% Senior Notes that became due on December 1, 2001. 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 10.35 Amendment No. 3 to the Rights Agreement dated June 26, 1996 between Envirodyne Industries, Inc. (now known as Viskase Companies, Inc.) and Harris Trust and Savings Bank, an Illinois banking corporation (incorporated herein by reference to Exhibit 4 to Form 8-K filed June 27, 2002). 10.36 Forbearance and Consent Agreement, dated as of June 28, 2002, between Viskase Corporation, as Lessee, and State Street Bank and Trust Company, as successor Owner Trustee, and General Electric Capital Corporation, as Owner Participant, relating to Lease Agreement dated as of December 19, 1990 (incorporated herein by reference to Exhibit 10 to Form 8-K filed June 28, 2002). 99.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 99.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 (b) Reports on Form 8-K Form 8-K dated June 27, 2002 to report the execution of Amendment No. 3 to the Rights Agreement dated June 26, 1996 between Envirodyne Industries, Inc. (now known as Viskase Companies, Inc.) and Harris Trust and Savings Bank, an Illinois banking corporation. Form 8-K dated June 28, 2002 to report the execution of the Forbearance and Consent Agreement, dated as of June 28, 2002, between Viskase Corporation, as Lessee, and State Street Bank and Trust Company, as successor Owner Trustee, and General Electric Capital Corporation, as Owner Participant, relating to Lease Agreement dated as of December 19, 1990. 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: August 14, 2002