-----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, Nh3pG34TabStQhB1Su1DPPVV8jqrHG+WFeuyAhrVDtuYoTxAWnAgIjlevJ0aBAvJ Lrlys4PmTWq3JeVXwdbmEA== 0000033073-99-000010.txt : 19991117 0000033073-99-000010.hdr.sgml : 19991117 ACCESSION NUMBER: 0000033073-99-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: SEC FILE NUMBER: 000-05485 FILM NUMBER: 99755532 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 THIRD QTR - SEPTEMBER 1999 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, 1999 ------------------ OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- ----------- Commission file number 0-5485 ---------- VISKASE COMPANIES, INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-2677354 - ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6855 West 65th Street, Chicago, Illinois 60638 - -------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (708) 496-4200 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 10, 1999, there were 15,058,439 shares outstanding of the registrant's Common Stock, $.01 par value. Page 1 of 18 Pages INDEX TO FINANCIAL STATEMENTS VISKASE COMPANIES, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS PAGE Unaudited consolidated balance sheet at September 30, 1999 and audited consolidated balance sheet at December 31, 1998 4 Unaudited consolidated statements of operations for the three months ended September 30, 1999 and September 24, 1998 and for the nine months ended September 30, 1999 and September 24, 1998 5 Unaudited consolidated statements of cash flows for the nine months ended September 30, 1999 and September 24, 1998 6 Notes to consolidated financial statements 7 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, 1998 (1998 Form 10-K). These quarterly financial statements should be read in conjunction with the financial statements and the notes thereto included in the 1998 Form 10-K. The accompanying financial information, which is unaudited, reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The condensed consolidated balance sheet as of December 31, 1998 was derived from the audited consolidated financial statements in the Company's annual report on Form 10-K. Reported interim results of operations and cash flows are based in part on estimates which may be subject to year-end adjustments. In addition, these quarterly results of operations and cash flows are not necessarily indicative of those expected for the year. VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1999 1998 -------------- ------------- (unaudited) (in thousands) ASSETS Current assets: Cash and equivalents $ 7,329 $ 9,028 Receivables, net 49,836 47,718 Inventories 84,254 93,228 Other current assets 16,423 15,337 -------- -------- Total current assets 157,842 165,311 Property, plant and equipment, including those under capital leases 487,011 475,525 Less accumulated depreciation and amortization 172,736 145,680 -------- -------- Property, plant and equipment, net 314,275 329,845 Deferred financing costs, net 4,600 1,198 Other assets 32,369 34,715 -------- -------- Total assets $509,086 $531,069 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligations under capital leases $ 22,318 $ 16,120 Accounts payable 30,783 36,337 Accrued liabilities 59,883 62,319 Current deferred income taxes 8,810 8,810 -------- -------- Total current liabilities 121,794 123,586 Long-term debt including obligations under capital leases 402,567 388,880 Accrued employee benefits 48,196 48,115 Deferred and noncurrent income taxes 20,719 26,395 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 15,050,892 shares issued and outstanding at September 30, 1999 and 14,859,467 shares at December 31, 1998 151 149 Paid in capital 137,430 136,715 Accumulated (deficit) (224,468) (197,454) Cumulative foreign currency translation adjustments 2,697 4,693 Unearned restricted stock issued for future service (10) -------- -------- Total stockholders' equity (deficit) (84,190) (55,907) -------- -------- Total liabilities and stockholders' equity $509,086 $531,069 ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Three Months Nine Months Nine Months Ended September Ended September Ended September Ended September 30, 1999 24, 1998 30, 1999 24, 1998 --------------- --------------- --------------- --------------- (in thousands, except for number of shares and per share amounts) NET SALES $96,277 $102,567 $285,442 $309,233 COSTS AND EXPENSES Cost of sales 73,467 76,629 216,014 229,177 Selling, general and administrative 17,888 22,164 56,714 65,813 Amortization of intangibles and excess reorganization value 1,250 3,469 3,750 10,408 Unusual charge 148,569 150,069 ------- -------- -------- -------- OPERATING INCOME (LOSS) 3,672 (148,264) 8,964 (146,234) Interest income 139 283 425 585 Interest expense 12,300 12,461 33,673 40,488 Other expense (income), net (227) 374 4,334 840 ------- -------- -------- -------- (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (8,262) (160,816) (28,618) (186,977) Income tax (benefit) (657) (10,714) (1,604) (19,252) ------- -------- -------- -------- NET (LOSS) FROM CONTINUING OPERATIONS (7,605) (150,102) (27,014) (167,725) DISCONTINUED OPERATIONS: Income from discontinued operations net of income taxes (Note 5) 264 320 Gain on sale of discontinued operations net of income tax benefit of $23,667 and $22,669 37,016 35,456 ------- -------- -------- -------- NET (LOSS) BEFORE EXTRAORDINARY ITEM (7,605) (112,822) (27,014) (131,949) Extraordinary (loss) on early extinguishment of debt net of income tax benefit of $4,343 (6,793) (6,793) ------- -------- -------- -------- NET (LOSS) (7,605) (119,615) (27,014) (138,742) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 1,035 1,171 (1,218) 1,007 ------- -------- -------- -------- COMPREHENSIVE (LOSS) $(6,570) $(118,444) $(28,232) $(137,735) ======= ========= ======== ========= WEIGHTED AVERAGE COMMON SHARES - BASIC AND DILUTED 14,998,213 14,846,420 14,914,072 14,812,897 ========== ========== ========== ========== PER SHARE AMOUNTS: EARNINGS (LOSS) PER SHARE - basic and diluted Continuing operations $(.51) $(10.11) $(1.81) $(11.32) Discontinued operations: Income from discontinued operations .02 .02 Gain on sale of discontinued operations 2.49 2.39 ------- -------- -------- -------- Net (loss) before extraordinary item (.51) (7.60) (1.81) (8.91) Extraordinary (loss) (.46) (.46) ------- -------- -------- -------- Net (loss) $(.51) $(8.06) $(1.81) $(9.37) ===== ====== ====== ====== 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 24, 1999 1998 ------------- ------------ (in thousands) Cash flows from operating activities: Net (loss) $ (27,014) $(138,742) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation and amortization under capital lease 30,053 29,808 Amortization of intangibles and excess reorganization value 3,750 10,408 Amortization of deferred financing fees and discount 2,166 1,449 (Decrease) in deferred and noncurrent income taxes (4,069) (1,952) Foreign currency transaction loss (gain) 68 (155) Loss (gain) on disposition of assets 10 (58,221) Bad debt provision 842 740 Impairment loss excess reorganization 91,169 Extraordinary loss on debt extinguishment 11,136 Changes in operating assets and liabilities: Receivables (4,245) 17,084 Inventories 7,182 (20,110) Other current assets (1,411) (3,353) Accounts payable and accrued liabilities (6,026) 49,110 Other 2,383 (10,103) -------- -------- Total adjustments 30,703 117,010 -------- -------- Net cash provided by (used in) operating activities 3,689 (21,732) Cash flows from investing activities: Capital expenditures (20,130) (24,028) Proceeds from disposition of assets 97 163,758 -------- -------- Net cash (used in) provided by investing activities (20,033) 139,730 Cash flows from financing activities: Issuance of common stock 727 530 Deferred financing costs (5,837) (604) Proceeds from revolving loan and long-term borrowings 120,176 1,475 Repayment of revolving loan, long-term borrowings and capital lease obligation (99,867) (117,178) Premium on early extinguishment of debt (8,927) -------- -------- Net cash provided by (used in) financing activities 15,199 (124,704) Effect of currency exchange rate changes on cash (554) (142) -------- -------- Net (decrease) in cash and equivalents (1,699) (6,848) Cash and equivalents at beginning of period 9,028 24,407 -------- -------- Cash and equivalents at end of period $ 7,329 $ 17,559 ======== ======== - -------------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $28,075 $36,013 Income taxes paid $ 1,866 $ 4,831 The accompanying notes are an integral part of the consolidated financial statements.
VISKASE COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. INVENTORIES (dollars in thousands) Inventories consisted of: September December 30, 1999 31, 1998 ---------- --------- Raw materials $ 9,761 $10,500 Work in process 34,623 38,291 Finished products 39,870 44,437 ------- ------- $84,254 $93,228 ======= ======= Approximately 58% of the inventories at September 30, 1999 were valued at Last-In, First-Out (LIFO). These LIFO values exceeded current manufacturing cost by approximately $5,291 at September 30, 1999. 2. DEBT OBLIGATIONS (dollars in thousands) During June 1999, the Company entered into two-year secured credit agreements consisting of a $50,000 senior revolving credit facility, including a $26,000 sublimit for issuance of letters of credit (Senior Revolving Credit Facility), a $50,000 senior term facility (Senior Term Facility), collectively the "Senior Secured Credit Facility," and $35,000 of junior secured term loans (Junior Term Loans). The proceeds of the Senior Secured Credit Facility and the Junior Term Loans were used to repay the $55,000 Senior Secured Notes outstanding and obligations outstanding under the Company's existing Revolving Credit Facility. The Senior Secured Credit Facility and the Junior Term Loans have a maturity date of June 30, 2001. The 12% Senior Secured Notes, as of December 31, 1998, have been reclassified to long-term debt based upon the Company's refinancing of obligations on a long-term basis. Outstanding short-term and long-term debt consisted of:
September December 30, 1999 31, 1998 Short-term debt, current maturity of long-term debt, and capital lease obligation: Senior Term Facility $ 5,358 Current maturity of Viskase Capital Lease Obligation 14,376 $ 13,031 Current maturity of Viskase Limited Term Loan (3.2%) 1,578 1,742 Other 1,006 1,347 -------- -------- Total short-term debt $ 22,318 $ 16,120 ======== ======== Long-term debt: Senior Revolving Credit Facility $ 5,000 Senior Term Facility 44,642 Junior Term Facility 35,000 12% Senior Secured Notes due 1999 $ 55,000 10.25% Senior Notes due 2001 219,262 219,262 Viskase Capital Lease Obligation 97,466 111,842 Viskase Limited Term Loan (3.2%) 868 Other 1,197 1,908 -------- -------- Total long-term debt $402,567 $388,880 ======== ========
The Company's Senior Secured Credit Facility and Junior Term Loans contain a number of financial covenants that, among other things, require the maintenance of a minimum level of tangible net worth, a minimum fixed charge coverage ratio and a minimum leverage ratio of total liabilities to earnings before depreciation, interest, amortization, and taxes (EBDIAT) and a limitation on capital expenditures. As of September 30, 1999, the Company is in compliance with these covenants. On August 24, 1998, the Company redeemed $105,000 of the aggregate principal amount of its 12% Senior Secured Notes using proceeds from the Clear Shield National, Inc. (Clear Shield) divestiture. The notes were redeemed at approximately 108.5% of principal amount, plus accrued interest to the date of redemption. The Company recognized an extraordinary after-tax loss of $6,800 on the partial redemption of its 12% Senior Secured Notes. The extraordinary loss is comprised of $8,900 of yield maintenance premiums and $2,200 write-off of deferred debt issuance costs, net of a $4,300 income tax benefit. 3. CONTINGENCIES In late 1993, Viskase commenced a legal action against American National Can Company (ANC) in Federal District Court for the Northern District of Illinois, Eastern Division, 93C7651. Viskase claimed that ANC's use of two different very low density polyethylene plastic resins in the manufacture of ANC's multi-layer barrier shrink film products was infringing various Viskase patents relating to multi-layer barrier plastic films used for fresh red meat, processed meat and poultry product applications. In November 1996, after a three-week trial, a jury found that ANC had willfully infringed Viskase's patents and awarded Viskase $102.4 million in compensatory damages. The Court also entered an order permanently enjoining ANC from making or selling infringing products. In September 1997, the Court set aside the jury verdict in part and ordered a retrial on certain issues. The Court upheld the jury finding on the validity of all of Viskase's patents and the jury finding that ANC had willfully infringed Viskase's patents by ANC's use of Dow Chemical Company's "Attane" brand polyethylene plastic resin in ANC's products. However, the Court ordered a new trial on the issue of whether ANC's use of Dow Chemical Company's "Affinity" brand polyethylene plastic resin infringed Viskase's patents and whether such conduct was willful. Because the jury rendered one general damage verdict, the Court ordered a retrial of all damage issues. By operation of the Court's order, the injunction in respect of ANC's future use of the "Affinity" brand resin was removed. On August 19, 1998, the Court granted Viskase's motion for partial summary judgment finding that ANC's use of the "Affinity" brand resin infringed Viskase's patents. The Court also reinstated the permanent injunction. Viskase filed a motion to have the jury verdict as to compensatory damages reinstated. ANC filed a motion to dismiss the lawsuit claiming that Viskase's patents are invalid and Viskase failed to join an indispensable party to the lawsuit. On May 10, 1999, the Court granted Viskase's motion to have the jury verdict as to the compensatory damages reinstated. In May and June 1999, the parties briefed the issue of enhanced damages and on July 2, 1999, the Court awarded Viskase total damages of $164.9 million. ANC filed a motion for reconsideration which was denied. On May 3, 1999, ANC commenced legal action in the Federal District Court for the Northern District of Illinois seeking declaratory relief that one of the litigated patents is invalid. ANC also filed a motion to consolidate the declaratory action with the 1993 suit. ANC's motion to consolidate was granted and then the Court dismissed ANC's suit with prejudice at the same time the Court awarded Viskase total damages of $164.9 million. ANC has filed a notice of appeal to the United States Court of Appeals for the Federal Circuit. ANC's brief is due November 22, 1999, Viskase's response brief is due January 3, 2000, and ANC's reply brief is due January 18, 2000. Viskase expects oral arguments to occur in the first or second quarter of 2000. In addition, ANC has challenged two of the five Viskase patents in suit by filing requests for reexamination with the United States Patent and Trademark Office (USPTO). With respect to the challenge of the first patent, on September 25, 1998, the USPTO, after initially rejecting Viskase's claims, gave notice of its intent to reissue Viskase's patent in its entirety. ANC filed another request for reexamination of the patent, which has the effect of staying the reissuance. The USPTO initially rejected Viskase's claims and Viskase has filed its response. With respect to the challenge of the second patent, the USPTO, after initially rejecting Viskase's claims, withdrew the rejection in view of Viskase's response and raised new grounds of rejection. Viskase has filed a response to the new grounds of rejection. If the USPTO ultimately disallows the claims of the second Viskase patent, the effect upon the Court action will not be significant. No part of the pending claims has been recorded in the Company's financial statements. Through September 30, 1999, $4.8 million in patent defense costs had been accrued and capitalized. In March 1997 Viskase Corporation received a subpoena from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the sausage casings industry. In September 1999, Viskase Corporation received a subpoena from the Antitrust Division of the United States Department of Justice relating to the expansion of the grand jury investigation into the specialty films industry. Viskase Corporation is cooperating fully with the investigations. In November 1999, the Company and certain of its subsidiaries and one other sausage casings manufacturer were named in a civil complaint, Leon's Sausage Company, on behalf of itself and all --------------------------------------------------- others similarly situated v. Viskase Companies, Inc., Envirodyne - ---------------------------------------------------------------- Industries, Inc., Viskase Corporation, Devro-Teepak, Inc., Civil - -------------------------------------------------------- Action No. 99C7200, United States District Court for the Northern District of Illinois, Eastern Division. This complaint alleges that the defendants unlawfully conspired to fix prices and allocate business in the sausage casings industry. The Company and its subsidiaries are involved in various legal proceedings arising out of their business and other environmental matters, none of which is expected to have a material adverse effect upon results of operations, cash flows or financial position. 4. UNUSUAL CHARGE During the third quarter of 1998, due to the business conditions leading to the Viskase plan of restructuring, the Company evaluated the recoverability of long-lived assets including property, plant and equipment, patents and excess reorganization on a consolidated basis. Based upon the analysis, the Company recognized an impairment because the estimated consolidated undiscounted future cash flows derived from long-lived assets were determined to be less than their carrying value. The amount of the impairment was calculated using the present value of the Company's estimated future net cash flows to determine the assets' fair value. Based on this analysis, an impairment charge of $91.2 million for excess reorganization and $4.3 million for the write-down of the Chicago facility was taken. In addition, the Viskase plan of restructuring included charges for the decommissioning of the Chicago plant and the decommissioning of some of its foreign operations. During the third quarter of 1999 and accumulated to date, cash payments against the reserve were $.7 million and $9.0 million, respectively. A remaining restructuring reserve of $3.5 million is included in accrued liabilities on the balance sheet. 5. DISCONTINUED OPERATIONS (dollars in thousands) In June 1998 the Company's Board of Directors agreed to sell the Clear Shield and Sandusky Plastics, Inc. (Sandusky) subsidiaries. Sandusky was sold on June 11, 1998 and the Company completed the divestiture of Clear Shield on July 23, 1998. Accordingly, the operating results from both subsidiaries have been segregated from continuing operations and reported as a separate line item, results of discontinued operations, on the statements of operations. Operating results from discontinued operations are as follows:
Three Months Nine Months Ended September Ended September 24, 1998 24, 1998 --------------- --------------- Net sales $ 5,536 $62,317 Costs and expenses Cost of sales 4,176 50,810 Selling, general and administrative 725 9,457 Amortization of intangibles and excess reorganization value 136 863 ------- ------- Operating income 499 1,187 Interest expense 7 50 Other expense (income), net (12) 91 ------- ------- Income from continuing operations before taxes 504 1,046 Income tax provision 240 726 ------- ------- Net Income from continuing operations $ 264 $ 320 ======= =======
6. COMPREHENSIVE INCOME (dollars in thousands) During 1998 the Company adopted the Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which requires the Company to disclose comprehensive income in addition to net income. Comprehensive income includes all other non-shareholder changes in equity. All such changes in equity resulted from changes in foreign currency translation adjustments. The following sets forth the components of other comprehensive income (loss) and the related income tax provision (benefit):
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September September September September 30, 1999 24, 1998 30, 1999 24, 1998 ------------- ------------- ----------- ------------ Foreign currency translation adjustment (1) $1,035 $1,171 $(1,218) $1,007 (1) Net of related tax provision (benefit) of $662 and $748 for the third quarter ended 1999 and 1998, respectively, and $(778) and $643 for the first nine months ended 1999 and 1998, respectively.
Three Months Three Months Nine Months Nine Months Ended September Ended September Ended September Ended September 30, 1999 24, 1998 30, 1999 24, 1998 --------------- --------------- --------------- --------------- (in thousands, except for weighted average shares outstanding) NUMERATOR: Net (loss) available to common stockholders: From continuing operations: $(7,605) $(150,102) $(27,014) $(167,725) Discontinued operations: Income from discontinued operations: 264 320 Gain on disposal 37,016 35,456 ------- --------- -------- --------- Net (loss) before extraordinary item (112,822) (131,949) Extraordinary (loss) (6,793) (6,793) ------- --------- -------- --------- Net loss available to common stockholders for basic and diluted EPS $(7,605) $(119,615) $ (27,014) $(138,742) ======= ========= ========= ========= DENOMINATOR: Weighted average shares outstanding for basic EPS 14,998,213 14,846,420 14,914,072 14,812,897 Effect of dilutive securities 0 0 0 0 ---------- ---------- ---------- ---------- Weighted average shares outstanding for diluted EPS 14,998,213 14,846,420 14,914,072 14,812,897 ========== ========== ========== ==========
Common stock equivalents are excluded from the loss-per-share calculations as the result is antidilutive since the numerator is a loss from continuing operations. 8. ACCOUNTING STANDARDS The Company will adopt the provisions of Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" (SFAS No. 137). SFAS No. 137 is effective for financial statements issued for fiscal years beginning after June 15, 2000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- Results of Operations - --------------------- The Company's net sales from continuing operations for the first nine months and third quarter of 1999 were $285.4 million and $96.3 million, respectively, which represent a decrease of 7.7% and 6.1%, respectively, from comparable periods of 1998. The decline in net sales reflects the continuing effect of competitive selling prices in the casings industry in both the domestic and European markets partially offset by volume gains in these markets. Additionally, the decline in net sales reflects the translation effect of the strengthening of the U.S. dollar against the French franc and real. Brazil's sales have increased over the prior year due to significant volume gains in both the casing and film product lines. Operating income from continuing operations for the first nine months and third quarter of 1999 was $9.0 million and $3.7 million, respectively. These results compared favorably to operating income (loss) for the prior year. After exclusion of the prior year unusual charges of $150.1 million and $148.6 million for the same prior year periods, operating income was $3.8 million and $.3 million, respectively. The increase in operating income has benefitted from an increase in sales of the Company's barrier shrink bag business and from cost cutting efforts undertaken during the fourth quarter of 1998. The cost savings from lower selling, administrative and amortization expenses for the nine months and third quarter over prior year were $15.8 million and $6.5 million, respectively, and were partially offset by the reduction in gross margin due to competitive selling prices in the casings industry. Net interest expense from continuing operations for the nine-month period in 1999 totaled $33.2 million, representing a decrease of $6.7 million from the first nine months of 1998. The decrease is primarily due to interest savings from the redemption of $105 million of the 12% Senior Secured Notes on August 24, 1998. Other expense from continuing operations approximated $4.3 million and $.8 million for the first nine months of 1999 and 1998, respectively. The 1999 expense consists principally of foreign exchange losses. The 1998 expense consists of losses on the disposition of assets and foreign exchange losses. The Company uses foreign exchange forward contracts to hedge some of its non-functional currency receivables and payables, which are denominated in major currencies that can be traded on open markets. This strategy is used to reduce the overall exposure to the effects of currency fluctuations on cash flows. The Company's policy is not to speculate in financial instruments. Receivables and payables, which are denominated in non-functional currencies, are translated to the functional currency at month end and the resulting gain or loss is taken to other income/expense on the income statement. Gains and losses on hedges of receivables and payables are marked to market. The result is recognized in other net expense on the income statement. The tax benefit for the first nine months of 1999 resulted from the benefit of U.S. losses partially offset by the provision related to income from foreign subsidiaries. Due to the permanent differences in the U.S. resulting from foreign losses for which no tax benefit is provided, a benefit of $1.6 million was provided on a loss from continuing operations of $28.6 million. The U.S. tax benefit is recorded as a reduction of the deferred tax liability and does not result in a refund of income taxes. Discontinued Operations - ----------------------- On June 8, 1998, the Company's Board of Directors approved the sale of two of the Company's subsidiaries, Clear Shield and Sandusky. Accordingly, the operating results of the two subsidiaries have been segregated from continuing operations and reported as a separate line item on the income statement under the heading Discontinued Operations. The sales of Sandusky and Clear Shield were completed on June 11, 1998 and July 23, 1998, respectively. A $39.1 million combined gain, net of taxes, was recognized on these sales. Other - ----- In September 1997 the Company retained Donaldson, Lufkin and Jenrette Securities Corporation to assist the Board of Directors in evaluating the Company's strategic alternatives. Such alternatives included, among other things, sale of the entire company, sale of business units or recapitalization. In June 1998, the Company sold its wholly owned subsidiary Sandusky, and in July 1998 the Company sold its wholly owned subsidiary Clear Shield. The Company is still reviewing strategic and recapitalization alternatives available. The Company will adopt the provisions of Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" (SFAS No. 137). SFAS No. 137 is effective for financial statements issued for fiscal years beginning after June 15, 2000. Liquidity and Capital Resources - ------------------------------- Cash and equivalents decreased by $1.7 million during the nine months ended September 30, 1999. Cash flows used in investing activities of $20.0 million exceeded funds provided by operating activities of $3.7 million and financing activities of $15.2 million. Cash flows provided by operating activities were principally attributable to the Company's loss from operations offset by a decrease in working capital usage and the effect of depreciation and amortization. Cash flows provided by financing activities were principally due to the Company's June 1999 refinancing. The Company entered into a $100 million Senior Secured Credit Facility and secured $35 million of Junior Term Loans. The proceeds were used to redeem the $55 million 12% Senior Secured Notes and the $30 million existing Revolving Credit Facility. In the first quarter of 1999, a $13 million principal repayment was made under the General Electric Capital Corporation (GECC) lease. Cash flows used in investing activities consist principally of capital expenditures for property, plant and equipment. The Company finances its working capital needs through a combination of internally generated cash from operations and borrowings under its $50 million Senior Revolving Credit Facility entered into in June 1999. The availability of funds under the Senior Revolving Credit Facility is subject to the Company's compliance with certain covenants, borrowing base limitations measured by accounts receivable and inventory of the Company, and reserves that may be established at the discretion of the lenders. There is approximately $5.0 million outstanding under the Senior Revolving Credit Facility at September 30, 1999. The Company's Senior Secured Credit Facility and Junior Term Loans contain a number of financial covenants that, among other things, require the maintenance of a minimum level of tangible net worth, a minimum fixed charge coverage ratio and minimum leverage ratio of total liabilities to EBDIAT, and a limitation on capital expenditures. As of September 30, 1999, the Company is in compliance with the covenants. As of September 30, 1999, the Company received an amendment and waiver under the GECC Capital Lease Obligation. The Company determined that, as of September 30, 1999, without the amendment and waiver, it would not have been in compliance with the fixed charge ratio covenant. The Company anticipates that its current cash position, its operating cash flows, the availability under its credit agreement and proceeds from future asset sales are expected to be sufficient to meet its operating expenses and debt service requirements. The Company's 10.25% Notes, of which $219.3 million principal amount is outstanding, will mature in December 2001. The Company anticipates it will refinance the 10.25% Notes or seek alternative strategies including, but not limited to, selling additional equity capital. Capital expenditures for continuing operations for the first nine months of 1999 and 1998 totaled $20.1 million and $24.0 million, respectively. Capital expenditures for discontinued operations for the first nine months of 1998 totaled $9.0 million. Significant 1999 and 1998 capital expenditures for continuing operations included a new information technology system at Viskase, costs associated with the development of new technology to produce the Company's cellulosic casings (the Nucel(R) project), and additional production capacity for specialty films. Capital expenditures for discontinued operations included the construction of Clear Shield's Twin Falls, Idaho facility. Capital expenditures for continuing operations for 1999 are expected to be approximately $27 million. Capital expenditures for continuing operations for 2000 are expected to be $13 million. The Company has spent approximately $7 million annually on research and development programs, including product and process development, and on new technology development during each of the past three years. The 1999 research and development and product introduction expenses are expected to approximate $9 million. Among the projects included in the current research and development efforts is the application of certain patents and technology licensed by Viskase to the manufacture of cellulosic casings under the Nucel(R) process. The commercialization of these applications and the related fixed asset expense associated with such commercialization may require substantial financial commitments in future periods. Year 2000 - --------- The Year 2000 (Y2K) issue concerns the inability of information systems to properly recognize and process date-sensitive information beyond December 31, 1999. Businesses are at risk for possible miscalculations or systems failures that may disrupt their business operations due to the Year 2000 issue. In order to address the Y2K issue, the Company has formed a Year 2000 committee (Y2K Committee) that has separated the Company's risk into three categories: significant business information technology (IT) systems, internal non-information technology (Non-IT) systems and external readiness by customers and vendors. Significant Business Information Technology Systems In January 1996, the Company began a system conversion which incorporated Y2K readiness. The following table shows the status of the business system conversions by country: Country Implementation Date Status - ------------------- ------------------- ------------------- United States January 1, 1998 Complete France October 1, 1998 Complete United Kingdom January 1, 1999 Complete Brazil January 1, 1998 Complete Canada December 1, 1999 Planned completion The Company's significant business IT system is run on servers and a wide-area network outsourced to IBM Global Services. IBM has been certified Y2K compliant for all its system components. By September 30, 1999, all of the Company's personal computers, network server hardware and software had been checked for Y2K compatibility with the vendors. Of the equipment, 100% is compatible. The expenditures associated with this are approximately $100 thousand. The expenditures for the European implementation totaled approximately $5.0 million in 1998 and through the third quarter of 1999. The Company has capitalized the costs necessary to upgrade its significant business systems. Internal Non-IT Systems The Non-IT systems consist primarily of PC-based manufacturing systems and process control units. The Y2K Committee has designated a member at each plant to inventory its systems and determine the status of its Y2K readiness. These systems were tested and were compliant by September 30, 1999. The Company has estimated the cost of Y2K readiness to be approximately $.4 million for its non-financial systems. A contingency plan is in place. Y2K Compliance by Customers and Vendors The Y2K Committee mailed a questionnaire to material third party vendors in January 1999 to address material third party readiness with Y2K. Responses to the questionnaires have been received from most key suppliers. Those failing to respond to the questionnaire have been contacted. To date, no significant compliance issues have been uncovered. Should responses to the questionnaires indicate that suppliers, service providers or contractors are not Y2K ready, the Company will change to those vendors who have demonstrated Y2K readiness. The Company cannot be assured that it will be successful in finding such alternative suppliers, service providers and contractors. 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. PART II. OTHER INFORMATION Item 1 - Legal Proceedings ----------------- For a description of pending litigation and other contingencies, see Part 1, Note 3, 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, 1999. Item 3 - Defaults Upon Senior Securities ------------------------------- None. Item 4 - Submission of Matters to a Vote of Security Holders --------------------------------------------------- The Company held its Annual Meeting of Stockholders (the "Meeting") on July 29, 1999. The following business was conducted at the Meeting: (i) the election of five (5) directors; and (ii) the approval of an amendment to the Viskase Companies, Inc. Parallel Non-Qualified Savings Plan. The results were as follows:
Election of Directors For Withheld - ----------------------- ------------ -------------- Robert N. Dangremond 13,724,983 75,431 Avram A. Glazer 12,983,585 816,829 Malcolm I. Glazer 12,984,185 816,229 F. Edward Gustafson 13,716,328 84,086 Gregory R. Page 13,724,078 76,336
Approval of Amendment For Against Abstaining - --------------------------- ------------- ----------- -------------- 10,765,163 209,096 15,708
There were 2,810,447 broker non-votes. Item 5 - Other Information ----------------- None. Item 6 - Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 27 Financial Data Schedule. (b) Reports on Form 8-K (1) On July 7, 1999, the Company filed a Form 8-K to report that on July 6, 1999 the Company announced that the U.S. District Court for the Northern District of Illinois, Eastern Division, entered a final judgment in favor of Viskase Corporation in the amount of $164.9 million for compensatory and enhanced damages and prejudgment interest in the case of Viskase Corporation vs. American National Can Company. 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 15, 1999 EX-27 2 FDS FOR 3RD QTR 1999
5 9-MOS DEC-31-1999 SEP-30-1999 7,329,000 0 48,202,000 1,634,000 84,254,000 157,842,000 487,011,000 172,736,000 509,086,000 121,794,000 402,567,000 0 0 151,000 (84,341,000) 509,086,000 285,442,000 285,442,000 216,014,000 216,014,000 0 842,000 33,673,000 (28,618,000) (1,604,000) (27,014,000) 0 0 0 (27,014,000) (1.81) (1.81)
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