-----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, FVFQm1xzJyWXR9+kUEWzpNORRd2+07yV5BqiI/HyQTt84TgdCWKOFPY57kZ06pkR 4jU0rt11I//5+ZiXKKIwCg== 0000950137-99-002182.txt : 19990621 0000950137-99-002182.hdr.sgml : 19990621 ACCESSION NUMBER: 0000950137-99-002182 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990618 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-K SEC ACT: SEC FILE NUMBER: 000-05485 FILM NUMBER: 99648811 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-K 1 ANNUAL REPORT 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1998 ----------------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to --------------- --------------- Commission file number 0-5485 VISKASE COMPANIES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 95-2677354 - ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6855 W. 65th Street, Chicago, Illinois 60638 - ---------------------------------------- ---------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (708) 496-4200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 30, 1999 the aggregate market value of the voting stock held by non-affiliates of the registrant was $24,405,442. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No --- --- As of March 30, 1999, there were 14,869,087 shares outstanding of the registrant's Common Stock, $.01 par value. DOCUMENTS INCORPORATED BY REFERENCE: The information required by Part III is incorporated by reference from the registrant's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. 2 VISKASE COMPANIES, INC. FORM 10-K ANNUAL REPORT - 1998 Table of Contents
PART I Page Item 1. Business 1 Item 2. Properties 7 Item 3. Legal Proceedings 8 Item 4. Submission of Matters to a Vote of Security Holders 9 PART II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters 10 Item 6. Selected Financial Data 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 8. Financial Statements and Supplementary Data 18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 18 PART III Item 10. Directors and Executive Officers of the Registrant 19 Item 11. Executive Compensation 21 Item 12. Security Ownership of Certain Beneficial Owners and Management 29 Item 13. Certain Relationships and Related Transactions 32 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 33
i 3 PART I ITEM 1. BUSINESS (a) General development of business: General Viskase Companies, Inc. (formerly Envirodyne Industries, Inc.) is a Delaware corporation organized in 1970. As used herein, the "Company" means Viskase Companies, Inc. and its subsidiaries. The Company, through Viskase Corporation (Viskase), operates in the packaging products segment of the food industry. Viskase is a major producer of cellulosic casings used in preparing and packaging processed meat products and is a leading producer of heat shrinkable specialty plastic bags and films for packaging and preserving fresh and processed meat products, poultry and cheese. The market positions of the Company's subsidiaries set forth in this Form 10-K represent management's belief based upon internally generated information. No independent marketing information has been used to confirm the stated market position. In September 1997 the Company retained Donaldson, Lufkin and Jenrette Securities Corporation to assist the Board of Directors in evaluating the Company's strategic alternatives. Such alternatives included, among other things, sale of the entire company, sale of business units or recapitalization. In June 1998, the Company sold its wholly owned subsidiary Sandusky Plastics, Inc. (Sandusky), and in July 1998 the Company sold its wholly owned subsidiary Clear Shield National, Inc. (Clear Shield). The Company is still reviewing strategic and recapitalization alternatives available. (b) Financial information about industry segments: Reference is made to Part IV, Item 14, Note 23 of Notes to Consolidated Financial Statements. (c) Description of business General Viskase invented the basic process for producing casings from regenerated cellulose for commercial production in 1925. Management believes that Viskase has been a leading worldwide producer of cellulosic casings since that time. In 1964 Viskase entered the specialty films business and it has continued to introduce new specialty film products to customers in the fresh and processed meat, poultry and cheese industries. Cellulosic Casings Cellulosic casings are used in the production of processed meat and poultry products, such as hot dogs, salami and bologna. To manufacture these products, meat is stuffed into a casing, which is then cooked and smoked. The casings, which are non-edible, serve to hold the shape of the product during these processes. For certain products, such as hot dogs, the casings are removed and discarded prior to retail sale. Casings made of regenerated cellulose were developed by Viskase to replace casings made of animal intestines. Cellulosic casings generally afford greater uniformity, lower cost and greater reliability of supply and also provide producers with the ability to cook and smoke products in the casing. Cellulosic casings are required for the high speed production of many processed meats. The production of regenerated cellulose casings generally involves four principal steps: (i) production of a viscose slurry from wood pulp, (ii) regeneration of cellulosic fibers, (iii) extrusion of a continuous tube during the regeneration process, and (iv) "shirring" of the final product. Shirring is a finishing process that 4 involves pleating and compressing the casing in tubular form for subsequent use in high-speed stuffing machines. The production of regenerated cellulose casings involves a complex and continuous series of chemical and manufacturing processes, and Viskase believes that its facilities and expertise in the manufacture of extruded cellulose are important factors in maintaining its product quality and operating efficiencies. Viskase's product line includes both NOJAX(R) cellulosic casings for small-diameter processed meat products, such as hot dogs, and fibrous or large-diameter casings, which are paper-reinforced cellulosic casings, used in the production of large-diameter sausages, salami, hams and other processed meat products. Specialty Film Products Since developing technology for the extrusion of bi-oriented plastic films in 1964, Viskase has continued to expand its product line of heat shrinkable bags made from specialty plastic films. Viskase's heat-shrinkable plastic bags, sold primarily under the brand name PERFLEX(R), are used by major producers of fresh and processed meat products, poultry and cheese to package and preserve their products during wholesale and retail distribution. Viskase also manufactures thin-gauge plastic films used for industrial packaging. This film is sold under the brand name CLEAR-LOC(R). The production of specialty plastic bags involves four principal steps: (i) plastic resin pellets are melted and extruded into a tubular film; (ii) the tube is "bi-oriented" whereby it is stretched along its length and width to enhance the heat-shrink characteristics of the final product; (iii) the tube is irradiated to improve its strength and sealability characteristics; and (iv) the tube is processed through a bag machine to form individual bags. Specialty plastic films are divided into two segments: single layer and multilayer. Single layer specialty plastic films are used primarily to protect fresh and frozen whole turkeys and chickens from moisture loss and handling damage. Multilayer specialty plastic films, referred to in the food industry as "barrier films," are made of layers of co-extruded films, each of which contributes a specific product characteristic. For example, individual layers can provide mechanical strength, puncture resistance or can reduce the transmission of moisture, gases or ultraviolet light and can protect bagged products, such as fresh meats, from weight loss and spoilage. As part of its service orientation, Viskase also provides graphic art and design services to its customers. Viskase's ability to print designs, illustrations and text in up to eight colors directly on the bags and films further enhances the appeal of its customers' products. Oriented Polypropylene Film Products Viskase converts oriented polypropylene (OPP) films for use in packaging bakery goods. These films are sold under the brand name CRUSTPAK(R). International Operations Viskase has six manufacturing facilities located outside the continental United States, in Beauvais, France; Thaon, France; Lindsay, Ontario, Canada; Newton Aycliffe, England; Swansea, Wales; and Guarulhos, Brazil. The aggregate of domestic exports and net sales of foreign operations represents approximately 55% of Viskase's total net sales. International sales and operations may be subject to various risks including, but not limited to, possible unfavorable exchange rate fluctuations, political instability, governmental regulations (including import 2 5 and export controls), restrictions on currency repatriation, embargoes, labor relations laws and the possibility of governmental expropriation. Viskase's foreign operations generally are subject to taxes on the repatriation of funds. International operations in certain parts of the world may be subject to international balance of payments difficulties that may raise the possibility of delay or loss in the collection of accounts receivable from sales to customers in those countries. Viskase believes its allowance for doubtful accounts makes adequate provision for the collectibility of receivables. Management believes that growth potential exists for many of Viskase's products outside the United States and that Viskase is well positioned to participate in these markets. While overall consumption of processed meat products in North America and Western Europe is stable, there is a potential for market growth in Eastern Europe, Latin America and Southeast Asia. Currently market growth has slowed in the Russian and Southeast Asian markets due to the recent adverse economic conditions. Flexible packaging is growing due to the movement towards product differentiation. Sales and Distribution Viskase has a broad base of customers, with no single customer accounting for more than 6% of sales. Viskase sells its products in virtually every country in the world. In the United States, Viskase has a staff of technical sales teams responsible for sales to fresh meat, processed meat and poultry producers. Approximately 75 distributors market Viskase products to customers in Europe, Africa, Middle East Asia, and Latin America. Its products are marketed through its own subsidiaries in the United Kingdom, Germany, France, Italy, Brazil, Chile, Canada and Poland. At the end of the fiscal years 1998 and 1997, Viskase had backlog orders of $38 million and $47 million, respectively. Viskase maintains ten service and distribution centers worldwide. The service centers perform limited product finishing and provide sales, customer service, warehousing and distribution. Distribution centers provide only warehousing and distribution. In the United States, Viskase operates distribution centers in Chicago, Illinois; Atlanta, Georgia; and Bensalem, Pennsylvania; as well as a center within the Pauls Valley, Oklahoma, plant. In Latin America, Viskase operates a service center within the Guarulhos, Brazil, plant and a distribution center in Santiago, Chile. In Europe, Viskase operates service centers in Caronno, Italy and Pulheim, Germany and distribution centers in Dublin, Ireland, and Warsaw, Poland. Competition Viskase is one of the world's leading producers of cellulosic casings and is a major producer of specialty plastic films. Viskase seeks to maintain a competitive advantage by manufacturing products having outstanding quality and superior performance characteristics over competitive products, by responding quickly to customer product requirements, by providing customers with assistance in production or formulation problems, by producing niche products to fill individual customer requirements, and by providing technical support services to its customers. From time to time, Viskase experiences reduced market share or reduced profits due to price competition. Viskase's principal competitors in cellulosic casings are Devro PLC, located in Scotland with plants in the United States and Belgium; Viscofan, S.A., located in Spain, Germany, Brazil, Czech Republic and the United States and Alfacel, located in Spain. Some of the other important competitors in the cellulosic casings industry are Kalle Nalo GmbH, located in Germany; Wolff Walsrode AG, a wholly owned subsidiary of Bayer AG, located in Germany; Oy Visko AB located in Finland; KoSa, located in Mexico and two Japanese manufacturers, Fujimori and Toho. In the specialty films area, the largest producer of heat shrinkable bags is the Cryovac Division of Sealed Air Corporation. Cryovac developed heat shrinkable films and a vacuumizing process for applying them 3 6 in the early 1960's. Cryovac sells its bags worldwide to all segments of the food industry, including meat and poultry producers. American National Can Company, a subsidiary of Pechiney, is another competitor in the specialty films area. Management believes that Viskase is in the number two position in the world behind Cryovac in the sale of heat shrinkable bags. Viskase's primary competitors include several major corporations, some of which are larger and better capitalized than Viskase. Research and Development; Customer Support Viskase's continuing emphasis on research and development is central to its ability to maintain industry leadership. In particular, Viskase focuses on the development of new products that increase customers' operating efficiencies, reduce their operating costs and expand their markets. Viskase's projects include development of new processes and products to improve its manufacturing efficiencies. Viskase's research scientists, engineers and technicians are engaged in continuing product and equipment development and also provide direct technical and educational support to its customers. Viskase believes it has achieved and maintained its position as a leading producer of cellulosic casings and as a major worldwide producer of specialty films for packaging meats through significant expenditures on research and development. The Company expects to continue its research and development efforts. The commercialization of certain of these product and process applications and related capital expenditures to achieve commercialization may require substantial financial commitments in future periods. Should these activities be curtailed or if capital resources are not available to develop its projects, Viskase's ability to maintain its present market share could be materially impaired. Research and development costs from continuing operations are expensed as incurred and totaled $7,375 thousand, $6,907 thousand and $6,666 thousand for 1998, 1997 and 1996, respectively. Viskase founded its Food Science and Quality Institute (Institute) in 1941 to assist the meat and poultry industry in the development of new food items and more efficient production and packaging methods using Viskase products. The Institute's staff works closely with Viskase's sales and marketing professionals to provide responsible, high-quality technical service to, and in support of, Viskase customers. The Institute is able to reproduce customers' products and processes in order to help customers solve their problems and experiment with new foods and production techniques. The Institute conducts Meat Science Seminars that are attended by Viskase customers and production, research and quality assurance personnel, as well as food scientists from leading academic institutions. NUCEL(R) Technology In May 1997, Viskase announced a technological breakthrough in the production process of viscose for the manufacture of cellulosic casings using NUCEL(R) technology. Engineers at Viskase have adapted this NUCEL(R) technology for its use in the manufacture of cellulosic casings for food production. Viskase has determined that this technology is commercially viable and is currently constructing a full-scale production line scheduled to begin in 1999. Management believes that a sizable capital investment will be required to implement the NUCEL(R) technology on a commercial basis. Seasonality Historically, domestic sales and profits of Viskase have been seasonal in nature, increasing in the spring and summer months due to casings and again near the year-end holiday season due to processed meat specialty films. Sales of specialty films to the fresh meat industry and sales outside of the United States follow a relatively stable pattern throughout the year. 4 7 Raw Materials Raw materials used by Viskase include cellulose (from wood pulp), fibrous paper, petroleum-based resins, plasticizers and various other chemicals. Viskase generally purchases its raw materials from a single source or small number of suppliers with whom it maintains good relations. Certain primary and alternative sources of supply are located outside the United States. Viskase believes, but there can be no assurance, that adequate alternative sources of supply currently exist for all of Viskase's raw materials or raw material substitutes that Viskase could modify its processes to utilize. Employees The Company generally maintains productive and amicable relationships with its 3,050 employees worldwide. One of Viskase's domestic plants, located in Loudon, Tennessee, is unionized, and its Canadian and European plants have unions. From time to time union organization efforts have occurred at other individual plant locations. Unions represent a total of approximately 720 of Viskase's 3,050 employees. Trademarks and Patents Viskase holds patents on many of its major technologies, including those used in its manufacturing processes and the technology embodied in products sold to its customers. Because it believes its ongoing market leadership depends heavily upon its technology, Viskase vigorously protects and defends its patents against infringement by competitors on an international basis. As part of its research and development program, Viskase has developed and expects to continue to develop new proprietary technology and has licensed proprietary technology from third parties. Management believes these activities will enable Viskase to maintain its competitive position. Viskase also owns numerous trademarks and registered tradenames that are used actively in marketing its products. Viskase periodically licenses its process and product patents to competitors to generate royalty income. Environmental Regulations In manufacturing its products, the Company employs certain hazardous chemicals and generates toxic and hazardous wastes. The use of these chemicals and the disposal of such waste are subject to stringent regulation by several governmental entities, including the United States Environmental Protection Agency (USEPA) and similar state, local and foreign environmental control entities. The Company is subject to various environmental, health and safety laws, rules and regulations including those of the United States Occupational Safety and Health Administration and USEPA. These laws, rules and regulations are subject to amendment and to future changes in public policy or interpretation, which may affect the operations of the Company. The Company uses its best reasonable efforts to comply with promulgated laws, rules and regulations and participates in the rulemaking process. Certain of the Company's facilities are or may become potentially responsible parties with respect to other off-site waste disposal facilities. As noted above, new environmental and health and safety laws can impose significant compliance costs, including forthcoming rules. Under the Clean Air Act Amendments of 1990, various industries, including casings manufacturers, will be required to meet air emissions standards for certain chemicals based on use of the "maximum achievable control technology" (MACT). MACT standards for casings manufacturers have not yet been proposed or promulgated; therefore, at this time no estimate of the cost of complying with MACT standards can be made. Such rules, however, will likely impose similar costs on all casings manufacturers in the United States. Under the Resource Conservation and Recovery Act (RCRA), regulations have been proposed that, in the future, may impose design and/or operating requirements on the use of surface impoundments of 5 8 wastewater. Two of Viskase's plants use surface impoundments. The Company does not foresee these regulations being imposed for several years. Various state, local and foreign governments have enacted or are considering enacting laws, rules or regulations concerning the disposal of plastic products. While such legislative action has had a minor effect on certain product sales and may have further effect in the future, the Company is not aware of any existing legislative action that it currently expects to have a material adverse effect on the Company. (d) Financial information about foreign and domestic operations and export sales Reference is made to Part IV, Item 14, Note 23 of Notes to Consolidated Financial Statements. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names and ages of the Company's executive officers, together with the positions with the Company held by such executive officers, and a summary of their recent business experience. Under the Company's Amended and Restated By-Laws, the Company's officers are elected for such terms as may be determined from time to time by the Board of Directors. Emerald Acquisition Corporation (Emerald), the sole stockholder of Viskase Companies, Inc. prior to Viskase Companies, Inc.'s emergence from bankruptcy in 1993, filed a petition under Chapter 11 of the Bankruptcy Code on August 20, 1993. The Emerald case is still pending before the Bankruptcy Court. In addition to the positions with Viskase Companies, Inc. held by the persons specified below for the periods indicated, Messrs. Gustafson and Schuster have served as executive officers of Emerald, since May 1989. Name, Age and Office Business Experience - ------------------------------- ------------------------------------------ F. Edward Gustafson, 57 Mr. Gustafson has been Chairman of the Chairman of the Board, Board, President and Chief Executive President and Chief Officer of the Company since March 1996 Executive Officer and a director of the Company since December 1993. Mr. Gustafson has been President and Chief Executive Officer of Viskase since June 1998, and previously from February 1990 to August 1994. From May 1989 to March 1996 Mr. Gustafson served as Executive Vice President and Chief Operating Officer of the Company. Mr. Gustafson has also served as Executive Vice President and Chief Operating Officer of D.P. Kelly and Associates, L.P. (DPK) since November 1988. Gordon S. Donovan, 45, Mr. Donovan has been Chief Financial Vice President, Chief Financial Officer of the Company since January 1997 Officer, Treasurer and Assistant and Vice President and Chief Financial Secretary Officer of Viskase since June 1998. Mr. Donovan has served as Treasurer and Assistant Secretary of the Company since November 1989 and as Vice President since May 1995. Stephen M. Schuster, 42, Mr. Schuster has been Vice President, Vice President, Secretary and Secretary and General Counsel of the General Counsel Company since May 1989. Mr. Schuster has also served as Vice President and General Counsel of DPK since January 1989. 6 9 ITEM 2. PROPERTIES VISKASE FACILITIES
LOCATION SQUARE FEET PRIMARY USE -------- ----------- ----------- Manufacturing Facilities Beauvais, France (a) 235,000 Casings production and finishing Centerville, Iowa 223,000 Specialty films production and finishing Guarulhos, Brazil 81,000 Specialty films production and casings finishing Kentland, Indiana 125,000 Casings finishing Lindsay, Ontario, Canada 166,000 Casings finishing and specialty films finishing Loudon, Tennessee 250,000 Casings production Osceola, Arkansas 223,000 Casings production Pauls Valley, Oklahoma 110,000 Casings finishing, specialty films production and finishing Newton Aycliffe, England (a) 30,000 OPP conversion Swansea, Wales 77,000 Specialty films production and finishing Swansea, Wales (a) 28,000 Administrative facilities Thaon, France 239,000 Casings production and finishing
Distribution Centers - Domestic Atlanta, Georgia (a) Bensalem, Pennsylvania Chicago, Illinois Pauls Valley, Oklahoma Service Centers - Foreign Guarulhos, Brazil Pulheim, Germany (a) Milan, Italy Distribution Centers - Foreign Santiago, Chile (a) Dublin, Ireland Warsaw, Poland (a) Headquarters Worldwide: Chicago, Illinois Europe: Paris, France (a) (a) Leased. All other properties are owned. The Company believes that its properties generally are suitable and adequate to satisfy the Company's present and anticipated needs. The Company's United States real property collateralizes the Company's obligations under various financing arrangements. For a discussion of these financing arrangements, refer to Part IV, Item 14, Note 8 of Notes to Consolidated Financial Statements. 7 10 ITEM 3. LEGAL PROCEEDINGS In late 1993, Viskase commenced a legal action against American National Can Company (ANC) in Federal District Court for the Northern District of Illinois, Eastern Division, 93C7651. Viskase claimed that ANC's use of two different very low density polyethylene plastic resins in the manufacture of ANC's multilayer barrier shrink film products was infringing various Viskase patents relating to multilayer 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. Patent validity and infringement having been established, the remaining issues for trial are whether ANC willfully infringed Viskase's patents by using "Affinity" brand resin and the determination of the amount of compensatory damages. 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. Viskase filed its memorandum in support of enhanced damages and ANC is expected to file its response to Viskase's memorandum by June 18, 1999. 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 to which Viskase is preparing its reponse. 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 is preparing 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. If Viskase's motion to reinstate the damages is denied, Viskase expects the trial on damages to occur during the second half of 1999 or early 2000. On May 3, 1999, ANC commenced legal action in the Federal District Court for the Northern District of Illinois seeking declaratory relief that Viskase's second patent is invalid. ANC also filed a motion to consolidate the new action with the existing suit. Viskase is preparing an answer to ANC's complaint and has filed its response to ANC's motion to consolidate. The Company expects ANC to vigorously contest these matters in the Court and the USPTO and to appeal any final judgment. No part of the pending claims has been recorded in the Company's financial statements. Through December 31, 1998, $4,644 thousand in patent defense costs have been accrued and capitalized. 8 11 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. Viskase is cooperating fully with the investigation. The Company and its subsidiaries are involved in other various legal proceedings arising out of their business and other environmental matters, none of which is expected to have a material adverse effect upon results of operations, cash flows or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 9 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information. Viskase Companies, Inc.'s Common Stock is traded in the over-the-counter market on the Nasdaq SmallCap Market. The high and low closing bid prices of the Common Stock during 1998 and 1997 are set forth in the following table. Such prices reflect interdealer prices without markup, markdown or commissions and may not represent actual transactions.
1998 First Quarter Second Quarter Third Quarter Fourth Quarter - ---- ------------- -------------- ------------- -------------- High $8.75 $8.72 $6.75 $4.50 Low 6.68 6.50 3.56 2.88
1997 First Quarter Second Quarter Third Quarter Fourth Quarter - ---- ------------- -------------- ------------- -------------- High $7.50 $8.50 $9.00 $9.13 Low 5.50 6.06 7.38 6.75
(b) Holders. As of March 30, 1999, there were approximately 115 holders of record and an additional 1,300 beneficial holders of Viskase Companies, Inc.'s Common Stock. (c) Dividends. Viskase Companies, Inc. has never paid a cash dividend on shares of its Common Stock. The payment of dividends is restricted by the terms of various financing agreements to which the Company is a party. The Company has no present intention of paying dividends in the foreseeable future. 10 13 ITEM 6. SELECTED FINANCIAL DATA
December December December December January 26, 1997 to 27, 1996 to 29, 1995 to 30, 1994 to 1, 1993 to December December December December December 31, 1998(1) 25, 1997(1) 26, 1996(1) 28, 1995 29, 1994 ------------ ----------- ----------- ----------- --------- (in thousands, except for per share amounts) Net sales $ 409,169 $498,333 $534,420 $650,212 $599,029 Net (loss) from continuing operations (181,673) (10,362) (14,580) Net income from discontinued operations 413 717 898 Gain on sales of discontinued operations 39,057 (Loss) before extra- ordinary item (2)(3) (142,203) (9,645) (13,682) (17,323) (3,612) Net (loss) (4) (148,996) (9,645) (13,682) (21,519) (3,612) Per share net (loss) from continuing operations - basic and diluted (12.25) (.71) (1.02) Per share net income from discontinued operations - basic and diluted .03 .05 .06 Gain on sales from discontinued operations 2.63 Per share (loss) before extraordinary item - basic and diluted earnings per share (2)(3) (9.59) (.66) (.96) (1.28) (.27) Per share net (loss) - basic and diluted earnings per share (4) (10.05) (.66) (.96) (1.59) (.27) Cash and equivalents 9,028 24,407 41,794 30,325 7,289 Working capital 41,725 85,815 97,382 121,725 91,727 Total assets 531,069 813,853 873,747 899,567 896,636 Debt obligations: Short-term debt (5) 16,120 12,880 11,291 12,504 25,798 Long-term debt 388,880 511,183 521,179 530,181 489,358 Stockholders' equity (deficit) (55,907) 90,920 103,645 117,096 135,349 Cash dividends none none none none none
(1) Fiscal 1998, 1997, and 1996 net sales and net loss from continuing operations exclude the results of Sandusky and Clear Shield. Fiscal 1995 and 1994 have not been restated. (2) Includes $150,069 unusual charges in 1998 and $3,500 in unusual charges in 1997. (3) Includes $5,769 of income (net of book tax provision) in 1994 from the settlement of a patent infringement suit. (4) Includes an extraordinary loss on debt extinguishment in 1998 and 1995. (5) Includes current portion of long-term debt. 11 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The Company's 1998 net sales from continuing operations were $409.2 million, which represented a 17.9% decrease from the prior year's net sales from continuing operations of $498.3 million. After excluding the sales of both the oriented polystyrene (OPS) business (which was sold in January 1997) and the polyvinyl chloride (PVC) business (which was sold in December 1997) of $48.8 million, the effective decrease was 9.0%. The decline in net sales is principally due to reduced worldwide casing volume brought by intense price competition and to the adverse economic conditions in the Russian and Southeast Asian markets. On June 8, 1998, the Company's Board of Directors approved the sale of two of the Company's subsidiaries, Clear Shield and Sandusky. Accordingly, the operating results of the two subsidiaries have been segregated from continuing operations and reported as a separate line item on the income statement under the heading Discontinued Operations. The Company has restated its prior financial statements to present the operating results as Discontinued Operations. The sales of Sandusky and Clear Shield were completed on June 11, 1998 and July 23, 1998, respectively. A $39.1 million combined gain, net of taxes, was recognized on these sales. Viscofan, S.A., a Spanish small-diameter casing producer, entered the United States market in November 1994. The Company and its domestic competitors have experienced significant volume loss to Viscofan. Since Viscofan's entrance into the domestic market, the Company has experienced significant pricing pressures and volume losses. Management believes that Viskase will continue to experience pricing pressures from its competitors. Viskase's management is aware of other smaller competitors that from time to time attempt to enter the casing market. Although the Company does not expect to experience significant volume loss to these competitors, management believes that additional pricing pressures will result. In addition, adverse conditions in the Russian and Southeast Asian markets may affect operating results. The Company's 1997 net sales from continuing operations were $498.3 million, which represented a 6.8% decrease from prior year's net sales from continuing operations of $534.4 million. After adjusting the sales volumes for the effects of the sale of OPS and PVC, worldwide sales volumes showed an increase in 1997. The benefits of stronger worldwide volumes were offset by lower pricing due to competitive pressures in the domestic, European and Latin American markets. Operating loss from continuing operations for 1998 was $144.6 million. The operating loss resulted primarily from a third quarter unusual charge comprised of a $91.2 million excess reorganization impairment and a $57.4 million unusual charge due to the previously announced restructuring of Viskase's worldwide operations, neither of which had a significant effect on current cash flow. The impairment and unusual charges were the result of business conditions leading to the Viskase plan of restructuring (see Note 11). Operating income from continuing operations for 1997 was $22.2 million, which represented a decrease of 39.6% from the prior year. The Company's operating results from continuing 12 15 operations included a $3.5 million unusual charge. The decrease in operating income from continuing operations resulted primarily from declines in gross margins caused by continued price competition in Viskase's domestic, European, and Latin American casings markets. Net interest expense from continuing operations for 1998 totaled $49.8 million, which represented a decrease of $4.4 million from 1997. The decrease is primarily due to interest savings from the redemption of $105 million of the 12% Senior Secured Notes. Other expense from continuing operations of approximately $1.2 million and $2.1 million in 1998 and 1997, respectively, consists principally of foreign exchange losses. The extraordinary loss in 1998 of $6.8 million, net of a tax benefit of $4.3 million, represents the loss on the early extinguishment of $105 million of the 12% Senior Secured Notes. The extraordinary loss before taxes is comprised of a $8.9 million prepayment penalty and a $2.1 million write-off of the unamortized portion of financing fees attributable to the debt that was redeemed. 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 multilayer barrier shrink film products was infringing various Viskase patents relating to multilayer 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. Patent validity and infringement having been established, the remaining issues for trial are whether ANC willfully infringed Viskase's patents by using "Affinity" brand resin and the determination of the amount of compensatory damages. 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. Viskase filed its memorandum in support of enhanced damages and ANC is expected to file its response to Viskase's memorandum by June 18, 1999. 13 16 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 to which Viskase is preparing its reponse. 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 is preparing 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. If Viskase's motion to reinstate the damages is denied, Viskase expects the trial on damages to occur during the second half of 1999 or early 2000. On May 3, 1999, ANC commenced legal action in the Federal District Court for the Northern District of Illinois seeking declaratory relief that Viskase's second patent is invalid. ANC also filed a motion to consolidate the new action with the existing suit. Viskase is preparing an answer to ANC's complaint and has filed its response to ANC's motion to consolidate. The Company expects ANC to vigorously contest these matters in the Court and the USPTO and to appeal any final judgment. No part of the pending claims has been recorded in the Company's financial statements. Through December 31, 1998, $4,644 thousand in patent defense costs have been accrued and capitalized. In March 1997, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the sausage casings industry. Viskase is cooperating fully with the investigation. The Company and its subsidiaries are involved in other 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. 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. The fair value of foreign currency contracts is $3,975 thousand. 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 1998, 1997, and 1996 tax benefits from continuing operations consisted of the benefits of U.S. losses partially offset by the provision related to operations of foreign subsidiaries. A benefit of $14.0 million, $23.7 million, and $8.2 million, respectively, was provided on loss from continuing operations before income taxes of $195.7 million, $34.0 million, and $22.8 million, respectively, for 1998, 1997, and 1996. The Company's effective tax rate from continuing operations reflects the permanent differences in the U.S. resulting from non-deductible amortization, foreign losses for which no tax benefit is provided, and changes in 14 17 the valuation allowance. The increase in the valuation allowance has affected the rate for the year. The U.S. benefit for income taxes from continuing operations is recorded as a reduction of the deferred tax liability and does not result in a refund of income taxes. The tax provision for income from operations discontinued in 1998 was $0.6 million, $1.4 million, and $1.5 million, respectively, for 1998, 1997, and 1996. The tax provision with respect to the gain from the sale of operations discontinued in 1998 was $19.6 million. In addition, an extraordinary loss in 1998 provided an income tax benefit of $4.3 million. The total income tax provision (benefit) was $1.8 million, $(22.3) million, and $(6.7) million, respectively, in 1998, 1997, and 1996. Domestic cash income taxes paid in 1998, 1997, and 1996 were $2.2 million, $0.4 million, and $0.4 million, respectively. Foreign cash income taxes paid during the same periods were $2.3 million, $4.9 million, and $1.2 million, respectively. 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 implement the provisions of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), which will be effective for all fiscal quarters of fiscal years beginning after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires recognition of all derivative instruments as either assets or liabilities in the balance sheet and the measurement of those instruments at fair value. Management believes the adoption of SFAS No. 133 will not have a significant effect on the Company's financial statements. Liquidity and Capital Resources Cash and equivalents decreased by $15.4 million during the fiscal year ended December 31, 1998. Cash flows used in operating activities of $18.4 million and financing activities of $125.7 million exceeded funds provided by investing activities of $128.9 million. Cash flows used in operating activities were principally attributable to the Company's loss from operations offset by the effect of depreciation, amortization, the write off of the excess reorganization value, the net property, plant and equipment write-off and the recognition of the restructuring reserve. Cash flows used in financing activities were principally due to the repayment of the $105 million 12% Senior Secured Notes, the $8.9 million prepayment penalty on the 12% Senior Secured Notes repayment and a $9.7 million principal payment under the GECC lease. Cash flows provided by investing activities consist principally of capital expenditures for property, plant and equipment, net of proceeds from the sale of Sandusky and Clear Shield. During June 1999, Viskase Corporation and Viskase Sales Corporation entered into two-year secured credit agreements consisting of a $50 million senior revolving credit facility, 15 18 including a $26 million sublimit for issuance of letters of credit (Senior Revolving Credit Facility), a $50 million senior term facility (Senior Term Facility), collectively the "Senior Secured Credit Facility," and $35 million of junior secured term loans (Junior Term Loans). The proceeds of the Senior Secured Credit Facility and the Junior Term Loans were used to repay the $55 million Senior Secured Notes outstanding and obligations then outstanding under the Company's existing Revolving Credit Facility. The Senior Secured Credit Facility has a maturity date of June 30, 2001. The Company finances its working capital needs through a combination of internally generated cash from operations and borrowings under its $50 million Senior Revolving Credit Facility entered into in June 1999. The availability of funds under the Senior Revolving Credit Facility is subject to the Company's compliance with certain covenants, 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 $9.4 million outstanding under the Senior Revolving Credit Facility as of June 15, 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 a minimum leverage ratio of total liabilities to earnings before depreciation, interest, amortization, and taxes (EBDIAT) and a limitation on capital expenditures. The sales of Sandusky and Clear Shield were completed on June 11, 1998 and July 23, 1998, respectively. The aggregate purchase price was $163.8 million. A $39.1 million combined gain, net of taxes, was recognized on these sales. Concurrent with the Clear Shield divestiture, the Company mailed a notice of redemption to holders of its 12% Senior Secured Notes to redeem $105 million of aggregate principal amount of the $160 million outstanding together with accrued interest payable and yield maintenance premium thereon. The notes were redeemed on August 24, 1998 at a price of 108.5%. The Company used $116.3 million of the proceeds for the redemption of the 12% Senior Secured Notes. In addition, the remainder of the proceeds, after deducting taxes and transaction expenses, were used to repay balances outstanding under the Company's existing Revolving Credit Facility. The Company anticipates that its current cash position, its operating cash flows and the availability under its credit agreement will be sufficient to meet its operating expenses and 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 fiscals 1998 and 1997 totaled $35.4 million and $46.0 million, respectively. Capital expenditures for discontinued operations for fiscals 1998 and 1997 totaled $9.0 million and $11.9 million, respectively. Significant 1998 and 1997 capital expenditures for continuing operations included a new information technology system at Viskase, costs associated with the Nucel(R) project, and additional production capacity for specialty films. Capital expenditures for discontinued operations included the construction of Clear Shield's Twin Falls, Idaho facility. Capital expenditures are expected to approximate $27 million in 1999 and $13 million per year after 1999. 16 19 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 be in the $9 million range. Among the projects included in the current research and development efforts is the application of certain patents and technology licensed by Viskase to the manufacture of cellulosic casings under the Nucel(R) process. The commercialization of these applications and the related fixed asset expense associated with such commercialization may require substantial financial commitments in future periods. Year 2000 The Year 2000 (Y2K) issue concerns the inability of information systems to properly recognize and process date-sensitive information beyond January 1, 2000. 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 October 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. All of the Company's personal computers, network server hardware and software are being checked for Y2K compatibility with the vendors. The targeted completion date is June 30, 1999. The expenditures for the European implementation totaled approximately $4.9 million in 1998. 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. This process is ongoing and the plan is to have these systems tested for readiness by June 30, 1999. The Company has 17 20 estimated the cost of Y2K readiness to be approximately $0.4 million for its non-financial systems. If the Company is unable to achieve Y2K readiness for its major Non-IT systems, the Y2K issue could have a material impact on the operations of the Company. A contingency plan will be in place by June 30, 1999. 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. The responses to the questionnaires are being reviewed by the Committee and appropriate action will be taken on a timely basis. 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; and opportunities that may be presented to and pursued by the Company; determinations by regulatory and governmental authorities; and the ability to achieve synergistic and other cost reductions and efficiencies. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary financial information meeting the requirements of Regulation S-X are listed in the index to financial statements and schedules, as included under Part IV, Item 14 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements on accounting and financial disclosure required to be disclosed under this Item. 18 21 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Directors and Officers. The directors of the Company, their ages, principal occupations and certain other information with respect to the directors are provided below.
Name Age Principal Occupation ---- --- -------------------- Robert N. Dangremond 56 Mr. Dangremond has been a principal with Jay Alix & Associates, a consulting and accounting firm specializing in corporate restructurings and turnaround activities, since August 1989. Since June 1998, Mr. Dangremond has served as Restructuring Officer of Zenith Electronics Corporation, a manufacturer of televisions ("Zenith"). From December 1997 to June 1998, Mr. Dangremond held the position of Chief Financial Officer of Zenith. Previously beginning in August 1995, Mr. Dangremond has held the positions of interim Chief Executive Officer and President of Forstmann & Company, Inc. ("Forstmann"), a producer of clothing fabrics. Mr. Dangremond was Chairman of the Board, President and Chief Executive Officer of Multigraphics, Inc. (formally AM International, Inc.), a provider of graphics arts equipment, supplies and services ("Multigraphics") from February 1993 to September 1994. Mr. Dangremond is also a director of Multigraphics. Mr. Dangremond has served as a director of the Company since 1993. Mr. Dangremond's appointments as Restructuring Officer and Chief Financial Officer of Zenith, as interim Chief Executive Officer and President of Forstmann and as Chairman of the Board, President and Chief Executive Officer of Multigraphics, were made in connection with turnaround consulting services provided by Jay Alix & Associates. On May 17, 1993, Multigraphics filed a petition under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"), and on September 29, 1993, a plan of reorganization was confirmed with respect to Multigraphics. On September 22, 1995, Forstmann filed a petition under Chapter 11 of the Bankruptcy Code. In July 1997, Forstmann consummated a plan of reorganization and emerged from bankruptcy.
19 22
Name Age Principal Occupation ---- --- -------------------- Avram A. Glazer 38 Mr. Glazer has served as the President and Chief Executive Officer of Zapata Corporation since March 1995. Prior to that time, Mr. Glazer was employed by, and worked on behalf of, Malcolm I. Glazer and a number of entities owned and controlled by Malcolm I. Glazer, Mr. Glazer has served as Vice President of First Allied Corporation ("First Allied"), an investment company, since 1985. He is a director of Zapata Corporation and Specialty Equipment Companies, Inc. ("Specialty"), a food services equipment manufacturer. He is also a director and Chairman of the Board of Omega Protein Corp., a marine protein company. Avram A. Glazer is the son of Malcolm I. Glazer. Mr. Glazer has served as a director of the Company since 1998. Malcolm I. Glazer 70 Mr. Glazer has been a self-employed private investor, whose diversified portfolio consists of investments in television broadcasting, restaurants, restaurant equipment, food services equipment, health care, banking, real estate, stocks, government securities and corporate bonds, for more than the past five (5) years. He is also the owner of the Tampa Bay Buccaneers, a National Football League franchise. Mr. Glazer has been President and Chief Executive Officer of First Allied since 1984. He is the Chairman of the Board of Directors of Zapata Corporation and Chairman of the Board of Directors of Houlihan's. He is also a director of Specialty. Malcolm I. Glazer is the father of Avram A. Glazer. Mr. Glazer has served as a director of the Company since 1998.
20 23
Name Age Principal Occupation ---- --- -------------------- F. Edward Gustafson 57 Mr. Gustafson has been Chairman of the Board, President and Chief Executive Officer of the Company since March 1996 and a director of the Company since 1993. Mr. Gustafson has also been the President and Chief Executive Officer of Viskase Corporation, a wholly owned subsidiary of the Company, since June 1998. Mr. Gustafson was Executive Vice President and Chief Operating Officer of the Company from May 1989 to March 1996 and President of Viskase Corporation from February 1990 to August 1994. Mr. Gustafson has also served as Executive Vice President and Chief Operating Officer of D.P. Kelly & Associates, L.P., a management services and private investment firm, since November 1988. Mr. Gustafson is Executive Vice President of Emerald Acquisition Corporation ("Emerald"), the former parent company of Viskase. On August 20, 1993, Emerald filed a petition under Chapter 11 of the Bankruptcy Code. In March 1998, the bankruptcy petition was dismissed by the Bankruptcy Court. Gregory R. Page 47 Mr. Page has been Corporate Vice President and Section President of Cargill, Inc. ("Cargill"), a multinational trader and processor of foodstuffs and other commodities, since May 1998. From August 1995 to May 1998, Mr. Page served as President of the Red Meat Group of Cargill. From 1994 to August 1995, Mr. Page was President of Cargill's Worldwide Beef Operations. From 1992 to 1994, Mr. Page was President of Cargill's North American Beef Operations. Mr. Page has served as a director of the Company since 1993.
For information regarding executive officers of the Company, see information set forth under "Executive Officers of the Registrant" in Part I of this report. Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers, directors and persons who beneficially own more than 10% of the Company's outstanding Common Stock to file reports of ownership and changes in ownership of Common Stock with the Securities and Exchange Commission, NASDAQ and the Company. Based upon a review of relevant filings and written representations from the Company's officers, directors, and persons who own more than 10% of the Company's Common Stock, the Company believes that all required filings by such persons with respect to the year ended December 31, 1998 have been made on a timely basis except that Gregory R. Page failed to file two reports with respect to two transactions. ITEM 11. EXECUTIVE COMPENSATION Summary of Cash and Certain Other Compensation of Executive Officers. The Summary Compensation Table below provides certain summary information concerning compensation by the Company for 1998, 1997 and 1996 for services rendered by the Company's Chief Executive 21 24 Officer and each of the other executive officers of the Company whose total annual salary and bonus exceeded $100,000 in 1998. SUMMARY COMPENSATION TABLE
Long-Term Annual Compensation Compensation Awards --------------------------- ------------------------- Other Annual Restricted All Other Name and Salary Bonus Compensation Stock Award Options Compensation Principal Position Year ($) (1) ($) ($) ($) (#) ($) - ------------------ ---- ------- ------- ------------ ------------ --------- ------------ F. Edward Gustafson 1998 470,000 117,500 -- -- 350,000(2) 18,570(3) Chairman of the Board, 1997 465,231 -- 48,786(4) -- -- 18,517 President and Chief 1996 435,692 -- 69,662 126,875(5) 145,000(6) 16,108 Executive Officer Stephen M. Schuster 1998 123,500 36,705 20,655(7) -- 41,000(8) 473,304(9) Vice President, General 1997 170,150 35,200 4,669 -- -- 7,350 Counsel and Secretary 1996 163,325 43,894 6,259 -- 22,900 7,096 Gordon S. Donovan 1998 157,000 32,742 4,483 -- 36,000(8) 9,567(10) Vice President, Chief 1997 150,542 31,400 4,804 -- -- 7,254 Financial Officer, 1996 134,042 31,776 3,035 -- 19,500 5,664 Treasurer and Assistant Secretary
(1) The salary set forth above for Mr. Gustafson for 1996 does not include $193,000 paid to D.P. Kelly & Associates, L.P. under the Amended and Restated Management Services Agreement dated December 31, 1993. See "Certain Relationships and Related Transactions." (2) In March 1998, Mr. Gustafson was granted an option to purchase up to 175,000 shares of Common Stock depending on the financial performance of the Company based on EBDIAT for fiscal year 1998. In November 1998, this stock option was replaced with a stock option to purchase up to 175,000 shares of Common Stock upon the same terms and conditions of the original grant other than the exercise price and a revised EBDIAT performance level in part to reflect the divestiture of certain business operations. Based on the Company's EBDIAT for fiscal year 1998, a portion (i.e., 50,000 shares of Common Stock) of this stock option will vest in three equal annual installments commencing March 27, 2000. See the "Option/SAR Grants in Last Fiscal Year" Table. (3) Includes $4,050 paid for group life insurance, $4,706 contributed to the Viskase Retirement Income Plan and $9,814 contributed to the Viskase Companies, Inc. Parallel Non-Qualified Savings Plan. (4) Pursuant to his Amended and Restated Employment Agreement, effective March 27, 1996 (the "Employment Agreement"), in 1997, Mr. Gustafson received a cash payment of $30,000 in lieu of a Company automobile. In 1996, Mr. Gustafson had personal use of a Company automobile for a portion of the year and, pursuant to his Employment Agreement, was paid cash in lieu of a Company automobile for the remainder of the year, which use and cash payment was valued at $24,604. (5) Pursuant to his Employment Agreement, in 1996, Mr. Gustafson was granted 35,000 restricted shares of the Company's Common Stock. The value of these shares as of December 31, 1998 was $148,750. Such shares were nontransferable and were subject to forfeiture until March 27, 1999. See "Employment Agreements and Change-in-Control 22 25 Arrangements." The Company does not currently, and does not expect in the near future to, pay dividends on shares of its Common Stock. Neither Mr. Gustafson nor any of the other persons named in the Summary Compensation Table holds any other restricted shares of Common Stock. (6) Pursuant to the terms and conditions of his Employment Agreement, no portion of this stock option grant to Mr. Gustafson became exercisable and this stock option terminated by its terms. (7) Includes an automobile allowance of $6,600 and country club dues of $5,297 paid by the Company. (8) In January 1998, Messrs. Schuster and Donovan were granted stock options to purchase 20,500 and 18,000 shares of Common Stock, respectively, contingent upon the Company's financial performance based on the Company's EBDIAT for fiscal year 1998. In November 1998, these stock options were replaced with new options to purchase the same number of shares upon the same terms and conditions other than the exercise price. In addition, the new options granted were not contingent upon the financial performance of the Company. (9) Includes $4,286 contributed to the Viskase Retirement Income Plan and $27,077 vacation payout, $13,200 severance automobile allowance and $6,341 automobile allowance grossup paid to Mr. Schuster in connection with his termination of employment. Also includes $422,400 payable to Mr. Schuster under a letter agreement, dated July 14, 1998, between the Company and Mr. Schuster. See "Employment Agreements and Change-in-Control Arrangements." (10) Includes $646 paid for group life insurance, $6,045 contributed to the Viskase Retirement Income Plan and $2,877 contributed to the Viskase Companies, Inc. Parallel Non-Qualified Savings Plan. Stock Option Grants. The following table provides information concerning stock options granted to the persons named in the Summary Compenstion Table during the fiscal year ended December 31, 1998. No stock appreciation rights have been granted. Option/SAR Grants in Last Fiscal Year
Percent of Potential Realizable Number of Total Value at Assumed Annual Securities Options Rates of Stock Price Underlying Granted to Appreciation for Option Options Employees Exercise or Base Term (2) Granted in Fiscal Price Expiration -------------------------- Name (#)(1) Year ($/Share) Date 5% ($) 10% ($) - --------------------------- ---------- ---------- --------------- ----------- -------------------------- F. Edward Gustafson(3) 175,000 21.82% $6.8750 3/27/08 $756,639 $1,917,471 175,000 21.82% $3.5625 11/18/08 $392,076 $ 993,599 Stephen M. Schuster 20,500 2.56% $6.8750 3/31/08 $ 88,635 $ 224,618 20,500 2.56% $3.5625 11/18/08 $ 45,929 $ 116,393 Gordon S. Donovan 18,000 2.24% $6.8750 3/31/08 $ 77,826 $ 197,226 18,000 2.24% $3.5625 11/18/08 $ 40,328 $ 102,199
- ------------------------- (1) Stock options are granted under the Viskase Companies, Inc. 1993 Stock Option Plan, as amended and restated (the "Stock Option Plan"). Stock options generally become 23 26 exercisable on a cumulative basis in annual increments of one-third of the optioned shares, commencing on the first anniversary of the grant date. Upon a "Change of Control" of the Company, as defined in the Stock Option Plan, all outstanding stock options become immediately exercisable. The first grant reported for each named executive officer was canceled and replaced with a new stock option which is the second reported grant for each named executive officer. See footnotes 2 and 6 to the "Summary Compensation Table" for more detail regarding the grants to the named executive officers and the repricing. (2) The potential realizable value is based on the term of the stock option at the date of grant (ten (10) years). It is calculated by assuming that the stock price on the date of grant appreciates at the indicated annual rate, compounded annually for the entire term, and that the stock option is exercised and sold on the last day of the stock option term for the appreciated stock price. These amounts represent certain assumed rates of appreciation only. Actual gains, if any, on stock option exercises and on the sale of shares of Common Stock acquired upon exercise are dependent on the future performance the Common Stock and overall stock market conditions. There can be no assurance that the amounts reflected in this table will be achieved. (3) Mr. Gustafson's stock options were granted pursuant to his Employment Agreement. See "Employment Agreements and Change-in-Control Arrangements." Mr. Gustafson's stock options are subject to and governed by the Stock Option Plan. The grant with an exercise price of $6.8750 reported for Mr. Gustafson was replaced by the grant with an exercise price of $3.5625 reported for Mr. Gustafson. Mr. Gustafson was granted both stock options to purchase up to 175,000 shares of Common Stock depending on the financial performance of the Company based on EBDIAT for fiscal year 1998. Based on the Company's EBDIAT for fiscal year 1998, under the second grant, Mr. Gustafson will only be able to purchase 50,000 shares of Common Stock. Accordingly, the potential realizable value for 50,000 shares based on an assumed rate of 5% and 10% appreciation over the term of the stock option would be $112,022 and $283,885, respectively. See footnote 2 to the "Summary Compensation Table" for more detail. Stock Option Exercises and Holdings. The following table provides information concerning the exercise of stock options during the fiscal year ended December 31, 1998 and the fiscal year-end value of stock options with respect to each of the persons named in the Summary Compensation Table. AGGREGATED OPTION/SAR EXERCISES IN 1998 AND DECEMBER 31, 1998 OPTION VALUES
Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Shares Options at Options at Acquired Value 12/31/98(#) 12/31/98($) on Exercise Realized Exercisable/ Exercisable/ Name (#) ($) Unexercisable Unexercisable ---- ----------- --------- ------------- ------------- F. Edward Gustafson........... -- -- 35,000/85,000 26,250/60,625 Stephen M. Schuster........... -- -- 38,116/28,134 0/14,094 Gordon S. Donovan............. -- -- 32,500/24,500 0/12,375
24 27 Pension Plan Table. The following table sets forth estimated annual benefits payable upon retirement under the Retirement Program for Employees of Viskase Corporation (the "Retirement Plan") to employees of the Company and its wholly owned subsidiary, Viskase Corporation, in specified remuneration and years of service classifications. PENSION PLAN TABLE
Assumed Final Average Annual Benefits for Years of Service Indicated (2) Annual Salary (1) 15 20 25 30 35 - ----------------------------- ---------------- ---------------- ----------------- ----------------- ------------------- 100,000 18,000 24,000 30,000 36,000 42,000 150,000 27,000 36,000 45,000 54,000 63,000 200,000 36,000 48,000 60,000 72,000 84,000 250,000 45,000 60,000 75,000 90,000 105,000 300,000 54,000 72,000 90,000 108,000 126,000 350,000 63,000 84,000 105,000 126,000 147,000 400,000 72,000 96,000 120,000 144,000 168,000 450,000 81,000 108,000 135,000 162,000 189,000 500,000 90,000 120,000 150,000 180,000 210,000
(1) Annual benefits payable under the Retirement Program are calculated based on the participant's average base salary for the consecutive thirty-six (36) month period immediately prior to retirement. (2) The annual benefits payable are based on straight-life annuity basis at normal retirement age. The benefits reported in this table are not subject to any reduction for benefits paid by other sources, including Social Security. As of December 31, 1998, Messrs. Gustafson, Schuster and Donovan are credited with 9, 9 and 11 years of service, respectively. Compensation of Directors. Each director who is not an officer of the Company received an annual retainer of $20,000 in 1998 and a fee of $1,000 for each attended meeting of the Board of Directors. Chairmen of committees (other than the Interested Person Transaction Committee) of the Board of Directors received an annual retainer of $1,500 in 1998. Directors also received a fee for each attended meeting of a committee of the Board of Directors (other than the Interested Person Transaction Committee) of $1,000 ($500 in the case of committee meetings occurring immediately before or after meetings of the full Board of Directors). Members of the Interested Person Transaction Committee did not receive a fee in 1998. Directors who are officers of the Company do not receive compensation in their capacity as directors. Pursuant to Viskase Companies, Inc. 1993 Stock Option Plan, as amended, on the date of the 1998 Annual Meeting of Stockholders, non-employee directors were granted a stock option to purchase 1,000 shares of Common Stock at an option exercise price equal to the fair market value of the Common Stock on the date of grant. Pursuant to the Non-Employee Directors' Compensation Plan, non-employee directors may elect to receive their director fees in the form of shares of Common Stock. The number of shares received is based on the average of the closing bid and asked price of the Common Stock on the business day preceding the date the Common Stock is issued. All of the non-employee directors have elected to receive their director fees in the form of shares of Common Stock. Compensation Committee Interlocks and Insider Participation. The Compensation and Nominating Committee of the Board of Directors consists of Messrs. Dangremond and Page, each of whom is a non-employee director of the Company. Mr. Page is the Corporate Vice President and Sector President of Cargill, Inc. In fiscal year 1998, Viskase Corporation, a wholly owned subsidiary of the Company, had sales of $21,804,000 made in the ordinary course to Cargill, Inc. and its affiliates. 25 28 Employment Agreements and Change-in-Control Arrangements Employment Agreement with F. Edward Gustafson. On March 27, 1996, the Company entered into an Employment Agreement with Mr. F. Edward Gustafson. The Employment Agreement was amended and restated during 1997 (the "Employment Agreement"). Pursuant to the Employment Agreement, Mr. Gustafson has agreed to serve as Chairman of the Board, President and Chief Executive Officer of the Company, and the Company has agreed to use its best efforts to cause Mr. Gustafson to be elected as a director of the Company, during the term of the Agreement. The initial term of the Employment Agreement is three (3) years, provided, however, that on March 26, 1997 and each subsequent anniversary thereof, the term of the Employment Agreement will be automatically extended for a period of one (1) year unless the Company or Mr. Gustafson gives written notice to the other at least thirty (30) days prior to the anniversary date that the term shall not be so extended. Under the Employment Agreement, Mr. Gustafson will receive an initial annual base salary of at least $450,000 and $30,000 per year in lieu of a Company-provided automobile. Mr. Gustafson's base salary will be increased by the Compensation and Nominating Committee of the Board of Directors each year in a manner consistent with increases in base salary for other senior officers of the Company. In addition, the Employment Agreement provides that with respect to the fiscal year ended December 25, 1997, Mr. Gustafson would be eligible to receive a bonus based on a percentage of his base salary depending on the Company's performance based on EBDIAT. Mr. Gustafson will be eligible to receive an annual bonus for future fiscal years of the Company based on such financial performance or other performance-related criteria as established by the Compensation and Nominating Committee after consultation with Mr. Gustafson. For information concerning actual bonuses earned by Mr. Gustafson, see the "Summary Compensation Table." Mr. Gustafson is also entitled to participate in any employee benefit plans in effect for, and to receive other fringe benefits provided to, other executive officers. Pursuant to and upon execution of the Employment Agreement, Mr. Gustafson was granted two (2) stock options, each to purchase 35,000 shares of Common Stock. One (1) stock option becomes exercisable in cumulative annual increments of one-third commencing on the first anniversary of the date of grant. The other stock option becomes exercisable in cumulative annual increments of one-third commencing on the second anniversary of the date of grant. In addition, Mr. Gustafson was granted a stock option to purchase up to 75,000 shares of Common Stock depending on the financial performance of the Company based on EBDIAT for fiscal year 1996. The Company did not achieve the minimum goal for EBDIAT. Therefore, no portion of this stock option became exercisable or will become exercisable in the future. Lastly, Mr. Gustafson was granted 35,000 restricted shares of Common Stock which could not be transferred, and were subject to forfeiture, until March 27, 1999. If Mr. Gustafson's employment is terminated by the Company for Cause, as defined in the Employment Agreement, or by Mr. Gustafson other than for Good Reason or Disability, as defined in the Employment Agreement, Mr. Gustafson will be paid all Accrued Compensation, as defined in the Employment Agreement, through the date of termination of employment. If Mr. Gustafson's employment with the Company is terminated by the Company for any reason other than for Cause, death or Disability, or by Mr. Gustafson for Good Reason, (i) Mr. Gustafson will be paid all Accrued Compensation plus 300% of his base salary (or 200% in the event that D.P. Kelly & Associates, L.P., or a company in which D.P. Kelly & Associates, L.P. has a substantial interest, is the beneficial owner of the Company following a Change of Control) and the prorated amount of annual bonus that would have been payable to Mr. Gustafson with respect to the fiscal year in which Mr. Gustafson's employment is terminated, provided that the performance targets have been actually achieved as of the date of termination (unless such termination of 26 29 employment follows a Change in Control, as defined in the Agreement, in which case Mr. Gustafson will receive a bonus equal to 50% of his base salary regardless of the Company's performance), (ii) Mr. Gustafson will continue to receive life insurance, medical, dental and hospitalization benefits for a period of twenty-four (24) months following termination of employment, and (iii) all outstanding stock options and restricted shares of Common Stock will become immediately exercisable, vested and nonforfeitable. Pursuant to the Employment Agreement, Mr. Gustafson is generally prohibited during the term of the Agreement, and for a period of two (2) years thereafter, from competing with the Company, soliciting any customer of the Company or inducing or attempting to persuade any employee of the Company to terminate his or her employment with the Company in order to enter into competitive employment. For purposes of the Employment Agreement, the Company includes Viskase Companies, Inc. and any of its subsidiaries over which Mr. Gustafson exercised, directly or indirectly, any supervisory, management, fiscal or operating control during the term of the Employment Agreement. Letter Agreement with Stephen M. Schuster. On July 14, 1998, in connection with the worldwide restructuring of the Company, the Company and its wholly owned operating subsidiary, Viskase Corporation, entered into a letter agreement with Mr. Stephen M. Schuster pursuant to which Mr. Schuster's employment with the Company was terminated and he was engaged to continue to serve on an independent contractor basis as Vice President, Secretary and General Counsel of the Company and its subsidiaries. Pursuant to this letter agreement, Mr. Schuster is paid an annual retainer fee of $50,000 in twelve (12) equal monthly installments and is reimbursed for any reasonable out-of-pocket expenses. The letter agreement may be terminated by the Company at any time after January 31, 2000 upon at least ninety (90) days prior written notice to Mr. Schuster or by Mr. Schuster at any time upon ninety (90) days prior written notice to the Company. In the event of a Change of Control, as defined in the Company's Corporate Office Severance Pay Policy (the "Policy"), the letter agreement will be immediately terminated. Pursuant to the letter agreement, Mr. Schuster agreed to defer payment of certain benefits payable to him under the Policy in connection with his termination of employment until the first of the following to occur: (i) July 31, 2000, (ii) a Change of Control (as defined in the Policy), (iii) his death or permanent disability, (iv) termination of the letter agreement by either party, or (v) the Company's or Viskase Corporation's default or failure to perform any of their respective obligations under the letter agreement. Upon occurrence of one of the foregoing events, Mr. Schuster will receive a lump sum payment equal to $422,400 which represents twenty-four (24) months salary and a target bonus under the Company's Management Incentive Plan that he would have been entitled to receive under the Policy upon his termination of employment. In addition, pursuant to the letter agreement, stock options owned by Mr. Schuster as of the date of his termination of employment remain exercisable and continue to vest during the term of the letter agreement. Such stock options remain subject to the terms and conditions of the Company's 1993 Stock Option Plan, as amended and restated. The letter agreement provides that Mr. Schuster's rights to indemnification and advancement of expenses currently provided for in the Company's By-Laws for the period during which Mr. Schuster serves as an officer of the Company remains in effect and that Mr. Schuster will continue to be covered under the Company's Directors and Officers liability insurance policy. In addition, the Company has agreed to indemnify and hold Mr. Schuster harmless from and against all claims, liabilities, losses, costs, damages or expenses (including attorneys' fees) arising out of or in connection with (i) the Company's or Viskase Corporation's failure to perform any of their respective obligations under the letter agreement, (ii) any action taken by Mr. Schuster at the request of the Company or Viskase Corporation, (iii) any other claim relating to Mr. Schuster's services under the letter agreement which claim is not based upon any act or 27 30 omission adjudicated to constitute willful misconduct, fraud or dishonesty. Neither the Company nor Viskase Corporation, however, will be required to indemnify Mr. Schuster for any act or omission performed by Mr. Schuster which has been adjudicated to constitute willful misconduct, fraud or dishonesty. Corporate Office Severance Pay Policy. In May 1996, the Compensation and Nominating Committee of the Board of Directors approved the Policy and in March 1997 amendments to the Policy. The Policy covers all permanent, full-time, salaried executives and administrative personnel employed by the Company at its corporate office, including Mr. Gordon S. Donovan. Mr. Donovan is eligible for severance benefits as set forth in the Policy upon the occurrence of one of the following events (an "Event"): (i) involuntary separation of employment from the Company for any reason other than death, disability or willful misconduct, (ii) voluntary separation of employment from the Company (a) following a reduction in base compensation or incentive bonus opportunity from that in effect on the day immediately before the effective date of a Change in Control, as defined in the Policy, or office consolidation or elimination, or (b) following a reduction in the person's principal responsibilities from those in effect on the day immediately before the effective date of a Change in Control, as defined in the Policy, or office consolidation or elimination. Upon the occurrence of an Event and subject to the Company obtaining a general release, Mr. Donovan would receive severance pay equal to the equivalent to twenty-four (24) months' salary (at the highest annual rate in effect during the three-year period prior to separation of employment) plus a target bonus under the Management Incentive Plan in effect at the time of separation. In addition, Mr. Donovan would continue to receive medical, life and dental insurance benefits in effect at the time of separation of employment for a period of time following such separation depending on form of payment of the severance pay elected (e.g., lump sum or installment) and whether he is covered by another employer's plan. The Policy may be amended or terminated at any time by the Company except that in the event that a Change in Control or elimination or consolidation of all of part of the corporate office occurs during the term of the Policy, the Policy will be automatically extended for a period of twenty-four (24) months following the effective date of the Change in Control or office consolidation or elimination. 28 31 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the beneficial ownership of Common Stock as of May 21, 1999 of (a) each person or group of persons known to the Company to beneficially own more than 5% of the outstanding shares of Common Stock, (b) each director and nominee for director of the Company, (c) each executive officer of the Company listed in the Summary Compensation Table below, and (d) all executive officers and directors of the Company as a group. All information is taken from or based upon ownership filings made by such persons with the Securities and Exchange Commission or upon information provided by such persons to the Company.
Name and Address of Number of Shares Percent Beneficial Owner Beneficially Owned (1) of Class (1) --------------------- ---------------------- ------------ Malcolm I. Glazer 5,893,834(2) 39.61 % 1482 South Ocean Boulevard Palm Beach, Florida 33480 Zapata Corporation 5,877,304 39.50 % P.O. Box 4240 Houston, Texas 77210 Donald P. Kelly 2,070,287(3) 13.91 % 701 Harger Road, Suite 190 Oak Brook, Illinois 60523 F. Edward Gustafson 1,719,177(3)(4)(5) 11.51 % 6855 W. 65th Street Chicago, Illinois 60638 Volk Enterprises, Inc. 1,300,000 8.74 % 1230-1232 South Avenue Turlock, California 95380 Elliott Associates, L.P. 1,136,950 7.64 % Martley International, Inc. Westgate International, L.P. 712 Fifth Avenue, 36th Floor New York, New York 10019
29 32
Name and Address of Number of Shares Percent Beneficial Owner Beneficially Owned(1) of Class(1) ---------------- --------------------- ----------- Peritus Asset Management, Inc. 857,399 5.76 % 315 East Canon Perdido Santa Barbara, California 93101 Robert N. Dangremond 29,063(6) * Gordon S. Donovan 63,763(7) * Avram A. Glazer 16,530(8) * Gregory R. Page 25,914(6) * Stephen M. Schuster 126,791(5)(9) * All directors and executive officers of the Company as a group (7 persons) 7,875,072(10) 52.38 %
- ------------------------- * Less than 1%. (1) Beneficial ownership is calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934 and the rules promulgated thereunder. Accordingly, the "Number of Shares Beneficially Owned" and the "Percent of Class" shown for each person listed in the table are based on the assumption that stock options which are exercisable currently or within 60 days of May 21, 1999, held by such person, have been exercised. Unless otherwise indicated, the persons listed in the table have sole voting and investment power over those securities listed for such person. (2) The ownership indicated includes 1,000 shares subject to stock options owned by Mr. Glazer. The ownership indicated also includes 5,877,304 shares owned by Zapata Corporation ("Zapata"), which shares may be deemed to be beneficially owned by Mr. Glazer because Mr. Glazer is the Chairman of the Board of Zapata and may be deemed to be a controlling stockholder of Zapata. Mr. Glazer disclaims beneficial ownership of such shares. (3) The ownership indicated includes 70,287 shares owned by D.P. Kelly & Associates, L.P. ("DPK"), of which Mr. Kelly and Mr. Gustafson are principals and officers. The general partner of DPK is C&G Management Company, Inc. ("C&G Management"), which is owned by Mr. Kelly and Mr. Gustafson. The ownership indicated also includes 1,300,000 shares owned by Volk Enterprises, Inc. ("Volk"). Volk is controlled by Volk Holdings L.P., whose general partner is Wexford Partners I L.P. ("Wexford Partners"). The general partner of Wexford Partners is Wexford Corporation, which is owned by Mr. Kelly and Mr. Gustafson. Mr. Kelly and Mr. Gustafson share voting and investment power over the shares owned by DPK and Volk. However, Mr. Kelly and Mr. Gustafson each disclaim beneficial ownership of shares owned by DPK and Volk except to the extent of their respective pecuniary interest in such entities. 30 33 (4) The ownership indicated includes 58,334 shares subject to stock options owned by Mr. Gustafson. The ownership indicated also includes 70,619 shares owned by Mr. Gustafson's spouse. Mr. Gustafson does not have or share voting or investment power over the shares owned by his spouse and disclaims beneficial ownership of such shares. (5) The ownership indicated also includes 100,000 and 3,358 shares acquired by Messrs. Gustafson and Schuster, respectively, pursuant to the Viskase Companies, Inc. Parallel Non-Qualified Savings Plan (the "Non-Qualified Plan"). The acquisition of these shares are subject to certain amendments to the Non-Qualified Plan being approved by stockholders at the 1999 Annual Meeting of Stockholders. (6) The ownership indicated includes 5,000 shares subject to stock options owned by each of Messrs. Dangremond and Page. (7) The ownership indicated includes 39,000 shares subject to stock options owned by Mr. Donovan, 8,000 shares held by Mr. Donovan as trustee for the benefit of his spouse, with whom Mr. Donovan shares voting and investment power over such shares, and 1,000 shares owned by Mr. Donovan's spouse. Mr. Donovan does not have or share voting power over the 1,000 shares owned by his spouse. Mr. Donovan disclaims beneficial ownership of the shares held by him as trustee and the shares owned by his spouse. (8) The ownership indicated includes 1,000 shares subject to stock options owned by Mr. Glazer. (9) The ownership indicated includes 45,750 shares subject to stock options owned by Mr. Schuster and 20,104 shares owned by Mr. Schuster's spouse. Mr. Schuster does not have or share voting or investment power over the shares owned by his spouse and disclaims beneficial ownership of such shares. (10) See Footnotes (2), (3), (4), (5), (6), (7), (8) and (9). 31 34 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During fiscal 1996, the Company made payments of approximately $18 to an affiliate of DPK for the use of a jet aircraft on an as-needed basis. During fiscal 1998, 1997 and 1996, the Company purchased product and services from affiliates of DPK in the amounts of approximately $200, $187 and $904, respectively. During fiscal 1998, 1997 and 1996, the Company sublet office space from DPK for which it paid approximately $77, $133, and $139, respectively, in rent. During fiscal 1997 and 1996, the Company reimbursed a non-affiliated medical and benefit plan in the aggregate amount of $34 and $41 for medical claims and benefits of certain officers. During fiscal 1997 and 1996, the Company advanced funds to and made payments on behalf of DPK and Donald P. Kelly in the amounts of $27 and $1, respectively, for legal fees related to litigation for the period when Mr. Kelly was an executive officer of the Company. During fiscal years 1998, 1997 and 1996, Viskase Corporation, a wholly owned subsidiary of the Company, had sales of $21,804, $21,825 and $19,795, respectively, to Cargill, Inc. and its affiliates. Such sales were made in the ordinary course of business. During 1998 Cargill Financial Services Corporation had beneficial ownership of less than 5% of the Company's outstanding Common Stock, and Gregory R. Page, President of the Red Meat Group of Cargill, Inc., is a director of the Company. During fiscal 1996, the Company sold two autos to an affiliate of DPK. The total sum received was $135 and was based on the fair market value of the autos. A gain on the sale of $117 was recognized by the Company. In March 1996, the Company terminated its management agreement with DPK. Upon termination of the agreement, the Company was required to pay the amount of $2,000 to DPK pursuant to provisions in the agreement. In addition to the above amount, the Company paid management fees to DPK during 1996 totaling $193. 32 35 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULE AND REPORTS ON FORM 8-K
(a) 1. Financial statements: PAGE ---- Report of independent accountants F-2 Consolidated balance sheets, December 31, 1998 and December 25, 1997 F-3 Consolidated statements of operations, for each of the 52/53 week periods ending December 31, 1998, December 25, 1997, and December 26, 1996 F-4 Consolidated statements of stockholders' equity, for each of the 52/53 week periods ending December 31, 1998, December 25, 1997, and December 26, 1996 F-5 Consolidated statements of cash flows, for each of the 52/53 week periods ending December 31, 1998, December 25, 1997, and December 26, 1996; F-6 Notes to consolidated financial statements F-7 (a) 2. Financial statement schedules for the 52/53 week periods December 31, 1998, December 25, 1997, and December 26, 1996: II Valuation and qualifying accounts F-55
Schedules other than those listed are omitted because they are not required, are not applicable, or because equivalent information has been included in the financial statements and notes thereto or elsewhere herein. (b) Reports on Form 8-K. None. 33 36 (c) Exhibits:
Exhibit No. Description of Exhibits Page - ----------- ----------------------- ---- 2.1 Debtors First Amended Joint Plan of Reorganization as Twice Modified dated December 15, 1993 of the Company and certain of its subsidiaries (incorporated herein by reference to Exhibit 2 to Form 8-K filed January 19, 1994). * 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to Form 8-K filed January 19, 1994). * 3.2 Certificate of Ownership and Merger of Viskase Companies, Inc. into Envirodyne Industries, Inc. * 3.3 Amended and Restated By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 to Form 8-K filed May 16, 1997). * 4.1 Indenture, dated as of December 31, 1993, between the Company and Bankers Trust Company, as Trustee, relating to the 10-1/4% Notes Due 2001 of the Company including form of 10-1/4% Note Due 2001 (incorporated herein by reference to Exhibit 4.1 to Form 8-K filed January 19, 1994). * 4.2 Indenture, dated as of June 20, 1995 (the "Indenture"), between the Company and Shawmut Bank Connecticut, National Association, as Trustee (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-4 filed July 20, 1995). * 4.3 Forms of the Notes issued pursuant to the Indenture (included in Exhibit 4.2). * 4.4 Guaranty Agreement, dated as of June 20, 1995, made by Clear Shield National, Inc., Sandusky Plastics, Inc., Sandusky Plastics of Delaware, Inc., Viskase Corporation, Viskase Holding Corporation and Viskase Sales Corporation, in favor of BT Commercial Corporation, as Collateral Agent (incorporated herein by reference to Exhibit 4.6 to the Registration Statement on Form S-4 filed July 20, 1995). * 4.5 Pledge Agreement, dated as of June 20, 1995, made by the Company to BT Commercial Corporation, as Collateral Agent (incorporated herein by reference to Exhibit 4.7 to Amendment No. 2 to the Registration Statement on Form S-4 filed September 21, 1995). * 4.6 Security Agreement, dated as of June 20, 1995, made by the Company in favor of BT Commercial Corporation, as Collateral Agent (incorporated herein by reference to Exhibit 4.8 to Amendment No. 2 to the Registration Statement on Form S-4 filed September 21, 1995). * 4.7 Form of Subsidiary Security Agreement, dated as of June 20, 1995, made by each applicable Subsidiary in favor of BT Commercial Corporation, as Collateral Agent (incorporated herein by reference to Exhibit 4.9 to Amendment No. 2 to the Registration Statement on Form S-4 filed September 21, 1995). *
* Previously filed by the Company, incorporated by reference. 34 37
Exhibit No. Description of Exhibits Page - ----------- ----------------------- ---- 4.8 Intellectual Property Security Agreement, dated as of June 20, 1995, made by Viskase Corporation in favor of BT Commercial Corporation, as Collateral Agent (incorporated herein by reference to Exhibit 4.10 to Amendment No. 2 to the Registration Statement on Form S-4 filed September 21, 1995). * 4.9 First Supplemental Indenture, dated as of October 13, 1995, between the Company and Shawmut Bank Connecticut, National Association, as Trustee (incorporated herein by reference to Exhibit 4.11 to Amendment No. 3 to the Registration Statement on Form S-4 filed October 17, 1995). * 4.10 Rights Agreement, dated as of June 26, 1996, between the Company and Harris Trust and Savings Bank, as Rights Agent (incorporated herein by reference to Exhibit 4.1 of Form 8-K dated June 26, 1996). * 4.11 Second Supplemental Indenture, dated as of September 2, 1997, between the Company and Fleet National Bank (formerly Shawmut Bank of Connecticut, National Association), as Trustee (incorporated herein by reference to Exhibit 10.23 to Form 10-Q for the fiscal quarter ended September 25, 1997 filed November 10, 1997). * 4.12 Third Supplemental Indenture, dated as of July 2, 1998, between the Company and State Street Bank and Trust Company of Connecticut, N.A. (formerly or successor to Fleet National Bank and Shawmut Bank of Connecticut, National Association), as Trustee (incorporated herein by reference to Exhibit 10.4 to Form 10-Q for the fiscal quarter ended September 24, 1998 filed November 9, 1998). * 4.13 Fourth Supplemental Indenture, dated as of October 26, 1998, between the Company and State Street Bank and Trust Company of Connecticut, N.A. (formerly Fleet National Bank and previously Shawmut Bank of Connecticut, National Association), as Trustee. ** 10.1 Participation Agreement, dated as of December 18, 1990, among Viskase Corporation, as Lessee, the Company, as Guarantor, General Electric Capital Corporation, as Owner Participant, and The Connecticut National Bank, as Owner Trustee (incorporated herein by reference to Exhibit 10.24 to Form 8-K filed January 22, 1991). * 10.2 Lease Agreement, dated as of December 18, 1990, between The Connecticut National Bank, Owner Trustee, as Lessor and Viskase Corporation, as Lessee (incorporated herein by reference to Exhibit 10.25 to Form 8-K filed January 22, 1991). * 10.3 Appendix A; Definitions relating to the Participation Agreement, the Lease and the Ground Lease (incorporated herein by reference to Exhibit 10.26 to Form 8-K filed January 22, 1991). * 10.4 Ground Lease, dated as of December 18, 1990, between Viskase Corporation, as Ground Lessor, and The Connecticut National Bank, as Ground Lessee (incorporated herein by reference to Exhibit 10.27 to Form 8-K filed January 22, 1991). *
* Previously filed by the Company, incorporated by reference. ** Filed herewith 35 38
Exhibit No. Description of Exhibits Page - ----------- ----------------------- ---- 10.5 Guaranty Agreement, dated as of December 18, 1990, among the Company; Clear Shield National, Inc.; Sandusky Plastics of Delaware, Inc.; Viskase Sales Corporation, all as Guarantors; The Connecticut National Bank, as Owner Trustee; and General Electric Capital Corporation, as Owner Participant (incorporated herein by reference to Exhibit 10.28 to Form 8-K filed January 22, 1991). * 10.6 Trust Agreement, dated as of December 18, 1990, between General Electric Capital Corporation, as Owner Participant, and The Connecticut National Bank, as Owner Trustee (incorporated herein by reference to Exhibit 10.29 to Form 8-K, filed January 22, 1991, of Viskase Companies, Inc.). * 10.7 Non-Employee Directors' Compensation Plan (incorporated herein by reference to Appendix B of the Company's Proxy Statement for its 1996 Annual Meeting of Stockholders).+ * 10.8 1993 Stock Option Plan, as amended and restated through March 27, 1996 (incorporated herein by reference to Appendix A of the Company's Proxy Statement for its 1996 Annual Meeting of Stockholders). + * 10.9 Corporate Office Management Incentive Plan for Fiscal Year 1998. + * 10.10 Viskase Companies, Inc. Parallel Non-Qualified Thrift Plan (incorporated herein by reference to Exhibit 10.35 to Form 10-Q for the fiscal quarter ended June 27, 1991 filed August 12, 1991). + * 10.11 Note Agreement, dated as of June 20, 1995, between the Company and each of the purchasers identified therein (incorporated herein by reference to Exhibit 10.10 to the Registration Statement on Form S-4 filed July 20, 1995). * 10.12 Letter Agreement, dated as of June 20, 1995, between the Company and certain purchasers of the Notes (incorporated herein by reference to Exhibit 10.11 to the Registration Statement on Form S-4 filed July 20, 1995). * 10.13 Intercreditor and Collateral Agency Agreement, dated as of June 20, 1995, among BT Commercial Corporation, The Prudential Insurance Company of America, Shawmut Bank Connecticut, National Association, and certain other parties identified therein (incorporated herein by reference to Exhibit 10.14 to the Registration Statement on Form S-4 filed July 20, 1995). * 10.14 GECC Intercreditor Agreement, dated as of June 20, 1995, among BT Commercial Corporation, General Electric Capital Corporation, Shawmut Bank Connecticut, National Association, the Company and Viskase Corporation (incorporated herein by reference to Exhibit 10.15 to the Registration Statement on Form S-4 filed July 20, 1995). *
+ Management contract or compensatory plan or arrangement. * Previously filed by the Company, incorporated by reference. 36 39
Exhibit No. Description of Exhibits Page - ----------- ----------------------- ---- 10.15 Amended and Restated Employment Agreement, effective March 27, 1996, between the Company and F. Edward Gustafson (incorporated herein by reference to Exhibit 10.20 to Form 10-Q for the fiscal quarter ended June 25, 1998 filed August 10, 1998).+ * 10.16 Corporate Office Severance Pay Policy (incorporated herein by reference to Exhibit 10.21 to Form 10-Q for the fiscal quarter ended June 26, 1997 filed August 11, 1997).+ * 10.17 Stock Purchase Agreement, dated June 5, 1998, between the Company and Solo Cup Company, as amended (incorporated herein by reference to Exhibit 2 to Form 8-K filed August 10, 1998). * 10.18 Amended and Restated Credit Agreement, dated June 1, 1998, among the Company, the Lenders identified therein and BT Commercial Corporation, as Agent (incorporated herein by reference to Exhibit 10.14 to Form 10-Q for the fiscal quarter ended June 25, 1998 filed August 10, 1998). * 10.19 Amendment, dated July 2, 1998, to the Amended and Restated Credit Agreement, dated June 1, 1998, among the Company, the Lenders identified therein and BT Commercial Corporation, as Agent (incorporated herein by reference to Exhibit 10.14 to Form 10-Q for the fiscal quarter ended September 24, 1998 filed November 9, 1998). * 10.20 Amendment No. 2, dated October 26, 1998, to the Amended and Restated Credit Agreement, dated June 1, 1998, among the Company, the Lenders identified therein and BT Commercial Corporation, as Agent. ** 10.21 Letter Agreement, dated July 14, 1998, between the Company and Stephen M. Schuster. + ** 21.1 Subsidiaries of the registrant. ** 23.1 Consent of Independent Accountants. **
+ Management contract or compensatory plan or arrangement. * Previously filed by the Company, incorporated by reference. ** Filed herewith. (d) Financial statement schedules required by Regulation S-X. Index to financial statements of Viskase Holding Corporation and subsidiaries. F-1
37 40 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VISKASE COMPANIES, INC. -------------------------------------- (Registrant) By: /s/ ------------------------------- F. Edward Gustafson Chairman, Chief Executive Officer and President By: /s/ ------------------------------- Gordon S. Donovan Vice President, Chief Financial Officer and Treasurer Date: June 17, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on this 17th day of June, 1999. /s/ /s/ - ---------------------------------- --------------------------------- F. Edward Gustafson Gordon S. Donovan Chairman of the Board, Chief Vice President, Chief Financial Executive Officer and President Officer and Treasurer (Principal (Principal Executive Officer) Financial and Accounting Officer) /s/ /s/ - ---------------------------------- --------------------------------- Robert N. Dangremond (Director) Avram A. Glazer (Director) /s/ /s/ - ---------------------------------- --------------------------------- Malcolm I. Glazer (Director) Gregory R. Page (Director) 38 41 VISKASE COMPANIES, INC. AND SUBSIDIARIES INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Report of independent accountants...........................................F-2 Consolidated balance sheets, December 31, 1998 and December 25, 1997.........................................................F-3 Consolidated statements of operations, for each of the 52/53 week periods ending December 31, 1998, December 25, 1997, and December 26, 1996.........................................................F-4 Consolidated statements of stockholders' equity, for each of the 52/53 week periods ending December 31, 1998, December 25, 1997, and December 26, 1996.....................................................F-5 Consolidated statements of cash flows, for each of the 52/53 week periods ending December 31, 1998, December 25, 1997, and December 26, 1996.........................................................F-6 Notes to consolidated financial statements..................................F-7 FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION S-X VISKASE HOLDING CORPORATION AND SUBSIDIARIES Consolidated Financial Statements: Report of independent accountants..........................................F-38 Consolidated balance sheets, December 31, 1998 and December 25, 1997........................................................F-39 Consolidated statements of operations, for each of the 52/53 week periods ending December 31, 1998, December 25, 1997, and December 26, 1996........................................................F-40 Consolidated statements of stockholders' equity, for each of the 52/53 week periods ending December 31, 1998, December 25, 1997, and December 26, 1996....................................................F-41 Consolidated statements of cash flows, for each of the 52/53 week periods ending December 31, 1998, December 25, 1997, and December 26, 1996;.......................................................F-42 Notes to consolidated financial statements.................................F-43 Schedule II - Valuation and Qualifying Accounts..............................F-55 Exhibit 21.1 Subsidiaries of the Registrant..................................F-56 Exhibit 23.1 Consent of Independent Accountants..............................F-57
F-1 42 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Viskase Companies, Inc. In our opinion, the consolidated financial statements listed in the index appearing under 14 (a) (1) on page 33 present fairly, in all material respects, the financial position of Viskase Companies, Inc. and its subsidiaries (the "Company") at December 31, 1998 and December 25, 1997, and the results of their operations and their cash flows for the periods December 26, 1997 to December 31, 1998, December 27, 1996 to December 25, 1997, and December 29, 1995 to December 26, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14 (a) (2) on page 33 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Chicago, Illinois April 15, 1999, except as to the information presented in Note 25 for which the date is June 15, 1999 F-2 43 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, December 25, 1998 1997 ------------ ------------ (in thousands) ASSETS Current assets: Cash and equivalents $ 9,028 $ 24,407 Receivables, net 47,718 75,039 Inventories 93,228 97,802 Other current assets 15,337 25,286 ---------- ---------- Total current assets 165,311 222,534 Property, plant and equipment, including those under capital leases 475,525 580,981 Less accumulated depreciation and amortization 145,680 145,855 ---------- ---------- Property, plant and equipment, net 329,845 435,126 Deferred financing costs, net 1,198 4,574 Other assets 34,715 39,193 Excess reorganization value, net 112,426 ---------- ---------- Total Assets $ 531,069 $ 813,853 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligations under capital leases $ 16,120 $ 12,880 Accounts payable 36,337 41,734 Accrued liabilities 62,319 71,589 Current deferred income taxes 8,810 10,516 ---------- ---------- Total current liabilities 123,586 136,719 Long-term debt including obligations under capital leases 388,880 511,183 Accrued employee benefits 48,115 48,521 Deferred and noncurrent income taxes 26,395 26,510 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 14,859,467 shares issued and outstanding at December 31, 1998 and 14,753,442 shares at December 25, 1997 149 148 Paid in capital 136,715 136,183 Accumulated (deficit) (197,454) (48,458) Foreign currency translation adjustment 4,693 3,098 Unearned restricted stock issued for future service (10) (51) Total stockholders' equity (deficit) (55,907) 90,920 ---------- ---------- Total Liabilities and Stockholders' Equity $ 531,069 $ 813,853 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. F-3 44 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
53 weeks 52 weeks 52 weeks December 26, December 27, December 29, 1997 to 1996 to 1995 to December 31, December 25, December 26, 1998 1997 1996 ------------ ------------ ------------ (in thousands, except for number of shares and per share amounts) NET SALES $ 409,169 $ 498,333 $ 534,420 COSTS AND EXPENSES Cost of sales 307,913 366,744 391,221 Selling, general and administrative 84,159 91,722 92,048 Amortization of intangibles and excess reorganization value 11,655 14,138 14,320 Unusual charge 150,069 3,500 ------------ ------------ ------------ OPERATING (LOSS) INCOME (144,627) 22,229 36,831 Interest income 1,531 1,416 1,568 Interest expense 51,364 55,617 58,458 Other expense, net 1,217 2,064 2,705 ------------ ------------ ------------ (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES (195,677) (34,036) (22,764) Income tax (benefit) (14,004) (23,674) (8,184) ------------ ------------ ------------ NET (LOSS) FROM CONTINUING OPERATIONS (181,673) (10,362) (14,580) DISCONTINUED OPERATIONS: Income from discontinued operations net of income taxes (Note 12) 413 717 898 Gain on sale of discontinued operations net of income tax provision of $19,556 39,057 ------------ ------------ ------------ NET (LOSS) BEFORE EXTRAORDINARY ITEM (142,203) (9,645) (13,682) Extraordinary (loss) on early extinguishment of debt net of income tax (benefit) of $(4,343) (6,793) ------------ ------------ ------------ NET (LOSS) (148,996) (9,645) (13,682) ------------ ------------ ------------ Other comprehensive income (loss), net of tax Foreign currency translation adjustments 973 (2,566) 48 ------------ ------------ ------------ COMPREHENSIVE LOSS $ (148,023) $ (12,211) $ (13,634) ============ ============ ============ WEIGHTED AVERAGE COMMON SHARES 14,824,885 14,617,540 14,325,595 ============ ============ ============ PER SHARE AMOUNTS: Earnings (loss) per share - basic and diluted Continuing operations $ (12.25) $ (.71) $ (1.02) DISCONTINUED OPERATIONS: Income from discontinued operations .03 .05 .06 Gain on sale from discontinued operations 2.63 . ------------ ------------ ------------ Net (loss) before extraordinary item (9.59) (.66) (.96) Extraordinary (loss) (.46) ------------ ------------ ------------ NET (LOSS) $ (10.05) $ (.66) $ (.96) ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. F-4 45 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unearned Foreign Restricted Accumu- Currency Stock Common Paid in lated Translation Issued For Total Stock Capital (Deficit) Adjustment Future Service Equity(Deficit) --------- --------- --------- ---------- -------------- --------------- (in thousands) Balance December 28, 1995 $ 136 $ 134,864 $ (25,131) $7,227 $117,096 Net (loss) (13,682) (13,682) Issuance of Common Stock 9 236 $ (92) 153 Other comprehensive income 78 78 --------- --------- --------- ------ --------- --------- Balance December 26, 1996 145 135,100 (38,813) 7,305 (92) 103,645 Net (loss) (9,645) (9,645) Issuance of Common Stock 3 1,083 41 1,127 Other comprehensive (loss) (4,207) (4,207) --------- --------- --------- ------ --------- --------- Balance December 25, 1997 148 136,183 (48,458) 3,098 (51) 90,920 Net (loss) (148,996) (148,996) Issuance of Common Stock 1 532 41 574 Other comprehensive income 1,595 1,595 --------- --------- --------- ------ --------- --------- Balance December 31, 1998 $ 149 $ 136,715 $(197,454) $4,693 $ (10) $ (55,907) ========= ========= ========= ====== ========= =========
The accompanying notes are an integral part of the consolidated financial statements. F-5 46 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
December 26, December 27, December 29, 1997 to 1996 to 1995 to December 31, December 25, December 26, 1998 1997 1996 ------------- ------------- ------------- (in thousands) Cash flows from operating activities: Net (Loss) $ (148,996) $ (9,645) $ (13,682) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation and amortization under capital leases 39,519 43,373 42,086 Amortization of intangibles and excess reorganization value 11,655 15,936 16,334 Amortization of deferred financing fees and discount 1,772 1,770 2,272 (Decrease) in deferred and noncurrent income taxes (611) (24,893) (11,065) Foreign currency transaction loss (gain) (15) 135 (810) (Gain) loss on disposition of assets (58,562) (64) 165 Bad debt provision 1,295 665 659 Impairment of excess reorganization value 91,169 Net property, plant and equipment write off 41,765 Extraordinary loss on debt extinguishment 11,136 Changes in operating assets and liabilities: Receivables 19,587 1,890 10,893 Inventories (15,952) (12,187) 4,383 Other current assets 7,571 (3,916) (788) Accounts payable and accrued liabilities (9,537) (2,283) 12,463 Other (10,229) (5,135) (6,586) ------------- ------------- ------------- Total adjustments 130,563 15,291 70,006 ------------- ------------- ------------- Total net cash provided by (used in) operating activities (18,433) 5,646 56,324 Cash flows from investing activities: Capital expenditures (35,354) (57,879) (37,073) Proceeds from disposition of assets 164,236 41,867 2,356 ------------- ------------- ------------- Net cash provided by (used in) investing activities 128,882 (16,012) (34,717) Cash flows from financing activities: Issuance of common stock 574 1,127 153 Proceeds from revolving loan and long-term borrowings 1,475 2,814 2,186 Deferred financing costs (605) (523) (142) Repayment of revolving loan, long-term borrowings and capital lease obligations (118,173) (9,490) (11,705) Premium on early extinguishment of debt (8,927) ------------- ------------- ------------- Net cash (used in) financing activities (125,656) (6,072) (9,508) Effect of currency exchange rate changes on cash (172) (949) (630) ------------- ------------- ------------- Net (decrease) increase in cash and equivalents (15,379) (17,387) 11,469 Cash and equivalents at beginning of period 24,407 41,794 30,325 ------------- ------------- ------------- Cash and equivalents at end of period $ 9,028 $ 24,407 $ 41,794 ============= ============= =============
Supplemental cash flow information and noncash investing and financing activities: Interest paid $ 50,757 $ 54,937 $ 55,798 Income taxes paid $ 4,535 $ 5,291 $ 1,647 Capital lease obligations (machinery and equipment) $ 1,475 $ 2,814 $ 2,186
The accompanying notes are an integral part of the consolidated financial statements. F-6 47 VISKASE COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS Viskase Companies, Inc. manufactures food packaging products through its Viskase subsidiaries. The operations of these subsidiaries are primarily in North and South America and Europe. Viskase is a leading producer of cellulosic casings used in preparing and packaging processed meat products and is a major producer of heat shrinkable plastic bags and specialty films for packaging and preserving fresh and processed meat products, poultry and cheeses. International Operations Viskase has six manufacturing facilities located outside the continental United States, in Beauvais, France; Thaon, France; Lindsay, Ontario, Canada; Newton Aycliffe, England; Swansea, Wales and Guarulhos, Brazil. The aggregate of domestic exports and net sales of foreign operations represents approximately 55% of Viskase's total net sales. International sales and operations may be subject to various risks including, but not limited to, possible unfavorable exchange rate fluctuations, political instability, governmental regulations (including import and export controls), restrictions on currency repatriation, embargoes, labor relations laws and the possibility of governmental expropriation. Viskase's foreign operations generally are subject to taxes on the repatriation of funds. International operations in certain parts of the world may be subject to international balance of payments difficulties which may raise the possibility of delay or loss in the collection of accounts receivable from sales to customers in those countries. Viskase believes that its allowance for doubtful accounts makes adequate provision for the collectibility of its receivables. Management believes that growth potential exists for many of Viskase's products outside the United States and that Viskase is well positioned to participate in these markets. Sales and Distribution Viskase sells its products in virtually every country in the world with principal markets in North America, Europe, Latin America and Asia Pacific. In the United States, Viskase has a staff of technical sales teams responsible for sales to fresh meat, processed meat and poultry producers. Approximately 75 distributors market Viskase products to customers in Europe, Africa, Middle East Asia, and Latin America. Its products are marketed through its own subsidiaries in the United Kingdom, Germany, France, Italy, Brazil, Chile, Canada and Poland. In the United States, Viskase operates distribution centers in Chicago, Illinois; Atlanta, Georgia; and Bensalem, Pennsylvania; as well as a center within the Pauls Valley, Oklahoma, plant. In Latin America, Viskase operates a service center within the Guarulhos, Brazil, plant and a distribution center in Santiago, Chile. In Europe, Viskase operates service centers in Caronne, Italy and Pulheim, Germany and distribution centers in Dublin, Ireland, and Warsaw, Poland. F-7 48 Competition Viskase is one of the world's leading producers of cellulosic casings and a major producer of specialty plastic films. From time to time, Viskase experiences reduced market share or reduced profits due to price competition. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) Basis of presentation Effective in 1990 Viskase Companies, Inc. and its subsidiaries (the Company) adopted a 52/53 week fiscal year ending on the last Thursday of December. (B) Principles of consolidation The consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated in consolidation. (C) Reclassification Reclassifications have been made to the prior years' financial statements to conform to the 1998 presentation. (D) Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. (E) Cash equivalents (dollars in thousands) For purposes of the statement of cash flows, the Company considers cash equivalents to consist of all highly liquid debt investments purchased with an initial maturity of approximately three months or less. Due to the short-term nature of these instruments, the carrying values approximate the fair market value. Cash equivalents include $2,843 and $18,612 of short-term investments at December 31, 1998 and December 25, 1997, respectively. (F) Inventories Domestic inventories are valued primarily at the lower of last-in, first-out (LIFO) cost or market. Remaining amounts, primarily foreign, are valued at the lower of first-in, first-out (FIFO) cost or market. (G) Property, plant and equipment Property, plant and equipment are carried at cost less accumulated depreciation. Property and equipment additions include acquisition of property and equipment and costs incurred for computer software purchased for internal use including related external direct costs of materials and services and payroll costs for employees who are directly associated with the project. Depreciation is computed on the straight-line method over the estimated useful lives F-8 49 of the assets ranging from 2 to 32 years. Upon retirement or other disposition, cost and related accumulated depreciation are removed from the accounts, and any gain or loss is included in results of operations. (H) Deferred financing costs Deferred financing costs are amortized on a straight-line basis over the expected term of the related debt agreement. Amortization of deferred financing costs is classified as interest expense. (I) Patents Patents are amortized on the straight-line method over an estimated average useful life of ten years. Patent defense costs are capitalized and will be written off at the time of settlement. (J) Excess reorganization value, net Excess reorganization value is amortized on the straight-line method over 15 years. During 1998, based on an evaluation of long-lived assets, the Company wrote off the balance of $91.2 million for the excess reorganization value. Accumulated amortization of excess reorganization value totaled $41 million at December 25, 1997. (K) Long-lived assets The Company continues to evaluate the recoverability of long-lived assets including property, plant and equipment and patents. Impairments are recognized when the expected consolidated undiscounted future operating cash flows derived from long-lived assets are less than their carrying value. If impairment is identified, valuation techniques deemed appropriate under the particular circumstances will be used to determine the asset's fair value. The loss will be measured based on the excess of carrying value over the determined fair value. The review for impairment is performed at least once a year. (L) Pensions and other postretirement benefits The North American operations of Viskase and the Company's operations in Europe have defined benefit retirement plans covering substantially all salaried and full time hourly employees. Pension cost is computed using the projected unit credit method. The Company's funding policy is consistent with funding requirements of the applicable federal and foreign laws and regulations. The North American operations of Viskase have postretirement health care and life insurance benefits. Effective January 1, 1993, postretirement benefits other than pensions are accounted for in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions." During 1998 the Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." (M) Income taxes Income taxes are accounted for in accordance with SFAS No. 109. Tax provisions and benefits are recorded at statutory rates for taxable items included in the consolidated statements of operations regardless of the period for which such items are reported for tax F-9 50 purposes. Deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities. (N) Net (loss) per share Net (loss) per share of common stock is based upon the weighted average number of shares of common stock outstanding during the year. No effect has been given to options outstanding under the Company's stock option plans and warrants issued pursuant to the Plan of Reorganization as their effect is anti-dilutive. (O) Other comprehensive income During 1998 the Company adopted SFAS No. 130, "Reporting Comprehensive Income," which requires the Company to disclose comprehensive income in addition to net income. Comprehensive income includes all other non-shareholder changes in equity. As of December 31, 1998, all such changes in equity resulted from changes in foreign currency translation adjustments. (P) Revenue recognition Sales to customers are recorded at the time of shipment net of discounts and allowances. (Q) Foreign currency contracts The Company uses foreign exchange forward contracts to hedge some of its non-functional currency receivables and payables which are denominated in major currencies that can be traded on open markets. This strategy is used to reduce the overall exposure to the effects of currency fluctuations on cash flows. The Company's policy is not to speculate in financial instruments. Receivables and payables which are denominated in non-functional currencies are translated to the functional currency at month end and the resulting gain or loss is taken to other income and expense on the statement of operations. Gains and losses on hedges of receivables and payables are marked to market. The result is recognized in other income and expense on the statement of operations. (R) Stock-based compensation SFAS No. 123 "Accounting for Stock-Based Compensation" encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options and other equity instruments to employees based on new fair value accounting rules. Although expense recognition for employee stock-based compensation is not mandatory, SFAS 123 requires companies that choose not to adopt the new fair value accounting to disclose pro forma net income and earnings per share under the new method. The Company has not adopted fair value accounting, and, accordingly, no compensation cost has been recognized for employee stock-based compensation. The Company has complied with the disclosure requirements of SFAS 123 (refer to Note 18). (S) Segment reporting During 1998 the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which has had no effect on the Company's financial reporting. F-10 51 (T) Accounting standards The Company will implement the provisions of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), which will be effective for all fiscal quarters of fiscal years beginning after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires recognition of all derivative instruments as either assets or liabilities in the balance sheet and the measurement of those instruments at fair value. Management believes the adoption of SFAS No. 133 will not have a significant effect on the Company's financial statements. 3. RECEIVABLES (dollars in thousands) Receivables consisted primarily of trade accounts receivable and were net of allowances for doubtful accounts of $1,507 and $1,275 at December 31, 1998, and at December 25, 1997, respectively. Viskase Companies, Inc. has a broad base of customers, with no single customer accounting for more than 6% of sales. 4. INVENTORIES (dollars in thousands) Inventories consisted of:
December 31, December 25, 1998 1997 ------------ ------------ Raw materials $ 10,500 $ 16,847 Work in process 38,291 29,297 Finished products 44,437 51,658 --------- --------- $ 93,228 $ 97,802 ========= =========
Approximately 58% and 59% of the Company's inventories at December 31, 1998, and December 25, 1997, respectively, were valued at LIFO. These LIFO values exceeded current manufacturing cost by approximately $7,711 and $6,500 at December 31, 1998, and December 25, 1997, respectively. Inventories were net of reserves for obsolete and slow moving inventory of $3,825 and $4,470 at December 31, 1998, and December 25, 1997, respectively. Raw materials used by Viskase include cellulose (from wood pulp), fibrous paper, petroleum based resins, plasticizers and various other chemicals. Viskase generally purchases its raw materials from a single or small number of suppliers with whom it maintains good relations. Certain primary and alternative sources of supply are located outside the United States. Viskase believes, but there can be no assurance, that adequate alternative sources of supply currently exist for all of Viskase's raw materials or raw material substitutes that Viskase could modify its processes to utilize. F-11 52 5. PROPERTY, PLANT AND EQUIPMENT (dollars in thousands)
December 31, December 25, 1998 1997 --------- --------- Property, plant and equipment: Land and improvements $ 7,579 $ 10,669 Buildings and improvements 55,694 75,359 Machinery and equipment 291,578 312,475 Construction in progress 31,737 42,785 Capital leases: Machinery and equipment 88,937 139,693 --------- --------- $ 475,525 $ 580,981 ========= =========
Capitalized interest in 1998, 1997 and 1996 is $2,425, $2,110, and $873, respectively. Maintenance and repairs charged to costs and expenses for 1998, 1997, and 1996 aggregated $30,096, $32,584 and $34,887, respectively. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Estimated useful lives of land and improvements range from 15 to 30 years; building and improvements range from 10 to 32 years; and machinery and equipment including capital leases range from 2 to 15 years. 6. OTHER ASSETS (dollars in thousands) Other assets were comprised of:
December 31, December 25, 1998 1997 --------- --------- Patents $ 50,000 $ 50,050 Less accumulated amortization 25,000 20,000 --------- --------- Patents, net 25,000 30,050 Other 9,715 9,143 --------- --------- $ 34,715 $ 39,193 ========= =========
Patents are amortized on the straight-line method over an estimated average useful life of ten years. Patent defense costs capitalized in 1998 and 1997 are $4,644 and $4,140, respectively. 7. ACCRUED LIABILITIES (dollars in thousands) Accrued liabilities were comprised of:
December 31, December 25, 1998 1997 --------- --------- Compensation and employee benefits $ 27,645 $ 32,778 Taxes 6,339 7,830 Accrued volume and sales discounts 10,460 14,315 Other 17,875 16,666 --------- --------- $ 62,319 $ 71,589 ========= =========
F-12 53 8. DEBT OBLIGATIONS (dollars in thousands) As discussed in Subsequent Events (refer to Note 25), the Company entered into a $100,000 Senior Secured Credit Facility and $35,000 of Junior Term Loans in June 1999. The proceeds were used to redeem the 12% Senior Secured Notes and the existing Revolving Credit Facility. The 12% Senior Secured Notes have been reclassified to long-term debt based upon the Company's refinancing of obligations on a long-term basis. On June 20, 1995, Viskase Companies, Inc. completed the sale of $160,000 aggregate principal amount of senior secured notes (Senior Secured Notes) to certain institutional investors in a private placement. The senior secured notes were issued pursuant to an indenture dated June 20, 1995 (Indenture) and consist of (i) $151,500 of 12% Senior Secured Notes due 2000 and (ii) $8,500 of Floating Rate Senior Secured Notes due 2000 (collectively, the Senior Secured Notes). Viskase Companies, Inc. used the net proceeds of the offering primarily to (i) repay the Company's $86,125 domestic term loan, (ii) repay the $68,316 of obligations under the Company's domestic and foreign revolving loans and (iii) pay transaction fees and expenses. Concurrently with the June 20, 1995 placement, Viskase Companies, Inc. entered into a new $20,000 domestic revolving credit facility (Revolving Credit Facility) and a new $28,000 letter of credit facility (Letter of Credit Facility). The Senior Secured Notes and the obligations under the existing Revolving Credit Facility and the Letter of Credit Facility are guaranteed by Viskase Companies, Inc.'s significant domestic subsidiaries and collateralized by a collateral pool (Collateral Pool) comprised of: (i) all domestic accounts receivable (including intercompany receivables) and inventory; (ii) all patents, trademarks and other intellectual property (subject to non-exclusive licensing agreements); (iii) substantially all domestic fixed assets (other than assets subject to a lease agreement with General Electric Capital Corporation); and (iv) a senior pledge of 100% of the capital stock of Viskase Companies, Inc.'s significant domestic subsidiaries and 65% of the capital stock of Viskase Europe Limited. Such guarantees and security are shared by the holders of the Senior Secured Notes and the holders of the obligations under the Revolving Credit Facility on a pari passu basis pursuant to an intercreditor agreement. Pursuant to such intercreditor agreement, the security interest of the holders of the obligations under the Letter of Credit Facility has priority over all other liens in the Collateral Pool. The $151,500 tranche of Senior Secured Notes bears interest at a rate of 12% per annum and the $8,500 tranche bears interest at a rate equal to the six month London Interbank Offered Rate (LIBOR) plus 575 basis points. The current interest rate on the floating rate tranche is approximately 10.8%. The interest rate on the floating rate tranche is reset semi-annually on June 15 and December 15. Interest on the Senior Secured Notes is payable each June 15 and December 15. The Company recognized an extraordinary loss of $11,136 representing the write-off of deferred financing fees and premium paid related to the August 1998 early extinguishment of $105,000 of the Senior Secured Notes. The extraordinary loss, net of applicable income taxes of $4,343, was included in the Company's Statement of Operations for the quarter ended June 29, 1998. On June 15, 1999, $55,000 of the aggregate principal amount of the Senior Secured Notes is subject to a mandatory redemption. (Refer to Note 25) The Company finances its working capital needs through a combination of cash generated through operations and borrowings under the existing Revolving Credit Facility. The availability of funds under the existing Revolving Credit Facility is subject to the Company's compliance with certain covenants, including borrowing base limitations measured by F-13 54 accounts receivable and inventory of the Company and reserves which may be established at the discretion of the lenders. There are no drawings under the existing Revolving Credit Facility at December 31, 1998. The available borrowing capacity under the existing Revolving Credit Facility was $30,000 at December 31, 1998. The Company's Senior Secured Notes, existing Revolving Credit Facility and Letter of Credit Facility contain a number of financial convenants that, among other things, require the maintenance of a minimum level of tangible net worth, maximum ratios of debt and senior debt to total capitalization, and a minimum fixed charge coverage. The Company solicited and has received the required consents from the holders of Senior Secured Notes for an amendment to, and waiver under, the Indenture effective as of December 31, 1998. In addition, the Company has amended and received a similar waiver under the Amended and Restated Credit Agreement. The Company determined that, without the amendment and waiver, it would not have been in compliance at December 31, 1998 with the covenant level for the minimum fixed charge coverage ratio. As of December 31, 1998, the Company is in compliance with the amended covenant under the Indenture and Amended and Restated Credit Agreement. In the event that there is Excess Cash Flow (as defined) in excess of $5,000 in any fiscal year, the Company will be required to make an offer to purchase Senior Secured Notes together with any borrowed money obligations outstanding under the Revolving Credit Facility, on a pro rata basis, in an amount equal to the Excess Cash Flow at a purchase price of 100% plus any accrued interest to the date of purchase. There was no Excess Cash Flow for fiscal 1998. The Senior Secured Notes are redeemable, in whole or from time to time in part, at Viskase Companies, Inc.'s option, at the greater of (i) the outstanding principal amount or (ii) the present value of the expected future cash flows from the Senior Secured Notes discounted at a rate equal to the Treasury Note yield corresponding closest to the remaining average life of the Senior Secured Notes at the time of prepayment plus 100 basis points; plus accrued interest thereon to the date of purchase. Upon the occurrence of a Change of Control (which includes the acquisition by any person of more than 50% of Viskase Companies, Inc.'s Common Stock), each holder of the Senior Secured Notes has the right to require the Company to repurchase such holder's Senior Secured Notes at a price equal to the greater of (i) the outstanding principal amount or (ii) the present value of the expected cash flows from the Senior Secured Notes discounted at a rate equal to the Treasury Note yield corresponding closest to the remaining average life of the Senior Secured Notes at the time of prepayment plus 100 basis points; plus accrued interest thereon to the date of purchase. The 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 or redeem or repurchase common stock, (ii) the incurrence of indebtedness, (iii) the creation of liens, (iv) certain affiliate transactions and (v) the ability to consolidate with or merge into another entity and to dispose of assets. Borrowings under the existing Revolving Credit Facility bear interest at a rate per annum equal to the three month London Interbank Offered Rate (LIBOR) on the first day of each calendar quarter plus 275 basis points. The existing Revolving Credit Facility expires on June 15, 1999. The Letter of Credit Facility expires on June 15, 1999. Fees on the outstanding amount of letters of credit are 2.0% per annum, with an issuance fee of 0.5% on the face amount of the F-14 55 letter of credit. There is a commitment fee of 0.5% per annum on the unused portion of the Letter of Credit Facility. (Refer to Note 25) The $219,262 principal amount of 10-1/4% Notes were issued pursuant to an Indenture dated as of December 31, 1993 (10-1/4% Note Indenture) between Viskase Companies, Inc. and Bankers Trust Company, as Trustee. The 10-1/4% Notes are the unsecured senior obligations of Viskase Companies, Inc., bear interest at the rate of 10-1/4% per annum, payable on each June 1 and December 1, and mature on December 1, 2001. The 10-1/4% Notes are redeemable, in whole or from time to time in part, at the option of Viskase Companies, Inc., at the percentages of principal amount specified below plus accrued and unpaid interest to the redemption date, if the 10-1/4% Notes are redeemed during the twelve-month period commencing on January 1 of the following years:
Year Percentage ---- ---------- 1999 101% 2000 and thereafter 100%
The 10-1/4% Note Indenture contains covenants with respect to Viskase Companies, Inc. and its subsidiaries limiting (subject to a number of important qualifications), among other things, (i) the ability to pay dividends on or redeem or repurchase capital stock, (ii) the incurrence of indebtedness, (iii) certain affiliate transactions and (iv) the ability of the Company to consolidate with or merge with or into another entity or to dispose of substantially all its assets. Outstanding short-term and long-term debt consisted of:
December 31, December 25, 1998 1997 ------------ ------------ Short-term debt, current maturity of long-term debt and capital lease obligations: Current maturity of Viskase Capital Lease Obligation $ 13,031 $ 9,675 Current maturity of Viskase Limited Term Loan (3.2%) 1,742 1,629 Other 1,347 1,576 --------- --------- Total short-term debt $ 16,120 $ 12,880 Long-term debt: 12% Senior Secured Notes due 1999 $ 55,000 $ 160,000 10.25% Senior Notes due 2001 219,262 219,262 Viskase Capital Lease Obligation 111,842 124,873 Viskase Limited Term Loan (3.2%) 868 2,443 Other 1,908 4,605 --------- --------- Total long-term debt $ 388,880 $ 511,183 ========= =========
The fair value of the Company's debt obligation (excluding capital lease obligations) is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for the debt of the same remaining maturities. At December 31, 1998, the carrying amount and estimated fair value of debt obligations (excluding capital lease obligations) were $276,937 and $235,415, respectively. The average interest rate on short-term borrowing during 1998 was 8.75%. F-15 56 On December 28, 1990, Viskase and GECC entered into a sale and leaseback transaction. The sale and leaseback of assets included the production and finishing equipment at Viskase's four domestic casing production and finishing facilities. The facilities are located in Chicago, Illinois; Loudon, Tennessee; Osceola, Arkansas and Kentland, Indiana. Viskase, as the Lessee under the relevant agreements, will continue to operate the facilities in Loudon, Tennessee; Osceola, Arkansas and Kentland, Indiana. The Chicago facility has been written down to net realizable value due to business conditions leading to the Viskase plan of restructuring. (See Note 11) Sales proceeds on the sale-leaseback transaction were $171.5 million; proceeds were used to repay approximately $154 million of bank debt and a $15 million convertible note outstanding at the time. The lease has been accounted for as a capital lease. The principal terms of the sale and leaseback transaction include: (a) a 15-year basic lease term (plus selected renewals at Viskase's option); (b) annual rent payments in advance beginning in February 1991; and (c) a fixed price purchase option at the end of the basic 15-year term and fair market purchase options at the end of the basic term and each renewal term. Further, the Lease Documents contain covenants requiring maintenance by the Company of certain financial ratios and restricting the Company's ability to pay dividends, make payments to affiliates, make investments and incur indebtedness. Annual rental payments under the Lease were approximately $21.4 million through 1998, and will be $23.5 million through the end of the basic 15-year term. Viskase is required to provide credit support consisting of a standby letter of credit in an amount up to one year's rent through at least 1997. This credit support can be reduced up to $4 million currently if the Company achieves and maintains certain financial ratios. As of December 31, 1998, the Company had met the required financial ratios and the letter of credit has been reduced by $4 million. The letter can be further reduced in 1999 or eliminated if the Company achieves and maintains certain financial ratios. Viskase Companies, Inc. and its other principal subsidiaries guaranteed the obligations of Viskase under the Lease. The 1999 GECC lease payment of $23.5 million was paid on March 1, 1999. Principal payments under the capital lease obligations for the years ended 1999 through 2003 range from approximately $13.0 million to $19.3 million. The following is a schedule of minimum future lease payments under all capital lease obligations together with the present value of the net minimum lease payments as of December 31, 1998: Year ending December 1999 $23,499 2000 23,499 2001 23,499 2002 23,499 2003 23,499 Thereafter 46,998 --------- Net minimum lease payments 164,493 Less: Amount representing interest (39,620) --------- $124,873 ========
F-16 57 Aggregate maturities of remaining long-term debt for each of the next five fiscal years, after reflecting the refinancing in Note 25, are: Total ------- 1999 $16,120 2000 23,112 2001 283,635 2002 17,857 2003 19,411
9. OPERATING LEASES (dollars in thousands) The Company has operating lease agreements for machinery, equipment and facilities. The majority of the facilities leases require the Company to pay maintenance, insurance and real estate taxes. Future minimum lease payments for operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 1998, are: 1999 $1,820 2000 1,185 2001 721 2002 437 2003 363 Total thereafter ------ Total minimum lease payments $4,526 ======
Total rent expense during 1998, 1997 and 1996 amounted to $3,497, $4,506, and $5,026, respectively. 10. RETIREMENT PLANS The Company and its subsidiaries have defined contribution and defined benefit plans varying by country and subsidiary. At December 31, 1998, the North American operations of Viskase maintained several non-contributory defined benefit retirement plans. The Viskase plans cover substantially all salaried and full-time hourly employees, and benefits are based on final average compensation and years of credited service. The Company's policy is to fund the minimum actuarially computed annual contribution required under the Employee Retirement Income Security Act of 1974 (ERISA). As of the Viskase acquisition date, the former owner assumed the liability for the accumulated benefit obligation under its plans. The effect of expected future compensation increases on benefits accrued is recorded as a liability on the Company's consolidated balance sheet. F-17 58 PENSIONS AND OTHER POSTRETIREMENT BENEFITS PLANS - NORTH AMERICA (dollars in thousands):
Pension Benefits Other Benefits --------------------------- --------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- CHANGE IN BENEFIT OBLIGATION Projected benefit obligation at beginning of year $ 88,939 $ 74,957 $ 29,958 $ 27,316 Plan Amendment 1,164 Service cost 3,695 3,783 739 733 Interest cost 6,599 6,043 2,179 2,052 Actuarial losses 8,945 8,707 2,749 1,429 Benefits paid (3,786) (3,623) (761) (683) Effect of special termination benefits 901 226 Effect of settlement/curtailments (2,817) (935) (1,574) (787) Translation (306) (219) (147) (102) ----------- ----------- ----------- ----------- Benefit obligation at end of year 103,334 88,939 33,143 29,958 CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 65,671 51,866 Actual return on plan assets 6,779 9,912 Employer contribution 8,316 7,778 708 640 Transfer from other plan 296 Benefits paid (3,786) (3,623) (708) (640) Translation (375) (262) ----------- ----------- ----------- ----------- Fair value of plan assets at end of year 76,901 65,671 0 0 RECONCILIATION OF (ACCRUED), AT YEAR END Funded status (26,433) (23,268) (33,143) (29,958) Unrecognized actuarial (gain) loss (397) (212) 291 379 Unrecognized net pension obligation 262 389 Unrecognized net (gain) loss 3,990 (1,439) 1,490 123 Unrecognized prior service cost 896 (47) 461 579 Translation 15 9 (29) (35) ----------- ----------- ----------- ----------- (Accrued) benefit cost $ (21,667) $ (24,568) $ (30,930) $ (28,912) =========== =========== =========== =========== WEIGHTED AVERAGE ASSUMPTIONS AS OF END OF YEAR Discount rate 7.26% 7.50% 6.79% 7.50% Expected return on plan assets 8.85% 8.87% Rate of compensation increase 4.27% 4.31%
For measurement purposes, a 9.5% and 8% annual rate of increase in the per capita cost of covered health care benefits was assumed in 1999 for the U.S. and Canadian plans, respectively. The rates were assumed to decrease gradually to 6.5% and 5% in 2004 and remain at that level thereafter for the U.S. and Canadian plans, respectively. F-18 59
Pension Benefits Other Benefits ---------------------- ---------------------- 1998 1997 1998 1997 --------- --------- --------- --------- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 3,695 $ 3,783 $ 739 $ 734 Interest cost 6,599 6,043 2,179 2,052 Expected return on plan assets (6,166) (4,780) Effect of settlement/curtailment 9 Amortization of net pension obligation 54 57 Amortization of prior service cost 105 (8) 73 78 Amortization of actuarial (gain) loss 9 34 (27) (101) --------- --------- --------- --------- Net periodic benefit cost 4,296 5,129 2,973 2,763 FAS No. 88 curtailment cost 1,047 (709) (100) (142) --------- --------- --------- --------- Total net periodic benefit cost $ 5,343 $ 4,420 $ 2,873 $ 2,621 ========= ========= ========= =========
During 1998, the Company restructured its Viskase operations including a workforce reduction resulting in a curtailment loss of $1.0 million. During 1997, the Company sold its PVC business and instituted early retirement and workforce reductions resulting in a curtailment gain of $.7 million. Assumed healthcare cost trend rates have a significant effect on the amounts reported for healthcare plans. A one-percentage point change in assumed healthcare cost trend rates would have the following effects: Effect of 1% change in medical trend cost Based on a 1% increase Change in accumulated postretirement benefit obligation $396 Change in service cost and interest 37 Based on a 1% decrease Change in accumulated postretirement benefit obligation $(277) Change in service cost and interest (25) SAVINGS PLANS (dollars in thousands): The Company also has defined contribution savings and similar plans, which vary by subsidiary, and, accordingly, are available to substantially all full-time United States employees not covered by collective bargaining agreements. The Company's aggregate contributions to these plans are based on eligible employee contributions and certain other factors. The Company expense for these plans was $1,587, $2,304, and $2,207 in 1998, 1997, and 1996, respectively. INTERNATIONAL PLANS (dollars in thousands): The Company maintains various pension and statutory separation pay plans for its European employees. The expense for these plans in 1998, 1997 and 1996 was $1,431, $1,216, and $1,972, respectively. As of their most recent valuation dates, in plans where vested benefits exceeded plan assets, the actuarially computed value of vested benefits exceeded those plans' assets by approximately $2,106; conversely, plan assets exceeded the vested benefits in certain other plans by approximately $2,503. F-19 60 EMPLOYEE RELATIONS The Company generally maintains productive and amicable relationships with its 3,050 employees worldwide. One of Viskase's domestic plants, located in Loudon, Tennessee, is unionized, and all of its Canadian and European plants have unions. Employees at the Company's European plants are unionized with negotiations occurring at both local and national levels. Based on past experience and current conditions, the Company does not expect a protracted work stoppage to occur stemming from union activities; however, national events outside of the Company's control may give rise to such risk. From time to time union organization efforts have occurred at other individual plant locations. Unions represent a total of approximately 720 of Viskase's 3,050 employees. As of December 31, 1998, approximately 720 of the Company's employees are covered by collective bargaining agreements that will expire after one year. 11. UNUSUAL CHARGES During 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 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. The Company recognized an unusual charge of $150.1 million consisting of the following: Impairment of excess reorganization value $ 91.2 Write-down of assets to net realizable value 4.3 Cash severance and decommissioning costs 7.5 Write-down of Chicago plant assets 37.5 Write-down of spare parts .7 Write-down of inventory 1.8 Allowance for shutdown of foreign operations 5.6 ------- Unusual Charge: Third Quarter 1998 148.6 Restructuring Reserve: Second Quarter 1998 1.5 ------- Total Unusual Charge $ 150.1 =======
During fiscal 1998, cash payments against the reserve were $6.5 million. The remaining restructuring reserve of $6.0 million is included in accrued liabilities on the consolidated balance sheet. During 1997, the Company's Viskase subsidiary committed to a plan of restructuring whereby it adjusted its operations from a segregated regional focus to a more congruent global focus. These actions are directly related to lowering Viskase's fixed costs. Restructuring actions identified resulted in charges to continuing operations of $3.5 million before tax and included costs associated with voluntary and involuntary severance expense and the consolidation of a finishing plant. For the year ended December 31, 1998, $3.1 million was incurred and charged against the reserve. F-20 61 12. DISCONTINUED OPERATIONS (dollars in thousands) On June 8, 1998, the Company's Board of Directors approved the sale of two of the Company's subsidiaries, Clear Shield and Sandusky. Accordingly, the operating results of the two subsidiaries have been segregated from continuing operations and reported as a separate line item on the income statement under the heading Discontinued Operations. The sale of Sandusky and Clear Shield was completed on June 11, 1998 and July 23, 1998, respectively. Operating results from discontinued operations are as follows:
53 weeks 52 weeks 52 weeks December 26, December 27, December 29, 1997 to 1996 to 1995 to December 31, December 25, December 26, 1998 1997 1996 ---------- ---------- ---------- Net sales $ 62,317 $ 114,535 $ 116,936 Costs and expenses Cost of sales 50,810 92,434 97,023 Selling, general and administrative 9,457 16,419 15,040 Amortization of intangibles and excess reorganization value 863 1,798 2,014 ---------- ---------- ---------- Operating income 1,187 3,884 2,859 Interest expense 50 102 107 Other expense, net 91 1,691 370 ---------- ---------- ---------- Income from discontinued operations before taxes 1,046 2,091 2,382 Income tax provision 633 1,374 1,484 ---------- ---------- ---------- Net Income from discontinued operations $ 413 $ 717 $ 898 ========== ========== ==========
The net assets of the discontinued operations included in the December 25, 1997 Balance Sheet consisted of the following:
December 25, 1997 ----------------- Accounts receivable, net $ 9,731 Inventories 17,427 Other current assets 2,782 ------------ Total current assets 29,940 Property, plant and equipment, net 61,805 Long-term assets 15,128 ------------ Total assets 106,873 Accounts payable and other current liabilities 9,802 Short-term debt 558 ------------ Total current liabilities 10,360 Long-term debt and lease obligations 1,956 ------------ Total liabilities 12,316 Net Assets $ 94,557 ============
F-21 62 13. INCOME TAXES (dollars in thousands)
1998 1997 1996 ---- ---- ---- Pre-tax income from continuing operations consisted of: Domestic $ (152,539) $ (36,366) $ (32,706) Foreign (43,138) 2,330 9,942 ---------- ---------- ---------- Total $ (195,677) $ (34,036) $ (22,764) ========== ========== ==========
The provision (benefit) for income taxes from continuing operations consisted of:
1998 1997 1996 ---------- ---------- ---------- Current: Federal $ 0 $ 0 $ 0 Foreign 2,401 2,593 4,365 State 150 0 0 ---------- ---------- ---------- Total current 2,551 2,593 4,365 Deferred: Federal (14,929) (23,290) (11,243) Foreign 723 (1,307) 393 State (2,349) (1,670) (1,699) ---------- ---------- ---------- Total deferred (16,555) (26,267) (12,549) ---------- ---------- ---------- Total $ (14,004) $ (23,674) $ (8,184) ========== ========== ==========
The total provision (benefit) for income taxes was allocated to the following categories:
1998 1997 1996 ---- ---- ---- Continuing operations $ (14,004) $ (23,674) $ (8,184) Income from discontinued operations 633 1,374 1,484 Gain on sale of discontinued operations 19,556 Extraordinary loss (4,343) ---------- ---------- ---------- Total income tax provision (benefit) $ 1,842 $ (22,300) $ (6,700) ========== ========== ==========
A reconciliation from the statutory federal tax rate to the effective tax rate for continuing operations follows:
1998 1997 1996 ---- ---- ---- Statutory federal tax rate 35.00% 35.00% 35.00% Increase (decrease) in tax rate due to: State and local taxes net of related federal tax benefit 1.73 3.16 4.81 Net effect of taxes relating to foreign operations (9.31) (1.41) (5.64) Intangibles amortization (9.39) (6.71) (8.75) Valuation allowance changes and other (10.87) 39.51 10.54 -------- -------- -------- Effective tax rate from continuing operations 7.16% 69.55% 35.96% ======== ======== ========
F-22 63 Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities for 1998 and 1997 are as follows:
Year 1998 -------------------------------------------------------- Temporary Difference Tax Effected ------------------------- ----------------------- Deferred Tax Deferred Tax Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities -------- -------- -------- -------- Depreciation basis differences $189,104 $ 73,464 Inventory basis differences 28,346 11,078 Intangible basis differences 25,000 9,750 Lease transaction $124,873 $48,700 Pension and healthcare 53,145 20,727 Employee benefits accruals 12,841 5,008 Loss and other carryforwards 101,340 39,523 Other accruals and reserves 3,400 1,332 Foreign exchange and other 35,330 13,788 Valuation allowances 108,757 42,415 -------- -------- -------- -------- $295,599 $386,537 $115,290 $150,495 ======== ======== ======== ========
Year 1997 -------------------------------------------------------- Temporary Difference Tax Effected ------------------------- ----------------------- Deferred Tax Deferred Tax Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities -------- -------- -------- -------- Depreciation basis differences $272,482 $104,188 Inventory basis differences 29,563 11,530 Intangible basis differences 30,000 11,700 Lease transaction $134,548 $52,474 Pension and healthcare 53,296 20,834 Employee benefits accruals 13,355 5,208 Loss and other carryforwards 114,488 44,650 Other accruals and reserves 6,409 2,256 Foreign exchange and other 41,535 16,199 Valuation allowance 48,286 18,831 -------- -------- -------- -------- $322,096 $421,866 $125,422 $162,448 ======== ======== ======== ========
At December 31, 1998 and December 25, 1997, the Company had $15,922 and $19,173, respectively, of undistributed earnings of foreign subsidiaries considered permanently invested for which deferred taxes have not been provided. At December 31, 1998, the Company had federal income tax net operating loss carryforwards of approximately $101 million, which have been substantially offset by a valuation allowance. At December 25, 1997, the Company had federal income tax net operating loss carryforwards of approximately $114 million, a portion of which a benefit has been realized for future reversals of existing taxable temporary differences, and the balance of which has been offset by a valuation allowance. Such losses will expire by 2012, if not previously utilized. In addition at December 31, 1998 and December 25, 1997, the Company had alternative minimum tax credit carryforwards of $3.9 million and $3.5 million, respectively. Alternative minimum tax credits have an indefinite carryforward period. Significant limitations on the utilization of the net operating loss carryforwards and the alternative minimum tax credit carryforwards exist under federal income tax rules. Domestic (losses) after extraordinary loss and before income taxes were approximately $(104,016), $(34,275) and $(30,323) in 1998, 1997 and 1996, respectively. Foreign earnings or (losses) before income taxes were approximately $(43,138), $2,330 and $9,941 in 1998, 1997 and 1996, respectively. F-23 64 The Company joins in filing a United States consolidated federal income tax return including all of its domestic subsidiaries. 14. COMMITMENTS As of December 31, 1998, the Company had capital expenditure commitments outstanding of approximately $3.8 million. 15. CONTINGENCIES In late 1993, Viskase commenced a legal action against American National Can Company (ANC) in Federal District Court for the Northern District of Illinois, Eastern Division, 93C7651. Viskase claimed that ANC's use of two different very low density polyethylene plastic resins in the manufacture of ANC's multilayer barrier shrink film products was infringing various Viskase patents relating to multilayer 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. Patent validity and infringement having been established, the remaining issues for trial are whether ANC willfully infringed Viskase's patents by using "Affinity" brand resin and the determination of the amount of compensatory damages. 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. Viskase filed its memorandum in support of enhanced damages and ANC is expected to file its response to Viskase's memorandum by June 18, 1999. 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 to which Viskase is preparing its reponse. 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 is preparing 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. If Viskase's motion to reinstate the damages is denied, Viskase expects the trial on damages to occur during the second half of 1999 or early 2000. F-24 65 On May 3, 1999, ANC commenced legal action in the Federal District Court for the Northern District of Illinois seeking declaratory relief that Viskase's second patent is invalid. ANC also filed a motion to consolidate the new action with the existing suit. Viskase is preparing an answer to ANC's complaint and has filed its response to ANC's motion to consolidate. The Company expects ANC to vigorously contest these matters in the Court and the USPTO and to appeal any final judgment. No part of the pending claims has been recorded in the Company's financial statements. Through December 31, 1998, $4,644 thousand in patent defense costs have been accrued and capitalized. In March 1997, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the sausage casings industry. Viskase is cooperating fully with the investigation. The Company and its subsidiaries are involved in other various legal proceedings arising out of their business and other environmental matters, none of which is expected to have a material adverse effect upon results of operations, cash flows or financial position. 16. CAPITAL STOCK AND PAID IN CAPITAL Authorized shares of preferred stock ($.01 par value per share) and common stock ($.01 par value per share) for the reorganized Viskase Companies, Inc. are 25,000,000 shares and 50,000,000 shares, respectively. 14,859,467 shares of common stock were issued and outstanding as of December 31, 1998. A total of 106,025 shares were issued in 1998 for options exercised and directors' compensation. In accordance with the Plan of Reorganization, a total of 900,261 additional shares of common stock were issued to the general unsecured creditors of Viskase Companies, Inc. during 1996. On June 26, 1996, the Board of Directors adopted a Stockholder Rights Plan (Plan). Under the Plan, the Board declared a dividend of one Common Stock Purchase Right (Right) for each outstanding common share of the Company. Rights were issued to the stockholders of record on June 26, 1996. The Rights are attached to and automatically trade with the outstanding shares of the Company's common stock. The Rights will only become exercisable ten days after a public announcement that a person or group has acquired or obtained the right to acquire 41% or more of the Company's Common Stock or ten business days after a person or group commences a tender or offer that would result in such person or group owning 41% or more of the outstanding shares (even if no purchases actually occur). When the Rights first become exercisable, each Right will entitle the holder thereof to buy from the Company one share of Common Stock for $20.00, subject to adjustment. If any person acquires 41% or more of the Company's Common Stock, other than pursuant to a tender or exchange offer for all outstanding shares of the Company approved by a majority of the independent directors not affiliated with a 40%-or-more stockholder, after receiving advice from one or more investment banking firms, each Right not owned by a 41%-or-more stockholder would become exercisable for shares of the Company having a market value of two times the exercise price of the Right. If the Company is involved in a merger or other business combination, or sells 50% or more of its assets or earning power to another person, at any time after the Rights become exercisable, the Rights will entitle the holder thereof to buy shares of common stock of the acquiring company having a market value of twice the exercise price of each Right. Rights may be redeemed at a price of $0.001 per Right at any time prior to their expiration on June 26, 2006. F-25 66 17. EARNINGS PER SHARE (dollars in thousands) In February 1997 the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share," which became effective for both interim and annual financial statement periods ending after December 15, 1997. As required by this Statement, the Company adopted the new standards for computing and presenting earnings per share (EPS) in 1997, and for all period earnings per share data presented. Following are the reconciliations of the numerators and denominators of the basic and diluted EPS.
53 weeks 52 weeks 52 weeks December December December 26, 1997 27, 1996 29, 1995 to to to December December December 31, 1998 25, 1997 26, 1996 ------------ ------------ ------------ Numerator: Net (loss) available to common stockholders: From continuing operations $ (181,673) $ (10,362) $ (14,580) Discontinued operations: Income from discontinued operations 413 717 898 Gain on disposal 39,057 ------------ ------------ ------------ Net (loss) before extraordinary item (142,203) (9,645) (13,682) Extraordinary (loss) (6,793) ------------ ------------ ------------ Net loss available to common stockholders for basic and diluted EPS $ (148,996) $ (9,645) $ (13,682) ============ ============ ============ Denominator: Weighted average shares outstanding for basic EPS 14,824,885 14,617,540 14,325,595 Effect of dilutive securities 0 0 0 ------------ ------------ ------------ Weighted average shares outstanding for diluted EPS 14,824,885 14,617,540 14,325,595 ============ ============ ============
Common stock equivalents are excluded from the loss-per-share calculations as the result is antidilutive since the numerator is a loss from continuing operations. 18. STOCK-BASED COMPENSATION (dollars in thousands) The Company maintains several stock option plans and agreements. The plans provide for the granting of incentive and nonqualified stock options to employees, officers, and directors. Stock options have been granted at prices at or above the fair market value on the date of grant. Options generally vest in three equal installments beginning one year from the grant date and expire ten years from the grant date. Non-employee director options, however, vest on the date of grant. The options are subject to acceleration upon the occurrence of certain events; such acceleration event occurred in both November 1994 and August 1995. The Company accounts for these plans under Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations. Accordingly, compensation expense is recognized using the intrinsic value-based method for options granted under the plans. The Company has adopted only the disclosure provisions required by SFAS No. 123, "Accounting for Stock Based Compensation." F-26 67 A summary of the Company's stock option activity during the fiscal years ended as of December 31, 1998, December 25, 1997 and December 26, 1996 is presented below:
1998 1997 1996 ---------------------------- ---------------------------- ---------------------------- Weighted Weighted Weighted Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price ------------ ------------ ------------ ------------ ------------ ------------ Outstanding at beginning of year 735,024 $ 4.71 898,830 $ 4.60 424,230 $ 5.05 Granted 557,200 5.21 65,000 6.46 536,500 4.26 Exercised (86,833) 4.84 (177,839) 4.89 Forfeited (249,065) 6.30 (50,967) 4.38 (61,900) 4.79 ------------ ------------ ------------ Outstanding at year end 960,660 $ 4.57 735,024 $ 4.71 898,830 $ 4.60 ============ ============ ============ Options exercisable at year end 584,655 $ 5.04 368,884 $ 4.84 392,730 $ 5.04 ============ ============ ============ Future option grants available at year end 324,668 637,137 651,170 ============ ============ ============
As of December 31, 1998, total stock options outstanding have a weighted-average remaining contractual life of 8.03 years. The exercise price of options outstanding as of December 31, 1998 ranged from $3.50 to $7.25. The weighted average grant date fair value of options granted during fiscals 1998, 1997 and 1996 was $2.74, $2.07 and $2.20, respectively. Compensation expense associated with these plans has not been recognized to date in accordance with APB 25. Had the Company elected to apply the provisions of SFAS No. 123 regarding recognition of compensation expense to the extent of the calculated fair value of compensatory options, reported net income and earnings per share would have been reduced to the following amounts (only options granted in years 1995 and forward are included in the calculation of pro forma net income and earnings per share):
1998 1997 1996 ------------ ------------ ------------ (Loss) before extraordinary item $ (142,203) $ (9,645) $ (13,682) Pro forma (loss) before extraordinary item (142,317) (9,909) (13,826) Net (loss) (148,996) (9,645) (13,682) Pro forma net (loss) (149,110) (9,909) (13,826) PER SHARE AMOUNTS: (Loss) before extraordinary item - basic and diluted EPS $ (9.59) $ (.66) $ (.96) Pro forma (loss) before extraordinary item - basic and diluted EPS (9.60) (.68) (.97) Net (loss) - basic and diluted EPS (10.05) (.66) (.96) Pro forma net (loss) - basic and diluted EPS (10.06) (.68) (.97)
The effects of applying SFAS 123 in the above pro forma disclosure are not likely to be representative of the effects disclosed in future years as SFAS 123 does not apply to grants prior to 1996. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: (1) expected volatility of 52.61% in 1998, 36.39% in 1997, and 40.04% in 1996, (2) risk-free interest rate equaling the 5-year treasury yield on the grant date, which ranged F-27 68 from 4.58% to 5.40% in 1998, 5.77% to 6.50% in 1997 and 6.11% to 6.52% in 1996, and (3) the expected life of 5 years in 1998, 1997 and 1996. The Company has never declared dividends, nor does it currently expect to declare dividends in the foreseeable future. Pursuant to the employment agreement between the Company and its chief executive officer, the Company issued 35,000 shares of common stock to its chief executive officer. These shares carry voting and dividend rights; however sale of the shares is restricted prior to vesting. Subject to continued employment, vesting occurs on March 27, 1999. The shares issued under the employment agreement have been recorded at fair market value on the date of grant with a corresponding charge to stockholders' equity for the unearned portion of the award. The fair market value per share was $3.50. The unearned portion is being amortized as compensation expense on a straight-line basis over the related vesting period. Compensation expense related to the plan totaled $41, $41, and $31 during fiscals 1998, 1997, and 1996, respectively. The Company also has a stock compensation plan for the non-employee directors of the Company that was approved during fiscal 1996. These directors may elect to receive directors fees in the form of common stock of the Company based upon the average market price of the Company's common stock on the grant date. Under this plan, during 1998, 1997 and 1996, 19,192 shares of stock were issued at $5.89 per share, 30,496 shares of stock were issued at $7.12 per share, and 30,386 shares of common stock were issued at $4.03 per share, respectively. 19. COMPREHENSIVE INCOME (in thousands) The following sets forth the components of other comprehensive income (loss) and the related income tax provision (benefit):
December 26, December 27, December 29, 1997 1996 1995 to to to December 31, December 25, December 26, 1998 1997 1996 ------------ ------------ ------------ Foreign currency translation adjustment (1) $ 973 $ (2,566) $ 48
(1) Net of related tax provision (benefit) of $622, $(1,641) and $30 for fiscal years ended 1998, 1997 and 1996, respectively. 20. FAIR VALUE OF FINANCIAL INSTRUMENTS (dollars in thousands) The following table presents the carrying value and estimated fair value as of December 31, 1998 of the Company's financial instruments. (Refer to Notes 2 and 8.)
Carrying Estimated Value Fair Value -------- ---------- Assets: Cash and equivalents $ 9,028 $ 9,028 Foreign currency contracts 3,855 3,975 Liabilities: Long-term debt (excluding capital lease obligations) 276,937 235,415
F-28 69 21. RESEARCH AND DEVELOPMENT COSTS (dollars in thousands) Research and development costs from continuing operations are expensed as incurred and totaled $7,375, $6,907 and $6,666 for 1998, 1997, and 1996, respectively. 22. RELATED PARTY TRANSACTIONS (dollars in thousands) During fiscal 1996, the Company made payments of approximately $18 to an affiliate of DPK for the use of a jet aircraft on an as-needed basis. During fiscal 1998, 1997 and 1996, the Company purchased product and services from affiliates of DPK in the amounts of approximately $200, $187 and $904, respectively. During fiscal 1998, 1997 and 1996, the Company sublet office space from DPK for which it paid approximately $77, $133, and $139, respectively, in rent. During fiscal 1997 and 1996, the Company reimbursed a non-affiliated medical and benefit plan in the aggregate amount of $34 and $41 for medical claims and benefits of certain officers. During fiscal 1997 and 1996, the Company advanced funds to and made payments on behalf of DPK and Donald P. Kelly in the amounts of $27 and $1, respectively, for legal fees related to litigation for the period when Mr. Kelly was an executive officer of the Company. During fiscal years 1998, 1997 and 1996, Viskase Corporation, a wholly owned subsidiary of the Company, had sales of $21,804, $21,825 and $19,795, respectively, to Cargill, Inc. and its affiliates. Such sales were made in the ordinary course of business. During 1998 Cargill Financial Services Corporation had beneficial ownership of less than 5% of the Company's outstanding Common Stock, and Gregory R. Page, President of the Red Meat Group of Cargill, Inc., is a director of the Company. During fiscal 1996, the Company sold two autos to an affiliate of DPK. The total sum received was $135 and was based on the fair market value of the autos. A gain on the sale of $117 was recognized by the Company. In March 1996, the Company terminated its management agreement with DPK. Upon termination of the agreement, the Company was required to pay the amount of $2,000 to DPK pursuant to provisions in the agreement. In addition to the above amount, the Company paid management fees to DPK during 1996 totaling $193. 23. BUSINESS SEGMENT INFORMATION AND GEOGRAPHIC AREA INFORMATION (dollars in thousands) Viskase Companies, Inc. primarily manufactures and sells cellulosic food casings and plastic packaging films and containers (food packaging products) and disposable foodservice supplies. The Company's operations are primarily in North, South America and Europe. Intercompany sales and charges (including royalties) have been reflected as appropriate in the following information. Other expense for 1998, 1997, and 1996 includes net foreign exchange transaction gains (losses) of approximately $(880), $(2,117), and $687, respectively. F-29 70 Geographic Area Information
December 26, December 27, December 29, 1997 to 1996 to 1995 to December 31, December 25, December 26, 1998 1997 1996 ------------ ------------ ------------ Net sales from continuing operations: North America $ 257,093 $ 303,138 $ 306,156 South America 33,681 40,169 40,498 Europe 138,231 174,008 201,926 Other and eliminations (19,836) (18,982) (14,160) ------------ ------------ ------------ $ 409,169 $ 498,333 $ 534,420 ============ ============ ============ Operating (loss) profit from continuing operations: North America $ (151,117) $ 13,270 $ 19,566 South America 3,615 2,108 1,883 Europe 3,530 10,817 15,445 Other and eliminations (655) (3,966) (63) ------------ ------------ ------------ $ (144,627) $ 22,229 $ 36,831 ============ ============ ============ Identifiable assets: North America $ 335,313 $ 592,790 $ 633,201 South America 32,102 33,389 33,007 Europe 162,683 184,659 205,446 Other and eliminations 971 3,015 2,093 ------------ ------------ ------------ $ 531,069 $ 813,853 $ 873,747 ============ ============ ============ United States export sales: (reported in North America sales above) Asia $ 19,861 $ 25,282 $ 28,300 South and Central America 13,136 14,191 17,056 Other International 100 305 259 ------------ ------------ ------------ $ 33,097 $ 39,778 $ 45,615 ============ ============ ============
The total assets and net assets of foreign businesses were approximately $212,139 and $100,574 at December 31, 1998. 24. QUARTERLY DATA (unaudited) Quarterly financial information for 1998 and 1997 is as follows (in thousands, except for per share amounts):
First Second Third Fourth Fiscal 1998 Quarter Quarter Quarter Quarter Annual ------------ ------------ ------------ ------------ ------------ Net Sales $ 101,277 $ 105,389 $ 102,567 $ 99,936 $ 409,169 Gross profit 27,016 27,102 25,938 21,200 101,256 Operating Income (loss) 2,170 (140) (148,264) 1,607 (144,627) Net (loss) (11,390) (7,737) (119,615) (10,254) (148,996) Net (loss) per share - basic and diluted (.77) (.52) (8.06) (.69) (10.05)
First Second Third Fourth Fiscal 1997 Quarter Quarter Quarter Quarter Annual ------------ ------------ ------------ ------------ ------------ Net Sales $ 154,539 $ 156,529 $ 155,004 $ 146,796 $ 612,868 Gross profit 38,541 38,800 38,670 37,679 153,690 Operating Income 7,414 7,629 2,670 8,400 26,113 Net income (loss) (2,553) (4,505) (3,753) 1,166 (9,645) Net income (loss) per share - basic and diluted (.18) (.31) (.26) .08 (.66)
F-30 71 Net (loss) income per share amounts are computed independently for each of the quarters presented using weighted average shares outstanding during each quarter. The sum of the quarterly per share amounts in 1998 and 1997 do not equal the total for the year because of rounding and stock issuances, as shown on the Consolidated Statement of Stockholders' Equity. In the 1998 second and third quarter, the Company sold its Sandusky subsidiary and its Clear Shield subsidiary. As a result, the operating results of the two subsidiaries have been segregated from continuing operations and reported as a separate line item on the income statement under the heading discontinued operations. The 1998 first quarter has been restated to reflect results from discontinued operations. The effect of this change shows sales decreasing by $27.4 million; operating income decreasing by $.4 million. In the 1998 second quarter, the Company recognized an unusual charge of $1.5 million (see Note 11). In the 1998 third quarter, the Company recognized an unusual charge of $148.6 million (see Note 11) and an extraordinary loss, net of income taxes, of $6,793, or $.46 dollars per share, for the 1998 third and fourth quarters. Fiscal 1997 quarterly data have not been restated to reflect the results from discontinued operations. In the 1997 third quarter, the Company recognized an unusual charge of $3.5 million. 25. SUBSEQUENT EVENTS On May 10, 1999, the Court granted Viskase's motion to have the jury verdict as to the compensatory damages reinstated. Viskase filed its memorandum in support of enhanced damages and ANC is expected to file its response to Viskase's memorandum by June 18, 1999. During June 1999, Viskase Corporation and Viskase Sales Corporation entered into two-year secured credit agreements consisting of a $50 million senior revolving credit facility, including a $26 million sublimit for issuance of letters of credit (Senior Revolving Credit Facility), a $50 million senior term facility (Senior Term Facility), collectively the "Senior Secured Credit Facility," and $35 million of junior secured term loans (Junior Term Loans). The proceeds of the Senior Secured Credit Facility and the Junior Term Loans were used to repay the $55 million 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 Senior Secured Credit Facility is guaranteed by Viskase Companies, Inc. and Viskase Holding Corporation and is secured by a collateral pool (Collateral Pool) comprised of: (i) all domestic accounts receivable (including intercompany receivables) and inventory; (ii) all patents, trademarks and other intellectual property and intangible assets; (iii) substantially all domestic fixed assets (other than assets subject to a lease agreement with General Electric Capital Corporation); and (iv) a senior pledge of 100% of the capital stock of Viskase Companies, Inc.'s significant domestic subsidiaries and 65% of the capital stock of Viskase Europe Limited and Viskase Brazil. Borrowings under the Senior Revolving Credit Facility bear interest either at the bank's prime interest rate plus a margin of 75 basis points or the London Interbank Offered Rate (LIBOR) plus a margin of 275 basis points. The Senior Term Facility bears interest at either the bank's prime interest rate plus a margin of 125 basis points or LIBOR plus a margin of 325 basis points. Fees on the outstanding amount of standby letters of credit are 2.25% per annum, with an issuance fee of 0.5% on the face amount of the letter of credit. The unused commitment fee for the Senior Revolving Credit Facility is 0.5% per annum. The Senior Term Facility is payable in six equal quarterly principal payments of $1.786 million beginning on January 4, 2000. The remaining principal balance outstanding under the Senior Term Facility is payable on the June 30, 2001 maturity date. In the event the Company has Surplus Cash (as defined) in any year, the Company is required to use an amount equal to 50% of the Surplus Cash to redeem Senior Term Facility obligations at par. The Company may elect, at its option, to prepay amounts due under the Senior Term Facility; such prepayments may be subject to a prepayment premium of 25 to 100 basis points of the principal amount redeemed depending on the source of funds used for such prepayment. The $35 million of Junior Term Loans bear interest at an initial rate of 14% per annum, and increase .5% every six months thereafter, and mature on June 30, 2001. The Junior Term Loans are collateralized by the F-31 72 Collateral Pool for the Senior Secured Credit Facility; however, the Junior Term Loans are subordinated to the obligations outstanding under the Senior Secured Credit Facility. D.P. Kelly and Associates L.P., which owns approximately 13% of the outstanding common stock of Viskase Companies, Inc. is a lender under the Junior Term Loans. The Company's Senior Secured Credit Facility and Junior Term Loans contain a number of financial covenants that, among other things, require the maintenance of a minimum level of tangible net worth, a minimum fixed charge coverage ratio and a minimum leverage ratio of total liabilities to EBDIAT and a limitation on capital expenditures. As of March 31, 1999, the Company is in compliance with the amended covenants under the Indenture and Amended and Restated Credit Agreement. 26. SUBSIDIARY GUARANTORS The Company's payment obligations under the Senior Secured Notes are fully and unconditionally guaranteed on a joint and several basis (collectively, Subsidiary Guarantees) by Viskase Corporation, Viskase Holding Corporation, Viskase Sales Corporation, and Viskase Films, Inc., each a direct or indirect wholly owned subsidiary of Viskase Companies, Inc. and each a "Guarantor." These subsidiaries represent substantially all of the operations of Viskase Companies, Inc. conducted in the United States. The remaining subsidiaries of Viskase Companies, Inc. generally are foreign subsidiaries or otherwise relate to foreign operations. The obligations of each Guarantor under its Subsidiary Guarantee are the senior obligation of such Guarantor, and are collateralized, subject to certain permitted liens, by substantially all of the domestic assets of the Guarantor and, in the case of Viskase Holding Corporation, by a pledge of 65% of the capital stock of Viskase Europe Limited. The Subsidiary Guarantees and security are shared with the lenders under the Amended and Restated Credit Agreement on a pari passu basis and are subject to the priority interest of the holders of obligations under the Letter of Credit Facility, each pursuant to an intercreditor agreement. The following consolidating condensed financial data illustrate the composition of the combined Guarantors. No single Guarantor has any significant legal restrictions on the ability of investors or creditors to obtain access to its assets in the event of default on the Subsidiary Guarantee other than its subordination to senior indebtedness described above. Separate financial statements of the Guarantors are not presented because management has determined that these would not be material to investors. Based on the book value and the market value of the pledged securities of Viskase Corporation, Viskase Sales Corporation and Viskase Films, Inc., these Subsidiary Guarantors do not constitute a substantial portion of the collateral and, therefore, the separate financial statements of these subsidiaries have not been provided. Separate unaudited interim financial statements of Viskase Holding Corporation are being filed within this report. Investments in subsidiaries are accounted for by the parent and Subsidiary Guarantors on the equity method for purposes of the supplemental consolidating presentation. Earnings of subsidiaries are therefore reflected in the parent's and Subsidiary Guarantors' investment accounts and earnings. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. F-32 73 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEETS DECEMBER 31, 1998
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total --------- ------------ ------------ ---------------- ------------ (in thousands) ASSETS Current assets: Cash and equivalents $ 1,675 $ 97 $ 7,256 $ 9,028 Receivables and advances, net 105,652 45,155 36,328 $(139,417) 47,718 Inventories 53,790 40,256 (818) 93,228 Other current assets 530 6,466 8,341 15,337 --------- --------- --------- --------- --------- Total current assets 107,857 105,508 92,181 (140,235) 165,311 Property, plant and equipment including those under capital lease 149 315,315 160,061 475,525 Less accumulated depreciation and amortization 147 96,212 49,321 145,680 --------- --------- --------- --------- --------- Property, plant and equipment, net 2 219,103 110,740 329,845 Deferred financing costs 920 278 1,198 Other assets 32,363 2,352 34,715 Investment in subsidiaries (129,351) 88,324 41,027 --------- --------- --------- --------- --------- Total assets $ (20,572) $ 445,298 $ 205,551 $ (99,208) $ 531,069 ========= ========= ========= ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 13,031 $ 3,089 $ 16,120 Accounts payable and advances $ 60 128,436 47,258 $(139,417) 36,337 Accrued liabilities 5,340 40,495 16,484 62,319 Current deferred taxes (39) 9,000 (151) 8,810 --------- --------- --------- --------- --------- Total current liabilities 5,361 190,962 66,680 (139,417) 123,586 Long-term debt including obligation under capital lease 274,262 111,842 2,776 388,880 Accrued employee benefits 45,510 2,605 48,115 Deferred and noncurrent income taxes 30,602 (26,762) 22,555 26,395 Intercompany loans (1) (274,890) 264,999 9,891 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 14,859,467 shares issued and outstanding 149 1 32,609 (32,610) 149 Paid in capital 136,715 79,734 88,359 (168,093) 136,715 Accumulated earnings (deficit) (197,454) (225,621) (24,557) 250,178 (197,454) Foreign currency translation adjustment 4,693 4,633 4,633 (9,266) 4,693 Unearned restricted stock issued for future services (10) (10) --------- --------- --------- --------- --------- Total stockholders' equity (deficit) (55,907) (141,253) 101,044 40,209 (55,907) --------- --------- --------- --------- --------- Total liabilities and stockholders' equity (deficit) $ (20,572) $ 445,298 $ 205,551 $ (99,208) $ 531,069 ========= ========= ========= ========= =========
(1) Elimination of intercompany receivables, payables and investment accounts. F-33 74 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEETS DECEMBER 25, 1997
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total --------- ------------ ------------ ---------------- ------------ (in thousands) ASSETS Current assets: Cash and equivalents $ 19,004 $ 865 $ 4,538 $ 24,407 Receivables and advances, net 59,223 58,201 44,221 $ (86,606) 75,039 Inventories 63,967 35,029 (1,194) 97,802 Other current assets 1,746 12,612 10,928 25,286 --------- --------- --------- --------- --------- Total current assets 79,973 135,645 94,716 (87,800) 222,534 Property, plant and equipment including those under capital lease 145 442,506 138,330 580,981 Less accumulated depreciation and amortization 119 113,672 32,064 145,855 --------- --------- --------- --------- --------- Property, plant and equipment, net 26 328,834 106,266 435,126 Deferred financing costs 4,100 474 4,574 Other assets 36,779 2,414 39,193 Investment in subsidiaries 53,619 120,824 (174,443) Excess reorganization value 79,595 32,831 112,426 --------- --------- --------- --------- --------- Total assets $ 137,718 $ 701,677 $ 236,701 $(262,243) $ 813,853 ========= ========= ========= ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 10,233 $ 2,647 $ 12,880 Accounts payable and advances $ 121 86,514 41,706 $ (86,607) 41,734 Accrued liabilities 5,836 46,595 19,158 71,589 Current deferred taxes 10,581 (65) 10,516 --------- --------- --------- --------- --------- Total current liabilities 5,957 153,923 63,446 (86,607) 136,719 Long-term debt including obligation under capital lease 379,262 126,830 5,091 511,183 Accrued employee benefits 46,018 2,503 48,521 Deferred and noncurrent income taxes 13,084 (7,396) 20,822 26,510 Intercompany loans (1) (351,505) 339,995 11,510 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 14,753,442 shares issued and outstanding 148 3 32,738 (32,741) 148 Paid in capital 136,183 88,816 88,280 (177,096) 136,183 Accumulated earnings (deficit) (48,458) (49,550) 9,273 40,277 (48,458) Foreign currency translation adjustment 3,098 3,038 3,038 (6,076) 3,098 Unearned restricted stock issued for future services (51) (51) --------- --------- --------- --------- --------- Total stockholders' equity (deficit) 90,920 42,307 133,329 (175,636) 90,920 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity (deficit) $ 137,718 $ 701,677 $ 236,701 $(262,243) $ 813,853 ========= ========= ========= ========= =========
(1) Elimination of intercompany receivables, payables and investment accounts. F-34 75 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total --------- ------------ ------------ ------------ ------------ (in thousands) NET SALES $ 249,933 $ 199,360 $ (40,124) $ 409,169 COSTS AND EXPENSES Cost of sales 195,267 153,197 (40,551) 307,913 Selling, general and administrative $ 3,638 42,446 38,075 84,159 Amortization of intangibles and excess reorganization value 9,393 2,262 11,655 Unusual charge 119,436 30,633 150,069 --------- --------- --------- --------- --------- OPERATING (LOSS) INCOME (3,638) (116,609) (24,807) 427 (144,627) Interest income 1,044 16 471 1,531 Interest expense 40,203 9,660 1,501 51,364 Intercompany interest expense (income) (34,912) 32,728 2,184 Management fees (income) (4,167) 2,947 1,220 Other expense (income), net 77 (326) 1,466 1,217 Equity loss (income) in subsidiary 175,642 33,832 (209,474) --------- --------- --------- --------- --------- (LOSS) INCOME BEFORE INCOME TAXES (179,437) (195,434) (30,707) 209,901 (195,677) Income tax provision (benefit) 1,823 (18,952) 3,125 (14,004) --------- --------- --------- --------- --------- NET (LOSS) INCOME FROM CONTINUING OPERATIONS (181,260) (176,482) (33,832) 209,901 (181,673) DISCONTINUED OPERATIONS: Income from operations net of an income tax provision of $633 413 413 Gain on disposal net of an income tax provision of $19,556 39,057 39,057 --------- --------- --------- --------- --------- NET (LOSS) INCOME BEFORE EXTRAORDINARY ITEM (142,203) (176,069) (33,832) 209,901 (142,203) EXTRAORDINARY (LOSS): on early extinguishment of debt net of income tax (benefit) of $(4,343) (6,793) (6,793) --------- --------- --------- --------- --------- NET (LOSS) INCOME (148,996) (176,069) (33,832) 209,901 (148,996) --------- --------- --------- --------- --------- Other comprehensive (loss) income, net of tax Foreign currency translation adjustments 973 973 973 (1,946) 973 --------- --------- --------- --------- --------- COMPREHENSIVE (LOSS) INCOME $(148,023) $(175,096) $ (32,859) $ 207,955 $(148,023) ========= ========= ========= ========= =========
VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total --------- ------------ ------------ ------------ ------------ (in thousands) Net cash provided by (used in) operating activities $(143,749) $ 107,144 $ 18,172 $ (18,433) Cash flows from investing activities: Capital expenditures (4) (23,688) (11,662) (35,354) Proceeds from disposition of assets 163,767 448 21 164,236 --------- --------- --------- --------- --------- Net cash provided by (used in) investing activities 163,763 (23,240) (11,641) 128,882 Cash flows from financing activities: Issuance of common stock 574 574 Proceeds from revolving loan and long term borrowings 1,475 1,475 Deferred financing costs (605) (605) Repayment of revolving loan, long-term borrowings and capital lease obligations (105,000) (9,676) (3,497) (118,173) Premium on early extinguishment of debt (8,927) (8,927) Increase (decrease) in Viskase Companies, Inc. loan and advances 76,615 (74,996) (1,619) --------- --------- --------- --------- --------- Net cash (used in) financing activities (37,343) (84,672) (3,641) (125,656) Effect of currency exchange rate changes on cash (172) (172) --------- --------- --------- --------- --------- Net increase (decrease) in cash and equivalents (17,329) (768) 2,718 (15,379) Cash and equivalents at beginning of period 19,004 865 4,538 24,407 --------- --------- --------- --------- --------- Cash and equivalents at end of period $ 1,675 $ 97 $ 7,256 $ 9,028 ========= ========= ========= ========= =========
F-35 76 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 25, 1997
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total ------ ------------ ------------ ------------ ------------ (in thousands) NET SALES $299,032 $241,701 $(42,400) $498,333 COSTS AND EXPENSES Cost of sales 224,895 184,255 (42,406) 366,744 Selling, general and administrative $ 5,280 44,333 42,109 91,722 Amortization of intangibles and excess reorganization value 10,933 3,205 14,138 Unusual charge 3,500 3,500 -------- -------- -------- -------- -------- OPERATING (LOSS) INCOME (5,280) 15,371 12,132 6 22,229 Interest income 729 687 1,416 Interest expense 43,270 10,838 1,509 55,617 Intercompany interest expense (income) (40,402) 37,384 3,018 Management fees (income) (4,692) 3,489 1,203 Other expense (income), net 793 (3,135) 4,400 6 2,064 Equity loss (income) in subsidiary 7,500 (1,403) (6,097) -------- -------- -------- -------- -------- (LOSS) INCOME BEFORE INCOME TAXES (11,020) (31,802) 2,689 6,097 (34,036) Income tax provision (benefit) (1,375) (23,585) 1,286 (23,674) -------- -------- -------- -------- -------- NET (LOSS) INCOME FROM CONTINUING OPERATIONS (9,645) (8,217) 1,403 6,097 (10,362) DISCONTINUED OPERATIONS: Income from discontinued operations net of income tax provision of $1,374 717 717 -------- -------- -------- -------- -------- NET (LOSS) INCOME (9,645) (7,500) 1,403 6,097 (9,645) -------- -------- -------- -------- -------- Other comprehensive (loss) income, net of tax Foreign currency translation adjustments (2,566) (2,566) (2,566) 5,132 (2,566) -------- -------- -------- -------- -------- COMPREHENSIVE (LOSS) INCOME $(12,211) $(10,066) $ (1,163) $ 11,229 $(12,211) ======== ======== ======== ======== ========
VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR THE YEAR ENDED DECEMBER 25, 1997
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total ------ ------------ ------------ ------------ ----- (in thousands) Net cash provided by (used in) operating activities $(16,544) $ 30,954 $ (8,764) $ 5,646 Cash flows from investing activities: Capital expenditures (12) (40,434) (17,433) (57,879) Proceeds from disposition of assets 17,689 24,178 41,867 ------- -------- --------- ---------- --------- Net cash provided by (used in) investing activities (12) (22,745) 6,745 (16,012) Cash flows from financing activities: Issuance of common stock 1,127 1,127 Proceeds from revolving loan and long term borrowings 2,814 2,814 Deferred financing costs (523) (523) Repayment of revolving loan, long-term borrowings and capital lease obligations (7,182) (2,308) (9,490) Increase (decrease) in Viskase Companies, Inc. loan and advances 9,171 (9,171) ------- -------- --------- ---------- --------- Net cash provided by (used in) financing activities 9,775 (7,182) (8,665) (6,072) Effect of currency exchange rate changes on cash (949) (949) ------- -------- --------- ---------- --------- Net increase (decrease) in cash and equivalents (6,781) 1,027 (11,633) (17,387) Cash and equivalents at beginning of period 25,785 (162) 16,171 41,794 ------- -------- --------- ---------- --------- Cash and equivalents at end of period $19,004 $ 865 $ 4,538 $ 24,407 ======= ======== ========= ========== =========
F-36 77 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 26, 1996
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total ------ ------------ ------------ ------------ ----- (in thousands) NET SALES $301,796 $273,435 $(40,811) $534,420 COSTS AND EXPENSES Cost of sales 225,399 207,520 (41,698) 391,221 Selling, general and administrative $ 4,973 42,887 44,188 92,048 Amortization of intangibles and excess reorganization value 10,933 3,387 14,320 Unusual charge -------- -------- -------- -------- -------- OPERATING (LOSS) INCOME (4,973) 22,577 18,340 887 36,831 Interest income 1,061 507 1,568 Interest expense 43,504 12,706 2,248 58,458 Intercompany interest expense (income) (40,596) 37,394 3,202 Management fees (income) (7,226) 5,704 1,522 Other expense (income), net 850 276 1,579 2,705 Equity loss (income) in subsidiary 13,411 (5,538) (7,873) -------- -------- -------- -------- -------- (LOSS) INCOME BEFORE INCOME TAXES (13,855) (27,965) 10,296 8,760 (22,764) Income tax provision (benefit) (173) (12,769) 4,758 (8,184) -------- -------- -------- -------- -------- NET (LOSS) INCOME FROM CONTINUING OPERATIONS (13,682) (15,196) 5,538 8,760 (14,580) DISCONTINUED OPERATIONS: Income from discontinued operations net of income tax provision of $1,484 898 898 -------- -------- -------- -------- -------- NET (LOSS) INCOME (13,682) (14,298) 5,538 8,760 (13,682) -------- -------- -------- -------- -------- Other comprehensive (loss) income, net of tax Foreign currency translation adjustments 48 48 48 (96) 48 -------- -------- -------- -------- -------- COMPREHENSIVE (LOSS) INCOME $(13,634) $(14,250) $ 5,586 $ 8,664 $(13,634) ======== ======== ======== ======== ========
VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR THE YEAR ENDED DECEMBER 26, 1996
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total ------ ------------ ------------ ------------ ----- (in thousands) Net cash provided by (used in) operating activities $(14,896) $ 30,440 $40,780 $ 56,324 Cash flows from investing activities: Capital expenditures (4) (27,496) (9,573) (37,073) Proceeds from disposition of assets 136 1,767 453 2,356 -------- --------- ------- ------------ -------- Net cash provided by (used in) investing activities 132 (25,729) (9,120) (34,717) Cash flows from financing activities: Issuance of common stock 153 153 Proceeds from revolving loan and long term borrowings 1,130 1,056 2,186 Deferred financing costs (142) (142) Repayment of revolving loan, long-term borrowings and capital lease obligations (6,489) (5,216) (11,705) Increase (decrease) in Viskase Companies, Inc. loan and advances 22,525 (22,525) -------- --------- ------- ------------ -------- Net cash provided by (used in) financing activities 22,536 (5,359) (26,685) (9,508) Effect of currency exchange rate changes on cash (630) (630) -------- --------- ------- ------------ -------- Net increase (decrease) in cash and equivalents 7,772 (648) 4,345 11,469 Cash and equivalents at beginning of period 18,013 486 11,826 30,325 -------- --------- ------- ------------ -------- Cash and equivalents at end of period $ 25,785 $ (162) $16,171 $ 41,794 ======== ========= ======= ============ ========
F-37 78 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Viskase Companies, Inc. In our opinion, the consolidated financial statements listed in the index on page F-1 present fairly, in all material respects, the financial position of Viskase Holding Corporation and subsidiaries at December 31, 1998 and December 25, 1997, and the results of their operations and their cash flows for the periods December 26, 1997 to December 31, 1998, December 27, 1996 to December 25, 1997, and December 29, 1995 to December 26, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Chicago, Illinois April 15, 1999, except as to the information presented in Note 18 for which the date is June 15, 1999. F-38 79 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, December 25, 1998 1997 ---------- ---------- (in thousands) ASSETS Current assets: Cash and equivalents $ 7,256 $ 4,538 Receivables, net 30,462 38,081 Receivables, affiliates 51,906 51,796 Inventories 40,256 35,029 Other current assets 8,341 10,928 ---------- ---------- Total current assets 138,221 140,372 Property, plant and equipment 160,061 138,330 Less accumulated depreciation 49,321 32,064 ---------- ---------- Property, plant and equipment, net 110,740 106,266 Deferred financing costs 278 474 Other assets 2,351 2,414 Excess reorganization value 32,831 ---------- ---------- Total Assets $ 251,590 $ 282,357 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt $ 3,089 $ 2,647 Accounts payable 13,998 15,438 Accounts payable and advances, affiliates 37,956 34,210 Accrued liabilities 16,484 19,158 Current deferred income taxes (151) (65) ---------- ---------- Total current liabilities 71,376 71,388 Long-term debt 2,776 5,091 Accrued employee benefits 2,605 2,503 Deferred and noncurrent income taxes 22,555 20,822 Intercompany loans 47,901 49,520 Commitments and contingencies Stockholders' equity: Common stock, $1.00 par value, 1,000 shares authorized; 100 shares issued and outstanding Paid in capital 103,463 103,463 Accumulated earnings (deficit) (3,755) 26,496 Foreign currency translation adjustment 4,669 3,074 ---------- ---------- Total stockholders' equity 104,377 133,033 ---------- ---------- Total Liabilities and Stockholders' Equity $ 251,590 $ 282,357 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. F-39 80 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
53 weeks 52 weeks 52 weeks December 26, December 27, December 29, 1997 to 1996 to 1995 to December 31, December 25, December 26, 1998 1997 1996 -------- -------- --------- (in thousands) NET SALES $199,360 $241,701 $ 273,435 COSTS AND EXPENSES Cost of sales 153,197 184,255 207,520 Selling, general and administrative 32,035 36,604 38,386 Amortization of intangibles and excess reorganization value 2,262 3,205 3,387 Unusual charge 30,633 -------- -------- --------- OPERATING (LOSS) INCOME (18,767) 17,637 24,142 Interest income 471 687 507 Interest expense 1,501 1,509 2,248 Intercompany interest expense 2,184 3,018 3,202 Management fees 1,220 1,203 1,522 Other expense, net 1,466 3,400 1,579 -------- -------- --------- (LOSS) INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (24,667) 9,194 16,098 Income tax provision 5,584 3,850 7,046 -------- -------- --------- NET (LOSS) INCOME (30,251) 5,344 9,052 -------- -------- --------- Other comprehensive (loss) income, net of tax Foreign currency translation adjustments 973 (2,566) 62 -------- -------- --------- COMPREHENSIVE LOSS $(29,278) $ 2,778 $ 9,114 ======== ======== =========
The accompanying notes are an integral part of the consolidated financial statements. F-40 81 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Foreign Accumu- Currency Total Common Paid in lated Translation Equity/ Stock Capital (Deficit) Adjustment (Deficit) ----- ------- --------- ---------- --------- (in thousands) Balance December 28, 1995 -- $103,463 $12,100 $ 7,179 $122,742 Net income 9,052 9,052 Other comprehensive income 102 102 ----------- ---------- ------- --------- Balance December 26, 1996 -- 103,463 21,152 7,281 131,896 Net income 5,344 5,344 Other comprehensive (loss) (4,207) (4,207) ----------- ---------- --------- ----------- Balance December 25, 1997 -- 103,463 26,496 3,074 133,033 Net (loss) (30,251) (30,251) Comprehensive (loss) -- 1,595 1,595 ----------- ---------- ------- ---------- Balance December 31, 1998 -- $103,463 $(3,755) $ 4,669 $104,377 ======== ======= ====== ========
The accompanying notes are an integral part of the consolidated financial statements. F-41 82 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
December 26, December 27, December 29, 1997 to 1996 to 1995 to December 31, December 25, December 26, 1998 1997 1996 -------- -------- -------- (in thousands) Cash flows from operating activities: Net (loss) income $(30,251) $ 5,344 $ 9,052 Adjustments to reconcile net (loss) income to net cash provided (used in) by operating activities: Depreciation 11,761 10,286 10,687 Amortization of intangibles and excess reorganization value 2,262 3,205 3,387 Amortization of deferred financing fees and discount 196 201 227 Bad debt provision 573 449 484 (Decrease) Increase in deferred and noncurrent income taxes 672 (1,307) 393 Impairment of excess reorganization value 30,633 Loss (gain) on disposition of assets 336 (372) (39) Changes in operating assets and liabilities: Receivables 9,453 2,268 10,594 Receivables, affiliates (10,527) (4,270) (1,802) Inventories (4,013) (6,177) (743) Other current assets 2,696 (1,757) (1,787) Accounts payable and accrued liabilities (6,053) (2,364) 9,681 Accounts payable and advances, affiliates 10,383 (14,861) 860 Other 51 (409) (214) -------- -------- -------- Total adjustments 48,423 (15,108) 31,728 -------- -------- -------- Net cash provided by (used in) operating activities 18,172 (9,764) 40,780 Cash flows from investing activities: Capital expenditures (11,662) (17,433) (9,573) Proceeds from disposition of assets 21 25,178 453 -------- -------- -------- Net cash provided by (used in) investing activities (11,641) 7,745 (9,120) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings 1,475 2,814 1,056 Repayment of revolving loan and long-term borrowings (3,497) (2,308) (5,216) (Decrease) in Viskase Companies, Inc. loan and advances (1,619) (9,171) (22,525) -------- -------- -------- Net cash (used in) financing activities (3,641) (8,665) (26,685) Effect of currency exchange rate changes on cash (172) (949) (630) -------- -------- -------- Net increase (decrease) in cash and equivalents 2,718 (11,633) 4,345 Cash and equivalents at beginning of period 4,538 16,171 11,826 -------- -------- -------- Cash and equivalents at end of period $ 7,256 $ 4,538 $ 16,171 ======== ======== ======== Supplemental cash flow information: Interest paid $ 160 $ 212 $ 791 Income taxes paid $ 2,357 $ 4,882 $ 1,209
Supplemental schedule of noncash investing and financing activities: Fiscal 1996 Viskase Corporation transferred equipment totaling $441 to Viskase de Mexico S.A. de C.V. Fiscal 1997 Viskase Corporation transferred equipment totaling $536 to Viskase S.A. Viskase de Mexico S.A. de C.V. transferred equipment totaling $213 to Viskase Corporation. Fiscal 1998 Viskase Corporation transferred equipment totaling $1,631 to Viskase Brasil Embalagens Ltda. Viskase Corporation transferred equipment totaling $389 to Viskase (U.K.) Limited. Viskase Corporation transferred equipment totaling $30 to Viskase Canada Inc. Viskase Canada Inc. transferred equipment totaling $179 to Viskase Corporation. The accompanying notes are an integral part of the consolidated financial statements. F-42 83 VISKASE HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL Viskase Holding Corporation is a wholly owned subsidiary of Viskase Corporation (Viskase). Viskase, in turn, is a wholly owned subsidiary of Viskase Companies, Inc. , the "Company". Viskase Holding Corporation serves as the direct or indirect parent company for the majority of Viskase's non-domestic operations. These subsidiaries are as follows:
Name of Subsidiary Parent of Subsidiary Country of Business - -------------------------------- --------------------------- ------------------- Viskase (Chile) Embalagens Ltda. Viskase Holding Corporation Chile Viskase Brasil Embalagens Ltda. Viskase Holding Corporation Brazil Viskase Europe Limited Viskase Holding Corporation United Kingdom Viskase S.A. Viskase Europe Limited France Viskase Gmbh Viskase S.A. Germany Viskase SPA Viskase S.A. Italy Viskase Canada Inc. Viskase S.A. Canada Viskase Holdings Limited Viskase S.A. United Kingdom Filmco International Limited Viskase Holdings Limited United Kingdom Viskase Limited Viskase Holdings Limited United Kingdom Viskase (UK) Limited Viskase Limited United Kingdom Viskase Ireland Viskase Limited Ireland Envirodyne S.A.R.L. Viskase (UK) Limited France
Viskase Holding Corporation conducts its operations through its subsidiaries and, for the most part, has no assets or liabilities other than its investments, accounts receivable and payable with affiliates, and intercompany loan and advances. As used herein, "Holding" means Viskase Holding Corporation and its subsidiaries. 2. NATURE OF BUSINESS Holding's subsidiaries manufacture food packaging products. The operations of these subsidiaries are primarily in Europe and South and North America. Through its subsidiaries, the Company is a leading producer of cellulosic casings used in preparing and packaging processed meat products and is a major producer of heat shrinkable plastic bags and specialty films for packaging and preserving fresh and processed meat products, poultry and cheeses. International Operations Holding's subsidiaries have six manufacturing facilities located outside the continental United States, in Beauvais, France; Thaon, France; Lindsay, Ontario, Canada; Newton Aycliffe, England; Swansea, Wales and Guarulhos, Brazil. International sales and operations may be subject to various risks including, but not limited to, possible unfavorable exchange rate fluctuations, political instability, governmental regulations (including import and export controls), restrictions on currency repatriation, embargoes, labor relations laws and the possibility of governmental expropriation. Holding's foreign operations generally are subject to taxes on the repatriation of funds. F-43 84 International operations in certain parts of the world may be subject to international balance of payments difficulties which may raise the possibility of delay or loss in the collection of accounts receivable from sales to customers in those countries. Holding believes that its subsidiaries' allowance for doubtful accounts makes adequate provision for the collectibility of its receivables. Management believes that growth potential exists for many of Viskase's products outside the United States and that Viskase is well positioned to participate in these markets. Sales and Distribution Holding's subsidiaries' principal markets are in Europe, Latin America, North America and Asia Pacific. In Europe, Holding's subsidiaries operate casings service centers in Caronno, Italy, and Pulheim, Germany. Holding also operates a service center in Guarulhos, Brazil. These service centers provide finishing, inventory and delivery services to customers. Holding operates distribution centers in Santiago, Chile; Dublin, Ireland; and Warsaw, Poland. The subsidiaries also use outside distributors to market their products to customers in Europe, Africa, Middle East Asia and Latin America. Competition From time to time, Holding's subsidiaries experience reduced market share or reduced profits due to price competition. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) Basis of presentation Effective in 1990 Viskase Companies, Inc. adopted a 52/53 week fiscal year ending on the last Thursday of December. (B) Principles of consolidation The consolidated financial statements reflect the accounts of Holding. All significant intercompany transactions and balances between and among Holding have been eliminated in the consolidation. (C) Reclassifications Reclassifications have been made to the prior years' financial statements to conform to the 1998 presentation. (D) Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. (E) Cash equivalents (dollars in thousands) For purposes of the statement of cash flows, the Company considers cash equivalents to consist of all highly liquid debt investments purchased with an initial maturity of approximately three months or less. Due to the short-term nature of these instruments, the carrying values approximate the fair market value. Cash F-44 85 equivalents include $964 and $37 of short-term investments at December 31, 1998 and December 25, 1997, respectively. (F) Inventories Inventories, primarily foreign, are valued at the lower of first-in, first-out (FIFO) cost or market. (G) Property, plant and equipment Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from 2 to 32 years. Upon retirement or other disposition, cost and related accumulated depreciation are removed from the accounts, and any gain or loss is included in other income/expense. (H) Deferred financing costs Deferred financing costs are amortized on a straight-line basis over the expected term of the related debt agreement. Amortization of deferred financing costs is classified as interest expense. (I) Excess reorganization value, net Excess reorganization value is amortized on the straight-line method over 15 years. During 1998, based on an evaluation of long-lived assets, Holding wrote off the balance of $30.6 million for the excess reorganization value. Accumulated amortization of excess reorganization value totaled $32.8 million at December 25, 1997. (J) Long-lived assets The Company continues to evaluate, on a consolidated basis, the recoverability of property, plant and equipment and patent value based on operating performance and consolidated undiscounted cash flows of the operating business units. Impairment will be recognized when the expected undiscounted future operating cash flows derived from such assets are less than their carrying value. If impairment is identified, valuation techniques deemed appropriate under the particular circumstances will be used to determine the assets' fair value. The loss will be measured based on the excess of carrying value over the determined fair value. The review for impairment is performed at least once a year. (K) Pensions and other postretirement benefits Holding's operations in Europe have defined benefit retirement plans covering substantially all salaried and full time hourly employees. Pension cost is computed using the projected unit credit method. Holding's funding policy is consistent with funding requirements of the applicable foreign laws and regulations. (L) Income taxes Income taxes are accounted for in accordance with SFAS No. 109. Tax provisions and benefits are recorded at statutory rates for taxable items included in the consolidated statements of operations regardless of the period for which such items are reported for tax purposes. Deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities for which income tax benefits will be realized in future years. F-45 86 (M) Comprehensive income During 1998 the Company adopted SFAS No. 130, "Reporting Comprehensive Income," which requires the Company to disclose comprehensive income in addition to net income. Comprehensive income includes all other non-shareholder changes in equity. As of December 31, 1998, all such changes in equity resulted from changes in foreign currency translation adjustments. (N) Revenue recognition Sales to customers are recorded at the time of shipment net of discounts and allowances. (O) Foreign currency contracts The Company uses foreign exchange forward contracts to hedge some of its non-functional currency receivables and payables which are denominated in major currencies that can be traded on open markets. This strategy is used to reduce the overall exposure to the effects of currency fluctuations on cash flows. The Company's policy is not to speculate in financial instruments. Receivables and payables which are denominated in non-functional currencies are translated to the functional currency at month end and the resulting gain or loss is taken to other income/expense on the income statement. Gains and losses on hedges of receivables and payables are marked to market. The result is recognized in other income and expense on the income statement. (P) Segment reporting During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which has had no effect on Holding's financial reporting. 4. RECEIVABLES (dollars in thousands) Receivables consisted primarily of trade accounts receivable and were net of allowances for doubtful accounts of $644 and $851 at December 31, 1998, and at December 25, 1997, respectively. 5. INVENTORIES (dollars in thousands) Inventories consisted of:
December 31, December 25, 1998 1997 ------- ------- Raw materials $ 3,347 $ 4,418 Work in process 14,302 10,511 Finished products 22,607 20,100 ------- ------- $40,256 $35,029 ======= =======
Inventories were net of reserves for obsolete and slow moving inventory of $798 and $1,583 at December 31, 1998 and December 25, 1997, respectively. F-46 87 6. PROPERTY, PLANT AND EQUIPMENT (dollars in thousands)
December 31, December 25, 1998 1997 ---------- ---------- Property, plant and equipment: Land and improvements $ 3,498 $ 3,372 Buildings and improvements 25,431 24,124 Machinery and equipment 127,912 102,893 Other 3,220 7,941 ---------- ---------- $ 160,061 $ 138,330 ========== ==========
Maintenance and repairs charged to costs and expenses for 1998, 1997, and 1996 aggregated $6,039, $7,139 and $8,374, respectively. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Estimated useful lives of land and improvements range from 15 to 30 years; building and improvements range from 10 to 32 years; and machinery and equipment range from 2 to 15 years. 7. ACCRUED LIABILITIES (dollars in thousands) Accrued liabilities were comprised of:
December 31, December 25, 1998 1997 ---------- ---------- Compensation and employee benefits $ 8,637 $ 9,225 Taxes 2,184 2,527 Accrued volume and sales discounts 3,311 3,281 Inventory received not billed 931 604 Other 1,421 3,521 ---------- ---------- $ 16,484 $ 19,158 ========== ==========
8. DEBT OBLIGATIONS (dollars in thousands) As discussed in Subsequent Events (refer to Note 18), the Company entered into a $100,000 Senior Secured Credit Facility and $35,000 of Junior Term Loans in June 1999. The proceeds were used to redeem the 12% Senior Secured Notes. On June 20, 1995, Viskase Companies, Inc. completed the sale of $160,000 aggregate principal amount of senior secured notes (Senior Secured Notes) to certain institutional investors in a private placement. The senior secured notes were issued pursuant to an indenture dated June 20, 1995 (Indenture) and consist of (i) $151,500 of 12% Senior Secured Notes due 2000 and (ii) $8,500 of Floating Rate Senior Secured Notes due 2000 (collectively, the Senior Secured Notes). Viskase Companies, Inc. used the net proceeds of the offering primarily to (i) repay the Company's $86,125 domestic term loan, (ii) repay the $68,316 of obligations under the Company's domestic and foreign revolving loans and (iii) pay transaction fees and expenses. Concurrently with the June 20, 1995 placement, Viskase Companies, Inc. entered into a new $20,000 domestic revolving credit facility (Revolving Credit Facility) and a new $28,000 letter of credit facility (Letter of Credit Facility). The Senior Secured Notes and the obligations under the existing Revolving Credit Facility and the Letter of Credit Facility are guaranteed by Viskase Companies, Inc.'s significant domestic subsidiaries and collateralized by a collateral pool (Collateral Pool) comprised of: (i) all domestic accounts receivable (including intercompany receivables) and inventory; (ii) all patents, trademarks and other intellectual property (subject to non-exclusive licensing agreements); (iii) substantially all domestic fixed assets (other than assets subject to a lease agreement with General Electric Capital Corporation); and (iv) a senior pledge of 100% of the capital stock of Viskase Companies, Inc.'s significant domestic subsidiaries and F-47 88 65% of the capital stock of Viskase Europe Limited. Such guarantees and security are shared by the holders of the Senior Secured Notes and the holders of the obligations under the Revolving Credit Facility on a pari passu basis pursuant to an intercreditor agreement. Pursuant to such intercreditor agreement, the security interest of the holders of the obligations under the Letter of Credit Facility has priority over all other liens in the Collateral Pool. In August 1998, the Company redeemed $105,000 of aggregate principal amount of its 12% Senior Secured Notes using the proceeds from the completed divestiture of the capital stock of Clear Shield. The $55,000 aggregate principal amount of Senior Secured Notes to certain institutional investors are still outstanding at December 31, 1998. (Refer to Note 18) The $151,500 tranche of Senior Secured Notes bears interest at a rate of 12% per annum and the $8,500 tranche bears interest at a rate equal to the six month London Interbank Offered Rate (LIBOR) plus 575 basis points. The current interest rate on the floating rate tranche is approximately 11.7%. The interest rate on the floating rate tranche is reset semi-annually on June 15 and December 15. Interest on the Senior Secured Notes is payable each June 15 and December 15. On June 15, 1999, $55,000 of the aggregate principal amount of the Senior Secured Notes is subject to a mandatory redemption. (Refer to Note 18) The Company finances its working capital needs through a combination of cash generated through operations, unsecured credit facilities and intercompany loans. The Viskase Limited term facility is with a foreign financial institution. The term facility, which is collateralized by substantially all of the assets of Viskase Limited, bears a variable interest rate and is payable in semiannual installments through June 2000. Outstanding short-term and long-term debt consisted of:
December 31, December 25, 1998 1997 ---------- ---------- Short-term debt and current maturity of long-term debt: Current maturity of Viskase Limited Term Loan (3.2%) $ 1,742 $ 1,629 Other 1,347 1,018 ---------- ---------- Total short-term debt $ 3,089 $ 2,647 ========== ========== Long-term debt: Viskase Limited Term Loan (3.2%) $ 868 $ 2,443 Other 1,908 2,648 ---------- ---------- Total long-term debt $ 2,776 $ 5,091 ========== ==========
The fair value of the Company's debt obligation is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for the debt of the same remaining maturities. The fair values of debt obligations approximate their carrying values. Aggregate maturities of remaining long-term debt for each of the next five fiscal years are:
Total ---------- 1999 $ 3,093 2000 1,593 2001 655 2002 358 2003 105
F-48 89 9. OPERATING LEASES (dollars in thousands) The Company has operating lease agreements for machinery, equipment and facilities. The majority of the facilities leases require the Company to pay maintenance, insurance and real estate taxes. Future minimum lease payments for operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 1998, are: 1999 $ 1,170 2000 782 2001 504 2002 363 2003 346 Total thereafter -------- Total minimum lease payments $ 3,165 ========
Total rent expense during 1998, 1997 and 1996 amounted to $2,031, $2,549 and $2,905, respectively. 10. RETIREMENT PLANS (dollars in thousands) Holding maintains various pension and statutory separation pay plans for its European employees. The expense for these plans in 1998, 1997 and 1996 was $1,431, $1,216 and $1,972, respectively. As of their most recent valuation dates, in plans where vested benefits exceeded plan assets, the actuarially computed value of vested benefits exceeded those plans' assets by approximately $2,106; conversely, plan assets exceeded the vested benefits in certain other plans by approximately $2,503. Holding's postretirement benefits are not material. 11. CONTINGENCIES (dollars in thousands) 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 multilayer barrier shrink film products was infringing various Viskase patents relating to multilayer 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. Patent validity and infringement having been established, the remaining issues for trial are whether ANC willfully infringed Viskase's patents by using "Affinity" brand resin and the determination of the amount of compensatory damages. 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. Viskase filed its memorandum in support of enhanced damages and ANC is expected to file its response to Viskase's memorandum by June 18, 1999. F-49 90 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 to which Viskase is preparing its reponse. 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 is preparing 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. If Viskase's motion to reinstate the damages is denied, Viskase expects the trial on damages to occur during the second half of 1999 or early 2000. On May 3, 1999, ANC commenced legal action in the Federal District Court for the Northern District of Illinois seeking declaratory relief that Viskase's second patent is invalid. ANC also filed a motion to consolidate the new action with the existing suit. Viskase is preparing an answer to ANC's complaint and has filed its response to ANC's motion to consolidate. The Company expects ANC to vigorously contest these matters in the Court and the USPTO and to appeal any final judgment. No part of the pending claims has been recorded in the Company's financial statements. Through December 31, 1998, $4,644 thousand in patent defense costs have been accrued and capitalized. In March 1997, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the sausage casings industry. Viskase is cooperating fully with the investigation. The Company and its subsidiaries are involved in other 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. 12. UNUSUAL CHARGES During the third quarter of 1998, due to the business conditions leading to the Viskase plan of restructuring, the Company evaluated, on a consolidated basis, the recoverability of long-lived assets including property, plant and equipment, patents and excess reorganization. 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, the Company recognized an impairment charge of $91.2 million for excess reorganization, of which $30.6 million related to Holding. In addition, the Viskase plan of restructuring resulted in an allowance of $5.6 million recorded for the decommissioning of foreign operations. During fiscal 1998, $2.8 million was charged against the reserve. F-50 91 13. INCOME TAXES (dollars in thousands) The provision (benefit) for income taxes consisted of:
December 26, December 27, December 29, 1997 to 1996 to 1995 to December 31, December 25, December 26, 1998 1997 1996 ---------- ---------- ---------- Current: Federal $ 2,087 $ 2,159 $ 1,909 Foreign 2,401 2,593 4,365 State and local 372 405 379 ---------- ---------- ---------- 4,860 5,157 6,653 ---------- ---------- ---------- Deferred: Federal -- -- -- Foreign 724 (1,307) 393 State and local -- -- -- ---------- ---------- ---------- 724 (1,307) 393 ---------- ---------- ---------- $ 5,584 $ 3,850 $ 7,046 ========== ========== ==========
A reconciliation from the statutory federal tax rate to the consolidated effective tax rate follows:
December 26, December 27, December 29, 1997 to 1996 to 1995 to December 31, December 25, December 26, 1998 1997 1996 -------- -------- -------- Statutory federal tax rate 35.0% 35.0% 35.0% Increase (decrease) in tax rate due to: State and local taxes net of related federal tax benefit (1.0) 2.9 1.5 Net effect of taxes relating to foreign operations (56.2) 3.8 7.9 Other (.4) .2 (.6) -------- -------- -------- Consolidated effective tax rate (22.6)% 41.9% 43.8% ======== ======== ========
Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities for 1998 and 1997 are as follows:
1998 --------------------------------------------------------------- Temporary Difference Tax Effected ----------------------------- ----------------------------- Deferred Tax Deferred Tax Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities ------------ ------------ ------------ ------------ Depreciation basis differences $58,112 $22,377 Pension and healthcare 1,208 444 Other accruals, reserves, and other $2,086 881 $784 367 ------ ------- ---- -------- $2,086 $60,201 $784 $23,188 ====== ======= ==== =======
At December 31, 1998, the Company had $15,922 of undistributed earnings of foreign subsidiaries considered permanently invested for which deferred taxes have not been provided. F-51 92
1997 --------------------------------------------------------------- Temporary Difference Tax Effected ----------------------------- ----------------------------- Deferred Tax Deferred Tax Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities ------------ ------------ ------------ ------------ Depreciation basis differences $63,853 $ 22,823 Pension and healthcare 1,537 551 Other accruals, reserves, and other $7,776 441 $2,844 227 ------ ------- ------ -------- $7,776 $65,831 $2,844 $ 23,601 ====== ======= ====== ========
At December 25, 1997, the Company had $19,173 of undistributed earnings of foreign subsidiaries considered permanently invested for which deferred taxes have not been provided. Domestic earnings after extraordinary gain or loss and before income taxes were approximately $6,039, $6,505 and $6,156 in 1998, 1997 and 1996, respectively. Foreign (loss) earnings before income taxes were approximately $(30,707), $2,689 and $9,942 in 1998, 1997 and 1996, respectively. 14. COMPREHENSIVE INCOME The following sets forth the components of other comprehensive income (loss) and the related income tax provision (benefit):
December 26, December 27, December 29, 1997 1996 1995 to to to December 31, December 25, December 26, 1998 1997 1996 ------------ ------------ ------------ Foreign currency translation adjustment (1) $973 $(2,566) $62
(1) Net of related tax provision (benefit) of $622, $(1,641) and $40 for fiscal years ended 1998, 1997 and 1996, respectively. 15. RESEARCH AND DEVELOPMENT COSTS (dollars in thousands) Research and development costs are expensed as incurred and totaled $1,452, $1,368 and $1,282, for 1998, 1997, and 1996, respectively. 16. RELATED PARTY TRANSACTIONS (dollars in thousands) Intercompany loans and advances:
December 31, December 25, 1998 1997 -------- -------- Viskase Europe Limited 12% promissory note due to Viskase Companies, Inc. $ 9,891 $ 11,510 Advances: Viskase Corporation to Viskase Holding Corporation 38,010 38,010 -------- -------- $ 47,901 $ 49,520 ======== ========
The Viskase Corporation advance to Viskase Holding Corporation is payable on demand. F-52 93 License Agreements Holding has been granted the right to license Viskase Corporation's patents and technology pursuant to a license agreement between Viskase Corporation and Viskase Holding Corporation. Intercompany transactions: In 1998, 1997 and 1996, Holding's subsidiaries were charged $720, $703 and $999, respectively, by Viskase Corporation for management services. In 1998, 1997 and 1996, Holding's subsidiaries were charged $500, $500 and $520, respectively, by the Company for management services. During 1998, 1997 and 1996, Holding's subsidiaries purchased semi-finished and finished inventory from Viskase Sales Corporation in the amount of $31,898, $35,149 and $32,489, respectively. In addition, during 1998, 1997 and 1996, Holding's subsidiaries had sales of inventory to Viskase Sales Corporation in the amount of $5,122, $6,524 and $7,842, respectively. 17. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying value and estimated fair value as of December 31, 1998 of the Company's financial instruments. (Refer to Notes 3 and 8.)
Carrying Estimated Value Fair Value ----- ----------- Assets: Cash and equivalents $7,256 $7,256 Foreign currency contracts 3,855 3,975 Liabilities: Long-term debt excluding capital lease obligations 933 933
18. SUBSEQUENT EVENTS On May 10, 1999, the Court granted Viskase's motion to have the jury verdict as to the compensatory damages reinstated. Viskase filed its memorandum in support of enhanced damages and ANC is expected to file its response to Viskase's memorandum by June 18, 1999. During June 1999, Viskase Corporation and Viskase Sales Corporation entered into two-year secured credit agreements consisting of a $50 million senior revolving credit facility, including a $26 million sublimit for issuance of letters of credit (Senior Revolving Credit Facility), a $50 million senior term facility (Senior Term Facility), collectively the "Senior Secured Credit Facility," and $35 million of junior secured term loans (Junior Term Loans). The proceeds of the Senior Secured Credit Facility and the Junior Term Loans were used to repay the $55 million 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 Senior Secured Credit Facility is guaranteed by Viskase Companies, Inc. and Viskase Holding Corporation and is secured by a collateral pool (Collateral Pool) comprised of: (i) all domestic accounts receivable (including intercompany receivables) and inventory; (ii) all patents, trademarks and other intellectual property and intangible assets; (iii) substantially all domestic fixed assets (other than assets subject to a lease agreement with General Electric Capital Corporation); and (iv) a senior pledge of 100% of the capital stock of Viskase Companies, Inc.'s significant domestic subsidiaries and 65% of the capital stock of Viskase Europe Limited and Viskase Brazil. F-53 94 Borrowings under the Senior Revolving Credit Facility bear interest either at the bank's prime interest rate plus a margin of 75 basis points or the London Interbank Offered Rate (LIBOR) plus a margin of 275 basis points. The Senior Term Facility bears interest at either the bank's prime interest rate plus a margin of 125 basis points or LIBOR plus a margin of 325 basis points. Fees on the outstanding amount of standby letters of credit are 2.25% per annum, with an issuance fee of 0.5% on the face amount of the letter of credit. The unused commitment fee for the Senior Revolving Credit Facility is 0.5% per annum. The Senior Term Facility is payable in six equal quarterly principal payments of $1.786 million beginning on January 4, 2000. The remaining principal balance outstanding under the Senior Term Facility is payable on the June 30, 2001 maturity date. In the event the Company has Surplus Cash (as defined) in any year, the Company is required to use an amount equal to 50% of the Surplus Cash to redeem Senior Term Facility obligations at par. The Company may elect, at its option, to prepay amounts due under the Senior Term Facility; such prepayments may be subject to a prepayment premium of 25 to 100 basis points of the principal amount redeemed depending on the source of funds used for such prepayment. The $35 million of Junior Term Loans bear interest at an initial rate of 14% per annum, and increase .5% every six months thereafter, and mature on June 30, 2001. The Junior Term Loans are collateralized by the Collateral Pool for the Senior Secured Credit Facility; however, the Junior Term Loans are subordinated to the obligations outstanding under the Senior Secured Credit Facility. D.P. Kelly and Associates L.P., which owns approximately 13% of the outstanding common stock of Viskase Companies, Inc. is a lender under the Junior Term Loans. The Company's Senior Secured Credit Facility and Junior Term Loans contain a number of financial covenants that, among other things, require the maintenance of a minimum level of tangible net worth, a minimum fixed charge coverage ratio and a minimum leverage ratio of total liabilities to EBDIAT and a limitation on capital expenditures. As of March 31, 1999, the Company is in compliance with the amended covenants under the Indenture and Amended and Restated Credit Agreement. F-54 95 VISKASE COMPANIES, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Balance at Provision Balance Beginning Charged to at End Description of Period Expense Write-offs Recoveries Other(1) of Period ----------- ---------- ----------- ---------- ---------- --------- --------- 1998 for the year ended December 31 Allowance for doubtful accounts $1,275 $1,295 $ (910) $ 0 $ (153) $1,507 1997 for the year ended December 25 Allowance for doubtful accounts 2,051 665 (1,452) 13 (2) 1,275 1996 for the year ended December 26 Allowance for doubtful accounts 3,224 659 (2,293) 469 (8) 2,051 1998 for the year ended December 31 Reserve for obsolete and slow moving inventory 4,470 3,470 (3,499) (616) 3,825 1997 for the year ended December 25 Reserve for obsolete and slow moving inventory 4,397 1,944 (1,865) (6) 4,470 1996 for the year ended December 26 Reserve for obsolete and slow moving inventory 3,818 1,805 (1,210) (16) 4,397
(1) Foreign currency translation and the disposition of Clear Shield and Sandusky. F-55 96 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT ------------------------------ The Company has the following subsidiaries, each of which is wholly owned by the Company or by a wholly-owned subsidiary of the Company. Indented names are subsidiaries of the company under which they are indented. Envirodyne Subsidiary, Inc. (Delaware) Envirosonics, Inc. (California) Viskase Corporation (Pennsylvania) Viskase Holding Corporation (Delaware) Viskase Australia Limited (Delaware) Viskase (Chile) Embalagens Ltda. (Chile) Viskase Brasil Embalagens Ltda. (Brazil) Viskase Europe Limited (United Kingdom) Viskase S.A. (France) Viskase Canada Inc. (Ontario) Viskase GMBH (Germany) Viskase Holdings Limited (United Kingdom) Filmco International Limited (United Kingdom) Viskase Limited (United Kingdom) Viskase Ireland Viskase (U.K.) Limited (United Kingdom) Envirodyne S.A.R.L. (France) Viskase S.p.A. (Italy) Viskase Sales Corporation (Delaware) Viskase Puerto Rico Corporation (Delaware) Viskase Films, Inc. WSC Corp. (Delaware) F-56 97 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Viskase Companies, Inc. and subsidiaries on Form S-8 (File Nos. 333-10689 and 333-12829) of our report dated April 15, 1999 except as to the information presented in Note 25, for which the date is June 15, 1999, on our audits of the consolidated financial statements and financial statement schedule of Viskase Companies, Inc. and subsidiaries as of December 31, 1998 and December 25, 1997, and for the periods December 26, 1997 to December 31, 1998, December 27, 1996 to December 25, 1997 and December 29, 1995 to December 26, 1996, and our report dated April 15, 1999 except for as to the information presented in Note 18, for which the date is June 15, 1999, on our audits of the consolidated financial statements of Viskase Holding Corporation and subsidiaries as of December 31, 1998 and December 25, 1997 and for the periods December 26, 1997 to December 31, 1998, December 27, 1996 to December 25, 1997 and December 29, 1995 to December 26, 1996, which reports are included in the annual report on Form 10-K. PRICEWATERHOUSECOOPERS LLP Chicago, Illinois June 15, 1999 EX-4.13 2 EXHIBIT 1 Exhibit 4.13 FOURTH SUPPLEMENTAL INDENTURE THIS FOURTH SUPPLEMENTAL INDENTURE, dated as of October 26, 1998 (this "Supplemental Indenture"), between VISKASE COMPANIES, INC., a Delaware corporation (the "Company"), and STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, N.A. (formerly Fleet National Bank Connecticut and previously Shawmut Bank Connecticut, National Association), as trustee (the "Trustee"), under the Indenture, dated as of June 20, 1995 and amended by the First Supplemental Indenture, dated as of October 13, 1995, the Second Supplemental Indenture, dated as of September 2, 1997, and the Third Supplemental Indenture, dated as of July 2, 1998, between the Company and the Trustee (the "Indenture"). WHEREAS, the Company has issued, the Trustee has authenticated and there have been delivered pursuant to the Indenture $160,000,000 aggregate principal amount of the Company's First Priority Senior Secured Notes due 2000 (the "Securities"), $55,000,000 of which are currently outstanding; WHEREAS, the Company desires, by this Supplemental Indenture to amend the definition of "Net Worth" set forth in the Indenture (collectively, the "Amendment"); WHEREAS, Section 8.02 of the Indenture provides that the Company and the Trustee may enter into a supplemental indenture, with the consent of the holders of not less than a majority in aggregate principal amount of the then outstanding Securities (as defined therein), for the purpose of changing any provisions of the Indenture except as otherwise set forth therein; WHEREAS, the holders of not less than a majority in principal amount of the Securities outstanding, as of 5:00 p.m., New York City time, on October 8, 1998, the record date for such purpose, have consented to the Amendment; and WHEREAS, the Company is legally empowered and has been duly authorized by the necessary corporate action to make, execute and deliver this Supplemental Indenture, and all acts and things whatsoever necessary to make this Supplemental Indenture, when executed and delivered by the Company and the Trustee, a valid, binding and legal instrument have been taken. NOW, THEREFORE, each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the holders of the Securities: 2 ARTICLE 1 DEFINITIONS All terms used in this Supplemental Indenture which are defined in the Indenture shall have the meanings assigned to them in the Indenture. ARTICLE 2 AMENDMENT OF INDENTURE 2.1 Article 1 of the Indenture is amended to add the following provision to the end of the definition of "Net Worth": ; and provided, further, that (i) restructuring charges incurred during the quarter ended as of September 24, 1998 in an aggregate amount not to exceed $58,000,000 (and provided that not more than 25% of which were incurred in the form of cash expenses) and (ii) non-cash charges incurred during the fiscal quarter ended as of September 24, 1998 in an aggregate amount not to exceed $91,200,000 for the write-down of excess reorganization value of the Company's assets, in each case shall be added back to the calculation of Net Worth to the extent such charges would otherwise be deducted in calculating such Net Worth and notwithstanding any tax effect of such charges. ARTICLE 3 MISCELLANEOUS 3.1 This Supplemental Indenture may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, and all of such counterparts shall together constitute one and the same instrument. 3.2 The internal laws of the State of New York shall govern this Supplemental Indenture without regard to principles of conflicts of law. 3.3 All provisions of this Supplemental Indenture shall be deemed to be incorporated in, and made a part of, the Indenture; and the Indenture, as amended and supplemented by this Supplemental Indenture, shall be read, taken and construed as one and the same instrument. 3.4 The provisions of Article 1, as amended by Article 2 of this Supplemental Indenture, shall be deemed effective for all purposes as of the date hereof; provided, however, that this Supplemental Indenture shall not become effective as of such date until the Company has entered into amendments that are substantially identical to the Amendment contained herein with respect to the Amended and Restated Credit Agreement, dated as of June 1, 1998, between the Company, the lenders identified therein and BT Commercial Corporation, as Agent. The Company shall provide to the Trustee written notice that it has entered into such amendments and that this Supplemental Indenture has become effective. 2 3 3.5 The recitals to this Supplemental Indenture shall not be construed as representations of the Trustee and the Trustee makes no representation as to the accuracy of such recitals. IN WITNESS WHEREOF, the parties have caused this Fourth Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. VISKASE COMPANIES, INC. By: ------------------------------------ Gordon S. Donovan Vice President, Chief Financial Officer and Treasurer Attest: -------------------------------- Stephen M. Schuster Vice President and Secretary STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, N.A. By: ------------------------------------ Name: ----------------------------------- Title: --------------------------------- Attest: -------------------------------- By: ------------------------------------ Name: ----------------------------------- Title: --------------------------------- 3 EX-10.20 3 AMENDMENT #2 DATED 10/26/98 1 Exhibit 10.20 AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT WITH VISKASE COMPANIES, INC. THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT ("AMENDMENT") is dated as of October 26, 1998, by and between VISKASE COMPANIES, INC., a Delaware corporation formerly known as Envirodyne Industries, Inc. ("BORROWER") and BT COMMERCIAL CORPORATION, a Delaware corporation, individually and as agent (in such capacity, the "AGENT") for the "LENDERS" under and as defined in the Credit Agreement referred to below. Capitalized terms used herein but not otherwise defined herein shall have the respective meanings assigned to such terms in the Credit Agreement. WITNESSETH: WHEREAS, Borrower, Agent and Lenders have entered into that certain Amended and Restated Credit Agreement dated as of June 1, 1998, as amended (the "CREDIT AGREEMENT"), pursuant to which Lenders have agreed to make certain loans and other financial accommodations to or for the account of Borrower; WHEREAS, Borrower has requested that Agent and Lenders further amend the Credit Agreement; and WHEREAS, Lenders and Agent have agreed to further amend the Credit Agreement on the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the respective parties hereto hereby agree as follows: 1. AMENDMENT TO CREDIT AGREEMENT. Effective as of the date hereof, upon satisfaction of the conditions precedent set forth in SECTION 2 below, and in reliance upon the representations and warranties of Borrower set forth herein, the Credit Agreement is hereby amended as follows: 1.1 The definition of the term "Net Worth" set forth in SECTION 1.1 of the Credit Agreement is hereby amended by inserting the following language therein immediately prior to the period at the end thereof: 2 ; and provided, further, that (i) restructuring charges incurred during the quarter ended as of September 24, 1998 in an aggregate amount not to exceed $58,000,000 (and provided that not more than 25% of which were incurred in the form of cash expenses) and (ii) non-cash charges incurred during the fiscal quarter ended as of September 24, 1998 in an aggregate amount not to exceed $91,200,000 for the write-down of excess reorganization value of the Company's assets, in each case shall be added back to the calculation of Net Worth to the extent such charges would otherwise be deducted in calculating such Net Worth and notwithstanding any tax effect of such charges. 2. CONDITIONS PRECEDENT. This Amendment shall become effective as of the date hereof, upon satisfaction of each of the following conditions: (a) As of the date first above written (after giving effect to this Amendment) no Default or Event of Default shall have occurred and be continuing. (b) Agent shall have received two (2) copies of this Amendment duly executed by Borrower. (c) Agent shall have received evidence reasonably satisfactory to Agent that the Third Supplemental Indenture to the First Priority Notes Indenture substantially in the form of EXHIBIT A hereto shall have been executed and delivered by Borrower and prior to or concurrently with the effectiveness of this Amendment shall have become effective pursuant to the respective terms thereof. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS. 3.1 Borrower hereby represents and warrants to the Agent and each of the Lenders that: (a) this Amendment, and the Credit Agreement as amended hereby, constitute legal, valid and binding obligations of Borrower and are enforceable against Borrower in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws relating to creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in equity or at law); (b) after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing; and 3 (c) the execution and delivery by Borrower of this Amendment does not require the consent or approval of any Person, except such consents and approvals as shall have been obtained. 4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS. 4.1 Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import, and each reference in each of the other Credit Documents to the "Credit Agreement," shall in each case mean and be a reference to the Credit Agreement as amended hereby. 4.2 Except as expressly set forth herein, (i) the execution and delivery of this Amendment shall in no way affect any right, power or remedy of Agent or any of the Lenders with respect to any Event of Default nor constitute a waiver of any provision of the Credit Agreement or any of the other Credit Documents and (ii) all terms and conditions of the Credit Agreement, the other Credit Documents and all other documents, instruments, amendments and agreements executed and/or delivered by the Borrower pursuant thereto or in connection therewith shall remain in full force and effect and are hereby ratified and confirmed in all respects. The execution and delivery of this Amendment by Agent and each of the Lenders shall in no way obligate Agent or any of the Lenders, at any time hereafter, to consent to any other amendment or modification of any term or provision of the Credit Agreement or any of the other Credit Documents, whether of a similar or different nature. 5. GOVERNING LAW. The validity, interpretation and cement of this Amendment and any dispute arising out of or in connection with this Amendment, whether sounding in contract, tort, equity or otherwise, shall be governed by the internal laws (as opposed to the conflicts of laws provisions) and decisions of the State of Illinois. 6. HEADINGS. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 7. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the date first set forth above. BORROWER: VISKASE COMPANIES, INC. By: ---------------------------- Name: ---------------------------- Title: ---------------------------- AGENT: BT COMMERCIAL CORPORATION, as Agent By: ---------------------------- Name: ---------------------------- Title: ---------------------------- LENDERS: BT COMMERCIAL CORPORATION, in its individual capacity By: ---------------------------- Name: ---------------------------- Title: ---------------------------- 5 EXHIBIT A TO AMENDMENT NO. 2 DATED AS OF OCTOBER 26, 1998 FORM OF AMENDMENT TO FIRST PRIORITY NOTES INDENTURE --------------------------------------------------- Attached EX-10.21 4 LETTER AGREEMENT 1 Exhibit 10.21 July 14, 1998 Stephen M. Schuster - -------------------------- - -------------------------- Dear Steve: The following sets forth the terms and conditions of our "Agreement" concerning your separation from employment and retainer: 1. Due to the consolidation of the Envirodyne corporate office with the management of Viskase Corporation ("Viskase") many of your responsibilities will be eliminated or significantly reduced. Consequently, your employment with Envirodyne Industries, Inc. ("Envirodyne") will be involuntarily terminated and your last day of active employment will be Friday, July 31, 1998. Except as specified herein your payroll and employee benefits from Envirodyne will cease as of July 31, 1998. 2. Effective August 1, 1998 you are engaged and retained by Envirodyne and Viskase as an independent contractor to serve as needed and as available as Vice President, Secretary and General Counsel of Envirodyne and Vice President of Viskase and its subsidiaries from August 1, 1998 to July 31, 2000. In this capacity you will report to me on such matters, duties and responsibilities as assigned, oversee the legal function and represent Envirodyne in legal matters before the Board of Directors. For your commitment and services you will be paid an annual retainer of Fifty Thousand Dollars ($50,000) and a pro rata portion thereof for any period less than a full year. Envirodyne and Viskase jointly and severally agree to pay you this retainer monthly in twelve equal monthly installments, payable on the first working day of each month. Viskase will also reimburse you for all your reasonable out of pocket expenses in providing such services including, without limitation, charges, disbursements, professional licenses and association dues upon submission of a standard expense report form. This retainer may be terminated by Envirodyne at any time after January 31, 2000 upon at least ninety (90) days prior written notice which notice may not be given prior to January 31, 2000. You may terminate this retainer at any time upon ninety days (90) prior written notice to Envirodyne. A Change of Control (as defined in the Severance Policy) during the term of this retainer shall result in the immediate termination of this retainer. 2 3. Pursuant to the Envirodyne Corporate Office Severance Policy ("Severance Policy"), you would be eligible to receive on July 31, 1998 certain benefits due to the elimination of the Envirodyne corporate office and your involuntary separation from employment. Those severance benefits include, among other things, twenty-four (24) months of salary and target bonus under the Envirodyne Corporate Office Management Incentive Plan ("MIP"). The amount of such benefits ("Severance Benefit") are: Separation Pay ($14666.67/mo x 24 mos.) = $ 352,000 Target Bonus ($176,000 x 40%) = $ 70,400 ---------- Total Severance Benefit $ 422,400 ========== In lieu of such Severance Benefit upon termination of employment, as part of this Agreement, Envirodyne and Viskase jointly and severally agree to pay the Severance Benefit of Four Hundred Twenty-Two Thousand Four Hundred Dollars ($422,400) to you in single lump sum, upon the first of the following to occur: (a) July 31, 2000; (b) a Change of Control (as defined in the Severance Policy) of Envirodyne or Viskase; (c) your death or permanent disability; (d) termination of this Agreement by either party hereto; or (e) Envirodyne's or Viskase's default in or failure to perform any of their respective obligations under this Agreement. 4. You will receive a pro rata bonus under the MIP for fiscal year 1998. This payment will be made to you upon the completion of the independent audit but not later than March 15, 1999. 5. Currently, you have options for 66,250 shares of Envirodyne common stock, 38,117 of which are vested and 28,113 are unvested. While engaged under this Agreement, your vested options will remain exercisable per the terms and conditions of the Envirodyne Stock Option Plan; unvested options will not expire, will remain in place and will vest according to your Option Agreements; any unvested options would vest immediately in the event of the sale or Change of Control of Envirodyne or Viskase. As so modified by this Agreement, the Option Agreements with you shall remain in full force and effect. 6. Your rights to indemnification and advancement of expenses as currently provided in Envirodyne's By-Laws for the period you serve as an officer of Envirodyne remain in effect. Envirodyne and Viskase shall each indemnify and hold you harmless from and against any and all claims, liabilities, losses, costs, damages or expenses (including attorney's fees) arising out of or in connection with (i) Envirodyne's or Viskase's failure to perform any obligation under this Agreement, (ii) any action taken by you at the request of Envirodyne or Viskase, (iii) any other claim 3 relating to your services hereunder which claim is not based upon any act or omission adjudicated to constitute willful misconduct, fraud or dishonesty. In addition, Envirodyne and Viskase each agree to advance your expenses as currently provided for officers in Envirodyne's By-Laws. Notwithstanding anything to the contrary contained herein, neither Envirodyne or Viskase shall be required to indemnify you for any act or omission performed by you which shall have been adjudicated to constitute willful misconduct, fraud or dishonesty. Your activities under this Agreement will be covered under the Envirodyne Directors and Officers liability insurance policy. 7. This Agreement constitutes the entire agreement between the parties with respect to the subject matter herein and shall be binding upon and inure to the benefit of the parties and their respective successors, heirs and assigns. I have executed this Agreement as President and Chief Executive Officer of Envirodyne and Viskase and am authorized to do so. If you are in agreement with the foregoing, please sign the enclosed executed copy of this Agreement and return it, whereupon this Agreement shall be legally binding on the parties hereto. Very truly yours, ENVIRODYNE INDUSTRIES, INC. By: ------------------------------- F. Edward Gustafson President and Chief Executive Officer VISKASE CORPORATION By: ------------------------------- F. Edward Gustafson President and Chief Executive Officer Accepted and agreed this____day of July, 1998 - ------------------------------------ Stephen M. Schuster FEG:gam EX-21.1 5 SUBSIDIARIES 1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT ------------------------------ The Company has the following subsidiaries, each of which is wholly owned by the Company or by a wholly-owned subsidiary of the Company. Indented names are subsidiaries of the company under which they are indented. Envirodyne Subsidiary, Inc. (Delaware) Envirosonics, Inc. (California) Viskase Corporation (Pennsylvania) Viskase Holding Corporation (Delaware) Viskase Australia Limited (Delaware) Viskase (Chile) Embalagens Ltda. (Chile) Viskase Brasil Embalagens Ltda. (Brazil) Viskase Europe Limited (United Kingdom) Viskase S.A. (France) Viskase Canada Inc. (Ontario) Viskase GMBH (Germany) Viskase Holdings Limited (United Kingdom) Filmco International Limited (United Kingdom) Viskase Limited (United Kingdom) Viskase Ireland Viskase (U.K.) Limited (United Kingdom) Envirodyne S.A.R.L. (France) Viskase S.p.A. (Italy) Viskase Sales Corporation (Delaware) Viskase Puerto Rico Corporation (Delaware) Viskase Films, Inc. WSC Corp. (Delaware) EX-23.1 6 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Viskase Companies, Inc. and subsidiaries on Form S-8 (File Nos. 333-10689 and 333-12829) of our report dated April 15, 1999 except as to the information presented in Note 25, for which the date is June 15, 1999, on our audits of the consolidated financial statements and financial statement schedule of Viskase Companies, Inc. and subsidiaries as of December 31, 1998 and December 25, 1997, and for the periods December 26, 1997 to December 31, 1998, December 27, 1996 to December 25, 1997 and December 29, 1995 to December 26, 1996, and our report dated April 15, 1999 except for as to the information presented in Note 18, for which the date is June 15, 1999, on our audits of the consolidated financial statements of Viskase Holding Corporation and subsidiaries as of December 31, 1998 and December 25, 1997 and for the periods December 26, 1997 to December 31, 1998, December 27, 1996 to December 25, 1997 and December 29, 1995 to December 26, 1996, which reports are included in the annual report on Form 10-K. PRICEWATERHOUSECOOPERS LLP Chicago, Illinois June 15, 1999 EX-27 7 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 12-MOS DEC-31-1998 DEC-31-1998 9,028,000 0 49,225,000 (1,507,000) 93,228,000 165,311,000 475,525,000 145,680,000 531,069,000 123,586,000 388,880,000 0 0 149,000 (60,749,000) 531,069,000 409,169,000 409,169,000 307,193,000 307,193,000 0 1,295,000 51,364,000 (195,677,000) (14,004,000) (181,673,000) 39,470,000 (6,793,000) 0 (148,996,000) (10.05) (10.05)
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