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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.
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VISKASE COMPANIES, INC.
FORM 10-K ANNUAL REPORT - 1998
Table of Contents
<TABLE>
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PART I Page
<S> <C> <C>
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
</TABLE>
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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
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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
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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
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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.
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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
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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
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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.
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ITEM 2. PROPERTIES
VISKASE FACILITIES
<TABLE>
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LOCATION SQUARE FEET PRIMARY USE
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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
</TABLE>
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.
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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.
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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.
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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.
<TABLE>
<CAPTION>
1998 First Quarter Second Quarter Third Quarter Fourth Quarter
- ---- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
High $8.75 $8.72 $6.75 $4.50
Low 6.68 6.50 3.56 2.88
</TABLE>
<TABLE>
<CAPTION>
1997 First Quarter Second Quarter Third Quarter Fourth Quarter
- ---- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
High $7.50 $8.50 $9.00 $9.13
Low 5.50 6.06 7.38 6.75
</TABLE>
(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.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
(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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
Country Implementation Date Status
- --------------- ------------------- ------
<S> <C> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
Name Age Principal Occupation
---- --- --------------------
<S> <C> <C>
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.
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
Name Age Principal Occupation
---- --- --------------------
<S> <C> <C>
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.
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
Name Age Principal Occupation
---- --- --------------------
<S> <C> <C>
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.
</TABLE>
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
<PAGE> 24
Officer and each of the other executive officers of the Company whose total
annual salary and bonus exceeded $100,000 in 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
--------------------------- -------------------------
Other Annual Restricted All Other
Name and Salary Bonus Compensation Stock Award Options Compensation
Principal Position Year ($) (1) ($) ($) ($) (#) ($)
- ------------------ ---- ------- ------- ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
(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
<PAGE> 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 $2,877 contributed to the Viskase
Companies, Inc. Parallel Non-Qualified Savings Plan.
Stock Option Grants. The following table provides information
concerning stock options granted to the persons named in the Summary Compenstion
Table during the fiscal year ended December 31, 1998. No stock appreciation
rights have been granted.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Percent of Potential Realizable
Number of Total Value at Assumed Annual
Securities Options Rates of Stock Price
Underlying Granted to Appreciation for Option
Options Employees Exercise or Base Term (2)
Granted in Fiscal Price Expiration --------------------------
Name (#)(1) Year ($/Share) Date 5% ($) 10% ($)
- --------------------------- ---------- ---------- --------------- ----------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- -------------------------
(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
<PAGE> 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 $283,885, respectively. See footnote 2 to the "Summary Compensation
Table" for more detail.
Stock Option Exercises and Holdings. The following table provides
information concerning the exercise of stock options during the fiscal year
ended December 31, 1998 and the fiscal year-end value of stock options with
respect to each of the persons named in the Summary Compensation Table.
AGGREGATED OPTION/SAR EXERCISES IN 1998 AND DECEMBER 31, 1998 OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired Value 12/31/98(#) 12/31/98($)
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
24
<PAGE> 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
<TABLE>
<CAPTION>
Assumed Final Average Annual Benefits for Years of Service Indicated (2)
Annual Salary (1)
15 20 25 30 35
- ----------------------------- ---------------- ---------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
(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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percent
Beneficial Owner Beneficially Owned (1) of Class (1)
--------------------- ---------------------- ------------
<S> <C> <C>
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
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percent
Beneficial Owner Beneficially Owned(1) of Class(1)
---------------- --------------------- -----------
<S> <C> <C>
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 %
</TABLE>
- -------------------------
* 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
<PAGE> 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
<PAGE> 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
<PAGE> 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULE AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) 1. Financial statements: PAGE
----
<S> <C>
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
</TABLE>
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
<PAGE> 36
(c) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits Page
- ----------- ----------------------- ----
<S> <C> <C>
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). *
</TABLE>
* Previously filed by the Company, incorporated by reference.
34
<PAGE> 37
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits Page
- ----------- ----------------------- ----
<S> <C> <C>
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). *
</TABLE>
* Previously filed by the Company, incorporated by reference.
** Filed herewith
35
<PAGE> 38
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits Page
- ----------- ----------------------- ----
<S> <C> <C>
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). *
</TABLE>
+ Management contract or compensatory plan or arrangement.
* Previously filed by the Company, incorporated by reference.
36
<PAGE> 39
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits Page
- ----------- ----------------------- ----
<S> <C> <C>
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. **
</TABLE>
+ Management contract or compensatory plan or arrangement.
* Previously filed by the Company, incorporated by reference.
** Filed herewith.
<TABLE>
<S> <C>
(d) Financial statement schedules required by Regulation S-X. Index to
financial statements of Viskase Holding Corporation and subsidiaries. F-1
</TABLE>
37
<PAGE> 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
<PAGE> 41
VISKASE COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
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
</TABLE>
F-1
<PAGE> 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
<PAGE> 43
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 25,
1998 1997
------------ ------------
(in thousands)
ASSETS
<S> <C> <C>
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
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 44
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C>
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)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 45
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unearned
Foreign Restricted
Accumu- Currency Stock
Common Paid in lated Translation Issued For Total
Stock Capital (Deficit) Adjustment Future Service Equity(Deficit)
--------- --------- --------- ---------- -------------- ---------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
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)
========= ========= ========= ====== ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 46
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 26, December 27, December 29,
1997 to 1996 to 1995 to
December 31, December 25, December 26,
1998 1997 1996
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
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
============= ============= =============
</TABLE>
Supplemental cash flow information and noncash investing and financing
activities:
<TABLE>
<S> <C> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
December 31, December 25,
1998 1997
------------ ------------
<S> <C> <C>
Raw materials $ 10,500 $ 16,847
Work in process 38,291 29,297
Finished products 44,437 51,658
--------- ---------
$ 93,228 $ 97,802
========= =========
</TABLE>
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
<PAGE> 52
5. PROPERTY, PLANT AND EQUIPMENT (dollars in thousands)
<TABLE>
<CAPTION>
December 31, December 25,
1998 1997
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, December 25,
1998 1997
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, December 25,
1998 1997
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
F-12
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
1999 101%
2000 and thereafter 100%
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, December 25,
1998 1997
------------ ------------
<S> <C> <C>
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
========= =========
</TABLE>
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
<PAGE> 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:
<TABLE>
Year ending December
<S> <C>
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
========
</TABLE>
F-16
<PAGE> 57
Aggregate maturities of remaining long-term debt for each of the next five
fiscal years, after reflecting the refinancing in Note 25, are:
<TABLE>
Total
-------
<S> <C>
1999 $16,120
2000 23,112
2001 283,635
2002 17,857
2003 19,411
</TABLE>
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:
<TABLE>
<S> <C>
1999 $1,820
2000 1,185
2001 721
2002 437
2003 363
Total thereafter
------
Total minimum lease payments $4,526
======
</TABLE>
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
<PAGE> 58
PENSIONS AND OTHER POSTRETIREMENT BENEFITS PLANS - NORTH AMERICA
(dollars in thousands):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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%
</TABLE>
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
<PAGE> 59
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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
========= ========= ========= =========
</TABLE>
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
<PAGE> 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:
<TABLE>
<S> <C>
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
=======
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
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
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
The net assets of the discontinued operations included in the December 25, 1997
Balance Sheet consisted of the following:
<TABLE>
<CAPTION>
December 25, 1997
-----------------
<S> <C>
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
============
</TABLE>
F-21
<PAGE> 62
13. INCOME TAXES (dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
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)
========== ========== ==========
</TABLE>
The provision (benefit) for income taxes from continuing operations consisted
of:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
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)
========== ========== ==========
</TABLE>
The total provision (benefit) for income taxes was allocated to the following
categories:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
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)
========== ========== ==========
</TABLE>
A reconciliation from the statutory federal tax rate to the effective tax rate
for continuing operations follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
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%
======== ======== ========
</TABLE>
F-22
<PAGE> 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:
<TABLE>
<CAPTION>
Year 1998
--------------------------------------------------------
Temporary Difference Tax Effected
------------------------- -----------------------
Deferred Tax Deferred Tax Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Year 1997
--------------------------------------------------------
Temporary Difference Tax Effected
------------------------- -----------------------
Deferred Tax Deferred Tax Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
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
------------ ------------ ------------
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
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
============ ============ ============
</TABLE>
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):
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
(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)
</TABLE>
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
<PAGE> 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):
<TABLE>
<CAPTION>
December 26, December 27, December 29,
1997 1996 1995
to to to
December 31, December 25, December 26,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C> <C>
Foreign currency translation adjustment (1) $ 973 $ (2,566) $ 48
</TABLE>
(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.)
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
-------- ----------
<S> <C> <C>
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
</TABLE>
F-28
<PAGE> 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
<PAGE> 70
Geographic Area Information
<TABLE>
<CAPTION>
December 26, December 27, December 29,
1997 to 1996 to 1995 to
December 31, December 25, December 26,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
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):
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal 1998 Quarter Quarter Quarter Quarter Annual
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal 1997 Quarter Quarter Quarter Quarter Annual
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
F-30
<PAGE> 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
<PAGE> 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
<PAGE> 73
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations (1) Total
--------- ------------ ------------ ---------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
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
========= ========= ========= ========= =========
</TABLE>
(1) Elimination of intercompany receivables, payables and investment accounts.
F-33
<PAGE> 74
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
DECEMBER 25, 1997
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations (1) Total
--------- ------------ ------------ ---------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
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
========= ========= ========= ========= =========
</TABLE>
(1) Elimination of intercompany receivables, payables and investment accounts.
F-34
<PAGE> 75
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
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)
========= ========= ========= ========= =========
</TABLE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
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
========= ========= ========= ========= =========
</TABLE>
F-35
<PAGE> 76
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 25, 1997
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
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)
======== ======== ======== ======== ========
</TABLE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
FOR THE YEAR ENDED DECEMBER 25, 1997
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ -----
(in thousands)
<S> <C> <C> <C> <C> <C>
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
======= ======== ========= ========== =========
</TABLE>
F-36
<PAGE> 77
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 26, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ -----
(in thousands)
<S> <C> <C> <C> <C> <C>
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)
======== ======== ======== ======== ========
</TABLE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
FOR THE YEAR ENDED DECEMBER 26, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ -----
(in thousands)
<S> <C> <C> <C> <C> <C>
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
======== ========= ======= ============ ========
</TABLE>
F-37
<PAGE> 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
<PAGE> 79
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 25,
1998 1997
---------- ----------
(in thousands)
<S> <C> <C>
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
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-39
<PAGE> 80
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C>
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
======== ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-40
<PAGE> 81
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Foreign
Accumu- Currency Total
Common Paid in lated Translation Equity/
Stock Capital (Deficit) Adjustment (Deficit)
----- ------- --------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
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
======== ======= ====== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-41
<PAGE> 82
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 26, December 27, December 29,
1997 to 1996 to 1995 to
December 31, December 25, December 26,
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
Name of Subsidiary Parent of Subsidiary Country of Business
- -------------------------------- --------------------------- -------------------
<S> <C> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
December 31, December 25,
1998 1997
------- -------
<S> <C> <C>
Raw materials $ 3,347 $ 4,418
Work in process 14,302 10,511
Finished products 22,607 20,100
------- -------
$40,256 $35,029
======= =======
</TABLE>
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
<PAGE> 87
6. PROPERTY, PLANT AND EQUIPMENT (dollars in thousands)
<TABLE>
<CAPTION>
December 31, December 25,
1998 1997
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, December 25,
1998 1997
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
December 31, December 25,
1998 1997
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
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:
<TABLE>
<CAPTION>
Total
----------
<S> <C>
1999 $ 3,093
2000 1,593
2001 655
2002 358
2003 105
</TABLE>
F-48
<PAGE> 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:
<TABLE>
<S> <C>
1999 $ 1,170
2000 782
2001 504
2002 363
2003 346
Total thereafter
--------
Total minimum lease payments $ 3,165
========
</TABLE>
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
<PAGE> 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
<PAGE> 91
13. INCOME TAXES (dollars in thousands)
The provision (benefit) for income taxes consisted of:
<TABLE>
<CAPTION>
December 26, December 27, December 29,
1997 to 1996 to 1995 to
December 31, December 25, December 26,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
A reconciliation from the statutory federal tax rate to the consolidated
effective tax rate follows:
<TABLE>
<CAPTION>
December 26, December 27, December 29,
1997 to 1996 to 1995 to
December 31, December 25, December 26,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
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%
======== ======== ========
</TABLE>
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities for 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------
Temporary Difference Tax Effected
----------------------------- -----------------------------
Deferred Tax Deferred Tax Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
====== ======= ==== =======
</TABLE>
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
<PAGE> 92
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------
Temporary Difference Tax Effected
----------------------------- -----------------------------
Deferred Tax Deferred Tax Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
====== ======= ====== ========
</TABLE>
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):
<TABLE>
<CAPTION>
December 26, December 27, December 29,
1997 1996 1995
to to to
December 31, December 25, December 26,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Foreign currency translation adjustment (1) $973 $(2,566) $62
</TABLE>
(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:
<TABLE>
<CAPTION>
December 31, December 25,
1998 1997
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
The Viskase Corporation advance to Viskase Holding Corporation is payable on
demand.
F-52
<PAGE> 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.)
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
----- -----------
<S> <C> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 95
VISKASE COMPANIES, INC. AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Provision Balance
Beginning Charged to at End
Description of Period Expense Write-offs Recoveries Other(1) of Period
----------- ---------- ----------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
(1) Foreign currency translation and the disposition of Clear Shield and
Sandusky.
F-55
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<PAGE> 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
<PAGE> 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.
<PAGE> 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:
----------------------------
<PAGE> 5
EXHIBIT A
TO
AMENDMENT NO. 2
DATED AS OF OCTOBER 26, 1998
FORM OF AMENDMENT TO FIRST PRIORITY NOTES INDENTURE
---------------------------------------------------
Attached
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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)
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,028,000
<SECURITIES> 0
<RECEIVABLES> 49,225,000
<ALLOWANCES> (1,507,000)
<INVENTORY> 93,228,000
<CURRENT-ASSETS> 165,311,000
<PP&E> 475,525,000
<DEPRECIATION> 145,680,000
<TOTAL-ASSETS> 531,069,000
<CURRENT-LIABILITIES> 123,586,000
<BONDS> 388,880,000
0
0
<COMMON> 149,000
<OTHER-SE> (60,749,000)
<TOTAL-LIABILITY-AND-EQUITY> 531,069,000
<SALES> 409,169,000
<TOTAL-REVENUES> 409,169,000
<CGS> 307,193,000
<TOTAL-COSTS> 307,193,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,295,000
<INTEREST-EXPENSE> 51,364,000
<INCOME-PRETAX> (195,677,000)
<INCOME-TAX> (14,004,000)
<INCOME-CONTINUING> (181,673,000)
<DISCONTINUED> 39,470,000
<EXTRAORDINARY> (6,793,000)
<CHANGES> 0
<NET-INCOME> (148,996,000)
<EPS-BASIC> (10.05)
<EPS-DILUTED> (10.05)
</TABLE>
