<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
--------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-5485
--------
VISKASE COMPANIES, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2677354
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6855 W. 65th Street, Chicago, Illinois 60638
- -------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 496-4200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
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 May 15, 1999, there were 14,879,707 shares outstanding of the
registrant's Common Stock, $.01 par value.
Page 1 of 33 Pages
<PAGE> 2
INDEX TO FINANCIAL STATEMENTS
VISKASE COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated balance sheets at March 31, 1999 (unaudited) and December 31, 1998 4
Unaudited consolidated statements of operations for the three months ended
March 31, 1999 and March 26, 1998 5
Unaudited consolidated statements of cash flows for the three months ended
March 31, 1999 and March 26, 1998 6
Notes to consolidated financial statements 7
</TABLE>
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated balance sheets at March 31, 1999 (unaudited) and December 31, 1998 21
Unaudited consolidated statements of operations for the three months ended
March 31, 1999 and March 26, 1998 22
Unaudited consolidated statements of cash flows for the three months ended
March 31, 1999 and March 26, 1998 23
Notes to consolidated financial statements 24
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information included in this quarterly report has been prepared in
conformity with the accounting principles and practices reflected in the
financial statements included in the annual report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31, 1998 (1998
Form 10-K). These quarterly financial statements should be read in conjunction
with the financial statements and the notes thereto included in the 1998 Form
10-K. The accompanying financial information, which is unaudited, reflects all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented.
The condensed consolidated balance sheet as of December 31, 1998 was derived
from the audited consolidated financial statements in the Company's annual
report on Form 10-K.
Reported interim results of operations are based in part on estimates which may
be subject to year-end adjustments. In addition, these quarterly results of
operations are not necessarily indicative of those expected for the year.
3
<PAGE> 4
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 10,699 $ 9,028
Receivables, net 47,902 47,718
Inventories 94,871 93,228
Other current assets 21,598 15,337
-------- --------
Total current assets 175,070 165,311
Property, plant and equipment,
including those under capital leases 475,582 475,525
Less accumulated depreciation
and amortization 153,771 145,680
-------- --------
Property, plant and equipment, net 321,811 329,845
Deferred financing costs, net 946 1,198
Other assets 33,896 34,715
Excess reorganization value, net
-------- --------
Total assets $531,723 $531,069
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current portion
of long-term debt and obligations
under capital leases $ 17,420 $ 16,120
Accounts payable 35,122 36,337
Accrued liabilities 63,702 62,319
Current deferred income taxes 8,810 8,810
-------- --------
Total current liabilities 125,054 123,586
Long-term debt including obligations
under capital leases 404,032 388,880
Accrued employee benefits 48,146 48,115
Deferred and noncurrent income taxes 23,316 26,395
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
14,869,087 shares issued and
outstanding at March 31, 1999 and
14,859,467 shares at December 31, 1998 149 149
Paid in capital 136,754 136,715
Accumulated (deficit) (208,790) (197,454)
Cumulative foreign currency
translation adjustments 3,062 4,693
Unearned restricted stock issued
for future service (10)
-------- --------
Total stockholders' equity (deficit) (68,825) (55,907)
-------- --------
Total liabilities and stockholders' equity $531,723 $531,069
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended March Ended March
31, 1999 26, 1998
-------- --------
(in thousands, except for number of shares and per share amounts)
<S> <C> <C>
NET SALES $ 92,067 $101,277
COSTS AND EXPENSES
Cost of sales 69,382 74,261
Selling, general and administrative 20,277 21,378
Amortization of intangibles
and excess reorganization value 1,250 3,468
-------- --------
OPERATING INCOME 1,158 2,170
Interest income 103 185
Interest expense 10,333 13,475
Other expense, net 3,084 789
-------- --------
(LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (12,156) (11,909)
Income tax (benefit) (820) (726)
-------- --------
NET (LOSS) FROM CONTINUING OPERATIONS (11,336) (11,183)
DISCONTINUED OPERATIONS:
(Loss) from discontinued operations
net of income taxes (Note 5) (207)
-------- --------
NET (LOSS) (11,336) (11,390)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments (995) 331
-------- --------
COMPREHENSIVE LOSS $(12,331) $(11,059)
======== ========
WEIGHTED AVERAGE COMMON SHARES
- BASIC AND DILUTED 14,867,057 14,773,346
========== ==========
PER SHARE AMOUNTS:
EARNINGS (LOSS) PER SHARE
- basic and diluted
Continuing operations $(.76) $(.76)
Discontinued operations:
(Loss) from discontinued operations (.01)
----- -----
NET (LOSS) $(.76) $(.77)
===== =====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March 31, March 26,
1999 1998
--------- ---------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(11,336) $(11,390)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization under capital lease 10,120 11,556
Amortization of intangibles and excess
reorganization value 1,250 3,801
Amortization of deferred financing fees and discount 286 428
(Decrease) in deferred and
noncurrent income taxes (2,030) (1,582)
Foreign currency transaction loss (gain) 43 (106)
Loss on disposition of assets 24 103
Bad debt provision 233 248
Changes in operating assets and liabilities:
Receivables (967) 7,377
Inventories (2,859) (14,581)
Other current assets (6,509) (6,545)
Accounts payable and accrued liabilities 1,582 2,132
Other 1,525 590
-------- --------
Total adjustments 2,698 3,421
-------- --------
Net cash (used in) operating activities (8,638) (7,969)
Cash flows from investing activities:
Capital expenditures (5,997) (15,081)
Proceeds from disposition of assets 12 37
-------- --------
Net cash (used in) investing activities (5,985) (15,044)
Cash flows from financing activities:
Issuance of common stock 49 307
Deferred financing costs (26) (4)
Proceeds from revolving loan and long-term
borrowings 30,134 20,069
Repayment of revolving loan, long-term borrowings
and capital lease obligation (13,353) (9,994)
-------- --------
Net cash provided by financing activities 16,804 10,378
Effect of currency exchange rate changes on cash (510) (58)
-------- --------
Net increase (decrease) in cash and equivalents 1,671 (12,693)
Cash and equivalents at beginning of period 9,028 24,407
-------- --------
Cash and equivalents at end of period $ 10,699 $ 11,714
======== ========
- ----------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $ 10,616 $ 11,773
Income taxes paid $ 631 $ 574
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 7
VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES (dollars in thousands)
Inventories consisted of:
March December
31, 1999 31, 1998
-------- --------
Raw materials $ 10,043 $ 10,500
Work in process 37,012 38,291
Finished products 47,816 44,437
-------- --------
$ 94,871 $ 93,228
======== ========
Approximately 59% of the inventories at March 31, 1999 were valued at Last-In,
First-Out (LIFO). These LIFO values exceeded current manufacturing cost by
approximately $4.6 million at March 31, 1999.
2. DEBT OBLIGATIONS (dollars in thousands)
As discussed in Subsequent Events (refer to Note 9), 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 and existing
Revolving Credit Facility have been reclassified to long-term debt based upon
the Company's refinancing of obligations on a long-term basis.
Outstanding short-term and long-term debt consisted of:
March December
31, 1999 31, 1998
-------- --------
Short-term debt, current maturity of long-term
debt, and capital lease obligation:
Current maturity of Viskase Capital Lease Obligation 14,377 $ 13,031
Current maturity of Viskase Limited Term Loan (3.2%) 1,651 1,742
Other 1,392 1,347
-------- --------
Total short-term debt $ 17,420 $ 16,120
======== ========
7
<PAGE> 8
Long-term debt:
Secured Revolver $ 30,000
12% Senior Secured Notes due 1999 55,000 $ 55,000
10.25% Senior Notes due 2001 219,262 219,262
Viskase Capital Lease Obligation 97,466 111,842
Viskase Limited Term Loan (3.2%) 815 868
Other 1,489 1,908
-------- --------
Total long-term debt $404,032 $388,880
======== ========
On August 24, 1998, the Company redeemed $105,000 of the aggregate principal
amount of its 12% Senior Secured Notes using proceeds from the Clear Shield
National, Inc. (Clear Shield) divestiture. The notes were redeemed at
approximately 108.5% of principal amount, plus accrued interest to the date of
redemption. The Company recognized an extraordinary after-tax loss of $6,800 on
the partial redemption of its 12% Senior Secured Notes. The extraordinary loss
is comprised of $8,900 of yield maintenance premiums and $2,200 write-off of
deferred debt issuance costs; net of a $4,300 income tax benefit. The remaining
$55,000 of principal outstanding on the 12% Senior Secured Notes is due and
payable at par on June 15, 1999. (Refer to Note 9)
As of March 31, 1999, the Company is in compliance with the amended covenants
under the Indenture and Amended and Restated Credit Agreement.
3. 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 multi-layer
barrier shrink film products was infringing various Viskase patents relating to
multi-layer barrier plastic films used for fresh red meat, processed meat and
poultry product applications. In November 1996, after a three-week trial, a jury
found that ANC had willfully infringed Viskase's patents and awarded Viskase
$102.4 million in compensatory damages. The Court also entered an order
permanently enjoining ANC from making or selling infringing products.
In September 1997, the Court set aside the jury verdict in part and ordered a
retrial on certain issues. The Court upheld the jury finding on the validity of
all of Viskase's patents and the jury finding that ANC had willfully infringed
Viskase's patents by ANC's use of Dow Chemical Company's "Attane" brand
polyethylene plastic resin in ANC's products. However, the Court ordered a new
trial on the issue of whether ANC's use of Dow Chemical Company's "Affinity"
brand polyethylene plastic resin infringed Viskase's patents and whether such
conduct was willful. Because the jury rendered one general damage verdict, the
Court ordered a retrial of all damage issues. By operation of the Court's order,
the injunction in respect of ANC's future use of the "Affinity" brand resin was
removed.
On August 19, 1998, the Court granted Viskase's motion for partial summary
judgment finding that ANC's use of the "Affinity" brand resin infringed
Viskase's patents. The Court also reinstated the permanent injunction. 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
8
<PAGE> 9
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 response. With respect to the challenge of the second patent, the
USPTO, after initially rejecting Viskase's claims, withdrew the rejection in
view of Viskase's response and raised new grounds of rejection. Viskase 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 March 31, 1999, $4,651
in patent defense costs had been accrued and capitalized.
In March 1997 Viskase Corporation received a subpoena from the Antitrust
Division of the United States Department of Justice relating to a grand jury
investigation of the sausage casings industry. Viskase Corporation is
cooperating fully with the investigation.
The Company and its subsidiaries are involved in various legal proceedings
arising out of their business and other environmental matters, none of which is
expected to have a material adverse effect upon results of operations, cash
flows or financial position.
4. UNUSUAL CHARGE (dollars in millions)
During the third quarter of 1998, due to the business conditions leading to the
Viskase plan of restructuring, the Company evaluated the recoverability of
long-lived assets including property, plant and equipment, patents and excess
reorganization on a consolidated basis. Based upon the analysis, the Company
recognized an impairment because the estimated consolidated undiscounted future
cash flows derived from long-lived assets were determined to be less than their
carrying value. The amount of the impairment was calculated using the present
value of the Company's estimated future net cash flows to determine the assets'
fair value. Based on this analysis, an impairment charge of $91.2 million for
excess reorganization and $4.3 million for the write-down of the Chicago
facility was taken. In addition, the Viskase plan of restructuring included
charges for the decommissioning of the Chicago plant and the decommissioning of
some of its foreign operations.
9
<PAGE> 10
During the first quarter of 1999 and accumulated to date, cash payments against
the reserve were $1.2 million and $7.7 million, respectively. A remaining
restructuring reserve of $4.8 is included in accrued liabilities on the balance
sheet.
5. DISCONTINUED OPERATIONS (dollars in thousands)
In June 1998 the Company's Board of Directors agreed to sell the Clear Shield
and Sandusky Plastics, Inc. (Sandusky) subsidiaries. Sandusky was sold on June
11, 1998 and Clear Shield was sold on July 23, 1998. Accordingly, the operating
results from both subsidiaries have been segregated from continuing operations
and reported as a separate line item, Results of Discontinued Operations, on the
Statements of Operations.
Operating results from discontinued operations are as follows:
Three Months
Ended March
26, 1998
------------
Net sales $27,378
Costs and expenses
Cost of sales 22,305
Selling, general and administrative 4,297
Amortization of intangibles and
excess reorganization value 333
-------
Operating income 443
Interest expense 22
Other expense, net 544
-------
(Loss) from discontinued operations before taxes (123)
Income tax provision 84
-------
Net (loss) from discontinued operations $ (207)
=======
6. COMPREHENSIVE INCOME (dollars in thousands)
During 1998 the Company adopted the Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income," which requires the Company to
disclose comprehensive income in addition to net income. Comprehensive income
includes all other non-shareholder changes in equity. All such changes in equity
resulted from changes in foreign currency translation adjustments.
10
<PAGE> 11
The following sets forth the components of other comprehensive income (loss) and
the related income tax provision (benefit):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, March 26,
1999 1998
--------- ---------
<S> <C> <C>
Foreign currency translation adjustment (1) $(995) $331
</TABLE>
(1) Net of related tax (benefit) provision of $(636) and $211 for the first
quarter ended 1999 and 1998, respectively.
7. EARNINGS PER SHARE
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 fiscal 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>
Three Months Three Months
Ended March Ended March
31, 1999 26, 1998
----------- -----------
(in thousands, except for weighted average shares outstanding)
<S> <C> <C>
NUMERATOR:
Net (loss) available
to common stockholders:
From continuing operations: $(11,336) $(11,183)
Discontinued operations:
(Loss) from discontinued operations (207)
-------- --------
Net loss available to common stockholders
for basic and diluted EPS $(11,336) $(11,390)
======== ========
DENOMINATOR:
Weighted average shares outstanding
for basic EPS 14,867,057 14,773,346
Effect of dilutive securities 0 0
---------- ----------
Weighted average shares outstanding
for diluted EPS 14,867,057 14,773,346
========== ==========
</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.
11
<PAGE> 12
8. 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, 2000. 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 statement of financial condition 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.
9. 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.
12
<PAGE> 13
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 earnings before
depreciation, interest, amortization and taxes (EBDIAT) and a limitation on
capital expenditures.
10. 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.
13
<PAGE> 14
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
MARCH 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations (1) Total
------ ------------ ------------ ------------ -----
ASSETS (in thousands)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and equivalents $ 6,042 $ 263 $ 4,394 $ 10,699
Receivables and advances, net 138,764 46,623 38,792 $(176,277) 47,902
Inventories 55,700 40,191 (1,020) 94,871
Other current assets 395 13,576 7,627 21,598
-------- -------- -------- --------- --------
Total current assets 145,201 116,162 91,004 (177,297) 175,070
Property, plant and equipment including
those under capital lease 149 320,754 154,679 475,582
Less accumulated depreciation
and amortization 149 102,867 50,755 153,771
-------- -------- -------- --------- --------
Property, plant and equipment, net 0 217,887 103,924 321,811
Deferred financing costs 710 236 946
Other assets 31,545 2,351 33,896
Investment in subsidiaries (141,742) 82,894 58,848
-------- -------- -------- --------- --------
Total assets $ 4,169 $448,488 $197,515 $(118,449) $531,723
======== ======== ======== ========= ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current
portion of long-term debt and
obligation under capital lease $ 14,377 $ 3,043 $ 17,420
Accounts payable and advances $ 122 162,421 48,856 $(176,277) 35,122
Accrued liabilities 12,613 35,516 15,573 63,702
Current deferred taxes (39) 9,000 (151) 8,810
-------- -------- -------- --------- --------
Total current liabilities 12,696 221,314 67,321 (176,277) 125,054
Long-term debt including obligation
under capital lease 304,262 97,466 2,304 404,032
Accrued employee benefits 45,584 2,562 48,146
Deferred and noncurrent income taxes 30,091 (27,434) 20,659 23,316
Intercompany loans (274,055) 265,000 9,055
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
14,869,087 shares issued and
outstanding 149 1 32,609 (32,610) 149
Paid in capital 136,754 79,734 88,359 (168,093) 136,754
Accumulated earnings (deficit) (208,790) (236,179) (28,356) 264,535 (208,790)
Foreign currency translation adjustments 3,062 3,002 3,002 (6,004) 3,062
-------- -------- -------- --------- --------
Total stockholders' equity (deficit) (68,825) (153,442) 95,614 57,828 (68,825)
-------- -------- -------- --------- --------
Total liabilities and stockholders' equity $ 4,169 $448,488 $197,515 $(118,449) $531,723
======== ======== ======== ========= ========
</TABLE>
(1) Elimination of intercompany receivables, payables and investment accounts.
14
<PAGE> 15
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations (1) Total
------ ------------ ------------ ------------ -----
ASSETS (in thousands)
<S> <C> <C> <C> <C> <C>
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.
15
<PAGE> 16
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED MARCH 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ -----
(in thousands)
<S> <C> <C> <C> <C> <C>
NET SALES $ 55,783 $ 46,911 $(10,627) $ 92,067
COSTS AND EXPENSES
Cost of sales 42,534 37,273 (10,425) 69,382
Selling, general and administrative $ 648 10,474 9,155 20,277
Amortization of intangibles and
excess reorganization value 1,250 1,250
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS) (648) 1,525 483 (202) 1,158
Interest income 33 8 62 103
Interest expense 7,786 2,230 317 10,333
Intercompany interest expense (income) (7,533) 6,666 867
Management fees (income) (251) 251
Other expense (income), net 76 38 2,970 3,084
Equity loss (income) in subsidiary 10,760 3,799 (14,559)
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (11,704) (10,949) (3,860) 14,357 (12,156)
Income tax provision (benefit) (368) (391) (61) (820)
-------- -------- -------- -------- --------
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS (11,336) (10,558) (3,799) 14,357 (11,336)
DISCONTINUED OPERATIONS:
Income from operations, net of an income tax
-------- -------- -------- -------- --------
NET INCOME (LOSS) (11,336) (10,558) (3,799) 14,357 (11,336)
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustments (995) (995) (995) 1,990 (995)
-------- -------- -------- -------- --------
COMPREHENSIVE (LOSS) INCOME $(12,331) $(11,553) $ (4,794) $ 16,347 $(12,331)
======== ======== ======== ======== ========
</TABLE>
16
<PAGE> 17
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED MARCH 26, 1998
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
NET SALES $61,375 $47,879 $(7,977) $101,277
COSTS AND EXPENSES
Cost of sales 46,887 35,617 (8,243) 74,261
Selling, general and administrative $ 989 10,681 9,708 21,378
Amortization of intangibles and
excess reorganization value 2,714 754 3,468
-------- -------- ---------- ------- --------
OPERATING INCOME (LOSS) (989) 1,093 1,800 266 2,170
Interest income 139 46 185
Interest expense 10,921 2,207 347 13,475
Intercompany interest expense (income) (9,667) 9,359 308
Management fees (income) (1,184) 867 317
Other expense (income), net (80) 67 802 789
Equity loss (income) in subsidiary 10,878 677 (11,555)
-------- -------- ---------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES (11,718) (12,084) 72 11,821 (11,909)
Income tax provision (benefit) (328) (1,147) 749 (726)
-------- -------- ---------- ------- --------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS (11,390) (10,937) (677) 11,821 (11,183)
DISCONTINUED OPERATIONS
Income from operations net of an
income tax provision of $84 (207) (207)
-------- -------- ---------- ------- --------
NET (LOSS) INCOME (11,390) (11,144) (677) 11,821 (11,390)
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustments 331 331 331 (662) 331
-------- -------- ---------- ------- --------
COMPREHENSIVE (LOSS) INCOME $(11,059) $(10,813) $ (346) $11,159 $(11,059)
======== ======== ========== ======= ========
</TABLE>
17
<PAGE> 18
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
FOR THREE MONTHS ENDED MARCH 31, 1999
(unaudited)
<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 $(26,491) $18,602 $ (749) $(8,638)
Cash flows from investing activities:
Capital expenditures (5,410) (587) (5,997)
Proceeds from disposition of assets 5 7 12
-------- -------- ------ ---------- --------
Net cash provided by (used in)
investing activities (5,405) (580) (5,985)
Cash flows from financing activities:
Issuance of common stock 49 49
Proceeds from revolving loan and
long-term borrowings 30,000 134 30,134
Deferred financing costs (26) (26)
Repayment of revolving loan, long-term
borrowings and capital lease obligations (13,031) (322) (13,353)
Increase (decrease) in Viskase Companies, Inc. loan 835 (835)
-------- -------- ------ ---------- --------
Net cash provided by (used in)
financing activities 30,858 (13,031) (1,023) 16,804
Effect of currency exchange rate changes on cash (510) (510)
-------- -------- ------ ---------- -------
Net (decrease) in cash and equivalents 4,367 166 (2,862) 1,671
Cash and equivalents at beginning of period 1,675 97 7,256 9,028
-------- ------- ------- --------- -------
Cash and equivalents at end of period $ 6,042 $ 263 $ 4,394 $10,699
======== ======= ======= ========= =======
</TABLE>
18
<PAGE> 19
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
FOR THREE MONTHS ENDED MARCH 26, 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 $(32,409) $ 21,873 $ 2,567 $ (7,969)
Cash flows from investing activities:
Capital expenditures (4) (12,805) (2,272) (15,081)
Proceeds from disposition of assets 34 3 37
-------- -------- ------- --------- ---------
Net cash provided by (used in)
investing activities (4) (12,771) (2,269) (15,044)
Cash flows from financing activities:
Issuance of common stock 307 307
Proceeds from revolving loan and
long-term borrowings 20,000 69 20,069
Deferred financing costs (4) (4)
Repayment of revolving loan, long-term
borrowings and capital lease obligations (9,814) (180) (9,994)
Increase (decrease) in Viskase Companies, Inc. loan 603 (603)
-------- -------- ------- --------- ---------
Net cash provided by (used in)
financing activities 20,906 (9,814) (714) 10,378
Effect of currency exchange rate changes on cash (58) (58)
-------- -------- ------- --------- ---------
Net (decrease) in cash and equivalents (11,507) (712) (474) (12,693)
Cash and equivalents at beginning of period 19,004 865 4,538 24,407
-------- -------- ------- --------- ---------
Cash and equivalents at end of period $ 7,497 $ 153 $ 4,064 $ 11,714
======== ======== ======= ========= =========
</TABLE>
19
<PAGE> 20
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
The financial information included in this quarterly report has been prepared in
conformity with the accounting principles and practices reflected in the
financial statements included in the annual report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31, 1998 (1998
Form 10-K). These quarterly financial statements should be read in conjunction
with the financial statements and the notes thereto included in the 1998 Form
10-K. The accompanying financial information, which is unaudited, reflects all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented.
The condensed consolidated balance sheet as of December 31, 1998 was derived
from the audited Viskase Holding Corporation's consolidated financial statements
included in Viskase Companies, Inc.'s annual report on Form 10-K.
Reported interim results of operations are based in part on estimates which may
be subject to year-end adjustments. In addition, these quarterly results of
operations are not necessarily indicative of those expected for the year.
20
<PAGE> 21
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 4,394 $ 7,256
Receivables, net 29,727 30,462
Receivables, affiliates 55,390 51,906
Inventories 40,191 40,256
Other current assets 7,627 8,341
--------- ---------
Total current assets 137,329 138,221
Property, plant and equipment
including those under capital lease 154,679 160,061
Less accumulated depreciation
and amortization 50,755 49,321
--------- ---------
Property, plant and equipment, net 103,924 110,740
Deferred financing costs 236 278
Other assets 2,350 2,351
--------- ---------
Total assets $ 243,839 $ 251,590
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current
portion of long-term debt and obligation
under capital lease $ 3,043 $ 3,089
Accounts payable 14,277 13,998
Accounts payable and advances, affiliates 38,578 37,956
Accrued liabilities 15,573 16,484
Current deferred income taxes (151) (151)
--------- ---------
Total current liabilities 71,320 71,376
Long-term debt 2,304 2,776
Accrued employee benefits 2,562 2,605
Deferred and noncurrent income taxes 20,659 22,555
Intercompany loans 47,065 47,901
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 (deficit) (6,572) (3,755)
Foreign currency translation adjustments 3,038 4,669
--------- ---------
Total stockholders' equity 99,929 104,377
--------- ---------
Total liabilities and
stockholders' equity $ 243,839 $ 251,590
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
21
<PAGE> 22
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended March Ended March
31, 1999 26, 1998
------------- -------------
(in thousands)
<S> <C> <C>
NET SALES $ 46,911 $ 47,879
COSTS AND EXPENSES
Cost of sales 37,273 35,617
Selling, general
and administrative 7,515 8,365
Amortization of intangibles
and excess reorganization value 754
-------- --------
OPERATING INCOME 2,123 3,143
Interest income 62 46
Interest expense 317 347
Intercompany interest expense 867 308
Management fees 251 317
Other expense, net 2,970 802
-------- --------
(LOSS) INCOME BEFORE INCOME TAXES (2,220) 1,415
Income tax provision 597 1,278
-------- --------
NET (LOSS) INCOME (2,817) 137
-------- --------
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustments (995) 331
-------- --------
COMPREHENSIVE (LOSS) INCOME $ (3,812) $ 468
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
22
<PAGE> 23
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
March 31, March 26,
1999 1998
----------- ----------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(2,817) $ 137
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 3,438 2,834
Amortization of intangibles and excess
reorganization value 754
Amortization of deferred financing fees and discount 50 48
(Decrease) in deferred and
noncurrent income taxes (990) (191)
Loss on disposition of assets 110
Bad debt provision 84 80
Changes in operating assets and liabilities:
Receivables (89) 1,383
Receivables, affiliates (6,159) (3,223)
Inventories (954) (772)
Other current assets 677 1,809
Accounts payable and accrued liabilities (223) (5,430)
Accounts payable and advances, affiliates 6,234 5,028
------- -------
Total adjustments 2,068 2,430
------- -------
Net cash provided by (used in) operating activities (749) 2,567
Cash flows from investing activities:
Capital expenditures (587) (2,272)
Proceeds from disposition of assets 7 3
------- -------
Net cash (used in) investing activities (580) (2,269)
Cash flows from financing activities:
Proceeds from revolving loan and long-term borrowings 134 69
Repayment of revolving loan and long-term borrowings (322) (180)
(Decrease) in Viskase Companies, Inc. loan and advances (835) (603)
------- -------
Net cash (used in) financing activities (1,023) (714)
Effect of currency exchange rate changes on cash (510) (58)
------- -------
Net (decrease) in cash and equivalents (2,862) (474)
Cash and equivalents at beginning of period 7,256 4,538
------- -------
Cash and equivalents at end of period $ 4,394 $ 4,064
======= =======
- --------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $ 25 $ 40
Income taxes paid $ 479 $ 407
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
23
<PAGE> 24
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES (dollars in thousands)
Inventories consisted of:
March 31, December 31,
1999 1998
--------- ------------
Raw materials $ 3,121 $ 3,347
Work in process 13,046 14,302
Finished products 24,024 22,607
------- -------
$40,191 $40,256
======= =======
2. 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 multi-layer
barrier shrink film products was infringing various Viskase patents relating to
multi-layer barrier plastic films used for fresh red meat, processed meat and
poultry product applications. In November 1996, after a three-week trial, a jury
found that ANC had willfully infringed Viskase's patents and awarded Viskase
$102.4 million in compensatory damages. The Court also entered an order
permanently enjoining ANC from making or selling infringing products.
In September 1997, the Court set aside the jury verdict in part and ordered a
retrial on certain issues. The Court upheld the jury finding on the validity of
all of Viskase's patents and the jury finding that ANC had willfully infringed
Viskase's patents by ANC's use of Dow Chemical Company's "Attane" brand
polyethylene plastic resin in ANC's products. However, the Court ordered a new
trial on the issue of whether ANC's use of Dow Chemical Company's "Affinity"
brand polyethylene plastic resin infringed Viskase's patents and whether such
conduct was willful. Because the jury rendered one general damage verdict, the
Court ordered a retrial of all damage issues. By operation of the Court's order,
the injunction in respect of ANC's future use of the "Affinity" brand resin was
removed.
On August 19, 1998, the Court granted Viskase's motion for partial summary
judgment finding that ANC's use of the "Affinity" brand resin infringed
Viskase's patents. The Court also reinstated the permanent injunction. 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.
24
<PAGE> 25
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 response. With respect to the challenge of the second patent, the
USPTO, after initially rejecting Viskase's claims, withdrew the rejection in
view of Viskase's response and raised new grounds of rejection. Viskase 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 March 31, 1999, $4,651
in patent defense costs had been accrued and capitalized.
In March 1997 Viskase Corporation received a subpoena from the Antitrust
Division of the United States Department of Justice relating to a grand jury
investigation of the sausage casings industry. Viskase Corporation is
cooperating fully with the investigation.
The Company and its subsidiaries are involved in various legal proceedings
arising out of their business and other environmental matters, none of which is
expected to have a material adverse effect upon results of operations, cash
flows or financial position.
3. 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, 2000. 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 statement of financial condition 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.
4. 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
25
<PAGE> 26
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 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.
26
<PAGE> 27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The Company's net sales from continuing operations for the first quarter of 1999
were $92.1 million, which represented a decrease of 9.1% from the comparable
period of 1998. The decline in domestic net sales is partially due to the
Company's 1998 second quarter strategy to increase casing prices. Additionally,
both the domestic and European casing markets are experiencing competitive
pricing pressures. European sales have been affected by the adverse economic
conditions in the Russian market and were also negatively affected by foreign
currency translation due to the strengthening of the U.S. dollar. Brazil's sales
have increased over prior year due to significant volume gains in both the
casing and films product lines offset by the translation effect of the
strengthening of the U.S. dollar against the real.
Operating income from continuing operations for the first quarter of 1999 was
$1.2 million representing a decrease of 46.6% from the comparable period of
1998. The decrease in operating income resulted primarily from declines in sales
and gross margins caused by continued price competition in the U.S. and in
Europe.
Net interest expense from continuing operations for the three month period
totaled $10.2 million representing a decrease of $3.1 million from the first
three months of 1998. 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 $3.1 million and $0.8
million for the first three months of 1999 and 1998, respectively, consists
principally of foreign exchange losses.
The Company uses foreign exchange forward contracts to hedge some of its
non-functional currency receivables and payables which are denominated in major
currencies that can be traded on open markets. This strategy is used to reduce
the overall exposure to the effects of currency fluctuations on cash flows. The
Company's policy is not to speculate in financial instruments.
Receivables and payables which are denominated in non-functional currencies are
translated to the functional currency at month end and the resulting gain or
loss is taken to other income/expense on the income statement. Gains and losses
on hedges of receivables and payables are marked to market. The result is
recognized in other net expense on the income statement.
The tax benefit for the first three months of 1999 resulted from the benefit of
US losses partially offset by the provision related to income from foreign
subsidiaries. Due to the permanent differences in the US resulting from foreign
losses for which no tax benefit is provided, a benefit of $.8 million was
provided on a loss from continuing operations of $12.2 million. The US tax
benefit is recorded as a reduction of the deferred tax liability and does not
result in a refund of income taxes.
Discontinued operations
On June 8, 1998, the Company's Board of Directors approved the sale of two of
the Company's subsidiaries, Clear Shield and Sandusky. Accordingly, the
operating results of the two subsidiaries have been segregated from continuing
operations and reported as a separate line item on the
27
<PAGE> 28
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.
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 SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which will be effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. 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 increased by $1.7 million during the three months ended
March 31, 1999. Cash flows provided by financing activities of $16.8 million
exceeded funds used in operating activities of $8.6 million and investing
activities of $6.0 million. Cash flows used in operating activities were
principally attributable to the Company's loss from operations and an increase
in working capital usage offset by the effect of depreciation and amortization.
Cash flows provided by financing activities were principally due to a $30
million draw under the Company's domestic revolving credit facility (Revolving
Credit Facility) offset by a $13 million principal repayment under the GECC
lease. Cash flows used in investing activities consist principally of capital
expenditures for property, plant and equipment.
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 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 at June 15, 1999.
28
<PAGE> 29
The Company's Senior Secured Credit Facility contains a number of financial
covenants that, among other things, require the maintenance of a minimum level
of tangible net worth, a minimum fixed charge coverage ratio and minimum
leverage ratio of total liabilities to EBDIAT and a limitation on capital
expenditures. Currently, the Company is in compliance with the amended covenants
under the Indenture and Amended and Restated Credit Agreement.
As of March 31, 1999, the Company is in compliance with the amended covenants
under the Indenture and Amended and Restated Credit Agreement.
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 the first three months of
1999 and 1998 totaled $6.0 million and $10.0 million, respectively. Capital
expenditures for discontinued operations for the first three months of 1998
totaled $5.0 million. Significant 1999 and 1998 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 for continuing operations for 1999 are expected to be approximately
$27 million. Capital expenditures for continuing operations for 2000 are
expected to be $13 million.
The Company has spent approximately $7 million annually on research and
development programs, including product and process development, and on new
technology development during each of the past three years. The 1999 research
and development and product introduction expenses are expected to 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.
29
<PAGE> 30
Significant Business Information Technology Systems
In January 1996, the Company began a system conversion which incorporated Y2K
readiness. The following table shows the status of the business system
conversions by country:
Country Implementation Date Status
------- ------------------- ------
United States January 1, 1998 Complete
France October 1, 1998 Complete
United Kingdom January 1, 1999 Complete
Brazil January 1, 1998 Complete
Canada October 1, 1999 Planned completion
The Company's significant business IT system is run on servers and a wide-area
network outsourced to IBM Global Services. IBM has been certified Y2K compliant
for all its system components. All of the Company's personal computers, network
server hardware and software are being checked for Y2K compatibility with the
vendors. The targeted completion date is June 30, 1999. The expenditures for the
European implementation totaled approximately $4.9 million in 1998 and the first
quarter of 1999. The Company has capitalized the costs necessary to upgrade its
significant business systems.
Internal Non-IT Systems
The Non-IT systems consist primarily of PC-based manufacturing systems and
process control units. The Y2K Committee has designated a member at each plant
to inventory its systems and determine the status of its Y2K readiness. This
process is ongoing and the plan is to have these systems tested for compliance
by June 30, 1999. The Company has estimated the cost of Y2K readiness to be
approximately $.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. Responses to
the questionnaires have been received from most key suppliers. Those failing to
respond to the questionnaire have been contacted. To date, no significant
compliance issues have been uncovered.
Should responses to the questionnaires indicate that suppliers, service
providers or contractors are not Y2K ready, the Company will change to those
vendors who have demonstrated Y2K readiness. The Company cannot be assured that
it will be successful in finding such alternative suppliers, service providers
and contractors.
30
<PAGE> 31
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.
31
<PAGE> 32
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
For a description of pending litigation and other contingencies, see Part 1,
Note 3, Contingencies in Notes to Consolidated Financial Statements for Viskase
Companies, Inc. and Subsidiaries.
Item 2 - Changes in Securities
No reportable events occurred during the quarter ended March 31, 1999.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
4.14 Fifth Supplemental Indenture, dated as of March 17, 1999, between 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.
10.22 Amendment No. 3 dated March 17, 1999, to the Amended and Restated
Credit Agreement, dated June 1, 1999, among the Company, the Lenders
identified therein, and BT
10.23 Viskase Companies, Inc. Corporate Office Management Incentive Plan for
Fiscal Year 1999.
27 Financial Data Schedules.
(b) Reports on Form 8-K
(1) On February 4, 1999, the Company filed a Form 8-K to report that the
Board of Directors of Viskase Companies, Inc. approved the change of
Viskase's fiscal year end and quarter end to December 31 each year and
the last day of each calendar quarter, respectively, beginning January
1, 1999.
32
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VISKASE COMPANIES, INC.
-----------------------
Registrant
By: /s/ Gordon S. Donovan
----------------------
Gordon S. Donovan
Vice President, Chief Financial
Officer and Treasurer
(Duly authorized officer
and principal financial
officer of the registrant)
Date: June 17, 1999
33
<PAGE> 1
Exhibit 4.14
FIFTH SUPPLEMENTAL INDENTURE
THIS FIFTH SUPPLEMENTAL INDENTURE, dated as of ______________ (this
"Supplemental Indenture"), between VISKASE COMPANIES, INC., a Delaware
corporation formerly known as Envirodyne Industries, Inc. (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, the
Third Supplemental Indenture, dated as of July 2, 1998, and the Fourth
Supplemental Indenture, dated as of October 26, 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
certain minimum ratios in the Fixed Charge Coverage Ratio covenant set forth in
the Indenture and the minimum notice requirements with respect to an optional
redemption of the Securities (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 March 10, 1999,
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 Section 4.01(b) of the Indenture is amended to delete the last two
entries in the schedule of "Ratios" and "Periods" contained in such section and
to replace such entries with the following two entries:
"1.35:1 March 27, 1998 through September 24, 1998
1.20:1 December 31, 1998 and thereafter."
2.2 Section 9.01(b)(iii) of the Indenture is amended by deleting such
section in its entirety and substituting in lieu thereof the following:
"(iii) The Company shall give notice to the Trustee by an
Officers' Certificate certifying resolutions of its Board of Directors
authorizing the Optional Redemption and that such redemption is being
made in accordance with this Indenture and the Securities. The Company
shall give such notice at least ten (10) days, but not more than sixty
(60) days before the Optional Redemption Date (unless a shorter notice
shall be satisfactory to the Trustee)."
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.
2
<PAGE> 3
3.4 The provisions of the Indenture, as amended by Article 2 of this
Supplemental Indenture, shall be deemed effective for all purposes as of the
date hereof.
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 Fifth 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 10.22
AMENDMENT NO. 3
TO
AMENDED AND RESTATED CREDIT AGREEMENT
WITH
VISKASE COMPANIES, INC.
THIS AMENDMENT NO. 3 TO CREDIT AGREEMENT ("AMENDMENT") is dated as of March
17, 1999, 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 SECTION 8.1(b) of the Credit Agreement is hereby deleted in its
entirety and the following language is hereby substituted therefor:
(b) FIXED CHARGE COVERAGE RATIO. The Borrower covenants that it will
not cause or permit the ratio of
<PAGE> 2
(i) Consolidated Cash Flow for the twelve month period ending at the end of
any fiscal quarter of the Borrower to (ii) Consolidated Fixed Charges for
each such twelve month period to be less than the ratio set forth below for
the period set forth below in which such fiscal quarter ends:
RATIO PERIOD
--------- ----------------------------
1.45:1 Original Closing Date through
December 26, 1996
1.50:1 December 27, 1996 through
March 26, 1998
1.35:1 March 27, 1998 through
September 24, 1998
1.20:1 December 31, 1998 and thereafter
provided, however, for purposes of determining Consolidated Cash Flow for the
calculation of the Fixed Charge Coverage Ratio only and notwithstanding any tax
effect of such restructuring charges, restructuring charges in amounts not to
exceed $25,000,000 shall be added back to the calculation of the Consolidated
Net Worth and Consolidated Net Income to the extent previously deducted
therefrom.
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
<PAGE> 3
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
(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 enforcement 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
<PAGE> 4
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.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 5
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> 6
EXHIBIT A
TO
AMENDMENT NO. 3
DATED AS OF MARCH __, 1999
FORM OF AMENDMENT TO FIRST PRIORITY NOTES INDENTURE
Attached
<PAGE> 1
Exhibit 10.23
VISKASE WORLDWIDE
MANAGEMENT INCENTIVE PLAN
FISCAL YEAR 1999
I. Purpose
The Viskase Worldwide Management Incentive Plan (MIP) has been established for
Fiscal Year 1999 for those covered employees defined under Section III below.
The purpose of this Management Incentive Plan is to provide additional
compensation to participants for their contribution to the achievement of the
objectives of the Company including:
- Assisting in attracting and retaining highly qualified
key employees.
- Encouraging and stimulating superior performance by
such personnel.
II. Definitions
A. Base Salary equals the salary earnings for the portion of the Fiscal Year
during which the participant was an active employee in the particular level
of management for which the computation is being made. Salary earnings do
not include Plan awards, long-term incentive awards, imputed income from
such programs as executive life insurance or non-recurring earnings such as
moving expenses and is based on salary earnings before reductions for such
items as contributions under Section 401-(K) of the Internal Revenue Code
of 1986 as amended.
B. Company means Viskase Worldwide, its successors and assigns.
C. Fiscal Year means the Company's Fiscal Year beginning January 1 and ending
the last day of December.
D. Plan means the Viskase Worldwide Management Incentive Plan as from time to
time amended.
E. Chairman of the Board and Chief Executive Officer means the Chairman of the
Board and Chief Executive Officer of Viskase Companies, Inc.
<PAGE> 2
F. Financial Targets are the financial goal(s) appropriate to the company for
the Fiscal Year. These goals are identified in Exhibit B and are
specifically identified by participant in Exhibit C.
G. Discretionary Goals refer to the personal goals and objectives set by each
participant and his/her supervisor at the beginning of each Fiscal Year
against which performance is measured.
III. EMPLOYEES COVERED BY THIS PLAN
The Plan is applicable to those management employees and other key personnel in
the management levels specified in the attached Exhibit C.
IV. FINANCIAL AWARD
A participant in the Plan shall be entitled to a Financial Award computed in
accordance with the following formula:
Base Financial Bonus Financial
Salary x Performance x Percent = Performance
Incentive Allocated Award
Earned To Financial
Targets
Where:
- - "Base Salary" is as defined in Section II A.
- - "Financial Performance Incentive Earned" is determined by the relationship
of actual achievement to targeted goals and can range from minimum (95% of
target) to maximum (125% of target), with full attainment of the financial
goals equating to target for each measure as set forth in the business
plan. The target/maximum range for each participant is a function of
management level slotting (See Exhibit C). The relationship of actual
achievement to the performance range will be determined by using
straight-line interpolation for achievement between the target and the
maximum of the payout range as applicable (see Exhibit B). Actual
performance below target will result in no award being paid on that
particular financial measure.
- - "Bonus Percent Allocated To Financial Targets" shall range from 0% to 100%.
<PAGE> 3
If a participant was in more than one management level during a Fiscal Year, a
separate computation shall be made for each level applicable to the participant
during such Fiscal Year; the sum of the separate computations shall be the
participant's Financial Performance Award.
V. Personal Performance Award
Goals for each participant are to be developed jointly by the participant and
his/her supervisor at the beginning of a Fiscal Year. It is anticipated that
both quantifiable and non-quantifiable goals will be developed in the process.
Each goal should be weighted from 0% to 100%, with the sum of the weights equal
to 100%.
A participant in the Plan shall be entitled to a Personal Performance Award
computed in accordance with the following formula:
Base Personal Bonus Personal
Salary x Performance x Percent = Performance
Incentive Allocated Award
Earned To Personal
Objectives
Where:
- - "Base Salary" is as defined in Section II A.
- - "Percent of Personal Objectives Achieved" ranges from 0% to 100% and is
determined by the agreed upon performance of the individual against
pre-established individual goals.
- - "Percent of Bonus Allocated to Personal Objectives" shall range from 0% to
100%.
It is intended that the participant and his/her supervisor will agree on
meaningful individual goals. The following is a partial list of the type of
goals or objectives that may be developed:
- - Achievement of income goals
- - Development of subordinates
- - Successful development of new accounts/products
- - Improvement in product merchandising programs
3
<PAGE> 4
- - Attainment of self-development objectives
- - Control or reduction of operating expenses
At the end of a Fiscal Year, each participant will review and evaluate his/her
accomplishment of personal goals and objectives. The participant and his/her
supervisor will then review the preliminary rating. Thereafter, the supervisor
will assign a Personal Performance %, from 0% to 100%, reflecting the
participant's achievement of his/her goals during such Fiscal Year. The Personal
Performance % recommendation of the supervisor shall be reviewed by the
President of the Company, who shall recommend an appropriate Personal
Performance % to the Chairman of the Board and Chief Executive Officer who shall
approve the final Personal Performance % for each participant.
VI. Performance Measures, Targets and Payout Ranges
The financial performance measures, targets and payout ranges used for incentive
purposes shall be established by the Company based on the annual business plan.
Those measures, targets and payout ranges, as appropriate, shall be approved by
the Chairman of the Board and Chief Executive Officer. The performance measures,
targets and payout ranges are defined in Exhibit B.
VII. Participant Bonus Composition
The composition of each participant's bonus shall be determined by the Chairman
of the Board and Chief Executive Officer. The composition may have a
Discretionary portion and a Financial portion. The composition of the bonuses
are established in Exhibit C.
VIII. Computation and Disbursement of Funds
As soon as possible after the close of the Fiscal Year, the members of the
Management Committee will recommend a final personal goal achievement percentage
and incentive award payment to the Chairman of the Board and Chief Executive
Officer. Once approved, payment of the awards shall be made as soon as possible
after the completion of the annual audit.
If the participant dies before receiving his/her award, the amount due will be
paid to the designated beneficiaries on file with the Company and, in the
absence of such designation, to the participant's estate. All payment awards
shall be reduced by amounts required to be withheld for taxes at the time
payments are made.
4
<PAGE> 5
IX. Changes to Target
The Chairman of the Board and Chief Executive Officer, at any time prior to the
final determination of awards and in consultation with the Management committee,
may consider changes to the performance measures, targets, and payout ranges
used for incentive purposes. If, in the judgment of the Chairman of the Board
and Chief Executive Officer, such change(s) is/are desirable in the interests of
equitable treatment of the participants and the Company as a result of
extraordinary or non-recurring events, changes in applicable accounting rules or
principles, changes in the Company's methods of accounting, changes in
applicable law, changes due to consolidation, acquisitions, or reorganization,
the Chairman of the Board and Chief Executive Officer shall authorize and
approve such change(s) for immediate incorporation into the Plan. Further,
should actual performance on any one or all of the financial measure(s) be less
than or greater than target by twenty-five percent (25%) or more, the award
actually earned under that measure(s) will be at the sole discretion of the
Chairman of the Board and Chief Executive Officer subject to approval by the
Compensation Committee of the Board.
X. Partial Awards
A participant shall be entitled to payment of a partial Financial Award and a
partial Personal Objectives Award, computed in accordance with Sections IV and
V, and based on Base Salary in a Fiscal Year, if prior to the end of such Fiscal
Year, a participant:
- - Dies,
- - Retires (is eligible to immediately receive retirement benefits under a
Company sponsored retirement plan),
- - Becomes permanently disabled,
- - Transfers to a position with a salary grade not eligible for participation
in the Plan,
- - Enters military service,
- - Takes an approved leave of absence,
- - Is appointed or elected to public office,
- - Is terminated due to position elimination,
5
<PAGE> 6
provided that the participant was an active employee for a minimum of 30
consecutive calendar days during such Fiscal Year. Such partial awards shall be
paid when payments of non-deferred awards for such Fiscal Year are made.
Participants hired during the course of a Fiscal Year and who are employed
through the end of such Fiscal Year shall be eligible for an award based on
their Base Salary during such Fiscal Year, provided that such employees begin
active service prior to February 1 of such Fiscal Year.
XI. Forfeiture of Bonus
Except as provided in Section X, no participant who ceases to be an employee of
the Company prior to the end of a Fiscal Year shall be entitled to any amounts
under this Plan for such Fiscal Year unless the Chairman of the Board and Chief
Executive Officer, in consultation with the Vice President, Administration,
decides otherwise.
Participants who cease to be an employee of the Company between the end of a
Fiscal Year and the payment date of awards for such Fiscal Year shall be
entitled to awards earned during such Fiscal Year.
XII. Administration
This Plan shall be administered by the Vice President, Administration of Viskase
Corporation, subject to the control and supervision of the Chairman of the Board
and Chief Executive Officer and the Compensation Committee of the Board of
Directors of Viskase Companies, Inc.
Any changes to the context of the Plan, the performance ranges, Plan adjustments
and actual payouts will be reviewed with and approved by the Compensation
Committee of the Board of Directors.
In the event of a claim or dispute brought forth by a participant, the decision
of the Chairman of the Board and Chief Executive Officer as to the facts in the
case and the meaning and intent of any provision of the Plan, or its
application, shall be final and conclusive.
XIII. No Employment Contract; Future Plans
Participation in this Plan shall not confer upon any participant any right to
continue in the employ of the Company nor interfere in any way with the right of
the Company to terminate any
6
<PAGE> 7
participant's employment at any time. The Company is under no obligation to
continue the Plan in future Fiscal Years.
XIV. Amendment or Termination
The Company may at any time, or from time to time, (a) amend, alter or modify
the provisions of this Plan, (b) terminate this Plan, or (c) terminate the
participation of an employee or group of employees in this Plan; provided,
however, that in the event of the termination of this Plan or a termination of
participation, the Company shall provide the partial awards to the affected
participant(s) for the portion of the Fiscal Year during which such employee(s)
were participants in this Plan, in a manner in which the Company, in its sole
judgment, determines to be equitable to such participants and the Company.
XV. General Provisions
(a) No right under the Plan shall be assignable, either voluntarily or
involuntarily by way of encumbrance, pledge, attachment, level or charge of any
nature (except as may be required by state or federal law).
(b) Nothing in the Plan shall require the Company to segregate or set aside
any funds or other property for the purpose of paying any portion of an award.
No participant, beneficiary or other person shall have any right, title or
interest in any amount awarded under the Plan prior to the close of the Fiscal
Year, or in any property of the Company or its subsidiaries.
--------------------- ----------------------------
Final Approval Date Chairman of the Board
and Chief Executive Officer
----------------------------
Vice President
Administration
7
<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> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 10,699,000
<SECURITIES> 0
<RECEIVABLES> 49,022,000
<ALLOWANCES> (1,120,000)
<INVENTORY> 94,871,000
<CURRENT-ASSETS> 175,070,000
<PP&E> 475,582,000
<DEPRECIATION> 153,771,000
<TOTAL-ASSETS> 531,723,000
<CURRENT-LIABILITIES> 155,054,000
<BONDS> 374,032,000
0
0
<COMMON> 149,000
<OTHER-SE> (72,036,000)
<TOTAL-LIABILITY-AND-EQUITY> 531,723,000
<SALES> 92,067,000
<TOTAL-REVENUES> 92,067,000
<CGS> 69,382,000
<TOTAL-COSTS> 69,382,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 233,000
<INTEREST-EXPENSE> 10,333,000
<INCOME-PRETAX> (12,156,000)
<INCOME-TAX> (820,000)
<INCOME-CONTINUING> (11,336,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,366,000)
<EPS-BASIC> (0.76)
<EPS-DILUTED> (0.76)
</TABLE>
