SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
--- 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
----- -----
As of November 14, 2000, there were 15,253,489 shares outstanding
of the registrant's Common Stock, $.01 par value.
INDEX TO FINANCIAL STATEMENTS
VISKASE COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Page
------
Consolidated balance sheets at September 30, 2000 (unaudited) and
December 31, 1999 4
Unaudited consolidated statements of operations
for the three months ended September 30, 2000
and September 30, 1999 and for the nine months
ended September 30, 2000 and September 30, 1999 5
Unaudited consolidated statements of cash flows
for the nine months ended September 30, 2000
and September 30, 1999 7
Notes to consolidated financial statements 8
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
The financial information included in this quarterly report has been
prepared in conformity with the accounting principles and practices
reflected in the financial statements included in the annual report on
Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 1999 (1999 Form 10-K). These quarterly
financial statements should be read in conjunction with the
financial statements and the notes thereto included in the 1999
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, 1999 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.
<PAGE>
<PAGE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 77,467 $ 6,243
Receivables, net 34,247 48,971
Inventories 45,366 78,672
Other current assets 73,062 14,540
-------- --------
Total current assets 230,142 148,426
Property, plant and equipment,
including those under capital leases 305,113 488,369
Less accumulated depreciation
and amortization 122,440 178,122
------- -------
Property, plant and equipment, net 182,673 310,247
Deferred financing costs, net 238 3,059
Other assets 14,537 32,086
------- -------
Total assets $427,590 $493,818
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current portion
of long-term debt and obligations
under capital leases $ 220 $ 23,095
Accounts payable 14,437 35,202
Accrued liabilities 66,419 46,966
Current deferred income taxes 8,683 8,683
-------- --------
Total current liabilities 89,759 113,946
Long-term debt including obligations
under capital leases 301,191 404,151
Accrued employee benefits 45,624 46,787
Deferred and noncurrent income taxes 24,606 18,376
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
15,111,456 shares issued and
outstanding at September 30, 2000 and
15,058,439 shares at December 31, 1999 151 151
Paid in capital 137,558 137,454
Accumulated (deficit) (171,190) (229,212)
Cumulative foreign currency
translation adjustments (109) 2,165
--------- --------
Total stockholders' (deficit) (33,590) (89,442)
--------- --------
Total liabilities and
stockholders' equity $427,590 $493,818
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------- -----------------------
September September September September
30, 2000 30, 1999 30, 2000 30, 1999
-------- --------- --------- ----------
(in thousands, except for number of shares and per share amounts)
<S> <C> <C> <C> <C>
NET SALES $48,389 $55,296 $151,293 $167,717
Patent infringement settlement income 54,750 - 54,750 -
COSTS AND EXPENSES
Cost of sales 36,964 40,006 116,354 121,004
Selling, general and administrative 11,037 11,285 33,160 34,027
Amortization of intangibles 250 500 1,250 1,500
Restructuring charges 7,639 - 10,339 -
Patent infringement litigation expenses 7,850 - 7,850 -
------- ------- ---------- --------
OPERATING INCOME 39,399 3,505 37,090 11,186
Interest income 478 144 626 425
Interest expense 12,416 12,232 37,169 33,519
Other expense (income), net 2,598 (1,119) 3,222 1,993
------- ------- ---------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 24,863 (7,464) (2,675) (23,901)
Income tax provision (benefit) 473 2,345 (1,043) (16)
------- ------- ---------- --------
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS 24,390 (9,809) (1,632) (23,885)
DISCONTINUED OPERATIONS:
Income (loss) from operations
net of income taxes (Note 6) 1,085 2,204 3,020 (3,129)
Gain on sale of discontinued
operations net of income tax
provision of $15,304 56,634 - 56,634 -
------- ------- ---------- --------
NET INCOME (LOSS) 82,109 (7,605) 58,022 (27,014)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (1,829) 1,035 (3,919) (1,218)
Reclassification adjustment for losses
Included in net income 2,532 - 2,532 -
Other comprehensive income (loss) net
of tax 703 1,035 (1,387) (1,218)
------- ------- ---------- --------
COMPREHENSIVE INCOME (LOSS) $82,812 $(6,570) 56,635 $(28,232)
======= ======= ====== ========
WEIGHTED AVERAGE COMMON SHARES 15,104,446 14,998,213 15,095,231 14,914,072
========== ========== ========== ==========
- BASIC AND DILUTED
PER SHARE AMOUNTS:
BASIC EARNINGS (LOSS) PER SHARE:
- basic and diluted
Continuing operations $1.61 $(.65) $(.11) $(1.60)
Discontinued operations:
Income (loss) from operations .07 .14 .20 (.21)
Gain on sale of discontinued operations 3.75 - 3.75 -
----- ----- ----- -------
Net Income (loss) $5.43 $(.51) $3.84 $(1.81)
===== ===== ===== ======
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
September 30, September 30,
2000 1999
------------ ------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ 58,022 $(27,014)
Adjustments to reconcile net income (loss) to net cash
provided (used in) by operating activities:
Depreciation and amortization under capital lease 27,026 30,053
Amortization of intangibles 3,500 3,750
Amortization of deferred financing fees and discount 4,825 2,166
Increase (Decrease) in deferred and
noncurrent income taxes 9,372 (4,069)
Foreign currency transaction loss 1,438 68
(Gain) loss on disposition of assets (71,894) 10
Bad debt provision 688 842
Changes in operating assets and liabilities:
Receivables 11,215 (4,245)
Inventories 2,186 7,182
Other current assets (62,870) (1,411)
Accounts payable and accrued liabilities (5,715) (6,026)
Other 3,400 2,383
------- ------
Total adjustments (76,829) 30,703
------- ------
Net cash provided by (used in)
operating activities (18,807) 3,689
Cash flows from investing activities:
Capital expenditures (10,935) (20,130)
Proceeds from disposition of assets 228,851 97
------- -------
Net cash provided by (used in)
investing activities 217,916 (20,033)
Cash flows from financing activities:
Issuance of common stock 104 727
Deferred financing costs (2,092) (5,837)
Net proceeds (repayments) from revolving loan,
long-term borrowings, and capital lease obligation (125,662) 20,309
-------- ------
Net cash provided by (used in)
financing activities (127,650) 15,199
Effect of currency exchange rate changes on cash (235) (554)
-------- -------
Net increase (decrease) in cash and equivalents 71,224 (1,699)
Cash and equivalents at beginning of period 6,243 9,028
-------- ------
Cash and equivalents at end of period $ 77,467 $ 7,329
========= ========
Supplemental cash flow information:
Interest paid $ 39,252 $ 28,075
Income taxes paid $ 1,882 $ 1,866
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CASH AND CASH EQUIVALENTS (dollars in thousands)
September December
30, 2000 31, 1999
--------- -----------
Cash and cash equivalents $44,345 $6,243
Restricted cash and cash equivalents 33,122 -
------- ------
$77,467 $6,243
======= ======
As of September 30, 2000, cash and cash equivalents of $43,394 and
restricted cash and cash equivalents of $31,773 are invested in short
term investments.
Pursuant to the Purchase Agreement, two escrow accounts were
established. These escrow accounts are classified as restricted cash.
The $1,005 escrow account is restricted pending the final approval of
the purchase price adjustment pursuant to the Purchase Agreement and the
$30,768 escrow account is restricted pending government approval of
funds transfer from Brazil. The remaining $1,349 of restricted cash is
collateral for outstanding letters of credit under the Senior Revolving
Credit Facility.
2. INVENTORIES (dollars in thousands)
Inventories consisted of: September December
30, 2000 31, 1999
-------- ---------
Raw materials $4,246 $10,361
Work in process 17,761 31,039
Finished products 23,359 37,272
------- -------
$45,366 $78,672
======= =======
Approximately 58% of the inventories at September 30, 2000 were valued at
Last-In, First-Out (LIFO). These LIFO values exceeded current manufacturing
cost by approximately $4,730 at September 30, 2000.
3. DEBT OBLIGATIONS (dollars in thousands)
Outstanding short-term and long-term debt consisted of:
September December
30, 2000 31, 1999
--------- ---------
Short-term debt, current maturity of long-term
debt, and capital lease obligation:
Senior Term Facility $ 7,144
Current maturity of Viskase
Capital Lease Obligation 14,377
Current maturity of Viskase
Limited Term Loan (3.2%) 753
Other $220 821
---- -------
Total short-term debt $220 $23,095
==== =======
Long-term debt:
Senior Revolving Credit Facility $8,551
Senior Term Facility 42,856
Junior Term Facility 35,000
10.25% Senior Notes due 2001 $219,262 219,262
Viskase Capital Lease Obligation 81,604 97,466
Other 325 1,016
-------- -------
Total long-term debt $301,191 $404,151
======== ========
During the third quarter, the Company used proceeds from the sale of
films business (Films Business) (see Note 6) to repay $56.1 million
outstanding under the Senior Secured Credit Facility, $35 million of
Junior Term Loans and to make a $47 million payment under the GECC
Lease, consisting of $30.2 million of principal and $16.8 million of
interest.
In June 1999, Viskase Corporation and Viskase Sales Corporation entered
into two-year secured credit agreements consisting of a $50 million
senior term facility (Senior Term Facility), a $50 million senior
revolving credit facility, including a $26 million sublimit for issuance
of letters of credit (Senior Revolving Credit Facility), collectively
the "Senior Secured Credit Facility", and $35 million of junior secured
term loans (Junior Term Loans). The Senior Revolving Credit Facility has
a maturity date of June 30, 2001. Currently, Letters of Credit in the
amount of $25.3 million remain outstanding under the Senior Revolving
Credit Facility.
Under the terms of an April 13, 2000 Agreement and Amendment with GECC,
the Company agreed to amend the amortization schedule of annual lease
payments, maintain a letter of credit in the amount of $23.5 million at
all times, limit additional borrowings and provide a subordinated
security interest collateralized by the Collateral Pool. Holders of the
Senior Secured Credit Facility and the Junior Term Loans consented to
the payment extensions and the subordinated security interest granted to
GECC. The revised amortization schedule is presented below:
August 31, 2000 $46,998
November 1, 2001 11,750
February 28, 2002 11,749
February 28, 2003 23,499
February 28, 2004 23,499
February 28, 2005 23,499
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 a minimum leverage ratio of total liabilities to EBDIAT, and
a limitation on capital expenditures. As of September 30, 2000, the
Company received a waiver under the Company's Senior Secured Credit
Facility. The Company determined that, as of September 30, 2000,
without the waiver, it would not have been in compliance with the fixed
charge coverage and leverage ratio covenants. The Company also received
a waiver under the GECC lease. The Company determined that, as of
September 30, 2000, without the waiver, it would not have been in
compliance with the fixed charge coverage ratio in the GECC lease. The
Company may need to obtain additional waivers in the fourth quarter due
to the effect of the Films Business sale.
The Company's 10.25% Notes, of which $219.3 million principal amount is
outstanding as of September 30, 2000, will mature in December 2001. The
Company anticipates it will refinance the 10.25% Notes using proceeds
from its asset sales and the ANC settlement or seek alternative
strategies including, but not limited to, selling additional equity
capital.
4. CONTINGENCIES
In late 1993, Viskase commenced a legal action against American National
Can Company (ANC) in Federal District Court for the Northern District of
Illinois, Eastern Division, 93C7651 (the "ANC Litigation"). Viskase
claimed that ANC's use of two different very low density polyethylene
plastic resins in the manufacture of ANC's multi-layer barrier shrink
film products was infringing various Viskase patents relating to multi-
layer barrier plastic films used for fresh red meat, processed meat and
poultry product applications. In November 1996, after a three-week
trial, a jury found that ANC had willfully infringed Viskase's patents
and awarded Viskase $102.4 million in compensatory damages. The Court
also entered an order permanently enjoining ANC from making or selling
infringing products.
In September 1997, the Court set aside the jury verdict in part and
ordered a retrial on certain issues. The Court upheld the jury finding
on the validity of all of Viskase's patents and the jury finding that
ANC had willfully infringed Viskase's patents by ANC's use of Dow
Chemical Company's "Attane" brand polyethylene plastic resin in ANC's
products. However, the Court ordered a new trial on the issue of whether
ANC's use of Dow Chemical Company's "Affinity" brand polyethylene
plastic resin infringed Viskase's patents and whether such conduct was
willful.
Because the jury rendered one general damage verdict, the Court ordered
a retrial of all damage issues. By operation of the Court's order, the
injunction in respect of ANC's future use of the "Affinity" brand resin
was removed.
On August 19, 1998, the Court granted Viskase's motion for partial
summary judgment finding that ANC's use of the "Affinity" brand resin
infringed Viskase's patents. The Court also reinstated the permanent
injunction. Viskase filed a motion to have the jury verdict as to
compensatory damages reinstated. ANC filed a motion to dismiss the
lawsuit claiming that Viskase's patents are invalid and Viskase failed
to join an indispensable party to the lawsuit. On May 10, 1999, the
Court granted Viskase's motion to have the jury verdict as to the
compensatory damages reinstated. In May and June 1999, the parties
briefed the issue of enhanced damages and on July 2, 1999, the Court
awarded Viskase total damages of $164.9 million. ANC filed a motion for
reconsideration which was denied.
On May 3, 1999, ANC commenced legal action in the Federal District Court
for the Northern District of Illinois seeking declaratory relief that
one of the litigated patents is invalid. ANC also filed a motion to
consolidate the declaratory action with the 1993 suit. ANC's motion to
consolidate was granted and then the Court dismissed ANC's suit with
prejudice at the same time the Court awarded Viskase total damages of
$164.9 million.
ANC has filed a notice of appeal to the United States Court of Appeals
for the Federal Circuit. Oral arguments before the United States Circuit
of Appeals for the Federal Circuit were held on June 6, 2000 and Viskase
expects a decision during fourth quarter of 2000 or first quarter of
2001.
On January 14, 2000, Pechiney Plastic Packaging, Inc. and Pechiney
Emballage Flexible Europe, Inc. (successors in interest in ANC) filed
suit against the Company and Viskase in the United States District Court
for the Northern District of Illinois, Eastern Division (the "Newsome
Litigation"). This suit alleges infringement of U.S. Reissue Patent No.
35,567, which patent is set to expire on April 26, 2002, and further
alleges patent interference with one of the five Viskase patents
litigated in the ANC Litigation. In May 2000, the District Court
dismissed the patent interference count. Pechiney filed an Amended
Complaint on June 30, 2000 seeking to reinstate the dismissed count
(Count III). On July 25, 2000, Viskase filed a Motion to Dismiss Count
III of the Amended Complaint and also filed a Motion for Sanctions
related thereto. On August 9, 2000, Viskase filed a Supplemental Motion
for Sanctions. On August 24, 2000, Pechiney responded to these motions
and Viskase filed its reply on September 14, 2000.
On September 29, 2000, the Company and Viskase entered into a Settlement
and License Agreement (the "Agreement") with ANC, American National Can
Group, Inc., Pechiney Plastic Packaging, Inc. and Pechiney Emballage
Flexible Europe (collectively, "Pechiney") partially resolving the ANC
Litigation and fully resolving the Newsome Litigation. Pursuant to the
Agreement, Viskase received a payment of $54.75 million on October 2,
2000. In addition, an additional payment of $60.25 million will be made
to Viskase if the United States Court of Appeals for the Federal Circuit
affirms the monetary award in its entirety in the ANC Litigation. In
October 2000, pursuant to the agreement, Viskase withdrew its Motions
for Sanctions and the Amended Complaint in the Newsome Litigation was
dismissed with prejudice. The Company recorded $54.75 million as patent
infringement settlement income during the third quarter 2000 and
expensed $7.85 million patent defense costs. No portion of the
potential additional payment of $60.25 million was recorded in the
Company's financial statements.
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). Both patents under reexamination have been
rejected by the USPTO. In both cases, Viskase has filed appeals to the
Board of Patent Appeals and Interference of the USPTO. For the first
patent, Viskase's brief was filed July 13, 2000. On October 20, 2000,
the Examiner filed its answer and modified its rejection order and found
two dependent claims to contain allowable subject matter. Viskase's
reply to the Examiner's Answer is due by December 20, 2000. For the
second patent, Viskase's brief is due November 22, 2000. Pursuant to
the Agreement, the parties have agreed that neither will, directly or
indirectly, except as required by any court order or the USPTO, seek to
obtain or assist any other person or entity in seeking or obtaining the
re-examination, invalidation or limitation on the patents licensed under
the Agreement, including the two patents currently being challenged in
the USPTO.
In March 1997, Viskase received a subpoena from the Antitrust Division
of the United States Department of Justice relating to a grand jury
investigation of the sausage casings industry. In September 1999,
Viskase Corporation received a subpoena from the Antitrust Division of
the United States Department of Justice relating to the expansion of the
grand jury investigation into the specialty films industry. Viskase is
cooperating fully with the investigations.
In November 1999, the Company and certain of its subsidiaries and one
other sausage casings manufacturer were named in a civil complaint,
Leon's Sausage
---------------
Companies, Inc., Envirodyne Industries, Inc., Viskase Corporation,
-------------------------------------------------------------------
Devro-Teepak, Inc., Civil Action No. 99C7200, United States District
-------------------
Court for the Northern District of Illinois, Eastern Division. This
complaint alleged that the defendants unlawfully conspired to fix prices
and allocate business in the sausage casings industry. In December
1999, the plaintiff in this action voluntarily dismissed the complaint
without prejudice.
During 1999 and 2000, the Company and certain of its subsidiaries and
one other sausage manufacturer were named in ten virtually identical
civil complaints filed in the District of New Jersey by the following
plaintiffs: Smith Provision Co., Inc.; Parks LLC (d/b/a Parks Sausage
Company); Real Kosher Sausage Company, Inc.; Sahlen Packing Co., Inc.;
Marathon Enterprises, Inc.; Ventures East, Inc.; Keniston's, Inc.;
Smithfield Foods, Inc.; Clougherty Packing Co.; and Klement Sausage Co.
The District Circuit ordered all of these cases consolidated in the
District of New Jersey Civil Action No. 99-5195-MLC (D.N.J.). Each
complaint brought on behalf of a purported class of sausage casings
customers alleges that the defendants unlawfully conspired to fix prices
and allocate business in the sausage casings industry. The Company and
its subsidiaries have filed answers to each of these complaints denying
liability.
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.
5. RESTRUCTURING CHARGE (dollars in millions)
During the second and third quarters of 2000, the Company committed to
a restructuring plan to re-focus its remaining business. The
restructuring actions, which will reduce the Company's fixed cost
structure, resulted in a before tax charge to continuing operations of
$2.7 million during the second quarter and $7.6 million during the third
quarter consisting of:
Employee costs $3.2
Write-down of building and equipment 7.1
Decommissioning .3
Excess reserve (.3)
-----
Restructuring charge $10.3
=====
In the third quarter of 2000, cash payments were $.9 million; total
payments through September 30, 2000 were $1.0 million.
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. In the
third quarter of 2000, cash payments against the reserve were $.7
million; total payments through September 30, 2000 were $10.5 million.
In the second quarter of 2000, an amount of $.3 million identified as an
excess reserve was reversed. The remaining restructuring reserve of $.7
million is included in accrued liabilities on the balance sheet. (see
Note 10)
6. DISCONTINUED OPERATIONS (dollars in thousands)
On January 17, 2000, the Company's Board of Directors announced its
intent to sell the Company's plastic barrier and non-barrier shrink
Films Business. The sale of the Films Business was completed on August
31, 2000. The aggregate purchase price of $245 million, subject to a
working capital adjustment, was used to retire debt, including the
Senior Secured Credit Facility and Junior Term Loans, pay GECC per the
amended amortization schedule, and for general corporate purposes. The
Company recognized a net gain in the amount of $56.6 million in the
third quarter 2000 results. The business sold includes production
facilities in the United States, United Kingdom, and Brazil. In
conjunction with the sale of the Films Business, the Company shut down
its oriented polypropylene (OPP) films business located in Newton
Aycliffe, England and the films operation in Canada; the costs of this
are included in the business discontinuance.
<PAGE>
<PAGE>
Operating results from discontinued operations are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- ------------------------
September September September September
30, 2000 30, 1999 30, 2000 30, 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $30,290 $ 40,981 $110,017 $117,725
Costs and expenses
Cost of sales 23,943 33,461 83,502 95,010
Selling, general and administrative 4,349 6,603 18,846 22,687
Amortization of intangibles 750 750 2,250 2,250
------ ------- ------- --------
Operating income 1,248 167 5,419 (2,222)
Interest income 19 - 19 -
Interest expense 50 73 98 154
Other expense (income), net (60) 892 1,608 2,341
------ ------- ------- --------
Income (loss) from discontinued
operations before taxes 1,277 (798) 3,732 (4,717)
Income tax provision (benefit) 192 (3,002) 712 (1,588)
------ ------- ------- --------
Net income (loss) from discontinued
operations $1,085 $ 2,204 $3,020 $(3,129)
====== ======== ====== =======
</TABLE>
The net assets of the films segment included in the accompanying Balance
Sheet as of December 31, 1999 consisted of the following:
December 31, 1999
-----------------
Accounts receivable, net $ 19,537
Inventories 33,965
Other current assets 4,156
--------
Total current assets 57,658
Property, plant and equipment, net 110,657
Long-term assets 12,459
--------
Total assets 180,774
Accounts payable and other
current liabilities 28,396
Short-term debt 1,016
-------
Total current liabilities 29,412
Long-term debt and lease obligations 465
Deferred and noncurrent income taxes 5,762
--------
Total liabilities 35,639
Net Assets $145,135
========
<PAGE>
<PAGE>
7. COMPREHENSIVE INCOME (dollars in thousands)
The following sets forth the components of other comprehensive
income (loss) and the related income tax provision (benefit):
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September September September September
30, 2000 30, 1999 30, 2000 30, 1999
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Other Comprehensive Income:
Foreign currency translation
adjustment (1) $(1,829) $1,035 $(3,919) $(1,218)
Less reclassification adjustment
for losses included in net
income (2) 2,532 - 2,532 -
------- ------- ------- --------
Other comprehensive income (loss)
net of tax $703 $1,035 $(1,387) ($1,218)
======== ====== ======== ========
<FN>
(1) Net of related tax provision (benefit) of ($1,170) and $662 for the third quarter ended 2000
and 1999, respectively, and ($2,506) and ($778) for the first nine months ended 2000 and 1999,
respectively.
(2) Reclassification adjustment for losses due to sale of Films Business, included in net income
of $4,115, net of related tax provision of $1,619.
</TABLE>
8. EARNINGS PER SHARE (EPS)
Following are the reconciliations of the numerators and denominators of the
basic and diluted EPS.
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September September September September
30, 2000 30, 1999 30, 2000 30, 1999
------------ ----------- ----------- ------------
(in thousands, except for weighted average shares outstanding)
<S> <C> <C> <C> <C>
NUMERATOR (in thousands):
Net income (loss) available
to common stockholders:
From continuing operations: $24,390 $(9,809) $(1,632) $(23,885)
Discontinued operations:
Income (loss) from discontinued
operations, net of tax: 1,085 2,204 3,020 (3,129)
Gain on sale of discontinued
operations, net of tax 56,634 - 56,634 -
------- -------- -------- --------
Net income (loss) available to common
stockholders for basic and
diluted EPS $82,109 $(7,605) $58,022 $(27,014)
======= ======== ======= =========
<PAGE>
DENOMINATOR:
Weighted average shares
outstanding
for basic EPS 15,104,446 14,998,213 15,095,231 14,914,072
Effect of dilutive securities - - - -
---------- ---------- ---------- ---------
Weighted average shares
outstanding
for diluted EPS 15,104,446 14,998,213 15,095,231 14,914,072
========== ========== ========== ==========
</TABLE>
Common stock equivalents are excluded from the per share calculations
because the result is antidilutive.
9. ACCOUNTING STANDARDS
In September 2000, the FASB issued Statement of Financial
Accounting Standards No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities -
a replacement of FASB Statement No. 125" ("Statement 140").
Statement 140 revises the standards for accounting for
securitizations and other transfers of financial assets and
collateral and requires certain disclosures. This statement is
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001.
Management believes that adoption of Statement 140 will not have a
material effect on the Company's financial statements.
In September 2000, the Emerging Issues Task Force (EITF) of the
FASB issued EITF 00-10, "Accounting for Shipping and Handling
Revenues and Cost". EITF 00-10 provides guidance on applying
generally accepted accounting principles to shipping and handling
revenues and costs in the financial statements. Management
believes that adoption of EITF 00-10 will not have a material
effect on the Company's financial statements.
In July 2000, the EITF of the FASB issued EITF 00-14, "Accounting
for Coupons, Rebates, and Discounts". EITF 00-14 provides guidance
on applying generally accepted accounting principles to the
accounting for coupons, rebates, and discounts in the financial
statements. Management believes that adoption of EITF 00-14 will
not have a material effect on the Company's financial statements.
In December 1999, the U.S. Securities and Exchange Commission (the
"SEC") issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). SAB 101 provides
guidance on applying generally accepted accounting principles to
revenue recognition in financial statements. The Company is
required to adopt SAB 101 no later than the fourth quarter of
fiscal year 2000. Management believes that adoption of SAB 101
will not have a material effect on the Company's financial
statements.
The Company will adopt the provisions of Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133" (SFAS No. 137). SFAS No. 137 is
effective for the Company's 2001 financial statements.
10. SUBSEQUENT EVENTS
During October 2000, the Company advised its central works council
in France of its intention to restructure its Thaon, France plant.
The Company and the central works council are in the preliminary
stages of consultation. A restructuring charge will be recorded
during the fourth quarter of 2000. The Company expects the charge
for the write-down of assets and related employee costs to be in
excess of $23 million.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
The accompanying management's discussion and analysis of
financial condition and results of operations should be read
in conjunction with the following table:
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September September September September
30, 2000 30, 1999 30, 2000 30, 1999
---------- --------- --------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Net sales:
Casings - continuing operations $ 48,389 $55,296 $151,293 $167,717
Films - discontinued operations 30,290 40,981 110,017 117,725
-------- ------- -------- --------
$ 78,679 $96,277 $261,310 $285,442
======== ======= ========= ========
Operating income (loss):
Casings - continuing operations $39,399 $ 3,505 $37,090 $11,186
Films - discontinued operations 1,248 167 5 ,419 (2,222)
------- ------- ------- -------
$40,647 $ 3,672 $42,509 $ 8,964
======= ======= ======= =======
</TABLE>
September December
30, 2000 31, 1999
--------- ---------
(in thousands)
Identifiable assets:
Casings - continuing operations $427,590 $313,044
Films - discontinued operations - 180,774
-------- --------
$427,590 $493,818
======== ========
Results of Operations
---------------------
The Company's net sales from continuing operations for the first
nine months and third quarter of 2000 were $151.3 million and
$48.4 million, respectively, which represent a decrease of 9.8
% and 12.5%, respectively, from comparable periods of 1999. The
decline in sales reflects the continuing effect of reduced
selling prices in the casings industry. European sales were also
negatively affected by foreign currency translation due to the
strengthening of the U.S. dollar.
Operating income from continuing operations for the first nine
months and third quarter of 2000 were $37.1 million and $39.4
million, respectively. The operating income includes a gain on
a partial resolution of the ANC Litigation in the amount of
$54.75 million, offset by patent litigation expenses of $7.85
million associated with the partial resolution and a
restructuring charge of $10.3 million. Operating income from
continuing operations, excluding the ANC Litigation gain, ANC
Litigation expenses and the restructuring charge, for the first
nine months and third quarter of 2000 were $.5 million and $.1
million, respectively. This compares unfavorably to operating
income from continuing operations for the comparable prior year
periods of $11.2 million and $3.5 million, respectively. Reduced
selling prices in the worldwide casing industry continue to
negatively affect operating income. During the second and third
quarters of 2000, the Company committed to a plan of
restructuring its remaining business. The objective of this
plan was to significantly reduce the manufacturing cost of
casing products (see Note 5).
Net interest expense from continuing operations for the nine-
month period in 2000 totaled $36.5 million, representing an
increase of $3.4 million from the nine-month period in 1999. The
increase is primarily due to deferred fees amortization and
interest cost due to the refinancing in June 1999 (see to Note
3).
Other expense from continuing operations of approximately $3.2
million and $2.0 million for the first nine months of 2000 and
1999, 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 nine months of 2000 resulted
primarily from the benefit of U.S. tax loss carryforwards. Due
to permanent and temporary differences in the U.S., a tax
benefit of $1.0 million was provided on a loss from continuing
operations of $2.7 million and tax loss carryforwards which were
recognized due to the gain on the sale of the Films Business.
The U.S. tax benefit is recorded as a reduction of the deferred
tax liability and does not result in a refund of income taxes.
Discontinued Operations
-----------------------
On January 17, 2000, the Company's Board of Directors announced
its intent to sell the plastic barrier and non-barrier shrink
Films Business. The sale of the Films Business was completed on
August 31, 2000. The aggregate purchase price of $245 million
(see Note 6), subject to a working capital adjustment, was used
principally to retire debt, including the Senior Secured Credit
Facility and Junior Term Loans, pay GECC per the amended
amortization schedule, and for general corporate purposes. The
Company recognized a gain on the sale, net of tax, in the amount
of $56.6 million. The business sold includes production
facilities in the United States, United Kingdom, and Brazil. In
conjunction with the sale of the Films Business, the Company
shut down its oriented polypropylene (OPP) films business
located in Newton Aycliffe, England and the films operation in
Canada; the costs of this are included in the business
discontinuance.
Other
-----
In September 2000, the FASB issued Statement of Financial
Accounting Standards No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities - a replacement of FASB Statement No. 125"
("Statement 140"). Statement 140 revises the standards for
accounting for securitizations and other transfers of
financial assets and collateral and requires certain
disclosures. This statement is effective for transfers and
servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. Management
believes that adoption of Statement 140 will not have a
material effect on the Company's financial statements.
In September 2000, the Emerging Issues Task Force (EITF) of
the FASB issued EITF 00-10, "Accounting for Shipping and
Handling Revenues and Cost". EITF 00-10 provides guidance
on applying generally accepted accounting principles to
shipping and handling revenues and costs in the financial
statements. Management believes that adoption of EITF 00-10
will not have a material effect on the Company's financial
statements.
In July 2000, the EITF of the FASB issued EITF 00-14,
"Accounting for Coupons, Rebates, and Discounts". EITF 00-
14 provides guidance on applying generally accepted
accounting principles to the accounting for coupons,
rebates, and discounts in the financial statements.
Management believes that adoption of EITF 00-14 will not
have a material effect on the Company's financial
statements.
In December 1999, the U.S. Securities and Exchange
Commission (the "SEC") issued Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 provides guidance on applying generally
accepted accounting principles to revenue recognition in
financial statements. The Company is required to adopt SAB
101 no later than the fourth quarter of fiscal year 2000.
Management believes that adoption of SAB 101 will not have a
material effect on the Company's financial statements.
The Company will adopt the provisions of Statement of
Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133" (SFAS No. 137).
SFAS No. 137 is effective for the Company's 2001 financial
statements.
Liquidity and Capital Resources
-------------------------------
Cash and equivalents increased by $71.2 million during the
nine months ended September 30, 2000. Cash flows provided by
investing activities of $217.9 million exceeded funds used in
operating activities of $18.8 million and financing activities
of $127.7 million. Cash flows provided by investing activities
were principally attributable to the Company's sale of the
Films Business, offset by capital expenditures for property
plant and equipment. Cash flows used in operating activities
were principally attributable to the Company's gain from
operations offset by an increase in working capital usage, the
gain on the sale of the Films Business and the effect of
depreciation and amortization. Cash flows used in financing
activities were principally due to the payment of $58.6
million for the Senior Secured Credit Facility and $35.0
million for the Junior Term Loans and a $30.2 million
principal payment under the GECC lease. The Company may need
to obtain additional waivers in the fourth quarter due to the
effect of the Films Business sale.
In June 1999, Viskase Corporation and Viskase Sales
Corporation entered into two-year secured credit agreements
consisting of a $50 million senior term facility (Senior Term
Facility), a $50 million senior revolving credit facility,
including a $26 million sublimit for issuance of letters of
credit (Senior Revolving Credit Facility), collectively the
"Senior Secured Credit Facility", and $35 million of junior
secured term loans (Junior Term Loans). The Senior Secured
Credit Facility has a maturity date of June 30, 2001. The
Company used proceeds from the sale of Films Business to repay
$56.1 million outstanding under the Senior Secured Credit
Facility and $35 million of Junior Term Loans and to make a
$47 million payment under the GECC Lease consisting of $30.2
million of principal and $16.8 million of interest.
Currently, letters of credit in the amount of $25.3 million
remain outstanding under the Senior Revolving Credit Facility.
The Company finances its working capital needs through a
combination of its current cash position and internally
generated cash from operations.
There were no borrowings outstanding under the Senior
Revolving Credit Facility at September 30, 2000. 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.
Under the terms of the April 13, 2000 Agreement and
Amendment with GECC, the Company agreed to amend the
amortization schedule of annual lease payments, maintain a
letter of credit in the amount of $23.5 million at all
times, limit additional borrowings and provide a
subordinated security interest collateralized by the
Collateral Pool. Holders of the Senior Secured Credit
Facility and the Junior Term Loans consented to the payment
extensions and the subordinated security interest granted to
GECC. The revised amortization schedule is presented below:
August 31, 2000 $46,998
November 1, 2001 11,750
February 28, 2002 11,749
February 28, 2003 23,499
February 28, 2004 23,499
February 28, 2005 23,499
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 a minimum leverage
ratio of total liabilities to EBDIAT, and a limitation on
capital expenditures. As of September 30, 2000, the Company
received a waiver under the Company's Senior Secured Credit
Facility. The Company determined that, as of September 30,
2000, without the waiver, it would not have been in compliance
with fixed charge coverage and leverage ratio covenants. The
Company also received a waiver under the GECC lease. The
Company determined that, as of September 30, 2000, without the
waiver, it would not have been in compliance with the fixed
charge coverage ratio in the GECC lease.
The Company anticipates that its current cash position, its
operating cash flows, and proceeds from asset sales will be
sufficient to meet its operating expenses and current debt
service requirements. The Company's 10.25% Notes, of which
$219.3 million principal amount is outstanding as of September
30, 2000, will mature in December 2001. The Company
anticipates it will refinance the 10.25% Notes using proceeds
from its assets sales and the ANC settlement or seek
alternative strategies including, but not limited to, selling
additional, equity capital.
Capital expenditures for continuing operations for the first
nine months of 2000 and 1999 totaled $9.7 million and $12.6
million, respectively. Capital expenditures for discontinued
operations for the first nine months of 2000 totaled
approximately $2 million. Significant 2000 and 1999 capital
expenditures for continuing operations included costs
associated with the Nucel(R) project and a new information
technology system at Viskase. Capital expenditures for
discontinued operations included additional production
capacity for specialty films. Capital expenditures for
continuing operations for 2000 are expected to be
approximately $14 million. Capital expenditures for continuing
operations for 2001 are expected to be $7 million.
The Company has spent approximately $8 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 2000 research and
development and product introduction expenses are expected to
be in the $9.7 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.
Forward-looking Statements
--------------------------
Forward-looking statements in this report are made pursuant to
the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements
are not guarantees of future performance and are subject to
risks and uncertainties that could cause actual results and
Company plans and objectives to differ materially from those
projected. Such risks and uncertainties include, but are not
limited to, general business and economic conditions;
competitive pricing pressures for the Company's products;
changes in other costs; opportunities that may be presented to
and pursued by the Company; determinations by regulatory and
governmental authorities; and the ability to achieve
synergistic and other cost reductions and efficiencies.
<PAGE>
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
----------------------------------------------
MARKET RISK
-----------
The Company is exposed to certain market risks related to
foreign currency exchange rates. In order to manage the risk
associated with this exposure to such fluctuations, the
Company uses derivative financial instruments. The Company
does not enter into derivatives for trading purposes.
The Company also prepared sensitivity analyses to determine
the impact of a hypothetical 10% devaluation of the U.S.
dollar relative to the European receivables and payables
denominated in U.S. dollars. Based on its sensitivity analyses
at September 30, 2000, a 10% devaluation of the U.S. dollar
would affect the Company's annual consolidated operating
results, financial position and cash flows by approximately
0.7 million. The Company uses foreign exchange forward
contracts to manage the risk associated with its exposure to
foreign currency exchange rate fluctuations. At September 30,
2000, there were no foreign exchange forward contracts
outstanding.
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
-----------------
For a description of pending litigation and other
contingencies, see Part 1, Note 4, Contingencies in Notes to
Consolidated Financial Statements for Viskase Companies, Inc.
and Subsidiaries.
Item 2 - Changes in Securities
---------------------
No reportable events occurred during the quarter ended
September 30, 2000.
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
2.0 Purchase Agreement, dated July 7, 2000 among the
Company and certain of its subsidiaries and Bemis
Company, Inc. (incorporated herein by
reference to Exhibit 2 to Form 8-K filed September
25, 2000).
2.1 Amendment No. 1 to Purchase Agreement, dated August
31, 2000, among the Company and certain of its
subsidiaries and Bemis Company, Inc.
27 Financial Data Schedules.
(b) Reports on Form 8-K
1. On July 10, 2000 the Company filed a Form 8-K to
announce that it had signed a definitive agreement
to sell its plastic barrier and non-barrier shrink
business to Bemis Company, Inc. for a purchase
price of $245 million which includes $228 million
in cash upon consummation of the transaction and
$18 million in accounts receivable excluded from
the transaction.
2. On September 25, 2000, the Company filed a form 8-K
to announce the completion of the sale of its
plastic barrier and non-barrier shrink film
business to Bemis Company, Inc.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
VISKASE COMPANIES, INC.
-------------------------
Registrant
By: /s/
---------------------------
Gordon S. Donovan
Vice President, Chief
Financial
Officer and Treasurer
(Duly authorized oflicer
and principal financial
officer of the registrant)
Date: November 14, 2000
