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, 2000
---------------------
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
----- -----
As of May 15, 2000, there were 15,096,458 shares outstanding of the
registrant's Common Stock, $.01 par value.
Page 1 of 18 Pages
INDEX TO FINANCIAL STATEMENTS
VISKASE COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Consolidated balance sheets at March 31, 2000 (unaudited)
and December 31, 1999 4
Unaudited consolidated statements of operations for
the three months ended March 31, 2000 and March 31, 1999 5
Unaudited consolidated statements of cash flows for
the three months ended March 31, 2000 and March 31, 1999 6
Notes to consolidated financial statements 7
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
The financial information included in this quarterly report has been
prepared in conformity with the accounting principles and practices
reflected in the financial statements included in the annual report on
Form 10-K filed with the Securities and Exchange Commission for the year
ended December 31, 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>
March 31, December 31,
2000 1999
---------- -----------
(unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 6,224 $ 6,243
Receivables, net 45,426 48,971
Inventories 81,394 78,672
Other current assets 13,849 14,540
---------- --------
Total current assets 146,893 148,426
Property, plant and equipment,
including those under capital leases 487,076 488,369
Less accumulated depreciation
and amortization 186,313 178,122
---------- --------
Property, plant and equipment, net 300,763 310,247
Deferred financing costs, net 1,813 3,059
Other assets 31,913 32,086
---------- --------
Total assets $ 481,382 $493,818
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current portion
of long-term debt and obligations
under capital leases $ 124,757 $ 23,095
Accounts payable 27,518 35,202
Accrued liabilities 55,900 46,966
Current deferred income taxes 8,683 8,683
---------- --------
Total current liabilities 216,858 113,946
Long-term debt including obligations
under capital leases 301,344 404,151
Accrued employee benefits 46,947 46,787
Deferred and noncurrent income taxes 16,642 18,376
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
15,089,790 shares issued and
outstanding at March 31, 2000 and
15,058,439 shares at December 31, 1999 151 151
Paid in capital 137,523 137,454
Accumulated (deficit) (238,108) (229,212)
Cumulative foreign currency
translation adjustments 25 2,165
---------- --------
Total stockholders'(deficit) (100,409) (89,442)
---------- --------
Total liabilities and stockholders' equity $ 481,382 $493,818
========== ========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended March Ended March
31, 2000 31, 1999
--------------- ---------------
(in thousands, except for
number of shares and per share amounts)
<S> <C> <C>
NET SALES $ 51,770 $55,136
---------- --------
COSTS AND EXPENSES
Cost of sales 38,705 40,493
Selling, general and administrative 11,186 12,285
Amortization of intangibles 500 500
---------- --------
OPERATING INCOME 1,379 1,858
Interest income 53 103
Interest expense 12,159 10,290
Other expense, net 113 2,009
---------- --------
(LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (10,840) (10,338)
Income tax (benefit) (713) (2,373)
---------- --------
NET (LOSS) FROM CONTINUING OPERATIONS (10,127) (7,965)
DISCONTINUED OPERATIONS:
Income (loss) from operations
net of income taxes (Note 5) 1,231 (3,371)
---------- --------
NET (LOSS) (8,896) (11,336)
Other comprehensive (loss), net of tax:
Foreign currency translation adjustments (1,305) (995)
---------- --------
COMPREHENSIVE (LOSS) $(10,201) $(12,331)
========== ========
WEIGHTED AVERAGE COMMON SHARES
- BASIC AND DILUTED 15,085,642 14,867,057
========== ==========
PER SHARE AMOUNTS:
EARNINGS (LOSS) PER SHARE
- basic and diluted
Continuing operations $(.67) $(.54)
Discontinued operations:
Income (loss) from operations .08 (.22)
------ -----
NET (LOSS) $(.59) $(.76)
====== =====
<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>
Three Months Ended
-----------------------------------
March 31, March 31,
2000 1999
------------- ------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(8,896) $(11,336)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization under capital lease 10,140 10,120
Amortization of intangibles 1,250 1,250
Amortization of deferred financing fees and discount 1,564 286
(Decrease) in deferred and
noncurrent income taxes (1,011) (2,030)
Foreign currency transaction loss 307 43
Loss on disposition of assets 24
Bad debt provision 179 233
Changes in operating assets and liabilities:
Receivables 2,456 (967)
Inventories (3,692) (2,859)
Other current assets 482 (6,509)
Accounts payable and accrued liabilities 2,091 1,582
Other (338) 1,525
---------- --------
Total adjustments 13,428 2,698
---------- --------
Net cash provided by (used in) operating activities 4,532 (8,638)
Cash flows from investing activities:
Capital expenditures (3,242) (5,997)
Proceeds from disposition of assets 12
---------- --------
Net cash (used in) investing activities (3,242) (5,985)
Cash flows from financing activities:
Issuance of common stock 69 49
Deferred financing costs (317) (26)
Proceeds from revolving loan and long-term
borrowings 59,002 30,134
Repayment of revolving loan, long-term borrowings
and capital lease obligation (60,066) (13,353)
---------- --------
Net cash (used in) provided by financing activities (1,312) 16,804
Effect of currency exchange rate changes on cash 3 (510)
---------- --------
Net (decrease) increase in cash and equivalents (19) 1,671
Cash and equivalents at beginning of period 6,243 9,028
---------- --------
Cash and equivalents at end of period $ 6,224 $10,699
========== ========
______________________________________________________________________________
Supplemental cash flow information:
Interest paid $ 4,940 $ 10,616
Income taxes paid $ 452 $ 631
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES (dollars in thousands)
Inventories consisted of:
March December
31, 2000 31, 1999
---------- -----------
Raw materials $ 9,953 $10,361
Work in process 31,209 31,039
Finished products 40,232 37,272
------- -------
$81,394 $78,672
======= =======
Approximately 59% of the inventories at March 31, 2000 were valued at Last-
In, First-Out (LIFO). These LIFO values exceeded current manufacturing cost
by approximately $7,642 at March 31, 2000.
2. DEBT OBLIGATIONS (dollars in thousands)
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 Senior
Secured Credit Facility and Junior Term Loans have a maturity date of June
30, 2001.
The Company entered into an Agreement dated March 3, 2000, amended March 9,
2000, March 23, 2000 and March 30, 2000, that extended the grace period for
the payment of its February 28, 2000 annual GECC lease payment in the amount
of $23.5 million. The principal portion of the 2001 GECC lease payment, the
Senior Secured Credit Facility and Junior Term Loans have been reclassed to
current from long term. (See Note 9.)
<PAGE>
Outstanding short-term and long-term debt consisted of:
<TABLE>
<CAPTION>
March December
31, 2000 31, 1999
---------- --------
<S> <C> <C>
Short-term debt, current maturity of long-term
debt, and capital lease obligation:
Senior Revolving Credit Facility $ 9,557
Senior Term Facility 48,214 $ 7,144
Junior Term Facility 35,000
Current maturity of Viskase Capital Lease Obligation 30,238 14,377
Current maturity of Viskase Limited Term Loan (3.2%) 722 753
Other 1,026 821
---------- --------
Total short-term debt $124,757 $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 81,605 97,466
Other 477 1,016
---------- --------
Total long-term debt $301,344 $404,151
========== ========
</TABLE>
On April 13, 2000 the Company entered into an Agreement and Amendment with
GECC that extended the payment date to June 30, 2000 and waived the
noncompliance of the Fixed Charge Coverage Ratio for the quarter ended March
31, 2000. The June 30, 2000 payment extension date was subsequently modified
to September 26, 2000 under an Agreement dated June 13, 2000.
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. The required $47.0 million payment, per the
amended amortization schedule, which was due no later than September 26,
2000, was made on August 31, 2000.
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 and Junior Term Loans contain a
number of financial covenants that, among other things, require the
maintenance of a minimum level of tangible net worth, a minimum fixed charge
coverage ratio and a minimum leverage ratio of total liabilities to EBDIAT,
and a limitation on capital expenditures.
As of March 31, 2000, the Company is in compliance with the covenants under
the Company's Senior Secured Credit Facility and Junior Term Loans.
As of June 30, 2000, the Company received an amendment and waiver under the
Company's Senior Secured Credit Facility and Junior Term Loans. The Company
determined that, as of June 30, 2000, without the amendment and waiver, it
would not have been in compliance with the tangible net worth and leverage
ratio covenants.
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, using proceeds from asset sales, litigation, if any, or selling
additional equity capital.
3. CONTINGENCIES
In late 1993, Viskase commenced a legal action against American National Can
Company (ANC) in Federal District Court for the Northern District of
Illinois, Eastern Division, 93C7651. Viskase claimed that ANC's use of two
different very low density polyethylene plastic resins in the manufacture of
ANC's multi-layer barrier shrink film products was infringing various Viskase
patents relating to multi-layer barrier plastic films used for fresh red
meat, processed meat and poultry product applications. In November 1996,
after a three-week trial, a jury found that ANC had willfully infringed
Viskase's patents and awarded Viskase $102.4 million in compensatory damages.
The Court also entered an order permanently enjoining ANC from making or
selling infringing products.
In September 1997, the Court set aside the jury verdict in part and ordered
a retrial on certain issues. The Court upheld the jury finding on the
validity of all of Viskase's patents and the jury finding that ANC had
willfully infringed Viskase's patents by ANC's use of Dow Chemical Company's
"Attane" brand polyethylene plastic resin in ANC's products. However, the
Court ordered a new trial on the issue of whether ANC's use of Dow Chemical
Company's "Affinity" brand polyethylene plastic resin infringed Viskase's
patents and whether such conduct was willful. Because the jury rendered one
general damage verdict, the Court ordered a retrial of all damage issues. By
operation of the Court's order, the injunction in respect of ANC's future use
of the "Affinity" brand resin was removed.
On August 19, 1998, the Court granted Viskase's motion for partial summary
judgment finding that ANC's use of the "Affinity" brand resin infringed
Viskase's patents. The Court also reinstated the permanent injunction.
Viskase filed a motion to have the jury verdict as to compensatory damages
reinstated. ANC filed a motion to dismiss the lawsuit claiming that Viskase's
patents are invalid and Viskase failed to join an indispensable party to the
lawsuit. On May 10, 1999, the Court granted Viskase's motion to have the jury
verdict as to the compensatory damages reinstated. In May and June 1999, the
parties briefed the issue of enhanced damages and on July 2, 1999, the Court
awarded Viskase total damages of $164.9 million. ANC filed a motion for
reconsideration which was denied.
On May 3, 1999, ANC commenced legal action in the Federal District Court for
the Northern District of Illinois seeking declaratory relief that one of the
litigated patents is invalid. ANC also filed a motion to consolidate the
declaratory action with the 1993 suit. ANC's motion to consolidate was
granted and then the Court dismissed ANC's suit with prejudice at the same
time the Court awarded Viskase total damages of $164.9 million.
ANC has filed a notice of appeal to the United States Court of Appeals for
the Federal Circuit. 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.
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 Interferences of the USPTO. For the first patent, Viskase's
brief was filed July 13, 2000, and the Examiner's Answer is awaited. For the
second patent, Viskase's brief is due October 23, 2000.
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. 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 Viskase's legal action against ANC. 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. Rulings on these motions are
presently set for October 13, 2000. Viskase's Answer to the Amended
Complaint is presently due October 23, 2000.
No part of the pending claims has been recorded in the Company's financial
statements. Through March 31, 2000, $5.1 million in patent defense costs had
been accrued and capitalized.
In March 1997, Viskase received a subpoena from the Antitrust Division of the
United States Department of Justice relating to a grand jury investigation of
the sausage casings industry. 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
--------------
Company, on behalf of itself and all others similarly situated v. Viskase
-------------------------------------------------------------------------
Companies, Inc., Envirodyne Industries, Inc., Viskase Corporation, Devro-
-------------------------------------------------------------------------
Teepak, Inc., Civil Action No. 99C7200, United States District Court for the
------------
Northern District of Illinois, Eastern Division. This complaint 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.
In late 1999 and early 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.
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.
In the first quarter of 2000, cash payments against the reserve were $.4
million; total payments through March 31, 2000 were $9.6 million. A remaining
restructuring reserve of $1.9 million is included in accrued liabilities on
the balance sheet.
5. DISCONTINUED OPERATIONS (dollars in thousands)
On January 17, 2000, the Company's Board of Directors announced its intent to
sell the plastic barrier and non-barrier shrink film business. The business
being sold includes production facilities in the United States, United
Kingdom, and Brazil. The sale of the films business was completed on August
31, 2000. The aggregate purchase price of $245 million will be used
principally to retire debt, including the Senior Secured Credit Facility and
Junior Term Loans, pay GECC $47.0 million per the amended amortization
schedule, and for general corporate purposes. The Company expects an
approximate net gain on the sale in the amount of $52 million. The gain will
be recorded in the third quarter 2000 results. In conjunction with the sale
of the films business, the Company will 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. (See Note 9.)
Operating results from discontinued operations are as follows:
Three Months Three Months
Ended March 31, Ended March 31,
2000 1999
-------------- --------------
Net sales $38,850 $36,931
Costs and expenses
Cost of sales 28,796 28,889
Selling, general and administrative 7,199 7,992
Amortization of intangibles 750 750
Operating income 2,105 (700)
Interest income
Interest expense 27 43
Other expense, net 394 1,075
-------- -------
Income (loss) from discontinued operations
before taxes 1,684 (1,818)
Income tax provision 453 1,553
-------- -------
Net income (loss) from
discontinued operations $ 1,231 $(3,371)
======== =======
The net assets of the films segment included in the accompanying Balance
Sheets as of March 31, 2000 and December 31, 1999 consisted of the following:
March 31, 2000 December 31, 1999
-------------- -----------------
Accounts receivable, net $ 18,555 $ 19,537
Inventories 34,066 33,965
Other current assets 4,640 4,156
-------- --------
Total current assets 57,261 57,658
Property, plant and equipment, net 107,246 110,657
Long-term assets 11,940 12,459
-------- --------
Total assets 176,447 180,774
Accounts payable and other
current liabilities 25,573 28,396
Short-term debt 983 1,016
-------- --------
Total current liabilities 26,556 29,412
Long-term debt and lease obligations 386 465
Deferred and noncurrent income taxes 5,375 5,762
-------- --------
Total liabilities 32,317 35,639
Net assets $144,130 $145,135
======== ========
6. COMPREHENSIVE INCOME (dollars in thousands)
The following sets forth the components of other comprehensive (loss) and the
related income tax (benefit):
Three Months Three Months
Ended March 31, Ended March 31,
2000 1999
Foreign currency translation adjustment (1) $(1,305) $(995)
(1) Net of related tax (benefit) of $(835) and $(636) for the first quarter
ended 2000 and 1999, respectively.
7. EARNINGS PER SHARE
Following are the reconciliations of the numerators and denominators of the
basic and diluted EPS.
Three Months Three Months
Ended March 31, Ended March 31,
2000 1999
-------------- --------------
(in thousands, except for
weighted average shares outstanding)
NUMERATOR:
Net (loss) available
to common stockholders:
From continuing operations: $(10,127) $ (7,965)
Discontinued operations:
(Loss) from discontinued operations 1,231 (3,371)
-------- --------
Net loss available to common stockholders
for basic and diluted EPS $ (8,896) $(11,336)
======== ========
DENOMINATOR:
Weighted average shares outstanding
for basic EPS 15,085,642 14,867,057
Effect of dilutive securities 0 0
---------- ----------
Weighted average shares outstanding
for diluted EPS 15,085,642 14,867,057
========== ==========
Common stock equivalents are excluded from the loss-per-share calculations as
the result is antidilutive since the numerator is a loss from continuing
operations.
8. ACCOUNTING STANDARDS
The Company will adopt the provisions of Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133" (SFAS
No. 137). SFAS No. 137 is effective for the Company's 2001 financial
statements.
9. SUBSEQUENT EVENTS
There were no Y2K issues materially affecting the business.
On January 17, 2000, the Company's Board of Directors announced its intent to
sell the plastic barrier and non-barrier shrink film business. The business
being sold includes production facilities in the United States, United
Kingdom, and Brazil. The sale of the films business was completed on August
31, 2000. The aggregate purchase price of $245 million will be used
principally to retire debt, including the Senior Secured Credit Facility and
Junior Term Loans, pay GECC $47.0 million per the amended amortization
schedule, and for general corporate purposes. The Company expects an
approximate net gain on the sale in the amount of $52 million. The gain will
be recorded in the third quarter 2000 results. In conjunction with the sale
of the films business, the Company will 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.
On April 13, 2000 the Company entered into an Agreement and Amendment with
GECC that extended the payment date to June 30, 2000 and waived the
noncompliance of the Fixed Charge Coverage Ratio for the quarter ended March
31, 2000. The June 30, 2000 payment extension date was subsequently modified
to September 26, 2000 under an Agreement dated June 13, 2000.
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. The required $47.0 million payment, per the
amended amortization schedule, which was due no later than September 26,
2000, was made on August 31, 2000.
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
<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:
Three Months Ended
---------------------------
March 31, March 31,
2000 1999
--------- ---------
(in thousands)
Net sales:
Casings - continuing operations $51,770 $55,136
Films - discontinued operations 38,850 36,931
------- -------
$90,620 $92,067
======= =======
Operating income:
Casings - continuing operations $1,379 $1,858
Films - discontinued operations 2,105 (700)
------ ------
$3,484 $1,158
====== ======
March 31, December 31,
2000 1999
--------- ------------
(in thousands)
Identifiable assets:
Casings - continuing operations $304,935 $313,044
Films - discontinued operations 176,447 180,774
-------- --------
$481,382 $493,818
======== ========
Results of Operations
---------------------
The Company's net sales from continuing operations for the first quarter of
2000 were $51.8 million, which represented a decrease of 6.1% from the
comparable period of 1999. The decline in net sales reflects the continuing
effect of competitive selling prices in the worldwide casings industry.
European sales were negatively affected by foreign currency translation due
to the strengthening of the U.S. dollar.
Operating income from continuing operations for the first quarter of 2000 was
$1.4 million representing a decrease of 25.8% from the comparable period of
1999. The decrease in operating income resulted primarily from declines in
sales and gross margins caused by continued price competition in the
worldwide casings industry.
Net interest expense from continuing operations for the three month period
totaled $12.1 million representing an increase of $1.9 million from the first
three months of 1999. The increase is primarily due to an increase in
deferred fees amortization and interest cost due to the refinancing in June
1999.
Other expense from continuing operations of approximately $.1 million and
$2.0 million for the first three 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 three months of 2000 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 $.7 million
was provided on a loss from continuing operations of $10.8 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 January 17, 2000, the Company's Board of Directors announced its intent to
sell the plastic barrier and non-barrier shrink film business. The business
being sold includes production facilities in the United States, United
Kingdom, and Brazil. The sale of the films business was completed on August
31, 2000. The aggregate purchase price of $245 million will be used
principally to retire debt, including the Senior Secured Credit Facility and
Junior Term Loans, pay GECC $47.0 million per the amended amortization
schedule, and for general corporate purposes. The Company expects an
approximate net gain on the sale in the amount of $52 million. The gain will
be recorded in the third quarter 2000 results. In conjunction with the sale
of the films business, the Company will 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
-----
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 decreased by $.02 million during the three months ended
March 31, 2000. Cash flows provided by operating activities of $4.5 million
were used in financing activities of $1.3 million and investing activities of
$3.2 million. Cash flows provided by operating activities were principally
attributable to the Company's loss from operations offset by a decrease in
working capital usage and the effect of depreciation and amortization. Cash
flows used in financing activities were principally due to repayments of the
revolving loan and long-term borrowings partially offset by proceeds from the
revolver. 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 limita-
tions measured by accounts receivable and inventory of the Company and
reserves that may be established at the discretion of the lenders. There is
approximately $9.6 million outstanding under the Senior Revolving Credit
Facility at March 31, 2000.
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
covenants under the Company's Senior Secured Credit Facility and Junior Term
Loans.
As of June 30, 2000, the Company received an amendment and waiver under the
Company's Senior Secured Credit Facility and Junior Term Loans. The Company
determined that, as of June 30, 2000, without the amendment and waiver, it
would not have been in compliance with the tangible net worth and leverage
ratio covenants.
The Company entered into an Agreement dated March 3, 2000, amended March 9,
2000, March 23, 2000 and March 30, 2000, that extended the grace period for
the payment of its February 28, 2000 annual GECC lease payment in the amount
of $23.5 million. (See Note 9.)
The Company anticipates that its current cash position, its operating cash
flows, the availability under its credit agreement 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, will mature in December 2001. The Company
anticipates it will refinance the 10.25% Notes or seek alternative strategies
including, but not limited to, using proceeds from asset sales, litigation,
if any, or selling additional equity capital.
Capital expenditures for continuing operations for the first three months of
2000 and 1999 totaled $2.4 million and $4.2 million, respectively. Capital
expenditures for discontinued operations for the first three months of 2000
totaled $.9 million. Significant 2000 and 1999 capital expenditures for
continuing operations included a new information technology system at Viskase
and costs associated with the Nucel(R) project. Capital expenditures for
discontinued operations included additional production capacity for specialty
films. Capital expenditures for continuing operations for 2000 are expected
to be approximately $7.5 million. Capital expenditures for continuing
operations for 2001 are expected to be $6.0 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 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; and opportunities that may be presented to
and pursued by the Company; determinations by regulatory and governmental
authorities; and the ability to achieve synergistic and other cost reductions
and efficiencies.
ITEM 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 March 31, 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 $0.3 million. The Company uses
foreign exchange forward contracts to manage the risk associated with its
exposure to foreign currency exchange rate fluctuations. At March 31, 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 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
10.35 Agreement dated as of March 3, 2000, between Viskase
Corporation and State Street Bank and Trust Company relating to
the Lease Agreement dated as of December 18, 1990, among
Viskase Corporation (the Lessee), and State Street Bank and
Trust Company (the Lessor), as successor trustee to Fleet
National Bank formerly known as Shawmut Bank Connecticut,
National Association, formerly known as The Connecticut
National Bank as Owner Trustee under the Trust Agreement.
10.36 Extension executed March 9, 2000 of Agreement dated as of March
3, 2000, between Viskase Corporation and State Street Bank and
Trust Company relating to the Lease Agreement dated as of
December 18, 1990, among Viskase Corporation (the Lessee) and
State Street Bank and Trust Company (the Lessor), as successor
trustee to Fleet National Bank formerly known as Shawmut Bank
Connecticut, National Association, formerly known as The
Connecticut National Bank as Owner Trustee under the Trust
Agreement.
10.37 Extension executed March 23, 2000 of Agreement dated as of
March 3, 2000, between Viskase Corporation and State Street
Bank and Trust Company relating to the Lease Agreement dated as
of December 18, 1990, among Viskase Corporation (the Lessee)
and State Street Bank and Trust Company (the Lessor), as
successor trustee to Fleet National Bank formerly known as
Shawmut Bank Connecticut, National Association, formerly known
as The Connecticut National Bank as Owner Trustee under the
Trust Agreement.
10.38 Extension executed March 30, 2000 of Agreement dated as of
March 3, 2000, between Viskase Corporation and State Street
Bank and Trust Company relating to the Lease Agreement dated as
of December 18, 1990, among Viskase Corporation (the Lessee)
and State Street Bank and Trust Company (the Lessor), as
successor trustee to Fleet National Bank formerly known as
Shawmut Bank Connecticut, National Association, formerly known
as The Connecticut National Bank as Owner Trustee under the
Trust Agreement.
27 Financial Data Schedules.
(b) Reports on Form 8-K
(1) On January 17, 2000, Viskase Companies, Inc. announced its
intent to sell its plastic barrier and non-barrier shrink
film business.
(2) On February 23, 2000, Viskase Companies, Inc. announced
that the Company participated in a Nasdaq Stock Market,
Inc. (NASDAQ) hearing with respect to the continued listing
of the Company's common stock on the Nasdaq SmallCap
Market. On February 22, 2000, the Company was notified by
Nasdaq that, effective as of the close of business on
February 22, 2000, the Company's common stock would be
delisted from the Nasdaq SmallCap Market.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VISKASE COMPANIES, INC.
----------------------
Registrant
By: /s/
----------------------
Gordon S. Donovan
Vice President, Chief
Financial Officer and
Treasurer
(Duly authorized officer
and principal financial
officer of the registrant)
Date: September 22, 2000
