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Viskase Companies Inc · 10-K · For 12/31/02

Filed On 3/31/03, 4:46pm ET   ·   Accession Number 33073-3-4   ·   SEC File 0-05485

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  As Of                Filer                Filing    For/On/As Docs:Size

 3/31/03  Viskase Companies Inc             10-K       12/31/02   10:368K

Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Viskase Companies, Inc. 10-K                          83    446K 
 2: EX-2        Amendment to Purchase Agreement                        7     22K 
 3: EX-2        Plan of Reorganization                                14     84K 
 4: EX-10       Amendment to Employment Agreement                      3     14K 
 5: EX-10       Amendment to Employment Agreement                      3     14K 
 7: EX-10       Forbearance Agreement                                  3     14K 
 6: EX-10       Management Incentive Plan                              7     22K 
 8: EX-10       Side Letter Agreement                                 17     55K 
 9: EX-99       Certification of CEO                                   1      7K 
10: EX-99       Certification of CFO                                   1      7K 


10-K   —   Viskase Companies, Inc. 10-K
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
3Item 1. Business
10Item 2. Properties
"Item 3. Legal Proceedings
12Item 4. Submission of Matters to A Vote of Security Holders
13Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
14Item 6. Selected Financial Data
"Debt Obligations
15Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
23Item 7A. Quantitative and Qualitative Disclosures About Market Risk
24Item 8. Financial Statements and Supplementary Data
"Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
25Item 10. Directors and Executive Officers of the Registrant
26Item 11. Executive Compensation
"Summary Compensation Table
32Item 12. Security Ownership of Certain Beneficial Owners and Management
33Item 13. Certain Relationships and Related Transactions
"Item 14. Controls and Procedures
35Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
45Report of independent accountants
61Current liabilities subject to compromise
82Exhibit 21.1 Subsidiaries of the registrant
83Exhibit 23.1 Consent of independent accountants
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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________ FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 -------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to --------------- --------------- Commission file number 0-5485 ------------ VISKASE COMPANIES, INC. ----------------------- (Exact name of registrant as specified in its charter) Delaware 95-2677354 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 625 Willowbrook Centre Parkway, Willowbrook, IL 60527 ----------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (630) 789-4900 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b2 of the Act). Yes No X ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10- K or any amendment to this Form 10-K. Yes No X ----- ----- As of March 21, 2003 the aggregate market value of the voting stock held by non-affiliates of the registrant was $53,682. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No ----- ----- As of March 31, 2003, there were 15,314,562 shares outstanding of the registrant's Common Stock, $.01 par value. Page 1 of 139 Pages An Index to Exhibits required by Item 15 is found at page 35.
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VISKASE COMPANIES, INC. Form 10-K Annual Report - 2002 Table of Contents PART I Page Item 1. Business 3 Item 2. Properties 10 Item 3. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 12 PART II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters 13 Item 6. Selected Financial Data 14 Item 7. Management's Discussion and Analysis of Financial Condition, Results of Operations 15 Item 7a. Quantitative and Qualitative Disclosures about Market Risk 23 Item 8. Financial Statements and Supplementary Data 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 24 PART III Item 10. Directors and Executive Officers of the Registrant 25 Item 11. Executive Compensation 26 Item 12. Security Ownership of Certain Beneficial Owners and Management 32 Item 13. Certain Relationships and Related Transactions 33 Item 14. Controls and Procedures 33 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 35
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PART I ITEM 1. BUSINESS (a) General development of business: (in thousands, except number of shares and per share and per bond amounts) General Viskase Companies, Inc. (formerly Envirodyne Industries, Inc.) is a Delaware corporation organized in 1970. As used herein, the "Company" means Viskase Companies, Inc. and its subsidiaries. The Company, through Viskase Corporation (Viskase), operates in the casing product segment of the food industry. Viskase is a major producer of cellulosic and plastic casings used in preparing and packaging processed meat products. The market positions of the Company's subsidiaries set forth in this Form 10-K represent management's belief based upon internally generated information. No independent marketing information has been used to confirm the stated market positions. In recent years, the Company has sold certain of its operations in order to reduce indebtedness and increase its operational focus. As a result of these efforts, the Company sold its wholly owned subsidiary Sandusky Plastics, Inc. (Sandusky) in June 1998, its wholly owned subsidiary Clear Shield National, Inc. (Clear Shield) in July 1998 and its plastic barrier and non-barrier shrink film business (Films Business) in August 2000. These divestitures have left the cellulosic and plastics casings business as the Company's primary operating activity. In addition, since 1998 the Company has implemented a number of restructuring measures to reduce the fixed cost structure of its remaining business and to address competitive price pressures and increases in various production costs in the Company's business. For more information about us, our products, services and solutions, visit www.viskase.com. Also, our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K will be made available free of charge through the Investor Relations section of our website as soon as practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. Bankruptcy and Plan of Reorganization On November 13, 2002, Viskase Companies, Inc. (VCI) filed a prepackaged Chapter 11 bankruptcy in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (Bankruptcy Court). The Chapter 11 filing is for VCI only and does not include any of the Company's domestic or foreign subsidiaries. On December 20, 2002 the Bankruptcy Court confirmed VCI's Prepackaged Plan of Reorganization as Modified (The Plan, as modified). VCI expects to consummate The Plan, as modified, and emerge from Chapter 11 bankruptcy in early April, 2003 (Effective Date). Cash flows from operations for the Company were insufficient to pay the 10.25% Senior Notes (Senior Notes) when they matured on December 1, 2001, and accordingly the Company did not pay the $163,060 principal and $8,357 interest that became due at that time. In September 2001, certain of the holders of the Senior Notes formed an ad hoc committee (Ad Hoc Committee) to participate in the development of a plan to restructure the Company's capital structure and address its future cash flow needs. On July 15, 2002, the Company executed a restructuring agreement with the Ad Hoc Committee for the restructuring of the Senior Notes. Under terms of the restructuring agreement, on or about August 21, 2002 the Company initiated an exchange offer to exchange the Senior Notes for new 8% Senior Subordinated Secured Notes due 2008 (New Notes) and shares of Series A Preferred Stock (Preferred Stock). The proposed exchange offer was subject to acceptance by holders of 100% of the outstanding Senior Notes, unless waived by the Company and approved by the Ad Hoc Committee. The exchange offer was conducted simultaneously with a solicitation for a prepackaged plan of reorganization (Plan) for the Company which required the consent of a majority in number of the holders and at least 66-2/3% in principal amount of Senior Notes actually voting in the solicitation. Under the restructuring agreement, if less than 100% of the outstanding Senior Notes accepted the exchange offer, but a sufficient number of
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holders and aggregate amount of Senior Notes voted in favor of acceptance of the Plan, the Company agreed to commence a voluntary Chapter 11 petition to seek confirmation of the Plan. The Plan contains substantially the same economic terms as the exchange offer. Although 100% of the outstanding Senior Notes did not accept the exchange offer, the Company did receive votes to accept the Plan from approximately 91.4% of the holders and 91.4% in the outstanding principal amount that actually voted. Accordingly, on November 13, 2002, VCI filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court to seek confirmation of the Plan. Under Chapter 11, the Company may operate its business in the ordinary course, subject to prior Bankruptcy Court approval of transactions outside the ordinary course and certain other matters. The Chapter 11 filing was for VCI only. The Chapter 11 filing does not include any of the Company's domestic or foreign operating subsidiaries. Therefore, the Company's operating subsidiaries continued to provide an uninterrupted supply of products and services to customers worldwide. Trade creditors and vendors have been totally unaffected and continue to be paid in the ordinary course of business, and the operating subsidiaries' employees have been paid all wages, salaries and benefits on a timely basis. Under the terms of the Plan, the Company's wholly owned operating subsidiary, Viskase, will be merged with and into VCI immediately prior to or upon consummation of the Plan with VCI being the surviving corporation. The outstanding Senior Notes will receive New Notes and shares of new common stock (New Common Stock) to be issued by the Company on a basis of $367.96271 principal amount of New Notes (i.e., $60,000) and 63.4122 shares of New Common Stock (i.e., 10,340,000 shares or 94% of the New Common Stock) for each one thousand dollar principal amount of Senior Notes. The existing shares of common stock of the Company will be canceled. Holders of the old common stock (Old Shares) will receive warrants with a term of seven years to purchase shares of New Common Stock equal to 2.7% of the Company's New Common Stock at an exercise price of $10.00 per share (Warrant). Assuming all Warrants are exercised, holders of the Senior Notes would receive approximately 91.5% of the New Common Stock and approximately 5.8% would be issued or reserved for issuance to the Company's management and employees. Under the proposed restructuring, 660,000 shares of New Common Stock (or upon the request of Company management, options to purchase 660,000 shares of New Common Stock), initially representing 6% of the New Common Stock, will be reserved for Company management and employees. Such shares or options will be subject to a vesting schedule with acceleration upon the occurrence of certain events. The New Notes would bear interest at a rate of 8% per year, and will accrue interest from December 1, 2001, payable semi-annually (except annually with respect to year four and quarterly with respect to year five), with interest payable in the form of New Notes (pay-in-kind) for the first three years. Interest for years four and five will be payable in cash to the extent of available cash flow, as defined, and the balance in the form of New Notes (pay-in-kind). Thereafter, interest will be payable in cash. The New Notes would mature on December 1, 2008 with an accreted value of approximately $89,453, assuming interest in the first 5 years is paid in the form of New Notes (paid-in-kind). The New Notes would be secured by a first lien on the assets of the Company, other than the assets subject to the General Electric Capital Corporation (GECC) lease and certain real estate, post-merger. The New Notes would be subject to subordination of up to $25,000 principal amount for a secured working capital credit facility for the Company. Upon completion of the proposed restructuring the Board of Directors of the Company would be reconstituted to consist of five members, including the Company's Chief Executive Officer and four other persons designated by the Ad Hoc Committee. The Ad Hoc Committee has retained legal counsel. The fees and expenses were paid by the Company until the commencement of the Bankruptcy.
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In addition, the members of the Ad Hoc Committee have agreed not to transfer (other than to another member of the Ad Hoc Committee or an affiliate of a member) their shares of New Common Stock for a period of two years after the restructuring is completed. For a period of one year thereafter, the Company would have a right of first refusal to either purchase or designate a purchaser for shares of New Common Stock to be transferred by a member of the Ad Hoc Committee to a person other than another member of the Ad Hoc Committee or their affiliates. Under Chapter 11, certain claims against VCI (the Debtor) in existence prior to the Petition Date (November 13, 2002) were stayed while the Company continued business operations as a debtor-in-possession. These claims are reflected in the December 31, 2002 balance sheet as "Current liabilities subject to compromise." As of the Petition Date, the Company stopped accruing interest on the 10.25% Senior Notes. The interest not accrued from the Petition Date through December 31, 2002 is $2,294. The principal categories of claims reclassified in the Consolidated Balance Sheets and included in Current liabilities subject to compromise are identified below. These amounts may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, the existence and value of any collateral securing such claims and other events. At the Petition Date the amounts reflected below are for the Senior Notes and accrued interest through the Petition Date. Current liabilities subject to compromise as of the Petition Date are as follows (refer to Note 1 to the consolidated financial statements): (in thousands) 10.25% Senior Notes $163,060 Accrued interest 25,098 Other current liabilities 40 -------- $188,198 ======== The accompanying consolidated financial statements have been prepared in accordance with the American Institute of Certified Public Accounts Statement of Position 90-7: Financial Reporting by Entities in Reorganization under the Bankruptcy Code and have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates continuity of operations and assumes the realization of assets and liquidation of liabilities in the ordinary course of business. Following the approval of a plan of reorganization, SOP 90-7 requires that the Company adopt "Fresh Start" accounting resulting in recording all assets and liabilities at fair value. Upon emergence from bankruptcy, the amounts and classifications reported in the consolidated historical financial statements could materially change. GECC, Viskase's equipment lessor, has agreed, subject to certain conditions, not to accelerate payment of amounts due because of any default or event of default under any of the lease documents arising from (i) the Company's failure to meet the Fixed Charge Coverage Ratio for the fiscal quarters ending on March 31, 2002, June 30, 2002, September 30, 2002 and December 31, 2002 and (ii) the Company becoming a debtor under Chapter 11 of the Bankruptcy Code until April 21, 2003. There is no agreement with GECC to extend the forbearance beyond April 21, 2003. However, the Company and GECC have agreed to amend certain lease documents upon the emergence from bankruptcy. The amendment will permanently waive prior non-compliance with the Fixed Charge Coverage Ratio and establish a new Fixed Charge Coverage Ratio for the remainder of the lease term. The amendment also changes the February 28, 2004 lease payment with $11,750 due on February 28, 2004 and $11,749 due on August 28, 2004. (b) Financial information about industry segments: Reference is made to Part IV, Item 15, Note 24 of Notes to Consolidated Financial Statements.
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(c) Description of business General Viskase invented the basic process for producing casings from regenerated cellulose for commercial production in 1925. Management believes that Viskase has been a leading worldwide producer of cellulosic casings since that time. Cellulosic Casings Cellulosic casings are used in the production of processed meat and poultry products, such as hot dogs, salami and bologna. To manufacture these products, meat is stuffed into a casing, which is then cooked and smoked. The casings, which are non-edible, serve to hold the shape of the product during these processes. For certain products, such as hot dogs, the casings are removed and discarded prior to retail sale. Casings made of regenerated cellulose were developed by Viskase to replace casings made of animal intestines. Cellulosic casings generally afford greater uniformity, lower cost and greater reliability of supply and also provide producers with the ability to cook and smoke products in the casing. Cellulosic casings are required for the high-speed production of many processed meats. The production of regenerated cellulose casings generally involves four principal steps: (i) production of a viscose slurry from wood pulp, (ii) regeneration of cellulosic fibers, (iii) extrusion of a continuous tube during the regeneration process, and (iv) "shirring" of the final product. Shirring is a finishing process that involves pleating and compressing the casing in tubular form for subsequent use in high-speed stuffing machines. The production of regenerated cellulose casings involves a complex and continuous series of chemical and manufacturing processes, and Viskase believes that its facilities and expertise in the manufacture of extruded cellulose are important factors in maintaining its product quality and operating efficiencies. Viskase's product line includes NOJAX(r) cellulosic casings for small- diameter processed meat products, such as hot dogs, Precision(r) and Zephyr(r) for large diameter processed meats and ham products, fibrous or large-diameter casings, which are paper-reinforced cellulosic casings used in the production of large-diameter sausages, salami, hams and other processed meat products, and Visflex(tm) and Vismax(tm) plastic casing used for a wide range of processed meat, poultry and cheese applications. International Operations Viskase has four manufacturing and/or finishing facilities located outside the continental United States, in Beauvais, France; Thaon, France; Guarulhos, Brazil and Caronno, Italy. The aggregate of domestic exports and net sales of foreign operations represents approximately 56.0% of Viskase's total net sales. International sales and operations may be subject to various risks including, but not limited to, possible unfavorable exchange rate fluctuations, political instability, governmental regulations (including import and export controls), restrictions on currency repatriation, embargoes, labor relations laws and the possibility of governmental expropriation. Viskase's foreign operations generally are subject to taxes on the repatriation of funds. International operations in certain parts of the world may be subject to international balance of payments difficulties that may raise the possibility of delay or loss in the collection of accounts receivable from sales to customers in those countries. Viskase believes its allowance for doubtful accounts makes adequate provision for the collectibility of receivables. Management believes that growth potential exists for many of Viskase's products outside the United States and that Viskase is well positioned to participate in these markets. While overall consumption of processed meat products in North America and Western Europe is stable, there is a potential for market growth in Eastern Europe, Latin America and Southeast Asia.
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Sales and Distribution Viskase has a broad base of customers, with no single customer accounting for more than 6% of sales. Viskase sells its products in virtually every country in the world. In the United States, Viskase has a staff of technical sales teams responsible for sales to processed meat and poultry producers. Approximately 77 distributors market Viskase products to customers in Europe, Africa, the Middle East, Asia, and Latin America. Its products are marketed through its own subsidiaries in France, Germany, Italy, Poland and Brazil. As of December 31, 2002 and 2001, Viskase had backlog orders of approximately $18.3 million and $20.0 million, respectively. Viskase maintains ten service and distribution centers worldwide. The service centers perform limited product finishing and provide sales, customer service, warehousing and distribution. Distribution centers provide only warehousing and distribution. In North America, Viskase operates distribution centers in Atlanta, Georgia; Buffalo, New York; Fresno, California; Remington, Indiana; Saskatoon, Saskatchewan, Canada and Lindsay, Ontario, Canada. Viskase operates a service center in Guarulhos, Brazil, and in Europe, Viskase operates a service center in Caronno, Italy and distribution centers in Dormagen, Germany and Warsaw, Poland. Competition Viskase is one of the world's leading producers of cellulosic casings. Viskase seeks to maintain a competitive advantage by manufacturing products having outstanding quality and superior performance characteristics over competitive products, by responding quickly to customer product requirements, by providing technical support services to its customers for production and formulation opportunities and by producing niche products to fill individual customer requirements. During the previous five years, Viskase has experienced reduced profits due to over-capacity in the industry and intense price competition. Viskase's principal competitors in cellulosic casings are Teepak LLC, located in the United States with plants in the United States and Belgium; Viscofan, S.A., located in Spain, Germany, Brazil, Czech Republic and the United States; Kalle Nalo GmbH, located in Germany; Case Tech, a wholly owned subsidiary of Bayer AG, located in Germany; Oy Visko AB located in Finland; KoSa, located in Mexico and the United States and two Japanese manufacturers, Futamura Chemical marketed by Meatlonn, and Toho. Viskase's primary competitors include several major corporations that are larger and better capitalized than Viskase. Research and Development; Customer Support Viskase's continuing emphasis on research and development is central to its ability to maintain industry leadership. In particular, Viskase focuses on the development of new products that increase customers' operating efficiencies, reduce their operating costs and expand their markets. Viskase's projects include development of new processes and products to improve its manufacturing efficiencies. Viskase's research scientists, engineers and technicians are engaged in continuing product and equipment development and also provide direct technical and educational support to its customers. Viskase believes it has achieved and maintained its position as a leading producer of cellulosic casings for packaging meats through significant expenditures on research and development. The Company expects to continue its research and development efforts. The commercialization of certain of these product and process applications and related capital expenditures to achieve commercialization may require substantial financial commitments in future periods. Research and development costs from continuing operations are expensed as incurred and totaled $4,070 thousand, $4,837 thousand, and $5,474 thousand for 2002, 2001, and 2000, respectively.
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Seasonality Historically, domestic sales and profits of Viskase have been seasonal in nature, increasing in the spring and summer months. Sales outside of the United States follow a relatively stable pattern throughout the year. Raw Materials Raw materials used by Viskase include cellulose (from wood pulp), specialty fibrous paper, and various other chemicals. Viskase generally purchases its raw materials from a single source or small number of suppliers with whom it maintains good relations. Certain primary and alternative sources of supply are located outside the United States. Viskase believes, but there can be no assurance, that adequate alternative sources of supply currently exist for all of Viskase's raw materials or that raw material substitutes are available, which Viskase could modify its processes to utilize. Employees The Company maintains productive and amicable relationships with its approximately 1,380 employees worldwide. One of Viskase's domestic plants, located in Loudon, Tennessee, is unionized, and all of its European and Brazilian plants have National Agreements with annual renewals. Employees at the Company's European plants have negotiations occurring at both local and national levels. Based on past experience and current conditions, the Company does not expect protracted work stoppages to occur stemming from union activities; however, national events outside of the Company's control may give rise to such risk. Unions represent approximately 575 of Viskase's 1,380 employees. Trademarks and Patents Viskase holds patents on many of its major technologies, including those used in its manufacturing processes and the technology embodied in products sold to its customers. The Company believes its ongoing market leadership benefits from its technology. Viskase vigorously protects and defends its patents against infringement by competitors on an international basis. As part of its research and development program, Viskase has developed and expects to continue to develop new proprietary technology and has licensed proprietary technology from third parties. Management believes these activities will enable Viskase to maintain its competitive position. Viskase also owns numerous trademarks and registered trade names that are used actively in marketing its products. Viskase periodically licenses its process and product patents to competitors on a royalty basis. Environmental Regulations In manufacturing its products, the Company employs certain hazardous chemicals and generates toxic and hazardous wastes. The use of these chemicals and the disposal of such waste are subject to stringent regulation by several governmental entities, including the United States Environmental Protection Agency (USEPA) and similar state, local and foreign environmental control entities. The Company is subject to various environmental, health and safety laws, rules and regulations including those of the United States Occupational Safety and Health Administration and USEPA. These laws, rules and regulations are subject to amendment and to future changes in public policy or interpretation, which may affect the operations of the Company. The Company uses its best reasonable efforts to comply with promulgated laws, rules and regulations and participates in the rulemaking process. Certain of the Company's facilities are or may become potentially responsible parties with respect to off-site waste disposal facilities.
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As noted above, new environmental and health and safety laws can impose significant compliance costs, including forthcoming rules. Under the Clean Air Act Amendments of 1990, various industries, including casings manufacturers, will be required to meet air emissions standards for certain chemicals based on use of the "maximum achievable control technology" (MACT). MACT Standards for new and existing cellulose casing manufacturing sources were promulgated June 11, 2002. Viskase submitted extensive comments to the EPA during the public comment period. Compliance with the new rules is required within three years (by June 13, 2005). MACT rules will apply to all casing manufacturers in the United States. Under the Resource Conservation and Recovery Act (RCRA), regulations have been proposed that, in the future, may impose design and/or operating requirements on the use of surface impoundments of wastewater. Two of Viskase's plants use surface impoundments. The Company does not foresee these regulations being imposed for several years. (d) Financial information about foreign and domestic operations and export sales Reference is made to Part IV, Item 15, Note 24 of Notes to Consolidated Financial Statements. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names and ages of the Company's executive officers, together with the positions with the Company held by such executive officers, and a summary of their recent business experience. Under the Company's Amended and Restated By-Laws, the Company's officers are elected for such terms as may be determined from time to time by the Board of Directors. Name, Age and Office Business Experience F. Edward Gustafson, 61, Mr. Gustafson has been Chairman of the Board, Chairman of the Board, President and Chief Executive Officer of the President and Chief Company since March 1996 and Executive Officer a director of the Company since December 1993. (Mr. Gustafson has been President and Chief Executive Officer of Viskase since June 1998, and previously from February 1990 to August 1994.) From May 1989 to March 1996 Mr. Gustafson served as Executive Vice President and Chief Operating Officer of the Company. Mr. Gustafson has also served as Executive Vice President and Chief Operating Officer of D.P. Kelly and Associates, L.P. (DPK) since November 1988. Gordon S. Donovan, 49, Mr. Donovan has been Chief Financial Officer of Vice President, Chief the Company since January 1997 and Vice Financial Officer, Treasurer President and Chief Financial Officer Assistant Secretary of Viskase since June 1998. Mr. Donovan has served as Treasurer and Assistant Secretary of the Company since November 1989 and as Vice President since May 1995. Kimberly K. Duttlinger, 38, Ms. Duttlinger has been Vice President, Vice President, Secretary Secretary and General Counsel of the Company and General Counsel since April 2000. From August 1998 through April 2000, Ms. Duttlinger served as Associate General Counsel of the Company. From May 1997 to August 1998, Ms. Duttlinger served as Corporate Counsel of the Company.
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ITEM 2. PROPERTIES VISKASE FACILITIES LOCATION SQUARE FEET PRIMARY USE Manufacturing Facilities Beauvais, France (a) 235,000 Casings production and finishing Caronno, Italy 73,000 Casings finishing Chicago, Illinois 991,000 Idle plant facilities held for sale Guarulhos, Brazil (a) 25,000 Casings finishing Kentland, Indiana 125,000 Casings finishing Loudon, Tennessee 250,000 Casings production Osceola, Arkansas 223,000 Casings production and casings finishing Thaon, France 239,000 Casings finishing Distribution Centers Atlanta, Georgia (a) Buffalo, New York (a) Fresno, California (a) Remington, Indiana (a) Dormagen, Germany (a) Saskatoon, Saskatchewan, Canada (a) Lindsay, Ontario, Canada Warsaw, Poland (a) Service Centers Guarulhos, Brazil (a) Caronno, Italy Headquarters Worldwide: Willowbrook, Illinois (a) Europe Pantin, France (a) (a) Leased. All other properties are owned. The Company believes that its properties generally are suitable and adequate to satisfy the Company's present and anticipated needs. The Company's United States real property collateralizes the Company's obligations under various financing arrangements. For a discussion of these financing arrangements, refer to Part IV, Item 15, Note 8 of Notes to Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS In 1988, Viskase Canada Inc. (Viskase Canada), a subsidiary of the Company, commenced a lawsuit against Union Carbide Canada Limited and Union Carbide Corporation in the Ontario Superior Court of Justice, Court File No.: 292270188 seeking damages resulting from Union Carbide's breach of environmental representations and warranties under the Amended and Restated Purchase and Sale Agreement, dated January 31, 1986 (Agreement). Pursuant to the Agreement, Viskase Corporation and various affiliates (including Viskase Canada) purchased from Union Carbide and Union Carbide Films Packaging, Inc., its cellulosic casings business and plastic barrier films business (Business), which purchase included a facility in Lindsay, Ontario, Canada (Site). Viskase Canada is claiming that Union
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Carbide breached several representations and warranties and deliberately failed to disclose to Viskase Canada the existence of contamination on the Site. In October 2001, the Canadian Ministry of the Environment (MOE) notified Viskase Canada that it had evidence to suggest that the Site was a source of polychlorinated biphenyl (PCB) contamination. Viskase Canada is working with the MOE in investigating the alleged PCB contamination and developing and implementing, if appropriate, a remedial plan for the Site. Viskase Canada has been advised by the MOE that the MOE expects to issue certain Director's Orders requiring remediation under applicable environmental legislation against Viskase Canada and others in the next few months. Viskase Canada has been granted leave to amend its lawsuit against Union Carbide to allege that any PCB contamination at or around the Site was generated from Union Carbide's plastics extrusion business, which was operated at the Site by Union Carbide prior to the purchase of the Business. Union Carbide's plastics extrusion business was not part of the Business purchased by Viskase Corporation and its affiliates. Viskase Canada expects to amend the lawsuit prior to June 1, 2003. Viskase Canada will be asking the court to require Union Carbide to repurchase the Site from Viskase Canada and award Viskase Canada damages in excess of $2.0 million (Canadian). The Company has reserved $.5 million (U.S.) for the property remediation. The lawsuit is still pending and is expected to proceed to trial sometime during the second half of 2004. In August 2001, the Department of Revenue of the Province of Quebec, Canada issued an assessment against Viskase Canada in the amount of $2,669,501.48 (Canadian) plus interest and possible penalties. This assessment is based upon Viskase Canada's failure to collect and remit sales tax during the period July 1, 1997 to May 31, 2001. During this period Viskase Canada did not collect and remit sales tax in Quebec on reliance of the written advice of its outside accounting firm. Viskase Canada filed a Notice of Objection in November 2001 with supplementary submission in October 2002. No decision has been made on the Notice of Objection. The ultimate liability for the Quebec sales tax lies with the customers of Viskase Canada during the relevant period. The Company has, however, provided for a reserve of $.3 million (U.S.) for interest and penalties, if any. Viskase Canada is negotiating with the Quebec Department of Ministry to avoid having to collect the sales tax from customers who will then be entitled to credit for such sales tax collected. In March 1997, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice (DOJ) relating to a grand jury investigation of the sausage casings industry. In September 1999, Viskase received a subpoena from the DOJ relating to the expansion of the grand jury investigation into the specialty plastic films industry. During October 2002, Viskase was advised by the DOJ that it has closed the investigation of the sausage casings and specialty plastic films industries and that no action will be taken. During 1999 and 2000, the Company and certain of its subsidiaries and one other sausage casings manufacturer were named in ten virtually identical civil complaints filed in the United States District Court for 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 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. In 2001, all of the consolidated cases were transferred to the United States District Court for the Northern District of Illinois, Eastern Division. The Company strongly denies the allegations set forth in these complaints and intends to vigorously defend these claims. In February 2003, the plaintiffs (other than Marathon Enterprises, Inc. which has elected not to pursue its lawsuit against the Company) amended their complaint to eliminate any claim against the Company that arose prior to December 17, 1993. In March 2003, the Company filed a Motion to Dismiss the amended complaint.
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The Company and its subsidiaries are involved in these and various other 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 condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None.
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PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information. The Company's Common Stock is traded in the over-the-counter market. The high and low closing bid prices of the Common Stock during 2002 and 2001 are set forth in the following table. Such prices reflect interdealer prices without markup, markdown or commissions and may not represent actual transactions. [Download Table] 2002 First Quarter Second Quarter Third Quarter Fourth Quarter High .045 .08 .06 .035 Low .020 .01 .02 .002 [Download Table] 2001 First Quarter Second Quarter Third Quarter Fourth Quarter High $2.00 $2.06 $1.50 $.30 Low .92 .90 .25 .01 (b) Holders. As of March 21, 2003, there were approximately 106 holders of record and approximately 2,700 beneficial holders of the Company's Common Stock. (c) Dividends. The Company has never paid a cash dividend on shares of its Common Stock. The payment of dividends is restricted by the terms of various financing agreements to which the Company is a party. The Company has no present intention of paying dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA [Enlarge/Download Table] Year Ended 53 Weeks Ending ---------------------------------------- --------------------------- December December December December December 31, 2002 31, 2001 31, 2000(1) 31, 1999(1) 31, 1998(1)(2) ------- -------- ----------- ----------- -------------- (in thousands, except for per share amounts) Net sales $183,577 $189,315 $200,142 $225,767 $246,932 (Loss) from continuing operations (3) (19,330) (36,852) (95,967) (29,927) (147,871) Income (loss) from discontinued operations 3,435 (1,831) (33,389) Gain on sales of discontinued operations 3,189 68,185 39,057 (Loss) before extraordinary item (3) (19,330) (33,663) (24,347) (31,758) (142,203) Net (loss) (4) (19,330) (25,526) (17,836) (31,758) (148,996) Per share (loss) from continuing operations - basic and diluted (3) (1.26) (2.41) (6.34) (2.00) (9.97) Per share income (loss) from discontinued operations - basic and diluted .23 (.12) (2.25) Gain on sale of discontinued operations .21 4.50 2.63 Per share (loss) before extraordinary item - basic and diluted (Loss) per share (3) (1.26) (2.20) (1.61) (2.12) (9.59) Per share net (loss) - basic and diluted (Loss) per share (4) (1.26) (1.67) (1.18) (2.12) (10.05) Cash and equivalents 27,700 25,540 55,350 6,243 9,028 Restricted cash 28,347 26,558 41,038 Working capital (174,203) (178,952) (106,958) 34,480 41,725 Total assets 218,681 234,028 322,364 493,818 531,069 Debt obligations: Short-term debt (5) (6) (7) 227,343 236,059 200,676 23,095 16,120 Long-term debt 85 194 73,183 404,151 388,880 Stockholders' (deficit) (175,146) (138,053) (107,397) (89,442) (55,907) Cash dividends none none none none none (1) Year 2000 and 1999 and fiscal year 1998 net sales and loss from continuing operations exclude the results of the Films Business, which was sold in 2000. (2) Fiscal 1998 net sales and loss from continuing operations exclude the results of Sandusky and Clear Shield, which were sold in 1998. (3) Included in 2002 is net restructuring income of $6,132 and reorganization expense of $3,401. Included in 2001 is an asset write-down of $4,766 and an inventory lower of cost or market charge of $3,612. Included in 2000 and 1998 are restructuring charges of $94,910 and $119,579, respectively. (4) Includes a net extraordinary gain (loss) on debt extinguishment of $8,137, $6,511 and $(6,793) or $.53, $.43 and $(.46) per share in 2001, 2000 and 1998, respectively. SFAS No. 145 requires that gains and losses on debt extinguishment will no longer be classified as extraordinary for fiscal years beginning after May 15, 2002. In 2003 these prior period extraordinary items will be reclassified in the consolidated statements of operations. (5) Year 2002 includes $163,060 of debt classified as current liabilities subject to compromise on the balance sheet. (6) Years 2002 and 2001 include $64,106 of long-term debt reclassified to current due to covenant restrictions. (7) Years 2001 and 2000 include the current portion of long-term debt.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The Company's 2002 net sales from continuing operations was $183.6 million, which represents a decrease of 3% from 2001. The decline in sales reflects the continuing effect of reduced selling prices in the worldwide casings industry and slightly lower volumes, offset by the strengthening Euro against the U.S. Dollar that positively benefited net sales by approximately $3.2 million. The Company's 2001 net sales from continuing operations was $189.3 million, which represented a decrease of 5.4% from 2000. The decline in sales reflects the continuing effect of reduced selling prices in the casings industry and lower sales volumes in Europe due to outbreaks of both mad cow disease and foot-and-mouth disease during the first half of 2001. With the entrance of a foreign competitor in the mid-1990's, the Company experienced significant pricing pressure and volume loss. The market for cellulosic casings has continued to see price declines each year based on competitor factors including excess production capacity. The Company does not expect to experience significant future volume loss; however, the Company believes pricing pressures will continue. The Company has previously implemented facility realignment and other cost-cutting measures aimed at offsetting the effect of lower prices. The operating income from continuing operations for 2002 was $2.3 million. Operating income includes net restructuring income of $6.1 million recognized in the second quarter of 2002. The restructuring income is the result of a reversal of $9.3 million of excess reserves that were originally recorded in 2000 due to the negotiation of reduced Nucel(r) technology third party license fees, offset by a year 2002 restructuring charge of $3.2 million. During the second quarter of 2002, the Company committed to a restructuring plan to address the industry's competitive environment. Operating loss from continuing operations, excluding the net restructuring income of $6.1 million, was $(3.8) million. This (loss) compares favorably to the operating loss from the comparable prior year period of $(5.4) million, excluding the 2001 asset write-down and the 2001 lower of cost or market charge as described below. The improvement in the operating loss results primarily from operating efficiencies from previous cost saving measures and reduced raw material costs. The Company does not, however, expect to see additional improvement in its operating income until prices begin to increase in the industry. The operating loss from continuing operations for 2001 was $(13.7) million. The 2001 operating loss included an asset write-down of $4.8 million for the write-down of Viskase's Chicago facility to fair value and a $3.6 million write-down of inventories to its lower of cost or market value included in cost of sales. Operating loss from continuing operations, excluding the asset write-down and lower of cost or market charge, was $(5.4) million. This compares unfavorably to the 2000 operating income of $1.2 million, excluding the 2000 restructuring charge of $94.9 million. 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 2002 totaled $21.1 million, which represented a decrease of $1.9 million from 2001. The decrease is primarily due to reduced interest expense related to the GECC lease payment. Other income (expense) from continuing operations of approximately $1.5 million and $(3.4) million in 2002 and 2001, respectively, consists principally of foreign exchange gains and (losses). The reorganization expenses of $3.4 million consist principally of fees for legal, financial advisory and professional services incurred due to the Chapter 11 proceeding.
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In 2000, the Company received a payment in resolution of the American National Can Company (ANC) Litigation in the amount of $54.75 million, offset by patent litigation expenses of $7.85 million. The Company purchases gas futures contracts to lock in set rates on gas purchases. The Company uses this strategy to minimize its exposure to volatility in natural gas. These products are not linked to specific assets and liabilities that appear on the balance sheet or to a forecasted transaction and, therefore, do not qualify for hedge accounting. As such, the loss on the change in fair value of the futures contracts was recorded in other income and is immaterial. In 2002, the tax benefit of $(1.3) million on the (loss) from continuing operations before income taxes of $(20.6) million resulted from the benefit of a U.S. income tax refund resulting from the Job Creation Act enacted in March 2002, offset by the tax provision related to operations of foreign subsidiaries. In 2001, the income tax benefit from the loss from continuing operations offset the income tax provision which would have been provided on the extraordinary gain and the gain from the sale of discontinued operations. The net benefit recognized of $(3.4) million results from a reduction of prior accrued foreign taxes payable. A provision (benefit) of $(3.4) million and $.7 million, respectively, was provided on loss from continuing operations before taxes of $(40.2) million and $(95.2) million, respectively for 2001 and 2000. The company's effective tax rate from continuing operations reflect the permanent differences in the U.S. resulting from the change in the valuation allowance and the reversal of over-accrued foreign taxes. The tax provision (benefit) for income from discontinued operations in 2000 was $.3 million. The tax provision with respect to the gain on disposal in 2001 and 2000 was $0 and $6.6 million, respectively. In addition, an extraordinary gain in 2001 and 2000 recognized an income tax provision of $0 and $.6 million, respectively. The total income tax provision (benefit) was $(1.3) million, $(3.4) million, and $8.3 million, respectively, in 2002, 2001 and 2000. Net domestic cash income taxes (refunded) paid in 2002, 2001 and 2000, were $(2.1) million, $2.2 million and $.5 million, respectively. Net foreign cash income taxes paid during the same periods were $.9 million, $2.5 million and $.3 million, respectively. Discontinued Operations 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 proceeds of $255 million, including a working capital adjustment of $10.3 million, were used to retire debt, pay General Electric Capital Corporation (GECC) and for general corporate purposes. The Company recognized a net gain in the amount of $3.2 million in 2001 and $68.2 million in 2000. The business sold included 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 these are included in the business discontinuance. Liquidity and Capital Resources Cash and equivalents increased by $2.2 million during the year ended December 31, 2002. Cash flows provided by operating activities were $18.3 million, used for reorganization items were $1.3 million, used in investing activities were $5.0 million, and used in financing activities were $8.9 million. Cash flows provided by operating activities were principally attributable to the effect of depreciation, amortization, and a decrease in working capital usage. Cash flows used for reorganization items consist principally of fees for legal, financial advisory and professional services incurred due to the Chapter 11 proceeding. Cash flows used in investing activities were principally attributable to capital expenditures for property, plant and equipment, an increase in restrictions on cash offset by the proceeds on disposition of assets. Cash flows used in financing activities principally consisted of the payment of the scheduled GECC capital lease obligation.
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In 2001 and 2000 the Company was able to purchase 10.25% Notes in open market or privately negotiated transactions, with the effect that as of December 31, 2002 there was $163.1 million principal amount of 10.25% Notes outstanding, net of repurchased notes. The Company was able to repurchase debt due to the sale of the Films business in 2000. The Company recognized an $8.1 million net gain on the repurchase of Notes during 2001 and a $6.5 million net gain in 2000. Cash flows from operations for the Company were insufficient to pay the Senior Notes when they matured on December 1, 2001, and accordingly the Company did not pay the $163.1 million principal and $8.4 million interest that became due at that time. In September 2001, certain of the holders of the Senior Notes formed an Ad Hoc Committee to participate in the development of a plan to restructure the Company's capital structure and address its future cash flow needs. On July 15, 2002, the Company executed a restructuring agreement with the Ad Hoc Committee for the restructuring of the Senior Notes. Under terms of the restructuring agreement, on or about August 21, 2002 the Company initiated an exchange offer to exchange the Senior Notes for New Notes and shares of Preferred Stock. The proposed exchange offer was subject to acceptance by holders of 100% of the outstanding Senior Notes, unless waived by the Company and approved by the Ad Hoc Committee. The exchange offer was conducted simultaneously with a solicitation for the Plan for the Company which required the consent of a majority in number of the holders and at least 66-2/3% in principal amount of Senior Notes actually voting in the solicitation. Under the restructuring agreement, if less than 100% of the outstanding Senior Notes accepted the exchange offer, but a sufficient number of holders and aggregate amount of Senior Notes voted in favor of acceptance of the Plan, the Company agreed to commence a voluntary Chapter 11 petition to seek confirmation of the Plan. The Plan contains substantially the same economic terms as the exchange offer. Although 100% of the outstanding Senior Notes did not accept the exchange offer, the Company did receive votes to accept the Plan from approximately 91.4% of the holders and 91.4% in the outstanding principal amount that actually voted. Accordingly, on November 13, 2002, VCI filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court to seek confirmation of the Plan. Under Chapter 11, the Company may operate its business in the ordinary course, subject to prior Bankruptcy Court approval of transactions outside the ordinary course and certain other matters. The Chapter 11 filing was for VCI only. The Chapter 11 filing does not include any of the Company's domestic or foreign operating subsidiaries. Therefore, the Company's operating subsidiaries continued to provide an uninterrupted supply of products and services to customers worldwide. Trade creditors and vendors have been totally unaffected and continue to be paid in the ordinary course of business, and the operating subsidiaries' employees have been paid all wages, salaries and benefits on a timely basis. Letters of credit in the amount of $27.6 million were outstanding under letter of credit facilities with commercial banks, and were cash collateralized at December 31, 2002. The Company finances its working capital needs through a combination of internally generated cash from operations, cash on hand, and a revolving credit facility that the Company anticipates that it will enter into upon emergence from bankruptcy. Certain identified production and finishing equipment at Viskase's domestic facilities are subject to a capital lease with GECC. In connection with the lease, GECC holds a security interest in (i) all domestic accounts receivable (including intercompany receivables) and inventory; (ii) all patents, trademarks and other intellectual property (subject to non-exclusive licensing agreements); (iii) substantially all domestic fixed assets; and (iv) certain real property and improvements thereon. The security interest will be subordinated to the working capital facility.
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The GECC capital lease obligations were classified as current in the financial statements due to covenant restrictions. The following lease payment maturities conform to contractual payments under the lease: (in thousands) February 28, 2003 $18,499 April 11, 2003 $ 5,000 February 28, 2004 $11,750 August 28, 2004 $11,749 February 28, 2005 $23,500 GECC has agreed, subject to certain conditions, not to accelerate payment of amounts due because of any default or event of default under any of the lease documents arising from (i) the Company's failure to meet the Fixed Charge Coverage Ratio for the fiscal quarters ending on March 31, 2002, June 30, 2002, September 30, 2002 and December 31, 2002 and (ii) the Company becoming a debtor under Chapter 11 of the Bankruptcy Code until April 21, 2003. There is no agreement with GECC to extend the forbearance beyond April 21, 2003. However, the Company and GECC have agreed to amend certain lease documents upon the emergence from bankruptcy. The amendment will permanently waive prior non-compliance with the Fixed Charge Coverage Ratio and establish a new Fixed Charge Coverage Ratio for the remainder of the lease term. The amendment also changes the February 28, 2004 lease payment with $11,750 due on February 28, 2004 and $11,749 due on August 28, 2004. Under Chapter 11, certain claims against VCI (the Debtor) in existence prior to the Petition Date were stayed while the Company continued business operations as a debtor-in-possession. These claims are reflected in the December 31, 2002 balance sheet as "Current liabilities subject to compromise." As of the Petition Date, the Company stopped accruing interest on the 10.25% Senior Notes. The interest not accrued from the Petition Date through December 31, 2002 is $2.3 million. The principal categories of claims reclassified in the Consolidated Balance Sheets and included in Current liabilities subject to compromise are identified below. These amounts may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, the existence and value of any collateral securing such claims and other events. At the Petition Date the amounts reflected below are for the Senior Notes and accrued interest through the Petition Date. Current liabilities subject to compromise are as follows (refer to Note 1 to the consolidated financial statements): (in thousands) 10.25% Senior Notes $163,060 Accrued interest 25,098 Other current liabilities 40 -------- $188,198 ======== Capital expenditures for continuing operations for the year ended December 31, 2002 and 2001 totaled $3.8 and $5.9 million, respectively. Significant 2002 expenditures included costs associated with the Viskase Food Science Quality Institute (FSQI) and numerous smaller projects throughout the plants worldwide. Significant 2001 capital expenditures for continuing operations included costs associated with the Visflex(tm) and Vismax(tm) plastic casing product line and the corporate office relocation. Significant 2000 capital expenditures for continuing operations included costs associated with the Nucel(r) project. Capital expenditures in 2000 for discontinued operations included additional production capacity for specialty films. Capital expenditures for 2003 are expected to increase approximately $7 million. The increase is related to the installation of environmental equipment to conform with MACT standards for casing manufacturers.
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At December 31, 2002, the Company had capital expenditure commitments outstanding of approximately $.3 million. The Company also has lease agreements for machinery, equipment and facilities during 2002; rent expenses on these were $2.0 million. Accordingly, the Company does not consider its operating lease commitments to be a significant determinant of the Company's liquidity. In 2002 and 2001, the Company spent approximately $4.1 million and $5.0 million, respectively, on research and development programs, including product and process development, and on new technology development. Prior to 2001, the Company was spending approximately $8 million on research and development programs. The decrease is due to the sale of the Films Business and mothballing the Nucel(r) project. The 2003 research and development and product introduction expenses are expected to be approximately $4.0 million. Among the projects included in the current research and development efforts are the anti-listeria NOJAX(r) AL(tm) casing, SmokeMaster(tm) casing, and the application of certain patents and technology being licensed by Viskase to the manufacture of cellulosic casings. The accompanying consolidated financial statements have been prepared in accordance with the American Institute of Certified Public Accounts Statement of Position 90-7: Financial Reporting by Entities in Reorganization under the Bankruptcy Code and have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates continuity of operations and assumes the realization of assets and liquidation of liabilities in the ordinary course of business. Following the approval of a plan of reorganization, SOP 90-7 requires that the Company adopt "Fresh Start" accounting resulting in recording all assets and liabilities at fair value. Upon emergence from bankruptcy, the amounts and classifications reported in the consolidated historical financial statements could materially change. Critical Accounting Policies The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements. In preparing these financial statements, management bases its estimates on historical experience and other assumptions that they believe are reasonable. The Company does not believe there is a great likelihood that materially different amounts would be reported under different conditions or using different assumptions related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to uncertainties and, as a result, actual results could differ from these estimates. If actual amounts are ultimately different from previous estimates, the revisions are included in the Company's results for the period in which the actual amounts become known. Historically, the aggregate differences, if any, between the Company's estimates and actual amounts in any year have not had a significant impact on the Company's consolidated financial statements. The "Summary of Significant Accounting Policies" is included as Note 2 of The Notes To Consolidated Financial Statements. Revenue Recognition Substantially all of the Company's revenues are recognized at the time products are shipped to customers, under F.O.B. Shipping Point and F.O.B. Port Terms. Revenues are net of any discounts and allowances. The Company records all related shipping and handling costs as a component of cost of goods sold. The SEC's Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements", provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. The Company's revenue recognition policy is in accordance with generally accepted accounting principles and SAB No. 101.
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Allowance for Doubtful Accounts Receivable Accounts receivable have been reduced by an allowance for amounts that may become uncollectible in the future. This estimated allowance is primarily based upon management's evaluation of the financial condition of the customer, the customer's ability to pay and historical write-offs. Allowance for Obsolete and Slow Moving Inventories Inventories are valued at the lower of cost or market. The inventories have been reduced by an allowance for slow moving and obsolete inventories. The estimated allowance is based upon management's estimate of specifically identified items and historical write-offs of obsolete and excess inventories. Deferred Income Taxes Deferred tax assets and liabilities are measured using enacted tax laws and tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income in the period that includes the enactment date. In addition, the amounts of any future tax benefits are reduced by a valuation allowance to the extent such benefits are not expected to be realized on a more likely than not basis. Pension Plans and Other Postretirement Benefit Plans The measurements of liabilities related to pension plans and other postretirement benefit plans are based upon management's assumptions related to future events including interest rates, return on pension plan assets, rate of compensation increases, and health care cost trend rates. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. As required by generally accepted accounting principles, the effect of the modifications is generally recorded or amortized over future periods. Property, Plant and Equipment The Company carries property, plant and equipment at cost less accumulated depreciation. Property and equipment additions include acquisition of property and equipment and costs incurred for computer software purchased for internal use including related external direct costs of materials and services and payroll costs for employees directly associated with the project. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from 2 to 32 years. Upon retirement or other disposition, cost and related accumulated depreciation are removed from the accounts, and any gain or loss is included in results of operations. Long-Lived Assets The Company continues to evaluate the recoverability of long-lived assets including property, plant and equipment and patents. Impairments are recognized when the expected undiscounted future operating cash flows derived from long-lived assets are less than their carrying value. Other Matters The Company does not have off-balance sheet arrangements, sometimes referred to as "special purpose entities," financing or other relations with unconsolidated entities or other persons. In the ordinary course of business, the Company leases certain casing manufacturing and finishing equipment, certain real property, consisting of manufacturing and distribution facilities and office facilities. The casing manufacturing and finishing equipment capital lease obligation is described under "Debt Obligations," Note 8 of Notes to Consolidated Financial Statements. Operating leases are described under "Operating Leases," Note 9 of Notes to Consolidated Financial Statements.
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Transactions with related parties are in the ordinary course of business, are conducted at an arm's length basis, and are not material to the Company's financial position, results of operations or cash flows. Contingencies In 1988, Viskase Canada Inc. (Viskase Canada), a subsidiary of the Company, commenced a lawsuit against Union Carbide Canada Limited and Union Carbide Corporation in the Ontario Superior Court of Justice, Court File No.: 292270188 seeking damages resulting from Union Carbide's breach of environmental representations and warranties under the Amended and Restated Purchase and Sale Agreement, dated January 31, 1986 (Agreement). Pursuant to the Agreement, Viskase Corporation and various affiliates (including Viskase Canada) purchased from Union Carbide and Union Carbide Films Packaging, Inc., its cellulosic casings business and plastic barrier films business (Business), which purchase included a facility in Lindsay, Ontario, Canada (Site). Viskase Canada is claiming that Union Carbide breached several representations and warranties and deliberately failed to disclose to Viskase Canada the existence of contamination on the Site. In October 2001, the Canadian Ministry of the Environment (MOE) notified Viskase Canada that it had evidence to suggest that the Site was a source of polychlorinated biphenyl (PCB) contamination. Viskase Canada is working with the MOE in investigating the alleged PCB contamination and developing and implementing, if appropriate, a remedial plan for the Site. Viskase Canada has been advised by the MOE that the MOE expects to issue certain Director's Orders requiring remediation under applicable environmental legislation against Viskase Canada and others in the next few months. Viskase Canada has been granted leave to amend its lawsuit against Union Carbide to allege that any PCB contamination at or around the Site was generated from Union Carbide's plastics extrusion business, which was operated at the Site by Union Carbide prior to the purchase of the Business. Union Carbide's plastics extrusion business was not part of the Business purchased by Viskase Corporation and its affiliates. Viskase Canada expects to amend the lawsuit prior to June 1, 2003. Viskase Canada will be asking the court to require Union Carbide to repurchase the Site from Viskase Canada and award Viskase Canada damages in excess of $2.0 million (Canadian). The Company has reserved $.5 million (U.S.) for the property remediation. The lawsuit is still pending and is expected to proceed to trial sometime during the second half of 2004. In August 2001, the Department of Revenue of the Province of Quebec, Canada issued an assessment against Viskase Canada in the amount of $2,669,501.48 (Canadian) plus interest and possible penalties. This assessment is based upon Viskase Canada's failure to collect and remit sales tax during the period July 1, 1997 to May 31, 2001. During this period Viskase Canada did not collect and remit sales tax in Quebec on reliance of the written advice of its outside accounting firm. Viskase Canada filed a Notice of Objection in November 2001 with supplementary submission in October 2002. No decision has been made on the Notice of Objection. The ultimate liability for the Quebec sales tax lies with the customers of Viskase Canada during the relevant period. The Company has, however, provided for a reserve of $.3 million (U.S.) for interest and penalties, if any. Viskase Canada is negotiating with the Quebec Department of Ministry to avoid having to collect the sales tax from customers who will then be entitled to credit for such sales tax collected. In March 1997, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice (DOJ) relating to a grand jury investigation of the sausage casings industry. In September 1999, Viskase received a subpoena from the DOJ relating to the expansion of the grand jury investigation into the specialty plastic films industry. During October 2002, Viskase was advised by the DOJ that it has closed the investigation of the sausage casings and specialty plastic films industries and that no action will be taken. During 1999 and 2000, the Company and certain of its subsidiaries and one other sausage casings manufacturer were named in ten virtually identical civil complaints filed in the United States District Court for 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.;
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and Klement Sausage Co. The District Circuit ordered all of these cases consolidated in 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. In 2001, all of the consolidated cases were transferred to the United States District Court for the Northern District of Illinois, Eastern Division. The Company strongly denies the allegations set forth in these complaints and intends to vigorously defend these claims. In February 2003, the plaintiffs (other than Marathon Enterprises, Inc. which has elected not to pursue its lawsuit against the Company) amended their complaint to eliminate any claim against the Company that arose prior to December 17, 1993. In March 2003, the Company filed a Motion to Dismiss the amended complaint. The Company and its subsidiaries are involved in these and various other 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 condition. Contractual Obligations Related to Debt, Leases and Related Risk Disclosure (in thousands) [Enlarge/Download Table] 2002 Expected Maturity Date --------------------------------------------------------------- Current Liabilities Subject to There- Compromise 2003 2004 2005 2006 after Total ----------------------------------------------------------------------------------------------------------------------- Long-term debt, including current portion: Fixed interest rate ($000) $163,060 $85 $163,145 Interest rate 10.25% 0% 10.25% Accrued interest on Senior Notes $25,098 $25,098 Capital lease obligations(1) $19,483 $21,300 $23,500 $64,283 Operating leases $1,425 $1,253 $1,097 $997 $3,503 $8,275 Third party license fees $865 $400 $250 $200 $450 $2,165 Employment agreement $2,109 $2,109 (1) Capital lease obligations relate primarily to GECC Capitalized Lease Obligations classified as current in the financial statements. GECC lease payment maturities conform to contractual payments under the lease. Other In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations." The statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. The provisions of this statement are required to be applied for fiscal years beginning after June 15, 2002. The Company is considering the Standard and its effect on the Company's financial statements. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The statement is applicable for fiscal years beginning after May 15, 2002 and requires, among other things, that any gain or loss on extinguishment of debt that does not meet criteria in Opinion 30, as amended, no longer be classified as an extraordinary item. The gain of $8.1 million, net of income taxes, relating to the repurchase of Senior Notes in 2001 and the gain of $6.5 million, net of income taxes, relating to the repurchase of Senior Notes in 2000, were reported as extraordinary items in the Company's consolidated statements of operations for
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the years then ended. In 2003, these prior period extraordinary items will be reclassified in the consolidated statements of operations as a separate caption along with interest expense in accordance with this statement. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement replaces previous accounting guidance provided by Emerging Issues Task Force (EITF) Issue No. 94-3. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The provisions of this Statement will prospectively apply to exit or disposal activities initiated after December 31, 2002. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." This statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to fair value based method of accounting for stock-based employee compensation and amends the disclosure requirements to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The provisions of this statement are effective for financial statements for fiscal years ending after December 15, 2002. Management has adopted the footnote disclosure provisions (see Note 2 to the consolidated financial statements) and is considering the recognition provisions of the standard and its effects on the Company's financial statements. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." The interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company will apply the provisions of this interpretation to guarantees issued after December 31, 2002. The Company is in compliance with the disclosure requirements of the interpretation. 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; the ability to achieve other cost reductions and efficiencies; and the effect of negotiations with the Company's creditors and the restructuring of the Company's indebtedness. 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 occasionally 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 December 31, 2002, a 10% devaluation of the U.S. dollar would affect the Company's consolidated financial position by approximately $44 thousand.
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The Company purchases gas futures contracts to lock in set rates on gas purchases. The Company uses this strategy to minimize its exposure to volatility in natural gas. These products are not linked to specific assets and liabilities that appear on the balance sheet or to a forecasted transaction and, therefore, do not qualify for hedge accounting. As such, the loss on the change in fair value of the futures contracts was recorded in other income and is immaterial. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary financial information meeting the requirements of Regulation S-X are listed in the index to financial statements and schedules, as included under Part IV, Item 15 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements on accounting and financial disclosure required to be disclosed under this Item.
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PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following sets forth the name, age and positions, of the Company's officers and directors. Also set forth below is information as to the principal occupation and background for such persons. Directors Robert N. Dangremond, 60, has been a principal with Jay Alix & Associates, a consulting and accounting firm specializing in corporate restructurings and turnaround activities, since August 1989. Mr. Dangremond also serves as a Director for the Furr's Restaurant Group. Mr. Dangremond has served as a director of the Company since 1993. Mr. Dangremond will be resigning as a director of the Company as of the Effective Date of the Plan. F. Edward Gustafson, 61, has been Chairman of the Board, President and Chief Executive Officer of the Company since March 1996 and a director of the Company since December 1993. Mr. Gustafson has been President and Chief Executive Officer of Viskase Corporation since June 1998, and previously from February 1990 to August 1994. From May 1989 to March 1996, Mr. Gustafson served as Executive Vice President and Chief Operating Officer of the Company. Mr. Gustafson has also served as Executive Vice President and Chief Operating Officer of D.P. Kelly and Associates, L.P. (DPK) since November 1988. Gregory R. Page, 51, has been President and Chief Operating Officer of Cargill, Inc. ("Cargill"), a multinational trader and processor of foodstuffs and other commodities, since June 2000. From May 1998 to June 2000, Mr. Page served as Corporate Vice President and Section President of Cargill. From August 1995 to May 1998, Mr. Page served as President of the Red Meat Group of Cargill. Mr. Page has served as a director of the Company since 1993. Mr. Page will be resigning as a director of the Company as of the Effective Date of the Plan. Executive Officers F. Edward Gustafson, 61, has been Chairman of the Board, President and Chief Executive Officer of the Company since March 1996 and a director of the Company since December 1993. Mr. Gustafson has been President and Chief Executive Officer of Viskase Corporation since June 1998, and previously from February 1990 to August 1994. From May 1989 to March 1996, Mr. Gustafson served as Executive Vice President and Chief Operating Officer of the Company. Mr. Gustafson has also served as Executive Vice President and Chief Operating Officer of DPK since November 1988. Gordon S. Donovan, 49, has been Chief Financial Officer of the Company since January 1997, and Vice President and Chief Financial Officer of Viskase Corporation since June 1998. Mr. Donovan has served as Treasurer and Assistant Secretary of the Company since November 1989, and as Vice President since May 1995. Kimberly K. Duttlinger, 38, has been Vice President, Secretary and General Counsel of the Company since April 2000. From August 1998 through April 2000, Ms. Duttlinger served as Associate General Counsel of the Company. From May 1997 to August 1998, Ms. Duttlinger served as Corporate Counsel of the Company. Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Exchange Act requires the Company's executive officers and directors and persons who own more than 10% of a registered class of the Company's equity securities to file reports of their ownership thereof and changes in that ownership with the Securities and Exchange Commission (SEC) and the National Association of Securities Dealers, Inc. Executive officers, directors and greater than 10% stockholders are required by SEC regulations to furnish the Company with copies of all such reports they file.
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Based solely upon its review of copies of such forms received by it, or on written representations from certain reporting persons that other filings were required for such persons, the Company believes that, during the year ended December 31, 2002, there were no individuals who failed to comply with the applicable Section 16(a) filing requirements, except that Donald P. Kelly, a greater than 10% stockholder inadvertently failed to timely file one Form 4 reporting one transaction. ITEM 11. EXECUTIVE COMPENSATION Summary of Cash and Certain Other Compensation of Executive Officers. The Summary Compensation Table below provides certain summary information concerning the compensation by the Company for fiscal years 2002, 2001 and 2000 for services rendered by the Company's Chief Executive Officer and each of the other executive officers of the Company whose total annual salary and bonus exceeded $100,000 in 2002. SUMMARY COMPENSATION TABLE [Enlarge/Download Table] Restricted Other Annua Stock Name and Salary Bonus Compensation Award(s) Options (1) All Other Principal Position Year ($) ($) ($) ($) (#) Compensation ----------------------------------------------------------------------------------------------------------------------- F. Edward Gustafson 2002 535,000 267,500 67,004 (2) - - 16,050 (3) Chairman of the Board, 2001 513,000 - - - - 24,745 President and Chief 2000 497,250 273,488 74,423 212 (4) 200,000 (5) 17,239 Executive Officer Gordon S. Donovan 2002 186,060 74,052 10,989 - - 6,496 (6) Vice President, Chief 2001 178,728 14,012 10,663 - - 7,855 Financial Officer, Treasurer 2000 169,965 66,626 9,835 212 (4) 22,000 5,621 and Assistant Secretary Kimberly K. Duttlinger 2002 125,340 43,518 4,720 - - 4,093 (7) Vice President, Secretary, 2001 133,072 9,121 5,318 - - 4,325 and General Counsel 2000 143,127 49,093 2,147 212 (4) 15,000 4,294 ------------------------------- (1) Under the terms of the Plan, stock options outstanding as of the Effective Date under the Plan would be canceled upon emergence from bankruptcy. (2) Includes $30,000 for automobile allowance and $20,084 for reimbursement of legal services. (3) Includes $660 paid for group life insurance, $8,175 contributed to the Viskase SAVE Plan and $7,215 contributed to the Viskase Companies, Inc. Parallel Non-Qualified Savings Plan (Non-Qualified Plan). (4) Grant of 75 restricted shares of Common Stock to each of Messrs. Gustafson and Donovan and Ms. Duttlinger under the Company's "Diamond Anniversary Grant." The shares would be converted to Warrants under the Plan, and are subject to forfeiture until October 27, 2003. (5) In 2000, Mr. Gustafson was granted a stock option to purchase up to 200,000 shares of Common Stock depending on the financial performance of the Company based on earnings before interest, taxes, depreciation, and amortization (EBITDA) for fiscal year 2000. Based on the Company's EBITDA for fiscal year 2000, a portion (i.e., 50,000 shares of Common Stock, which would be canceled under the Plan) of this stock option was earned. (6) Includes $494 paid for group life insurance, $5,582 contributed to the Viskase SAVE Plan and $420 contributed to the Non-Qualified Plan. (7) Includes $333 paid for group life insurance and $3,760 contributed to the Viskase SAVE Plan. Stock Option Exercises and Holdings. The following table provides information concerning the exercise of stock options for Common Stock during the fiscal year ended December 31, 2002 and the fiscal year-end value of stock options for Common Stock with respect to each of the persons named in the Summary Compensation Table. Pursuant to the Plan, all stock options outstanding as of the Effective Date under the Plan would be canceled.
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Aggregated Option/SAR Exercises in 2002 and December 31, 2002 Option Values [Enlarge/Download Table] Number of Securities $ Value of Underlying Unexercised Unexercised In-the-Money Shares Options at Options at Acquired Value 12/31/02 12/31/02 on Exercise Realized Exercisable/ Exercisable/ Name (#) ($) Unexercisable Unexercisable -------------------------------------------------------------------------------------------- F. Edward Gustafson........ -- -- 170,000 / 0 0 / 0 Gordon S. Donovan.......... -- -- 79,000 / 0 0 / 0 Kimberly K. Duttlinger..... -- -- 40,000 / 0 0 / 0 Restricted Stock Plan. Upon the emergence from bankruptcy under chapter 11 of the Bankruptcy Code, Mr. Donovan and Ms. Duttlinger would be granted 37,500 and 10,000 restricted shares, respectively, of New Common Stock under the Restricted Stock Plan. Based upon the number of shares of Common Stock held in their 401(k) accounts, Mr. Donovan and Ms. Duttlinger would also be granted an additional 8,105 and 153 restricted shares of New Common Stock, respectively, under the Restricted Stock Plan. Restricted stock grants issued under the Restricted Stock Plan would vest 12- 1/2% on the date of the grant, 17-1/2% on the first anniversary of the grant, 20% on the second anniversary of the grant, 20% on the third anniversary of the grant, and 30% on the fourth anniversary of the grant, subject to acceleration under certain defined events. Equity Compensation Plan Information Table. The following table provides information as of December 31, 2002 regarding the number of shares of the Company's Common Stock that may be issued under the Company's equity compensation plans. [Enlarge/Download Table] (a) (b) (c) Number of securities remaining available for future issuance Number of under equity securities to be Weighted compensation issued upon average exercise plans excluding exercise of price of securities outstanding outstanding reflected in Plan Category options options column (a) ----------------------------------------------------------------------------------------------------------------------- Equity compensation plans approved by security holders 835,430 $2.71 449,898 Equity compensation plans not approved by security holders -- -- -- ------- ----- ------- Total 835,430 $2.71 449,898 ======= ===== ======= These options will be canceled under terms of the Plan on the Emergence Date.
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Pension Plan Table. The following table sets forth estimated annual benefits payable upon retirement under the Retirement Program for Employees of Viskase Corporation (the "Retirement Program") to employees of the Company and its wholly owned subsidiary, Viskase Corporation, in specified remuneration and years of service classifications. Pension Plan Table [Enlarge/Download Table] Assumed Final Average Annual Benefits for Years of Service Indicated (2) Annual Salary (1) 15 20 25 30 35 --------------------- ------- -------- -------- --------- -------- $100,000 $18,000 $24,000 $30,000 $36,000 $42,000 150,000 27,000 36,000 45,000 54,000 63,000 200,000 36,000 48,000 60,000 72,000 84,000 250,000 45,000 60,000 75,000 90,000 105,000 300,000 54,000 72,000 90,000 108,000 126,000 350,000 63,000 84,000 105,000 126,000 147,000 400,000 72,000 96,000 120,000 144,000 168,000 450,000 81,000 108,000 135,000 162,000 189,000 500,000 90,000 120,000 150,000 180,000 210,000 550,000 99,000 132,000 165,000 198,000 231,000 (1) Annual benefits payable under the Retirement Program are calculated based on the participant's average base salary for the consecutive thirty-six (36) month period immediately prior to retirement. (2) The annual benefits payable are based on straight-life annuity basis at normal retirement age. The benefits reported in this table are not subject to any reduction for benefits paid by other sources, including Social Security. As of December 31, 2002, Messrs. Gustafson and Donovan and Ms. Duttlinger are credited with 13, 15 and 6 years of service, respectively. Compensation of Directors. Each director who is not an officer of the Company received an annual retainer of $20,000 in 2002 and a fee of $4,000 for each attended meeting of the Board of Directors. Chairmen of committees (other than the Interested Person Transaction Committee) of the Board of Directors received an annual retainer of $1,500 in 2002. Directors also received a fee for each attended meeting of a committee of the Board of Directors (other than the Interested Person Transaction Committee) of $1,000 ($500 in the case of committee meetings occurring immediately before or after meetings of the full Board of Directors). Members of the Interested Person Transaction Committee did not receive a fee in 2002. Directors who are officers of the Company do not receive compensation in their capacity as directors. Pursuant to Viskase Companies, Inc. 1993 Stock Option Plan, as amended, on the date of each annual meeting of stockholders, non-employee directors are granted a stock option to purchase 1,000 shares of Common Stock at an option exercise price equal to the fair market value of the Common Stock the date of grant. The Company did not hold an annual meeting of stockholders during 2002. Pursuant to the Non-Employee Directors' Compensation Plan, non-employee directors may elect to receive their director fees in the form of shares of Common Stock. The number of shares received is based on the average of the closing bid and ask price of the Common Stock on the business day preceding the date the Common Stock is issued. None of the directors currently receive their fees in the form of Common Stock. Compensation Committee Interlocks and Insider Participation. During 2002, the Compensation and Nominating Committee of the Board of Directors consisted of Messrs. Robert N. Dangremond and Gregory R. Page, each of whom is a non- employee director of the Company and will be resigning as a director as of the Effective Date of the Plan. Mr. Page is the President and Chief Operating Officer of Cargill, Inc. During 2002, Viskase Corporation, a wholly owned subsidiary of the Company, had sales of $592,000 made in the ordinary course to Cargill, Inc. and its affiliates.
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Employment Agreements and Change-in-Control Arrangements Employment Agreements with F. Edward Gustafson. On March 27, 1996, the Company entered into an Employment Agreement with Mr. F. Edward Gustafson. The Employment Agreement was amended and restated during 1997, amended twice during 2001 and once during 2002 (the "Employment Agreement"). Pursuant to the Employment Agreement, Mr. Gustafson has agreed to serve as Chairman of the Board, President and Chief Executive Officer of the Company, and the Company has agreed to use its best efforts to cause Mr. Gustafson to be elected as a director of the Company, during the term of the Agreement. The initial term of the Employment Agreement is three (3) years, provided, however, that on March 26, 1997 and each subsequent anniversary thereof, the term of the Employment Agreement will be automatically extended for a period of one (1) year unless the Company or Mr. Gustafson gives written notice to the other at least thirty (30) days prior to the anniversary date that the term shall not be so extended. Under the Employment Agreement, Mr. Gustafson receives an annual base salary of $535,000 and $30,000 per year in lieu of a Company-provided automobile. Mr. Gustafson's base salary will be increased by the Board of Directors each year in a manner consistent with increases in base salary for other senior officers of the Company. In addition, the Employment Agreement provides that Mr. Gustafson would be eligible to receive a bonus based on a percentage of his base salary depending on the Company's performance based on EBITDA. Mr. Gustafson will be eligible to receive an annual bonus for future fiscal years of the Company based on such financial performance or other performance- related criteria as established by the Board of Directors after consultation with Mr. Gustafson. For information concerning actual bonuses earned by Mr. Gustafson, see the "Summary Compensation Table." Mr. Gustafson is also entitled to participate in any employee benefit plans in effect for, and to receive other fringe benefits provided to, other executive officers. Pursuant to and upon execution of the Employment Agreement, Mr. Gustafson was granted two (2) stock options, each to purchase 35,000 shares of Common Stock. One (1) stock option is exercisable in cumulative annual increments of one-third commencing on the first anniversary of the date of grant. The other stock option is exercisable in cumulative annual increments of one-third commencing on the second anniversary of the date of grant. In addition, Mr. Gustafson was granted a third stock option to purchase up to 75,000 shares of Common Stock dependent on the Company's financial performance for fiscal year 1996. The Company did not meet the financial performance targets and, therefore, no portion of this stock option became exercisable or will become exercisable in the future. Lastly, Mr. Gustafson was granted 35,000 restricted shares of Common Stock that could not be transferred, and were subject to forfeiture, until March 27, 1999. If Mr. Gustafson's employment is terminated by the Company for Cause, as defined in the Employment Agreement, or by Mr. Gustafson other than for Good Reason or Disability, as defined in the Employment Agreement, Mr. Gustafson will be paid all Accrued Compensation, as defined in the Employment Agreement, through the date of termination of employment. If Mr. Gustafson's employment with the Company is terminated by the Company for any reason other than for Cause, death or Disability, or by Mr. Gustafson for Good Reason, (i) Mr. Gustafson will be paid all Accrued Compensation plus 300% of his base salary (or 200% in the event that DPK, or a company in which DPK has a substantial interest, is the beneficial owner of the Company following a Change of Control) and the prorated amount of annual bonus that would have been payable to Mr. Gustafson with respect to the fiscal year in which Mr. Gustafson's employment is terminated, provided that the performance targets have been actually achieved as of the date of termination (unless such termination of employment follows a Change in Control, as defined in the Agreement, in which case Mr. Gustafson will receive a bonus equal to 50% of his base salary regardless of the Company's performance) ("Termination Compensation"), (ii) Mr. Gustafson will continue to receive life insurance, medical, dental and hospitalization benefits for a period of twenty-four (24) months following termination of employment, and (iii) all outstanding stock options and restricted shares of Common Stock will become immediately exercisable, vested and nonforfeitable. Under the Employment Agreement, with respect to any Change in Control that occurred prior to November 1, 2001, Mr. Gustafson has until thirty (30) days following the earlier to occur of (i) the date on which the Company has provided written notice of acceptance to the exchange offer agent with respect to
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the Exchange Offer (as defined in Amendment Number Three to the Employment Agreement); (ii) the effective date of the Plan (as defined in Amendment Number Three to the Employment Agreement) of the Company and Viskase Corporation under chapter 11 of the United States Bankruptcy Code or the date on which the Company's and Viskase Corporation's bankruptcy is converted from a chapter 11 proceeding to a chapter 7 proceeding; or (iii) the closing date contained in any agreement related to the sale of substantially all of the assets of the Company and/or Viskase Corporation or the sale or other issuance of at least a majority of the stock of the Company or Viskase Corporation, to provide notice that he intends to terminate his employment for Good Reason because of such Change in Control. With respect to any Change in Control occurring after November 1, 2001, Mr. Gustafson has one year after such Change in Control to terminate his Employment Agreement for Good Reason based upon such Change in Control. During 2002, the Company and Viskase Corporation entered into a Letter of Credit Agreement with Mr. Gustafson that requires the Company and Viskase Corporation to secure and maintain a standby letter of credit in amount equal to the Accrued Compensation and Termination Compensation. Pursuant to the Employment Agreement, Mr. Gustafson is generally prohibited during the term of the Agreement, and for a period of two (2) years thereafter, from competing with the Company, soliciting any customer of the Company or inducing or attempting to persuade any employee of the Company to terminate his or her employment with the Company in order to enter into competitive employment. For purposes of the Employment Agreement, the Company includes Viskase Companies, Inc. and any of its subsidiaries over which Mr. Gustafson exercised, directly or indirectly, any supervisory, management, fiscal or operating control during the term of the Employment Agreement. On August 30, 2001, Viskase Corporation entered into an employment agreement with Mr. Gustafson ("Viskase Employment Agreement"). The Viskase Employment Agreement was amended once during 2001 and once during 2002. The Viskase Employment Agreement is substantially similar to the Employment Agreement. Any benefits received by Mr. Gustafson under either employment agreement would be credited against benefits payable under the other employment agreement. Employment Agreements with Gordon S. Donovan and Kimberly K. Duttlinger. On November 29, 2001, the Company and Viskase entered into employment agreements with Mr. Donovan and Ms. Duttlinger ("Executive Employment Agreements"). Pursuant to the Executive Employment Agreement, Mr. Donovan has agreed to serve as Vice President, Chief Financial Officer and Treasurer of the Company and Viskase Corporation and Ms. Duttlinger has agreed to serve as Vice President, Secretary and General Counsel of the Company and Viskase Corporation, during the term of the Executive Employment Agreements. The initial term of the Executive Employment Agreements is approximately three (3) years ending December 31, 2004, provided, however, that on January 1, 2003 and each subsequent anniversary thereof, the term of the Executive Employment Agreements will be automatically extended for a period of one (1) year unless the Company or Mr. Donovan or Ms. Duttlinger gives written notice to the other at least thirty (30) days prior to the anniversary date that the term shall not be so extended. Under the Executive Employment Agreements, Mr. Donovan and Ms. Duttlinger receive an annual base salary of at least $193,020 and $129,840, respectively. Mr. Donovan's and Ms. Duttlinger's base salary will be increased by the President of the Company each year in a manner consistent with increases in base salary for other senior officers of the Company. In addition, the Executive Employment Agreements provide that Mr. Donovan and Ms. Duttlinger are eligible to participate in the (i) Management Incentive Plan, a bonus program calculated as a percentage of his/her base salary depending on the Company's performance based on EBITDA and his/her personal performance; (ii) Non-Qualified Parallel Plan; (iii) Executive Auto Allowance Program; and (iv) 1993 Stock Option Plan and any replacement thereof. Mr. Donovan and Ms. Duttlinger are also entitled to participate in any employee benefit plans in effect for, and to receive other fringe benefits provided to, other executive officers.
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If Mr. Donovan's or Ms. Duttlinger's employment is terminated by the Company for Cause, as defined in the Executive Employment Agreements, or by Mr. Donovan or Ms. Duttlinger other than for Good Reason or Disability, as defined in the Executive Employment Agreements, Mr. Donovan or Ms. Duttlinger will be paid all Accrued Compensation, as defined in the Employment Agreement, through the date of termination of employment. If Mr. Donovan's or Ms. Duttlinger's employment with the Company is terminated by the Company for any reason other than for Cause, death or Disability, or by Mr. Donovan or Ms. Duttlinger for Good Reason, (i) Mr. Donovan or Ms. Duttlinger will be paid all Accrued Compensation plus 200% of his/her base salary and the prorated amount of annual bonus that would have been payable to Mr. Donovan or Ms. Duttlinger with respect to the fiscal year in which his/her employment is terminated, provided that the performance targets have been actually achieved as of the date of termination (unless such termination of employment follows a Change in Control, as defined in the Agreement, in which case Mr. Donovan will receive a bonus equal to 40% of his base salary regardless of the Company's performance and Ms. Duttlinger will receive a bonus equal to 35% of her base salary regardless of the Company's performance), (ii) Mr. Donovan and Ms. Duttlinger will continue to receive life insurance, medical, dental and hospitalization benefits for a period of twenty-four (24) months following termination of employment, and (iii) all outstanding stock options and restricted shares will become immediately exercisable, vested and nonforfeitable. Pursuant to the Executive Employment Agreements, Mr. Donovan and Ms. Duttlinger are generally prohibited during the term of their respective Agreements, and for a period of two (2) years thereafter, from competing with the Company, soliciting any customer of the Company or inducing or attempting to persuade any employee of the Company to terminate his or her employment with the Company in order to enter into competitive employment. For purposes of the Executive Employment Agreements, the Company includes Viskase Companies, Inc. and any of its subsidiaries over which Mr. Donovan or Ms. Duttlinger exercised, directly or indirectly, any supervisory, management, fiscal or operating control during the term of the Executive Employment Agreements.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the beneficial ownership of Common Stock as of March 28, 2003 of (a) each person or group of persons known to the Company to beneficially own more than 5% of the outstanding shares of Common Stock, (b) each director and nominee for director of the Company, (c) each executive officer of the Company listed in the Summary Compensation Table above, and (d) all executive officers and directors of the Company as a group. All information is taken from or based upon ownership filings made by such persons with the Securities and Exchange Commission or upon information provided by such persons to the Company. [Download Table] Name and Address of Number of Shares Percent Beneficial Owner Beneficially Owned (1) of Class (1) -------------------- ---------------------- ------------ Pacificor, Inc. 5,000,000 32.65% 1575 N. Ontare Road Santa Barbara, CA 93105 Steven L. Gevirtz 3,495,652 (2) 22.83% Katana Fund LLC Katana Capital Advisors LLC 1859 San Leandro Lane Santa Barbara, California 93108 F. Edward Gustafson 1,979,610 (3)(4)(5) 12.78% 625 Willowbrook Centre Parkway Willowbrook, Illinois 60527 Donald P. Kelly 1,570,287 (3) 10.25% 701 Harger Road, Suite 190 Oak Brook, Illinois 60523 Volk Enterprises, Inc. 1,300,000 8.49% 618 S. Kilroy Turlock, California 95380 Robert N. Dangremond 64,340 (6) * Gordon S. Donovan 108,208 (5)(7) * Kimberly K. Duttlinger 40,306 (8) * Gregory R. Page 34,150 (6) * All directors and executive officers of the Company as a group (5 persons) 2,226,614 (9) 14.26% -------------------------------- * Less than 1%. (1) Beneficial ownership is calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934 and the rules promulgated thereunder. Accordingly, the "Number of Shares Beneficially Owned" and the "Percent of Class" shown for each person listed in the table are based on the assumption that stock options which are exercisable currently or within 60 days of March 30, 2003, held by such person, have been exercised. Unless otherwise indicated, the persons listed in the table have sole voting and investment power over those securities listed for such person. (2) Katana Capital Advisors, LLC manages the Katana Fund LLC and therefore is deemed to indirectly own the shares owned by the Katana Fund LLC.
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(3) The ownership indicated includes 70,287 shares owned by DPK, of which Mr. Kelly and Mr. Gustafson are principals and officers. The general partner of DPK is C&G Management Company, Inc. ("C&G Management"), which is owned by Mr. Kelly and Mr. Gustafson. The ownership indicated also includes 1,300,000 shares owned by Volk Enterprises, Inc. ("Volk"). Volk is controlled by Volk Holdings L.P., whose general partner is Wexford Partners I L.P. ("Wexford Partners"). The general partner of Wexford Partners is Wexford Corporation, which is owned by Mr. Kelly and Mr. Gustafson. Mr. Kelly and Mr. Gustafson share voting and investment power over the shares owned by DPK and Volk. However, Mr. Kelly and Mr. Gustafson each disclaim beneficial ownership of shares owned by DPK and Volk except to the extent of their respective pecuniary interest in such entities. (4) The ownership indicated includes 170,000 shares subject to stock options owned by Mr. Gustafson. The ownership indicated also includes 70,619 shares owned by Mr. Gustafson's spouse. Mr. Gustafson does not have or share voting or investment power over the shares owned by his spouse and disclaims beneficial ownership of such shares. (5) The ownership indicated also includes 218,000 and 2,998 shares acquired by Messrs. Gustafson and Donovan, respectively, pursuant to the Non- Qualified Plan. (6) The ownership indicated includes 7,000 shares subject to stock options owned by each of Messrs. Dangremond and Page. (7) The ownership indicated includes 79,000 shares subject to stock options owned by Mr. Donovan, 8,000 shares held by Mr. Donovan as trustee for the benefit of his spouse, with whom Mr. Donovan shares voting and investment power over such shares and 1,000 shares owned by Mr. Donovan's spouse. Mr. Donovan does not have or share voting power over the 1,000 shares owned by his spouse. Mr. Donovan disclaims beneficial ownership of the shares held by him as trustee and the shares owned by his spouse. (8) The ownership indicated includes 40,000 shares subject to stock option owned by Ms. Duttlinger. (9) See Footnotes (3), (4), (5), (6), (7) and (8). ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During 2002, the Company purchased product in the ordinary course of business and on arm's-length terms from affiliates of Mr. Gustafson, Chairman of the Board, President and Chief Executive Officer of the Company, including Volk, in the amount of $321. During 2002, Viskase had sales of $592 to Cargill, Inc. and its affiliates. Such sales were made in the ordinary course of the business. Gregory R. Page, President and Chief Operating Officer of Cargill, Inc., became a director of the Company in 1993 and is currently serving in that capacity. Mr. Page will be resigning as a director as of the Effective Date. ITEM 14. CONTROLS AND PROCEDURES CEO and CFO Certifications This annual report contains two separate forms of certifications of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO). The first form of certification, appearing immediately following the Signatures section of this annual report is required by SEC rules promulgated pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (302 Certifications). In the 302 Certifications, there are several certifications made by the CEO and CFO relating to the Company's disclosure controls and procedures and internal controls. This section of this annual report should be read in conjunction with the 302
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Certifications relating to the Company's disclosure controls and procedures and the Company's internal controls. Evaluation of Disclosure Controls and Procedures Within 90 days prior to the filing of this annual report (Evaluation Date), the Company's management, under the supervision and with the participation of the CEO and the CFO, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures. Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in the Company's reports filed under the Exchange Act, such as this annual report, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Based upon the evaluation by the CEO and CFO, the Company's disclosure controls and procedures are effective in ensuring that all material information required to be filed in this annual report has been made known to them in a timely fashion. Evaluation of Internal Controls The Company's management also evaluated the effectiveness of the Company's internal controls. Internal controls are procedures which are designed with the objective of providing reasonable assurance that (1) the Company's transactions are properly authorized; (2) the Company's assets are safeguarded against unauthorized or improper use; and (3) the Company's transactions are properly recorded and reported, all to permit the preparation of our financial statements in conformity with generally accepted accounting principles. In accord with SEC requirements, the CEO and CFO note that, since the Evaluation Date, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. Limitations on the Effectiveness of Controls A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system will be subject to various limitations, such as resource constraints, expertise of personnel and cost- benefit constraints. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1. Financial statements: PAGE Report of independent accountants F-2 Consolidated balance sheets, December 31, 2002 and 2001 F-3 Consolidated statements of operations, for the years ended December 31, 2002, 2001 and 2000 F-4 Consolidated statements of stockholders' deficit, for the years ended December 31, 2002, 2001 and 2000 F-6 Consolidated statements of cash flows, for the years ended December 31, 2002, 2001 and 2000 F-7 Notes to consolidated financial statements F-8 (a)2. Financial statement schedules for the years ended December 31, 2002, 2001 and 2000: II Valuation and qualifying accounts F-38 Schedules other than those listed are omitted because they are not required, are not applicable, or because equivalent information has been included in the financial statements and notes thereto or elsewhere herein. (b) Reports on Form 8-K. 1. On October 17, 2002, the Company announced that the Department of Justice had closed its investigation of the sausage casings and specialty plastic films industries. 2. On October 21, 2002, the Company announced extension of the expiration date of its exchange offer relating to its 10-1/4% Senior Notes until 5:00 p.m. on November 4, 2002. 3. On November 13, 2002, the Company announced expiration of exchange offer and filing of voluntary prepackaged bankruptcy petition. 4. On December 9, 2002, the Company announced breakthrough technology to control listeria in hot dogs and sausages. 5. On December 20, 2002, the Company announced confirmation of its prepackaged plan of reorganization. 6. On December 30, 2002, the Company amended its Rights Agreement, dated June 26, 1996, between the Company and Harris Trust and Savings Bank. Under the Rights Agreement, as amended, from the date of the amendment through April 19, 2003, all Rights outstanding (other than those held by a 41%-or-more stockholder and certain other specified persons) will automatically, without any further action of the Board of Directors, be exchanged for shares of Common Stock of the Company at an exchange rate of one share of Common Stock per Right simultaneous with any Person becoming a 41%-or-more stockholder.
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(c) Exhibits: Exhibit No. Description of Exhibits Page 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. (incorporated herein by reference to Exhibit 2.1 of Form 10-Q for the fiscal quarter ended September 30, 2000 filed November 15, 2000). * 2.2 Amendment No. 2 to Purchase Agreement, dated May 18, 2001, among the Company and certain of its subsidiaries and Bemis Company, Inc. ** 2.3 Debtor's Prepackaged Plan of Reorganization as Modified, dated March 18, 2003. ** 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to Form 8-K filed January 19, 1994). * 3.2 Certificate of Ownership and Merger of Viskase Companies, Inc. into Envirodyne Industries, Inc. * 3.3 Amended and Restated By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 to Form 8-K filed May 16, 1997). * 4.1 Indenture, dated as of December 31, 1993, between the Company and Bankers Trust Company, as Trustee, relating to the 10-1/4% Notes Due 2001 of the Company including form of 10-1/4% Note Due 2001 (incorporated herein by reference to Exhibit 4.1 to Form 8-K filed January 19, 1994). * 4.3 Rights Agreement, dated as of June 26, 1996, between the Company and Harris Trust and Savings Bank, as Rights Agent (incorporated herein by reference to Exhibit 4.1 of Form 8-K dated June 26, 1996 filed June 28, 1996). * 10.1 Participation Agreement, dated as of December 18, 1990, among Viskase Corporation, as Lessee, the Company, as Guarantor, General Electric Capital Corporation, as Owner Participant, and The Connecticut National Bank, as Owner Trustee (incorporated herein by reference to Exhibit 10.24 to Form 8-K filed January 22, 1991). * 10.2 Lease Agreement, dated as of December 18, 1990, between The Connecticut National Bank, Owner Trustee, as Lessor and Viskase Corporation, as Lessee (incorporated herein by reference to Exhibit 10.25 to Form 8-K filed January 22, 1991). * 10.3 Appendix A; Definitions relating to the Participation Agreement, the Lease and the Ground Lease (incorporated herein by reference to Exhibit 10.26 to Form 8-K filed January 22, 1991). * * Previously filed by the Company, incorporated by reference. ** Filed herewith.
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Exhibit No. Description of Exhibits Page 10.4 Ground Lease, dated as of December 18, 1990, between Viskase Corporation, as Ground Lessor, and The Connecticut National Bank, as Ground Lessee (incorporated herein by reference to Exhibit 10.27 to Form 8-K filed January 22, 1991). * 10.5 Guaranty Agreement, dated as of December 18, 1990, among the Company; Clear Shield National, Inc.; Sandusky Plastics of Delaware, Inc.; Viskase Sales Corporation, all as Guarantors; The Connecticut National Bank, as Owner Trustee; and General Electric Capital Corporation, as Owner Participant (incorporated herein by reference to Exhibit 10.28 to Form 8-K filed January 22, 1991). * 10.6 Trust Agreement, dated as of December 18, 1990, between General Electric Capital Corporation, as Owner Participant, and The Connecticut National Bank, as Owner Trustee (incorporated herein by reference to Exhibit 10.29 to Form 8-K, filed January 22, 1991, of Viskase Companies, Inc.). * 10.7 Non-Employee Directors' Compensation Plan (incorporated herein by reference to Appendix B of the Company's Proxy Statement for its 1996 Annual Meeting of Stockholders).+ * 10.8 1993 Stock Option Plan, as amended and restated through March 27, 1996 (incorporated herein by reference to Appendix A of the Company's Proxy Statement for its 1996 Annual Meeting of Stockholders). + * 10.9 Viskase Companies, Inc. Parallel Non-Qualified Thrift Plan (incorporated herein by reference to Exhibit 10.35 to Form 10-Q for the fiscal quarter ended June 27, 1991 filed August 12, 1991). + * 10.10 Amended and Restated Employment Agreement, effective March 27, 1996, between the Company and F. Edward Gustafson (incorporated herein by reference to Exhibit 10.20 to Form 10-Q for the fiscal quarter ended June 25, 1998 filed August 10, 1998). + * 10.11 Amendment to Viskase Companies, Inc. 1999 Parallel Non-Qualified Savings Plan (incorporated herein by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-8, #333-33508, filed on March 29, 2000). + * 10.12 Viskase Corporation Severance Pay Policy (incorporated herein by reference to Exhibit 10.34 to Form 10-K for the year ended December 31, 1999, filed September 22, 2000). + * 10.13 Agreement and Amendment dated as of April 13, 2000, between Viskase Corporation (the Lessee) and State Street Bank and Trust Company (the Lessor) as Owner Trustee under the Trust Agreement relating to the Lease Agreement dated as of December 18, 1990 (as amended and supplemented to the date hereof, between the Lessee and the Lessor, as successor trustee to Fleet National Bank formerly known as Shawmut Bank Connecticut, National Association, formerly known as The Connecticut National Bank (incorporated herein by reference to Exhibit 10.39 to Form 10Q for the fiscal quarter ended June 30, 2000 filed September 25, 2000). * + Management contract or compensatory plan or arrangement. * Previously filed by the Company, incorporated by reference.
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Exhibit No. Description of Exhibits Page 10.14 Amendment No. 1 dated as of June 30, 2000, to the Letter Agreement and Amendment dated as of April 13, 2000, between Viskase Corporation and State Street Bank and Trust Company, as Owner Trustee under the Trust Agreement relating to the Lease Agreement dated as of December 18, 1990 as amended and supplemented to the date hereof, (incorporated herein by reference to Exhibit 10.44 to Form 10Q for the fiscal quarter ended June 30, 2000 filed September 25, 2000). * 10.15 Agreement and Waiver dated as of March 22, 2001 between Viskase Corporation (the Lessee) and State Street Bank and Trust Company (the Lessor) relating to Participation Agreement dated December 18, 1990 among Viskase Corporation, as Lessee, Viskase Companies, Inc. as Guarantor, General Electric Capital Corporation, as Owner Participant, and State Street Bank and Trust Company, as Owner Trustee, (incorporated herein by r eference to Exhibit 10.36 of Form 10-Q for the fiscal quarter ended March 31, 2001 filed May 16, 2001). * 10.16 Master Letter of Credit Agreement dated June 29, 2001 between Viskase Corporation and LaSalle Bank National Association (incorporated herein by reference to Exhibit 10.37 of the Form 10-Q for the fiscal quarter ended June 30, 2001 filed August 15, 2001). * 10.17 Amendment No. 1 (the "Amendment") dated October 27, 2001 to the Rights Agreement dated June 26, 1996 (the "Agreement") between Envirodyne Industries, Inc., a Delaware corporation (now known as Viskase Companies, Inc. and Harris Trust Savings Bank, an Illinois banking corporation (the "Rights Agent") (incorporated herein by reference to Exhibit 4 to Form 8-K filed October 29, 2001). * 10.18 Agreement and waiver dated August 2, 2001 between Viskase Corporation and State Street Bank and Trust Company as Owner Trustee, relating to Participation Agreement dated December 18, 1990 (incorporated herein by reference to Exhibit 10.38 to Form 10-Q for the fiscal quarter ended September 30, 2001 filed November 14, 2001). * 10.19 Amendment dated August 30, 2001 to the Amended and Restated Employment Agreement, effective March 27, 1996, between F. Edward Gustafson and Viskase Companies, Inc. (incorporated herein by reference to Exhibit 10.26 to Form 10-K for the fiscal year ended December 31, 2001).+ * 10.20 Employment Agreement dated August 30, 2001 between Viskase Corporation and F. Edward Gustafson. (incorporated herein by reference to Exhibit 10.27 to Form 10-K for the fiscal year ended December 31, 2001).+ * 10.21 Amendment Number Two dated November 1, 2001 to the Amended and Restated Employment Agreement, effective March 27, 1996 between F. Edward Gustafson and Viskase Companies, Inc. (incorporated herein by reference to Exhibit 10.28 to Form 10-K for the fiscal year ended December 31, 2001).+ * 10.22 Amendment Number Three dated April 9, 2002 to the Amended and Restated Employment Agreement, effective March 27, 1996 between F. Edward Gustafson and Viskase Companies, Inc.+ ** + Management contract or compensatory plan or arrangement. * Previously filed by the Company, incorporated by reference. ** Filed herewith
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Exhibit No. Description of Exhibits Page 10.23 Amendment dated November 1, 2001 to the Employment Agreement between F. Edward Gustafson and Viskase Corporation dated August 30, 2001 (incorporated herein by reference to Exhibit 10.29 to Form 10-K for the fiscal year ended December 31, 2001).+ * 10.24 Amendment Number Two dated April 9, 2002 to the Employment Agreement between F. Edward Gustafson and Viskase Corporation dated August 30, 2001.+ ** 10.25 Employment Agreement dated November 29, 2001 by and among Viskase Companies, Inc., Viskase Corporation and Gordon S. Donovan (incorporated herein by reference to Exhibit 10.30 to Form 10-K for the fiscal year ended December 31, 2001).+ * 10.26 Employment Agreement dated November 29, 2001 by and among Viskase Companies, Inc., Viskase Corporation and Kimberly K. Duttlinger (incorporated herein by reference to Exhibit 10.31 to Form 10-K for the fiscal year ended December 31, 2001).+ * 10.27 Amendment No. 2 (the "Amendment") dated December 20, 2001 to the Rights Agreement dated June 26, 1996 (the "Agreement") between Envirodyne Industries, Inc., a Delaware corporation (now known as Viskase Companies, Inc. and Harris Trust Savings Bank, an Illinois banking corporation (the "Rights Agent") (incorporated herein by reference to Exhibit 4 to Form 8-K filed January 4, 2002). * 10.28 Waiver, Forbearance and Consent Agreement dated as of December 21, 2001 between Viskase Corporation and State Street Bank and Trust Company, as Owner Trustee, and General Electric Capital Corporation, as Owner Participant relating to the Lease Agreement dated December 18, 1990 (incorporated herein by reference to Exhibit 10.33 to Form 10-K for the fiscal year ended December 31, 2001). * 10.29 Amendment No. 1 dated as of January 17, 2002 to the Waiver, Forbearance and Consent Agreement dated as of December 21, 2001 between Viskase Corporation and State Street Bank and Trust Company, as Owner Trustee, and General Electric Capital Corporation, as Owner Participant relating to the Lease Agreement dated December 18, 1990 (incorporated herein by reference to Exhibit 10.34 to Form 10-K for the fiscal year ended December 31, 2001). * 10.30 Viskase Corporation Management Incentive Plan for Fiscal Year 2002.+ ** 10.31 Amendment No. 3 to the Rights Agreement dated June 26, 1996 between Envirodyne Industries, Inc. (now known as Viskase Companies, Inc.) and Harris Trust and Savings Bank, an Illinois banking corporation (incorporated herein by reference to Exhibit 4 to Form 8-K filed June 27, 2002). * 10.32 Forbearance and Consent Agreement, dated as of June 28, 2002, between Viskase Corporation, as Lessee, and State Street Bank and Trust Company, as successor Owner Trustee, and General Electric Capital Corporation, as Owner Participant, relating to Lease Agreement dated as of December 19, 1990 (incorporated herein by reference to Exhibit 10 to Form 8-K filed June 28, 2002). * + Management contract or compensatory plan or arrangement. * Previously filed by the Company, incorporated by reference. ** Filed herewith.
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Exhibit No. Description of Exhibits Page 10.33 Restructuring Agreement, dated as of July 15, 2002 by and among High River Limited Partnership, Debt Strategies Fund, Inc., and Northeast Investors Trust and Viskase Companies, Inc. (incorporated herein by reference to Exhibit 99.1 to Form 8-K filed August 21, 2002). * 10.34 Forbearance Agreement, dated as of November 14, 2002 between Viskase Corporation, a Pennsylvania corporation (the "Lessee"), and State Street Bank and Trust Company, a Massachusetts trust company. ** 10.35 Side Letter Agreement of December 20, 2002 between Viskase Companies, Inc. and General Electric Capital Corporation together with the Draft Amendment to the Lease Agreement and the Draft Amendment to the Participation Agreement. ** 10.36 Amendment No. 4 to the Rights Agreement dated June 26, 1996 between Envirodyne Industries, Inc. (now known as Viskase Companies, Inc.) and Harris Trust and Savings Bank, an Illinois banking corporation (incorporated herein by reference to Exhibit 1 to Form 8-K filed January 2, 2003). * 21.1 Subsidiaries of the registrant. ** 23.1 Consent of independent accountants. ** 99-1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 ** 99-2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 ** * Previously filed by the Company, incorporated by reference. ** Filed herewith. (d) Financial statement schedules required by Regulation S-X. F-1
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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VISKASE COMPANIES, INC. (Registrant) By: /s/ F. Edward Gustafson ------------------------------- F. Edward Gustafson Chairman, Chief Executive Officer and President By: /s/ Gordon S. Donovan ------------------------------- Gordon S. Donovan Vice President, Chief Financial Officer and Treasurer Date: March 31, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on this 31st day of March 2003. /s/ F. Edward Gustafson /s/ Gordon S. Donovan ------------------------------- --------------------------------- F. Edward Gustafson Gordon S. Donovan Chairman of the Board, Chief Vice President, Chief Financial Executive Officer and President Officer and Treasurer (Principal (Principal Executive Officer) Financial and Accounting Officer) /s/ Robert N. Dangremond /s/ Gregory R. Page ------------------------------- --------------------------------- Robert N. Dangremond (Director) Gregory R. Page (Director)
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CERTIFICATIONS I, F. Edward Gustafson, certify that: 1) I have reviewed this annual report on Form 10-K of Viskase Companies, Inc.; 2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6) The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 31, 2003 /s/ F. Edward Gustafson ------------------------ F. Edward Gustafson Chairman, Chief Executive Officer and President
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I, Gordon S. Donovan, certify that: 1) I have reviewed this annual report on Form 10-K of Viskase Companies, Inc.; 2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6) The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 31, 2003 /s/ Gordon S. Donovan ---------------------- Gordon S. Donovan Vice President, Chief Financial Officer and Treasurer
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VISKASE COMPANIES, INC. AND SUBSIDIARIES INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Report of independent accountants .................................. F-2 Consolidated balance sheets, December 31, 2002 and 2001 ............ F-3 Consolidated statements of operations, for the years ended December 31, 2002, 2001 and 2000 ................................ F-4 Consolidated statements of stockholders' deficit, for the years ended December 31, 2002, 2001 and 2000 ............ F-6 Consolidated statements of cash flows, for the years ended December 31, 2002, 2001 and 2000 ................................ F-7 Notes to consolidated financial statements ......................... F-8 FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION S-X Schedule II - Valuation and qualifying accounts ................... F-38 Exhibit 21.1 Subsidiaries of the registrant ....................... F-39 Exhibit 23.1 Consent of independent accountants ................... F-40
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REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Viskase Companies, Inc. In our opinion, the consolidated financial statements listed in the index appearing under Item 15 (a) (1) on page 35 present fairly, in all material respects, the financial position of Viskase Companies, Inc. and its subsidiaries (the "Company") at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15 (a) (2) on page 35 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying consolidated financial statements have been prepared assuming that Viskase Companies, Inc. and its subsidiaries will continue as a going concern. As more fully described in Note 1 to the consolidated financial statements, on November 13, 2002, Viskase Companies, Inc. filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code, which raises substantial doubt about the Company's ability to continue as a going concern. Management's intentions with respect to this matter are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. PricewaterhouseCoopers LLP Chicago, Illinois March 14, 2003
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VISKASE COMPANIES, INC. AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED BALANCE SHEETS (in thousands) [Enlarge/Download Table] December 31 -------------------------- 2002 2001 -------- --------- ASSETS Current assets: Cash and cash equivalents $ 27,700 $ 25,540 Restricted cash 28,347 26,558 Receivables, net 25,563 25,838 Inventories 30,587 29,064 Other current assets 7,245 9,691 -------- -------- Total current assets 119,442 116,691 Property, plant and equipment, including those under capital leases 246,434 233,637 Less accumulated depreciation and amortization 154,088 127,338 -------- -------- Property, plant and equipment, net 92,346 106,299 Deferred financing costs, net 39 2,024 Other assets 6,854 9,014 -------- -------- Total Assets $218,681 $234,028 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities not subject to compromise: Short-term debt including current portion of long-term debt and obligations under capital leases $ 64,283 $236,059 Accounts payable 11,649 9,784 Accrued liabilities 27,918 48,203 Current deferred income taxes 1,597 1,597 -------- -------- Total current liabilities not subject to compromise 105,447 295,643 Current liabilities subject to compromise 188,198 Long-term debt including obligations under capital leases not subject to compromise 85 194 Accrued employee benefits 75,621 51,116 Noncurrent deferred income taxes 24,476 25,128 Commitments and contingencies Stockholders' (deficit): Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; issued and outstanding, 15,314,562 shares at December 31, 2002 and 15,317,112 shares at December 31, 2001 153 153 Paid in capital 138,007 138,014 Accumulated (deficit) (291,904) (272,574) Accumulated other comprehensive (loss) (21,323) (3,461) Unearned restricted stock issued for future service (79) (185) -------- -------- Total stockholders' (deficit) (175,146) (138,053) -------- -------- Total Liabilities and Stockholders' Deficit $218,681 $234,028 ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
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VISKASE COMPANIES, INC. AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED STATEMENTS OF OPERATIONS [Enlarge/Download Table] Years Ended December 31 ----------------------------------------------- 2002 2001 2000 -------- -------- -------- (in thousands, except for number of shares and per share amounts) NET SALES $183,577 $189,315 $200,142 COSTS AND EXPENSES Cost of sales 146,841 156,258 157,560 Selling, general and administrative 38,526 40,027 39,374 Amortization of intangibles 2,000 2,000 2,000 Restructuring (income) expense (6,132) 4,766 94,910 --------- --------- --------- OPERATING INCOME (LOSS) 2,342 (13,736) (93,702) Interest income 1,161 2,479 2,299 Interest expense 22,222 25,520 45,406 Other (income) expense, net (1,493) 3,445 5,330 Patent infringement settlement income, net 46,900 --------- --------- --------- (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES AND REORGANIZATION EXPENSE (17,226) (40,222) (95,239) Reorganization expense 3,401 --------- --------- --------- (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (20,627) (40,222) (95,239) Income tax (benefit) provision (1,297) (3,370) 728 --------- --------- --------- (LOSS) FROM CONTINUING OPERATIONS (19,330) (36,852) (95,967) DISCONTINUED OPERATIONS: Income from discontinued operations net of income taxes (Note 12) 3,435 Gain on sale from discontinued operations net of income tax provision of $0 in 2001 and $6,633 in 2000 3,189 68,185 --------- --------- --------- (LOSS) BEFORE EXTRAORDINARY ITEM (19,330) (33,663) (24,347) Extraordinary gain on early extinguishment of debt net of income tax provision of $0 in 2001 and $633 in 2000 8,137 6,511 --------- --------- --------- NET (LOSS) (19,330) (25,526) (17,836) Other comprehensive (loss) income, net of tax (see Note 20) Foreign currency translation adjustments 3,711 (129) (2,730) Reclassification of foreign currency translation adjustment for discontinued operations 2,532 Minimum pension liability adjustments (21,573) (5,172) --------- --------- --------- Other comprehensive (loss) net of tax (17,862) (5,301) (198) --------- --------- --------- COMPREHENSIVE (LOSS) $(37,192) $(30,827) $(18,034) ========= ========= =========
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VISKASE COMPANIES, INC. AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED STATEMENTS OF OPERATIONS (Cont'd) [Enlarge/Download Table] Years Ended December 31 ------------------------------------------------ 2002 2001 2000 ---------- ---------- ---------- (in thousands, except for number of shares and per share amounts) WEIGHTED AVERAGE COMMON SHARES - BASIC AND DILUTED 15,316,183 15,309,616 15,126,670 ========== ========== ========== PER SHARE AMOUNTS: (LOSS) EARNINGS PER SHARE - basic and diluted Continuing operations $(1.26) $(2.41) $(6.34) Discontinued operations: Income from discontinued operations .23 Gain on sale from discontinued operations .21 4.50 ------- ------- ------- (Loss) before extraordinary item $(1.26) (2.20) (1.61) Extraordinary gain .53 .43 ------- ------- ------- Net (Loss) $(1.26) $(1.67) $(1.18) ======= ======= ======= The accompanying notes are an integral part of the consolidated financial statements.
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VISKASE COMPANIES, INC. AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT [Enlarge/Download Table] Accumulated Other Comprehensive (Loss) Gain ------------------------- Foreign Minimum Restricted Accumu- Currency Pension Stock Common Paid In lated Translation Liability Issued For Total Stock Capital (Deficit) Adjustments Adjustments Future Service Equity (Deficit) ------ ------- --------- ----------- ----------- -------------- ---------------- (in thousands) Balance December 31, 1999 $151 $137,454 $(229,212) $2,165 $(89,442) Net (loss) (17,836) (17,836) Issuance of Common Stock 2 513 $(309) 206 Other comprehensive (loss) (325) (325) ---- --------- ---------- ------- --------- ------ ---------- Balance December 31, 2000 153 137,967 (247,048) 1,840 (309) (107,397) Net (loss) (25,526) (25,526) Issuance of Common Stock 47 124 171 Other comprehensive (loss) (129) $(5,172) (5,301) ---- --------- ---------- ------- --------- ------ ---------- Balance December 31, 2001 153 138,014 (272,574) 1,711 (5,172) (185) (138,053) Net (loss) (19,330) (19,330) Issuance of Common Stock (7) 106 99 Other comprehensive income (loss) 3,711 (21,573) (17,862) ---- --------- ---------- ------- --------- ------ ---------- Balance December 31, 2002 $153 $138,007 $(291,904) $5,422 $(26,745) $(79) $(175,146) ==== ========= ========== ======= ========= ====== ========== The accompanying notes are an integral part of the consolidated financial statements.
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VISKASE COMPANIES, INC. AND SUBSIDIARIES (DEBTOR IN POSSESSION) CONSOLIDATED STATEMENTS OF CASH FLOWS [Enlarge/Download Table] Years Ended December 31 --------------------------------------- 2002 2001 2000 ---------- ---------- --------- (in thousands) Cash flows from operating activities: Net (Loss) $(19,330) $(25,526) $(17,836) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation and amortization under capital leases 20,959 21,125 30,427 Amortization of intangibles 2,000 2,000 4,000 Amortization of deferred financing fees and discount 18 185 4,860 Reorganization expense 3,401 (Decrease) increase in deferred income taxes (718) (698) 407 Foreign currency transaction (gain) loss (920) 533 857 Gain on disposition of assets (27) (2,807) (74,541) Bad debt provision 558 425 433 Net property, plant and equipment write-off 1,029 4,766 55,482 Extraordinary gain on debt extinguishment (8,137) (7,144) Changes in operating assets and liabilities (net of effects of dispositions): Receivables 2,746 803 20,431 Inventories 507 9,596 8,617 Other current assets 2,860 6,361 (12,733) Accounts payable and accrued liabilities 4,432 (30,111) (50) Other 749 4,155 3,270 --------- --------- --------- Total adjustments 37,594 8,196 34,316 --------- --------- --------- Net cash provided by (used in) operating activities 18,264 (17,330) 16,480 before reorganization expense Net cash used for reorganization items (1,259) Cash flows from investing activities: Capital expenditures (3,824) (5,882) (13,735) Proceeds from disposition of assets 575 11,156 235,844 Restricted cash (1,789) 14,480 (41,038) --------- --------- --------- Net cash (used in) provided by investing activities (5,038) 19,754 181,071 Cash flows from financing activities: Deferred financing costs (2,047) (2,092) Repayment of revolving loan, long-term borrowings and capital lease obligations (8,882) (29,448) (146,119) --------- --------- --------- Net cash (used in) financing activities (8,882) (31,495) (148,211) Effect of currency exchange rate changes on cash (925) (739) (233) --------- --------- --------- Net increase (decrease) in cash and equivalents 2,160 (29,810) 49,107 Cash and equivalents at beginning of period 25,540 55,350 6,243 --------- --------- --------- Cash and equivalents at end of period $ 27,700 $ 25,540 $ 55,350 ========= ========= ========= Supplemental cash flow information and noncash investing and financing activities: Interest paid less capitalized interest $ 3,150 $ 11,716 $ 49,884 Income taxes (refunded) paid $ (1,210) $ 4,690 $ 750 Capital lease obligations (machinery and equipment) $ 0 $ 0 $ 694 The accompanying notes are an integral part of the consolidated financial statements.
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VISKASE COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. PROCEEDINGS UNDER CHAPTER 11 AND BASIS OF PRESENTATION (in thousands, except number of shares and per share and per bond amounts) On November 13, 2002, Viskase Companies, Inc., a stand-alone entity (VCI), filed a prepackaged Chapter 11 bankruptcy in the Bankruptcy Court. The Chapter 11 filing is for VCI only and does not include any domestic or foreign subsidiaries. On December 20, 2002 the Bankruptcy Court confirmed The Plan, as modified. VCI expects to consummate The Plan, as modified, and emerge from Chapter 11 bankruptcy in early April, 2003. Cash flows from operations for the Company ("Company" means Viskase Companies, Inc. and its subsidiaries) were insufficient to pay the Senior Notes when they matured on December 1, 2001, and accordingly the Company did not pay the $163,060 principal and $8,357 interest that became due at that time. In September 2001, certain of the holders of the Senior Notes formed an Ad Hoc Committee to participate in the development of a plan to restructure the Company's capital structure and address its future cash flow needs. On July 15, 2002, the Company executed a restructuring agreement with the Ad Hoc Committee for the restructuring of the Senior Notes. Under terms of the restructuring agreement, on or about August 21, 2002 the Company initiated an exchange offer to exchange the Senior Notes for New Notes and shares of Preferred Stock. The proposed exchange offer was subject to acceptance by holders of 100% of the outstanding Senior Notes, unless waived by the Company and approved by the Ad Hoc Committee. The exchange offer was conducted simultaneously with a solicitation for the Plan for the Company which required the consent of a majority in number of the holders and at least 66- 2/3% in principal amount of Senior Notes actually voting in the solicitation. Under the restructuring agreement, if less than 100% of the outstanding Senior Notes accepted the exchange offer, but a sufficient number of holders and aggregate amount of Senior Notes voted in favor of acceptance of the Plan, the Company agreed to commence a voluntary Chapter 11 petition to seek confirmation of the Plan. The Plan contains substantially the same economic terms as the exchange offer. Although 100% of the outstanding Senior Notes did not accept the exchange offer, the Company did receive votes to accept the Plan from approximately 91.4% of the holders and 91.4% in the outstanding principal amount that actually voted. Accordingly, on November 13, 2002, VCI filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court to seek confirmation of the Plan. Under Chapter 11, the Company may operate its business in the ordinary course, subject to prior Bankruptcy Court approval of transactions outside the ordinary course and certain other matters. The Chapter 11 filing was for VCI only. The Chapter 11 filing does not include any of the Company's domestic or foreign operating subsidiaries. Therefore, the Company's operating subsidiaries continued to provide an uninterrupted supply of products and services to customers worldwide. Trade creditors and vendors have been totally unaffected and continue to be paid in the ordinary course of business, and the operating subsidiaries' employees have been paid all wages, salaries and benefits on a timely basis. Under the terms of the Plan, the Company's wholly owned operating subsidiary, Viskase, will be merged with and into VCI immediately prior to or upon consummation of the Plan with VCI being the surviving corporation. The outstanding Senior Notes will receive New Notes and shares of new common stock (New Common Stock) to be issued by the Company on a basis of $367.96271 principal amount of New Notes (i.e., $60,000) and 63.4122 shares of New Common Stock (i.e., 10,340,000 shares or 94% of the New Common Stock) for each one thousand dollar principal amount of Senior Notes. The existing shares of common stock of the Company will be canceled. Holders of the old common stock (Old Shares) will receive Warrants with a term of seven years to purchase shares of New Common Stock equal to 2.7% of the Company's New Common Stock at an exercise price of $10.00 per share (Warrant). Assuming all Warrants are exercised, holders of the Senior Notes would receive approximately 91.5% of the New Common Stock and approximately 5.8% would be issued or reserved for issuance to the Company's management and employees.
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Under the proposed restructuring, 660,000 shares of New Common Stock (or upon the request of Company management, options to purchase 660,000 shares of New Common Stock), initially representing 6% of the New Common Stock, will be reserved for Company management and employees. Such shares or options will be subject to a vesting schedule with acceleration upon the occurrence of certain events. The New Notes would bear interest at a rate of 8% per year, and will accrue interest from December 1, 2001, payable semi-annually (except annually with respect to year four and quarterly with respect to year five), with interest payable in the form of New Notes (pay-in-kind) for the first three years. Interest for years four and five will be payable in cash to the extent of available cash flow, as defined, and the balance in the form of New Notes (pay-in-kind). Thereafter, interest will be payable in cash. The New Notes would mature on December 1, 2008 with an accreted value of approximately $89,453, assuming interest in the first 5 years is paid in the form of New Notes (paid-in-kind). The New Notes would be secured by a first lien on the assets of the Company, other than the assets subject to the General Electric Capital Corporation (GECC) lease and certain real estate, post-merger. The New Notes would be subject to subordination of up to $25,000 principal amount for a secured working capital credit facility for the Company. Upon completion of the proposed restructuring the Board of Directors of the Company would be reconstituted to consist of five members, including the Company's Chief Executive Officer and four other persons designated by the Ad Hoc Committee. The Ad Hoc Committee has retained legal counsel. The fees and expenses were paid by the Company until the commencement of the Bankruptcy. In addition, the members of the Ad Hoc Committee have agreed not to transfer (other than to another member of the Ad Hoc Committee or an affiliate of a member) their shares of New Common Stock for a period of two years after the restructuring is completed. For a period of one year thereafter, the Company would have a right of first refusal to either purchase or designate a purchaser for shares of New Common Stock to be transferred by a member of the Ad Hoc Committee to a person other than another member of the Ad Hoc Committee or their affiliates. Under Chapter 11, certain claims against VCI (the Debtor) in existence prior to the Petition Date (November 13, 2002) were stayed while the Company continued business operations as a debtor-in-possession. These claims are reflected in the December 31, 2002 balance sheet as "Current liabilities subject to compromise." As of the Petition Date, the Company stopped accruing interest on the 10.25% Senior Notes. The interest not accrued from the Petition Date through December 31, 2002 is $2,294. The principal categories of claims reclassified in the Consolidated Balance Sheets and included in Current liabilities subject to compromise are identified below. These amounts may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, the existence and value of any collateral securing such claims and other events. At the Petition Date the amounts reflected below are for the Senior Notes and accrued interest through the Petition Date. Current liabilities subject to compromise are as follows (dollars in thousands): [Download Table] December 31, 2002 Petition Date ----------------- ------------- 10.25% Senior Notes $163,060 $163,060 Accrued interest 25,098 25,098 Other current liabilities 40 40 -------- -------- $188,198 $188,198 ======== ========
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The accompanying consolidated financial statements have been prepared in accordance with the American Institute of Certified Public Accounts Statement of Position 90-7: Financial Reporting by Entities in Reorganization under the Bankruptcy Code and have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates continuity of operations and assumes the realization of assets and liquidation of liabilities in the ordinary course of business. Accordingly, all pre-petition liabilities subject to compromise have been segregated in the consolidated balance sheets and have been classified as such at the estimated amount of allowable claims. Liabilities not subject to compromise have been separately classified as current and non-current. Expenses and gains and losses resulting from the reorganization have been separately reported as reorganization items on the consolidated statements of operations. Cash used for reorganization is disclosed separately in the consolidated statements of cash flows. Following the approval of a plan of reorganization, SOP 90-7 requires that the Company adopt "Fresh Start" accounting resulting in recording all assets and liabilities at fair value. Upon emergence from bankruptcy, the amounts and classifications reported in the consolidated historical financial statements could materially change. Condensed financial information of the Debtor subsequent to the Petition Date is presented below: VISKASE COMPANIES, INC. CHAPTER 11 FILING ENTITY DEBTOR-IN-POSSESSION STATEMENT OF OPERATIONS (UNAUDITED) DOLLARS IN THOUSANDS [Enlarge/Download Table] November 13, 2002 to December 31, 2002 ----------------- Selling, general and administrative $ 49 Other (income) expense, net 30 Intercompany interest income, net 5,049 ------ Income from continuing operations before taxes and reorganization items 4,970 Reorganization expense 452 Income tax provision 0 ------ NET INCOME $4,518 ======
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VISKASE COMPANIES, INC. CHAPTER 11 FILING ENTITY DEBTOR-IN-POSSESSION CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) DOLLARS IN THOUSANDS [Download Table] November 13, 2002 to December 31, 2002 ----------------- Cash flows from operating activities: Net income $ 4,518 Adjustments to reconcile net income to net cash: Changes in operating assets and liabilities Other current assets (169) Accrued liabilities 461 (Decrease) in deferred tax (26) Intercompany accounts (4,855) Other 19 -------- Net cash (used in) operating activities (52) Net decrease in cash and equivalents (52) Cash and equivalents at Petition Date 0 -------- Cash and equivalents at end of period $ (52) ======== VISKASE COMPANIES, INC. CHAPTER 11 FILING ENTITY DEBTOR-IN-POSSESSION BALANCE SHEET (UNAUDITED) DOLLARS IN THOUSANDS [Download Table] December 31, 2002 ----------------- ASSETS Current assets Other current assets $ 169 --------- Total current assets 169 Property, plant and equipment, net 0 Deferred financing 39 Intercompany receivables 411,629 Investment in affiliate entities (348,254) ---------- Total assets $ 63,583 ========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities not subject to compromise: Overdrafts payable $ 52 Accounts payable 407 Accrued liabilities 54 ---------- Total current liabilities not subject to compromise 513 Current liabilities subject to compromise 188,198 Deferred income taxes 50,018 ---------- Total liabilities 238,729 Stockholders' deficit (175,146) ---------- Total Liabilities and Stockholders' Deficit $ 63,583 ==========
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In addition to the Company's financial reporting obligations as prescribed by the U.S. Securities and Exchange Commission (SEC), the Debtor is also required, under the rules and regulations under the Bankruptcy Code, to periodically file certain statements and schedules and a monthly operating report with the Bankruptcy Court. This information is available to the public through the Bankruptcy Court. This information is prepared in a format that may not be comparable to information in the Company's quarterly and annual financial statements as filed with the SEC. The monthly operating reports are not audited, do not purport to represent the financial position or results of operations and cash flows of the Company on a consolidated basis and should not be relied on for such purposes. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) Principles of consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. (B) Reclassification Reclassifications have been made to the prior years' financial statements to conform to the 2002 presentation. (C) Use of estimates in the preparation of financial statements The preparation of financial statements includes the use of estimates and assumptions that affect a number of amounts included in the Company's financial statements, including, among other things, pensions and other postretirement benefits and related disclosures, inventories valued under the last-in-first-out (LIFO) method, reserves for excess and obsolete inventory, restructuring charges and income taxes. Management bases its estimates on historical experience and other assumptions that they believe are reasonable. If actual amounts are ultimately different from previous estimates, the revisions are included in the Company's results for the period in which the actual amounts become known. Historically, the aggregate differences, if any, between the Company's estimates and actual amounts in any year have not had a significant impact on the Company's consolidated financial statements. (D) Cash equivalents (dollars in thousands) For purposes of the statement of cash flows, the Company considers cash equivalents to consist of all highly liquid debt investments purchased with an initial maturity of approximately three months or less. Due to the short- term nature of these instruments, the carrying values approximate the fair market value. Cash equivalents and restricted cash include $52,193 and $44,840 of short-term investments at December 31, 2002 and December 31, 2001, respectively. The 2002 restricted cash is principally cash held as collateral for outstanding letters of credit with a commercial bank. Included within restricted cash is a letter of credit of $2,109 which F. Edward Gustafson, Chairman of the Board, President and Chief Executive Officer, is the beneficiary. The letter of credit supports amounts payable under his Employment Agreements. (E) Inventories Domestic inventories are valued primarily at the lower of last-in, first-out (LIFO) cost or market. Remaining inventories, primarily foreign, are valued at the lower of first-in, first-out (FIFO) cost or market.
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(F) Property, plant and equipment The Company carries property, plant and equipment at cost less accumulated depreciation. Property and equipment additions include acquisition of property and equipment and costs incurred for computer software purchased for internal use including related external direct costs of materials and services and payroll costs for employees directly associated with the project. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from 2 to 32 years. Upon retirement or other disposition, cost and related accumulated depreciation are removed from the accounts, and any gain or loss is included in results of operations. (G) Deferred financing costs Deferred financing costs are amortized on a straight-line basis over the expected term of the related debt agreement. Amortization of deferred financing costs is classified as interest expense. (H) Patents (dollars in thousands) Patents are amortized on the straight-line method over an estimated average useful life of ten years. Patent defense costs are capitalized. There were no capitalized patent defense costs at December 31, 2002. Patent defense costs of $7,850 were written off at the time of the settlement of certain patent litigation in 2000 (See Note 15). (I) Long-lived assets The Company continues to evaluate the recoverability of long-lived assets including property, plant and equipment and patents. Impairments are recognized when the expected undiscounted future operating cash flows derived from long-lived assets are less than their carrying value. If impairment is identified, valuation techniques deemed appropriate under the particular circumstances will be used to determine the asset's fair value. The loss will be measured based on the excess of carrying value over the determined fair value. The review for impairment is performed at least once a year or when circumstances warrant. (J) Accounts Payable (dollars in thousands) The Company's cash management system provides for the daily replenishment of its bank accounts for check-clearing requirements. The outstanding check balances of $420 and $721 at December 31, 2002 and December 31, 2001, respectively, are not deducted from cash but are reflected in accounts payable in the consolidated balance sheets. (K) Pensions and other postretirement benefits The North American operations of Viskase and the Company's operations in Europe have defined benefit retirement plans covering substantially all salaried and full time hourly employees. Pension cost is computed using the projected unit credit method. The Company's funding policy is consistent with funding requirements of the applicable federal and foreign laws and regulations. The North American operations of Viskase have postretirement health care and life insurance benefits. The Company accrues for the accumulated postretirement benefit obligation which represents the actuarial present value of the anticipated benefits. Measurement is based on assumptions regarding such items as the expected cost of providing future benefits and any cost sharing provisions.
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(L) Income taxes Deferred tax assets and liabilities are measured using enacted tax laws and tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income in the period that includes the enactment date. In addition, the amounts of any future tax benefits are reduced by a valuation allowance to the extent such benefits are not expected to be realized on a more likely than not basis. (M) Net (loss) per share Net (loss) per share of common stock is based upon the weighted average number of shares of common stock outstanding during the year. No effect has been given to options outstanding under the Company's stock option plan, as their effect is anti-dilutive. (N) Other comprehensive income Comprehensive income includes all other non-shareholder changes in equity. As of December 31, 2002, changes in other comprehensive income primarily resulted from changes in foreign currency translation adjustments and a minimum pension liability adjustment. (O) Revenue recognition Substantially all of the Company's revenues are recognized at the time products are shipped to customers, under F.O.B. Shipping Point and F.O.B. Port Terms. Revenues are net of any discounts and allowances. The Company records all related shipping and handling costs as a component of cost of goods sold. The SEC's SAB No. 101, "Revenue Recognition in Financial Statements", provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. The Company's revenue recognition policy is in accordance with generally accepted accounting principles and SAB No. 101. (P) Futures contracts The Company purchases gas futures contracts to lock in set rates on gas purchases. The Company uses this strategy to minimize its exposure to volatility in natural gas. These products are not linked to specific assets and liabilities that appear on the balance sheet or to a forecasted transaction and, therefore, do not qualify for hedge accounting. As such, the loss on the change in fair value of the futures contracts was recorded in other expense and was immaterial. (Q) Stock-based compensation In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." This statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to fair value based method of accounting for stock-based employee compensation. The provisions of this statement are effective for financial statements for fiscal years ending after December 15, 2002. Management has adopted the footnote disclosure provisions and is considering the recognition provisions of the standard and its effects on the Company's financial statements.
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SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options and other equity instruments to employees based on new fair value accounting rules. Although expense recognition for employee stock-based compensation is not mandatory, SFAS No. 123 requires companies that choose not to adopt the new fair value accounting to disclose pro forma net income and earnings per share under the new method. The Company has not adopted fair value accounting, and, accordingly, no compensation cost has been recognized for employee stock-based compensation. The Company has complied with the disclosure requirements of SFAS No. 123 and SFAS No. 148 as follows: [Enlarge/Download Table] 2002 2001 2000 --------- --------- --------- Net (loss) before extraordinary item, as reported $(19,330) $(33,663) $(24,347) Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (0) (515) (160) --------- --------- --------- Pro forma net (loss) before extraordinary item (19,330) (34,178) (24,507) Net (loss), as reported (19,330) (25,526) (17,836) Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (0) (515) (160) --------- --------- --------- Pro forma net (loss) (19,330) (26,041) (17,996) PER SHARE AMOUNTS: Net (loss) before extraordinary item, as reported - basic and diluted EPS $(1.26) $(2.20) $(1.61) Pro forma net (loss) before extraordinary item - basic and diluted EPS (1.26) (2.23) (1.62) Net (loss) - basic and diluted EPS, as reported $(1.26) $(1.67) $(1.18) Pro forma net (loss) - basic and diluted EPS (1.26) (1.70) (1.19) (R) Accounting standards In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations." The statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. The provisions of this statement are required to be applied for fiscal years beginning after June 15, 2002. The Company is considering the Standard and its effect on the Company's financial statements. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The statement is applicable for fiscal years beginning after May 15, 2002 and requires, among other things, that any gain or loss on extinguishment of debt that does not meet criteria in Opinion 30, as amended, no longer be classified as an extraordinary item. The gain of $8,137, net of income taxes, relating to the repurchase of Senior Notes in 2001 and the gain of $6,511, net of income taxes, relating to the repurchase of Senior Notes in 2000, were reported as extraordinary items in the Company's consolidated statements of operations for the years then ended. In 2003, these prior period extraordinary items will be reclassified in the consolidated statements of operations as a separate caption along with interest expense in accordance with this statement.
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In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement replaces previous accounting guidance provided by Emerging Issues Task Force (EITF) Issue No. 94-3. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The provisions of this Statement will prospectively apply to exit or disposal activities initiated after December 31, 2002. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." The interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company will apply the provisions of this interpretation to guarantees issued after December 31, 2002. The Company is in compliance with the disclosure requirements of the interpretation. 3. RECEIVABLES (dollars in thousands) Receivables consisted primarily of trade accounts receivable and were net of allowances for doubtful accounts of $1,334 and $1,470 at December 31, 2002 and December 31, 2001, respectively. Viskase Companies, Inc. has a broad base of customers, with no single customer accounting for more than 6% of sales or 4% of receivables. 4. INVENTORIES (dollars in thousands) Inventories consisted of: [Download Table] 2002 2001 ------- ------- Raw materials $ 3,872 $ 3,173 Work in process 13,394 13,131 Finished products 13,321 12,760 ------- ------- $30,587 $29,064 ======= ======= Approximately 52% and 54% of the Company's inventories at December 31, 2002 and December 31, 2001, respectively, were valued at LIFO. Remaining inventories, primarily foreign, are valued at the lower of first-in, first- out (FIFO) cost or market. At December 31, 2002 and December 31, 2001 the LIFO values exceeded current manufacturing cost by approximately $687 and $799, respectively. During 2002 and 2001, the Company wrote down $383 and $3,612 of LIFO inventories, respectively, to its lower of cost or market value. The charge is included in cost of sales. Inventories were net of reserves for obsolete and slow moving inventory of $2,725 and $2,816 at December 31, 2002 and December 31, 2001 respectively.
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5. PROPERTY, PLANT AND EQUIPMENT (dollars in thousands) [Download Table] 2002 2001 -------- -------- Property, plant and equipment: Land and improvements $ 4,253 $ 4,468 Buildings and improvements 28,631 26,242 Machinery and equipment 121,185 111,193 Construction in progress 3,428 2,797 Capital leases: Machinery and equipment 88,937 88,937 -------- -------- $246,434 $233,637 ======== ======== Capitalized interest in 2002, 2001 and 2000 totaled $81, $290 and $443, respectively. Maintenance and repairs charged to costs and expenses for 2002, 2001 and 2000 aggregated $13,142, $12,789 and $22,836, respectively. The decrease in maintenance and repairs expense in 2002 and 2001 is due to the sale of the Films Business in August 2000. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Estimated useful lives of land improvements range from 15 to 30 years; building and improvements range from 10 to 32 years; and machinery and equipment, including capital leases, range from 2 to 15 years. Land and buildings include property held for sale. The properties have a net book value of $4,162 and $4,678 at December 31, 2002 and December 31, 2001, respectively. During 2002, properties held for sale with a net book value of $541 were disposed of. 6. OTHER ASSETS (dollars in thousands) [Download Table] 2002 2001 ------- ------- Patents $20,000 $20,000 Less accumulated amortization 18,000 16,000 ------- ------- Patents, net 2,000 4,000 Miscellaneous 4,854 5,014 ------- ------- $ 6,854 $ 9,014 ======= ======= Patents are amortized on the straight-line method over an estimated average useful life of ten years. Miscellaneous other assets include income tax refund receivables in the amount of $3,870 and $3,949 at December 31, 2002 and December 31, 2001, respectively. 7. ACCRUED LIABILITIES NOT SUBJECT TO COMPROMISE (dollars in thousands) Accrued liabilities were comprised of: [Download Table] 2002 2001 ------- ------- Compensation and employee benefits $13,528 $10,668 Taxes 3,911 3,070 Accrued volume and sales discounts 2,285 2,124 Restructuring (see Note 11) 2,773 15,094 Accrued interest (see Note 8) 0 9,821 Other 5,421 7,426 ------- ------- $27,918 $48,203 ======= =======
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8. DEBT OBLIGATIONS (dollars and shares in thousands, except for number of shares and per share and per bond amounts) Outstanding short-term and long-term debt consisted of: [Download Table] 2002 2001 -------- -------- Short-term debt, current maturity of long-term debt and capital lease obligations not subject to compromise: Viskase Capital Lease Obligation $ 64,106 $ 72,855 10.25% Senior Notes due 2001 163,060 Other 177 144 -------- -------- Total short-term debt not subject to compromise: $ 64,283 $236,059 ======== ======== Current liabilities subject to compromise: 10.25% Senior Notes $163,060 Accrued interest 25,098 Other current liabilities 40 -------- Total current liabilities subject to compromise: $188,198 ======== Long-term debt not subject to compromise: Other $ 85 $ 194 -------- -------- Total long-term debt not subject to compromise $ 85 $ 194 ======== ======== 10.25% Notes On November 13, 2002, VCI filed a prepackaged Chapter 11 bankruptcy in the Bankruptcy Court. The Chapter 11 filing is for VCI only and does not include any of the Company's domestic or foreign subsidiaries. On December 20, 2002 the Bankruptcy Court confirmed The Plan, as modified. VCI expects to consummate The Plan, as modified, and emerge from Chapter 11 bankruptcy in early April, 2003. Cash flows from operations for the Company were insufficient to pay the Senior Notes when they matured on December 1, 2001, and accordingly the Company did not pay the $163,060 principal and $8,357 interest that became due at that time. In September 2001, certain of the holders of the Senior Notes formed an Ad Hoc Committee to participate in the development of a plan to restructure the Company's capital structure and address its future cash flow needs. On July 15, 2002, the Company executed a restructuring agreement with the Ad Hoc Committee for the restructuring of the Senior Notes. Under terms of the restructuring agreement, on or about August 21, 2002 the Company initiated an exchange offer to exchange the Senior Notes for New Notes and shares of Preferred Stock. The proposed exchange offer was subject to acceptance by holders of 100% of the outstanding Senior Notes, unless waived by the Company and approved by the Ad Hoc Committee. The exchange offer was conducted simultaneously with a solicitation for the Plan for the Company which required the consent of a majority in number of the holders and at least 66-2/3% in principal amount of Senior Notes actually voting in the solicitation. Under the restructuring agreement, if less than 100% of the outstanding Senior Notes accepted the exchange offer, but a sufficient number of holders and aggregate amount of Senior Notes voted in favor of acceptance of the Plan, the Company agreed to commence a voluntary Chapter 11 petition to seek confirmation of the Plan. The Plan contains substantially the same economic terms as the exchange offer.
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Although 100% of the outstanding Senior Notes did not accept the exchange offer, the Company did receive votes to accept the Plan from approximately 91.4% of the holders and 91.4% in the outstanding principal amount that actually voted. Accordingly, on November 13, 2002, VCI filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court to seek confirmation of the Plan. Under Chapter 11, the Company may operate its business in the ordinary course, subject to prior Bankruptcy Court approval of transactions outside the ordinary course and certain other matters. The Chapter 11 filing was for VCI only. The Chapter 11 filing does not include any of the Company's domestic or foreign operating subsidiaries. Therefore, the Company's operating subsidiaries continued to provide an uninterrupted supply of products and services to customers worldwide. Trade creditors and vendors have been totally unaffected and continue to be paid in the ordinary course of business, and the operating subsidiaries' employees have been paid all wages, salaries and benefits on a timely basis. Under the terms of the Plan, the Company's wholly owned operating subsidiary, Viskase, will be merged with and into VCI immediately prior to or upon consummation of the Plan with VCI being the surviving corporation. The outstanding Senior Notes will receive New Notes and shares of new common stock (New Common Stock) to be issued by the Company on a basis of $367.96271 principal amount of New Notes (i.e., $60,000) and 63.4122 shares of New Common Stock (i.e., 10,340,000 shares or 94% of the New Common Stock) for each one thousand dollar principal amount of Senior Notes. The existing shares of common stock of the Company will be canceled. Holders of the Old Shares will receive Warrants with a term of seven years to purchase shares of New Common Stock equal to 2.7% of the Company's New Common Stock at an exercise price of $10.00 per share. Assuming all Warrants are exercised, holders of the Senior Notes would receive approximately 91.5% of the New Common Stock and approximately 5.8% would be issued or reserved for issuance to the Company's management and employees. Under the proposed restructuring, 660,000 shares of New Common Stock (or upon the request of Company management, options to purchase 660,000 shares of New Common Stock), initially representing 6% of the New Common Stock, will be reserved for Company management and employees. Such shares or options will be subject to a vesting schedule with acceleration upon the occurrence of certain events. The New Notes would bear interest at a rate of 8% per year, and will accrue interest from December 1, 2001, payable semi-annually (except annually with respect to year four and quarterly with respect to year five), with interest payable in the form of New Notes (pay-in-kind) for the first three years. Interest for years four and five will be payable in cash to the extent of available cash flow, as defined, and the balance in the form of New Notes (pay-in-kind). Thereafter, interest will be payable in cash. The New Notes would mature on December 1, 2008 with an accreted value of approximately $89,453, assuming interest in the first 5 years is paid in the form of New Notes (paid-in-kind). The New Notes would be secured by a first lien on the assets of the Company, other than the assets subject to the General Electric Capital Corporation (GECC) lease and certain real estate, post-merger. The New Notes would be subject to subordination of up to $25,000 principal amount for a secured working capital credit facility for the Company. Upon completion of the proposed restructuring the Board of Directors of the Company would be reconstituted to consist of five members, including the Company's Chief Executive Officer and four other persons designated by the Ad Hoc Committee. The Ad Hoc Committee has retained legal counsel. The fees and expenses were paid by the Company until the commencement of the Bankruptcy.
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In addition, the members of the Ad Hoc Committee have agreed not to transfer (other than to another member of the Ad Hoc Committee or an affiliate of a member) their shares of New Common Stock for a period of two years after the restructuring is completed. For a period of one year thereafter, the Company would have a right of first refusal to either purchase or designate a purchaser for shares of New Common Stock to be transferred by a member of the Ad Hoc Committee to a person other than another member of the Ad Hoc Committee or their affiliates. Under Chapter 11, certain claims against VCI (the Debtor) in existence prior to the Petition Date (November 13, 2002) were stayed while the Company continued business operations as a debtor-in-possession. These claims are reflected in the December 31, 2002 balance sheet as "Current liabilities subject to compromise." As of the Petition Date, the Company stopped accruing interest on the 10.25% Senior Notes. The interest not accrued from the Petition Date through December 31, 2002 is $2,294. The principal categories of claims reclassified in the Consolidated Balance Sheets and included in Current liabilities subject to compromise are identified below. These amounts may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, the existence and value of any collateral securing such claims and other events. At the Petition Date the amounts reflected below are for the Senior Notes and accrued interest through the Petition Date. Current liabilities subject to compromise are as follows: [Download Table] (in thousands) 10.25% Senior Notes $163,060 Accrued interest 25,098 Other current liabilities 40 -------- $188,198 ======== Letter of Credit Facility Letters of credit in the amount of $27,550 million were outstanding under letter of credit facilities with commercial banks, and were cash collateralized at December 31, 2002. The Company finances its working capital needs through a combination of internally generated cash from operations, cash on hand, and a revolving credit facility that the Company anticipates that it will enter into upon emergence from bankruptcy. GECC The GECC capital lease obligations were classified as current in the financial statements due to covenant restrictions. The following lease payment maturities conform to contractual payments under the lease: February 28, 2003 $18,499 April 11, 2003 $ 5,000 February 28, 2004 $11,750 August 28, 2004 $11,749 February 28, 2005 $23,500 GECC, Viskase's equipment lessor, has agreed, subject to certain conditions, not to accelerate payment of amounts due because of any default or event of default under any of the lease documents arising from (i) the Company's failure to meet the Fixed Charge Coverage Ratio for the fiscal quarters ending on March 31, 2002, June 30, 2002, September 30, 2002 and December 31, 2002 and (ii) the Company becoming a debtor under Chapter 11 of the Bankruptcy Code until April 21, 2003. There is no agreement with GECC to extend the forbearance beyond April 21, 2003. However, the Company and GECC have agreed to amend certain lease documents upon the emergence from bankruptcy. The amendment will permanently waive prior non-compliance with the Fixed Charge Coverage Ratio and establish a new Fixed Charge
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Coverage Ratio for the remainder of the lease term. The amendment also changes the February 28, 2004 lease payment with $11,750 due on February 28, 2004 and $11,749 due on August 28, 2004. The following is a schedule of minimum future lease payments under the GECC capital lease obligations together with the present value of the net minimum lease payments as of December 31, 2002. The lease payment maturities conform to contractual payments under the lease: [Download Table] Year ending December 2003 $23,499 2004 23,499 2005 23,500 ------- Net minimum lease payments 70,498 Less: Amount representing interest 6,392 ------- $64,106 ======= Other The fair value of the Company's debt obligation (excluding capital lease obligations) is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for the debt of the same remaining maturities. At December 31, 2002, the carrying amount and estimated fair value of debt obligations (excluding capital lease obligations) were $163,060 and $34,243, respectively. There were no short-term borrowings in 2002. Aggregate maturities of debt for each of the next five years are: [Download Table] GECC (1) Other Total -------- ----- ------- 2003 $19,306 $177 $19,483 2004 21,300 21,300 2005 23,500 23,500 2006 2007 Thereafter 85 85 ------- ---- ------- Total $64,106 $262 $64,368 ======= ==== ======= (1) The GECC capital lease obligations were classified as current in the financial statements due to covenant restrictions. The 10.25% Senior Notes due 2001, which are classified as "Current Liabilities Subject to Compromise", are excluded from this schedule. 9. OPERATING LEASES (dollars in thousands) The Company has operating lease agreements for machinery, equipment and facilities. The majority of the facilities leases require the Company to pay maintenance, insurance and real estate taxes. Future minimum lease payments for operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2002, are:
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2003 $1,425 2004 1,253 2005 1,097 2006 997 2007 897 Total thereafter 2,606 ------ Total minimum lease payments $8,275 ====== Total rent expense during 2002, 2001 and 2000 amounted to $1,971, $1,682 and $2,122, respectively. 10. RETIREMENT PLANS The Company and its subsidiaries have defined contribution and defined benefit plans varying by country and subsidiary. At December 31, 2002, the North American operations of Viskase maintained several non-contributory defined benefit retirement plans. The Viskase plans cover substantially all salaried and full-time hourly employees, and benefits are based on final average compensation and years of credited service. The Company's policy is to fund the minimum actuarially computed annual contribution required under the Employee Retirement Income Security Act of 1974 (ERISA). The Company recognized a minimum pension liability adjustment which is due to changes in plan return assumptions and asset performance (see Note 20 Comprehensive (Loss)). PENSIONS AND OTHER POSTRETIREMENT BENEFITS PLANS - NORTH AMERICA (dollars in thousands): [Enlarge/Download Table] Pension Benefits Other Benefits ---------------------- ----------------------- 2002 2001 2002 2001 -------- -------- -------- -------- ACCUMULATED BENEFIT OBLIGATION (ABO) $102,190 $ 93,215 CHANGE IN BENEFIT OBLIGATION Projected benefit obligation at beginning of year $107,251 $103,641 $44,615 $41,404 Service cost 1,924 1,806 777 762 Interest cost 7,521 7,347 3,270 3,021 Actuarial losses 5,711 1,946 4,481 1,458 Benefits paid (7,275) (7,136) (2,322) (1,877) Plan amendment (4) Translation 58 (353) 25 (153) --------- --------- --------- --------- Estimated benefit obligation at end of year $115,186 $107,251 $50,846 $44,615 ========= ========= ======== ======== CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $ 89,058 $ 98,687 $ $ Actual return on plan assets (7,888) (6,308) Employer contribution 1,164 4,162 2,322 1,877 Benefits paid (7,275) (7,136) (2,322) (1,877) Translation 56 (347) ------- -------- -------- -------- Estimated fair value of plan assets at end of year $75,115 $89,058 $ 0 $ 0 ======= ======= ======== ======== RECONCILIATION OF ACCRUED BENEFIT COST, AT YEAR END Funded status $(40,071) $(18,193) $(50,846) $(44,615) Unrecognized net loss 33,940 13,117 9,236 5,118 Unrecognized prior service cost 437 499 --------- --------- --------- --------- (Accrued) benefit cost $ (5,694) $ (4,577) $(41,610) $(39,497) ========= ========= ========= =========
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[Enlarge/Download Table] Pension Benefits Other Benefits ---------------------- ----------------------- 2002 2001 2002 2001 -------- -------- -------- -------- AMOUNTS RECOGNIZED IN STATEMENT OF FINANCIAL POSITION Prepaid benefit cost $ 29 Accrued benefit liability (32,806) $(10,134) Intangible asset 338 385 Accumulated other comprehensive loss 26,745 5,172 -------- ---------- Net amount recognized $ (5,694) $ (4,577) ======== ========== WEIGHTED AVERAGE ASSUMPTIONS AS OF END OF YEAR Discount rate 6.75% 7.22% 6.73% 7.23% Expected return on plan assets 8.89% 8.81% Rate of compensation increase 3.75% 4.25% For measurement purposes, a 7.5% and 10.0% annual rate of increase in the per capita cost of covered health care benefits was assumed in 2002 for the U.S. and Canadian plans, respectively. The rates were assumed to decrease to 6.5% in 2004 for the U.S. plan and gradually decrease to 5% through 2007 for the Canadian plan. The expected return of pension plan assets in 2002 increased over the prior year because the actual return on Canadian pension plan assets, which were annuitized, was higher than the rate in 2001. [Enlarge/Download Table] Pension Benefits Other Benefits ------------------------------ ------------------------------ 2002 2001 2000 2002 2001 2000 ---- ---- ---- ---- ---- ---- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $1,924 $1,806 $2,888 $ 777 $ 762 $ 971 Interest cost 7,522 7,347 7,347 3,270 3,021 3,106 Expected return on plan assets (7,686) (8,627) (8,541) Amortization of net pension obligation 33 Amortization of prior service cost 56 67 126 53 Amortization of actuarial (gain) loss 463 91 (119) 363 136 443 ------ ------ ------- ------ ------ ------ Net periodic benefit cost 2,279 684 1,734 4,410 3,919 4,573 FAS No. 88 curtailment (gain) loss (950) 597 ------- ------ Total net periodic benefit cost $2,279 $ 684 $ 784 $4,410 $3,919 $5,170 ====== ====== ====== ====== ====== ====== Assumed healthcare cost trend rates have a significant effect on the amounts reported for healthcare plans. A one-percentage point change in assumed healthcare cost trend rates would have the following effects:
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[Download Table] Other Benefits ----------------- 2002 2001 ---- ---- Effect of 1% change in medical trend cost: Based on a 1% increase Change in accumulated postretirement benefit obligation $2,272 $2,018 Change in service cost and interest 179 162 Based on a 1% decrease Change in accumulated postretirement benefit obligation (2,593) (2,311) Change in service cost and interest (207) (190) SAVINGS PLANS (dollars in thousands): The Company also has defined contribution savings and similar plans, which vary by subsidiary, and, accordingly, are available to substantially all full-time United States employees not covered by collective bargaining agreements. The defined contribution savings plans allow employees to choose among various investment alternatives. The Company's aggregate contributions to these plans are based on eligible employee contributions and certain other factors. The Company expense for these plans was $754, $762 and $1,158 in 2002, 2001 and 2000, respectively. INTERNATIONAL PLANS (dollars in thousands): The Company maintains various pension and statutory separation pay plans for its European employees. The expense for these plans in 2002, 2001 and 2000 was $42, $301 and $202, respectively. As of their most recent valuation dates, in plans where vested benefits exceeded plan assets, the actuarially computed value of vested benefits exceeded those plans' assets by approximately $2,748. 11. RESTRUCTURING CHARGES During the second quarter of 2002, the Company committed to a restructuring plan to address the industry's competitive environment. The plan resulted in a before tax charge of $3.2 million. Approximately 2% of the Company's worldwide workforce was laid off due to the 2002 restructuring plan. In connection with the restructuring, the Company wrote off the remaining net book value of the Nucel(r) equipment and the costs associated with the decommissioning of this equipment. The Company also reversed an excess reserve of $9.3 million for Nucel(r) technology third party license fees that had been renegotiated during the second quarter of 2002. The Nucel(r) technology license fees were originally reflected in the 2000 restructuring reserve. In the fourth quarter of 2002 and the year-to-date period, the Company paid third party license fees of approximately $.6 million and $2.3 million, respectively. The renegotiated Nucel(r) technology third party license fee payments remaining are estimated at $.9 million, $.4 million, $.2 million, $.2 million and $.5 million for the year periods 2003 to 2007 and are included in the 2000 restructuring reserve.
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2002 Restructuring [Download Table] 2002 Restructuring Reserve as of 2002 Write- December Charge Payments down 31, 2002 ------ -------- ----- ------------- Employee costs $1.4 $(.9) $.5 Nucel(r) equipment 1.0 $(1.0) Decommissioning .8 (.7) .1 ----- ------ ------ --- Total restructuring charge $3.2 $(1.6) $(1.0) $.6 ====== ====== === Reversal of 2000 excess reserve (9.3) ------ Restructuring (income) $(6.1) ====== 2000 Restructuring The following table provides details of the 2000 restructuring reserve for the year ended December 31, 2002: [Download Table] 2000 2000 Restructuring Restructuring Reserve Reserve as of as of December Other December 31, 2001 Payments Adjustments 31, 2002 ------------- -------- ----------- -------------- Employee costs $1.0 $(1.0) Nucel(r) license fees 13.8 (2.3) $(9.3) $2.2 Decommissioning .3 (.2) .1 ----- ----- ------ ---- Total restructuring reserve $15.1 $(3.5) $(9.3) $2.3 ===== ====== ====== ==== The following table provides details of the 2000 restructuring reserve for the year ended December 31, 2001: [Enlarge/Download Table] 2000 2000 Restructuring Restructuring Reserve Reserve as of as of December Other December 31, 2000 Payments Adjustments 31, 2001 ------------- -------- ------------- -------------- Employee costs $11.2 $(9.8) $(.4) $1.0 Nucel(r) license fees 15.3 (1.6) .1 13.8 Decommissioning .6 (.3) .0 .3 ----- ------ ----- ----- Total restructuring reserve $27.1 $(11.7) $(.3) $15.1 ===== ======= ===== =====
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The following table provides details of the 2000 restructuring reserve for the year ended December 31, 2000: [Download Table] Year 2000 Write- Other Ending Charge Payments down Adjustments 2000 ------ -------- ------ ----------- ------ Employee costs $13.4 $(2.1) $(0.1) $11.2 Write-down of building and equipment 13.4 $(13.4) Nucel(r) building and equipment 42.4 (42.4) Nucel(r) other 24.2 (3.0) (5.9) 15.3 Decommissioning 2.3 (0.1) (1.6) 0.6 ----- ------ ------- ------ ----- Total restructuring charge $95.7 $(5.2) $(55.8) $(7.6) $27.1 ====== ======= ====== ===== Reversal of excess reserve (.8) ------ Restructuring charge $94.9 ====== Approximately 15% of the Company's worldwide workforce was laid off due to the 2000 restructuring plan. During 2001, the Company incurred a restructuring charge of $4.8 million for the write-down of facilities held for sale. These facilities are included in property held for sale (see Note 5). 12. 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 proceeds of approximately $255,000, including a Working Capital Adjustment of $10,300, were used to retire debt, pay GECC and for general corporate purposes. The Company recognized a net gain in the amount of $3,189 in 2001 and $68,185 in 2000. The business sold included 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 these are included in the business discontinuance. The operating results of the Films Business have been segregated from continuing operations and reported as a separate line item on the income statement under the heading Discontinued Operations.
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Operating results from discontinued operations for 2000 are: [Download Table] Year Ended December 31, 2000 ----------------- Net sales $110,017 Costs and expenses Cost of sales 83,502 Selling, general and administrative 19,096 Amortization of intangibles 2,000 -------- Operating income 5,419 Interest income 19 Interest expense 98 Other expense, net 1,608 -------- Income from discontinued operations before taxes 3,732 Income tax provision 297 -------- Net income from discontinued operations $ 3,435 ======== 13. INCOME TAXES (dollars in thousands) [Download Table] 2002 2001 2000 ---- ---- ---- Pre-tax (loss) from continuing operations consisted of: Domestic $(18,417) $(28,353) $(70,065) Foreign (2,210) (11,869) (25,174) --------- --------- --------- Total $(20,627) $(40,222) $(95,239) ========= ========= ========= The provision (benefit) for income taxes from continuing operations consisted of: [Download Table] 2002 2001 2000 ---- ---- ---- Current: Federal $(2,145) Foreign 1,530 $(2,810) $728 State 36 138 -------- -------- ---- Total current (579) (2,672) 728 Deferred: Federal Foreign (718) (698) State -------- -------- ---- Total deferred (718) (698) -------- -------- ---- Total $(1,297) $(3,370) $728 ======== ======== ====
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The total provision (benefit) for income taxes was allocated to the following categories: [Download Table] 2002 2001 2000 ---- ---- ---- Continuing operations $(1,297) $(3,370) $ 728 Income from discontinued operations 297 Gain on sale from discontinued operations 6,633 Extraordinary gain 633 -------- -------- ------ Total income tax provision (benefit) $(1,297) $(3,370) $8,291 A reconciliation from the statutory federal tax rate to the effective tax rate for continuing operations follows: [Enlarge/Download Table] 2002 2001 2000 ---- ---- ---- Statutory federal tax rate 35.00% 35.00% 35.00% Increase (decrease) in tax rate due to: State and local taxes net of related federal tax benefit (.17) (.34) Net effect of taxes relating to foreign operations (2.03) (1.61) (10.02) Reversal of overaccrued taxes (25.74) Valuation allowance changes and other (26.50) (24.67) ------- ------- ------- Effective tax rate from continuing operations 6.30% 8.38% (.76)% ======= ======= ======== Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities for 2002 and 2001 are as follows: [Enlarge/Download Table] Year 2002 --------------------------------------------------------------- Temporary Difference Tax Effected ----------------------------- ----------------------------- Deferred Tax Deferred Tax Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities Depreciation basis differences $ 57,415 $ 22,392 Inventory basis differences 4,609 1,798 Intangible basis differences 2,000 780 Lease transaction $ 64,105 $ 25,001 Pension and healthcare 47,955 18,702 Employee benefits accruals 6,006 2,342 Loss and other carryforwards 56,875 22,181 AMT carryover 9,749 3,412 Restructuring reserve 20,510 7,999 Self insurance accruals and reserves 3,354 1,308 Other accruals and reserves 551 216 Foreign exchange and other 23,526 9,175 Valuation allowances 187,407 73,089 -------- -------- -------- -------- $209,105 $274,957 $ 81,161 $107,234 ======== ======== ======== ========
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[Enlarge/Download Table] Year 2001 --------------------------------------------------------------- Temporary Difference Tax Effected ----------------------------- ----------------------------- Deferred Tax Deferred Tax Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities Depreciation basis differences $ $ 65,954 $ $ 25,722 Inventory basis differences 4,110 1,603 Intangible basis differences 4,000 1,560 Lease transaction 72,855 28,413 Pension and healthcare 42,262 16,482 Employee benefits accruals 5,715 2,229 Loss and other carryforwards 26,175 10,208 AMT carryover 15,877 5,557 Restructuring reserve 42,123 16,428 Self insurance accruals and reserves 1,434 559 Other accruals and reserves 15 6 Foreign exchange and other 25,088 9,784 Valuation allowances 174,202 67,939 -------- -------- -------- -------- $206,456 $273,354 $ 79,882 $106,608 At December 31, 2002, the Company had federal income tax net operating loss carryforwards of approximately $56,875 which had been substantially offset by a valuation allowance. In addition, at December 31, 2002 and December 31, 2001, the Company had alternative minimum tax credit carryforwards of $3,412 and $5,557, respectively. The Company received an income tax refund of $2,145 resulting from the Job Creation Act enacted in March 2002. Alternative minimum tax credits have an indefinite carryforward period. Significant limitations on the utilization of the net operating loss carryforwards and the alternative minimum tax credit carryforwards exist under federal income tax rules. The Company joins in filing a United States consolidated federal income tax return including all of its domestic subsidiaries. 14. COMMITMENTS (dollars in thousands) As of December 31, 2002 and 2001, the Company had capital expenditure commitments outstanding of approximately $332 and $642, respectively. 15. PATENT INFRINGEMENT SETTLEMENT INCOME (dollars in thousands) In late 1993, Viskase commenced a legal action against ANC in Federal District Court for the Northern District of Illinois, Eastern Division, 93C7651 (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 $102,400 in compensatory damages. The Court also entered an order permanently enjoining ANC from making or selling infringing products. On September 29, 2000, the Company and Viskase entered into a Settlement and License Agreement (Agreement) with ANC, Pechiney Plastic Packaging, Inc. and Pechiney Emballage Flexible Europe (collectively, "Pechiney") partially resolving the ANC Litigation. Pursuant to the Agreement, Viskase received a payment of $54,750 on October 2, 2000. In addition, an additional payment of $60,250 would have been made to Viskase if the United States Court of Appeals for the Federal Circuit had affirmed the monetary award in its entirety in the ANC Litigation. The Company recorded $54,750 as patent infringement settlement income during the third quarter 2000 and expensed $7,850 patent defense costs.
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On July 31, 2001, the Court of Appeals affirmed the lower court's decision in part, reversed the decision in part and remanded the case back to the District Court for the Northern District of Illinois. Under the Agreement, Viskase Corporation was paid $54,750 in partial settlement and agreed not to pursue the patent litigation further if the monetary damages award was not affirmed in its entirety. Because the monetary damages were not affirmed in its entirety, Viskase Corporation will not receive any additional payments under the agreement and no further legal proceedings will take place. The patents, which were the subject of the ANC Litigation, were part of the Company's Films Business which was sold in August 2000. 16. CONTINGENCIES In 1988, Viskase Canada Inc. (Viskase Canada), a subsidiary of the Company, commenced a lawsuit against Union Carbide Canada Limited and Union Carbide Corporation in the Ontario Superior Court of Justice, Court File No.: 292270188 seeking damages resulting from Union Carbide's breach of environmental representations and warranties under the Amended and Restated Purchase and Sale Agreement, dated January 31, 1986 (Agreement). Pursuant to the Agreement, Viskase Corporation and various affiliates (including Viskase Canada) purchased from Union Carbide and Union Carbide Films Packaging, Inc., its cellulosic casings business and plastic barrier films business (Business), which purchase included a facility in Lindsay, Ontario, Canada (Site). Viskase Canada is claiming that Union Carbide breached several representations and warranties and deliberately failed to disclose to Viskase Canada the existence of contamination on the Site. In October 2001, the Canadian Ministry of the Environment (MOE) notified Viskase Canada that it had evidence to suggest that the Site was a source of polychlorinated biphenyl (PCB) contamination. Viskase Canada is working with the MOE in investigating the alleged PCB contamination and developing and implementing, if appropriate, a remedial plan for the Site. Viskase Canada has been advised by the MOE that the MOE expects to issue certain Director's Orders requiring remediation under applicable environmental legislation against Viskase Canada and others in the next few months. Viskase Canada has been granted leave to amend its lawsuit against Union Carbide to allege that any PCB contamination at or around the Site was generated from Union Carbide's plastics extrusion business, which was operated at the Site by Union Carbide prior to the purchase of the Business. Union Carbide's plastics extrusion business was not part of the Business purchased by Viskase Corporation and its affiliates. Viskase Canada expects to amend the lawsuit prior to June 1, 2003. Viskase Canada will be asking the court to require Union Carbide to repurchase the Site from Viskase Canada and award Viskase Canada damages in excess of $2.0 million (Canadian). The Company has reserved $.5 million (U.S.) for the property remediation. The lawsuit is still pending and is expected to proceed to trial sometime during the second half of 2004. In August 2001, the Department of Revenue of the Province of Quebec, Canada issued an assessment against Viskase Canada in the amount of $2,669,501.48 (Canadian) plus interest and possible penalties. This assessment is based upon Viskase Canada's failure to collect and remit sales tax during the period July 1, 1997 to May 31, 2001. During this period Viskase Canada did not collect and remit sales tax in Quebec on reliance of the written advice of its outside accounting firm. Viskase Canada filed a Notice of Objection in November 2001 with supplementary submission in October 2002. No decision has been made on the Notice of Objection. The ultimate liability for the Quebec sales tax lies with the customers of Viskase Canada during the relevant period. The Company has, however, provided for a reserve of $.3 million (U.S.) for interest and penalties, if any. Viskase Canada is negotiating with the Quebec Department of Ministry to avoid having to collect the sales tax from customers who will then be entitled to credit for such sales tax collected.
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In March 1997, Viskase received a subpoena from the Antitrust Division of the United States Department of Justice (DOJ) relating to a grand jury investigation of the sausage casings industry. In September 1999, Viskase received a subpoena from the DOJ relating to the expansion of the grand jury investigation into the specialty plastic films industry. During October 2002, Viskase was advised by the DOJ that it has closed the investigation of the sausage casings and specialty plastic films industries and that no action will be taken. During 1999 and 2000, the Company and certain of its subsidiaries and one other sausage casings manufacturer were named in ten virtually identical civil complaints filed in the United States District Court for 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 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. In 2001, all of the consolidated cases were transferred to the United States District Court for the Northern District of Illinois, Eastern Division. The Company strongly denies the allegations set forth in these complaints and intends to vigorously defend these claims. In February 2003, the plaintiffs (other than Marathon Enterprises, Inc. which has elected not to pursue its lawsuit against the Company) amended their complaint to eliminate any claim against the Company that arose prior to December 17, 1993. In March 2003, the Company filed a Motion to Dismiss the amended complaint. The Company and its subsidiaries are involved in these and various other 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 condition. 17. CAPITAL STOCK AND PAID IN CAPITAL Authorized shares of preferred stock ($.01 par value per share) and common stock ($.01 par value per share) for the Company are 25,000,000 shares and 50,000,000 shares, respectively. A total of 15,314,562 shares of common stock were issued and outstanding as of December 31, 2002. The Company issued 116,025 shares of stock to its employees in 2000 to celebrate its 75-year anniversary. The shares issued have been recorded at fair market value on the date of grant with a corresponding charge to stockholders' equity for the unearned portion of the award. The fair market value at the date of grant was approximately $300 thousand. The unearned portion is amortized as compensation expense on a straight line basis over the related vesting period. Compensation expense related to the plan totaled $99 thousand, $105 thousand and $18 thousand in 2002, 2001 and 2000, respectively. The shares issued under this plan are subject to forfeiture until October 27, 2003. On June 26, 1996, the Board of Directors adopted a Stockholder Rights Plan. Under the Stockholder Rights Plan, the Board declared a dividend of one Common Stock Purchase Right (Right) for each outstanding common share of the Company. Rights were issued to the stockholders of record on June 26, 1996. The Rights are attached to and automatically trade with the outstanding shares of the Company's common stock.
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Under the Stockholder Rights Plan, through April 19, 2003, if any person acquires 41% or more of the Company's Common Stock, other than pursuant to a tender or exchange offer for all outstanding shares of the Company approved by a majority of the independent directors not affiliated with a 41%-or-more stockholder, after receiving advice from one or more investment banking firms, each Right not owned by a 41%-or-more stockholder would automatically, without any further action of the Board of Directors, be exchanged for shares of Common Stock at an exchange ratio of one share of Common Stock per Right simultaneous with any person becoming a 41% or more stockholder. Rights may be redeemed at a price of $0.001 per Right at any time prior to their expiration on June 26, 2006. The Rights Plan will terminate on the Effective Date. 18. EARNINGS PER SHARE (dollars in thousands) Following are the reconciliations of the numerators and denominators of the basic and diluted EPS. [Enlarge/Download Table] Years Ended December 31 ---------------------------------------------- 2002 2001 2000 ---- ---- ---- Numerator: (Loss) available to common stockholders: From continuing operations $(19,330) $(36,852) $(95,967) Discontinued operations net of income taxes: Income from discontinued operations 3,435 Gain on disposal 3,189 68,185 --------- --------- --------- (Loss) before extraordinary item (19,330) (33,663) (24,347) Extraordinary gain, net of income taxes: 8,137 6,511 --------- --------- --------- Net loss available to common stockholders for basic and diluted EPS $(19,330) $(25,526) $(17,836) a ========= ========= ========= Denominator: Weighted average shares outstanding for basic EPS 15,316,183 15,309,616 15,126,670 Effect of dilutive securities ----------- ----------- ----------- Weighted average shares outstanding for diluted EPS 15,316,183 15,309,616 15,126,670 =========== =========== =========== Common stock equivalents are excluded from the loss-per-share calculations, as the result is anti-dilutive. 19. STOCK-BASED COMPENSATION (dollars in thousands) The Company maintains a stock option plan. The plan provides for the granting of incentive and nonqualified stock options to employees, officers, and directors. Stock options have been granted at prices at or above the fair market value on the date of grant. Options generally vest in three equal installments beginning one year from the grant date and expire ten years from the grant date. Non-employee director options, however, vest on the date of grant. The options are subject to acceleration upon the occurrence of certain events. Such an acceleration event occurred in March 2001. No compensation expense resulted from this event.
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The Company accounts for these plans under Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations. Accordingly, compensation expense is recognized using the intrinsic value-based method for options granted under the plans. Compensation expense associated with these plans has not been recognized to date in accordance with APB 25. The Company has adopted only the disclosure provisions required by SFAS No. 148, "Accounting for Stock Based Compensation - Transition and Disclosure." A summary of the Company's stock option activity during the years ended December 31, 2002, 2001 and 2000 is presented below: [Enlarge/Download Table] 2002 2001 2000 ---------------------- ---------------------- ---------------------- Weighted Weighted Weighted Average Exercise Average Exercise Average Exercise Shares Price Shares Price Shares Price -------- -------- -------- -------- -------- -------- Outstanding at beginning of year 871,930 $2.68 945,710 $2.83 646,760 $4.19 Granted 0 7,000 1.78 550,000 1.78 Exercised 0 Forfeited (36,500) 1.95 (80,780) 4.35 (251,050) 4.04 -------- -------- ---------- Outstanding at year end 835,430 2.71 871,930 2.68 945,710 $2.83 ======== ======== ========== Options exercisable at year end 835,430 2.71 871,930 $2.68 344,389 $4.28 ======== ======== ========== Future option grants available at year end 449,898 413,398 339,618 ======== ======== ========== As of December 31, 2002, total stock options outstanding have a weighted- average remaining contractual life of 6.41 years. The exercise price of options outstanding as of December 31, 2002 ranged from $1.78 to $7.25. There were no option grants in 2002. The weighted average grant date fair value of options granted during years 2001 and 2000 was $1.68 and $1.45, respectively. These options will be canceled under the Plan. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: (1) expected volatility of 0% in 2002, 181.31% in 2001, and 138.8% in 2000, (2) risk-free interest rate equaling the 5-year treasury yield on the grant date was 0% in 2002, 4.65% in 2001 and 5.69% to 5.97% in 2000, and (3) the expected life of 5 years in 2002, 2001 and 2000. There were no option grants in 2002. The Company has never declared dividends, nor does it currently expect to declare dividends in the foreseeable future. The Company also has a stock compensation plan for the non-employee directors of the Company that was approved during fiscal 1996. These directors may elect to receive directors fees in the form of common stock of the Company based upon the average market price of the Company's Common Stock on the grant date. Under this plan, 46,723 shares were issued at $1.38 during 2001 and 44,302 shares were issued at $2.29 during 2000, respectively. The shares issued under this plan will be converted into Warrants upon the Effective Date.
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The Company issued shares of stock to its employees to celebrate its 75- year anniversary. The shares issued have been recorded at fair market value on the date of grant with a corresponding charge to stockholders' equity for the unearned portion of the award. The fair market value at the date of grant is approximately $300 thousand. The unearned portion is amortized as compensation expense on a straight line basis over the related vesting period. Compensation expense related to the plan totaled $99 thousand, $105 thousand and $18 thousand in 2002, 2001 and 2000, respectively. The shares issued under this plan are subject to forfeiture until October 27, 2003. The Diamond Anniversary Shares will be converted into Warrants upon emergence from bankruptcy. 20. COMPREHENSIVE (LOSS) (in thousands) The following sets forth the changes in the components of other comprehensive income (loss) and the related income tax (benefit) provision: [Enlarge/Download Table] Years Ended ---------------------------------------------- December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ Other comprehensive income (loss): Foreign currency translation Adjustment (1) $ 3,711 $ (129) $(2,730) Less reclassification of foreign currency translation adjustment for discontinued operations (2) 2,532 Minimum pension liability adjustment (3) (21,573) (5,172) --------- -------- -------- Other comprehensive (loss), net of tax $(17,862) $(5,301) $ (198) ========= ======== ======== (1) Foreign currency translation adjustments, net of related tax (benefit) of $0, $0 and $(1,746) for the years ended 2002, 2001 and 2000, respectively. (2) Reclassification adjustment for losses due to sale of Films Business, included in net (loss) of $4,151, net of related tax provision of $1,619. (3) Minimum pension liability adjustment, net of a related tax provision of $0 in 2002 and 2001, respectively. The minimum pension liability adjustment is due to changes in plan return assumptions and asset performance. 21. FAIR VALUE OF FINANCIAL INSTRUMENTS (dollars in thousands) The following table presents the carrying value and estimated fair value as of December 31, 2002 of the Company's financial instruments. (Refer to Notes 2 and 8.) [Download Table] Carrying Estimated Value Fair Value -------- ---------- Assets: Cash and cash equivalents $27,700 $27,700 Restricted cash 28,347 28,347 Liabilities: Current liabilities subject to compromise $163,060 $34,243 22. RESEARCH AND DEVELOPMENT COSTS (dollars in thousands) Research and development costs from continuing operations are expensed as incurred and totaled $4,070, $4,837 and $5,474 for 2002, 2001 and 2000, respectively.
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23. RELATED PARTY TRANSACTIONS (dollars in thousands) During 2002, 2001 and 2000, the Company purchased product in the ordinary course of business and on arm's-length terms from affiliates of DPK in the amounts of approximately $321, $377 and $444, respectively. Donald P. Kelly, a beneficial owner of greater than 5% of the Common Stock, and Mr. Gustafson, a beneficial owner of greater than 5% of the outstanding Common Stock and the Chairman, Chief Executive Officer and President of the Company, are executive officers and limited partners of DPK. During years 2002, 2001 and 2000, Viskase had sales of $592, $689 and $23,229, respectively, to Cargill, Inc. and its affiliates. The majority of sales to Cargill, Inc. were related to the Films Business which was sold in August 2000. Such sales were made in the ordinary course of business. Gregory R. Page, President and Chief Operating Officer of Cargill, Inc., will resign as a director of the Company as of the Effective Date. 24. BUSINESS SEGMENT INFORMATION AND GEOGRAPHIC AREA INFORMATION (dollars in thousands) The Company primarily manufactures and sells cellulosic food casings. The Company's operations are primarily in North America, South America and Europe. Intercompany sales and charges (including royalties) have been reflected as appropriate in the following information. Certain items are maintained at the Company's corporate headquarters and are not allocated to the segments. They include most of the Company's debt and related interest expense and income tax benefits. Other expense for 2002, 2001 and 2000 includes net foreign exchange transaction gains (losses) of approximately $1,659, $(2,309) and $(4,171), respectively. Business Segment Information [Download Table] Years Ended December 31 ---------------------------------------- 2002 2001 2000 ---- ---- ---- Net sales: Casings - Continuing operations $183,577 $189,315 $200,142 Films - Discontinued operations 110,017 -------- -------- -------- $183,577 $189,315 $310,159 ======== ======== ======== Operating income (loss): Casings - Continuing operations $ 2,342 $(13,736) $(93,702) Films - Discontinued operations 5,419 -------- -------- -------- $ 2,342 $(13,736) $(88,283) ======== ======== ======== Identifiable assets: Casings - Continuing operations $218,681 $234,028 $322,364 Films - Discontinued operations 146,318 -------- -------- -------- $218,681 $234,028 $468,682 ======== ======== ======== Depreciation and amortization: Casings - Continuing operations $ 22,959 $ 23,125 $ 25,012 Films - Discontinued operations 9,415 -------- -------- -------- $ 22,959 $ 23,125 $ 34,427 ======== ======== ======== Capital expenditures: Casings - Continuing operations $ 3,824 $ 5,882 $ 12,350 Films - Discontinued operations 1,385 -------- -------- -------- $ 3,824 $ 5,882 $ 13,735 ======== ======== ========
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Geographic Area Information [Download Table] Years Ended December 31 ---------------------------------------- 2002 2001 2000 ---- ---- ---- Net sales: North America $122,648 $128,488 $202,362 South America 7,424 7,861 25,025 Europe 66,458 70,058 100,885 Other and eliminations (12,953) (17,092) (18,113) --------- --------- --------- $183,577 $189,315 $310,159 ======== ======== ======== Operating (loss) income: North America $ 3,431 $(10,757) $(74,282) South America (1,275) (633) 4,146 Europe 186 (2,346) (18,228) Other and eliminations 81 --------- --------- --------- $ 2,342 $(13,736) $(88,283) ======== ======== ======== Identifiable assets: North America $132,913 $145,002 $326,876 South America 8,849 9,487 27,526 Europe 76,919 79,539 113,651 Other and eliminations 629 --------- --------- --------- $218,681 $234,028 $468,682 ======== ======== ======== [Download Table] United States export sales: (reported in North America net sales above) Asia $15,697 $16,651 $15,319 South and Central America 4,951 6,593 14,515 Other International 5,211 4,296 72 --------- --------- --------- $25,859 $27,540 $29,906 ======== ======== ======== The total assets and net assets of foreign businesses were approximately $87,234 and $26,833, at December 31, 2002. 25. QUARTERLY DATA (unaudited) Quarterly financial information for 2002 and 2001 is as follows (in thousands, except for per share amounts): [Download Table] First Second Third Fourth 2002 Quarter Quarter Quarter Quarter Annual ---- ------- ------- ------- ------- ------ Net sales $43,387 $46,291 $48,673 $45,226 $183,577 Gross margin 8,676 10,003 9,972 8,085 36,736 Operating (loss) income (2,435) 6,053 (2,920) 1,644 2,342 Net (loss) income (7,883) 1,131 (8,683) (3,895) (19,330) Net (loss) income per share - basic and diluted (.51) .07 (.57) (.25) (1.26)
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[Download Table] First Second Third Fourth 2001 Quarter Quarter Quarter Quarter Annual ---- ------- ------- ------- ------- ------ Net sales $48,040 $46,503 $48,483 $46,289 $189,315 Gross margin 8,758 8,538 10,843 4,918 33,057 Operating income (loss) (2,663) (2,536) 569 (9,106) (13,736) Net (loss) (1,040) (7,821) (4,696) (11,969) (25,526) Net (loss) per share - basic and diluted (.07) (.51) (.31) (.78) (1.67) During the second quarter of 2002, the Company recognized a net restructuring income of $6,132. The restructuring income is the result of a reversal of $9,289 of excess reserve from the year 2000 for the reduction of the Nucel(r) technology third party license fees, offset by a year 2002 restructuring charge of $3,157 (see Note 11). During the 2001 first and second quarters, the Company recognized a net gain on early extinguishment of debt of $4,930 and $3,207, respectively. Additionally, during the second quarter of 2001, the Company recognized a net gain on disposal of discontinued operations of $3,189. During the 2001 fourth quarter the Company recognized a $3,612 charge to cost of sales related to the write-down of Inventories to its lower of cost or market value. Additionally, the Company recognized a restructuring charge of $4,766 for the write-down of the Chicago facility.
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VISKASE COMPANIES, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (in thousands) [Enlarge/Download Table] Balance at Provision Balance Beginning Charged to at End Description of Period Expense Write-offs Recoveries Other(1) of Period ----------- ---------- ---------- ---------- ---------- -------- ---------- 2002 for the year ended December 31 Allowance for doubtful accounts $1,470 $ 477 $ (711) $22 $ 76 $1,334 2001 for the year ended December 31 Allowance for doubtful accounts $1,675 $ 425 $ (554) $54 $ (130) $1,470 2000 for the year ended December 31 Allowance for doubtful accounts $1,642 $ 433 $ (269) $46 $ (177) $1,675 2002 for the year ended December 31 Reserve for obsolete and slow moving inventories $2,816 $1,670 $(1,877) $ 116 $2,725 2001 for the year ended December 31 Reserve for obsolete and slow moving inventories $5,029 $1,150 $(2,029) $(1,334) $2,816 2000 for the year ended December 31 Reserve for obsolete and slow moving inventories $4,110 $4,032 $(5,076) $ 1,963 $5,029 (1) Foreign currency translation and the 2000 disposition of Films Business.
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EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT The Company has the following subsidiaries, each of which is wholly owned by the Company or by a wholly owned subsidiary of the Company. Indented names are subsidiaries of the company under which they are indented. Envirodyne Subsidiary, Inc. (Delaware) Envirosonics, Inc. (California) Viskase Corporation (Pennsylvania) Viskase Holding Corporation (Delaware) Viskase Australia Limited (Delaware) Viskase Brasil Embalagens Ltda. (Brazil) Viskase Canada Inc. (Ontario) Viskase Europe Limited (United Kingdom) Viskase S.A.S. (France) Viskase GMBH (Germany) Viskase Holdings Limited (United Kingdom) Filmco International Limited (United Kingdom) Viskase Limited (United Kingdom) Viskase (U.K.) Limited (United Kingdom) Viskase S.p.A. (Italy) Viskase Polska SP.ZO.O (Poland) Viskase Sales Corporation (Delaware) Viskase Puerto Rico Corporation (Delaware) Viskase Films, Inc. (Delaware) WSC Corp. (Delaware)
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EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-10689 and 333-12829) of Viskase Companies, Inc. and Subsidiaries of our report dated March 14, 2003, relating to the financial statements and financial statement schedule which appears in this Form 10-K. Chicago, Illinois March 31, 2003

Dates Referenced Herein   and   Documents Incorporated By Reference

Referenced-On Page
This 10-K Filing   Date First   Last      Other Filings
12/17/931174
12/31/9336
1/19/9436
3/27/96293810-K
6/26/963574
6/28/963611-K, 8-A12G, 8-K
3/26/9729
5/16/97368-K, SC 13D/A
7/1/971173NT 11-K
6/25/983710-Q, 8-K
8/10/983710-Q, 8-K
3/27/9929
12/31/99374910-K, 11-K, NT 10-K
1/17/0016698-K
3/29/0037S-8
4/13/003738
6/30/00373810-Q
7/7/00368-K
8/31/001669
9/22/0037
9/25/00363810-K, 10-Q, 8-K
9/29/0072
9/30/003610-Q, 8-K
10/2/0072
11/15/003610-Q
12/31/00357610-K, 10-K/A, 10KSB, 11-K, NTN 10K
3/22/0138
3/31/013810-Q, 10-Q/A, 4, NT 10-Q
5/16/013810-Q, NT 10-Q
5/18/0136
5/31/0111738-K
6/29/01388-K
6/30/013810-Q, 4, NT 10-Q
7/31/0173
8/2/0138
8/15/013810-Q, NT 10-Q
8/30/013039
9/30/013810-Q, 4
10/27/0138
10/29/01388-K, SC 13D
11/1/012939
11/14/013810-Q
11/29/013039
12/1/01362
12/20/0139
12/21/0139
12/31/0177610-K, 10-K/A, 11-K, NT 10-K/A
1/4/02398-K
1/17/0239
3/31/0256310-Q, NT 10-Q
4/9/023839
5/15/021458
6/11/029
6/15/022258
6/27/02398-K
6/28/02398-K
6/30/0256310-Q
7/15/023618-K
8/21/023618-K
9/30/0256310-Q, NT 10-Q
10/17/02358-K
10/21/02358-K
11/4/0235
11/13/023638-K
11/14/024010-Q
12/9/02358-K
12/15/022359
12/20/023618-K
12/30/02358-K
For The Period Ended12/31/02179
1/1/0330
1/2/03408-K
2/28/031863
3/14/034583
3/18/0336
3/21/03113
3/28/0332
3/30/0332
Filed On / Filed As Of3/31/0318310-Q
4/11/031863
4/19/033575
4/21/03563
6/1/031173
10/27/032677
2/28/04564
8/28/04564
12/31/043010-K
2/28/051863
6/13/059
6/26/0675
12/1/08462
 
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