SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
-----------------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-5485
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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, Illinois 60527
- ----------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 789-4900
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 12b-2 of the Exchange Act). Yes No X
----- -----
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes X No
----- -----
As of May 15, 2003, there were 10,670,197 shares outstanding of the
registrant's Common Stock, $.01 par value.
Page 1 of 30
INDEX TO FINANCIAL STATEMENTS
VISKASE COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Consolidated balance sheets at March 31, 2003 and December 31, 2002 4
Consolidated statements of operations for the three months ended
March 31, 2003 and March 31, 2002 5
Consolidated statements of cash flows for the three months ended
March 31, 2003 and March 31, 2002 6
Notes to consolidated financial statements 7
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information included in this quarterly report has been prepared
in conformity with the accounting principles and practices reflected in the
financial statements included in the annual report on Form 10-K filed with
the Securities and Exchange Commission for the year ended December 31, 2002
(2002 Form 10-K). These quarterly financial statements should be read in
conjunction with the financial statements and the notes thereto included in
the 2002 Form 10-K. The accompanying financial information, which is
unaudited, reflects all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods
presented.
The consolidated balance sheet as of December 31, 2002 was derived from the
audited consolidated financial statements in the Company's annual report on
Form 10-K.
Reported interim results of operations are based in part on estimates, which
may be subject to year-end adjustments. In addition, these quarterly results
of operations are not necessarily indicative of those expected for the year.
VISKASE COMPANIES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except for number of shares and per share amounts)
March 31, December 31,
2003 2002
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents (see note 2) $ 9,878 $ 27,700
Restricted cash 28,351 28,347
Receivables, net 26,715 25,563
Inventories 32,235 30,587
Other current assets 9,376 7,245
-------- --------
Total current assets $106,555 $119,442
Property, plant and equipment,
including those under capital leases 246,238 246,434
Less accumulated depreciation
and amortization 158,903 154,088
-------- --------
Property, plant and equipment, net 87,335 92,346
Deferred financing costs, net 36 39
Other assets 6,375 6,854
-------- --------
Total Assets $200,301 $218,681
======== ========
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 $ 14,894 $ 64,283
Accounts payable 12,387 11,649
Accrued liabilities 25,284 27,918
Current deferred income taxes 1,597 1,597
-------- --------
Total current liabilities not subject to compromise 54,162 105,447
Current liabilities subject to compromise 188,198 188,198
Long-term debt including obligations
under capital leases not subject to compromise 34,235 85
Accrued employee benefits 77,581 75,621
Noncurrent deferred income taxes 24,166 24,476
Commitments and contingencies
Stockholders' deficit
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
issued and outstanding, 15,313,737 shares
at March 31, 2003 and
15,314,562 shares at December 31, 2002 153 153
Paid in capital 138,004 138,007
Accumulated (deficit) (293,977) (291,904)
Accumulated other comprehensive (loss) (22,168) (21,323)
Unearned restricted stock issued
for future service (53) (79)
-------- --------
Total stockholders' (deficit) (178,041) (175,146)
-------- --------
Total Liabilities and Stockholders' Deficit $200,301 $218,681
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
VISKASE COMPANIES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Three Months Ended
------------------ ------------------
March 31, 2003 March 31, 2002
-------------- --------------
(in thousands, except for number of shares and per share amounts)
NET SALES $45,402 $43,387
COSTS AND EXPENSES
Cost of sales 38,031 34,711
Selling, general and administrative 8,890 10,611
Amortization of intangibles 500 500
-------- --------
OPERATING INCOME (LOSS) (2,019) (2,435)
Interest income 323 314
Interest expense 1,204 6,127
Other (income), net (1,505) (94)
-------- --------
(LOSS) BEFORE INCOME TAXES
AND REORGANIZATION EXPENSES (1,395) (8,154)
Reorganization expense 399
-------- --------
(LOSS) BEFORE INCOME TAXES (1,794) (8,154)
Income tax provision (benefit) 279 (271)
-------- --------
NET (LOSS) (2,073) (7,883)
Other comprehensive (loss):
Foreign currency translation adjustments (845) (419)
-------- --------
COMPREHENSIVE (LOSS) $(2,918) $(8,302)
======== ========
WEIGHTED AVERAGE COMMON SHARES
- BASIC AND DILUTED 15,314,553 15,317,104
=========== ===========
PER SHARE AMOUNTS:
(LOSS) PER SHARE
- basic and diluted
Net (loss) $(.14) $(.51)
====== ======
The accompanying notes are an integral part of the consolidated financial
statements.
VISKASE COMPANIES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
------------------------------
March 31, March 31,
2003 2002
------------------------------
(in thousands)
Cash flows from operating activities:
Net (loss) $(2,073) $(7,883)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization under capital lease 4,838 5,246
Amortization of intangibles 500 500
Amortization of deferred financing fees and discount 3 105
Reorganization expense 399
(Decrease) increase in deferred income taxes (339) 163
Unrealized foreign currency transaction loss 311 138
Gain on disposition of assets (330)
Bad debt provision 113 36
Changes in operating assets and liabilities:
Receivables (1,358) (1,009)
Inventories (1,407) (1,470)
Other current assets (2,143) (1,355)
Accounts payable and accrued liabilities (1,429) (121)
Other (404) 767
-------- --------
Total adjustments (1,246) 3,000
-------- --------
Net cash (used in) operating activities
before reorganization expense (3,319) (4,883)
Net cash used for reorganization items (386)
Cash flows from investing activities:
Capital expenditures (527) (268)
Proceeds from disposition of assets 1,302
Restricted cash (4) (611)
-------- --------
Net cash provided by (used in) investing activities 771 (879)
Cash flows from financing activities:
Repayment of capital lease obligations (15,242) (8,779)
-------- --------
Net cash (used in) financing activities (15,242) (8,779)
Effect of currency exchange rate changes on cash 354 (67)
-------- --------
Net (decrease) in cash and equivalents (17,822) (14,608)
Cash and equivalents at beginning of period 27,700 25,540
-------- --------
Cash and equivalents at end of period $ 9,878 $10,932
======== ========
Supplemental cash flow information and noncash investing
and financing activities:
Interest paid less capitalized interest $ 3,311 $ 3,047
Income taxes paid $ 843 $ 2
The accompanying notes are an integral part of the consolidated financial
statements.
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, warrants and per share and per bond amounts)
On November 13, 2002 (Petition Date), the Company filed a prepackaged Chapter
11 bankruptcy in the U.S. Bankruptcy Court for the Northern District of
Illinois, Eastern Division (Bankruptcy Court). The Chapter 11 filing was for
Viskase Companies, Inc. (VCI) only and did not include any of its domestic or
foreign subsidiaries. The Bankruptcy Court confirmed the Prepackaged Plan of
Reorganization, as modified (Plan) on December 20, 2002.
On April 3, 2003, VCI consummated its Plan, under which the Company's current
noteholders received just over 90% of the Company's equity on a fully diluted
basis. (See Subsequent Event Note 8.) Suppliers and other trade creditors
were not affected by the consummation of the Plan.
The accompanying consolidated financial statements have been prepared in
accordance with the American Institute of Certified Public Accountants
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 adopting fresh start accounting, the
amounts and classifications reported in the consolidated historical financial
statements will materially change.
The principal categories of claims reclassified in the Consolidated Balance
Sheets at March 31, 2003 and December 31, 2002 and included in current
liabilities subject to compromise are identified below:
(in thousands)
10.25% Senior Notes $163,060
Accrued interest through Petition Date 25,098
Other current liabilities 40
--------
$188,198
========
Condensed financial information of VCI 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
January 1, 2003 November 13, 2002
to to
March 31, 2003 December 31, 2002
Selling, general and administrative $ 76 $ 49
Other expense, net 34 30
Intercompany (expense) income, net (2,386) 5,049
-------- -------
Income (loss) before taxes and
reorganization items (2,496) 4,970
Reorganization expense 399 452
Income tax provision 0 0
-------- -------
NET INCOME (LOSS) $(2,895) $4,518
======== =======
VISKASE COMPANIES, INC.
CHAPTER 11 FILING ENTITY
DEBTOR-IN-POSSESSION
CONDENSED STATEMENT OF CASH FLOWS
(unaudited) dollars in thousands
January 1, 2003 November 13, 2002
to to
March 31, 2003 December 31, 2002
Cash flows from operating activities:
Net income (loss) $(2,895) $4,518
Adjustments to reconcile net income to net cash:
Changes in operating assets and liabilities
Other current assets (1) (169)
Accrued liabilities 1 513
Decrease in deferred tax (12) (26)
Intercompany accounts 2,904 (4,855)
Other 3 19
-------- -------
Net cash (used in) operating activities 0 0
Net decrease in cash and equivalents 0 0
Cash and equivalents at beginning of period 0 0
-------- -------
Cash and equivalents at end of period $ 0 $ 0
======== =======
VISKASE COMPANIES, INC.
CHAPTER 11 FILING ENTITY
DEBTOR-IN-POSSESSION BALANCE SHEET
(unaudited) dollars in thousands
March 31, 2003 December 31, 2002
ASSETS
Current assets
Other current assets $ 170 $ 169
---------- ----------
Total current assets 170 169
Deferred financing 36 39
Intercompany receivables 418,647 411,629
Investment in affiliate entities (358,176) (348,254)
---------- ----------
Total assets $ 60,677 $ 63,583
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities not subject to compromise:
Overdrafts payable $ 52 $ 52
Accounts payable 364 407
Accrued liabilities 98 54
---------- ----------
Total current liabilities not subject to compromise 514 513
Current liabilities subject to compromise 188,198 188,198
Deferred income taxes 50,006 50,018
---------- ----------
Total liabilities 238,718 238,729
Stockholders' deficit (178,041) (175,146)
---------- ----------
Total Liabilities and Stockholders' Deficit $ 60,677 $ 63,583
========== ==========
2. CASH AND CASH EQUIVALENTS (dollars in thousands)
March 31, 2003 December 31, 2002
Cash and cash equivalents $ 9,878 $27,700
Restricted cash 28,351 28,347
------- -------
$38,229 $56,047
======= =======
As of March 31, 2003, cash equivalents and restricted cash of $33,156 are
invested in short term investments.
The 2002 restricted cash is principally cash held as collateral for
outstanding letters of credit with commercial banks. 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.
3. INVENTORIES (dollars in thousands)
Inventories consisted of:
March 31, 2003 December 31, 2002
-------------- -----------------
Raw materials $ 3,662 $ 3,872
Work in process 14,067 13,394
Finished products 14,506 13,321
------- -------
$32,235 $30,587
Approximately 51% of the Company's inventories at March 31, 2003 were valued
at LIFO. Remaining inventories, primarily foreign, are valued at the lower of
first-in, first-out (FIFO) cost or market. At March 31, 2003, the LIFO values
exceeded current manufacturing cost by approximately $607.
4. DEBT OBLIGATIONS (in thousands, except for number of shares, warrants and
per share and per bond amounts)
Outstanding short-term and long-term debt consisted of:
March December
31, 2003 31, 2002
-------- --------
Short-term debt, current maturity of long-term
debt, and capital lease obligation not subject to compromise:
Viskase Capital Lease Obligation $ 14,751 $ 64,106
Other 143 177
-------- --------
Total short-term debt not subject to compromise $ 14,894 $ 64,283
======== ========
Current liabilities subject to compromise:
10.25% Senior Notes $163,060 $163,060
Accrued interest 25,098 25,098
Other current liabilities 40 40
-------- --------
Total current liabilities subject to compromise: $188,198 $188,198
======== ========
Long-term debt not subject to compromise:
Viskase Capital Lease Obligation $34,149
Other 86 $ 85
------- --------
Total long-term debt not subject to compromise $34,235 $ 85
======= ========
10.25% Senior Notes
- -------------------
On the Petition Date, the Company filed a prepackaged Chapter 11 bankruptcy
in the Bankruptcy Court. The Chapter 11 filing was for VCI only and did not
include any of its domestic or foreign subsidiaries. The Bankruptcy Court
confirmed the Plan on December 20, 2002. The interest expense for the first
quarter of 2003 relating to the 10.25% Senior Notes (Old Senior Notes) would
have been approximately $4.4 million.
On April 3, 2003, VCI consummated its Plan, under which the Company's current
noteholders received just over 90% of the Company's equity on a fully diluted
basis. (See Subsequent Event Note 8.) Suppliers and other trade creditors
were not affected by the consummation of the Plan.
The principal categories of claims reclassified in the Consolidated Balance
Sheets at March 31, 2003 and December 31, 2002 and included in current
liabilities subject to compromise are identified below:
(in thousands)
10.25% Senior Notes $163,060
Accrued interest through Petition Date 25,098
Other current liabilities 40
--------
$188,198
========
GECC
- ----
The following lease payment maturities, which include principal and interest,
conform to contractual payments under the lease:
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, December 31,
2002 and March 31, 2003 and (ii) the Company becoming a debtor under Chapter
11 of the Bankruptcy Code until April 21, 2003. On April 3, 2003, the Company
and GECC amended certain lease documents upon the emergence from bankruptcy.
The amendment permanently waived prior non-compliance with the Fixed Charge
Coverage Ratio and established a new Fixed Charge Coverage Ratio for the
remainder of the lease term. The amendment also changed the payment terms for
the February 28, 2004 lease payment; with $11,750 due on February 28, 2004
and $11,749 due on August 28, 2004. On April 11, 2003 the Company paid GECC
the contractual payment under the lease of $5,000.
The Company has the option to purchase the equipment at the end of the basic
lease period in February 2006 for the lesser of (i) fair market value as
agreed to between the parties or by the established appraisal procedures or
(ii) $85,730. The Company also has the option to renew the lease for three
years, plus the option for subsequent renewals at a basic rental price equal
to the lesser of (i) $11,750 or (ii) fair rental value as agreed to between
the parties or by the established appraisal procedures. Notice under the
purchase option or renewal option must be given by August 2004.
Letter of Credit Facility
Letters of credit in the amount of $27.6 million were outstanding under a
letter of credit facility with commercial banks, and were cash collateralized
at March 31, 2003.
5. 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 claimed 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. A trial date has been set for March 29, 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. 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 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 Court is expected to rule on the Company's Motion to
Dismiss in late May 2003.
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 position.
6. RESTRUCTURING CHARGE (dollars in millions)
During 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 resulting in
income 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.
2002 Restructuring
- ------------------
2002 2002
Restructuring Restructuring
Reserve as of Reserve as of
December 31, 2002 Payments March 31, 2003
----------------- -------- --------------
Employee costs $.5 $(.1) $.4
Decommissioning .1 .1
--- ----- ---
Total restructuring reserve $.6 $(.1) $.5
=== ===== ===
2000 Restructuring
- ------------------
2000 2000
Restructuring Restructuring
Reserve as of Reserve as of
December 31, 2002 Payments March 31, 2003
----------------- -------- --------------
Nucel(r) and other $2.2 $(.6) $1.6
Decommissioning .1 .1
---- ----- ----
Total restructuring reserve $2.3 $(.6) $1.7
---- ----- ----
In the first quarter of 2003 the Company paid third party license fees of
approximately $.6 million. The renegotiated Nucel(r) technology third party
license fee payments remaining are estimated at $.3 million, $.4 million, $.2
million, $.2 million and $.5 million for the year periods 2003 through 2007,
respectively, and are included in the 2000 restructuring reserve.
7. EARNINGS PER SHARE (EPS)
Following are the reconciliations of the numerators and denominators of the
basic and diluted EPS.
Three Months Three Months
Ended March 31, Ended March 31,
2003 2002
--------------- ---------------
(in thousands, except for weighted
average shares outstanding)
NUMERATOR:
(Loss) available to common stockholders:
Net (Loss) $(2,073) $(7,883)
-------- --------
Net loss available to common stockholders
for basic and diluted EPS $(2,073) $(7,883)
======== ========
DENOMINATOR:
Weighted average shares outstanding
for basic EPS 15,314,553 15,317,104
Effect of dilutive securities -- --
---------- ----------
Weighted average shares outstanding
for diluted EPS 15,314,553 15,317,104
========== ==========
Common stock equivalents are excluded from the loss per share calculations as
the result is antidilutive.
8. SUBSEQUENT EVENT (in thousands, except number of shares, warrants and per
share and per bond amounts)
On April 3, 2003, VCI consummated its Plan, which had previously been
confirmed by order of the Bankruptcy Court. Under the Plan, the Company's
current noteholders received just over 90% of the Company's equity on a fully
diluted basis. Suppliers and other trade creditors were not affected by the
consummation of the Plan.
SUMMARY OF THE PLAN
Under the terms of the Plan, the Company's wholly owned operating subsidiary,
Viskase Corporation, was merged into VCI with VCI being the surviving
corporation.
The holders of the Company's outstanding $163,060 of Old Senior Notes
received a pro rata share of $60,000 face value of new 8% Senior Subordinated
Notes due December 1, 2008 (New Notes) and 10,340,000 shares of new common
stock (New Common Stock) issued by the Company on a basis of $367.96271
principal amount of New Notes and 63.4122 shares of New Common Stock for each
one thousand dollar ($1,000) principal amount of Old Senior Notes.
The New Notes bear interest at a stated rate of 8% per year, and 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 (paid-in-kind) for the first three years.
The first interest payment date on the New Notes is June 30, 2003 (paid-in-
kind). 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
(paid-in-kind). Thereafter, interest will be payable in cash. The New Notes
mature on December 1, 2008 with an accreted value of approximately $88,883,
assuming interest in the first five years is paid in the form of New Notes
(paid-in-kind). The New Notes are secured by substantially all of the
Company's personal property other than assets subject to the Company's
capital lease obligations.
Shares of common stock (Old Common Stock) and options of the Company
outstanding prior to the Company's emergence from bankruptcy were canceled
pursuant to the Plan. Holders of the Old Common Stock received a pro rata
share of 306,291 warrants (Warrants) to purchase shares of New Common Stock.
The Warrants have a seven year term and an exercise price of $10.00 per
share.
Under the restructuring, 660,000 shares of Restricted Stock were issued to
Company management and employees under a new Restricted Stock Plan. Any such
shares that are issued are subject to a vesting schedule with acceleration
upon the occurrence of certain events.
The Company has also entered into a three year $20,000 working capital
facility to provide the Company with additional financial flexibility. The
working capital facility is senior to the New Notes. The credit facility is a
three-year facility. Interest under the credit facility is prime plus 200
basis points. The credit facility contains one financial covenant that
requires a minimum level of earnings before depreciation, interest,
amortization and taxes (EBDIAT) calculated on a rolling four quarter basis.
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. As a result, the effects of the adjustments on
reported amounts of individual assets and liabilities resulting from the
adoption of fresh start accounting and the effects of the forgiveness of debt
will be reflected in the Company's historical statement of operations. Upon
emergence from bankruptcy, the amounts and classifications reported in the
consolidated historical financial statements will materially change.
The Company believes the Reorganization qualifies as a nontaxable
transaction. The Company will realize cancellation of debt income for federal
income tax purposes as a result of the Reorganization. The Company
anticipates that the amount of such income will not exceed the amount by
which the Company was insolvent immediately prior to the implementation of
the Reorganization plus the amount of its available net operating loss
carryforwards that exist prior to the Reorganization. Accordingly, the
Company does not anticipate that it will have taxable cancellation of debt
income as a result of the Reorganization. If, however, the Internal Revenue
Service were to successfully challenge the Company's qualification of
insolvency, the Company could be required to recognize taxable cancellation
of debt income as a result of the Reorganization.
Since the Plan results in (i) a change in ownership as defined by SOP 90-7
and (ii) a reorganization value of the emerging entity immediately before the
date of confirmation that is less than the total of all allowed claims and
post-petition liabilities, the Company will adopt fresh start accounting
which results in a new reporting entity with no beginning retained deficit.
Under fresh start accounting, the assets and liabilities of the Company are
to be valued at fair value at the date of reorganization. The Company is in
the process of determining what fair value adjustments will be necessary in
connection with the reorganization based on valuations and other studies that
are not all available. Certain fair value adjustments have been reflected in
the pro forma condensed balance sheet based on management's best estimates at
this point in time. The actual adjustments may differ significantly from the
pro forma amounts included herein. The following table illustrates the
estimated effects of the reorganization and fresh start adjustments, on a pro
forma basis, as if the Company had recorded the aforementioned adjustments as
of March 31, 2003:
March 31, 2003 March 31, 2003
Before After
Reorgani- Pro-Forma Reorgani-
zation Reorgani- Pro-Forma zation
and zation Fresh Start and
Fresh Start Adjustments Adjustments Fresh Start
------------ ----------- ----------- -------------
(in thousands)
ASSETS
Current assets:
Cash and equivalents $ 9,878 $ 9,878
Restricted cash 28,351 28,351
Receivables, net 26,715 26,715
Inventories 32,235 $(211) (10) 32,024
Other current assets 9,376 9,376
-------- ------- --------- --------
Total current assets $106,555 $(211) $106,344
Property, plant and equipment,
including those under capital leases 246,238 (153,428) (11) 92,810
Less accumulated depreciation
and amortization 158,903 (158,903) (11)
-------- ------- --------- --------
Property, plant and equipment, net 87,335 5,475 92,810
Deferred financing costs 36 36
Other assets 6,375 25,877 (12) 32,252
Excess reorganization value 30,717 (1) (30,717) 0
-------- ------- --------- --------
Total Assets $200,301 $30,717 $ 424 $231,442
======== ======= ========= ========
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 $ 14,894 $ 14,894
Accounts payable 12,387 12,387
Accrued liabilities 25,284 $40 (2) 25,324
Current deferred income taxes 1,597 1,597
-------- ------- --------- --------
Total current liabilities not subject
to compromise 54,162 40 54,202
Current liabilities subject to compromise 188,198 (188,198) (3)
Long-term debt including obligations
under capital leases not subject to compromise 34,235 39,870 (4) 74,105
Accrued employee benefits 77,581 424 (14) 78,005
Noncurrent deferred income taxes 24,166 24,166
Commitments and contingencies
Stockholders' (deficit) equity:
Old common stock, $.01 par value;
15,314,562 shares issued and outstanding 153 (53) (5)
New common stock, $.01 par value;
10,670,197 shares issued and outstanding 107 (6) 107
Paid in capital 138,004 (137,111) (7) 893
Accumulated (deficit) (293,977) 293,977 (8)
Accumulated other comprehensive (loss) (22,168) 22,168 (5)
Unearned restricted stock issued
for future service (53) 17 (9) (36)
-------- ------- --------- --------
Total stockholders' (deficit) equity (178,041) 179,005 964
-------- ------- --------- --------
Total Liabilities and Stockholders'
(Deficit) Equity $200,301 $30,717 $ 424 $231,442
======== ======== ========= ========
Pro Forma Reorganization Adjustments:
(1) Excess reorganization value consisted of the following:
A. Eliminate the accumulated other comprehensive loss $22,168
B. Eliminate the unearned restricted stock 53
C. Eliminate the accumulated deficit 146,653
D. Eliminate the par value of Old Common Stock (153)
E. Eliminate the paid in capital for Old Common Stock (138,004)
---------
$ 30,717
=========
(2) To reclassify the pre-petition other current liabilities to accrued liabilities $40
===
(3) The adjustment to liabilities subject to compromise consisted of the following:
A. Pursuant to the Plan of Reorganization, the Old Senior Notes
were exchanged for New Notes $(163,060)
B. Pursuant to the Plan of Reorganization, eliminate the accrued
interest payable on the Old Senior Notes (25,098)
C. Reclassify the pre-petition other current liabilities (40)
----------
$(188,198)
==========
(4) The adjustment to long-term debt consisted of the following:
A. Pursuant to the Plan of Reorganization, issuance of New Notes
at fair market value $33,243
B. Recognize the accreted paid-in-kind (PIK) interest on the New Notes 6,627
-------
$39,870
=======
(5) Eliminate Old Common Stock of ($153) and the accumulated other
comprehensive loss of $22,168.
(6) Adjustments to New Common Stock consist of the following:
A. Pursuant to the Plan of Reorganization, represents the par value of
equity at fair market value exchanged for Old Senior Notes $103
B. Pursuant to the Plan of Reorganization, represents the par value of
shares issued to management for the new Restricted Stock Plan 4
----
$107
====
(7) The adjustment to paid in capital consists of the following:
A. Eliminate the paid in capital for Old Common Stock $(138,004)
B. Recognize the paid in capital on equity at fair market value
exchanged for Old Senior Notes 861
C. Recognize the paid in capital value of shares at fair market
value issued to management from the new Restricted Stock Plan 32
----------
$(137,111)
==========
(8) The adjustment to the accumulated deficit consists of the following:
A. Pursuant to the Plan of Reorganization, the issuance of New Notes
at fair market value $(33,243)
B. Recognize the accreted PIK interest on the New Notes (6,627)
C. Recognize the equity at fair market value exchange for Old
Senior Notes (964)
D. Pursuant to the Plan of Reorganization, the Old Senior Notes
were exchanged for New Notes 163,060
E. Pursuant to the Plan of Reorganization, eliminate the accrued interest
payable on the Old Senior Notes 25,098
F. Eliminate accumulated deficit 146,653
--------
$293,977
========
(9) A. Recognize the fair market value of the new Restricted Stock
Plan shares issued to management $(36)
B. Eliminate the old unearned restricted stock 53
-----
$17
=====
Pro Forma Fresh Start Adjustments
(10) Represents adjustment to write down inventories to net realizable value. $(211)
======
(11) Adjustments to property, plant and equipment consist of the following:
A. Eliminate accumulated depreciation $(158,903)
B. Write-up U.S. property, plant and equipment to fair market value 5,475
----------
$(153,428)
==========
(12) Write-up patents to fair market value $25,877
=======
(13) The adjustments to reorganization value in excess of amounts
allocable to identifiable assets and liabilities:
A. Represents adjustment to write down inventories to net realizable value $ 211
B. Write-up U.S. property, plant and equipment to fair market value (5,475)
C. Write-up patents to fair market value (25,877)
D. Recognize a liability for the foreign projected benefit obligation
in excess of foreign plan assets 424
--------
$(30,717)
=========
(14) To recognize a liability for the foreign projected benefit obligation
in excess of foreign plan assets $424
====
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
The Company's net sales for the first quarter of 2003 were $45.4 million,
which represents an increase of 4.6% from the comparable period of 2002. The
increase in sales reflects the strengthening Euro against the U.S. Dollar
that benefited net sales by approximately 6.3%. Sales continue to be affected
by reduced selling prices in the casing industry on relatively constant
volume. Domestic volume increases were offset by foreign volume decreases.
The operating loss from operations for the first quarter of 2003 was $(2.0)
million, representing an improvement of $.4 million from the comparable
period of 2002. The improvement in the operating loss resulted primarily from
operating efficiencies from previous cost saving measures. The Company does
not, however, expect to see additional improvement in its operating income
until prices begin to increase in the industry.
Net interest expense for the first quarter of 2003 totaled $.9 million, which
represented a decrease of $4.9 million from 2002. The decrease is due to the
absence of accrued interest expense on the Old Senior Notes resulting from
the bankruptcy proceeding. The interest expense for the first quarter of 2003
relating to the Old Senior Notes would have been approximately $4.4 million.
Other income of approximately $1.5 million and $.1 million for the first
quarter of 2003 and 2002, respectively, consists principally of foreign
exchange gains and in 2003 the gain associated with the disposal of property
held for sale.
The reorganization expenses of $.4 million consist principally of fees for
legal, financial advisory and professional services incurred due to the
Chapter 11 proceeding.
In the first quarter of 2003, the tax provision of $.3 million on the (loss)
before income taxes of $(1.8) million resulted from the tax provision related
to operations of foreign subsidiaries.
Liquidity and Capital Resources
- -------------------------------
Cash and equivalents decreased by $17.8 million during the first quarter of
2003. Cash flows used in operating activities were $3.3 million, used for
reorganization items were $.4 million, provided by investing activities were
$.8 million, and used in financing activities were $15.2 million. Cash flows
used in operating activities were principally attributable to the effect of
depreciation and amortization, which was more than offset by an increase 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 provided by investing
activities were principally attributable to the proceeds on disposition of
assets held for sale offset by capital expenditures for property, plant and
equipment. Cash flows used in financing activities principally consisted of
the payment of the scheduled GECC capital lease obligation.
The following lease payment maturities, which include principal and interest,
conform to contractual payments under the lease:
(in millions)
-------------
April 11, 2003 $ 5.0
February 28, 2004 $11.8
August 28, 2004 $11.7
February 28, 2005 $23.5
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, December 31,
2002 and March 31, 2003 and (ii) the Company becoming a debtor under Chapter
11 of the Bankruptcy Code until April 21, 2003. On April 3, 2003, the Company
and GECC amended certain lease documents upon the emergence from bankruptcy.
The amendment permanently waived prior non-compliance with the Fixed Charge
Coverage Ratio and established a new Fixed Charge Coverage Ratio for the
remainder of the lease term. The amendment also changed the payment terms for
the February 28, 2004 lease payment; with $11.8 million due on February 28,
2004 and $11.7 million due on August 28, 2004. On April 11, 2003 the Company
paid GECC the contractual payment under the lease of $5 million.
The Company has the option to purchase the equipment at the end of the basic
lease period in February 2006 for the lesser of (i) fair market value as
agreed to between the parties or by the established appraisal procedures or
(ii) $85.7 million. The Company also has the option to renew the lease for
three years, plus the option for subsequent renewals at a basic rental price
equal to the lesser of (i) $11.8 million or (ii) fair rental value as agreed
to between the parties or by the established appraisal procedures. Notice
under the purchase option or renewal option must be given by August 2004.
On the Petition Date, the Company filed a prepackaged Chapter 11 bankruptcy
in the Bankruptcy Court. The Chapter 11 filing was for VCI only and did not
include any of its domestic or foreign subsidiaries. The Bankruptcy Court
confirmed the Plan on December 20, 2002.
On April 3, 2003, VCI consummated its Plan, under which the Company's current
noteholders received just over 90% of the Company's equity on a fully diluted
basis. (See Subsequent Event Note 8.) Suppliers and other trade creditors
were not affected by the consummation of the Plan.
SUMMARY OF THE PLAN
- -------------------
Under the terms of the Plan, the Company's wholly owned operating subsidiary,
Viskase Corporation, was merged into VCI with VCI being the surviving
corporation.
The holders of the Company's outstanding $163.1 million of Old Senior Notes
received a pro rata share of $60 million face value of New Notes and 10.3
million shares of New Common Stock issued by the Company on a basis of
$367.96271 principal amount of New Notes and 63.4122 shares of New Common
Stock for each one thousand dollar ($1,000) principal amount of Old Senior
Notes.
The New Notes bear interest at a stated rate of 8% per year, and 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 (paid-in-kind) for the first three years.
The first interest payment date on the New Notes is June 30, 2003 (paid-in-
kind). 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
(paid-in-kind). Thereafter, interest will be payable in cash. The New Notes
mature on December 1, 2008 with an accreted value of approximately $88.883
million, assuming interest in the first five years is paid in the form of New
Notes (paid-in-kind). The New Notes are secured by substantially all of the
Company's personal property other than assets subject to the Company's
capital lease obligations.
Shares of Old Common Stock and options of the Company outstanding prior to
the Company's emergence from bankruptcy were canceled pursuant to the Plan.
Holders of the Old Common Stock received a pro rata share of 306,291 Warrants
to purchase shares of New Common Stock. The Warrants have a seven year term
and an exercise price of $10.00 per share.
Under the restructuring, 660,000 shares of Restricted Stock were issued to
Company management and employees under a new Restricted Stock Plan. Any such
shares that are issued are subject to a vesting schedule with acceleration
upon the occurrence of certain events.
The Company has also entered into a three year $20 million working capital
facility to provide the Company with additional financial flexibility. The
working capital facility is senior to the New Notes. The credit facility is a
three-year facility. Interest under the credit facility is prime plus 200
basis points. The credit facility contains one financial covenant that
requires a minimum level of EBDIAT calculated on a rolling four quarter
basis.
The accompanying consolidated financial statements have been prepared in
accordance with the American Institute of Certified Public Accountants
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. As a result, the effects of the adjustments on
reported amounts of individual assets and liabilities resulting from the
adoption of fresh start accounting and the effects of the forgiveness of debt
will be reflected in the Company's historical statement of operations. Upon
emergence from bankruptcy, the amounts and classifications reported in the
consolidated historical financial statements will materially change.
Capital expenditures for the quarter ended March 31, 2003 and 2002 totaled
$.5 million and $.3 million, respectively. Significant 2003 capital
expenditures are related to the installation of environmental equipment to
conform to MACT standards for casing manufacturers. Significant 2002 capital
expenditures included costs associated with the Viskase Food Science Quality
Institute (FSQI) plastic casing line. Capital expenditures for 2003 are
expected to be approximately $6 million.
In 2002, the Company spent approximately $4 million on research and
development programs, including product and process development, and on new
technology development. The 2003 research and development and product
introduction expenses are expected to be in the $4.0 million range. 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 Company believes that with its cash flows from operations and
availability under the new working capital facility, it has sufficient
liquidity to fund its operations.
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. A trial date has been set for March 29, 2004.
In August 2001, the Department of Revenue of the Province of Quebec, Canada
issued an assessment against Viskase Canada in the amount of approximately
$2.7 million (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. 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. The Court is expected to rule on the Company's Motion to
Dismiss in late May 2003.
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.
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.
ITEM 3. 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, payables, sales and purchases denominated in U.S. dollars. Based
on its sensitivity analyses at March 31, 2003, a 10% devaluation of the U.S.
dollar would benefit the Company's consolidated balance sheet by
approximately $14 thousand; and would increase net income by $462 thousand
and cash flows by $623 thousand.
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, net and is immaterial.
ITEM 4. CONTROLS AND PROCEDURES
-----------------------
CEO and CFO Certifications
- --------------------------
This quarterly 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 quarterly 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 quarterly report should be read in conjunction
with the 302 Certifications relating to the Company's disclosure controls and
procedures and the Company's internal controls. The second form of
certification is required pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. In the 906
certification, which accompanies this report, the CEO and CFO certify that
this report complies with the requirements of Section 13(a) or 15(d) of The
Securities and Exchange Act of 1934; and that the information contained in
this report fairly represents, in all material respects, the financial
condition and results of operations of Viskase Companies, Inc.
The Company's management, under the supervision and with the participation of
the Chief Executive Officer and the Chief Financial Officer, evaluated the
effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under
the Securities Exchange Act of 1934, as amended). This evaluation was made
within 90 days prior to the filing
of this quarterly report (the Evaluation Date). Based on this evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that, as of the
Evaluation Date, the Company's disclosure controls and procedures are
adequate and effective and designed to ensure that material information
relating to the Company, including its consolidated subsidiaries, is made
known to them by others within these entities.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to
the Evaluation Date. As no significant deficiencies or material weaknesses
were found, no corrective actions were taken.
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
-----------------
For a description of pending litigation and other contingencies, see Part 1,
Note 5, Contingencies in Notes to Consolidated Financial Statements for
Viskase Companies, Inc. and Subsidiaries.
Item 2 - Changes in Securities
---------------------
No reportable events occurred during the quarter ended March 31, 2003.
Item 3 - Defaults Upon Senior Securities
-------------------------------
The Company did not pay the $163.1 million principal and $8.4 million
interest on the Old Senior Notes that became due on December 1, 2001. The
total arrearage under the Old Senior Notes is $188.2 million.
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5 - Other Information
-----------------
None.
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
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
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VISKASE COMPANIES, INC.
Registrant
By: /s/ Gordon S. Donovan
------------------------------
Gordon S. Donovan
Vice President, Chief Financial
Officer and Treasurer
(Duly authorized officer
and principal financial
officer of the registrant)
Date: May 15, 2003
CERTIFICATIONS
I, F. Edward Gustafson, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Viskase Companies,
Inc.;
2) Based on my knowledge, this quarterly 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 quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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 quarterly
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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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: May 15, 2003
/s/ F. Edward Gustafson
------------------------
F. Edward Gustafson
Chairman, Chief Executive Officer and President
I, Gordon S. Donovan, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Viskase Companies,
Inc.;
2) Based on my knowledge, this quarterly 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 quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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 quarterly
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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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: May 15, 2003
/s/ Gordon S. Donovan
-----------------------
Gordon S. Donovan
Vice President, Chief Financial Officer and Treasurer