Viskase Companies, Inc.
Annual Report 2016

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VISKASE COMPANIES, INC. ANNUAL REPORT 2016 This report has been prepared in accordance with Section 5.04 of the Credit Agreement dated as of January 30, 2014 among Viskase Companies, Inc. (the “Company”) and UBS AG, Stamford Branch as administrative agent and as collateral agent (the “Agent”). 1 CONSOLIDATED FINANCIAL STATEMENTS OF VISKASE COMPANIES, INC. AND SUBSIDIARIES 1. Financial Statements: Report of Independent Certified Public Accountants Consolidated Balance Sheets as of December 31, 2016 and 2015 Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2016, 2015 and 2014 Consolidated Statements of Stockholders' Equity for years ended December 31, 2016, 2015 and 2014 Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014 2. Notes to Consolidated Financial Statements GrantThorntonTower 171N.ClarkStreet,Suite200 Chicago,IL60601-3370 T312.856.0200 F312.565.4719 www.GrantThornton.com Boardof Directors ViskaseCompanies,Inc. WehaveauditedtheaccompanyingconsolidatedfinancialstatementsofViskaseCompanies,Inc. (a Delawarecorporation)andsubsidiaries,whichcomprise theconsolidated balancesheetsasof December31,2016and2015,andtherelatedconsolidatedstatementsofoperations, comprehensive (loss) income,stockholders’equity,andcashflowsfor theyears thenended,and therelated notes to thefinancialstatements. Management’s responsibility for the financial statements Managementisresponsibleforthepreparationandfairpresentationoftheseconsolidated financialstatementsinaccordancewithaccountingprinciplesgenerallyacceptedintheUnited StatesofAmerica; this includesthe design, implementation,and maintenanceofinternalcontrol relevanttothepreparationandfairpresentationofconsolidatedfinancialstatementsthatarefree frommaterial misstatement,whether due tofraudorerror. Auditor’sresponsibility Ourresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedon ouraudits.Weconductedourauditsinaccordancewithauditingstandardsgenerallyacceptedin theUnitedStatesofAmerica.Thosestandardsrequirethatweplanandperformtheauditto obtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsarefreefrom material misstatement. Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsand disclosuresintheconsolidatedfinancialstatements.Theproceduresselecteddependonthe auditor’sjudgment,includingtheassessmentoftherisksofmaterialmisstatementofthe consolidatedfinancialstatements,whetherduetofraudorerror.Inmakingthoserisk assessments,theauditorconsidersinternalcontrolrelevanttotheentity’spreparationandfair presentationoftheconsolidatedfinancialstatementsinordertodesignauditproceduresthatare appropriateinthecircumstances,butnotforthepurposeofexpressinganopiniononthe effectivenessoftheentity’sinternalcontrol.Accordingly,weexpressnosuchopinion.Anaudit alsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonableness U.S. member firm of Grant Thornton International Ltd ofsignificantaccountingestimatesmadebymanagement,aswellasevaluatingtheoverall presentationof theconsolidatedfinancialstatements. Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovide a basisforouraudit opinion. Opinion Inouropinion,theconsolidatedfinancialstatementsreferredtoabovepresentfairly,inall materialrespects,thefinancialpositionofViskaseCompanies,Inc.andsubsidiariesasof December31,2016and2015,andtheresultsoftheiroperationsandtheircashflowsforthe yearsthenendedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStates ofAmerica. Emphasis of matter WedrawattentiontoNote 1tothefinancialstatements,whichdescribes theCompanyadopted newaccountingguidancein2016relatedtothepresentationofdeferredfinancingcosts.Our opinionis not modifiedwithrespectto this matter. Chicago,Illinois March 31, 2017 U.S. member firm of Grant Thornton International Ltd VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except for Number of Shares) ASSETS Current assets: Cash and cash equivalents Restricted cash Receivables, net Inventories Other current assets Total current assets Property, plant and equipment Less accumulated depreciation Property, plant and equipment, net Other assets, net Goodwill Deferred income taxes Total Assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt Short-term portion of capital lease obligations Accounts payable Accrued liabilities Total current liabilities Long-term debt, net of current maturities Capital lease obligations, net of current portion Long-term liabilities Accrued employee benefits Deferred income taxes Stockholders’ equity: Common stock, $0.01 par value; 37,329,269 shares issued and 36,523,999 outstanding at December 31, 2016 and 36,989,711 shares issued and 36,184,441 outstanding at December 31, 2015 Paid in capital Retained earnings Less 805,270 treasury shares, at cost Accumulated other comprehensive loss Total stockholders' equity December 31, 2016 December 31, 2015 $39,129 2,063 62,938 72,279 28,361 204,770 308,841 (153,554) 155,287 11,666 329 51,386 $37,321 1,364 60,252 76,788 24,489 200,214 294,355 (140,727) 153,628 8,860 - 48,848 $423,438 $411,550 $2,750 90 28,582 38,796 70,218 261,905 61 1,770 56,354 326 373 32,472 85,832 (298) (85,575) 32,804 $3,160 174 25,472 34,809 63,615 264,148 137 - 50,495 - 370 32,861 80,272 (298) (80,050) 33,155 Total Liabilities and Stockholders' Equity $423,438 $411,550 See notes to consolidated financial statements. 5 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands) NET SALES Cost of sales GROSS MARGIN Selling, general and administrative Amortization of intangibles Asset impairment charge Restructuring expense Year Ended December 31, 2016 Year Ended December 31, 2015 Year Ended December 31, 2014 $328,820 $343,583 $365,203 247,570 258,893 274,267 81,250 84,690 90,936 51,934 18 - 4,809 52,589 16 445 2,672 44,643 18 80 217 OPERATING INCOME 24,489 28,968 45,978 Interest income Interest expense, net Loss on early extinguishment of debt Other (income) expense, net 22 12,543 - (1,238) 31 12,458 - 5,358 19 14,191 15,739 3,179 INCOME BEFORE INCOME TAXES 13,206 11,183 12,888 Income tax provision 7,646 9,886 3,058 NET INCOME $5,560 $1,297 $9,830 WEIGHTED AVERAGE COMMON SHARES - BASIC 36,186,302 36,184,334 36,131,795 PER SHARE AMOUNTS: EARNINGS PER SHARE - BASIC $0.15 $0.04 $0.27 WEIGHTED AVERAGE COMMON SHARES - DILUTED 36,243,772 37,189,121 37,280,064 PER SHARE AMOUNTS: EARNINGS PER SHARE - DILUTED $0.15 $0.03 $0.26 See notes to consolidated financial statements. 6 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) Net income Other comprehensive (loss) income, net of tax Pension liability adjustment Foreign currency translation adjustment Other comprehensive (loss), net of tax Ended December 31, 2016 Ended December 31, 2015 Ended December 31, 2014 $5,560 $1,297 $9,830 482 (6,007) (5,525) 1,454 (8,546) (7,092) (16,484) (9,530) (26,014) Comprehensive income (loss) $35 ($5,795) ($16,184) See notes to consolidated financial statements. 7 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In Thousands) Balance December 31, 2013 Net income Foreign currency translation adjustment Pension liability adjustment, net of tax Stock option expense Stock option exercise Balance December 31, 2014 Net income Foreign currency translation adjustment Pension liability adjustment, net of tax Stock option expense Balance December 31, 2015 Net income Foreign currency translation adjustment Pension liability adjustment, net of tax Stock option exercise Balance December 31, 2016 Common stock $369 Paid in capital $32,839 Treasury stock Retained earnings Accumulated other comprehensive loss ($298) $69,145 ($46,944) Total stockholders’ equity (deficit) $55,111 - - - - 1 $370 - - - - $370 - - - 3 $373 - - - 60 (98) $32,801 - - - 60 $32,861 - - - (389) $32,472 - - - - - ($298) - - - - ($298) - - - - ($298) 9,830 - - - - $78,975 1,297 - - - $80,272 5,560 - - - $85,832 - (9,530) (16,484) - - ($72,958) - (8,546) 1,454 - ($80,050) - (6,007) 482 - ($85,575) 9,830 (9,530) (16,484) 60 (97) $38,890 1,297 (8,546) 1,454 60 $33,155 5,560 (6,007) 482 (386) $32,804 See notes to consolidated financial statements. 8 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Year Ended December 31, 2016 Year Ended December 31, 2015 Year Ended December 31, 2014 $5,560 $1,297 $9,830 19,051 - 18 639 (1,279) 244 10 - 123 (3,191) 3,297 (4,131) 3,400 4,752 5,078 (4,086) (1,109) 22,816 28,376 (18,091) (4,063) 51 (22,103) 3 (245) - (3,166) - (170) (699) (4,277) (188) 1,808 37,321 $39,129 $11,845 $6,750 $1,760 18,843 60 16 589 3,078 1,375 475 - 90 1,164 (2,207) 1,968 (1,297) 2,788 347 (2,294) (1,383) 23,612 24,909 (21,991) - 40 (21,951) - (120) - (3,310) - (348) - (3,778) (1,169) (1,989) 39,310 $37,321 $13,761 $6,376 - 20,101 60 18 534 466 269 403 15,739 79 1,459 (8,209) 2,270 (3,941) (12,181) (4,556) (6,242) (1,309) 4,960 14,790 (23,091) - 2 (23,089) 1 (3,228) 274,313 (15,357) (225,617) (375) (102) 29,635 (1,105) 20,231 19,079 $39,310 $10,834 $4,889 - Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Stock-based compensation Amortization of intangibles Amortization of deferred financing fees Deferred income taxes Loss on disposition of assets Bad debt and accounts receivable provision Loss on early extinguishment of debt Non-cash interest on notes Changes in operating assets and liabilities: Receivables Inventories Other current assets Accounts payable Accrued liabilities Accrued employee benefits Other assets Other Total adjustments Net cash provided by operating activities Cash flows from investing activities: Capital expenditures Acquisition of businesses, net of cash acquired Proceeds from disposition of assets Net cash used in investing activities Cash flows from financing activities: Issuance of common stock Deferred financing costs Proceeds from long-term debt Repayment of short-term debt Repayment of long-term debt Repayment of capital lease Restricted cash Net cash (used in) provided by financing activities Effect of currency exchange rate changes on cash Net increase (decrease)in cash and equivalents Cash and equivalents at beginning of period Cash and equivalents at end of period Supplemental cash flow information: Interest paid less capitalized interest Income taxes paid Non cash capital expenditures See notes to consolidated financial statements. 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands) 1. Summary of Significant Accounting Policy Nature of Operations Viskase Companies, Inc. together with its subsidiaries (“we” or the “Company”) is a producer of non- edible cellulosic, fibrous and plastic casings used to prepare and package processed meat products, and provides value-added support services relating to these products, for some of the largest global consumer products companies. We were incorporated in Delaware in 1970. The Company operates ten manufacturing facilities, six distribution centers and three service centers in North America, Europe, South America, and Asia and, as a result, is able to sell its products in nearly one hundred countries throughout the world. Principles of Consolidation The consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated in consolidation. Reclassification Reclassifications have been made to the prior years’ financial statements to conform to the 2016 presentation. Use of Estimates in the Preparation of Financial Statements The financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and include 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, reserves for excess and obsolete inventory, allowance for doubtful accounts, and income taxes. Management bases its estimates on historical experience and other assumptions that we 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 effect on the Company’s consolidated financial statements. Cash and Cash Equivalents 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 include $158 and $163 of short-term investments at December 31, 2016 and December 31, 2015, respectively. Of the cash held on deposit, essentially all of the cash balance was in excess of amounts insured by the Federal Deposit Insurance Corporation or other foreign provided bank insurance. The Company performs periodic evaluations of these institutions for relative credit standing and has not experienced any losses as a result of its cash concentration. Consequently, no significant concentrations of credit risk are considered to exist. Receivables Trade accounts receivable are classified as current assets and are reported net of allowance for doubtful accounts and a reserve for returns. This estimated allowance is primarily based upon our evaluation of the financial condition of each customer, each customer’s ability to pay and historical write-offs. 10 Inventories Inventories are valued at the lower of first-in, first-out (“FIFO”) cost or market. 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. 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. Depreciation is computed on the straight-line method using a half year convention over the estimated useful lives of the assets ranging from (i) building and improvements - 10 to 32 years, (ii) machinery and equipment - 4 to 12 years, (iii) furniture and fixtures - 3 to 12 years, (iv) auto and trucks - 2 to 5 years, (v) data processing – 3 to 7 years and (vi) leasehold improvements - shorter of lease or useful life. In the ordinary course of business, we lease certain equipment, consisting mainly of autos, and certain real property. Real property consists of manufacturing, distribution and office facilities. Deferred Financing Costs Deferred financing costs are presented in the balance sheet as a direct deduction from the carrying amount of debt liability and amortized as expense using the effective interest rate method over the expected term of the related debt agreement. Amortization of deferred financing costs is classified as interest expense. Patents, Trademarks and Goodwill Patents and trademarks are amortized on the straight-line method over an estimated average useful life of 10 years. We evaluate the carrying value of goodwill annually and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to: (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. Goodwill impairment testing involves a two-step process. Step 1 compares the fair value of our reporting units to their carrying values. If the fair value of the reporting unit exceeds its carrying value, no further analysis is necessary. The reporting unit fair value is based upon consideration of various valuation methodologies, including guideline transaction multiples, multiples of current earnings, and projected future cash flows discounted at rates commensurate with the risk involved. If the carrying amount of the reporting unit exceeds its fair value, Step 2 must be completed to quantify the amount of impairment. Step 2 calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit, from the fair value of the reporting unit as determined in Step 1. The implied fair value of goodwill determined in this step is compared to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss, equal to the difference, is recognized. Long-Lived Assets The Company continues to evaluate the recoverability of long-lived assets including property, plant and equipment, trademarks 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 11 whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Shipping and Handling The Company periodically bills customers for shipping charges. These amounts are included in net revenue, with the associated costs included in cost of sales. Pensions and Other Postretirement Benefits The Company uses appropriate actuarial methods and assumptions in accounting for its defined benefit pension plans and non-pension postretirement benefits. Actual results that differ from assumptions used are accumulated and amortized over future periods and, accordingly, generally affect recognized expense and the recorded obligation in future periods. Therefore, assumptions used to calculate benefit obligations as of the end of a fiscal year directly impact the expense to be recognized in future periods. The primary assumptions affecting the Company’s accounting for employee benefits as of December 31, 2016 are as follows: • Long-term rate of return on plan assets: The required use of the expected long-term rate of return on plan assets may result in recognized returns that are greater or less than the actual returns on those plan assets in any given year. Over time, however, the expected long-term rate of return on plan assets is designed to approximate actual earned long-term returns. The Company uses long-term historical actual return information, the mix of investments that comprise plan assets, and future estimates of long-term investment returns by reference to external sources to develop an assumption of the expected long-term rate of return on plan assets. The expected long-term rate of return is used to calculate net periodic pension cost. In determining its pension obligations, the Company is using a long-term rate of return on U.S. plan assets of 7.50% for 2016. The Company is using a long-term rate of return on French plan assets of 3.20% for 2016. The German pension plan has no assets. • Discount rate: The discount rate is used to calculate future pension and postretirement obligations. The Company is using a Mercer Bond yield curve in determining its pension obligations. The Company is using a discount rate of 4.47% for 2016. The Company is using a weighted average discount rate of 1.45% on its non-U.S. pension plans for 2016. 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. Interest and penalties related to unrecognized tax benefits are included as a component of tax expense. Other Comprehensive Income (Loss) Comprehensive income (loss) includes all other non-stockholder changes in equity. Changes in other comprehensive income (loss) in 2016 and 2015 resulted from changes in foreign currency translation and minimum pension liability. Revenue Recognition Revenues are recognized at the time products are shipped to the customer, under F.O.B shipping point, customer pick up or F.O.B port terms, which is the point at which title is transferred, the customer has the assumed risk of loss, and when payment has been received or collection is reasonably assured. Revenues are net of discounts, rebates and allowances. Viskase records all labor, raw materials, in-bound freight, plant receiving and purchasing, warehousing, handling and distribution costs as a component of costs of sales. 12 Acquisitions of Businesses We account for business combinations under the acquisition method of accounting (other than acquisitions of businesses under common control), which requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date including our estimates for intangible assets, contractual obligations assumed, pre-acquisition contingencies, and contingent consideration, where applicable. In valuing our acquisitions we estimate fair values based on industry data and trends and by reference to relevant market rates and transactions, and discounted cash flow valuation methods, among other factors. The discount rates used were commensurate with the inherent risks associated with each type of asset and the level and timing of cash flows appropriately reflect market participant assumptions. The primary items that generate goodwill include the value of the synergies between the acquired company and our existing businesses and the value of the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset. Financial Instruments The Company routinely enters into fixed price natural gas agreements which require us to purchase a portion of our natural gas each month at fixed prices. These fixed price agreements qualify for the “normal purchases” scope exception under derivative and hedging standards, therefore the natural gas purchases under these contracts were expensed as incurred and included within cost of sales. As of December 31, 2016, future annual minimum purchases remaining under the agreement are $1,571. The Company’s financial instruments include cash and cash equivalents, accounts receivable and accounts payable. The carrying amounts of these financial assets and liabilities approximate fair value due to the short maturities of these instruments. New Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“ASU 2014-09), Revenue from Contracts with Customers, which supersedes most of the current revenue recognition requirements. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. On July 9, 2015, the FASB board voted to defer the effective date to annual reporting periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019 (early adoption is permitted no earlier than the original effective date). The guidance permits the use of either a retrospective or cumulative effect transition method. The Company is currently assessing the impact that adopting this new accounting guidance will have on the Company’s consolidated financial statements. We will adopt these new standards on January 1, 2018 using the modified retrospective application method. In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory.” This update provides that an entity should measure inventory with the scope of the update at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The 13 amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The Company is currently assessing the impact that adopting this new accounting guidance will have on the Company’s consolidated financial statements. In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which amends FASB ASU Subtopic 835-30, Interest - Imputation of Interest. The new standard requires that all costs incurred to issue debt be presented in the balance sheet as a direct deduction from the carrying value of the debt. The standard is effective for interim and annual periods beginning after December 31, 2015 and is required to be applied on a retrospective basis. The Company’s adoption of this new guidance has resulted in a reclassification of debt issuance costs on our consolidated balance sheets of $1,996 and $2,390 at December 31, 2016 and December 31, 2015, respectively. In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This new standard provides guidance on how entities measure certain equity investments and present changes in the fair value. This standard requires that entities measure certain equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. ASU 2016-01 is effective for fiscal years beginning after December 31, 2017. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company's financial statements and disclosures. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a right of use asset and related lease liability for those leases classified as operating leases at the commencement date and have lease terms of more than 12 months. This topic retains the distinction between finance leases and operating leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, and must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company's financial statements and disclosures. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarify the implementation guidance on principal versus agent considerations. The effective date to annual reporting periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019 (early adoption is permitted no earlier than the original effective date). The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company's financial statements and disclosures. In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation- Improvements to Employee Share-Based Payment Accounting (Topic 718), which involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The Company will be early adopt this ASU for fiscal years beginning after December 15, 2016 including interim periods. Management does not expect the adoption of this guidance to have a material impact on the financial statements. In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which amends FASB ASC Topic 230, Statement of Cash Flows. This ASU seeks to reduce the diversity currently in practice by providing guidance on the presentation of eight specific cash flow issues in the statement of cash flows. This ASU is effective for fiscal years beginning after 14 December 15, 2017, and interim periods within those fiscal years. We currently evaluating the impact of this guidance on our consolidated statement of cash flows. In October 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which amends FASB ASC Topic 740, Income Taxes. This ASU requires the recognition of income tax consequences of an intraentity transfer of an asset other than inventory when the transfer occurs. Current U.S. GAAP prohibits the recognition of current and deferred incomes taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial position, results of operations, comprehensive income, cash flows and disclosures. In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which amends FASB ASC Topic 230, Statement of Cash Flows. This ASU requires that the statement of cash flows explain the change during the period total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial position, results of operations, comprehensive income, cash flows and disclosures. 2. Cash and cash equivalents Cash and cash equivalents Restricted cash December 31, 2016 December 31, 2015 $39,129 2,063 $41,192 $37,321 1,364 $38,685 As of December 31, 2016 and December 31, 2015, cash held in foreign banks was $27,224 and $17,407, respectively. As of December 31, 2016 and December 31, 2015, letters of credit in the amount of $2,063 and $1,364, respectively, were outstanding under facilities with a commercial bank, and were cash collateralized in a restricted account. 3. Receivables, net Accounts receivable, gross Less allowance for doubtful accounts Less allowance for sales returns December 31, 2016 December 31, 2015 $63,795 (553) (304) $62,938 $61,258 (583) (423) $60,252 15 Beginning balance Provision (recoveries) Write-offs Foreign translation Ending balance 4. Inventory Raw materials Work in process Finished products December 31, 2016 December 31, 2015 December 31, 2014 $1,006 10 (152) (7) $857 $1,121 475 (564) (26) $1,006 $1,264 403 (524) (22) $1,121 December 31, 2016 December 31, 2015 $9,777 34,249 28,253 $72,279 $11,612 31,496 33,680 $76,788 5. Property, Plant and Equipment, Net Land and improvements Buildings and improvements Machinery and equipment Construction in progress Accumulated Depreciation Land and improvements Buildings and improvements Machinery and equipment December 31, 2016 December 31, 2015 $1,954 37,928 261,121 7,838 $1,888 38,056 246,751 7,660 $308,841 $294,355 December 31, 2016 December 31, 2015 $328 12,551 140,675 $304 10,877 129,546 $153,554 $140,727 16 6. Other Assets Patents and Trademarks Less: Accumulated amortization Patents and trademarks, net Other intangibles Less: Accumulated amortization Other intangibles, net Other taxes receivable Miscellaneous 7. Accrued Liabilities Accrued liabilities were comprised of: Compensation and employee benefits Taxes payable Accrued volume and sales rebates Accrued interest payable Restructuring reserve Other 8. Debt Obligations Short-term debt: Bank term loan Europe unsecured loan Total short-term debt Long-term debt: Bank term loan, net of discount Other Total long-term debt Total debt Revolving Credit Facility December 31, 2016 December 31, 2015 $4,865 (4,662) 203 1,236 (1,236) $4,782 (4,644) 138 1,236 (1,236) - - 11,145 318 $11,666 8,347 375 $8,860 December 31, 2016 December 31, 2015 $14,153 14,177 1,305 41 3,210 5,910 $38,796 $12,471 14,955 1,778 8 1,713 3,884 $34,809 December 31, 2016 December 31, 2015 $2,750 - 2,750 261,578 327 261,905 $264,655 $2,750 410 3,160 263,841 307 264,148 $267,308 On January 30, 2014, the Company entered into an Amendment Agreement to the $25,000 Revolving Credit Facility, together with an amended Loan Agreement, with Icahn Enterprises Holdings L.P. Drawings under the amended Revolving Credit Facility bear interest at daily three month LIBOR plus 17 2.0%. The amended Revolving Credit Facility also provides for an unused line fee of 0.375% per annum. On March 1, 2016, the Company entered into the Tenth Amendment to the Loan and Security Agreement with Icahn Enterprises L.P., extending the maturity date of the Revolving Credit Facility from January 30, 2017 to January 30, 2020. The amendment included a fee of $125 for the extension. Indebtedness under the amended Revolving Credit Facility is secured by liens on substantially all of the Company’s domestic and Mexican assets, with liens on (i) accounts, inventory, lockboxes, deposit accounts and investment property (the “ABL Priority Collateral’) to be contractually senior to the liens securing the Term Loan (as hereafter defined) pursuant to an intercreditor agreement, (ii) real property, fixtures and improvements thereon, equipment and proceeds thereof (the “Fixed Asset Priority Collateral”), to be contractually subordinate to the liens securing the Term Loan pursuant to such intercreditor agreement, and (iii) all other assets, to be contractually pari passu with the liens securing the Term Loan pursuant to such intercreditor agreement. Our future direct or indirect material domestic subsidiaries are required to guarantee the obligations under the amended Revolving Credit Agreement, and to provide security by liens on their assets as described above. The amended Revolving Credit Facility contains various covenants which restrict the Company’s ability to, among other things, incur indebtedness, create liens on our assets, make investments, enter into merger, consolidation or acquisition transactions, dispose of assets (other than in the ordinary course of business), make certain restricted payments, enter into sale and leaseback transactions and transactions with affiliates, in each case subject to permitted exceptions. The amended Revolving Credit Facility also requires that we comply with certain financial covenants, including meeting a minimum EBITDA requirement and limitations on capital expenditures, in the event our usage of the Revolving Credit Facility exceeds 90% of the facility amount. The Company is in compliance with the Revolving Credit Facility covenants as of December 31, 2016. The amended Revolving Credit Facility had no borrowings as of December 31, 2016 and December 31, 2015. In its foreign operations, the Company has unsecured lines of credit with various banks providing approximately $8,000 of availability. There were no borrowings under the lines of credit at December 31, 2016. Term Loan Facility On January 30, 2014, the Company entered into a Credit Agreement with UBS AG, Stamford Branch (“UBS”), as Administrative Agent and Collateral Agent, and the Lenders parties thereto, providing for a $275,000 senior secured covenant lite term loan facility (“Term Loan”). The Term Loan bears interest at a LIBOR Rate plus 3.25% (with the LIBOR Rate carrying a 1.00% floor or at a Base Rate equal to the sum of (1) the greatest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.50%, (c) one-month LIBOR plus 1.0%, or (d) 2.0%, plus (2) 2.25%). As of December 31, 2016, the interest rate was 4.38% on the Term Loan. The Term Loan has a 1% per annum amortization with a maturity date of January 30, 2021. The Term Loan is subject to certain additional mandatory prepayments upon asset sales, incurrence of indebtedness not otherwise permitted, and based upon a percentage of excess cash flow. Prepayments on the Term Loan may be made at any time, subject to a prepayment premium of 1% for certain prepayments during the first six months of the term. Indebtedness under the Term Loan is secured by liens on substantially all of the Company’s domestic and Mexican assets, with liens on (i) the Fixed Asset Priority Collateral, to be contractually senior to the liens securing the Revolving Credit Facility pursuant to the intercreditor agreement, (ii) the ABL Priority Collateral, to be contractually subordinate to the liens securing the Revolving Credit Facility pursuant to the intercreditor agreement, and (iii) all other assets, to be contractually pari passu with the liens securing the Revolving Credit Facility pursuant to the intercreditor agreement. Our future direct or indirect material domestic subsidiaries are required to guarantee the obligations under the Term Loan, and to provide security by liens on their assets as described above. 18 Debt Maturity The aggregate maturities of debt (1) for each of the next five years are: 2017 2018 2019 2020 2021 Thereafter Term Loan Facility $ 2,750 $ 2,750 $ 2,750 $ 2,750 $ 255,750 $ - Other - - - - - 848 $ 2,750 $ 2,750 $ 2,750 $ 2,750 $ 255,750 $ 848 (1) The aggregate maturities of debt represent amounts to be paid at maturity and not the current carrying value of the debt. (2) The amounts are for the remainder of the calendar year. 9. Capital Lease Obligations The Company has entered into capital lease obligations to acquire certain equipment and building improvements for its manufacturing facilities. The equipment leases have a term of 3 to 5 years and the building improvement lease has a term of 5 years. The Company has determined that automobiles leased by the Company are capital leases with an average term of 4 years. The depreciation of capital leases is included in depreciation expense. The following is an analysis of leased property under capital leases by major classes as of December 31, 2016 and December 31, 2015. Building and improvements Machinery and equipment Less: Accumulated depreciation December 31, 2016 December 31, 2015 $453 2,169 (2,454) $168 $406 2,273 (2,344) $335 The following is a schedule by years of minimum future lease payments as of December 31, 2016. Year ending December 31, 2017 2018 2019 2020 2021 Thereafter Total minimum payments required Less amount representing interest $92 55 13 7 - - 167 (16) Present value of net minimum lease payments $151 10. Operating Leases The Company has operating lease agreements for machinery, equipment and facilities. The majority of the facility leases require the Company to pay maintenance, insurance and real estate taxes. Certain of these leases contain escalation clauses and renewal options. 19 Future minimum lease payments for operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2016, are: 2017 2018 2019 2020 2021 Total thereafter $2,752 3,045 3,136 3,248 2,207 10,778 Total minimum lease payments $25,166 Total rent expense during 2016, 2015 and 2014 amounted to $2,836, $3,313 and $3,525 respectively. 11. Retirement Plans The Company and its subsidiaries have defined contribution and defined benefit plans varying by country and subsidiary. The Company’s operations in the United States, France, Germany and Canada historically offered defined benefit retirement plans (“Plan”) to their employees. Most of these benefits have been terminated, resulting in various reductions in liabilities and curtailment gains. Included in accumulated other comprehensive loss, net of tax of $17,714 for U.S. and $1,287 non U.S. , as of December 31, 2016 are the following amounts not yet recognized in net periodic benefit cost: Net actuarial loss ($49,292) ($2,451) U.S. Pension Benefits Non U.S. Pension Benefits Amounts included in other comprehensive loss expected to be recognized as a component of net periodic benefit cost for the year ending December 31, 2017 are: U.S. Pension Benefits Non U.S. Pension Benefits Net actuarial loss ($4,604) ($162) The measurement date for all defined benefit plans is December 31. The year end status of the plans is as follows: 20 U.S. Pension Benefits 2016 2015 Non U.S. Pension Benefits 2016 2015 Change in benefit obligation: Projected benefit obligation at beginning of year $156,435 $165,458 $10,023 $11,924 Service cost Interest cost Actuarial loss (gain) Benefits paid Liability (Gain)/Loss due to Curtailment Currency translation - 7,092 3,918 (13,458) - - - 6,894 (7,726) (8,191) - - 394 194 639 (612) 174 (318) 429 218 (244) (499) (572.00) (1,233) Estimated benefit obligation at end of year $153,987 $156,435 $10,493 $10,023 Change in plan assets: Fair value of plan assets at beginning of year $113,321 $122,126 $3,973 Actual return on plan assets Employer contribution Benefits paid Currency translation 7,309 275 (13,458) - (2,310) 1,696 (8,191) - Fair value of plan assets at end of year $107,447 $113,321 (135) - (1,434) (126) $2,278 $4,949 (464) - - (512) $3,973 Unfunded status of the plan ($46,540) ($43,114) ($8,215) ($6,050) Amounts recognized in statement of financial position: Current liabilities Noncurrent liabilities Net amount recognized U.S. Pension Benefits Non U.S. Pension Benefits 2016 2015 2016 2015 ($71) (46,469) ($46,540) ($76) (43,038) ($43,114) ($147) (8,068) ($8,215) ($150) (5,901) ($6,051) The funded status of these pension plans as a percentage of the projected benefit obligation was 67% in 2016 compared to 70% in 2015. Projected benefit obligation $153,987 $156,435 $10,493 $10,023 U.S. Pension Benefits Non U.S. Pension Benefits 2016 2015 2016 2015 21 Components of net periodic benefit cost for the years ended December 31: U.S. Pension Benefits 2015 2016 2014 Non U.S. Pension Benefits 2015 2016 2014 Component of net period benefit cost Service cost Interest cost Expected return on plan assets Amortization of prior service cost Amortization of actuarial loss $ - 7,093 (8,144) - 4,369 $3,318 $ - 6,895 (8,953) - 4,083 $2,025 $ - 7,205 (9,055) - 863 ($987) $415 204 (125) - 171 $665 $441 222 (141) - 176 $698 $471 364 (178) - 100 $757 Weighted average assumptions used to determine the benefit obligation and net periodic benefit cost as of December 31: Discount rate Expected return on plan assets Rate of compensation increase U.S. Pension Benefits Non U.S. Pension Benefits 2016 2015 2016 2015 4.47% 7.50% N/A 4.68% 7.50% N/A 1.45% 3.20% 2.27% 2.04% 3.20% 2.27% The Company evaluates its discount rate assumption annually as of December 31 for each of its retirement-related benefit plans. The Company is using a Mercer bond model for determining its U.S. pension benefits. The Company is using a weighted average discount rate of 1.45% on its non U.S. pension plans for 2016. The Company’s expected return on plan assets is evaluated annually based upon a study which includes a review of anticipated future long-term performance of individual asset classes, and consideration of the appropriate asset allocation strategy to provide for the timing and amount of benefits included in the projected benefit obligation. While the study gives appropriate consideration to recent fund performance and historical returns, the assumption is primarily a long-term prospective rate. The Company’s overall investment strategy is to achieve growth through a mix of approximately 75% of investments for long-term growth and 25% for near-term benefit payments with a wide diversification of asset types, fund strategies, and fund managers. The target allocations for plan assets are 65% equity securities, 5% hedge funds and 25% to fixed income investments. Equity securities primarily include investments in large-cap, mid-cap and small-cap companies primarily located in the United States and international developed markets. Fixed income securities include corporate bonds of companies from diversified industries, mortgage-backed securities, and U.S. Treasuries. Other types of investments include investments in hedge funds that follow several different strategies. In accordance with FASB guidance, Plan management uses the following methods and significant assumptions to estimate fair value of investments. Mutual funds - Valued at the net asset value (“NAV”) of shares held by the Plan at year-end, which is obtained from an active market. Collective trust funds - Value provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV's unit price is quoted on a private market that is not active. Hedge funds - Value provided by the administrator of the fund. The pricing for these funds is provided monthly by the fund to determine the quoted price. The fair values of the Company’s pension plan asset allocation at December 31, 2016 and 2015, by asset category are as follows: 22 Fair Value Measurement at December 31, 2016 Quoted Prices in Active Markets for Identical Assets (Level 1) $4,097 1,574 23,389 35,847 30,819 $95,726 Significant Observable Inputs (Level 2) - $ 2,200 - 2,682 - 4,882 $ Significant Unobservable Inputs (Level 3) - $ - - - 1 $ 1 Fair Value Measurement at December 31, 2015 Quoted Prices in Active Markets for Identical Assets (Level 1) $4,861 2,115 23,433 35,456 28,849 $94,714 Significant Observable Inputs (Level 2) - $ 1,581 - 93 - $1,674 Significant Unobservable Inputs (Level 3) $ - - - - $ - Money market US Government and agency obligations Exchange traded funds Mutual funds Common stocks Total Assets in the fair value hierarchy Investments measured at NAV (a) Investments at fair value Total $4,097 3,774 23,389 38,529 30,820 100,609 9,116 $109,725 Money market US Government and agency obligations Exchange traded funds Mutual funds Common stocks Total Assets in the fair value hierarchy Investments measured at NAV (a) Investments at fair value Total $4,861 3,696 23,433 35,549 28,849 96,388 20,906 $117,294 (a) Hedge funds are measured at fair value using the NAV per share practical expedient, and therefore have not been classified in the fair value hierarchy. 23 The following table provides a summary of the estimated benefit payments for the postretirement plans for the next five fiscal years individually and for the following five fiscal years in the aggregate. Total Estimated Benefit Payments U.S. Non U.S 2017 2018 2019 2020 2021 Thereafter $9,100 9,287 9,522 9,719 9,854 50,467 $615 453 249 396 519 2,168 The Company’s expected contribution for the 2017 fiscal year is $472 for the U.S. pension plan. There is no funding requirement for non U.S. pension plans. Savings Plans The Company also has defined contribution savings and similar plans for eligible employees, which vary by subsidiary. 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 $1,263, $1,212 and $1,230 in 2016, 2015 and 2014, respectively. International Plans The Company maintains various pension and statutory separation pay plans for its European employees. The expense, not including the French and German pension plan, in 2016, 2015, and 2014 was $475, $564 and $787, respectively. As of their most recent valuation dates, for those plans where vested benefits exceeded plan assets, the actuarially computed value of vested benefits exceeded those plans’ assets by approximately $5,353. 12. Capital Stock, Treasury Stock and Paid in Capital Authorized shares of preferred stock ($0.01 par value per share) and common stock ($0.01 par value per share) for the Company are 50,000,000 shares and 50,000,000 shares, respectively. In 2004, the Company purchased 805,270 shares of its common stock from the underwriter for a purchase price of $298. The common stock has been accounted for as treasury stock. 13. Income Taxes Income tax provision (benefit) consisted of: Current Domestic Foreign Total current Deferred Domestic Foreign Total deferred Total 2016 2015 2014 ($51) 8,976 $240 6,568 $52 2,540 8,925 6,808 2,592 (75) (1,204) (1,279) 4,782 (1,704) 3,078 2,429 (1,963) 466 $7,646 $9,886 $3,058 24 The reconciliation of income tax provision (benefit) attributable to earnings differed from the amounts computed by applying the U.S. Federal statutory income tax rate to earnings by the following amounts: (Loss) income before income taxes: Domestic Foreign 2016 2015 2014 ($977) 14,183 $9,006 2,177 ($1,338) 14,226 Total $13,206 $11,183 $12,888 Computed income tax provision State and local taxes, net of federal tax Foreign taxes, net Valuation allowance Uncertain tax positions - (benefit) expense Foreign exchange impact Permanent Differences, net Other, net Total income tax expense Computed income tax provision State and local taxes, net of federal tax Foreign taxes, net Valuation allowance Uncertain tax positions - expense (benefit) Foreign exchange impact Permanent Differences, net Other, net Effective income tax rate $4,622 (109) 342 277 1,557 (1,300) 2,018 239 $7,646 35.0% -0.8% 2.6% 2.1% 11.8% -9.8% 15.3% 1.8% 57.9% $3,914 440 940 282 1,138 2,475 (449) 1,146 $9,886 35.0% 3.9% 8.4% 2.5% 10.2% 22.1% -4.0% 10.2% 88.4% $4,508 55 (1,502) 286 (2,328) 532 547 960 $3,058 35.0% 0.4% -11.7% 2.2% -18.1% 4.1% 4.2% 7.4% 23.6% Statutory federal rate 35.0% 35.0% 35.0% Temporary differences and net operating loss carryforwards that give rise to a significant portion of deferred tax assets and liabilities for 2016 and 2015 are as follows: 25 Deferred tax asset Provisions not currently deductible Inventory basis differences Foreign exchange and other Stock options Pension and healthcare Intangible asset Net operating loss carryforwards Valuation allowance Total deferred tax asset Deferred tax liability Property, plant, and equipment Foreign exchange and other Total deferred tax liability 2016 2015 $7,800 4,336 58 63 18,209 8 39,097 (595) $68,976 ($16,481) (1,435) ($17,916) $51,060 $4,429 4,196 123 444 16,963 6 39,352 (504) $65,009 ($14,180) (1,981) ($16,161) $48,848 The net deferred tax asset (liability) is classified in the balance sheet as follows: 2016 2015 Non-current deferred tax assets Non-current deferred tax liability Non-current deferred tax assets (liability), net $51,386 (326) $51,060 $48,848 - $48,848 A valuation allowance is provided when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Management believes that is more likely than not that its net deferred tax assets will be realized based on the weight of positive evidence and future income except with respect to the loss in Poland and a portion of the state loss in the U.S. The Company has a valuation allowance in Poland at December 31, 2016 and December 31, 2015 of $425 and $504, respectively. The Company has gross U.S. federal net operating loss carryforwards at December 31, 2016 and December 31, 2015 of $91,477 and $92,632, respectively, with amounts beginning to expire in 2024. The Company has gross net operating loss carryforwards in Brazil at December 31, 2016 and December 31, 2015 of $12,917 and $13,601, respectively and has an unlimited carryforward period. The Company has gross net operating loss carryforwards in Poland at December 31, 2016 and December 31, 2015 of $2,236 and $2,080, respectively and has a five year carryforward period. The Company has gross net operating loss carryforwards in France at December 31, 2016 of $1,233 and has an unlimited carryforward period. The Company joins in filing a United States consolidated Federal income tax return including all of its domestic subsidiaries. Uncertainty in Income Taxes The uncertain tax positions as of December 31, 2016 totaled $7,747. The following table summarizes the activity related to the unrecognized tax benefits. 26 (in thousands) Unrecognized tax benefits as of January 1 Increases in positions taken in a prior period Decreases in positions taken in a prior period Increases in positions taken in a current period Decreases in positions taken in a current period Decreases due to settlements Decreases due to lapse of statute of limitations Unrecognized tax benefits as of December 31 2016 $6,969 5 (547) 1,325 (5) $7,747 2015 $5,890 - (106) 2,682 - (1,468) (29) $6,969 In 2016, the Company recognized an approximate net increase of $1,325 to increase the reserves for uncertain tax positions. The majority of the increase in the reserve is due to uncertain tax positions with the foreign subsidiaries. Approximately $7,747 of the total gross unrecognized tax benefits represents the amount that, if recognized, would affect the effective income tax rate in future periods. The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company has substantially concluded all U.S. federal income tax matters for years through 2013. Substantially all material state and local and foreign income tax matters have been concluded for years through 2011. The Company's continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. During the years ended December 31, 2016 and 2015, the Company recorded adjustments for interest of $310 and $92, respectively, and for penalties of $122 and $(21), respectively related to these unrecognized tax benefits. In total, as of December 31, 2016 and 2015, the Company has recorded a liability of interest of $519 and $209, respectively, and $453 and $331, respectively, for potential penalties. 14. Contingencies The Company from time to time is involved in various other legal proceedings, none of which are expected to have a material adverse effect upon results of operations, cash flows or financial condition. 15. Stock-Based Compensation (Dollars in Thousands, Except Per Share Amounts) Stock-based compensation cost is measured at the grant date based on fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the vesting period. There was no non-cash compensation expense included in net income for the year ended December 31, 2016. Included in net income is non-cash compensation expense of $60 for the years ended December 31, 2015 and December 31, 2014. The fair values of the options granted during 2016, 2013 and 2007 were estimated on the date of grant using the binomial option pricing model. The assumptions used and the estimated fair values are as follows: Estimate Fair Values Expected term Expected stock volatility Risk-free interest rate Expected forfeiture rate Fair value per option 2016 10 years 4.38% 2.45% 0.00% $1.12 2013 10 years 17.33% 1.75% 0.00% $0.51 2007 10 years 23.04% 4.39% 14.00% $0.77 In December 2016, the Company granted non-qualified stock options to its current chief executive officer for the purchase of 600,000 shares of its common stock under an employment agreement. Options were granted at the fair market value at date of grant and will vest one third each on 27 December 31, 2017, Decemebr 31, 2018 and December 31, 2019. The options for the chief executive officer expire on December 31, 2026. In April 2013, the Company granted non-qualified stock options to its current chief administrative officer for the purchase of 325,000 shares of its common stock under an employment agreement. Options were granted at the fair market value at date of grant and are fully vested. The options for the chief administrative officer expire on April 16, 2023 through an amendment to the option agreement in 2016. In October 2007, the Company granted non-qualified stock options to its current chief executive officer for the purchase of 1,500,000 shares of its common stock under an employment agreement. Options were granted at the fair market value at date of grant, were fully vested, and were exercised during 2016 resulting in 339,558 shares issued in a partial cashless exercise. The Company has no outstanding non-qualified stock options granted to other members of management. The Company's outstanding options were: Weighted Average Weighted Average Outstanding, December 31, 2014 Vested and exercisable at Dec. 31, 2014 Granted Exercised Forfeited Outstanding, December 31, 2015 Vested and exercisable at Dec. 31, 2015 Granted Exercised Forfeited Outstanding, December 31, 2016 Vested and exercisable at Dec. 31, 2016 Shares Under Weighted Average Option 1,835,000 1,726,668 - 10,000 - 1,825,000 1,726,668 600,000 1,500,000 - 925,000 325,000 Exercise Price 1.71 $ $ 2.23 $ - $ 2.90 $ - $ 2.84 $ 2.82 $ 2.53 $ 1.70 $ - $ 4.45 $ 8.00 Remaining Contractual Life 58 months 43 months - - - 35 months 34 months 120 months - - 104 months 76 months Grant-Date Fair Value 0.65 $ $ 0.66 $ - - - 0.64 0.64 1.12 - - 0.91 0.51 $ $ $ $ Vested and exercisable options as of December 31, 2016 were 325,000 with a weighted average share price of $8.00. 16. Research and Development Costs Research and development costs are expensed as incurred and totaled $4,418, $4,977 and $5,662 for 2016, 2015, and 2014, respectively. 17. Related-Party Transactions As of December 31, 2016, Icahn Enterprises L.P. owned approximately 74.6% of our outstanding common stock. There were 737,613 shares of common stock purchased during the period ended December 31, 2016. Insight Portfolio Group LLC (“Insight Portfolio Group”) is an entity formed and controlled by Mr. Icahn in order to maximize the potential buying power of a group of entities with which Mr. Icahn has a relationship in negotiating with a wide range of suppliers of goods, services and tangible and intangible property at negotiated rates. On January 1, 2013, Viskase acquired a minority equity interest in Insight Portfolio Group and agreed to pay a portion of Insight Portfolio Group’s operating expenses, which is approximately $174 in 2016 and $193 in 2015. A number of other entities with which Mr. Icahn has a relationship also acquired equity interests in Insight Portfolio Group and also agreed to pay certain of Insight Portfolio Group’s operating expenses in 2016. 28 During the periods ended December 31, 2016 and December 31, 2015, the Company purchased $41 and $45, respectively, in telecommunication services from XO Communications, Inc., an affiliate of Icahn Enterprises L.P. Icahn Enterprises L.P. was the lender on the Company’s Revolving Credit Facility as of December 31, 2016. The Company paid Icahn Enterprises L.P. service, commitment fees, interest and amendment fees of $216 and $107 during each of the years ended December 31, 2016 and 2015. 18. Business Segment Information and Geographic Area Information The Company primarily manufactures and sells cellulosic food casings. The Company’s operations are primarily in North America, South America, Europe and Asia. 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 geographically. They include most of the Company’s debt and related interest expense and income tax benefits. Reporting Segment Information: Net sales North America South America Europe Asia Other and eliminations Operating income North America South America Europe Asia Identifiable assets North America South America Europe Asia 2016 2015 2014 $188,346 49,302 114,027 35,827 (58,682) $195,131 46,403 118,484 33,399 (49,834) $199,220 52,879 142,944 30,199 (60,039) $328,820 $343,583 $365,203 $10,748 4,145 3,350 6,246 $24,489 $23,361 3,848 743 1,016 $28,968 $28,386 2,819 9,001 5,772 $45,978 $204,660 $215,671 $222,747 65,786 111,481 41,511 54,481 101,385 42,403 55,256 113,189 37,785 $423,438 $413,940 $428,977 29 Net Sales by market Emerging Mature Net Sales by country United States Brazil Italy Germany France Philippines Poland Other international 2016 2015 2014 $171,974 156,846 $175,008 168,575 $184,376 180,827 $328,820 $343,583 $365,203 $97,071 28,458 23,577 9,864 11,727 21,809 8,416 127,898 $101,903 $101,979 24,514 26,365 10,418 12,812 19,531 7,144 140,896 29,572 31,161 12,860 14,834 14,341 8,827 151,629 $328,820 $343,583 $365,203 19. Interest Expense, Net Net interest expense consisted of: December 31, 2016 December 31, 2015 December 31, 2014 Interest expense Less Capitalized interest Interest expense, net $12,667 (124) $12,543 $12,597 (139) $12,458 $14,174 17 $14,191 20. Changes in Accumulated Other Comprehensive Loss Balance at December 31, 2015 Other comprehensive income before reclassifications Reclassifications from accumulated other comprehensive loss to earnings Balance at December 31, 2016 Accrued Employee Benefits Translation Adjustments ($52,221) ($27,829) Total ($80,050) (4,058) (6,007) (10,065) 4,540 ($51,739) - ($33,836) 4,540 ($85,575) Amounts Reclassified from Accumulated Other Comprehensive Loss Affected Line Items in the Consolidation Statement of Operations and Comprehensive Loss Accrued Employee Benefits Amortization of net actuarial loss $4,540 $4,540 Selling, general and administrative 30 21. Restructuring Charges During the first half of 2016, the Company recognized a restructuring expense of $1,858. The total costs of $4,170 recognized over 2016 and 2015 relate to a Board-approved plan of restructuring of its French subsidiary operations to safeguard the Company’s competitive environment in the European market. The Company will exit its French plastics, printing, and MP coating operations, along with a targeted downsizing of its production and overhead personnel. The plan will involve the involuntary termination or relocation/reutilization of 38 employees (Corporate: 3 - Production: 30 - Support: 5) and the implementation of a social plan at an estimated expense of $2,980. The restructuring expense also includes an asset impairment of $672 and other fees of $518. The Company recognized a cost of $665 related to the relocation of its North American finishing operations. The plan involved the involuntary termination of approximately 53 employees and will be completed in the second half of 2016. The restructuring expense includes an asset impairment of $174. The Company recognized a cost of $2,286 related to the voluntary employee reduction of its North American headquarters during December 2016. The plan involved the voluntary termination of approximately 20 employees and will be completed throughout 2017. The Company also incurred a restructuring expense of $360 relating to the elimination of a shift in its Brazilian operations. The plan involved the involuntary termination of 42 employees and was completed in 2015. The following table provides details of our restructuring provisions. December 31, 2016 December 31, 2015 December 31, 2014 $1,713 4,809 (3,312) $3,210 $89 2,672 (1,048) $1,713 $148 217 (276) $89 Beginning balance Provision Payments/Impairments Ending balance 22. Acquisitions Darmex Casing sp. z o.o. On December 1, 2016, the Company, through its indirect subsidiary, Viskase Polska Sp. z o.o., completed the purchase of all of the shares of Darmex Casing Sp. z o.o.(“Darmex”) and certain assets of Supravis Group S.A., for a total of $4,196USD in cash, subject to certain adjustments. The share purchase of Darmex included acquisition of substantially all of the assets, and assumption of substantially all of the liabilities, of Darmex. The Company completed the purchase to further enhance its production capabilities and product offerings in plastic casings. The purchase was recorded using the purchase method of accounting. The allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed in connection with the acquisition was based on estimated fair values supported by third-party valuations. The Company acquired goodwill as a result of expected synergies with increased presence in the plastics market. The following summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. 31 Cash Accounts receivable Inventories Prepaid expenses Property, plant and equipment Other assets Goodwill Accounts payable Accrued liabilities Short term capital lease Deferred tax liability Total purchase price December 1, 2016 $133 730 427 15 3,285 83 329 (280) (190) (10) (326) $4,196 Transaction costs related to the acquisition amounted to $357 and were recorded as an expense in the statement of operations. 23. Subsequent Events Viskase evaluated its December 31, 2016 consolidated financial statements for subsequent events through March 31, 2017, the date the consolidated financial statements were available to be issued. CT Casings Beteiligungs GmbH On January 10, 2017, the Company, through its indirect subsidiary, Viskase GmbH, completed the purchase of all of the shares of CT Casings Beteiligungs GmbH (“Walsroder”), certain outstanding shareholder loans to Walsroder, and certain casing assets of Poly-clip System LLC, for a total of €35,300 or $37,370 paid cash and debt, subject to certain post-closing adjustments. Due to the timing of the transaction, the evaluation of the acquisition is still in process. The share purchase of Walsroder included acquisition of substantially all of the assets, and assumption of substantially all of the liabilities, of Walsroder. The Company completed the purchase to further enhance its production capabilities and product offerings in plastic and fibrous casings. 32

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