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