VISKASE COMPANIES, INC.
ANNUAL REPORT 2017
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, 2017 and 2016
Consolidated Statements of Operations for the years ended December 31,
2017, 2016 and 2015
Consolidated Statements of Comprehensive Income (Loss) for the years ended
December 31, 2017, 2016 and 2015
Consolidated Statements of Stockholders' Equity for years ended
December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017,
2016 and 2015
2. Notes to Consolidated Financial Statements
GrantThorntonTower
171 N. Clark Street, Suite200
Chicago, IL60601-3370
T +1312.856.0200
F +1312.565.4719
www.GrantThornton.com
Board of Directors
Viskase Companies, Inc.
WehaveauditedtheaccompanyingconsolidatedfinancialstatementsofViskaseCompanies,Inc.
(aDelawarecorporation)and subsidiaries, whichcomprisetheconsolidatedbalance sheets asof
December31,2017and2016,andtherelatedconsolidatedstatementsofoperations,
comprehensiveincome(loss),changesinstockholders’equity,andcashflowsforeachofthe
threeyearsintheperiodendedDecember31,2017,andtherelatednotestothefinancial
statements.
Management s responsibility for the financial statements
Managementisresponsibleforthepreparationandfairpresentationoftheseconsolidated
financialstatementsinaccordancewithaccountingprinciplesgenerallyacceptedintheUnited
StatesofAmerica;thisincludes thedesign,implementation, andmaintenanceofinternalcontrol
relevanttothepreparationandfairpresentationofconsolidatedfinancialstatementsthatarefree
frommaterialmisstatement, whetherdueto fraud or error.
Auditor s responsibility
Ourresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedon
our audits.We conductedour audits in accordance with auditing standards generally acceptedin
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
U.S. member firm of Grant Thornton International Ltd
2
alsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonableness
ofsignificantaccountingestimatesmadebymanagement,aswellasevaluatingtheoverall
presentationoftheconsolidated financialstatements.
Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovide a
basis forouraudit opinion.
Opinion
Inouropinion,theconsolidatedfinancialstatementsreferredtoabovepresentfairly,inall
materialrespects,thefinancialpositionofViskaseCompanies,Inc.andsubsidiariesasof
December31,2017and2016,andtheresultsoftheiroperationsandtheircashflowsforeachof
thethreeyearsintheperiodendedDecember31,2017,inaccordancewithaccountingprinciples
generallyaccepted intheUnitedStatesof America.
Chicago, Illinois
March 29, 2018
U.S. member firm of Grant Thornton International Ltd
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except for Number of Shares)
December 31, 2017
December 31, 2016
$16,050
1,544
77,961
91,589
39,444
226,588
349,809
(178,757)
171,052
360
18,606
26,859
3,580
35,091
$39,129
2,063
62,938
72,279
28,361
204,770
304,080
(153,554)
150,526
-
11,463
203
329
51,386
$482,136
$418,677
$4,774
481
35,954
38,047
79,256
269,915
986
10,138
78,415
9,567
373
32,786
81,891
(298)
(80,749)
34,003
(144)
33,859
$482,136
$2,750
90
28,582
33,491
64,913
261,905
61
1,770
59,975
326
373
32,472
85,832
(298)
(88,652)
29,727
-
29,727
$418,677
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
Asset held for sale
Other assets, net
Intangible assets
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, 2017 and December 31, 2016
Paid in capital
Retained earnings
Less 805,270 treasury shares, at cost
Accumulated other comprehensive loss
Total Viskase stockholders' equity
Deficit attributable to non-controlling interest
Total stockholders' equity
Total Liabilities and Stockholders' Equity
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
OPERATING INCOME
Interest income
Interest expense, net
Other (income) expense, net
INCOME BEFORE INCOME TAXES
Income tax provision
NET (LOSS) INCOME
Year
Ended
December
31, 2017
Year
Ended
December
31, 2016
Year
Ended
December
31, 2015
$391,978
$328,820
$343,583
296,100
247,570
258,893
95,878
62,592
1,556
1,832
1,745
28,153
85
13,217
(1,148)
16,169
20,410
($4,241)
81,250
51,934
18
-
4,809
24,489
22
12,543
(1,238)
13,206
7,646
$5,560
84,690
52,589
16
445
2,672
28,968
31
12,458
5,358
11,183
9,886
$1,297
-
Less: net (loss) attributable to noncontrolling interests
(144)
-
Net (loss) income attributable to Viskase Companies, Inc
($4,097)
$5,560
$1,297
WEIGHTED AVERAGE COMMON SHARES
- BASIC
36,523,999
36,186,302
36,184,334
PER SHARE AMOUNTS:
EARNINGS PER SHARE
- BASIC
WEIGHTED AVERAGE COMMON SHARES
($0.11)
$0.15
$0.04
- DILUTED
36,523,999
36,243,772
37,189,121
PER SHARE AMOUNTS:
EARNINGS PER SHARE
- DILUTED
($0.11)
$0.15
$0.03
See notes to consolidated financial statements.
6
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
Year
Ended
December
31, 2017
Year
Ended
December
31, 2016
Year
Ended
December
31, 2015
Net (loss) income
($4,241)
$5,560
$1,297
Other comprehensive income (loss), net of tax
Pension liability adjustment
Foreign currency translation adjustment
Other comprehensive income (loss), net of tax
1,256
6,647
7,903
482
(5,296)
(4,814)
1,454
(9,775)
(8,321)
Comprehensive income (loss)
$3,662
$746
($7,024)
Less: comprehensive (loss) attributable to
noncontrolling interests
Net comprehensive income attributable to Viskase
(144)
$3,806
-
$746
-
($7,024)
See notes to consolidated financial statements.
7
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
Accumulated otherTotal Viskase
Total
Balance December 31, 2014
Common
stock
$370
Paid in
capital
$32,801
Treasury
stock
($298)
Retained
earnings
$78,975
comprehensive
loss
stockholders’Non-controllingstockholders’
equity
Interest
$
-
equity (deficit)
36,331
1,297
(9,775)
1,454
-
60
29,367
5,560
(5,296)
482
(386)
29,727
(4,241)
6,647
1,256
-
156
314
$33,859
Net income
Foreign currency translation adjustment
Pension liability adjustment, net of tax
Stock option expense
Stock option exercise
-
-
-
-
-
Balance December 31, 2015
$370
Net income
Foreign currency translation adjustment
Pension liability adjustment, net of tax
-
-
-
-
-
-
-
60
$32,861
-
-
-
Stock option expense
3
(389)
-
-
-
-
-
1,297
-
-
-
-
($75,517)
$36,331
-
(9,775)
1,454
-
-
1,297
(9,775)
1,454
-
60
($298)
$80,272
($83,838)
$29,367
-
-
-
-
5,560
-
-
-
-
(5,296)
482
-
5,560
(5,296)
482
(386)
-
-
-
-
-
$
-
-
-
-
-
$
-
Balance December 31, 2016
$373
$32,472
($298)
$85,832
($88,652)
$29,727
Net loss
Foreign currency translation adjustment
Pension liability adjustment, net of tax
Cumulative-effect adjustment resulting from
adopting ASU 2016-09
Stock option expense
Balance December 31, 2017
-
-
-
-
-
-
-
-
-
(4,097)
-
-
-
-
$373
-
314
$32,786
-
-
($298)
156
-
$81,891
-
6,647
1,256
-
-
($80,749)
(4,097)
6,647
1,256
156
314
$34,003
(144)
-
-
-
-
($144)
See notes to consolidated financial statements.
8
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Year
Ended
December
31, 2017
Year
Ended
December
31, 2016
Year
Ended
December
31, 2015
($4,241)
$5,560
$1,297
22,106
224
1,556
597
15,423
211
1,832
348
480
(594)
(6,759)
(8,694)
2,054
(2,406)
1,263
(266)
1,237
(668)
27,944
23,703
(25,674)
(31,141)
308
(56,507)
-
(120)
10,716
(2,750)
(476)
519
7,889
1,836
(23,079)
39,129
$16,050
$12,169
$7,820
-
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
-
Cash flows from operating activities:
Net (loss) 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
Loss on impairment of assets
Bad debt and accounts receivable provision
Non-cash interest on term loans
Changes in operating assets and liabilities:
Receivables
Inventories
Other current assets
Accounts payable
Accrued current liabilities
Accrued employee benefits
Other assets
Other long term liabilities
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 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
9
See notes to consolidated financial statements.
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
eleven 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.
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.
Reclassifications
Certain prior period financial statement balances have been reclassified to conform to the current
period presentation. Items include the reclassification of employee benefits from other current
liabilities to long-term accrued employee benefits in the balance sheet.
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 $180 and $158 of short-term investments at December 31,
2017 and December 31, 2016, 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 cost or market. Cost is determined by using the first-in,
first-out (“FIFO”) basis method.
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.
During 2017, the Company approved a restructuring plan in its European segment that included the
marketing and sale of a certain fixed asset. The Company has approved a plan for sale and
recorded the asset as Asset Held for Sale at year end. We have reached a tentative agreement and
expect to finalize the sale of the asset in early 2018. The Company recognized an asset impairment
of $559 in recording the asset at fair market value. The restructuring plan also included an
additional asset impairment of $417 for fixed assets retired from service.
The Company also recognized an asset impairment of $856 for assets with no future cash flow
considerations.
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.
Intangible Assets and Goodwill
The Company has recognized definite lived intangible assets for patents and trademarks, customer
relationships, technologies and in-place leases. The intangible assets are amortized on the straight-
line method over an estimated weighted average useful life of 12 years for patents and trademarks,
20 years for customer relationships, 13 years for technologies and 14 years for in-place leases.
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
11
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
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, 2017 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 2017. The Company is using a long-term rate of return on French
plan assets of 3.20% for 2017. 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 2017. The Company is using a
weighted average discount rate of 1.77% on its non-U.S. pension plans for 2017.
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.
12
Other Comprehensive Income (Loss)
Comprehensive income (loss) includes all other non-stockholder changes in equity. Changes in
other comprehensive income (loss) in 2017 and 2016 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 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.
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, 2017, future annual minimum purchases remaining under the agreement are
$1,602.
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. Management believes the fair value of the
Company’s revolving loans approximate the carrying value due to credit risk or current market rates,
which approximate the effective interest rates on those instruments. The fair value of the
Company’s Term Loan is estimated by discounting the future cash flow using the Company’s current
borrowing rates for similar types and maturities of debt.
13
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.
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 will adopt the provisions of ASU 2014-09 and ASU 2016-08 on January 1, 2018
using the modified retrospective application method.
Revenues are recognized at the time products are shipped to the customer (i.e. point in time), under
F.O.B shipping point, customer pick up or F.O.B port terms. As such, the Company expects the
adoptions of ASU 2014-09 and ASU 2016-08 will have no significant impact to the Company’s
financial position or results of operations; however, the Company will present the disclosures
required by these new standards.
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
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 adoption of this guidance will have an immaterial effect on our consolidated financial position,
results of operations, comprehensive income, cash flows and disclosures.
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 adoption of this guidance will have an immaterial 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.
14
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 adopted this ASU for fiscal years beginning
after December 15, 2016 including interim periods. The adoption of this guidance did not have a
material impact on our consolidated financial position, results of operations, comprehensive income,
cash flows and disclosures.
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
December 15, 2017, and interim periods within those fiscal years. We currently are 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.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other” (Topic 350).
This ASU modifies the concept of impairment from the condition that exists when the carrying
amount of goodwill exceeds its implied fair value to the condition that exists when the carrying
amount of a reporting unit exceeds its fair value. An entity no longer will determine goodwill
impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting
unit to all of its assets and liabilities as if that reporting unit had been acquired in a business
combination. Because the update will eliminate Step 2 from the goodwill impairment test, it should
reduce the cost and complexity of evaluating goodwill for impairment. This ASU is effective for
annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020,
with early adoption is permitted for interim or annual goodwill impairment tests performed on testing
dates after January 1, 2017.
In March 2017, the FASB issued ASU No. 2017-07, Retirement Benefits, which amends FASB ASC
Topic 715, Compensation - Retirement Benefits. This ASU requires entities to present the service
cost component of net periodic benefit cost in the same line item or items in the financial statements
as other compensation costs arising from services rendered by the pertinent employees during the
period. 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
15
guidance on our consolidated financial position, results of operations, comprehensive income, cash
flows and disclosures.
In August 2017, the FASB issued ASU 2017-12, Targeting Improvements to Accounting for Hedging
Activities, which amends FASB ASC Topic 815, Derivatives and Hedging. This ASU includes
amendments to existing guidance to better align an entity’s risk management activities and financial
reporting for hedging relationships through changes to both the designation and measurement
guidance for qualifying hedging relationships and the presentation of hedge results. This ASU is
effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal
years. Early adoption is permitted. We are currently evaluating the impact of this guidance on our
consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income, which amends FASB ASC Topic 220, Income
Statement - Reporting Comprehensive Income. This ASU allows a reclassification out of
accumulated other comprehensive loss within equity for standard tax effects resulting from the Tax
Cuts and Jobs Act and consequently, eliminates the stranded tax effects resulting from the Tax Cuts
and Jobs Act. This ASU is effective for fiscal years beginning after December 15, 2018, and interim
periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact
of this guidance on our consolidated financial statements.
2. Revision of Previously Reported Consolidated Financial Statements
The Company has revised its consolidated balance sheet as of December 31, 2016, and changes in
stockholders’ equity for the years ended December 31, 2016 and 2015, and the related notes.
During 2017, it was determined in a single foreign location that the translation of certain property,
plant and equipment used the incorrect exchange rate; therefore, property, plant and equipment and
accumulated other comprehensive income were misstated. In addition taxes payables were
overstated with the offsetting adjustment to accumulated other comprehensive income.
A reconciliation of the effects of the adjustments to the previously reported consolidated balance
sheet at December 31, 2016 follows:
2016 Previously
Reported
Translation
Adjustments
Taxes Payable
Adjustments
2016 Currently
Reported
$308,841
($4,761)
$ -
$304,080
Property, plant and equipment
Property, plant and equipment, net
Total assets
Accrued liabilities
Total current liabilities
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities & stockholders’ equity
(85,575)
32,804
423,438
(4,761)
(4,761)
(4,761)
-
155,287
423,438
(4,761)
-
(4,761)
-
38,796
-
70,218
-
(1,684)
(1,684)
1,684
1,684
150,526
418,677
37,112
68,534
(88,652)
29,727
418,677
A reconciliation of the previously reported consolidated statement of stockholders’ equity at
December 31, 2014, December 31, 2015 and December 31, 2016 follows:
16
Previously
Reported
Translation
Adjustments
Taxes Payable
Adjustments
Currently
Reported
December 31, 2014:
Accumulated other comprehensive loss $ (72,958) $ (2,559)
Total stockholders’ equity
38,890
(2,559)
December 31, 2015:
Foreign currency translation adjustment
(1,229)
Accumulated other comprehensive loss $ (80,050) $ (3,788)
Total stockholders’ equity
(8,546)
33,155
(3,788)
$ - $ (75,517)
-
36,331
-
(9,775)
$ - $ (83,838)
-
29,367
December 31, 2016:
Foreign currency translation adjustment
Accumulated other comprehensive loss
Total stockholders’ equity
(6,007)
(85,575)
32,804
(973)
(4,761)
(4,761)
1,684
1,684
1,684
(5,296)
(88,652)
29,727
A reconciliation of the previously reported consolidated statement of comprehensive income for the
year ended December 31, 2015 and December 31, 2016:
Previously
Reported
Translation
Adjustments
Taxes Payable
Adjustments
Currently
Reported
Year Ended December 31, 2015:
Foreign currency translation adjustment $ (8,546) $ (1,229)
Other comprehensive income (loss)
Comprehensive income
Year Ended December 31, 2016:
Foreign currency translation adjustment
Other comprehensive income (loss)
Comprehensive income
(6,007)
(5,525)
35
(7,092)
(5,795)
(973)
(973)
(973)
(1,229)
(1,229)
$ - $ (9,775)
(8,321)
-
(7,024)
-
1,684
1,684
1,684
(5,296)
(4,814)
746
The revision was not material and had no impact on net income, net cash flows from
operating, investing or financing activities.
3. Cash and cash equivalents
Cash and cash equivalents
Restricted cash
December 31, 2017
December 31, 2016
$16,050
1,544
$17,594
$39,129
2,063
$41,192
As of December 31, 2017 and December 31, 2016, cash held in foreign banks was $13,590 and
$27,224, respectively.
As of December 31, 2017 and December 31, 2016, letters of credit in the amount of $1,544 and
$2,063, respectively, were outstanding under facilities with a commercial bank, and were cash
collateralized in a restricted account.
17
4. Receivables, net
Accounts receivable, gross
Less allowance for doubtful accounts
Less allowance for sales returns
December 31, 2017
December 31, 2016
$79,143
(791)
(391)
$77,961
$63,795
(553)
(304)
$62,938
December 31, 2017
December 31, 2016
December 31, 2015
Beginning balance
Provision (recoveries)
Write-offs
Other and translation
Ending balance
$857
348
(24)
1
$1,182
$1,006
10
(152)
(7)
$857
$1,121
475
(564)
(26)
$1,006
5. Inventory
Inventory consisted of:
Raw materials
Work in process
Finished products
6. 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, 2017
December 31, 2016
$18,224
40,194
33,171
$91,589
$9,777
34,249
28,253
$72,279
December 31, 2017
December 31, 2016
$1,954
41,979
287,974
17,902
$1,954
37,928
256,512
7,686
$349,809
$304,080
December 31, 2017
December 31, 2016
$352
15,169
163,236
$328
12,551
140,675
$178,757
$153,554
18
7. Other Assets
Other taxes receivable
Indemnification asset
Other
8. Accrued Liabilities
Accrued liabilities were comprised of:
Compensation and employee benefits
Taxes payable
Accrued volume and sales rebates
Accrued interest payable
Restructuring reserve
Other
9. Debt Obligations
Short-term debt:
Bank term loan
Restructured term loan
Total short-term debt
Long-term debt:
Bank term loan, net of discount
Revolving credit facility
Restructured term loan
Other
Total long-term debt
December 31, 2016
December 31, 2015
$10,924
6,793
889
$18,606
$11,145
-
318
$11,463
December 31, 2017
December 31, 2016
$13,210
13,606
4,598
89
200
6,345
$38,048
$10,532
12,493
1,305
41
3,210
5,910
$33,491
December 31, 2017
December 31, 2016
$2,750
2,024
4,774
259,403
3,000
7,103
409
269,915
$2,750
-
2,750
261,578
-
-
327
261,905
Total debt
$274,689
$264,655
Revolving Credit Facility
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
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
19
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, 2017. The amended
Revolving Credit Facility had borrowings of $3,000 as of December 31, 2017 and no borrowings at
December 31, 2016. As of December 31, 2017, the interest rate was 3.694% on the Revolving Credit
Facility.
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, 2017.
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, 2017, the interest rate
was 4.875% on the Term Loan. The Term Loan has a contractual obligation to repay 1% annually that
has been classified as short term debt. The maturity date on the Term Loan is 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.
Restructured Term Loan
On December 30, 2016, the Company entered into a Share and Asset Purchase Agreement (“SAPA”)
to purchase all of the shares in CT Casings Beteiligungs GmbH (“Walsroder”) and certain assets of
Poly-clip Systems LLC (see Footnote 17). As part of the consideration for the purchase, a former
Seller shareholder loan was restructured and remained outstanding at the January 10, 2017 closing
in the original amount of EUR 8,111 or $9,257. The Restructured Term Loan is due for repayment as
follows: EUR 1,688 is due on January 10, 2018; and the balance of EUR 6,423 is due on January 10,
2020. The Restructured Term Loan bears no interest, and was recorded for a book value of EUR
7,320 using an imputed interest rate of 4%.
20
Debt Maturity
The aggregate maturities of debt (1) for each of the next five years are:
2018
2019
2020
2021
2022
Thereafter
Term Loan Facility
$ 2,750
$ 2,750
$ 2,750 $ 255,750 $ -
$ -
Revolving Credit Facility
-
-
3,000
-
-
-
Restructured Term Loan
2,024
-
7,703
-
-
-
Other
-
-
-
-
-
964
$ 4,774
$ 2,750
$ 13,453
$ 255,750
$ -
$ 964
(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.
10. 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, 2017 and December 31, 2016.
Building and improvements
Machinery and equipment
Less: Accumulated depreciation
December 31,
2017
December 31,
2016
$453
3,665
(2,651)
$1,467
$453
2,169
(2,454)
$168
The following is a schedule by years of minimum future lease payments as of December 31, 2017.
Year ending December 31,
2018
2019
2020
2021
2022
Thereafter
Total minimum payments required
Less amount representing interest
$536
529
492
-
-
-
1,557
(90)
Present value of net minimum lease payments
$1,467
21
11. 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.
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, 2017, are:
2018
2019
2020
2021
2022
Total thereafter
$4,870
4,780
4,864
4,929
2,504
13,829
Total minimum lease payments
$35,776
Total rent expense during 2017, 2016 and 2015 amounted to $4,601, $2,836 and $3,313
respectively.
12. 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 $10,832 for U.S. and $1,151 non
U.S. , as of December 31, 2017 are the following amounts not yet recognized in net periodic benefit
cost:
Net actuarial loss
Prior service credit
($47,796)
3
(2,469)
(221)
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, 2018 are:
U.S. Pension Benefits
Non U.S. Pension Benefits
Net actuarial loss
($3,651)
($137)
The measurement date for all defined benefit plans is December 31. The year-end status of the
plans is as follows:
22
U.S. Pension Benefits
Non U.S. Pension Benefits
2017
2016
2017
2016
Change in benefit obligation:
Projected benefit obligation at beginning of year
$153,987
$156,435
$10,493
$10,023
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
-
6,663
8,721
-
7,092
3,918
(8,700)
(13,458)
Liability (Gain)/Loss due to Curtailment
Net increase in obligation due to acquisition
Currency translation
-
-
-
-
-
-
675
458
41
(759)
(177)
14,805
1,445
394
194
639
(612)
174
-
(319)
Estimated benefit obligation at end of year
$160,671
$153,987
$26,981
$10,493
Change in plan assets:
Fair value of plan assets at beginning of year
$107,447
$113,321
$2,278
Actual return on plan assets
Employer contribution
Benefits paid
Currency translation
14,631
540
7,309
275
(8,700)
(13,458)
-
-
77
-
(1,325)
313
$3,973
(135)
-
(1,434)
(126)
Fair value of plan assets at end of year
$113,918
$107,447
$1,343
$2,278
Unfunded status of the plan
($46,753)
($46,540)
($25,638)
($8,215)
Amounts recognized in statement of financial
position:
Current liabilities
Noncurrent liabilities
Net amount recognized
U.S. Pension Benefits
Non U.S. Pension Benefits
2017
2016
2017
2016
($71)
($71)
($164)
(46,682)
(46,469)
(25,474)
($147)
(8,068)
($46,753)
($46,540)
($25,638)
($8,215)
The funded status of these pension plans as a percentage of the projected benefit obligation was 61% in
2017 compared to 67% in 2016.
U.S. Pension Benefits
Non U.S. Pension Benefits
2017
2016
2017
2016
Projected benefit obligation
Fair value of plan assets
$160,671
$113,918
$153,987
$107,447
$26,981
$1,343
$10,493
$2,278
Components of net periodic benefit cost for the years ended December 31:
23
U.S. Pension Benefits
2016
2017
2015
Non U.S. Pension Benefits
2015
2016
2017
Component of net period benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of actuarial loss
-
$
6,663
(7,709)
-
4,605
$3,559
-
$
7,093
(8,144)
-
4,369
$3,318
-
$
6,895
(8,953)
-
4,083
$2,025
$640
428
(72)
-
237
$1,233
$415
204
(125)
-
171
$665
$441
222
(141)
-
176
$698
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
U.S. Pension Benefits
Non U.S. Pension Benefits
2017
2016
2017
3.86%
7.50%
4.47%
7.50%
1.77%
3.20%
2016
1.45%
3.20%
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 1.77% on its non U.S.
pension plans for 2017.
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.
Money market – overnight bank deposits and money market mutual funds maintaining at all times
$1.00 Net Asset Value (“NAV”).
US Government and agency obligations – U.S. Treasury bonds, notes and other government
obligations.
Exchange traded funds – marketable securities tracking asset baskets traded on active markets.
Mutual funds - Valued at the net asset value (“NAV”) of shares or units held by the Plan at year-end
which is obtained from an active market or at share or unit prices provided by the fund manager with
significant observable inputs.
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.
Common stocks - marketable corporate equity securities traded on active markets.
24
The fair values of the Company’s pension plan asset allocation at December 31, 2017 and 2016, by
asset category are as follows:
Fair Value Measurement at
December 31, 2017
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$3,794
$
-
$
-
1,493
25,690
35,776
33,559
$100,312
2,696
-
2,837
-
$5,533
-
-
-
$
-
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
$3,794
4,189
25,690
38,613
33,559
105,845
9,416
$115,261
Fair Value Measurement at
December 31, 2016
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$4,097
$
-
$
-
1,574
23,389
35,847
2,200
-
2,682
-
-
-
30,819
$95,726
-
4,882
$
1
$
1
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
(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.
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.
25
Total Estimated Benefit
Payments
U.S.
Non U.S
2018
2019
2020
2021
2022
Thereafter
$9,513
9,728
9,899
9,988
10,058
50,305
$531
517
799
735
765
17,043
The Company’s expected contribution for the 2018 fiscal year is $3,106 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 $998,
$1,263 and $1,212 in 2017, 2016 and 2015, 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 2017, 2016, and
2015 was $572, $475 and $564, 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 $5,961.
13. 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.
14. Income Taxes
Income tax provision (benefit) consisted of:
Current
Domestic
Foreign
Total current
Deferred
Domestic
Foreign
Total deferred
Total
2017
2016
2015
.
$274
4,713
($51)
8,976
$240
6,568
4,987
8,925
6,808
15,842
(419)
15,423
(75)
(1,204)
(1,279)
4,782
(1,704)
3,078
$20,410
$7,646
$9,886
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:
26
Temporary differences and net operating loss carryforwards that give rise to a significant portion of
deferred tax assets and liabilities for 2017 and 2016 are as follows:
Income (loss) before income taxes:
Domestic
Foreign
Total
2017
2016
2015
$1,572
14,597
($977)
14,183
$9,006
2,177
$16,169
$13,206
$11,183
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
Tax reform items
Revaluation of deferreds
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
Tax reform items
Revaluation of deferreds
Other, net
Effective income tax rate
$5,659
(62)
(442)
612
(1,419)
167
(235)
16,146
276
(292)
$20,410
35.0%
-0.4%
-2.7%
3.8%
-8.8%
1.0%
-1.5%
99.9%
1.7%
-1.8%
126.2%
$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%
Statutory federal rate
35.0%
35.0%
35.0%
27
Temporary differences and net operating loss carryforwards that give rise to a significant portion of
deferred tax assets and liabilities for 2017 and 2016 are as follows:
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
Intangible asset
Foreign exchange and other
Total deferred tax liability
2017
2016
$5,434
3,554
3,762
97
14,290
7
26,088
(1,349)
$51,883
($10,852)
(8,467)
(7,040)
($26,359)
$25,524
$7,800
4,336
58
63
18,209
8
39,097
(595)
$68,976
($16,481)
-
(1,435)
($17,916)
$51,060
The net deferred tax asset (liability) is classified in the balance sheet as follows:
2017
2016
Non-current deferred tax assets
Non-current deferred tax liability
Non-current deferred tax assets (liability), net
$35,091
(9,567)
$25,524
$51,386
(326)
$51,060
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 US. The Company
has a valuation allowance for Viskase Poland at December 31, 2017 and December 31, 2016 of
$999 and $425, respectively. The Company has a valuation allowance for Darmex Casings Sp. z
o.o. at December 31, 2017 of $30. The Company has a valuation allowance in the U.S. at
December 31, 2017 and December 31, 2016 of $527 and $170, respectively. The Company has
gross U.S. federal net operating loss carryforwards at December 31, 2017 and December 31, 2016
of $82,317 and $91,477, respectively, with amounts beginning to expire in 2024. The Company has
gross net operating loss carryforwards in Brazil at December 31, 2017 and December 31, 2016 of
$10,792 and $12,917, respectively and has an unlimited carryforward period. The Company has
gross net operating loss carryforwards in Poland at December 31, 2017 and December 31, 2016 of
$3,976 and $2,236, respectively and has a five year carryforward period. The Company has gross
net operating loss carryforwards in Poland Darmex at December 31, 2017 of $156, and has a five
year carryforward period. The Company has gross net operating loss carryforwards in France at
December 31, 2017 and December 31, 2016 of $2,541 and $1,233, respectively and has an
unlimited carryforward period. The Company has gross net operating loss carryforwards in Germany
at December 31, 2017 of $14 for Trade Tax. Germany has an unlimited carryforward period on
Trade Tax.
The Company joins in filing a United States consolidated Federal income tax return including all of
its domestic subsidiaries.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based
Payment Accounting. The new standard is intended to simplify accounting for share based
employment awards to employees. Changes include: all excess tax benefits/deficiencies should be
28
recognized as income tax expense/benefit; entities can make elections on how to account for
forfeitures; and cash paid by an employer when directly withholding shares for tax withholding
purposes should be classified as a financing activity on the cash flow statement. The standard
becomes effective for fiscal years beginning after December 15, 2016.The Corporation implemented
the new standard for fiscal 2017 and recorded an entry to increase the deferred tax asset on the net
operating loss carryforward of $156.
On December 22, 2017 the H.R. 1 was signed into law significantly revising certain U.S. corporate
income tax provisions; including, among other items, a reduction of the U.S. corporate rate from 35%
to 21%, effective for tax years beginning after December 31, 2017; the transition of U.S. international
taxation from a worldwide tax system to a territorial system; and a one-time transition tax on the
mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017, (or, if
greater, November 2, 2017 ) of a specified foreign corporation which included foreign controlled
foreign corporations and other foreign corporations which have at least one U.S. corporate
shareholder that owns 10% or more of the value or voting power of such foreign corporation. We
estimated the impact of the Tax Legislation on our income tax provision for the year ended
December 31, 2017 in accordance with our understanding of the Tax Legislation and guidance
available at the date of this filing as a result have recorded adjustments to the various tax balances,
current, long-term and deferred tax assets and liabilities, all during the fourth quarter of 2017, the
period in which the Tax Legislation was enacted. The provisional amount related to remeasurement
of certain deferred tax assets and liabilities based on rates at which they are expected to reverse in
the future was $13,768, representing an income tax expense recorded during the current period. The
provisional amount related to the one-time transition tax on the mandatory deemed repatriation of
foreign earnings was $2,184 of additional income tax expense which was offset by the net operating
loss carryforward.
The Company has not completed all aspects of its accounting for the tax effects of the enactment of
the H.R. 1 law. However, in certain instances the company has made a reasonable estimate of the
effects on the Company’s tax provision. Primarily, the Company has recorded a provisional tax
amount of $2,184 related to the one-time transition tax. This amount is provisional while the
Company completes its calculation of E&P for the foreign subsidiaries. The Company intends to
complete the calculation prior to the filing of their 2017 federal tax return.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income, which amends FASB ASC Topic 220, Income
Statement - Reporting Comprehensive Income. This ASU allows a reclassification out of
accumulated other comprehensive loss within equity for standard tax effects resulting from the Tax
Cuts and Jobs Act and consequently, eliminates the stranded tax effects resulting from the Tax Cuts
and Jobs Act. This ASU is effective for fiscal years beginning after December 15, 2018, and interim
periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact
of this guidance on our consolidated financial statements.
Uncertainty in Income Taxes
The uncertain tax positions as of December 31, 2017 totaled $11,855. The following table
summarizes the activity related to the unrecognized tax benefits.
(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
2017
$7,747
256
(1,517)
6,970
-
-
(1,601)
$11,855
2016
$6,969
5
(547)
1,325
-
-
(5)
$7,747
29
In 2017, the Company recognized an approximate net increase of $4,108 to the reserves for
uncertain tax positions. The majority of the decrease in the reserve is due to the increase of the tax
positions domestically.
Approximately $11,855 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. Based on the expiration of the statute of limitations for
certain jurisdictions, it is reasonably possible that the unrecognized tax benefits will decrease in the
next twelve months by approximately $100.
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, 2017 and 2016, the Company
recorded adjustments for interest of $154 and $311, respectively, and for penalties of $(212) and
$123, respectively related to these unrecognized tax benefits. In total, as of December 31, 2017 and
2016, the Company has recorded a liability of interest of $674 and $520, respectively, and $242 and
$454, respectively, for potential penalties.
15. Goodwill and Intangible Assets, net
The Company currently has $3,580 of goodwill with no accumulated impairment.
Goodwill consists of the following:
December 31, 2017
December 31, 2016
Beginning balance
Acquisitions
Translation
Gross carrying amount,
December 31st
$329
2,854
397
$3,580
$
-
329
-
$329
Intangible assets, net consist of the following:
Definite live intangible assets:
Customer relationships
Technologies
Patents/Trademarks
In-place leases
December 31, 2017
Gross
Carrying
Value
$21,036
2,517
9,413
219
$33,185
Accumulated
Amortization
Net Carrying
Value
($1,052)
(199)
(5,059)
(16)
($6,326)
$19,984
2,318
4,354
203
$26,859
30
Definite live intangible assets:
Customer relationships
Technologies
Patents/Trademarks
In-place leases
December 31, 2016
Gross
Carrying
Value
Accumulated
Amortization
Net Carrying
Value
-
$
42
4,823
-
$4,865
$
-
-
(4,662)
-
($4,662)
-
$
42
161
-
$203
Amortization expense associated with definite-lived intangible assets was $1,546, $18 and $16 for the
period ended December 31, 2017, 2016 and 2015, respectively. We utilize the straight-line method of
amortization, recognized over the estimated useful lives of the assets.
The estimated future amortization expense for our definite-lived intangible assets is as follows:
2018
2019
2020
2021
2022
Total thereafter
$1,670
1,670
1,670
1,670
1,670
18,509
Total amortization
$26,859
The acquisition during the year ended December 31, 2017 allocated $2,854 to goodwill and $24,742
to definite-lived intangible assets amortized over a weighted average of 18 years.
16. 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.
17. 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. Included in net income is non-cash compensation expense of $224 and $60 for the
years ended December 31, 2017 and December 31, 2016, respectively.
The fair values of the options granted during 2016 and 2013 were estimated on the date of grant
using the binomial option pricing model. The assumptions used and the estimated fair values are as
follows:
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
31
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
December 31, 2017, December 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.
The Company's outstanding options were:
Weighted Average Weighted Average
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
Granted
Exercised
Forfeited
Outstanding, December 31, 2017
Vested and exercisable at Dec. 31, 2017
Shares Under Weighted Average
Option
1,825,000
1,726,668
600,000
1,500,000
-
925,000
325,000
-
-
-
925,000
525,000
Exercise Price
2.84
$
2.82
$
2.53
$
$
1.70
$
-
$
4.45
$
8.00
$
-
$
-
$
-
$
4.45
$
5.92
Remaining
Contractual Life
35 months
34 months
120 months
-
-
104 months
76 months
-
-
-
93 months
81 months
Grant-Date
Fair Value
$
$
$
$
$
$
0.64
0.64
1.12
-
-
0.91
0.51
-
-
-
0.91
0.74
Vested and exercisable options as of December 31, 2017 were 525,000 with a weighted average
share price of $5.92.
18. Research and Development Costs
Research and development costs are expensed as incurred and totaled $4,947, $4,418 and $4,977
for 2017, 2016, and 2015, respectively.
19. Related-Party Transactions
As of December 31, Icahn Enterprises L.P. owned approximately 74.6% of our outstanding common
stock. There were no shares of common stock purchased during the period ended December 31,
2017.
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 $184
and $174 for the years ended December 31, 2017 and December 31, 2016. 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 2017.
Icahn Enterprises L.P. was the lender on the Company’s Revolving Credit Facility as of December
31, 2017. The Company paid Icahn Enterprises L.P. service, commitment fees, interest and
amendment fees of $110 and $216 during the years ended December 31, 2017 and December 31,
2016.
32
20. Business Segment Information and Geographic Area Information
The Company primarily manufactures and sells cellulosic food casings as its sole business segment.
The Company’s operations are viewed in geographic regions of 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
Net Sales by market
Emerging
Mature
2017
2016
2015
$183,771
52,715
178,502
39,032
(62,042)
$188,346
49,302
114,027
35,827
(58,682)
$195,131
46,403
118,484
33,399
(49,834)
$391,978
$328,820
$343,583
$10,240
5,210
3,398
9,305
$28,153
$10,748
4,145
3,350
6,246
$24,489
$23,361
3,848
743
1,016
$28,968
$185,911
$204,660
$215,671
73,647
179,048
43,530
65,786
111,481
41,511
54,481
101,385
42,403
$482,136
$423,438
$413,940
2017
2016
2015
$197,466
194,512
$171,974
$175,008
156,846
168,575
$391,978
$328,820
$343,583
33
Net Sales by country
United States
Brazil
Italy
Germany
France
Philippines
Poland
Other international
$109,357
32,233
23,132
28,445
12,220
18,682
10,664
157,245
$97,071
28,458
23,577
9,864
11,727
21,809
8,416
127,898
$101,903
24,514
26,365
10,418
12,812
19,531
7,144
140,896
$391,978
$328,820
$343,583
21. Interest Expense, Net
Net interest expense consisted of:
December 31, 2017
December 31, 2016
December 31, 2015
Interest expense
Less Capitalized interest
Interest expense, net
$13,293
(76)
$13,217
$12,667
(124)
$12,543
$12,597
(139)
$12,458
22. Changes in Accumulated Other Comprehensive Loss
Balance at December 31, 2016
Other comprehensive (loss) income before
reclassifications
Reclassifications from accumulated other
comprehensive loss to earnings
Balance at December 31, 2017
Accrued
Employee
Benefits
Translation
Adjustments
($51,739)
($36,913)
Total
($88,652)
(3,586)
6,647
3,061
4,842
($50,483)
-
($30,266)
4,842
($80,749)
Amounts Reclassified
from Accumulated
Other Comprehensive
Loss
Affected Line Items in the
Consolidation Statement of
Operations and Comprehensive Loss
$4,842
$4,842
Selling, general and administrative
Accrued Employee Benefits
Amortization of net actuarial loss
23. Restructuring Charges
During the year ended December 31, 2017, the Company recognized a restructuring expense in our
European segment of $1,745, which we believe is our total cost for the plan. The costs relate to a
restructuring of its Warsaw, Poland subsidiary operations to safeguard the Company’s competitive
environment in the European market. The plan involved the involuntary termination of approximately 13
employees for $414 and an operating lease liability of $1,331.
34
During the first quarter of 2016, the Company recognized a restructuring expense of $1,858 in its
European segment. The total cost for this restructuring was $4,170, which was recognized in 2016 and
2015. The costs 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 exited its
Beauvais, France plastics, printing, and MP coating operations, along with a targeted downsizing of its
production and overhead personnel.
The Company believes this will position us to be in an improved competitive position for the future in the
European market.
During the third quarter of 2016, the Company recognized a cost of $543 related to the relocation of its
North American finishing operations. The plan involved the involuntary termination of approximately 53
employees and was completed in the second half of 2016. The restructuring expense included 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 was completed in December 2017.
The following table provides details of our restructuring provisions.
December 31, 2017
December 31, 2016
December 31, 2015
$3,210
1,745
(3,718)
$1,237
$1,713
4,809
(3,312)
$3,210
$89
2,672
(1,048)
$1,713
Beginning balance
Provision
Payments
Ending balance
24. Acquisitions
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 EUR
33,611 or $34,616 paid in cash, subject to certain post-closing adjustments. 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. 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 with the acquisition due to
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. The
following summarizes the estimated fair value of the assets acquired and liabilities assumed at the date
of acquisition for EUR 25,500 in cash and EUR 8,111 in restructured term loan (see Footnote 4).
35
Cash
Accounts receivable
Inventories
Other current assets
Property, plant and equipment
Other assets
Intangible assets
Goodwill
Accounts payable
Accrued liabilities
Short term capital lease
Long term capital lease
Accrued employee benefits
Long-term liabilities
Deferred tax liability
Total purchase price
January 1, 2017
$3,475
10,428
8,378
1,192
14,148
6,794
24,742
2,854
(3,169)
(4,827)
(426)
(1,161)
(13,285)
(7,098)
(7,429)
$34,616
Transaction costs related to the acquisition amounted to $728 and were recorded as an expense in the
statement of operations.
The Company has no tax deductible goodwill related to the acquisition.
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.
Cash
Accounts receivable
Inventories
Prepaid expenses
Property, plant and equipment
Other assets
Goodwill
Accounts payable
Accrued liabilities
Short term capital lease
Deferred tax liability
December 1, 2016
$133
730
427
15
3,285
83
329
(280)
(190)
(10)
(326)
Total purchase price
$4,196
36
Transaction costs related to the acquisition amounted to $357 and were recorded as an expense in the
statement of operations.
Unaudited Pro Forma Results
The following table summarizes, on a pro forma basis, the combined results of operation of the
Company, Darmex and Walsroder as though the acquisitions had occurred as of December 31, 2014.
The pro forma amounts presented are not necessarily indicative of either the actual consolidation results
had Walsroder and Darmex acquisitions occurred as of December 31, 2014 or future consolidated
operating results. Due to the acquisitions occurring at December 1, 2016 and the beginning of 2017, no
proforma impact is presented for 2017.
Net sales
Income before income taxes
Net income (loss)
Unaudited
December 31, 2016
$390,639
9,741
3,320
Unaudited
December 31, 2015
$409,723
3,956
(7,919)
Pro forma results presented above primarily reflect: (1) incremental depreciation relating to fair value
adjustments to property, plant and equipment; (2) amortization adjustments relating to fair value
estimates of intangible assets.
Pro forma adjustments above have been tax effected using the Company’s effective tax rate during the
respective period.
25. Variable Interest Entity
The Company holds a variable interest in a joint venture for which the Company is the primary
beneficiary. The joint venture, VE Netting, LLC, is a manufacturing, marketing and selling company of
high quality netting solutions for the meat and poultry industry. VE Netting, LLC is a Delaware limited
liability company with its principal place of business in Lombard, IL. The netting product will be
manufactured under agreement by Viskase’s affiliate located in Monterrey, Mexico.
Viskase’s variable interest in the entity relates to the sales, operations, administrative and financial
support to the entity through providing certain assets under agreement to be used by the entity. The
Company agreed to contribute $931 in cash and other considerations in forming the venture. In addition
the Company could be required to contribute up to $4,000 less the initial contribution during the course
of the joint venture. The Company owns 50% equity in the entity. Based on a review of applicable
guidance, this entity was consolidated beginning in September 2017. As a result of the consolidation,
financial statements for the period ended December 31, 2017 were affected as follows: sales increased
by $31, net income decreased by $289, total assets increased by $1,291, and noncontrolling interests
decreased by $144. Due the evidence presented, Viskase has concluded it is the primary beneficiary.
As the primary beneficiary of the variable interest entity (VIE), the VIEs’ assets, liabilities, and results of
operations are included in the Company’s consolidated financial statements as of, and for the period
ended, December 31, 2017. The other equity holders’ interests are reflected in “Net loss attributable to
noncontrolling interests” in the Consolidated Condensed Statements of Operations and “Noncontrolling
interests” in the Consolidated Condensed Balance Sheets.
The following table summarizes the carrying amount of the VIEs’ assets and liabilities included in the
Company’s Consolidated Balance Sheets at December 31, 2017:
37
ASSETS
Current assets:
Cash and cash equivalents
Receivables, net
Inventories
Other current assets
Property, plant and equipment
Less: Accumulated depreciation
Property, plant and equipment,net
Deferred tax asset
Other assets
Total Assets
Current liabilities
Total Liabilites
Paid in capital
Retained earnings
Total Stockholder Equity
Total Liabilities and Stockholders' Equity
December 31, 2017
$15
26
48
76
1,031
(24)
1,007
115
4
$1,291
$149
149
1,431
(289)
1,142
$1,291
All assets in the above table can only be used to settle obligations of the consolidated VIE. Liabilities are
nonrecourse obligations. Amounts presented in the table above are adjusted for intercompany
eliminations.
The following table summarizes the Statement of Operations of the VIE included in the Company’s
Consolidated Statement of Operations for the year ended December 31, 2017:
Net sales
Cost of sales
Gross margin
Selling, general and administrative
Operating loss
Other expense
Loss before income taxes
Income tax benefit
Net loss
26. Subsequent Events
$31
146
(115)
279
(394)
10
(404)
115
($289)
Viskase evaluated its December 31, 2017 consolidated financial statements for subsequent events
through March 31, 2018, the date the consolidated financial statements were available to be issued.
On January 3, 2018, the Company completed a rights offering of 16,666,666 shares of common stock at
$3.00 per share. The Company plans to use the net proceeds of the offering to replenish working capital
used for the acquisitions of Walsroder and Darmex and for other general corporate purposes, including
acquisitions and capital expenditures.
38
As a result of the rights offering, Icahn Enterprises L.P. currently owns approximately 78.6% of our
outstanding common stock.
On January 5, 2018, the Company repaid $3,000 on the Revolving Credit Facility.
On March 15, 2018, the Company purchased an annuity contract for an estimated $29,000 for
approximately 1,043 participants in the U.S. defined benefit pension plan. The purchase of this annuity
contract will lower our projected benefit obligation by approximately $27,850.
39