Viskase Companies, Inc. Annual Report 2018

FY2018 Annual Report · Viskase Companies, Inc.

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VISKASE COMPANIES, INC.

ANNUAL REPORT 2018

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”).

CONSOLIDATED FINANCIAL STATEMENTS OF VISKASE COMPANIES, INC. AND
SUBSIDIARIES

Financial Statements:

Report of Independent Certified Public Accountants

Consolidated Balance Sheets as of December 31, 2018 and 2017

Consolidated Statements of Operations for the years ended December 31,
2018, 2017 and 2016

Consolidated Statements of Comprehensive (Loss) Income for the years ended
December 31, 2018, 2017 and 2016

Consolidated Statements of Stockholders' Equity for the for years ended
December 31, 2018, 2017 and 2016

Consolidated Statements of Cash Flows for the years ended December 31,
2018, 2017 and 2016

Notes to Consolidated Financial Statements

Management’s Discussion and Analysis of Financial Condition and Results of

Operations

GRANT THORNTON LLP

Grant Thornton Tower

171 N. Clark Street, Suite 200

Chicago, IL 60601-3370

D +312.856.0200
F +312.565.4719

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Viskase Companies, Inc.

We have audited the accompanying consolidated financial statements of Viskase
Companies, Inc. (a Delaware corporation) and subsidiaries, which comprise the
consolidated balance sheets as of December 31, 2018 and 2017, and the related
consolidated statements of operations, comprehensive income (loss), changes in
stockholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2018, and the related notes to the financial statements.

Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these
consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America; this includes the design, implementation, and
maintenance of internal control relevant to the preparation and fair presentation of
consolidated financial statements that are free from material misstatement, whether
due to fraud or error.

Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements
based on our audits. We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts
and disclosures in the consolidated financial statements. The procedures selected
depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In
making those risk assessments, the auditor considers internal control relevant to the
entity’s preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion.

GT.COM

Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd (GTIL). GTIL and each of its member firms
are separate legal entities and are not a worldwide partnership.

Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the financial position of Viskase Companies, Inc. and subsidiaries
as of December 31, 2018 and 2017, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2018 in accordance
with accounting principles generally accepted in the United States of America.

Chicago, Illinois

March 29, 2019

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

Asset held for sale
Other assets, net
Intangible assets
Goodw ill
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; 53,995,935 shares issued and 53,190,665
outstanding at December 31, 2018 and 37,329,269 shares issued and
36,523,999 outstanding at December 31, 2017
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

December 31, 2018

December 31, 2017

$46,031
1,159
74,300
92,525
40,348

254,363

368,484
(198,452)

170,032

-
18,998
24,317
3,428
37,105

$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

$508,243

$482,136

$4,659
500
33,053
40,246
78,458

266,814
603
9,338
75,418
6,526

540
82,843

67,699
(298)
(79,276)

71,508

(422)

71,086

$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

Total Liabilities and Stockholders' Equity

$508,243

$482,136

See notes to consolidated financial statements.

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 expense, net

Year
Ended
December
31, 2018

Year
Ended
December
31, 2017

Year
Ended
December
31, 2016

$395,329

$391,978

$328,820

315,764

296,100

247,570

79,565

56,426
1,664
149
8,862

12,464

519
15,821
15,701

95,878

58,440
1,556
1,832
1,745

32,305

85
13,217
3,004

16,169

81,250

48,366
18

-
4,809

28,057

22
12,543
2,330

13,206

7,646

$5,560

(LOSS) INCOME BEFORE INCOME TAXES

(18,539)

Income tax (benefit) provision

NET (LOSS) INCOME

(4,069)

($14,470)

20,410

($4,241)

Less: net (loss) attributable to noncontrolling interests

(278)

(144)

Net (loss) income attributable to Viskase Companies, Inc

($14,192)

($4,097)

$5,560

WEIGHTED AVERAGE COMMON SHARES

- BASIC

53,007,515

36,523,999

36,186,302

PER SHARE AMOUNTS:
EARNINGS PER SHARE

- BASIC

WEIGHTED AVERAGE COMMON SHARES

($0.27)

($0.11)

$0.15

- DILUTED

53,007,515

36,523,999

36,243,772

PER SHARE AMOUNTS:
EARNINGS PER SHARE

- DILUTED

($0.27)

($0.11)

$0.15

See notes to consolidated financial statements.

VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)

Year
Ended
December
31, 2018

Year
Ended
December
31, 2017

Year
Ended
December
31, 2016

Net (loss) income

($14,470)

($4,241)

$5,560

Other comprehensive income (loss), net of tax

Pension liability adjustment
Foreign currency translation adjustment

Other comprehensive income (loss), net of tax

6,095
(4,622)

1,473

1,256
6,647

7,903

Comprehensive (loss) income

($12,997)

$3,662

Less: comprehensive (loss) attributable to
noncontrolling interests

(278)

(144)

Net comprehensive (loss) income attributable to Viskase

($12,719)

$3,806

482
(5,296)

(4,814)

$746

See notes to consolidated financial statements.

VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)

Balance December 31, 2015

Common
stock

$370

Paid in
capital
$32,861

Treasury
stock

Retained
earnings

Accumulated other
comprehensive
loss

($298)

$80,272

($83,838)

Total

stockholders’ Non-controlling stockholders’
Interest
$
-

equity
$29,367

$29,367

equity

Net income

Foreign currency translation adjustment

Pension liability adjustment, net of tax

Stock option expense

Balance December 31, 2016

5,560

3
$373

(389)
$32,472

-
($298)

-
$85,832

-
(5,296)

482

5,560

(5,296)

482

(386)

($88,652)

$29,727

Net loss

Foreign currency translation adjustment

Pension liability adjustment, net of tax

Cumulative-effect adjustment resulting

adopting ASU 2016-09

Stock option expense

Balance December 31, 2017

Net loss

Foreign currency translation adjustment

Pension liability adjustment, net of tax
Issuance of common stock
Stock option expense

Balance December 31, 2018 (unaudited)

-
$373

314
$32,786

-
($298)

-
-
167

-
-
49,833

-
$540

224
$82,843

-
-
-
-

($298)

(4,097)

156

-
$81,891

(14,192)

-
-
-

-
$67,699

6,647

1,256

(4,097)

6,647

1,256

156

314

($80,749)

$34,003

(4,622)
6,095
-

($79,276)

(14,192)

(4,622)
6,095
50,000

224
$71,508

5,560

(5,296)

482

(386)

$29,727

(144)

(4,241)

6,647

1,256

156

-
($144)

314
$33,859

(278)

(14,470)

-
-
-

-
(422)

(4,622)
6,095
50,000

224
$71,086

See notes to consolidated financial statements.

VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

Cash flow s 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
Postretirement settlement charge
Loss on disposition/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

Year
Ended
December
31, 2018

Year
Ended
December
31, 2017

Year
Ended
December
31, 2016

($14,470)

($4,241)

$5,560

23,085
224
1,664
550
(7,241)
7,381
57
128

486

2,386

(2,564)
(1,306)
(2,076)
3,243

(1,738)
(392)

(436)
12
23,463

22,106
224
1,556
597
15,423
-
2,043
348

480

(594)

(6,759)
(8,694)
2,054
(2,406)

1,263
(266)

1,237
(668)
27,944

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

Net cash provided by operating activities

8,993

23,703

28,376

Cash flow s from investing activities:

Capital expenditures

Acquisition of businesses, net of cash acquired

Proceeds from disposition of assets

Net cash used in investing activities

Cash flow s from financing activities:

Issuance of common stock
Deferred financing costs

Proceeds from long-term debt

Repayment of short-term debt

Repayment of capital lease

Net cash (used in) provided by financing activities

Effect of currency exchange rate changes on cash

Net increase (decrease)in cash and equivalents

Cash, equivalents and restricted cash at beginning of period

Cash, equivalents and restricted cash 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.

(24,609)

19
(24,590)

50,000
(120)

4,637

(8,160)

(491)
45,866

(673)

29,596

17,594

$47,190

$14,797
$4,238

(25,674)

(31,141)

308
(56,507)

-
(120)

10,716

(2,750)

(476)
7,370

1,836

(23,598)

41,192

$17,594

$12,169
$7,820

(18,091)

(4,063)

51
(22,103)

3
(245)

(3,166)

(170)
(3,578)

(188)

2,507

38,685

$41,192

$11,845
$6,750

$1,760

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.

Change of Estimates in the Preparation of Financial Statements

During the first quarter of 2018, the Company has changed its estimate for amortization of
unrecognized loss on its U.S. pension plan. The Company was amortizing the unrecognized loss
based on average expected future service of participants. Since the plan is frozen, the Company has
changed the amortization to be the average expected lifetime of all plan participants. The change in
estimate has decreased our amortization of unrecognized loss from $3,651 to $1,042 for 2018.

Reclassifications

Certain prior period financial statement balances have been reclassified to conform to the current
period presentation.

In connection with our adoption of Financial Accounting Standards Board ("FASB") Accounting
Standards Update ("ASU") No. 2016-18, Restricted Cash, we decreased our net cash provided by
financing activities for the year ended December 31, 2017 by $519 and $(699) for the year ended
December 31, 2016. Cash, cash equivalents and restricted cash are now presented in total in the
consolidated statement of cash flows.

In connection with our adoption of FASB issued ASU No. 2017-07, Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, the components of net periodic
benefit cost other than the service cost component are included in the line item other expense in the
income statement. As a result, the Company has decreased our selling, general and administrative
expense by $3,559 for the year ended December 31, 2017 and $3,318 for the year ended December
31, 2016.

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. 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. 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.

Inventories

Inventories are valued at the lower of cost or net realizable value. 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 closed the sale of the asset in the third quarter
of 2018.

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.

impairment testing involves comparing the fair value of our reporting units to their carrying values. If
the book value of the reporting unit exceeds its fair value, the goodwill of the reporting unit is
considered to be impaired. The amount of impairment loss is equal to the excess of the book value of
the goodwill over the fair value of goodwill. 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.

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, 2018 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 5.85% for 2018. The
Company is using a long-term rate of return on French plan assets of 3.20% for 2018. 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 was using a discount rate of 3.86% for the first quarter of 2018 and then remeasured
net periodic benefit cost with the settlement accounting on the plan and will use 4.41% for the
remainder of 2018. The Company is using a weighted average discount rate of 1.78% on its non-
U.S. pension plans for 2018.

Income Taxes

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 2018 and 2017 resulted from changes in foreign currency translation
and minimum pension liability.

Revenue Recognition

The Company’s revenues are comprised of product sales. All revenue is recognized when the
Company satisfies its performance obligation(s) under the contract (either implicit or explicit) by
transferring the promised product to its customer when its customer obtains control of the product. A
performance obligation is a promise in a contract to transfer a distinct product or service to a customer.
A contract’s transaction price is allocated to each distinct performance obligation. Substantially all of
the Company’s contracts have a single performance obligation, as the promise to transfer products is
not separately identifiable from other promises in the contract and, therefore, not distinct.

Revenue is measured as the amount of consideration the Company expects to receive in exchange
for transferring products or providing services. The nature of the Company’s contracts gives rise to
several types of variable consideration. As such, revenue is recorded net of estimated discounts,
rebates and allowances. These estimates are based on historical experience, anticipated performance
and the Company’s best judgment at the time. Because of the Company’s certainty in estimating these
amounts, they are included in the transaction price of its contracts.

Sales, value add, and other taxes collected from customers and remitted to governmental authorities
are accounted for on a net (excluded from revenues) basis.

Substantially all of the Company’s revenue is from products transferred to customers at a point in time.
The Company recognizes revenue at the point in time in which the customer obtains control of the
product, which is generally when product title passes to the customer upon shipment. In certain cases,
title does not transfer and revenue is not recognized until the customer has received the products at
its physical location or at port.

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, 2018 future annual minimum purchases remaining under the agreement are $1,330.

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.

New Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes FASB
ASC Topic 840, Leases. This ASU requires the recognition of right-of-use assets and lease liabilities
by lessees for those leases classified as operating leases under previous guidance. In addition, among
other changes to the accounting for leases, this ASU retains the distinction between finance leases
and operating leases. The classification criteria for distinguishing between finance leases and
operating leases are substantially similar to the classification criteria for distinguishing between capital
leases and operating leases in the previous guidance. Furthermore, quantification and qualitative
disclosures, including disclosures regarding significant judgments made by management, will be
required. This ASU is effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. The amendments in this ASU should be applied using a modified
retrospective approach. Early application is permitted. In addition, in July 2018, the FASB issued ASU
No. 2018-11, Leases (Topic 842), which provides an additional (and optional) transition method to
adopt the new leases standard. We anticipate adopting the new leases standard using the new
transition method option effective January 1, 2019, which will require adopting the new leases
standard at the adoption date and recognizing a cumulative-effect adjustment to the opening balance
of equity in the period of adoption instead of the earliest period presented. In addition, prior period
presentation and disclosure will not be adjusted. We believe the most significant impact will relate to
the recognition of right-of-use assets and lease liabilities on our consolidated balance sheets for long-
term operating leases. We have developed an implementation plan to adopt the new leases standard
using the new transition method option effective January 1, 2019, which will require adopting the new
leases standard at the adoption date and recognizing a cumulative-effect adjustment to the opening
balance of equity in the period of adoption instead of the earliest period presented. In addition, prior
period presentation and disclosure will not be adjusted after adoption. The most significant impact will
relate to the recognition of material right-of-use assets offset by material lease liabilities on our
consolidated balance sheet for long-term operating leases.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial
Instruments, which amends FASB ASC Topic 326, Financial Instruments - Credit Losses. This ASU
requires financial assets measured at amortized cost to be presented at the net amount to be collected
and broadens the information, including forecasted information incorporating more timely information,
that an entity must consider in developing its expected credit loss estimate for assets measured. This
ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within
those fiscal years. Early application is permitted for fiscal years beginning after December 15, 2018.
We are currently evaluating the impact of this standard on our consolidated financial statements.

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. The Company has early adopted this ASU for interim
or annual goodwill impairment tests performed on testing dates after January 1, 2018.

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. The Company has adopted the provisions of ASU 2017-07 on January 1,
2018 and has reclassified items other than service cost component to other income/expense in the
statement of operations.

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.

In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs
Incurred in a Cloud Computing Arrangement That is a Service Contract, which amends FASB ASC
Subtopic 350-40, Intangibles-Goodwill and Other-Internal-Use Software. This ASU adds certain
disclosure requirements related to implementation costs incurred for internal-use software and cloud
computing arrangements. The amendment aligns the requirements for capitalizing implementation
costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software (and hosting arrangements
that include an internal-use software license). This ASU is effective for fiscal years beginning after
December 15, 2019, and interim periods within those fiscal years. The amendments in this ASU should
be applied either using a retrospective or prospective approach. Early adoption is permitted. We are
currently evaluating the impact of this standard on our consolidated financial statements.

2. Revenue from Contracts with Customers

Sales, value add, and other taxes collected from customers and remitted to governmental authorities
are accounted for on a net (excluded from revenues) basis.

The Company does not have significant contract assets or liabilities as of December 31, 2018.

As of January 1, 2018, when we adopted the accounting guidance, we increased accounts receivable
by $238, other current assets by $28 and accrued liabilities by $266 for product returns to reflect the
value of inventory to be returned and to record a liability. Previously, product returns were recorded
as a reduction to accounts receivable.

December 31, 2017

Impact of Modified Retrospective
Adoption of ASC 606

January 1, 2018 Post
ASC 606 Adoption

Receivables, net
Other current assets
Accrued liabilities

$77,961
91,589
38,047

$238
28
266

$78,199
$91,617
$38,313

At December 31, 2018, the amounts recorded for ASC 606 are to increase accounts receivable by
$334, other current assets by zero and accrued liabilities by $334 for product returns to reflect the
value of inventory to be returned and to record a liability.

Neither product line nor regional location of sale significantly impacts nature, amount, timing or
uncertainty of revenue and cash flows.

3. Cash and cash equivalents

Cash and cash equivalents
Restricted cash

December 31, 2018

December 31, 2017

$46,031
1,159

$47,190

$16,050
1,544

$17,594

As of December 31, 2018, and December 31, 2017, cash held in foreign banks was $18,282 and
$13,590, respectively.

As of December 2018, and December 31, 2017, letters of credit in the amount of $985 and $1,544,
respectively, were outstanding under facilities with a commercial bank, and were cash collateralized
in a restricted account.

4. Receivables, net

December 31, 2018

December 31, 2017

Accounts receivable, gross
Less allowance for doubtful accounts

$75,344
(1,044)

Less allowance for sales returns

$74,300

$79,143
(791)

(391)

$77,961

December 31, 2018

December 31, 2017

December 31, 2016

Beginning balance
Provision (recoveries)
Write-offs

Other and translation

Ending balance

$1,182
128

(266)

$1,044

$857
348
(24)

$1,182

$1,006
10
(152)

(7)

$857

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

7. Other Assets

Other taxes receivable
Indemnification asset
Other

December 31, 2018

December 31, 2017

$19,351
41,442
31,732

$92,525

$18,224
40,194
33,171

$91,589

December 31, 2018

December 31, 2017

$1,948
43,644
304,206
18,686

$1,954
41,979
287,974
17,902

$368,484

$349,809

December 31, 2018

December 31, 2017

$375
16,966
181,111

$352
15,169
163,236

$198,452

$178,757

December 31, 2018

December 31, 2017

$10,907
6,793
1,298
$18,998

$10,924
6,793
889
$18,606

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
Europe bank loans
Restructured term loan
Total short-term debt

Long-term debt:
Bank term loan, net of discount
Revolving credit facility
Europe bank loans
Restructured term loan
Other
Total long-term debt

December 31, 2018

December 31, 2017

$7,925
12,602
4,106
8
9,515
6,090
$40,246

$13,210
13,606
4,598
89
200
6,344
$38,047

December 31, 2018

December 31, 2017

$2,750
$1,909
-
4,659

257,237

-
2,291
6,857
429
266,814

$2,750
-
2,024
4,774

259,403
3,000
-
7,103
409
269,915

Total debt

$271,473

$274,689

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.

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, 2018. The amended Revolving Credit Facility
had no borrowings as of December 31, 2018 and $3,000 at December 31, 2017.

In its foreign operations, the Company has unsecured lines of credit with various banks providing
approximately $7,250 of availability. There were no borrowings under the lines of credit at December
31, 2018 and 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, 2018, the interest rate was
6.05% 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. 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 was
paid 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%.

Europe Bank Loan

On July 18, 2018, the French affiliate of the Company entered into a Term Loan Agreement with Credit
Industriel Et Commercial (“CIC”), providing for a €2,000 term loan (“CIC Term Loan”). The CIC Term
Loan bears interest at 0.70% with a three year maturity. The CIC Term Loan has a contractual
obligation to repay 8.33% of face value of the loan on a quarterly basis . The maturity date on the Term
Loan is May 15, 2021. Prepayments on the CIC Term Loan are permitted with advance notice of 30
days.

On December 2, 2018, the French affiliate of the Company entered into a second Term Loan
Agreement with Credit Industriel Et Commercial (“CIC”), providing for a €2,000 term loan (“CIC Term
Loan”). The CIC Term Loan bears interest at 0.75% with a two year maturity. The CIC Term Loan has
a contractual obligation to repay 12.50% of face value of the loan on a quarterly basis . The maturity
date on the Term Loan is October 5, 2020. Prepayments on the CIC Term Loan are permitted with
advance notice of 30 days.

Debt Maturity

The aggregate maturities of debt (1) for each of the next five years are:

2019

2020

2021

2022

2023

Thereafter

Term Loan Facility

$ 2,750

$ 255,750 $ - $ -

$ -

Europe Bank Loan

1,909

382

Restructured Term Loan

7,354

Other

921

$ 4,659

$ 12,013

$ 256,132

$ -

$ 921

(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, 2018 and December 31, 2017.

Building and improvements
Machinery and equipment
Less: Accumulated depreciation

December 31,
2018

December 31,
2017

$453
3,625
(2,975)

$1,103

$453
3,665
(2,651)

$1,467

The following is a schedule by years of minimum future lease payments as of December 31, 2018.

Year ending December 31,

2019
2020
2021
2022
2023
Thereafter

Total minimum payments required

Less amount representing interest

$534
525
57
33
6
-

1,155

(52)

Present value of net minimum lease payments

$1,103

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, 2018, are:

2019
2020
2021
2022
2023
Total thereafter

5,359
5,387
5,435
4,796
3,531
21,296

Total minimum lease payments

$45,804

Total rent expense during 2018, 2017 and 2016 amounted to $5,746, $4,601 and $2,836 respectively.

12. Retirement Plans

On March 15, 2018, the Company purchased an annuity contract for a preliminary amount of $29,258.
The contract was finalized on September 26, 2018 for a final amount of $28,403 which affected 1,034
participants in the U.S. defined benefit pension plan. The purchase of this annuity contract will lower
our projected benefit obligation by $28,403. The Company recognized a settlement charge of $7,381
in Other expense related to the annuity purchase.

The Company has contributed $3,183 to pension benefits in the U.S. during the year ended December
31, 2018.

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 $(5,949) for U.S. and $640 non-U.S.,
as of December 31, 2018 are the following amounts not yet recognized in net periodic benefit cost:

U.S. Pension Benefits

Non U.S. Pension Benefits

Net actuarial loss
Prior service credit

($37,027)
3

(1,260)
(198)

Amounts included in other comprehensive loss expected to be recognized as a component of net
periodic benefit cost for the year ending December 31, 2019 are:

U.S. Pension Benefits

Non U.S. Pension Benefits

Net actuarial loss

($1,284)

($62)

The measurement date for all defined benefit plans is December 31. The year-end status of the plans
is as follows:

U.S. Pension Benefits

Non U.S. Pension Benefits

2018

2017

2018

2017

Change in benefit obligation:

Projected benefit obligation at beginning of year

$160,671

$153,987

$26,981

$10,493

Service cost

Interest cost

Actuarial loss (gain)

Benefits paid

Plan settlements

Liability (Gain)/Loss due to Curtailment

Net increase in obligation due to acquisition

Currency translation

5,328

(8,968)

(7,145)

(28,403)

6,663

8,721

(8,700)

489

457

(1,395)

(573)

(1,179)

675

458

(759)

(177)

14,805

1,445

Estimated benefit obligation at end of year

$121,483

$160,671

$24,780

$26,981

Change in plan assets:

Fair value of plan assets at beginning of year

$113,918

$107,447

$1,343

$2,278

Actual return on plan assets

Employer contribution

Benefits paid

Plan settlements

Currency translation

(5,701)

3,183

(7,145)

(28,403)

14,631

540

(8,700)

(97)

(61)

(1,325)

313

Fair value of plan assets at end of year

$75,852

$113,918

$1,322

$1,343

Unfunded status of the plan

($45,631)

($46,753)

($23,458)

($25,638)

Amounts recognized in statement of financial
position:

Current liabilities

Noncurrent liabilities
Net amount recognized

U.S. Pension Benefits

Non U.S. Pension Benefits

2018

2017

2018

2017

($74)

($71)

($159)

(45,557)

(46,682)

(23,340)

($45,631)

($46,753)

($23,499)

($164)

(25,474)

($25,638)

The funded status of these pension plans as a percentage of the projected benefit obligation was 53% in
2018 compared to 61% in 2017.

U.S. Pension Benefits

Non U.S. Pension Benefits

2018

2017

2018

2017

Projected benefit obligation
Fair value of plan assets

$121,483
$75,852

$160,671
$113,918

$24,780
$1,322

$26,981
$1,343

Components of net periodic benefit cost for the years ended December 31:

U.S. Pension Benefits
2017

2018

2016

Non U.S. Pension Benefits
2016
2017
2018

Component of net period benefit cost

Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of actuarial loss
Settlement loss recognized

-
$
5,328
(5,128)
-
1,034
7,381
$8,615

-
$
6,663
(7,709)
-
4,605
-
$3,559

-
$
7,093
(8,144)
-
4,369
-
$3,318

$503
470
(40)
13
120
-
$1,066

$640
428
(72)
-
237
-
$1,233

$415
204
(125)
-
171
-
$665

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

2018

2017

2018

2017

4.41%
5.85%
N/A

3.86%
7.50%
N/A

1.78%
3.20%
2.67%

1.77%
3.20%
2.57%

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 1.78% on its non-U.S.
pension plans for 2018.

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.

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.
The fair values of the Company’s pension plan asset allocation at December 31, 2018 and 2017, by
asset category are as follows:

Fair Value Measurement at
December 31, 2018

Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

$3,224

$
-

879

16,551

22,355

20,785
$63,794

1,618

1,963

-
$3,581

-
$
-

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

$3,224

2,497

16,551

24,318

20,785
67,375

9,799
$77,174

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

(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.

Total Estimated Benefit
Payments

U.S.

Non U.S

2019
2020
2021
2022
2023
Thereafter

$7,382
7,650
7,823
7,921
8,041
40,763

$632
562
818
760
727
46,472

The Company’s expected contribution for the 2019 fiscal year is $3,883 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 $1,050,
$998 and $1,263 in 2018, 2017 and 2016, 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 2018, 2017, and
2016 was $382, $572 and $475, 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 $5,977.

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 100,000,000 shares, respectively.

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.

As a result of the rights offering, Icahn Enterprises L.P. currently owns approximately 78.6% of our
outstanding common stock.

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

2018

2017

2016

$139
3,033

$274
4,713

($51)
8,976

3,172

4,987

8,925

(394)
(6,847)
(7,241)

15,842
(419)
15,423

(75)
(1,204)
(1,279)

($4,069)

$20,410

$7,646

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:

Income (loss) before income taxes:

Domestic
Foreign

2018

2017

2016

($1,340)
(17,199)

$1,572
14,597

($977)
14,183

Total

($18,539)

$16,169

$13,206

Computed income tax (benefit) 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 (benefit) expense

Computed income tax (benefit) 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

($3,893)
(26)
(2,650)
(97)
(108)
953
1,459
(527)
302
518
($4,069)

21.0%
0.1%
14.3%
0.5%
0.6%
-5.1%
-7.9%
2.8%
-1.6%
-2.8%
21.9%

$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%

Temporary differences and net operating loss carryforwards that give rise to a significant portion of
deferred tax assets and liabilities for 2018 and 2017 are as follows:

2018

2017

Deferred tax asset
Provisions not currently deductible
Inventory basis differences
Stock options
Pension and healthcare
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

$5,434
3,554
97
14,290
26,088
(1,349)
$48,114

($10,852)
(8,460)
(3,278)
($22,590)
$25,524

$6,288
4,186
151
13,263
25,920
(1,184)
$48,624

($9,745)
(7,481)
(819)
($18,045)
$30,579

The net deferred tax asset (liability) is classified in the balance sheet as follows:

Non-current deferred tax assets
Non-current deferred tax liability
Non-current deferred tax assets, net

2018

2017

$37,105
(6,526)
$30,579

$35,091
(9,567)
$25,524

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, 2018 and December 31, 2017 of $685 and
$999, respectively. The Company has a valuation allowance in the U.S. at December 31, 2018 and
December 31, 2017 of $473 and $320, respectively. The Company has gross U.S. federal net
operating loss carryforwards at December 31, 2018 and December 31, 2017 of $69,381 and $82,409,
respectively, with amounts beginning to expire in 2024. The Company has gross net operating loss
carryforwards in Brazil at December 31, 2018 and December 31, 2017 of $8,315 and $10,792,
respectively and has an unlimited carryforward period. The Company has gross net operating loss
carryforwards in Poland at December 31, 2018 and December 31, 2017 of $4,429 and $4,849,
respectively and has a five year carryforward period. The Company has gross net operating loss
carryforwards in France at December 31, 2018 and December 31, 2017 of $8,510 and $2,541,
respectively and has an unlimited carryforward period. The Company has gross net operating loss
carryforwards in Viskase Germany at December 31, 2018 and December 31, 2017 of $1,770 and $29
for Income Tax and Trade Tax. The Company has gross net operating loss carryforwards in CT
Casings at December 31, 2018 and December 31, 2017 of $403 and $4,982 for Income Tax and 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 January 2018, the FASB released guidance on the accounting for tax on the global intangible low-
taxed income ("GILTI") provisions of H.R. 1.The GILTI provisions impose a tax on foreign income in
excess of a deemed return on tangible assets of foreign corporations. In the first quarter of 2018, the
Company elected to treat any potential GILTI inclusions as a period cost. Due to the worldwide foreign
losses incurred in 2018, the Company currently estimates no tax due to the GILTI inclusion but expects
the GILTI inclusion to impact the tax liability in future years.

Pursuant to ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to
SEC Staff Accounting Bulletin No. 118, for the December 31, 2017 financials, the Company
recognized the provisional effects of the enactment of the Tax Legislation for which measurement
could be reasonably estimated including the one-time deemed repatriation tax. Pursuant to ASU 2018-
05, adjustments to the provisional amounts recorded by the Company as of December 31, 2017
identified within a subsequent measurement period of up to one year from the enactment date were
included as a 429K favorable adjustment to tax expense from continuing operations for the December
31, 2018 financials. The Company has also considered all other material financial reporting impacts
of the Tax Cuts and Jobs Act including Global Intangible Low-Taxed Income (“GILTI”) and all amounts
are complete.

Uncertainty in Income Taxes

The uncertain tax positions as of December 31, 2018 totaled $11,677. 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 currency translation
Decreases due to lapse of statute of limitations
Unrecognized tax benefits as of December 31

2018
$11,855
-
(28)
-
-
(21)
(129)
$11,677

2017
$7,747
256
(1,517)
6,970
-
-
(1,601)
$11,855

In 2018, the Company recognized an approximate net decrease of $157 to the reserves for uncertain
tax positions. The majority of the decrease in the reserve is due to the lapse of statute of limitations
for reserves in Brazil and Philippines.

Approximately $11,677 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 2014. Substantially all material state and local and foreign income tax matters have been
concluded for years through 2012. 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 $200.

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, 2018 and 2017, the Company
recorded adjustments for interest of $(4) and $154, respectively, and for penalties of $(68) and $(212),
respectively related to these unrecognized tax benefits. In total, as of December 31, 2018 and 2017,
the Company has recorded a liability of interest of $670 and $674, respectively, and $174 and $242,
respectively, for potential penalties.

15. Goodwill and Intangible Assets, net

The Company currently has $3,428 of goodwill with no accumulated impairment.

Goodwill consists of the following:

December 31, 2018

December 31, 2017

Beginning balance
Acquisitions
Translation

Gross carrying amount,
December 31st

$3,580
0
(152)

$3,428

$329
2,854
397

$3,580

Intangible assets, net consist of the following:

Definite live intangible assets:
Customer relationships
Technologies
Patents/Trademarks
In-place leases

December 31, 2018

Gross
Carrying
Value

$20,083
2,402
9,482
208
$32,175

Accumulated
Amortization

Net Carrying
Value

($2,002)
(378)
(5,448)
(30)
($7,858)

$18,081
2,024
4,034
178
$24,317

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

Amortization expense associated with definite-lived intangible assets was $1,664, $1,546 and $18 for
the period ended December 31, 2018, 2017 and 2016, 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:

2019
2020
2021
2022
2023
Total thereafter
Total amortization

$1,595
1,595
1,595
1,595
1,595
16,342
$24,317

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 Amount)

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 for the years
ended December 31, 2018 and 2017.

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

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

Shares Under Weighted Average

Option

Exercise Price

Remaining
Contractual Life

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
Granted
Exercised
Forfeited
Outstanding, December 31, 2018
Vested and exercisable at Dec. 31, 2018

925,000
325,000
-
-
-
925,000
525,000
-
-
-
925,000
725,000

4.45
$
8.00
$
-
$
$
-
$
-
$
4.45
$
5.92
-
$
$
-
-
$
$
4.45
$
4.98

104 months
76 months

-
-
-

93 months
81 months

-
-
-

81 months
77 months

Grant-Date
Fair Value
$
$

$
$

0.91
0.51
-
-
-
0.91
0.74
-
-
-
0.91
0.85

Vested and exercisable options as of December 31, 2018 were 725,000 with a weighted average
share price of $4.98.

18. Research and Development Costs

Research and development costs are expensed as incurred and totaled $5,808, $4,947 and $4,418
for 2018, 2017, and 2016, respectively.

19. Related-Party Transactions

As of December 31, 2018, Icahn Enterprises L.P. owned approximately 78.6% of our outstanding
common stock. There were 14,564,832 shares of common stock purchased during the period ended
June 30, 2018 as a result of our Rights Offering.

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 $189 and
$184 for the year ended December 31, 2018 and December 31, 2017. 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 2018. As of December 31,
2018, Viskase has a prepaid expense for $95 with Insight Portfolio Group.

Icahn Enterprises L.P. was the lender on the Company’s Revolving Credit Facility as of December 31,
2018. The Company paid Icahn Enterprises L.P. service, commitment fees and interest of $114 and
$110 during the year ended December 31, 2018 and December 31, 2017.

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

2018

2017

2016

$193,135
46,541
175,594
43,571
(63,512)

$183,771
52,715
178,502
39,032
(62,042)

$188,346
49,302
114,027
35,827
(58,682)

$395,329

$391,978

$328,820

$17,491
(813)
(12,079)
7,865

$12,464

$13,799
5,210
3,991
9,305

$32,305

$14,066
4,145
3,600
6,246

$28,057

Net Sales by market

Emerging

Mature

Net Sales by country

United States

Brazil
Italy
Germany
France
Philippines
Poland
Other international

Identifiable assets

North America

South America

Europe
Asia

2018

2017

2016

$193,244

202,085

$197,466

194,512

$171,974

156,846

$395,329

$391,978

$328,820

$115,575

$109,357

27,928
24,052
28,229
12,569
21,549
11,450
153,977

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

$395,329

$391,978

$328,820

2018
$213,496

70,771

180,676
43,300

2017
$185,911

73,647

179,048
43,530

$508,243

$482,136

21. Interest Expense, Net

Net interest expense consisted of:

December 31, 2018

December 31, 2017

December 31, 2016

Interest expense
Less Capitalized interest
Interest expense, net

$15,821

$13,293
(76)
$13,217

$12,667
(124)
$12,543

22. Changes in Accumulated Other Comprehensive Loss

Balance at December 31, 2017
Other comprehensive (loss) income before
reclassifications
Reclassifications from accumulated other
comprehensive loss to earnings
Balance at December 31, 2018

Accrued
Employee
Benefits

Translation
Adjustments

($50,483)

($30,266)

Total
($80,749)

(4,622)

6,095
($44,388)

($34,888)

6,095
($79,276)

Amounts Reclassified
from Accumulated
Other Comprehensive
Loss

Affected Line Items in the
Consolidation Statement of
Operations and
Comprehensive Loss

$7,381
1,167
$8,548

Other Income/Expense
Other Income/Expense

Accrued Employee Benefits
Settlement charges
Amortization of net actuarial loss

23. Restructuring Charges

During the year ended December 31, 2018, the Company recognized a restructuring expense in our
European segment of $8,862, which we believe is our statutory cost for the plan. The costs relate to a
restructuring of its French and German subsidiary operations to safeguard the Company’s competitive
environment in the European market. The plan will involve the involuntary termination of approximately
150 employees for $8,862 in restructuring recognized in 2018. The social plans were finalized in February
2019 and an additional $6,706 of restructuring expense was recognized.

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.

The following table provides details of our restructuring provisions.

December 31, 2018 December 31, 2017 December 31, 2016

Beginning balance
Provision
Payments
Translation
Ending balance

$1,237
8,862
(381)
(203)
$9,515

$3,210
1,745
(3,718)

$1,713
4,809
(3,312)

$1,237

$3,210

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.

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, 2018 and December 31, 2017. The other equity holders’ interests are reflected in
“Net loss attributable to noncontrolling interests” in the Consolidated Statements of Operations and
“Noncontrolling interests” in the Consolidated 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, 2018 and December 31, 2017:

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

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities

Total Liabilites

Paid in capital
Retained earnings
Total Stockholder Equity
Total Liabilities and Stockholders' Equity

December 31, 2018

December 31, 2017

$28
49
232
45

1,205
(136)
1,069

115
20

$1,558

221
221

2,181
(844)
1,337
$1,558

$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 period ended December 31, 2018 and December 31, 2017.

Net sales
Cost of sales
Gross margin

Selling, general and administrative

Operating loss

Other (income) expense
Loss before income taxes

Income tax benefit

Net loss

26. Subsequent Events

December 31, 2018
$90
384
(294)

December 31, 2017
$31
146
(115)

223

(517)

38
(555)

279

(394)

10
(404)

115

($555)

($289)

Viskase evaluated its December 31, 2018 consolidated financial statements for subsequent events
through March 29, 2019, the date the consolidated financial statements were available to be issued.

On January 2, 2019, the Company legally merged Walsroder Polska Sp z.o.o. and Darmex Casings Sp
z.o.o. into Viskase Polska Sp z.o.o. This was a planned integration as part of our Poland restructuring
plan.

Our social plans in France and Germany were finalized in February 2019. The Company will recognize
an additional restructuring expense of $6,706 in 2019. Please refer to Footnote 23- Restructuring
Expenses for further details.

ITEM 3. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Company Overview

The Company operates in the casing product segment of the food industry. Viskase is a worldwide leader
in the production and sale of cellulosic, fibrous and plastic casings for the processed meat and poultry
industry. Viskase currently operates eleven manufacturing facilities throughout North America, Europe,
South America and Asia. Viskase provides value-added support services relating to these products for
some of the world's largest global consumer products companies. Viskase is one of the two largest
worldwide producers of non-edible cellulosic casings for processed meats and one of the three largest
manufacturers of non-edible fibrous casings.

Our net sales are driven by consumer demand for meat products and the level of demand for casings by
processed meat manufacturers, as well as the average selling prices of our casings. Specifically, demand
for our casings is dependent on population growth, overall consumption of processed meats and the types
of meat products purchased by consumers. Average selling prices are dependent on overall supply and
demand for casings and our product mix.

Our cellulose, fibrous and plastic casing extrusion operations are capital-intensive and are characterized
by high fixed costs. Our finishing operations are labor intensive. The industry’s operating results have
historically been sensitive to the global balance of capacity and demand. The industry’s extrusion facilities
produce casings under a timed chemical process and operate continuously.

Our contribution margin varies with changes in selling price, input material costs, labor costs and
manufacturing efficiencies. The total contribution margin increases as demand for our casings increases.
Our financial results benefit from increased volume because we do not have to increase our fixed cost
structure in proportion to increases in demand. For certain products, we operate at near capacity in our
existing facilities. We regularly evaluate our capacity and projected market demand. We believe the
current and planned cellulosic production capacity in our industry exceeds global demand, and will
continue to do so in the near term.

Comparison of Results of Operations for Years Ended December 31, 2018, 2017 and 2016.

The following discussion compares the results of operations for the fiscal year ended December 31, 2018
to the results of operations for the fiscal year ended December 31, 2017, and compares the results of
operations for the fiscal year ended December 31, 2017 to the results of operations for the fiscal year
ended December 31, 2016. We have provided the table below in order to facilitate an understanding of
this discussion. The table shows our results of operations for the 2018, 2017 and 2016 fiscal years.

Year

Ended

Dec

Year

Ended

Dec

Year

Ended

Dec

31, 2018

31, 2017

31, 2016

NET SALES

$395.3

0.8%

$392.0

19.2%

$328.8

Cost of sales

315.8

6.7%

296.1

19.6%

247.6

Selling, general and administrative

Amortization of intangibles

Asset impairment

Restructing expense

56.4

1.7

0.1

8.9

-3.4%

6.2%

-94.4%

423.5%

58.4

1.6

1.8

1.7

20.7%

48.4

-64.6%

4.8

OPERATING INCOME

12.4

-61.7%

32.4

15.7%

28.0

Interest expense, net of income

Other expense, net

Income tax (benefit) provision

15.3

15.7

(4.1)

16.8%

423.3%

13.1

3.0

20.4

4.8%

30.4%

168.4%

NET INCOME

($14.4)

242.9%

($4.2)

12.5

2.3

7.6

$5.6

NM= Not meaningful when comparing positive to negative numbers or to zero.

2018 Versus 2017

Net Sales. Our net sales for 2018 were $395.3 million, which represents an increase of $3.3 million or
0.8% from the prior year. Net sales decreased $3.1 million from volume, $0.6 million due to price and mix
offset by an increase of $7.0 million due to foreign currency translation.

Cost of Sales. Cost of sales for 2018 increased 6.7% from the comparable prior year period. The increase
is due to higher raw material and labor costs, plus lower absorption of manufacturing costs at our plants.

Selling, General and Administrative Expenses. We decreased selling, general and administrative
expenses from $58.4 million in 2017 to $56.4 million in 2018. The decrease is mainly due to favorable
settlement of open claims, lower employee expenses and lower costs associated with the prior
acquisitions.

Amortization of Intangibles. The Company incurred an expense of $1.7 million on the amortization of
intangibles recognized with the acquisitions.

Asset Impairment Charge. The Company incurred an asset impairment charge of $0.1 million in 2018
related to the write down of certain production supplies taken out of service.

Restructuring Expense. Restructuring expense of $8.9 million during of 2018 resulted from the planned
partial relocation of our manufacturing operation in Thaon, France and a downsizing of our facilitiy in
Bomlitz, Germany. The plan involved the involuntary termination of approximately 150 employees. The
Company anticipates an annual savings of $10.0 million per year when the plan is fully implemented.

Restructuring expense of $1.7 million during of 2017 resulted from the closure of our manufacturing
operation in Warsaw, Poland. The plan involved the involuntary termination of approximately 13
employees and included an operating lease liability of $1.3 million. The Company anticipates an annual
savings of $0.6 million per year when the plan is fully implemented and a similar cash flow savings when
the Warsaw facility is subleased.

Operating Income. Operating income for 2018 was $12.4 million, representing an decrease of
$20.0 million from the prior year. The decrease in operating income was primarily due to lower gross profit
and an increase in restructuring expense.

Interest Expense. Interest expense, net of interest income, for 2018 was $15.3 million, representing an
increase of $2.2 million compared to 2017. The increase is a result of a higher interest rate on our Term
loan and a new capital lease from an acquisition.

Other Expense. Other expense for 2018 was approximately $15.7 million, representing a increase of
$12.7 million over 2017. The increase is primarily due to higher expense related to pension settlement
accounting and loss foreign currency translation.

Income Tax Provision. During 2018, an income tax benefit of $4.1 million was recognized on the loss
before income taxes of $18.5 million compared to income tax expense of $20.4 million in 2017. The 2018
effective income tax rate was (18.9%) compared to 126.2% for 2017. The Company’s 2017 income tax
expense and rate differ from the amount of income tax determined by applying the U.S. Federal income
tax rate to pre-tax income primarily as a result of a $5.5 million increase for a valuation allowance against
a Brazilian deferred tax asset.

Primarily as a result of the factors discussed above, net loss was ($14.4) million compared to net loss of
$(4.2) million for 2017.

2017 Versus 2016

Net Sales. Our net sales for 2017 were $392.0 million, which represents an increase of $63.2 million or
19.2% from the prior year. Net sales increased $81.1 million from volume mainly due to acquisitions, offset
by a decrease of $17.8 million due to price and mix and $0.1 million due to foreign currency translation.

Cost of Sales. Cost of sales for 2017 increased 19.6% from the comparable prior year period. The
increase is due to higher sales volume from the acquisitions.

Selling, General and Administrative Expenses. We increased selling, general and administrative
expenses from $48.4 million in 2016 to $58.4 million in 2017. The increase is mainly due to $13.1 in
additional costs from the acquired companies offset by synergies achieved in the existing business.

Amortization of Intangibles. The Company incurred an expense of $1.6 million on the amortization of
$24.8 million of intangibles recognized with the acquisitions.

Asset Impairment Charge. The Company incurred an asset impairment charge of $1.8 million in 2017
related to the write down of certain production equipment taken out of service in the shutdown of its
Warsaw, Poland manufacturing facility and other immaterial equipment impairments.

Restructuring Expense. Restructuring expense of $1.7 million during of 2017 resulted from the closure of
our manufacturing operation in Warsaw, Poland. The plan involved the involuntary termination of
approximately 13 employees and included an operating lease liability of $1.3 million. The Company
anticipates an annual savings of $0.6 million per year when the plan is fully implemented and a similar
cash flow savings when the Warsaw facility is subleased.

During 2016, the Company recognized a restructuring expense of $4.8 million. The total included $1.8
million of expense related to a board-approved plan of restructuring of our French subsidiary operations.
The Company exited its French plastics, printing, and MP coating operations, along with a targeted
downsizing of its production and overhead personnel with a projected annual savings of $2 million per
year in operating cost. The Company recognized a cost of $0.7 million related to the relocation of its North
American finishing operations and $2.3 million related to the voluntary employee reduction of its North
American headquarters during 2016. Management anticipates these restructuring plans will save $1
million per year of operating expense and the same amount for cash flow.

Operating Income. Operating income for 2017 was $32.4 million, representing an increase of $4.4 million
from the prior year. The increase in operating income was primarily due to higher gross profit.

Interest Expense. Interest expense, net of interest income, for 2017 was $13.1 million, representing an
increase of $0.6 million compared to 2016. The increase is a result of a higher interest rate on our Term
loan and a new capital lease from an acquisition.

Other (Income) Expense. Other income for 2017 was approximately $1.1 million, representing a decrease
of $0.1 million over other income of $1.2 million in 2016. The increase is primarily due to higher income
related to foreign currency translation.

Income Tax (Provision). During 2017, an income tax expense of $20.4 million was recognized on the
income before income taxes of $16.2 million compared to income tax expense of $7.6 million in 2016. The
2017 effective income tax rate was 126.2% compared to 57.9% for 2016. The Company’s 2017 income
tax expense and rate differ from the amount of income tax determined by applying the U.S. Federal income
tax rate to pre-tax income primarily as a result of a $16.1 million increase for tax reform offset by a reduction
of $1.4million in uncertain tax positions. The $16.1 million increase from tax reform includes $13.8 million
due to the change in tax rate and $2.3 million from mandatory repatriation of foreign earnings.

Primarily as a result of the factors discussed above, net loss was ($4.2) million compared to net income
of $5.6 million for 2016.

Liquidity and Capital Resources

Cash and cash equivalents increased by $29.6 million during 2018. Net cash provided by operating
activities was $9.0 million and net cash used in investing activities was $24.6 million. Net cash provided
by financing activities was $45.9 million. Cash flows provided by operating activities were principally
attributable to results from operations, offset by an increase in working capital. Our inventory increased
during 2018 due to soft market demand not forecasted by the Company and certain production related
issues in our foreign operations. These issues are reflected in our reduced sales volume for the year.
Cash flows used in investing activities were principally attributable to capital expenditures. Cash flows
provided by financing activities principally consisted of proceeds received from the Rights Offering and
Europe Bank Loans offset by debt repayments under our Revolving Credit Facility, Restructured Term
Loan, Term Loan and capital leases.

Our cash held in foreign banks was $18.3 million (against a total cash balance of $47.2 million) and $13.6
million (against a total cash balance of $17.6 million) as of December 31, 2018 and December 31, 2017,
respectively. Any cash held by our foreign subsidiaries does not have a significant impact on our overall
liquidity, but if we fail to generate sufficient cash through our domestic operations, our foreign operations
could be a potential source of liquidity.

As of December 31, 2018 the Company had positive working capital of approximately $179.5 million
including restricted cash of $1.2 million, with additional amounts available under its Revolving Credit
Facility.

On November 14, 2007, the Company entered into a secured revolving credit facility (“Revolving Credit
Facility”), which has been subsequently amended.

On January 30, 2014, the Company entered into an Amendment Agreement to the Revolving Credit
Facility, together with an amended Loan Agreement, with Icahn Enterprises Holdings L.P. (“IEH”).
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 respect to the Revolving Credit Facility, extending the maturity date of the Revolving Credit Facility
from January 30, 2017 to January 30, 2020. The amendment included a fee of $125,000 for the extension.

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, 2018.

The Company had no borrowings and an additional $25.0 million of availability under the amended
Revolving Credit Facility as of December 31, 2018.

In its foreign operations, the Company has unsecured lines of credit with various banks providing
approximately $7.25 million of availability. There were no borrowings under the lines of credit at
December 31, 2018.

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 million 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 September 30, 2018, the interest rate was
5.64% on the Term Loan. The Term Loan has a contractual obligation to repay 1% per year and this
amount is carried as short term debt. The Term Loan has 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.

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.

On December 30, 2016, the Company entered into a Share and Asset Purchase Agreement to purchase
all of the shares in CT Casings Beteiligungs GmbH and certain assets of Poly-clip Systems LLC. 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 €9.8 million (“Restructured Term
Loan”) or $10.3 million. After reductions for post-closing adjustments, the balance on the Restructured
Term Loan was €8.1 million. The Restructured Term Loan is due for repayment as follows: €1.7 million
was paid on January 10, 2018; and the balance of €6.4 million is due on January 10, 2020. The
Restructured Term Loan bears no interest, and was recorded for a book value of €7.3 million using an
imputed interest rate of 4%.

Pension and Postretirement Benefits

Our long-term pension and postretirement benefit liabilities totaled $75.4 million at December 31, 2018.

Expected annual cash contributions for U.S. pension liabilities are expected to be (in millions):

2019

2020

2021

2022

2023

Pension

$ 3.8

$ 7.4

$ 6.7

$ 7.4

Contract Obligations

As of December 31, 2018, the aggregate maturities of debt(1), leases and purchase commitments for
each of the next five years are (in millions):

Term Loan Facility
Europe Bank Loan
Restructured Term Loan
Operating Leases
Other

2019
$ 2.8
1.9

5.4
1.3
$ 11.4

2020
$ 2.8
1.9
7.4
5.4

-
$ 17.5

2021
$ 255.8
0.4
-

2022

2023

$ - $ -
-
-

-
-

Thereafter
$ -
-
-

5.4

4.8

3.5

21.3

-
$ 261.6

-
$ 4.8

-
$ 3.5

0.9
$ 22.2

(1) The aggregate maturities of debt represent amounts to be paid at maturity and not the current
carrying value.

Critical Accounting Policies

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. 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.

Inventories

Inventories are valued at the lower of first-in, first-out (“FIFO”) cost or net realizable value.

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.

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 on at least an annual basis by applying a fair-value-based test.
In evaluating the recoverability of the carrying value of goodwill, we must make assumptions regarding the
fair value of our reporting units, as defined under FASB ASC Topic 350. Goodwill impairment testing
involves comparing the fair value of our reporting units to their carrying values. If the book value of the
reporting unit exceeds its fair value, the goodwill of the reporting unit is considered to be impaired. The
amount of impairment loss is equal to the excess of the book value of the goodwill over the fair value of
goodwill. 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.

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 September 30, 2018 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 5.85% for 2018. The
Company is using a long-term rate of return on French plan assets of 3.20% for 2018. 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 was using a discount rate of 3.86% for the first quarter of 2018 and
then remeasured net periodic benefit cost with the settlement accounting on the plan and will use
4.15% for the remainder of 2018. The Company is using a weighted average discount rate of
1.74% on its non-U.S. pension plans for 2018.

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)

Other Comprehensive Income (Loss) Comprehensive income (loss) includes all other non-stockholder
changes in equity. Changes in other comprehensive income (loss) in 2018 and 2017 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
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.

loss, and when payment has been received or collection

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. Future
annual minimum purchases remaining under the agreement are $1.3 million at December 31, 2018.

New Accounting Pronouncements

Please reference Footnote 1 in our Notes to Consolidated Financial Statements.

FORWARD-LOOKING STATEMENTS

This report includes “forward-looking statements.” Forward-looking statements are those that do not
relate solely to historical fact. These statements relate to future events or our future financial
performance and implicate known and unknown risks, uncertainties and other factors that may cause the
actual results, performances or levels of activity of our business or our industry to be materially different
from that expressed or implied by any such forward-looking statements. They include, but are not limited
to, any statement that may predict, forecast, indicate or imply future results, performance, achievements
or events. In some cases, you can identify forward-looking statements by use of words such as “believe,”
“anticipate,” “expect,” “estimate,” “intend,” “project,” “plan,” “will,” “would,” “could,” “predict,” “propose,”
“potential,” “may” or words or phrases of similar meaning. Statements concerning our financial position,
business strategy and measures to implement that strategy, including changes to operations,
competitive strengths, goals, plans, references to future success and other similar matters are forward-
looking statements. Forward-looking statements may relate to, among other things:

 our ability to meet liquidity requirements and to fund necessary capital expenditures;

 the strength of demand for our products, prices for our products and changes in overall

demand;

 assessment of market and industry conditions and changes in the relative market shares of

industry participants;

 consumption patterns and consumer preferences;

 the effects of competition and competitor responses to our products and services ;

 our ability to realize operating improvements and anticipated cost savings;

 pending or future legal proceedings and regulatory matters;

 general economic conditions and their effect on our business;

 changes in the cost or availability of raw materials and changes in energy prices or other

costs;

 pricing pressures for our products;

 the cost of and compliance with environmental laws and other governmental regulations;

 our results of operations for future periods;

 our anticipated capital expenditures;

 our ability to pay, and our intentions with respect to the payment of, dividends on shares of

our capital stock;

 our ability to protect our intellectual property;

 economic and industry conditions affecting our customers and suppliers

 our ability to identify, complete and integration acquisitions; and

 our strategy for the future, including opportunities that may be presented to and/or pursued

by us.

These forward-looking statements are not guarantees of future performance. Forward-looking
statements are based on management’s expectations that involve risks and uncertainties.