VISKASE COMPANIES, INC.
ANNUAL REPORT 2019
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
Branch as administrative agent and as collateral
1
CONSOLIDATED FINANCIAL STATEMENTS OF VISKASE COMPANIES, INC. AND
SUBSIDIARIES
1. Financial Statements:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations for the years ended December 31,
2019, 2018 and 2017
Consolidated Statements of Comprehensive (Loss) Income for the years ended
December 31, 2019, 2018 and 2017
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019,
2018 and 2017
Notes to Consolidated Financial Statements
2.
M
Operations (unaudited)
Discussion and Analysis of Financial Condition and Results of
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Grant Thornton Tower
171 N Clark Street, Suite 200
Chicago, IL 60601-3370
+312.856.0200
+312.555.4719
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, 2019 and 2018, and the related
consolidated statements of operations,comprehensive (loss) income, changes in
December 31, 2019, and the related notes to the financial statements.
each of the three years in the period ended
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.
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
rial
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
consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for
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.
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, 2019 and 2018, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2019 in accordance
with accounting principles generally accepted in the United States of America.
Emphasis of matter
As discussed in Note 1 to the consolidated financial statements, the Company has
adopted new accounting guidance in the year ended December 31, 2019, related to the
adoption to ASC 842, Leases. Our opinion is not modified with respect to this matter.
Emphasis of matter regarding going concern
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 25 to the
consolidated financial statements, the Company has been delayed in refinancing its
$258 million term loan due January 2021 due to the Coronavirus outbreak. The
20, which is also described in Note 25, contemplates
the refinancing of its bank credit agreement maturity occurring within 12 months of the
date of our audit opinion to long-
the refinancing of this indebtedness is uncertain, and the Company has stated that
there
concern. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty. Our opinion is not modified with
respect to this matter.
Chicago, Illinois
May 1, 2020
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
Right of use assets
Other assets, net
Intangible assets
Goodwill
Deferred income taxes
Total Assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt
Accounts payable
Accrued liabilities
Short-term portion lease liabilities
Total current liabilities
Long-term debt, net of current maturities
Long-term liabilities
Accrued employee benefits
Deferred income taxes
Long-term lease liabilities
Common stock, $0.01 par value; 53,995,935 shares issued and 53,190,665
outstanding
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, 2019
December 31, 2018
$21,820
1,153
77,956
99,821
43,617
244,367
384,290
(222,495)
161,795
34,062
16,617
22,471
3,376
30,199
$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
$512,887
$508,243
$11,840
35,038
44,679
6,128
97,685
255,865
5,929
70,648
3,991
32,296
540
82,843
41,415
(298)
(77,435)
47,065
(592)
46,473
$4,659
33,053
40,246
500
78,458
266,814
9,338
75,418
6,526
603
540
82,843
67,699
(298)
(79,276)
71,508
(422)
71,086
Total Liabilities and Stockholders' Equity
$512,887
$508,243
See notes to consolidated financial statements.
5
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
NET SALES
Cost of sales
GROSS MARGIN
Selling, general and administrative
Amortization of intangibles
Asset impairment charge
Restructuring expense
OPERATING INCOME
Interest income
Interest expense, net
Other expense, net
Year
Ended
December
31, 2019
Year
Ended
December
31, 2018
Year
Ended
December
31, 2017
$384,872
$395,329
$391,978
311,644
315,764
296,100
73,228
53,704
1,619
951
9,224
7,730
275
16,498
8,875
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
20,410
($4,241)
(LOSS) INCOME BEFORE INCOME TAXES
(17,368)
(18,539)
Income tax provision (benefit)
7,749
(4,069)
NET LOSS
($25,117)
($14,470)
Less: net loss attributable to noncontrolling interests
(170)
(278)
(144)
Net loss attributable to Viskase Companies, Inc
($24,947)
($14,192)
($4,097)
WEIGHTED AVERAGE COMMON SHARES
- BASIC
53,190,665
53,007,515
36,523,999
PER SHARE AMOUNTS:
EARNINGS PER SHARE
- BASIC
WEIGHTED AVERAGE COMMON SHARES
($0.47)
($0.27)
($0.11)
- DILUTED
53,190,665
53,007,515
36,523,999
PER SHARE AMOUNTS:
EARNINGS PER SHARE
- DILUTED
($0.47)
($0.27)
($0.11)
See notes to consolidated financial statements.
6
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In Thousands)
Net loss
Other comprehensive (loss) income, net of tax
Pension liability adjustment
Foreign currency translation adjustment
Other comprehensive income, net of tax
Year
Ended
December
31, 2019
Year
Ended
December
31, 2018
Year
Ended
December
31, 2017
($25,117)
($14,470)
($4,241)
1,738
(1,234)
504
6,095
(4,622)
1,473
1,256
6,647
7,903
Comprehensive (loss) income
($24,613)
($12,997)
$3,662
Less: comprehensive (loss) attributable to
noncontrolling interests
(170)
(278)
(144)
Net comprehensive (loss) income attributable to Viskase
Companies, Inc
($24,443)
($12,719)
$3,806
See notes to consolidated financial statements.
7
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
See notes to consolidated financial statements.
8
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization
Stock-based compensation
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, 2019
Year
Ended
December
31, 2018
Year
Ended
December
31, 2017
($25,117)
($14,470)
($4,241)
25,745
-
641
3,819
-
477
2,401
350
(5,912)
(6,462)
(3,133)
2,208
4,626
(1,391)
2,343
(289)
181
25,604
24,749
224
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
23,662
224
597
15,423
-
2,043
348
480
(594)
(6,759)
(8,694)
2,054
(2,406)
1,263
(266)
1,237
(668)
27,944
Net cash provided by operating activities
487
8,993
23,703
Cash flows from investing activities:
Capital expenditures
Acquisition of businesses, net of cash acquired
Proceeds from disposition of assets
Net cash used in investing activities
Cash flows from financing activities:
Issuance of common stock
Deferred financing costs
Proceeds from long-term debt
Repayment of short-term debt
Repayment of capital lease
Net cash (used in) provided by financing activities
Effect of currency exchange rate changes on cash
Net (decrease) increase 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
See notes to consolidated financial statements.
9
(17,679)
-
516
(17,163)
-
(140)
-
(4,600)
(431)
(5,171)
(2,370)
(24,217)
47,190
$22,973
$15,295
$1,874
(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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts In Thousands)
1. Summary of Significant Accounting Policy
Nature of Operations
edible cellulosic, fibrous and plastic casings used to prepare and package processed meat products,
and provides value-added support services relating to these products, for some of the largest global
consumer products companies. We were incorporated in Delaware in 1970. The Company operates ten
manufacturing facilities 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.
is a producer of non-
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
in the United States of America and include the use of estimates and assumptions that affect
a
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
period in which the actual amounts become known. Historically, the aggregate differences, if any,
the Company 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. This estimated allowance is primarily based upon our evaluation of the financial condition of
-offs.
Inventories
Inventories are valued at the lower of cost or net realizable value. Cost is determined by using the
first-in, first-
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
10
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.
Our estimates of the useful lives of finite-lived intangible assets consider judgments regarding the future
effects of obsolescence, demand, competition and other economic factors. We conduct impairment tests
when events or changes in circumstances indicate that the carrying value of these finite-lived assets
may not be recoverable. Undiscounted cash flow analyses are used to determine if an impairment exists.
If an impairment is determined to exist, the loss is calculated based on the estimated fair value of the
assets.
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
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.
11
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
accounting for employee benefits as of December 31, 2019 are as follows:
-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 2019. The Company
is using a long-term rate of return on French plan assets of 3.20% for 2019. 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 3.38% for 2019. The Company is using a weighted average
discount rate of 1.70% on its non-U.S. pension plans for 2019.
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 (Loss) Income
Comprehensive (loss) income includes all other non-stockholder changes in equity. Changes in other
comprehensive (loss) income in 2019 and 2018 resulted from changes in foreign currency translation
and minimum pension liability.
Revenue Recognition
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
transaction price is allocated to each distinct performance obligation. Substantially all of the Com
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
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
they are included in the transaction price of its contracts.
12
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 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.
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
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, 2019, future annual minimum purchases remaining under the agreement are $2,437.
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 t
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 th
Loan
similar types and maturities of debt.
borrowing rates for
Leases
As discussed below, on January 1, 2019, we adopted FASB ASC Topic 842, Leases, using the modified
retrospective approach, which does not require the application of this Topic to periods prior to January
1, 2019. The guidance under Topic 842 significantly impacts our presentation of financial condition and
disclosures, but did not have significant impact to our results of operations. We now have a material
on our balance sheet. Financing leases under current U.S. GAAP are classified and accounted for in
substantially the same manner as capital leases under prior U.S. GAAP and therefore, we do not
distinguish between financing leases and capital leases unless the context requires. The determination
of whether an arrangement is or contains a lease occurs at inception. We have elected the practical
expedient to include both the lease component and the non-lease component as a single component
when accounting for each lease and calculating the resulting lease liability and ROU asset. The following
is our accounting policy for leases in which we are the lessee.
operating leases reported
Leases are classified as either operating or financing by the lessee depending on whether the lease
terms provide for control of the underlying asset to be transferred to the lessee. When control transfers
to the lessee, we classify the lease as a financing lease. All other leases are recorded as operating
leases. Effective January 1, 2019, for all leases with an initial lease term in excess of twelve months, we
record a right-of-use asset with a corresponding liability in our balance sheet. We have elected the
practical expedient for all leases less than 12 months to not record a ROU asset or corresponding lease
liability. Right-of-use assets represent our right to use an underlying asset for the lease term and lease
liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets
and lease liabilities are recognized at commencement of the lease based on the present value of lease
payments over the lease term. Right-of-use assets are adjusted for any lease payments made on or
before commencement of the lease, less any lease incentives received.
The lease liability represents future lease payments for lease and non-lease components discounted for
present value. Lease payments that may be included in the lease liability include fixed payments,
variable lease payments that are based on an index or rate and payments for penalties for terminating
the lease if the lessee is reasonably certain to utilize a termination option, among others. Certain of our
leases contain rent escalation clauses that are specifically stated in the lease and these are included in
the calculation of the lease liability. Variable lease payments for lease and non-lease components which
13
are not based on an index or rate are excluded from the calculation of the lease liability and are
recognized in the statement of operations during the period incurred.
We utilize discount rates to determine the net present value of our gross lease obligations when
calculating the lease liability and related ROU asset. In cases in which the rate implicit in the lease is
readily determinable, we utilize that discount rate for purposes of the net present value calculation. In
most cases, our lease agreements do not have a discount rate that is readily determinable and therefore
we utilize an estimate of our incremental borrowing rate. Our incremental borrowing rate is determined
at lease commencement or lease modification and represents the rate of interest we would have to pay
to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar
economic environment. For adoption of the new standard, the rate was determined at the adoption date.
The lease term is determined by taking into account the initial period as stated in the lease contract and
adjusted for any renewal options that the company is reasonably certain to exercise as well as any
period of time that the lessee has control of the space before the stated initial term of the lease. If we
determine that we are reasonably certain to exercise a termination option, the lease term is then adjusted
to account for the expected termination date.
Operating lease expense is recorded as a single expense recognized on a straight-line basis over the
lease term. Financing lease expense consists of interest expense on the financing lease liability and
amortization of the right-of-use financing lease asset on a straight-line basis over the lease term.
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 financing leases and operating
leases are substantially similar to the classification criteria for distinguishing between capital leases and
operating leases under previous guidance. Furthermore, quantitative 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. Also, upon adoption we elected the practical expedients related to leases that commenced
before the effective date, where the Company need not reassess; whether any expired or expiring
contracts are or contain leases, the lease classification for any expired or existing leases, or initial direct
costs for any existing leases. We adopted the new leases standards using the modified retrospective
approach option effective January 1, 2019. No adjustment to prior period presentation and disclosure
were required. The most significant impact related to the recognition of right-of-use assets and lease
liabilities in the consolidated balance sheets for long-term operating leases. The aggregate impact was
the recognition of operating lease right-of-use assets of $35,114 and liabilities of $39,045 and financing
lease right-of-use assets and liabilities of $991 as of January 1, 2019.
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 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. The
14
Company has elected to record the reclassification. This ASU is effective for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years. The Company early adopted this ASU
on January 1, 2019 with an adjustment to Retained Earnings from Accumulated Other Comprehensive
Loss for $1,337 for the income tax effects related to the Tax Cuts and Jobs Act.
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. Cash and cash equivalents
Cash and cash equivalents
Restricted cash
December 31, 2019
December 31, 2018
$21,820
1,153
$22,973
$46,031
1,159
$47,190
As of December 31, 2019, and December 31, 2018, cash held in foreign banks was $15,358 and
$18,282, respectively.
As of December 31, 2019, and December 31, 2018, letters of credit in the amount of $985 were
outstanding under facilities with a commercial bank, and were cash collateralized in a restricted account.
3. Receivables, net
Accounts receivable, gross
Less allowance for doubtful accounts
December 31, 2019
December 31, 2018
$81,570
(3,614)
$77,956
$75,344
(1,044)
$74,300
December 31, 2019
December 31, 2018
December 31, 2017
Beginning balance
Provision (recoveries)
Write-offs
Other and translation
Ending balance
$1,044
2,401
(11)
$1,182
128
-
180
$3,614
(266)
$1,044
$857
348
(24)
1
$1,182
4. Inventories
15
Raw materials
Work in process
Finished products
December 31, 2019
December 31, 2018
$15,841
59,036
24,944
$99,821
$19,351
41,442
31,732
$92,525
5. Property, Plant and Equipment, Net
Land and improvements
Buildings and improvements
Machinery and equipment
Construction in progress
Accumulated depreciation
Land and improvements
Buildings and improvements
Machinery and equipment
6. Other Assets
Other taxes receivable
Indemnification asset
Other
December 31, 2019
December 31, 2018
$1,940
45,314
324,287
12,749
$1,948
43,644
304,206
18,686
$384,290
$368,484
December 31, 2019
December 31, 2018
$400
19,188
202,907
$375
16,966
181,111
$222,495
$198,452
December 31, 2019
December 31, 2018
$8,564
6,793
1,260
$16,617
$10,907
6,793
1,298
$18,998
16
7. Accrued Liabilities
Accrued liabilities were comprised of:
Compensation and employee benefits
Taxes payable
Accrued volume and sales rebates
Accrued interest payable
Restructuring reserve
Other
8. Debt Obligations
Short-term debt:
Bank term loan
Europe bank loans
Restructured term loan
Total short-term debt
Long-term debt:
Bank term loan, net of discount
Europe bank loans
Restructured term loan
Other
Total long-term debt
December 31, 2019
December 31, 2018
$7,597
15,887
5,107
14
10,217
5,857
$44,679
$7,925
12,602
4,106
8
9,515
6,090
$40,246
December 31, 2019
December 31, 2018
$2,750
1,875
7,215
11,840
255,075
375
-
415
255,865
$2,750
1,909
-
4,659
257,237
2,291
6,857
429
266,814
Total debt
$267,705
$271,473
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 June 30, 2019, the Company entered into the Eleventh Amendment to the Loan and Security
Agreement with Icahn Enterprises L.P., extending the maturity date of the Revolving Credit Facility from
January 30, 2020 to January 30, 2021 and amending the maximum revolver amount to $45,000.
Indebtedness under the amended Revolving Credit Facility is secured by liens on substantially all of the
securing the Term Loan (as hereafter defined) pursuant to an intercreditor agreement, (ii) real property,
ing 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.
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
ability
17
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, 2019. The amended Revolving Credit Facility had no borrowings as of
December 31, 2019 and December 31, 2018.
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, 2019 and December 31, 2018.
Term Loan Facility
On January 30, 2014, the Company entered into a Credit Agreement with UBS AG, Stamford Branch
Administrative Agent and Collateral Agent, and the Lenders parties thereto, providing for a
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, 2019, the interest rate was 5.19% 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.
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
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 was paid in full 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
The CIC Term
, providing for a 2,000
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
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.
, providing for a 2,000
18
Debt Maturity
The aggregate maturities of debt (1) for each of the next five years are:
2020
2021
2022
2023
2024
Thereafter
Term Loan Facility
$ 2,750
$255,750
$ - $ - $ -
$ -
Europe Bank Loan
1,875
375
-
-
-
-
Restructured Term Loan
7,215
-
-
-
-
-
Other
-
-
-
-
-
903
$ 11,840
$256,125
$ -
$ -
$ - $ 903
(1) The aggregate maturities of debt represent amounts to be paid at maturity and not
the current carrying value of the debt.
9. Leases
We have operating and finance (formerly capital) leases primarily for real estate, equipment and
vehicles. Our lease agreements do not contain any material residual value guarantees or material
restrictive covenants. Right-of- use assets and related liabilities are recorded on the balance sheet for
leases with an initial term in excess of twelve months
Right-of-use assets and lease liabilities are as follows:
Operating Leases:
Right-of-use assets
Lease liabilities
December 31, 2019
$ 34,062
37,850
Financing Leases:
Right-of-use assets (property, plant and equipment, net)
Lease liabilities (debt)
572
574
Upon adoption of the new lease standard, the Company reclassed $1,358 of lease incentive liability,
$1,286 of deferred rent liability and $1,024 of lease restructuring liability to ROU assets.
The following is an analysis of leased property under financing (formerly capital) leases by major classes
as of December 31, 2019 and 2018.
Building and improvements
Machinery and equipment
Less: Accumulated depreciation
December 31,
2019
December 31,
2018
$453
3,599
(3,480)
$572
$453
3,625
(2,975)
$1,103
Additional information with respect to our operating and finance leases as of December 31, 2019
is presented below.
19
Weighted average remaining lease term (years)
Weighted average discount rate
Operating
Finance
11.67
7.43%
1.39
5.54%
Lease expense consists of the following:
Operating lease rent expense
Financing Leases:
Amortization of right-of-use assets
Interest expense on lease liabilities
December 31, 2019
$
5,979
454
46
500
$
Cash flow information related to leases is as follows:
December 31, 2019
Cash Paid For Amounts Included in the Measurement of Lease Liabilities:
Cash used in operating activities (operating leases)
Cash used in operating activities (financing leases)
Cash used in financing activities (financing leases)
$
Supplemental Cash Flow Information:
Right-of-use assets obtained in exchange for lease obligations (operating leases)
Right-of-use assets obtained in exchange for lease obligations (financing leases)
Re-measurement of lease liabilities
$
5,631
519
-
2,471
-
-
Maturities of operating and financing lease liabilities as of December 31, 2019 are as follows:
Year
Operating Leases
Financing Leases
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: discounted interest
$
$
5,615
5,623
5,410
5,112
4,797
31,089
57,646
(19,796)
37,850
$
$
513
39
47
11
-
-
610
(36)
574
20
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 $3,885 to pension benefits in the U.S. during the year ended December
31, 2019.
The Company and its subsidiaries have defined contribution and defined benefit plans varying by country
and subsidiary.
and Germany historically offered defined
resulting in various reductions in liabilities and curtailment gains.
Included in accumulated other comprehensive loss, net of tax is $41,313 as of December 31, 2019. The
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
($33,636)
3
(2,712)
(156)
Amounts included in other comprehensive loss expected to be recognized as a component of net
periodic benefit cost for the year ending December 31, 2020 are:
U.S. Pension Benefits
Non U.S. Pension Benefits
Net actuarial loss
($1,025)
($75)
The measurement date for all defined benefit plans is December 31. The year-end status of the plans
is as follows:
21
U.S. Pension Benefits
Non U.S. Pension Benefits
2019
2018
2019
2018
Change in benefit obligation:
Projected benefit obligation at beginning of year
$121,483
$160,671
$24,780
$26,981
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
-
5,181
8,661
(6,480)
-
-
-
-
-
5,328
(8,968)
(7,145)
(28,403)
-
-
-
411
436
2,220
(611)
-
(1,367)
-
(468)
489
457
(1,395)
(573)
-
-
-
(1,179)
Estimated benefit obligation at end of year
$128,845
$121,483
$25,401
$24,780
Change in plan assets:
Fair value of plan assets at beginning of year
$75,852
$113,918
$1,322
$1,343
Actual return on plan assets
Employer contribution
Benefits paid
Plan settlements
Currency translation
15,078
3,885
(6,480)
-
-
(5,701)
3,183
(7,145)
(28,403)
-
37
611
(611)
-
(24)
40
97
(97)
-
(61)
Fair value of plan assets at end of year
$88,335
$75,852
$1,335
$1,322
Unfunded status of the plan
($40,510)
($45,631)
($24,066)
($23,458)
Amounts recognized in statement of financial
position:
Current liabilities
Noncurrent liabilities
Net amount recognized
U.S. Pension Benefits
Non U.S. Pension Benefits
2019
2018
2019
2018
($74)
($74)
($503)
(40,436)
(45,557)
(23,563)
($159)
(23,340)
($40,510)
($45,631)
($24,066)
($23,499)
The funded status of these pension plans as a percentage of the projected benefit obligation was 58% in
2019 compared to 53% in 2018.
U.S. Pension Benefits
Non U.S. Pension Benefits
2019
2018
2019
2018
Projected benefit obligation
Fair value of plan assets
$128,845
$88,335
$121,483
$75,852
$25,401
$1,335
$24,780
$1,322
22
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.
Components of net periodic benefit cost for the years ended December 31:
U.S. Pension Benefits
2018
2019
2017
Non U.S. Pension Benefits
2017
2018
2019
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
-
$
5,181
(4,310)
1,284
$2,155
-
$
5,328
(5,128)
-
1,034
7,381
8,615
$
$
-
6,663
(7,709)
-
4,605
-
3,559
$
$406
431
(39)
12
48
-
$858
$503
470
(40)
13
120
-
$1,066
$640
428
(72)
-
237
-
$1,233
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
2019
2018
2019
2018
3.38%
5.85%
N/A
4.41%
5.85%
N/A
1.70%
3.20%
2.58%
1.78%
3.20%
2.67%
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 1.70% on its non-U.S. pension plans for 2019.
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
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
US Government and agency obligations
obligations.
U.S. Treasury bonds, notes and other government
Exchange traded funds
marketable securities tracking asset baskets traded on active markets.
23
Mutual funds -
which is obtained from an active market or at share or unit prices provided by the fund manager with
significant observable inputs.
ts held by the Plan at year-end
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.
9 and 2018, by
asset category are as follows:
Fair Value Measurement at
December 31, 2019
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
$3,342
1,008
18,348
26,355
26,619
$75,672
$
Significant
Observable
Inputs
(Level 2)
-
1,739
-
1,861
-
$3,600
Significant
Unobservable
Inputs
(Level 3)
-
$
-
-
-
-
$0
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
$3,342
2,747
18,348
28,216
26,619
79,272
10,398
$89,670
Fair Value Measurement at
December 31, 2018
Quoted
Prices in
Active
Markets for
Identical
Assets
Significant
Observable
Inputs
Significant
Unobservable
Inputs
Total
(Level 1)
(Level 2)
(Level 3)
Money market
US Government and agency obligations
Exchange traded funds
Mutual funds
Common stocks
Total Assets in the fair value hierarchy
Investments measured at NAV (a)
Investments at fair value
$3,224
2,497
16,551
24,318
20,785
67,375
9,799
$77,174
$3,224
$
-
$
-
879
16,551
22,355
20,785
$63,794
1,618
-
1,963
-
$3,581
-
-
-
-
$
(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.
24
U.S.
Non U.S
2020
2021
2022
2023
2024
Thereafter
$7,532
7,695
7,768
7,882
8,005
39,470
$540
627
657
697
883
4,740
to 2021 under the CARE Act for the U.S. pension plan. There is no funding requirement for non U.S.
pension plans.
20 fiscal year is $700 with an additional $9,321 deferred
Savings Plans
The Company also has defined contribution savings and similar plans for eligible employees, which vary
contributions and certain other factors. The Company expense for these plans was $1,012, $1,050 and
$998 in 2019, 2018 and 2017, 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 2019, 2018, and 2017
was $285, $382 and $572, 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
assets by approximately $4,560.
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.
25
14. Income Taxes
Income tax provision (benefit) consisted of:
Current
Domestic
Foreign
Total current
Deferred
Domestic
Foreign
Total deferred
Total
2019
2018
2017
$83
3,847
$139
3,033
$274
4,713
3,930
3,172
4,987
(303)
4,122
3,819
(394)
(6,847)
(7,241)
15,842
(419)
15,423
$7,749
($4,069)
$20,410
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
Total
2019
2018
2017
($895)
(16,473)
($1,340)
(17,199)
$1,572
14,597
($17,368)
($18,539)
$16,169
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
Statutory federal rate
($3,647)
(225)
(2,281)
9,344
867
264
2,047
-
867
513
$7,749
21.0%
1.3%
13.1%
-53.8%
-5.0%
-1.5%
-11.8%
0.0%
-5.0%
-3.0%
-44.6%
21.0%
26
($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%
21.0%
$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%
35.0%
Temporary differences and net operating loss carryforwards that give rise to a significant portion of
deferred tax assets and liabilities for 2019 and 2018 are as follows:
Deferred tax asset
Provisions not currently deductible
Inventory basis differences
Stock options
Pension and healthcare
Net operating loss carryforwards
Lease liability
Foreign exchange and other
Valuation allowance
Total deferred tax asset
Deferred tax liability
Property, plant, and equipment
Intangible asset
Right of use assets
Foreign exchange and other
Total deferred tax liability
2019
2018
$8,004
4,939
41
12,410
26,528
9,465
300
(10,354)
$51,333
($8,831)
(6,829)
(9,465)
-
($25,125)
$26,208
$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
2019
2018
$30,199
(3,991)
$26,208
$37,105
(6,526)
$30,579
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, Brazil and a portion of the state loss in the US. The Company has a
valuation allowance for Brazil December 31, 2019 and December 31, 2018 of $9,506 and $0,
respectively. The Company has a valuation allowance for Viskase Poland at December 31, 2019 and
December 31, 2018 of $376 and $685, respectively. The Company has a valuation allowance in the
U.S. at December 31, 2019 and December 31, 2018 of $471 and $473, respectively. The Company has
gross U.S. federal net operating loss carryforwards at December 31, 2019 and December 31, 2018 of
$58,485 and $69,381, respectively, with amounts beginning to expire in 2024. The Company has gross
net operating loss carryforwards in Brazil at December 31, 2019 and December 31, 2018 of $11,498
and $8,315, respectively and has an unlimited carryforward period. The Company has gross net
operating loss carryforwards in Poland at December 31, 2019 and December 31, 2018 of $4,268 and
$4,429, respectively and has a five year carryforward period. The Company has gross net operating
loss carryforwards in France at December 31, 2019 and December 31, 2018 of $11,927 and $8,510,
respectively and has an unlimited carryforward period. The Company has gross net operating loss
carryforwards in Viskase Germany at December 31, 2019 and December 31, 2018 of $2,372 and $1,770
for Income Tax and Trade Tax. The Company has gross net operating loss carryforwards in CT Casings
at December 31, 2019 and December 31, 2018 of $14,836 and $403 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.
27
Uncertainty in Income Taxes
The uncertain tax positions as of December 31, 2019 totaled $17,443. 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
Increases due to currency translation
Decreases due to currency translation
Decreases due to lapse of statute of limitations
Unrecognized tax benefits as of December 31
2019
$11,677
-
(12)
5,803
55
-
(80)
$17,443
2018
$11,855
-
(28)
-
-
(21)
(129)
$11,677
In 2019, the Company recognized an approximate net increase of $5,767 to the reserves for uncertain
tax positions. The majority of the increase in the reserve is mainly due to the increase of reserves in
France and Germany.
Approximately $17,400 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 2015. 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 $300.
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, 2019 and 2018, the Company
recorded adjustments for interest of $965 and ($4), respectively, and for penalties of $(1) and $(68),
respectively related to these unrecognized tax benefits. In total, as of December 31, 2019 and 2018, the
Company has recorded a liability of interest of $1,635 and $670, respectively, and $173 and $174,
respectively, for potential penalties.
15. Goodwill and Intangible Assets, net
The Company currently has $3,376 of goodwill with no impairment.
Goodwill consists of the following:
December 31, 2019
December 31, 2018
Beginning balance
Translation
Gross carrying amount,
December 31st
$3,580
(152)
$3,428
$3,428
(52)
$3,376
28
Intangible assets, net consists of the following:
Definite live intangible assets:
Customer relationships
Technologies
Patents/Trademarks
In-place leases
Definite live intangible assets:
Customer relationships
Technologies
Patents/Trademarks
In-place leases
December 31, 2019
Gross
Carrying
Value
$19,704
2,357
9,626
204
$31,891
Accumulated
Amortization
Net Carrying
Value
($2,955)
(494)
(5,927)
(44)
($9,420)
$16,749
1,863
3,699
160
$22,471
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
Amortization expense associated with definite-lived intangible assets was $1,619 and $1,664 for 2019
and 2018, 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:
2020
2021
2022
2023
2024
Total thereafter
Total amortization
16. Contingencies
$1,620
1,620
1,620
1,620
1,620
14,371
$22,471
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 $0 for the year ended
December 31, 2019 and $224 for the years ended December 31, 2018 and 2017.
29
The fair values of the options granted during 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
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. As a result of the termination of the chief executive officer
on October 3, 2019, the stock options granted expired at the commencement of business on that date
pursuant to the terms of the stock option plan. Stock option expense for the unvested potion of this
grant was reversed in October 2019.
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, 2017
Vested and exercisable at Dec. 31, 2017
Granted
Exercised
Forfeited
Outstanding, December 31, 2018
Vested and exercisable at Dec. 31, 2018
Granted
Exercised
Forfeited
Outstanding, December 31, 2019
Vested and exercisable at Dec. 31, 2019
925,000
525,000
-
-
-
925,000
725,000
-
-
600,000
325,000
325,000
4.45
$
$
5.92
-
$
$
-
$
-
$
4.45
$
4.98
$
-
$
-
$
-
$
8.00
$
8.00
93 months
81 months
-
-
-
81 months
77 months
-
-
-
41 months
41 months
Grant-Date
Fair Value
$
$
$
$
$
$
0.91
0.74
-
-
-
0.91
0.85
-
-
-
0.51
0.51
Vested and exercisable options as of December 31, 2019 were 325,000 with a weighted average share
price of $8.00.
18. Research and Development Costs
Research and development costs are expensed as incurred and totaled $4,882, $5,808 and $4,947 for
2019, 2018, and 2017, respectively.
19. Related-Party Transactions
As of December 31, 2019, Icahn Enterprises L.P. owned approximately 78.6% of our outstanding
common stock.
order to maximize the potential buying power of a group of entities with which Mr. Icahn has a relationship
is an entity formed and controlled by Mr. Icahn in
30
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 Gro
, which is approximately $189 and $189 for
the year ended 2019 and 2018. A number of other entities with which Mr. Icahn has a relationship also
acquired equity interests in Insight Portfolio Group and
operating expenses in 2019.
In December 2019, Insight advised us that it was shutting down its services effective January 1, 2020.
Supplier contracts coordinated through Insight will remain in effect through their individual terms.
Effective February 10, 2020, the Company withdrew as a member of Insight and assigned its interests
in Insight to another Delaware limited liability company.
Icahn Enterprises L.P. was
2019. The Company paid Icahn Enterprises L.P. service, commitment fees and interest of $154 and
$114 for the year ended 2019 and 2018.
as of December 31,
20. Business Segment Information and Geographic Area Information
The Company primarily manufactures and sells cellulosic food casings as its sole business segment.
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
and
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
2019
2018
2017
$191,548
39,780
168,086
47,535
(62,077)
$193,135
46,541
175,594
43,571
(63,512)
$183,771
52,715
178,502
39,032
(62,042)
$384,872
$395,329
$391,978
$9,972
(2,618)
(7,232)
7,608
$7,730
$17,491
(813)
(12,079)
7,865
$12,464
$13,799
5,210
3,991
9,305
$32,305
31
Net Sales by country
United States
Brazil
Italy
Germany
France
Philippines
Poland
Other international
$118,749
$115,575
$109,357
21,280
23,894
28,000
11,476
22,191
12,086
147,196
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
$384,872
$395,329
$391,978
21. Interest Expense, Net
Net interest expense consisted of:
December 31, 2019
December 31, 2018
December 31, 2017
Interest expense
Less Capitalized interest
Interest expense, net
$16,498
-
$16,498
$15,821
-
$15,821
$13,293
(76)
$13,217
22. Changes in Accumulated Other Comprehensive Loss
Balance at December 31, 2018
Other comprehensive (loss) before
reclassifications
Reclassifications from accumulated other
comprehensive loss to earnings
Other comprehensive income (loss), net of tax
Elimination of stranded tax effects resulting
from tax legislation
Balance at December 31, 2019
Accrued
Employee
Benefits
Translation
Adjustments
($44,388)
($34,888)
394
1,344
1,738
(1,234)
-
(1,234)
Total
($79,276)
(840)
1,344
504
1,337
($41,313)
-
($36,122)
1,337
($77,435)
Amounts Reclassified
from Accumulated
Other Comprehensive
Loss
Affected Line Items in the
Consolidation Statement of
Operations and
Comprehensive Loss
Accrued Employee Benefits
Settlement charges
Amortization of net actuarial loss
-
1,344
$1,344
Other Income/Expense
Other Income/Expense
32
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. During 2019, the Company
recognized an additional $9,224 in expense for the final approved restructuring plans. The costs relate to a
restructuring of its French and German subsidiary operations to sa
environment in the European market. The plan will involve the involuntary termination of approximately 150
employees, the closure of our European sales office and relocation of part of our finishing operation. The
Company has also opened a European shared service center with the consolidation of corporate jobs in this
market.
The following table provides details of our restructuring provisions.
December 31, 2019
December 31, 2018
Beginning balance
Provision
Payments
$9,515
9,224
(7,778)
$1,237
8,862
(381)
ASC 842 adoption
(310)
-
Translation
Ending balance
(434) (203)
$10,217
$9,515
24. 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
.
As the primary beneficiary of the variable interest entity (VIE), th
December 31, 2019 and December 31, 2018
d Balance Sheets.
period ended,
he
December 31, 2019 and December 31, 2018:
33
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, 2019
December 31, 2018
$14
139
211
148
1,237
(260)
977
115
26
$1,630
634
634
2,181
(1,185)
996
$1,630
$28
49
232
45
1,205
(136)
1,069
115
20
$1,558
221
221
2,181
(844)
1,337
$1,558
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
Consolidated Statement of Operations for the period ended December 31, 2019 and December 31, 2018.
Net sales
Cost of sales
Gross margin
Selling, general and administrative
Operating loss
Other expense
Loss before income taxes
Income tax benefit
Net loss
December 31, 2019
$380
438
(58)
December 31, 2018
$90
384
(294)
187
(245)
96
(341)
-
223
(517)
38
(555)
-
($341)
($555)
34
25. Going Concern
the United States of America applicable to a going concern which contemplates the realization of assets
and liquidation of liabilities in the normal course of business. While the Company has sufficient
operating income to fund normal operations, the ability of the Company to continue as a going concern
is dependent on the Company obtaining adequate refinancing of its Term B loan before its maturity in
January 2021.
cepted in
In order to continue as a going concern, the Company will need, among other things, additional capital
such as loans; sales of equity instruments; and obtaining capital from significant stockholders sufficient
to meet its debt obligations.
Most recently, from the beginning of 2020, the global spread of a novel coronavirus pandemic, also
known as COVID-19, has delayed the proposed refinancing arranged by the Company. We fully expect
the refinancing will be completed before the maturity of our Term B facility. However, there is no
assurance that the Company will be able to obtain sufficient additional funds to refinance these
maturities occurring within 12 months of the date of the issuance of our financials or that such funds, if
available, will be obtainable on terms satisfactory to the Company, and therefore substantial doubt
The accompanying financial statements have been prepared assuming that the Company will continue
as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the
normal course of business.
26. Subsequent Events
Viskase evaluated its December 31, 2019 consolidated financial statements for subsequent events
through May 1, 2020, the date the consolidated financial statements were available to be issued.
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-
19) as a pandemic, which continues to spread throughout the United States. As a result, the Company
has implemented a COVID-19 response plan which has phased responses to levels of severity and
locality of the virus. With these measures in place the Company does not believe there will be a material
impact on its operations.
bodies in its countries of operations, therefore, there are no restrictions to prevent employees from
working. Its supplies are mainly domestic, but certain items are sourced internationally. We have not
experienced any cross-border restrictions that have impacted the Company, and none of its sales are
expected to be impacted by cross-border restrictions. While the disruption is currently expected to be
temporary, there is uncertainty around the duration. Therefore, while the Company has not experienced
this matter negatively impacting its business, results of operations, and financial position, the related
financial impact cannot be reasonably estimated at this time. The Company has seen a positive impact
on order volume at this time and expect the longer the duration the more uncertain the overall impact.
As a result, the Company and its Parent are monitoring the situation as it unfolds and adjusting
measures as needed.
35
AND RESULTS OF OPERATIONS (Unaudited)
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 ten 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
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 is in balance with global demand.
Comparison of Results of Operations for Years Ended December 31, 2019, 2018 and 2017.
The following discussion compares the results of operations for the fiscal year ended December 31, 2019 to
the results of operations for the fiscal year ended December 31, 2018, and 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. We have provided the table below in order to facilitate an understanding of this
36
discussion. The table shows our results of operations (in millions) for the 2019, 2018 and 2017 fiscal years.
Year
Ended
Dec
31, 2019
Year
Ended
Dec
31, 2018
Year
Ended
Dec
31, 2017
NET SALES
$384.9
-2.6%
$395.3
0.8%
$392.0
Cost of sales
311.6
-1.3%
315.8
6.7%
296.1
Selling, general and administrative
Amortization of intangibles
Asset impairment
Restructing expense
OPERATING INCOME
Interest expense, net of income
Other expense, net
Income tax provision (benefit)
53.7
1.6
1.0
9.2
7.7
16.2
8.9
7.7
-4.8%
-5.9%
900.0%
3.4%
56.4
1.7
0.1
8.9
-3.4%
6.2%
-94.4%
423.5%
58.4
1.6
1.8
1.7
-37.9%
12.4
-61.7%
32.4
5.9%
-43.3%
NM
15.3
15.7
(4.1)
16.8%
423.3%
NM
13.1
3.0
20.4
NET LOSS
($25.1)
74.3%
($14.4)
242.9%
($4.2)
NM= Not meaningful when comparing positive to negative numbers or to zero.
2019 Versus 2018
Net Sales. Our net sales for 2019 were $384.9 million, which represents an decrease of $10.4 million or
2.6% from the prior year. Net sales decreased $3.9 million from volume, $7.5 million due to foreign currency
translation offset by an increase of $1.0 million due to price and mix.
Cost of Sales. Cost of sales for 2019 decreased 1.3% from the comparable prior year period. The decrease
is due to lower volume, business interruption claim and lower absorption of manufacturing costs at our plants.
Selling, General and Administrative Expenses. We decreased selling, general and administrative expenses
from $56.4 million in 2018 to $53.7 million in 2019. The decrease is mainly due to lower costs with the
restructuring plan offset by one time expenses related to strategic alternatives.
Amortization of Intangibles. The Company incurred an expense of $1.6 million on the amortization of
intangibles recognized with the acquisitions.
Asset Impairment Charge. The Company incurred an asset impairment charge of $1.0 million in 2019 related
to the write down of certain high cost production machinary taken out of service.
Restructuring Expense. Restructuring expense of $9.2 million during of 2019 and $8.9 million in 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.
Operating Income. Operating income for 2019 was $7.7 million, representing an decrease of $4.7 million
from the prior year. The decrease in operating income was primarily due to lower gross profit due to
manufacturing performance and the resulting lower sales volume, plus the asset impairment charge.
Interest Expense. Interest expense, net of interest income, for 2019 was $16.2 million, representing an
increase of $0.9 million compared to 2018. The increase is a result of a higher interest rate on our Term
loan.
37
Other Expense. Other expense for 2019 was approximately $8.9 million, representing a decrease of $6.8
million over 2018. The decrease is primarily due to one time expense related to pension settlement
accounting in 2018.
Income Tax Provision. During 2019, an income tax expense of $7.7 million was recognized on the loss
before income taxes of $17.4 million compared to income tax benefit of $4.1 million in 2018. The 2019
effective income tax rate was (44.6%) compared to (18.9%) for 2018
8 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 $9.5 million increase for a valuation allowance against a
Brazilian deferred tax asset.
Primarily as a result of the factors discussed above, net loss was ($25.1) million compared to net loss of
$(14.4) million for 2018.
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
rate differ from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-
38
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.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $24.2 million during 2019. Net cash provided by operating activities
was $0.1 million and net cash used in investing activities was $17.6 million. Net cash used in financing
activities was $5.2 million. Cash flows used in 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 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 used in financing activities principally consisted of
by debt repayments under our Europe Bank Loan, Term Loan and capital leases.
Our cash held in foreign banks was $15.4 million (against a total cash balance of $23.0 million) and $18.3
million (against a total cash balance of $47.2 million) as of December 31, 2019 and December 31, 2018,
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, 2019 the Company had positive working capital of approximately $146.7 million
including restricted cash of $1.2 million, with additional amounts available under its Revolving Credit Facility.
On November
subsequently amended.
On January 30, 2014, the Company entered into an Amendment Agreement to the Revolving Credit Facility,
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 June 30, 2019, the Company entered into the Eleventh Amendment to the Loan and Security Agreement
with Icahn Enterprises L.P., extending the maturity date of the Revolving Credit Facility from January 30,
2020 to January 30, 2021 and amending the maximum revolver amount to $45,000.
Indebtedness under the amended Revolving Credit Facility is secured by liens on substantially all of the
accounts, inventory, lockboxes, deposit accounts
and investme
Term Loan (as hereafter defined) pursuant to an intercreditor agreement, (ii) real property, fixtures and
improvements thereon, equipment and proceeds thereof
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.
Th
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,
2019.
39
The Company had no borrowings and an additional $45.0 million of availability under the amended Revolving
Credit Facility as of December 31, 2019.
In its foreign operations, the Company has unsecured lines of credit with various banks providing
approximately $5.5 million of availability. There were no borrowings under the lines of credit at December 31,
2019.
On January 30, 2014, the Company entered into a Credit Agreement with UBS AG, Stamford Branch
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, 2019, the interest rate was 5.19% 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, please reference Going
Concern Footnote 25. 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.
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
million. After reductions for post-
million.
10,
was paid on January 10, 2020. The Restructured Term Loan bears no
Pension and Postretirement Benefits
Our long-term pension and postretirement benefit liabilities totaled $70.8 million at December 31, 2019.
Expected annual cash contributions for U.S. pension liabilities are expected to be (in millions):
2020
2021
2022
2023
2024
Pension
$ 0.7
$ 13.8 $ 6.6 $ 7.5 $ 7.4
Contract Obligations
As of December 31, 2019, the aggregate maturities of debt(1), leases and purchase commitments for each
of the next five years are (in millions):
40
Term Loan Facility
Europe Bank Loan
Restructured Term Loan
Operating Leases
Other
2020
$ 2.8
1.9
7.2
5.6
-
$ 17.5
2021
2022
2023
2024
$ 255.8 $ - $ - $ -
0.4
0.0
5.6
-
$ 261.8
-
-
5.4
-
$ 5.4
-
-
5.1
-
$ 5.1
-
-
4.8
-
$ 4.8
Thereafter
$ -
-
-
31.1
0.9
$ 32.0
(1) The aggregate maturities of debt represent amounts to be paid at maturity and not the current carrying
value.
Critical Accounting Policies
in the United States of America and include the use of estimates and assumptions that affect a number of
amoun
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
amounts
become known.
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 cus
-offs.
Inventories
Inventories are valued at the lower of first-in, first-
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 -
3 to 7 years and (vi) leasehold improvements - shorter of lease or useful
2 to 5 years, (v) data processing
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.
41
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
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
employee benefits as of December 31, 2019 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 2019. The Company
is using a long-term rate of return on French plan assets of 3.20% for 2019. The German pension
plan has no assets.
42
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 3.38% for 2019. The Company is using a weighted average
discount rate of 1.70% on its non-U.S. pension plans for 2019.
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 2019 and 2018 resulted from changes
in foreign currency translation and minimum pension liability.
Revenue Recognition
Revenues are recognized at the time products are shipped to the customer, under F.O.B shipping point,
customer pick up or F.O.B port terms, which is the point at which title is transferred, the customer has the
assumed risk of loss, and when payment has been received or collection is reasonably assured. Revenues
are net of discounts, rebates and allowances. Viskase records all labor, raw materials, in-bound freight,
plant receiving and purchasing, warehousing, handling and distribution costs as a component of costs of
sales.
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
under these contracts were expensed as incurred and included within cost of sales. Future annual
minimum purchases remaining under the agreement are $2.4 million at December 31, 2019.
43
accounts payable. The carrying amounts of these financial assets and liabilities approximate fair value due
to the short maturities of these instruments.
ivable and
New Accounting Pronouncements
Please reference Footnote 1 in our Notes to Consolidated Financial Statements.
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 a
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
44
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
45