Financial Report for
year end
December 31, 2020
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, 2020 and 2019
- Consolidated Statements of Operations for the years ended December 31, 2020,
2019 and 2018
- Consolidated Statements of Comprehensive Income (Loss) for the years ended
December 31, 2020, 2019 and 2018
- Consolidated Statements of Stockholders' Equity for the years ended December
31, 2020, 2019 and 2018
- Consolidated Statements of Cash Flows for the years ended December 31, 2020,
2019 and 2018
- Notes to Consolidated Financial Statements
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (unaudited)
GRANT THORNTON LLP
Grant Thornton Tower
171 N Clark Street, Suite 200
Chicago, IL 60601-3370
D +1 312.856.0200
F +1 312.555.4719
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Viskase Companies, Inc.
We have audited the accompanying consolidated financial statements of Viskase
Companies, Inc. (a Delaware corporation) and subsidiaries, which comprise the
consolidated balance sheets as of December 31, 2020 and 2019, and the related
consolidated statements of operations, comprehensive income (loss), changes in
stockholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2020, and the related notes to the consolidated financial statements.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these
consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America; this includes the design, implementation,
and maintenance of internal control relevant to the preparation and fair presentation
of consolidated financial statements that are free from material misstatement, whether
due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements
based on our audits. We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts
and disclosures in the consolidated financial statements. The procedures selected
depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to
the entity’s preparation and fair presentation of the consolidated financial statements
in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. Accordingly, we express no such opinion. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion.
GT.COM
Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd (GTIL). GTIL and each of its member firms
are separate legal entities and are not a worldwide partnership.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Viskase Companies, Inc. and
subsidiaries as of December 31, 2020 and 2019, and the results of their operations
and their cash flows for each of the three years in the period ended December 31,
2020 in accordance with accounting principles generally accepted in the United
States of America.
Chicago, Illinois
March 26, 2021
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except for Number of Shares)
See notes to consolidated financial statements
December 31, 2020December 31, 2019ASSETS Current assets: Cash and cash equivalents$15,848$21,820 Restricted cash- 1,153 Receivables, net87,94677,956 Inventories89,25499,821 Other current assets46,64943,617Total current assets239,697244,367Property, plant and equipment405,199384,290Less accumulated depreciation(245,162)(222,495)Property, plant and equipment, net160,037161,795Right of use assets31,70034,062 Other assets, net15,89916,617Intangible assets22,78722,471Goodwill3,6203,376Deferred income taxes29,38330,199Total Assets$503,123$512,887LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Short-term debt$12,134$11,840 Accounts payable35,06735,038 Accrued liabilities42,17644,679 Short-term portion lease liabilities5,559 6,128 Total current liabilities94,93697,685Long-term debt, net of current maturities139,237 255,865Long-term liabilities6,9065,929Accrued employee benefits78,64370,648Deferred income taxes3,8763,991Long-term lease liabilities29,70532,296 Stockholders’ equity:Common stock, $0.01 par value; 103,995,935 shares issued and 103,190,665 outstanding at December 31, 2020 and 53,995,935 shares issued and 53,190,665 outstanding at December 31, 20191,040540Paid in capital182,34382,843Retained earnings46,15741,415Less 805,270 treasury shares, at cost(298)(298)Accumulated other comprehensive loss(78,651)(77,435)Total Viskase stockholders' equity150,59147,065Deficit attributable to non-controlling interest(771)(592)Total stockholders' equity149,82046,473Total Liabilities and Stockholders' Equity$503,123$512,887
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
See notes to consolidated financial statements.
YearYearYearEndedEndedEndedDecemberDecemberDecember31, 202031, 201931, 2018 NET SALES$408,887$384,872$395,329Cost of sales327,850311,644315,764GROSS MARGIN81,03773,22879,565Selling, general and administrative49,81253,70456,426Amortization of intangibles1,6571,6191,664Asset impairment charge372 951 149 Restructuring expense398 9,224 8,862 OPERATING INCOME28,7987,73012,464Interest income19275519Interest expense, net11,39616,49815,821Loss on early extinguishment of debt280- - Other expense, net6,3608,87515,701INCOME (LOSS) BEFORE INCOME TAXES10,781(17,368)(18,539)Income tax provision (benefit) 6,2187,749(4,069)NET INCOME (LOSS) $4,563($25,117)($14,470)Less: net loss attributable to noncontrolling interests(179)(170)(278) Net income (loss) attributable to Viskase Companies, Inc$4,742($24,947)($14,192)WEIGHTED AVERAGE COMMON SHARES- BASIC 64,697,51453,190,66553,007,515 PER SHARE AMOUNTS:EARNINGS PER SHARE- BASIC$0.07($0.47)($0.27)WEIGHTED AVERAGE COMMON SHARES- DILUTED64,697,51453,190,66553,007,515PER SHARE AMOUNTS:EARNINGS PER SHARE- DILUTED$0.07($0.47)($0.27)
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
See notes to consolidated financial statements.
YearYearYearEndedEndedEndedDecemberDecemberDecember31, 202031, 201931, 2018Net income (loss)$4,563($25,117)($14,470)Other comprehensive (loss) income, net of tax Pension liability adjustment(4,652)1,7386,095 Foreign currency translation adjustment3,436(1,234)(4,622)Other comprehensive (loss) income, net of tax(1,216)5041,473Comprehensive income (loss)$3,347($24,613)($12,997)Less: comprehensive loss attributable to noncontrolling interests(179)(170)(278) Net comprehensive income (loss) attributable to Viskase Companies, Inc$3,526($24,443)($12,719)
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
See notes to consolidated financial statements.
Accumulated otherTotalTotalCommonPaid inTreasury Retained comprehensive stockholders’Non-controllingstockholders’stockcapitalstockearningslossequityInterest equityBalance December 31, 2017$373$32,786($298)$81,891($80,749)$34,003($144)$33,859Net loss- - - (14,192)- (14,192)(278)(14,470) Foreign currency translation adjustment- - - - (4,622) (4,622)- (4,622) Pension liability adjustment, net of tax- - - - 6,095 6,095- 6,095 Issuance of common stock16749,833- - - 50,000- 50,000 Stock option expense- 224 - - - 224- 224 Balance December 31, 2018 $540$82,843($298)$67,699($79,276)$71,508($422)$71,086Net loss- - - ($24,947)- (24,947) (170) (25,117) Foreign currency translation adjustment- - - - (1,234) (1,234) - (1,234) Pension liability adjustment, net of tax- - - - 1,738 1,738 - 1,738 Elimination of stranded tax effects within AOCI resulting from tax reform- - - (1,337) 1,337 - - - Balance December 31, 2019 $540$82,843($298)$41,415($77,435)$47,065(592)$ $46,473Net income (loss)- - - 4,742 - 4,742 (179) 4,563 Foreign currency translation adjustment- - - - 3,436 3,436 - 3,436 Pension liability adjustment, net of tax- - - - (4,652) (4,652) - (4,652) Issuance of common stock500 99,500 - - - 100,000 - 100,000 Balance December 31, 2020$1,040$182,343($298)$46,157($78,651)$150,591($771)$149,820
VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
See notes to consolidated financial statements.
YearYearYearEndedEndedEndedDecemberDecemberDecember31, 202031, 201931, 2018Cash flows from operating activities:Net income (loss)$4,563($25,117)($14,470) Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization27,82925,74524,749Stock-based compensation- - 224 Amortization of deferred financing fees653641550Deferred income taxes2,1633,819(7,241)Postretirement settlement charge- - 7,381 Loss on disposition/impairment of assets37247757Bad debt and accounts receivable provision(121)2,401128Non-cash interest on term loans83350486Changes in operating assets and liabilities:Receivables(6,984)(5,912)2,386Inventories13,224(6,462)(2,564)Other current assets(1,981)(3,133)(1,306)Accounts payable(1,352)2,208(2,076)Accrued current liabilities(2,949)4,6263,243Accrued employee benefits(691)(1,391)(1,738)Other assets7212,343(392)Other(2,015)(108)(424)Total adjustments28,95225,60423,463Net cash provided by operating activities33,5154878,993Cash flows from investing activities:Capital expenditures(19,263)(17,679)(24,609)Proceeds from disposition of assets5951619Net cash used in investing activities(19,204)(17,163)(24,590)Cash flows from financing activities: Issuance of common stock100,000 - 50,000 Deferred financing costs(2,123)(140)(120)Proceeds from short-term debt20,200Proceeds from long-term debt150,000 - 4,637 Repayment of long-term debt(285,550) (4,600) (8,160) Repayment of capital lease(510)(431)(491)Net cash (used in) provided by financing activities(17,983)(5,171)45,866Effect of currency exchange rate changes on cash(3,453)(2,370)(673)Net (decrease) increase in cash and equivalents(7,125)(24,217)29,596Cash, equivalents and restricted cash at beginning of period22,97347,19017,594Cash, equivalents and restricted cash at end of period$15,848$22,973$47,190Supplemental cash flow information:Interest paid less capitalized interest$10,366$15,295$14,797Income taxes paid $2,508$1,874$4,238
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
1. Summary of Significant Accounting Policy
Nature of Operations
Viskase Companies, Inc. together with its subsidiaries (“we” or the “Company”) is a
producer of non-edible cellulosic, fibrous and plastic casings used to prepare and
package processed meat products, and provides value-added support services
relating to these products, for some of the largest global consumer products
companies. We were incorporated in Delaware in 1970. The Company operates ten
manufacturing facilities 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.
Seasonality
Historically, our domestic sales and profits have been seasonal in nature, increasing
in the spring and summer months. Sales outside of the United States follow a
relatively stable pattern throughout the year.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company.
Intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The financial statements are prepared in accordance with generally accepted
accounting principles (“GAAP”) in the United States of America and include the use
of estimates and assumptions that affect a number of amounts included in the
Company’s financial statements, including, among other things, pensions and other
postretirement benefits and related disclosures, reserves for excess and obsolete
inventory, allowance for doubtful accounts, and income taxes. Management bases
its estimates on historical experience and other assumptions that we believe are
reasonable. If actual amounts are ultimately different from previous estimates, the
revisions are included in the Company’s results for the period in which the actual
amounts become known. Historically, the aggregate differences, if any, between the
Company’s estimates and actual amounts in any year have not had a significant
effect on the Company’s consolidated financial statements.
Reclassifications
Certain prior period financial statement balances have been reclassified to conform
to the current period presentation.
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
its cash
concentration. Consequently, no significant concentrations of credit risk are
considered to exist.
losses as a
result of
Receivables
Trade accounts receivable are classified as current assets and are reported net of
allowance for doubtful accounts, which includes the evaluation of expected credit
losses following the adoption of ASC Topic 326. This estimated allowance is primarily
based upon our evaluation of the future expected loss for the asset. The Company
estimates this using the financial condition of each customer, each customer’s ability
to pay and the economic conditions of the country the customer resides in. For all
trade accounts receivable, the Company defines “past due” as any payment, that
is at least 15 days past the contractual due date. For the year ended December 31,
2020, there have been no losses or write offs related to expected credit losses.
Inventories
Inventories are valued at the lower of cost or net realizable value. Cost is determined
by using the first-in, first-out (“FIFO”) basis method.
Property, Plant and Equipment
The Company carries property, plant and equipment at cost, less accumulated
depreciation. Property and equipment additions include acquisition of property and
equipment and costs incurred for computer software purchased for internal use
including related external direct costs of materials and services and payroll costs for
employees directly associated with the project. Upon retirement or other disposition,
cost and related accumulated depreciation are removed from the accounts, and
any gain or loss is included in results of operations. Depreciation is computed on the
straight-line method using a half year convention over the estimated useful lives of
the assets ranging from (i) building and improvements - 10 to 32 years, (ii) machinery
and equipment - 4 to 12 years, (iii) furniture and fixtures - 3 to 12 years, (iv) auto and
trucks - 2 to 5 years, (v) data processing – 3 to 7 years and (vi) leasehold improvements
- shorter of lease or useful life.
In the ordinary course of business, we lease certain equipment, consisting mainly of
autos, and certain real property. Real property consists of manufacturing, distribution
and office facilities.
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.
Current accounting guidance provides entities an option of performing a qualitative
assessment (a "step-zero" test) before performing a quantitative analysis. If the entity
determines, on the basis of certain qualitative factors, that it is more-likely than- not
that the goodwill is not impaired, the entity would not need to proceed to the two
step impairment testing process (quantitative analysis) as prescribed in the guidance.
During fourth quarter 2020, the Company performed a “step zero” test of its goodwill
and concluded that there was no impairment based on this guidance.
Long-Lived Assets
The Company continues to evaluate the recoverability of long-lived assets including
property, plant and equipment, trademarks and patents. Impairments are
recognized when the expected undiscounted future operating cash flows derived
from long-lived assets are less than their carrying value. If impairment is identified,
valuation techniques deemed appropriate under the particular circumstances will be
used to determine the asset’s fair value. The loss will be measured based on the excess
of carrying value over the determined fair value. The review for impairment is
performed whenever events or changes in circumstances indicate that the carrying
amount of assets may not be recoverable.
Shipping and Handling
The Company periodically bills customers for shipping charges. These amounts are
included in net revenue, with the associated costs included in cost of sales.
Repairs and Maintenance
Routine
incurred.
repairs and maintenance are charged to operations as
Improvements and major repairs, which extend the useful life of an asset, are
capitalized and depreciated.
Pensions and Other Postretirement Benefits
The Company uses appropriate actuarial methods and assumptions in accounting
for its defined benefit pension plans and non-pension postretirement benefits.
Actual results that differ from assumptions used are accumulated and amortized over
future periods and, accordingly, generally affect recognized expense and the
recorded obligation in future periods. Therefore, assumptions used to calculate
benefit obligations as of the end of a fiscal year directly impact the expense to be
recognized in future periods. The primary assumptions affecting the Company’s
accounting for employee benefits as of December 31, 2020 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
December 31, 2020. The Company is using a long-term rate of return on French
plan assets of 2.60% for 2020. 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
2.60% for December 31, 2020. The Company is using a weighted average
discount rate of 1.68% on its non-U.S. pension plans for December 31, 2020.
Income Taxes
Deferred tax assets and liabilities are measured using enacted tax laws and tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities due to a change in tax rates is recognized in income in the period that
includes the enactment date. In addition, the amounts of any future tax benefits are
reduced by a valuation allowance to the extent such benefits are not expected to
be realized on a more likely than not basis. Interest and penalties related to
unrecognized tax benefits are included as a component of tax expense.
Other Comprehensive Income (Loss)
Comprehensive income (loss) includes all other non-stockholder changes in equity.
Changes in other comprehensive income (loss) in 2020 and 2019 resulted from
changes in foreign currency translation and pension liability.
Revenue Recognition
The Company’s revenues are comprised of product sales. All revenue is recognized
when the Company satisfies its performance obligation(s) under the contract (either
implicit or explicit) by transferring the promised product to its customer when its
customer obtains control of the product. A performance obligation is a promise in a
contract to transfer a distinct product or service to a customer. A contract’s
transaction price is allocated to each distinct performance obligation. Substantially
all of the Company’s contracts have a single performance obligation, as the promise
to transfer products is not separately identifiable from other promises in the contract
and, therefore, not distinct.
Revenue is measured as the amount of consideration the Company expects to
receive in exchange for transferring products or providing services. The nature of the
Company’s contracts gives rise to several types of variable consideration. As such,
revenue is recorded net of estimated discounts, rebates and allowances. These
estimates are based on historical experience, anticipated performance and the
Company’s best judgment at the time. Because of the Company’s certainty in
estimating these amounts, they are included in the transaction price of its contracts.
Sales, value add, and other taxes collected from customers and remitted to
governmental authorities are accounted for on a net (excluded from revenues) basis.
Substantially all of the Company’s revenue is from products transferred to customers
at a point in time. The Company recognizes revenue at the point in time in which the
customer obtains control of the product, which is generally when product title passes
to the customer upon shipment. In certain cases, title does not transfer and revenue
is not recognized until the customer has received the products at its physical location
or at port.
Financial Instruments
The Company routinely enters into fixed price natural gas agreements which require
us to purchase a portion of our natural gas each month at fixed prices. These fixed
price agreements qualify for the “normal purchases” scope exception under
derivative and hedging standards, therefore the natural gas purchases under these
contracts were expensed as incurred and included within cost of sales. As of
December 31, 2020, future annual minimum purchases remaining under the
agreement are $1,151.
The Company’s financial instruments include cash and cash equivalents, accounts
receivable and accounts payable. The carrying amounts of these financial assets and
liabilities approximate
these
instruments. Management believes the fair value of the Company’s revolving loans
approximate the carrying value due to credit risk or current market rates, which
approximate the effective interest rates on those instruments. The fair value of the
Company’s term loans is estimated by discounting the future cash flow using the
Company’s current borrowing rates for similar types and maturities of debt.
short maturities of
fair value due
the
to
Leases
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 amount reported as a
right of use (“ROU”) asset and lease liability related to operating leases reported 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.
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 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 June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial
Instruments, which replaces the current incurred loss impairment method with a new
method that reflects expected credit losses. Subsequent to the issuance of ASC Topic
326, the FASB clarified and amended guidance through several Accounting Standard
Updates; hereinafter the collection of credit loss guidance is referred to as “ASC Topic
326”. These ASUs require financial assets measured at amortized cost to be presented
at the net amount to be collected, which may result in the Company recognizing an
impairment allowance equal to its current estimate of credit losses for assets
measured. ASC Topic 326 requires the Company to broaden the range of information
utilized in estimating credit losses, including the consideration of forecasted and other
supportable information to explain credit loss estimates. These ASUs are effective for
fiscal years beginning after December 15, 2019, and interim periods within those fiscal
years. The guidance must be adopted using a modified retrospective transition
method through a cumulative-effect adjustment to retained earnings (deficit) in the
period of adoption. We have adopted this standard effective January 1, 2020, and
based on the insignificant impact of this ASU on our condensed consolidated
financial statements, no adjustments to retained earnings (deficit) were required
upon adoption of ASC Topic 326.
The amendment aligns
issued ASU 2018-15, Customer's Accounting
In August 2018, the FASB
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.
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. We have adopted this standard
on January 1, 2020 prospectively. The adoption of this standard did not have a
significant impact on our consolidated financial statements.
requirements
the
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for
Income Taxes, which amends FASB ASC Topic 740, Income Taxes. This ASU simplifies
the accounting for income taxes by removing certain exceptions to the general
principles in the standard and modifies other areas of the standard to clarify the
application of U.S. GAAP. This ASU is effective for fiscal years beginning after
December 15, 2020, and
interim periods within those fiscal years. Certain
amendments in this ASU should be applied using a retrospective approach and others
using the prospective approach. Early adoption is permitted. We currently do not
anticipate this standard to have a significant impact on our consolidated financial
statements.
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference
Rate Reform on Financial Reporting, which amends FASB ASC Topic 848, Reference
Rate Reform. By June 30, 2023, banks will no longer be required to report information
that is used to determine London Interbank Offered Rate (“LIBOR”) which is used
globally by all types of entities for various types of transactions. As a result, LIBOR could
be discontinued, as well as other interest rates used globally. This ASU provides
companies with optional expedients for contract modifications under U.S GAAP,
excluded components of certain hedging relationships, fair value hedges, and cash
flow hedges, as well as certain exceptions, which are intended to help ease the
potential accounting burden associated with transitioning away from these reference
rates. Companies can apply this ASU immediately and will only be available for a
limited time (generally through December 31, 2022). We are currently assessing the
impact of this standard on our consolidated financial statements.
2. Cash and cash equivalents
As of December 31, 2020, and December 31, 2019, cash held in foreign banks was $13,409
and $15,358, respectively.
As of December 31, 2019, letters of credit in the amount of $985 were outstanding under
facilities with a commercial bank, and were cash collateralized in a restricted account.
During October 2020, the letters of credit were moved under our New Senior Credit
Facility.
3. Recievables, net
December 31, 2020December 31, 2019Cash and cash equivalents$15,848 $21,820 Restricted cash - 1,153$15,848 $22,973 December 31, 2020December 31, 2019Accounts receivable, gross$91,416 $81,570 Less allowance for doubtful accounts (3,470)(3,614)$87,946 $77,956 December 31, 2020December 31, 2019December 31, 2018Beginning balance$3,614 $1,044 $1,182 Provision (recoveries) (121)2,401 128 Write-offs - (11) - Other and translation(23)180 (266)Ending balance$3,470 $3,614 $1,044
4. Inventories
5. Property, Plant and Equipment, Net
6. Other Assets
December 31, 2020December 31, 2019Raw materials$13,328 $15,841 Work in process45,321 59,036 Finished products 30,605 24,944 $89,254 $99,821 December 31, 2020December 31, 2019Land and improvements $1,969 $1,940 Buildings and improvements 48,443 45,314 Machinery and equipment345,014 324,287 Construction in progress 9,773 12,749 $405,199 $384,290 Accumulated depreciationDecember 31, 2020December 31, 2019 Land and improvements $424 $400 Buildings and improvements 21,093 19,188 Machinery and equipment223,645 202,907 $245,162 $222,495 December 31, 2020December 31, 2019Other taxes receivable$8,500 $8,564 Indemnification asset6,793 6,793 Other 606 1,260 $15,899 $16,617
7. Accrued Liabilities
8. Debt Obligations
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
beared interest at daily three-month LIBOR plus 2.0%. The amended Revolving Credit
Facility also provided 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.
On October 9, 2020 the Revolving Credit Facility was repaid and closed.
December 31, 2020December 31, 2019Compensation and employee benefits$11,980 $7,597 Taxes payable19,939 15,887 Accrued volume and sales rebates2,496 5,107 Restructuring reserve2,062 10,217 Other5,699 5,871 $42,176 $44,679 December 31, 2020December 31, 2019Short-term debt: New senior credit facility$10,500-$ Bank term loan- 2,750 Europe bank loans1,4341,875 Restructured term loan- 7,215 Other200 - Total short-term debt12,13411,840Long-term debt: New senior credit facility, net $138,777-$ Bank term loan, net of discount- 255,075 Europe bank loans- 375 Other460415 Total long-term debt139,237255,865 Total debt$151,371$267,705
Term Loan Facility
On January 30, 2014, the Company entered into a Credit Agreement with UBS AG,
Stamford Branch (“UBS”), as Administrative Agent and Collateral Agent, and the
Lenders parties thereto, providing for a $275,000 senior secured covenant lite term
loan facility (“Term Loan”). The Term Loan bears interest at a LIBOR Rate plus 3.25%
(with the LIBOR Rate carrying a 1.00% floor or at a Base Rate equal to the sum of (1)
the greatest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.50%, (c)
one-month LIBOR plus 1.0%, or (d) 2.0%, plus (2) 2.25%).
As of October 09, 2020, the Term Loan was paid in full.
New Senior Credit Facility
On October 09, 2020, the Company entered into a Credit Agreement with Bank of
America, N.A. (“BofA”) as Administrative Agent, Swingline Lender and L/C Issuer, and
the other Lender Parties thereto, providing for a $150,000 term loan (the “New Term
Loan”) and a $30,000 revolving credit facility (the “New Revolving Credit Facility” and
together with the New Term Loan, the “New Senior Credit Facility”). The proceeds of
the New Senior Credit Facility and the Equity Private Placement were used to repay
in full the Term Loan and ABL Loan.
The interest rates per annum applicable to the New Senior Credit Facility (other than
in respect of Swingline Loans) will be LIBOR (or, if LIBOR is not available for an
Alternative Currency, such other interest rate customarily used by BofA for such
Alternative Currency, but in any event, not less than 0.75%), plus the Applicable Rate
(as defined below), or, for U.S. dollar denominated loans only, made to the Company
at the option of the Company, the Base Rate (to be defined as the highest of: (a) the
Federal Funds Rate plus one-half percent (0.50%); (b) the Bank of America prime rate;
and (c) the one (1) month LIBOR (adjusted daily) plus one percent (1.00%), but in any
case not less than 1.75%) plus the Applicable Rate. Applicable Rate means, with
respect to the New Term Loan and the New Revolving Credit Facility, (i) from October
9, 2020 until delivery of the compliance certificate for the quarter ending December
31, 2020, 3.00% per annum, in the case of LIBOR loans, and 2.00% per annum, in the
case of Base Rate loans, and (ii) thereafter, a percentage per annum to be
determined in accordance with the applicable pricing grid set forth in the Credit
Agreement based upon the Company’s Consolidated Coverage Ratio as reflected
in a quarterly Compliance Certificate. Each Swingline Loan shall bear interest at the
Base Rate plus the Applicable Rate for Base Rate loans under the New Revolving
Credit Facility. As of December 31, 2020, our current interest rate is 3.75%.
The New Senior Credit Facility requires the Company to repay principal of the New
Term Loan at the rate of 5% of the original principal balance during each of the first
two years and 7.5% of the original principal balance during the third year. The maturity
date on the New Senior Credit Facility is October 09, 2023.
The Company may prepay the New Senior Credit Facility, in whole or in part, at any
time without premium or penalty, subject to reimbursement of the Lenders’ breakage
and redeployment costs in the case of prepayment of LIBOR borrowings and foreign
currency borrowings bearing interest at a rate other than LIBOR. Each such
prepayment of the New Term Facility shall be applied as directed by the Company.
The unutilized portion of the commitments under the New Senior Credit Facility may
be irrevocably reduced or terminated by the Company at any time without penalty.
The New Senior Credit Facility is guaranteed by each existing and future direct and
indirect wholly owned material domestic Restricted Subsidiary and foreign Restricted
Subsidiary of the Company (other than any Brazilian subsidiary). The New Senior
Credit Facility is secured by substansially all assets of the Company and its material
domestic Restricted Subsidiaries, with the exception of real property.
The New Senior Credit Facility contains various covenants which restrict the
Company’s ability to, among other things, incur indebtedness, create liens on our
assets, make investments, enter into merger, consolidation or acquisition transactions,
dispose of assets (other than in the ordinary course of business), make certain
restricted payments, enter into sale and leaseback transactions and transactions with
affiliates, in each case subject to permitted exceptions. The New Senior Credit Facility
also requires that we comply with certain financial covenants, including meeting a
consolidated leverage ratio and consolidated fixed charge coverage ratio. The
Company is in compliance with the New Senior Credit Facility covenants as of
December 31, 2020.
Foreign Lines of Credit
In its foreign operations, the Company has unsecured lines of credit with various banks
providing approximately $5,500 of availability. There were borrowings of $200 under
the lines of credit at December 31, 2020 and no borrowings at December 31, 2019.
Restructured Term Loan
On December 30, 2016, the Company entered into a Share and Asset Purchase
Agreement (“SAPA”) to purchase all of the shares in CT Casings Beteiligungs GmbH
(“Walsroder”) and certain assets of Poly-clip Systems LLC. As part of the consideration
for the purchase, a former Seller shareholder loan was restructured and remained
outstanding at the January 10, 2017 closing in the original amount of EUR 8,111 or
$9,257. The Restructured Term Loan was 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 Industriel Et Commercial (“CIC”), providing for a €2,000 term
loan (“CIC Term Loan”). The CIC Term Loan bears interest at 0.70% with a three year
maturity. The CIC Term Loan has a contractual obligation to repay 8.33% of face
value of the loan on a quarterly basis. The maturity date on the Term Loan is
November 15, 2021. Prepayments on the CIC Term Loan are permitted with advance
notice of 30 days.
On December 2, 2018, the French affiliate of the Company entered into a second
Term Loan Agreement with Credit Industriel Et Commercial (“CIC”), providing for a
€2,000 term loan (“CIC Term Loan”). The CIC Term Loan bears interest at 0.75% with
a two year maturity. The CIC Term Loan has a contractual obligation to repay 12.50%
of face value of the loan on a quarterly basis. The maturity date on the Term Loan is
April 5, 2021. Prepayments on the CIC Term Loan are permitted with advance notice
of 30 days.
Debt Maturity
The aggregate maturities of debt (1) for each of the next five years are:
(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:
Upon adoption of the new lease standard as of January 1, 2019, 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, 2020 and December 31, 2019.
20212022202320242025ThereafterTerm Loan Facility $ 10,500 $ 8,438 $ 132,187 $ - $ - $ - Europe Bank Loan 1,434 - - - - - Other 200 - - - - 987 $ 12,134 $ 8,438 $ 132,187 $ - $ - $ 987 December 31, 2020December 31, 2019Operating Leases: Right-of-use assets $ 31,700 $ 34,062 Lease liabilities 35,264 38,424 Financing Leases: Right-of-use assets (property, plant and equipment, net) 88 572 Lease liabilities 90 574 December 31,December 31,20202019Building and improvements$453$453Machinery and equipment3,5993,599Less: Accumulated depreciation(3,964)(3,480)$88$572
Additional information with respect to our operating and finance leases as of December
31, 2020 is presented below.
Lease expense consists of the following:
Cash flow information related to leases is as follows:
Maturities of operating and financing lease liabilities as of December 31, 2020 are as
follows:
OperatingFinanceWeighted average remaining lease term (years)11.251.92Weighted average discount rate7.40%8.44%December 31, 2020December 31, 2019Operating lease rent expense5,804$ 5,979$ Financing Leases: Amortization of right-of-use assets484 454 Interest expense on lease liabilities26 46 510$ 500$ December 31, 2020December 31, 2019Cash Paid For Amounts Included in the Measurement of Lease Liabilities: Cash used in operating activities (operating leases)5,507$ 5,631$ Cash used in operating activities (financing leases)553 519 Cash used in financing activities (financing leases)- - Supplemental Cash Flow Information: Right-of-use assets obtained in exchange for lease obligations (operating leases)43$ 2,471$ Right-of-use assets obtained in exchange for lease obligations (financing leases)- - Re-measurement of lease liabilities- - YearOperating LeasesFinancing Leases20215,514$ 45$ 20225,291 47 20234,983 12 20244,738 - 20254,633 - Thereafter27,744 - Total lease payments52,903 104 Less: discounted interest(17,639) (14) 35,264$ 90$
10. Retirement Plans
The Company has contributed $793 to pension benefits in the U.S. during the year ended
December 31, 2020.
The Company and its subsidiaries have defined contribution and defined benefit plans
varying by country and subsidiary.
The Company’s operations in the United States, France, and Germany historically offered
defined benefit retirement plans (“Plan”) to their employees. Most of these benefits have
been terminated, resulting in various reductions in liabilities and curtailment gains.
Included in accumulated other comprehensive loss, net of tax is $45,965 as of December
31, 2020. The the following amounts not yet recognized in net periodic benefit cost:
Amounts included in other comprehensive loss expected to be recognized as a
component of net periodic benefit cost for the year ending December 31, 2021 are:
The measurement date for all defined benefit plans is December 31. The year-end status
of the plans is as follows:
U.S. Pension Benefits Non U.S. Pension BenefitsNet actuarial loss Prior service credit ($42,422) (3,387)2 (158)U.S. Pension Benefits Non U.S. Pension BenefitsNet actuarial loss ($1,240)($109)U.S. Pension Benefits Non U.S. Pension Benefits2020201920202019 Change in benefit obligation:Projected benefit obligation at beginning of year$128,845$121,483$25,401$24,780Service cost- - 434411Interest cost4,2175,181336436Actuarial loss (gain) 9,8618,6611,4932,220Benefits paid(6,719)(6,480)(578)(611)Liability (Gain)/Loss due to Curtailment- - - (1,367) Currency translation- - 2,967(468)Estimated benefit obligation at end of year$136,204$128,845$30,053$25,401
The funded status of these pension plans as a percentage of the projected benefit
obligation was 57% in 2020 compared to 58% in 2019.
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:
Change in plan assets:Fair value of plan assets at beginning of year$88,335$75,852$1,335$1,322Actual return on plan assets9,69815,0783337Employer contribution7933,885471 611 Benefits paid(6,719)(6,480)(471) (611) Currency translation- - 130 (24)Fair value of plan assets at end of year$92,107$88,335$1,498$1,335Unfunded status of the plan($44,097)($40,510)($28,555)($24,066)U.S. Pension Benefits Non U.S. Pension Benefits2020201920202019Amounts recognized in statement of financial position:Current liabilities($74)($74)($622)($503)Noncurrent liabilities(44,023)(40,436)(27,312)(23,563)Net amount recognized($44,097)($40,510)($27,934)($24,066)Information for defined benefit plans with projected benefit obligations in excess of plan assets:U.S. Pension Benefits Non U.S. Pension Benefits2020201920202019Projected benefit obligation$136,204 $128,845 $30,053 $25,401 Fair value of plan assets$92,107$88,335$1,498$1,335Information for defined benefit plans with accumulated benefit obligations in excess of plan assets:U.S. Pension Benefits Non U.S. Pension Benefits2020201920202019Accumulated benefit obligation$136,204 $128,845 $30,053 $25,401 Fair value of plan assets$92,107$88,335$1,498$1,335
Weighted average assumptions used to determine the benefit obligation and net
periodic benefit cost as of December 31:
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 1.68% on its non-U.S. pension plans for 2020.
The Company’s expected return on plan assets is evaluated annually based upon a
study which includes a review of anticipated future long-term performance of individual
asset classes, and consideration of the appropriate asset allocation strategy to provide
for the timing and amount of benefits included in the projected benefit obligation. While
the study gives appropriate consideration to recent fund performance and historical
returns, the assumption is primarily a long-term prospective rate.
The Company’s overall investment strategy is to achieve growth through a mix of
approximately 75% of investments for long-term growth and 25% for near-term benefit
payments with a wide diversification of asset types, fund strategies, and fund managers.
The target allocations for plan assets are 65% equity securities, 5% hedge funds and 25%
to fixed income investments. Equity securities primarily include investments in large-cap,
mid-cap and small-cap companies primarily located in the United States and
international developed markets. Fixed income securities include corporate bonds of
companies from diversified industries, mortgage-backed securities, and U.S. Treasuries.
Other types of investments include investments in hedge funds that follow several
different strategies.
Plan management uses the following methods and significant assumptions to estimate
fair value of investments.
Money market – overnight bank deposits and money market mutual funds maintaining
at all times $1.00 Net Asset Value (“NAV”).
Non U.S. Pension Benefits202020192018202020192018Component of net period benefit costService cost-$ -$ -$ $400$406$503Interest cost4,2175,1815,328310431470Expected return on plan assets(5,179)(4,310)(5,128)(34)(39)(40)Amortization of prior service cost- - - 101213 Amortization of actuarial loss1,025 1,284 1,034 48 48 120 Settlement loss recognized- - 7,381 - - - $632,155$ 8,615$ $734$858$1,066U.S. Pension BenefitsU.S. Pension Benefits Non U.S. Pension Benefits2020201920202019Discount rate2.60%3.38%1.68%1.70%Expected return on plan assets5.85%5.85%2.60%3.20%Rate of compensation increaseN/AN/A2.56%2.58%
US Government and agency obligations – U.S. Treasury bonds, notes and other
government obligations.
Exchange traded funds – marketable securities tracking asset baskets traded on active
markets.
Mutual funds - Valued at the net asset value (“NAV”) of shares or units held by the Plan
at year-end which is obtained from an active market or at share or unit prices provided
by the fund manager with significant observable inputs.
Hedge funds - Value provided by the administrator of the fund. The pricing for these funds
is provided monthly by the fund to determine the quoted price.
Common stocks - marketable corporate equity securities traded on active markets.
The fair values of the Company’s pension plan asset allocation at December 31, 2020
and 2019, by asset category are as follows:
Fair Value Measurement atDecember 31, 2020Quoted Prices in Active Markets for Identical AssetsSignificant Observable InputsSignificant Unobservable InputsTotal(Level 1)(Level 2)(Level 3)Money market$6,754$6,754-$ -$ US Government and agency obligations8,787 3,340 5,447 - Exchange traded funds20,080 20,080 - - Mutual funds34,575 34,575 - - Common stocks23,343 23,318 - 25 Total Assets in the fair value hierarchy93,539 $88,067$5,447$25Investments measured at NAV (a)66 Investments at fair value$93,605
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.
Fair Value Measurement atDecember 31, 2019Quoted Prices in Active Markets for Identical AssetsSignificant Observable InputsSignificant Unobservable InputsTotal(Level 1)(Level 2)(Level 3)Money market$3,342$3,342-$ -$ US Government and agency obligations2,747 1,008 1,739 - Exchange traded funds18,348 18,348 - - Mutual funds28,216 26,355 1,861 - Common stocks26,619 26,619 - - Total Assets in the fair value hierarchy79,272 $75,672$3,600$0Investments measured at NAV (a)10,398 Investments at fair value$89,670(a) Hedge funds are measured at fair value using the NAV per share practical expedient, and therefore have not been classified in the fair value hierarchy.Common StocksPending FairValue SubmissionEventDrivenHedgeFundsGlobalOpportunitiesHedge FundsMulti-StrategyHedgeFundsPrivateEquityFundsRealEstateTotalBeginning balance at December 31, 2019-$ -$ -$ -$ -$ -$ -$ Actual return on plan assets: Relating to assets still held at reporting date- - - - - - - Relating to assets sold during the period- - - - - - - Purchases, sales, and settlements25 - - - - - 25 Transfers in and/or out of Level 3- - - - - - - Ending balance atDecember 31, 202025$ -$ -$ -$ -$ -$ 25$ Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)
The Company’s expected contribution for the 2020 fiscal year is $13,157 for the U.S.
pension plan. There is no funding requirement for non U.S. pension plans.
Savings Plans
The Company also has defined contribution savings and similar plans for eligible
employees, which vary by subsidiary. The Company’s aggregate contributions to these
plans are based on eligible employee contributions and certain other factors. The
Company expense for these plans was $1,120, $1,012 and $1,050 in 2020, 2019 and 2018,
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 2020, 2019, and 2018 was $157, $285 and $382, respectively. As of their most recent
valuation dates, for those plans where vested benefits exceeded plan assets, the
actuarially computed value of vested benefits exceeded those plans’ assets by
approximately $4,955.
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 150,000,000
shares, respectively.
On October 9, 2020, the Company completed a private placement of 50,000,000 shares
of common stock at $2.00 per share. The Company used the net proceeds of the private
placement to completed a refinancing of its short term debt.
As a result of the private placement to complete an extinguishment of the Revolving
Credit Facility and Term Loan Facility due to mature in January 2021, Icahn Enterprises
L.P. currently owns approximately 89.0% of our outstanding common stock.
In 2004, the Company purchased 805,270 shares of its common stock from the
underwriter for a purchase price of $298. The common stock has been accounted for as
treasury stock.
14. Income Taxes
Income tax provision (benefit) consisted of:
U.S.Non U.S 2021$7,630$6762022 7,7057022023 7,8597822024 7,99110172025 7,9751021Thereafter 39,1005,938
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:
202020192018CurrentDomestic$87 $83 $139 Foreign 3,968 3,847 3,033 Total current 4,055 3,930 3,172 Deferred Domestic 2,458 (303) (394)Foreign (295) 4,122 (6,847)Total deferred 2,163 3,819 (7,241) Total$6,218 $7,749 ($4,069)Income (loss) before income taxes: 202020192018Domestic$6,922 ($895)($1,340)Foreign 3,860 (16,473) (17,199) Total$10,782 ($17,368)($18,539)Computed income tax (benefit) provision $2,264($3,647)($3,893)State and local taxes, net of federal tax763 (225) (26) Foreign taxes, net(652) (2,281) (2,650) Valuation allowance2,300 9,344 (97) Uncertain tax positions - (benefit) expense (44) 867 (108) Foreign exchange impact15 264 953 Permanent differences, net1,046 2,047 1,459 Tax reform items- - (527) Revaluation of deferreds206 867 302 Other, net320 513 518 Total income tax (benefit) expense $6,218 $7,749 ($4,069)Computed income tax (benefit) provision 21.0%21.0%21.0%State and local taxes, net of federal tax7.1%1.3%0.1%Foreign taxes, net-6.0%13.1%14.3%Valuation allowance21.3%-53.8%0.5%Uncertain tax positions - expense (benefit) -0.4%-5.0%0.6%Foreign exchange impact0.1%-1.5%-5.1%Permanent differences, net9.7%-11.8%-7.9%Tax reform items0.0%0.0%2.8%Revaluation of deferreds1.9%-5.0%-1.6%Other, net3.0%-3.0%-2.8%Effective income tax rate57.7%-44.6%21.9%Statutory federal rate21.0%21.0%21.0%
Temporary differences and net operating loss carryforwards that give rise to a significant
portion of deferred tax assets and liabilities for 2020 and 2019 are as follows:
The net deferred tax asset (liability) is classified in the balance sheet as follows:
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, 2020 and December 31, 2019 of $9,673 and $9,506, respectively. The
Company has a valuation allowance for Viskase Poland at December 31, 2020 and
December 31, 2019 of $1,003 and $376, respectively. The Company has a valuation
allowance in the U.S. at December 31, 2020 and December 31, 2019 of $557 and $471,
respectively. The Company has gross U.S. federal net operating loss carryforwards at
December 31, 2020 and December 31, 2019 of $54,824 and $58,485, respectively, with
amounts beginning to expire in 2024. The Company has gross net operating loss
carryforwards in Brazil at December 31, 2020 and December 31, 2019 of $15,709 and
$11,498, respectively and has an unlimited carryforward period. The Company has gross
net operating loss carryforwards in Poland at December 31, 2020 and December 31, 2019
of $1,903 and $4,268, respectively and has a five year carryforward period. The Company
has gross net operating loss carryforwards in France at December 31, 2020 and
December 31, 2019 of $9,509 and $11,927, respectively and has an unlimited
carryforward period. The Company has gross net operating loss carryforwards in Viskase
20202019Deferred tax asset Provisions not currently deductible$8,944$8,004 Inventory basis differences3,3624,939 Stock options41 41 Pension and healthcare 14,00012,410 Net operating loss carryforwards26,42626,528 Lease liability8,7179,465 Foreign exchange and other- 300 Valuation allowance(11,233) (10,354) Total deferred tax asset$50,257$51,333Deferred tax liability Property, plant, and equipment($8,999)($8,831) Intangible asset(6,656)(6,829) Right of use assets(8,659)(9,465) Foreign exchange and other(436) - Total deferred tax liability($24,750)($25,125)$25,507$26,20820202019Non-current deferred tax assets$29,383$30,199Non-current deferred tax liability(3,876) (3,991) Non-current deferred tax assets, net$25,507$26,208
Germany at December 31, 2020 and December 31, 2019 of $2,606 and $2,372 for Income
Tax and Trade Tax. The Company has gross net operating loss carryforwards in CT Casings
at December 31, 2020 and December 31, 2019 of $13,393 and $14,836 for Income Tax
and Trade Tax. Germany has an unlimited carryforward period on Trade Tax.
Following the Equity Private Placement, IELP became the beneficial owner of more than
80% of the shares of our common stock and the Company became a member of the
consolidated group of a corporate subsidiary of Icahn Enterprises for U.S. federal income
tax purposes (the “IEP Corporate Subsidiary”). As a result, the IEP Corporate Subsidiary
and the Company entered into a tax allocation agreement for the allocation of certain
income tax items. The Company and its subsidiaries consented to join the IEP Corporate
Subsidiary’s federal consolidated return and, if elected by the IEP Corporate Subsidiary,
certain state consolidated returns.
Uncertainty in Income Taxes
The uncertain tax positions as of December 31, 2020 totaled $17,317. The following table
summarizes the activity related to the unrecognized tax benefits.
In 2020, the Company recognized an approximate net decrease of $126 to the reserves
for uncertain tax positions.
Approximately $17,317 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 2016. Substantially all material state
and local and foreign income tax matters have been concluded for years through 2013.
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 $45.
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, 2020
and 2019, the Company recorded adjustments for interest of $140 and $965, respectively,
and for penalties of $(17) and $(1), respectively related to these unrecognized tax
benefits. In total, as of December 31, 2020 and 2019, the Company has recorded a
liability of interest of $1,775 and $1,635, respectively, and $156 and $173, respectively, for
potential penalties.
15. Goodwill and Intangible Assets, net
(in thousands)20202019Unrecognized tax benefits as of January 1$17,443 $11,677Increases in positions taken in a prior period 23 - Decreases in positions taken in a prior period (18)(12)Increases in positions taken in a current period - 5,803 Increases due to currency translation195 55 Decreases due to currency translation- - Decreases due to lapse of statute of limitations(326) (80) Unrecognized tax benefits as of December 31$17,317$17,443
The Company currently has $3,620 of goodwill with no impairment.
Goodwill consists of the following:
Intangible assets, net consists of the following:
Amortization expense associated with definite-lived intangible assets was $1,657, $1,619
and $1,664 for the years ended December 31, 2020, 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:
December 31, 2020December 31, 2019Beginning balance$3,376 $3,428 Translation244 (52)Gross carrying amount, December 31st $3,620 $3,376 Gross Carrying ValueAccumulated AmortizationNet Carrying ValueDefinite live intangible assets: Customer relationships$21,523 ($4,354)$17,169 Technologies2,571 (809)1,762 Patents/Trademarks10,100 (6,404)3,696 In-place leases224 (64)160 $34,418 ($11,631)$22,787 December 31, 2020Gross Carrying ValueAccumulated AmortizationNet Carrying ValueDefinite live intangible assets: Customer relationships$19,704 ($2,955)$16,749 Technologies2,357 (494)1,863 Patents/Trademarks9,626 (5,927)3,699 In-place leases204 (44)160 $31,891 ($9,420)$22,471 December 31, 2019
16. Contingencies
The Company from time to time is involved in various other legal proceedings, none of
which are expected to have a material adverse effect upon results of operations, cash
flows or financial condition.
17. Stock-based compensation (Dollars in Thousands, except Per Share Amount)
Stock-based compensation cost is measured at the grant date based on fair value of
the award and is recognized as an expense on a straight-line basis over the requisite
service period, which is the vesting period. Included in net income is non-cash
compensation expense of $0 for the years ended Decemeber 31, 2020 and 2019.
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:
In December 2016, the Company granted non-qualified stock options to its former 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 recognized in 2019
for 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.
2021$1,650 20221,650 20231,650 20241,650 20251,650 Total thereafter14,537 Total amortization$22,787 2013Expected term10 yearsExpected stock volatility17.33%Risk-free interest rate1.75%Expected forfeiture rate0.00%Fair value per option$0.51
The Company's outstanding options were:
Vested and exercisable options as of December 31, 2020 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 $4,411 , $4,882
and $5,808 for 2020, 2019, and 2018, respectively.
19. Related-Party Transactions
As of December 31, 2020, and December 31, 2019, Icahn Enterprises L.P. owned
approximately 89.0% and 78.6% of our outstanding common stock, respectively.
Insight Portfolio Group LLC (“Insight Portfolio Group”) is an entity formed and controlled
by Mr. Icahn in order to maximize the potential buying power of a group of entities with
which Mr. Icahn has a relationship in negotiating with a wide range of suppliers of goods,
services and tangible and intangible property at negotiated rates.
On January 1, 2013, Viskase acquired a minority equity interest in Insight Portfolio Group
and agreed to pay a portion of Insight Portfolio Group’s operating expenses, which was
approximately $189 for the year ended 2019 and none for 2020.
In December 2019, Insight advised us that it was shutting down its services effective
January 1, 2020. Supplier contracts coordinated through Insight will remain in effect
through their individual terms. Effective February 10, 2020, the Company withdrew as a
Weighted AverageWeighted AverageShares Under Weighted AverageRemainingGrant-DateOptionExercise PriceContractual LifeFair ValueOutstanding, December 31, 2018925,0004.45$ 81 months0.91$ Vested and exercisable at Dec. 31, 2018725,000 4.98$ 77 months0.85$ Granted- -$ - - Exercised- -$ - - Forfeited600,000 -$ - - Outstanding, December 31, 2019325,0008.00$ 41 months0.51$ Vested and exercisable at Dec. 31, 2019325,000 8.00$ 41 months0.51$ Granted- -$ - - Exercised- -$ - - Forfeited- -$ - - Outstanding, December 31, 2020325,0008.00$ 29 months0.51$ Vested and exercisable at Dec. 31, 2020325,000 8.00$ 29 months0.51$
member of Insight and assigned its interests in Insight to another Delaware limited liability
company.
Icahn Enterprises L.P. was the lender on the Company’s ABL Loan until October 9, 2020.
The Company paid Icahn Enterprises L.P. service, commitment fees and interest of $283
through the period ended October 9, 2020 and $154 for the year ended December 31,
2019.
Equity Private Placement of Common Stock & Change in Number of Authorized Shares
Beginning in the first quarter of 2020, the Company entered into discussions with a number
of banks, including BofA, regarding the terms of a new senior credit facility which would
replace both the Term Loan and the ABL Loan. Under the new senior credit facility
proposed by BofA, the Company was required to raise at least $100,000 in equity capital,
the proceeds of which were to be used, together with borrowings under the new senior
credit facility, to repay the Term Loan and the ABL Loan. The Company met this condition
through the issuance of 50,000,000 shares of common stock to an affiliate of IELP in a
private placement transaction at a purchase price of $2.00 per share (the “Equity Private
Placement”). In order to complete the offering of the Equity Private Placement, the
Company amended its Amended and Restated Certificate of Incorporation to increase
the number of authorized shares of the Company’s common stock by 50,000,000 shares.
Prior to the completion of the Equity Private Placement, IELP beneficially owned
approximately 78.6% of the Company’s outstanding common stock. As a result of the
Equity Private Placement, IELP is the beneficial owner of approximately 89.0% of the
Company’s outstanding common stock. The Equity Private Placement was approved by
a Special Committee of disinterested directors of the Company.
Pension Liabilities
Applicable pension and tax laws make each member of a "controlled group" of entities,
generally defined as entities in which there is at least an 80% common ownership interest,
jointly and severally liable for certain pension plan obligations of any member of the
controlled group. These pension obligations include ongoing contributions to fund the
plan, as well as liability for any unfunded liabilities that may exist at the time the plan is
terminated. In addition, the failure to pay these pension obligations when due may result
in the creation of liens in favor of the pension plan or the Pension Benefit Guaranty
Corporation ("PBGC") against the assets of each member of the controlled group.
As a result of the Equity Private Placement, IELP became the beneficial owner of more
than 80% of the shares of our common stock and the Company became subject to the
pension liabilities of all entities in which Mr. Icahn has a direct or indirect ownership interest
of at least 80%. One such entity, ACF Industries LLC ("ACF"), is the sponsor of several
pension plans. All the minimum funding requirements of the Internal Revenue Code, as
amended, and the Employee Retirement Income Security Act of 1974, as amended, for
the ACF plans have been met as of December 31, 2020. If the plans were voluntarily
terminated,
they would be underfunded by approximately $122,000 as of
December 31, 2020. These results are based on the most recent information provided by
the plans’ actuary. These liabilities could increase or decrease, depending on a number
of factors, including future changes in benefits, investment returns, and the assumptions
used to calculate the liability. As members of the controlled group, we would be liable
for any failure of ACF to make ongoing pension contributions or to pay the unfunded
liabilities upon a termination of the ACF pension plans. In addition, other entities now or
in the future within the controlled group in which we are included may have pension plan
obligations that are, or may become, underfunded and we would be liable for any failure
of such entities to make ongoing pension contributions or to pay the unfunded liabilities
upon termination of such plans.
The current underfunded status of the ACF pension plans requires them to notify the
PBGC of certain “reportable events,” such as if we cease to be a member of the ACF
controlled group, or if we make certain extraordinary dividends or stock redemptions.
The obligation to report could cause us to seek to delay or reconsider the occurrence of
such reportable events.
In connection with the Equity Private Placement, the Company entered into an
agreement with Icahn Enterprises Holdings L.P. pursuant to which Icahn Enterprises
Holdings L.P. has agreed to indemnify us and our subsidiaries from losses resulting from
any imposition of certain pension funding or termination liabilities that may be imposed
on us and our subsidiaries or our assets as a result of being a member of the Icahn
controlled group.
Based on the contingent nature of potential exposure related to these affiliate pension
obligations and the indemnification from Icahn Enterprises Holdings L.P., no liability has
been recorded in the accompanying consolidated financial statements.
Tax Allocation
Following the Equity Private Placement, IELP became the beneficial owner of more than
80% of the shares of our common stock and the Company became a member of the
consolidated group IEP Corporate Subsidiary for U.S. federal income tax purposes. As a
result, the IEP Corporate Subsidiary and the Company entered into a tax allocation
agreement for the allocation of certain income tax items. The Company and its
subsidiaries consented to join the IEP Corporate Subsidiary’s federal consolidated return
and, if elected by the IEP Corporate Subsidiary, certain state consolidated returns. In
those jurisdictions where the Company and its subsidiaries will file consolidated returns
with the IEP Corporate Subsidiary, the Company will pay to the IEP Corporate Subsidiary
any tax it would have owed had it and its subsidiaries continued to file as a separate
consolidated group. To the extent that the IEP Corporate Subsidiary consolidated group
is able to reduce its tax liability as a result of including the Company and its subsidiaries
in its consolidated group, the IEP Corporate Subsidiary will pay the Company 20% of such
reduction on a current basis and the Company will be treated as if it would carry forward
for its own use under the tax allocation agreement, 80% of the items that caused the tax
reduction (the “Excess Tax Benefits”). Moreover, if the Company and its subsidiaries
should ever become deconsolidated from the IEP Corporate Subsidiary, the IEP
Corporate Subsidiary will reimburse the Company for any tax liability in post-consolidation
years that the Company and its subsidiaries would have avoided had they actually had
the Excess Tax Benefits for their own consolidated group use. The cumulative payments
to the Company by the IEP Corporate Subsidiary post-consolidation will not exceed the
cumulative reductions in tax to the IEP Corporate Subsidiary group resulting from the use
of the Excess Tax Benefits by the IEP Corporate Subsidiary group.
20. Business Segment Information and Geographic Area Information
The Company primarily manufactures and sells cellulosic food casings as its sole business
segment. The Company’s operations are viewed in geographic regions of North
America, South America, Europe and Asia. Intercompany sales and charges (including
royalties) have been reflected as appropriate in the following information. Certain items
are maintained at the Company’s corporate headquarters and are not allocated
geographically. They include most of the Company’s debt and related interest expense
and income tax benefits.
Reporting Segment Information:
Identifiable assets20202019North America$205,185$211,723South America56,17658,422Europe197,525194,732Asia44,23748,010$503,123$512,887202020192018Net salesNorth America$207,321$191,548$193,135South America47,83239,78046,541Europe170,777168,086175,594Asia45,00047,53543,571Other and eliminations(62,043)(62,077)(63,512)$408,887$384,872$395,329Operating income North America$11,909$9,972$17,491South America5,345(2,618)(813)Europe4,481(7,232)(12,079)Asia7,0637,6087,865$28,798$7,730$12,464Net Sales by countryUnited States$123,365$118,749$115,575Brazil24,92821,28027,928Italy24,07423,89424,052Germany26,48028,00028,229France12,80611,47612,569Philippines18,99422,19121,549Poland8,98212,08611,450Other international169,258147,196153,977$408,887$384,872$395,329
21. Interest Expense, Net
Net interest expense consisted of:
22. Changes in Accumulated Other Comprehensive Loss
23. Restructuring Charges
During the year ended December 31, 2020, the Company recognized a change in
estimate for our restructuring expense in our European segment of $398, which we
believe is our final approved restructuring plans. The costs relate to a restructuring of its
French and German subsidiary operations to safeguard the Company’s competitive
environment in the European market. The plan will involve the involuntary termination of
approximately 150 employees, 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, 2020December 31, 2019December 31, 2018Interest expense$11,974$16,498$15,821Less Capitalized interest(578) - - Interest expense, net$11,396$16,498$15,821 Accrued Employee BenefitsTranslation AdjustmentsTotalBalance at December 31, 2019($41,313)($36,122)($77,435)Other comprehensive (loss) income before reclassifications (5,725)3,436 (2,289)Reclassifications from accumulated other comprehensive loss to earnings1,073- 1,073Balance at December 31, 2020($45,965)($32,686)($78,651)Amounts Reclassified from Accumulated Other Comprehensive Loss Affected Line Items in the Consolidation Statement of Operations and Comprehensive LossAccrued Employee Benefits Amortization of net actuarial loss 1,073Other Income/Expense$1,073
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 Viskase’s
affiliate located in Monterrey, Mexico.
As the primary beneficiary of the variable interest entity (VIE), the VIEs’ assets, liabilities,
and results of operations are included in the Company’s consolidated financial
statements as of, and for the period ended, December 31, 2020 and December 31, 2019.
The other equity holders’ interests are reflected in “Net loss attributable to noncontrolling
interests” in the Consolidated Statements of Operations and “Noncontrolling interests” in
the Consolidated Balance Sheets.
The following table summarizes the carrying amount of the VIEs’ assets and liabilities
included in the Company’s Consolidated Balance Sheets at December 31, 2020 and
December 31, 2019:
December 31, 2020December 31, 2019Beginning balance$10,217 $9,515 Provision 398 9,224 Payments (8,694) (7,778) ASC 842 adoption - (310) Translation 141 (434)Ending balance$2,062 $10,217
All assets in the above table can only be used to settle obligations of the consolidated
VIE. Liabilities are nonrecourse obligations. Amounts presented in the table above are
adjusted for intercompany eliminations.
The following table summarizes the Statement of Operations of the VIE included in the
Company’s Consolidated Statement of Operations for the period ended December 31,
2020 and December 31, 2019.
December 31, 2020December 31, 2019ASSETS Current assets: Cash and cash equivalents$121$14 Receivables, net36139 Inventories366211 Other current assets39148Property, plant and equipment1,2371,237Less: Accumulated depreciation(383)(260) Property, plant and equipment,net854977Deferred tax asset0115Other assets2826Total Assets$1,444$1,630LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities55634Total Liabilites55634Paid in capital2,9312,181Retained earnings(1,542)(1,185)Total Stockholder Equity1,389996Total Liabilities and Stockholders' Equity$1,444$1,630December 31, 2020December 31, 2019Net sales$627$218Cost of sales572315Gross margin55(97)Selling, general and administrative230142Operating loss(175)(239)Other expense 6742 Loss before income taxes(242)(281) Income tax expense115 - Net loss($357)($281)
25. Subsequent Events
Viskase evaluated its December 31, 2020 consolidated financial statements for
subsequent events through March 26, 2021, the date the consolidated financial
statements were available to be issued.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
AND RESULTS OF OPERATIONS (Unaudited)
FINANCIAL CONDITION
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 operations are labor intensive. The
industry’s operating results have historically been sensitive to the global balance of
capacity and demand. The industry’s extrusion facilities produce casings under a timed
chemical process and operate continuously.
Our contribution margin varies with changes in selling price, input material costs, labor
costs and manufacturing efficiencies. The total contribution margin increases as demand
for our casings increases. Our financial results benefit from increased volume because
we do not have to increase our fixed cost structure in proportion to increases in demand.
For certain products, we operate at near capacity in our existing facilities. We regularly
evaluate our capacity and projected market demand. We believe the current and
planned cellulosic production capacity in our industry is in balance with global demand.
Comparison of Results of Operations for Years Ended December 31, 2020, 2019 and 2018.
The following discussion compares the results of operations for the fiscal year ended
December 31, 2020 to the results of operations for the fiscal year ended December 31,
2019, and 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. We have
provided the table below in order to facilitate an understanding of this discussion. The
table shows our results of operations (in millions) for the 2019, 2018 and 2017 fiscal years.
NM= Not meaningful when comparing positive to negative numbers or to zero.
2020 Versus 2019
Net Sales. Our net sales for 2020 were $408.9 million, which represents an increase of
$24.0 million or 6.2% from the prior year. Net sales increased $16.4 million from volume,
$7.3 million due to price and mix and $0.3 due to foreign currency translation.
Cost of Sales. Cost of sales for 2020 increased 5.2% from the comparable prior year
period. The increase is mainly due to higher volume claim and lower absorption of
manufacturing costs at our plants.
Selling, General and Administrative Expenses. We decreased selling, general and
administrative expenses from $53.7 million in 2019 to $49.8 million in 2020. The decrease is
mainly due to lower costs with the restructuring plan.
Amortization of Intangibles. The Company incurred an expense of $1.7 million during 2020
on the amortization of intangibles recognized with the acquisitions compared to $1.6 in
2019.
Asset Impairment Charge. The Company incurred an asset impairment charge of $0.4
million in 2020 related to the write down of capitalized software not placed in service.
Restructuring Expense. Restructuring expense of $0.4 million during of 2020 and $9.2
million in 2019 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.
YearYearYearEndedEndedEndedDecDecDec31, 202031, 201931, 2018NET SALES$408.96.2%$384.9-2.6%$395.3Cost of sales327.95.2%311.6-1.3%315.8Selling, general and administrative49.8-7.3%53.7-4.8%56.4Amortization of intangibles1.76.2%1.6-5.9%1.7Asset impairment0.4-60.0%1.0900.0%0.1Restructing expense0.4-95.7%9.23.4%8.9OPERATING INCOME28.8274.0%7.7-37.9%12.4Interest expense, net of income11.4-29.6%16.25.9%15.3Other expense, net6.4-28.1%8.9-43.3%15.7Loss on early extinguishment of debt0.3NM- NM- Income tax provision (benefit) 6.2-19.5%7.7NM(4.1)NET INCOME $4.6NM($25.1)74.3%($14.4)
Operating Income. Operating income for 2020 was $28.8 million, representing an
increase of $21.1 million from the prior year. The increase in operating income was
primarily due to higher gross profit due to volume and lower operating expenses resulting
from the restructuring plans of prior years.
Interest Expense. Interest expense, net of interest income, for 2020 was $11.4 million,
representing an decrease of $4.8 million compared to 2019. The decrease is a result of a
lower interest rate on our Term loan and capitalized interest.
Other Expense. Other expense for 2020 was approximately $6.4 million, representing a
decrease of $2.5 million over 2019. The decrease is primarily due to lower non service
cost expense related to pension plans.
Income Tax Provision. During 2020, an income tax expense of $6.2 million was recognized
on the income before income taxes of $10.8 million compared to income tax expense of
$7.7 million in 2019. The 2020 effective income tax rate was 57.7% compared to (44.6%)
for 2019.
Primarily as a result of the factors discussed above, net income was $4.6 million
compared to net loss of $(25.1) million for 2019.
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.
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. The Company’s 2018 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.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $7.2 million during 2020. Net cash provided by
operating activities was $33.5 million and net cash used in investing activities was $19.2
million. Net cash used in financing activities was $18.0 million. Cash flows used in
operating activities were principally attributable to results from operations. Our inventory
decreased during 2020 due to strong market demand. 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 $13.4 million (against a total cash balance of $15.8
million) and $15.4 million (against a total cash balance of $23.0 million) as of December
31, 2020 and December 31, 2019, 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, 2020 the Company had positive working capital of approximately
$144.8 million, with additional amounts of credit available under its New Senior Credit
Facility.
On October 09, 2020, the Company entered into a Credit Agreement with BofA as
Administrative Agent, Swingline Lender and L/C Issuer, and the other Lender parties
thereto, providing for a $150,000 term loan (the “New Term Loan”) and a $30,000
revolving credit facility (the “New Revolving Credit Facility” and together with the New
Term Loan, the “New Senior Credit Facility”). The proceeds of the New Senior Credit
Facility and the Equity Private Placement were used to repay in full the Term Loan and
ABL Loan.
The interest rates per annum applicable to the New Senior Credit Facility (other than in
respect of Swingline Loans) will be LIBOR (or, if LIBOR is not available for an Alternative
Currency, such other interest rate customarily used by BofA for such Alternative Currency,
but in any event, not less than 0.75%) plus the Applicable Rate (as defined below), or, for
U.S. dollar denominated loans only, made to the Company at the option of the
Company, the Base Rate (to be defined as the highest of: (a) the Federal Funds Rate plus
one-half percent (0.50%); (b) the Bank of America prime rate; and (c) the one (1) month
LIBOR (adjusted daily) plus one percent (1.00%), but in any event, not less than 1.75%)
plus the Applicable Rate. Applicable Rate means, with respect to the New Term Loan
and the New Revolving Credit Facility, (i) from October 9, 2020 until delivery of the
compliance certificate for the quarter ending December 31, 2020, 3.00% per annum, in
the case of LIBOR loans, and 2.00% per annum, in the case of Base Rate loans, and (ii)
thereafter, a percentage per annum to be determined in accordance with the
applicable pricing grid set forth in he Credit Agreement based upon the Company’s
Consolidated Coverage Ratio as reflected in a quarterly Compliance Certificate. Each
Swingline Loan shall bear interest at the Base Rate plus the Applicable Rate for Base Rate
loans under the New Revolving Credit Facility. As of December 31, 2020, our current
interest rate is 3.75%.
The New Senior Credit Facility requires the Company to repay principal of the New Term
Loan at the rate of 5% of the original principal balance during each of the first two years
and 7.5% of the original principal balance during the third year. The maturity date on the
New Senior Credit Facility is October 09, 2023.
The Company may prepay the New Senior Credit Facility, in whole or in part, at any time
without premium or penalty, subject to reimbursement of the Lenders’ breakage and
redeployment costs in the case of prepayment of LIBOR borrowings and foreign currency
borrowings bearing interest at a rate other than LIBOR. Each such prepayment of the
New Term Facility shall be applied as directed by the Company. The unutilized portion of
the commitments under the New Senior Credit Facility may be irrevocably reduced or
terminated by the Company at any time without penalty.
The New Senior Credit Facility is guaranteed by each existing and future direct and
indirect wholly owned material domestic Restricted Subsidiary and foreign Restricted
Subsidiary of the Company (other than any Brazilian subsidiary). The New Senior Credit
Facility is secured by substansially all assets of the Company and its material domestic
Restricted Subsidiaries, with the exception of real property.
Pension and Postretirement Benefits
Our long-term pension and postretirement benefit liabilities totaled $78.6 million at
December 31, 2020.
Expected annual cash contributions for U.S. pension liabilities are expected to be (in
millions):
20212022202320242025Pension $ 13.6 $ 6.9 $ 7.2 $ 7.1 $ 6.2
Contract Obligations
As of December 31, 2020, the aggregate maturities of debt(1), leases and purchase
commitments for each of the next five years are (in millions):
(1) The aggregate maturities of debt represent amounts to be paid at maturity and not
the current carrying value.
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States (“U.S. GAAP”). The
preparation of financial statements in conformity with U.S. GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities. Among
others, estimates are used when accounting for valuation of investments. Estimates used
in determining fair value measurements include, but are not limited to, expected future
cash flow assumptions, market rate assumptions for contractual obligations, actuarial
assumptions for benefit plans, settlement plans for litigation and contingencies, and
appropriate discount rates. Estimates and assumptions are evaluated on an ongoing
basis and are based on historical and other factors believed to be reasonable under the
circumstances. The results of these estimates may form the basis of the carrying value of
certain assets and liabilities and may not be readily apparent from other sources. Actual
results, under conditions and circumstances different from those assumed, may differ
from estimates.
We believe the following accounting estimates are critical to our business operations and
the understanding of results of operations and affect the more significant judgments and
estimates used in the preparation of our consolidated financial statements.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers cash equivalents to
consist of all highly liquid debt investments purchased with an initial maturity of
approximately three months or less. Due to the short-term nature of these instruments,
the carrying values approximate the fair market value. Of the cash held on deposit,
essentially all of the cash balance was in excess of amounts insured by the Federal
Deposit Insurance Corporation or other foreign provided bank insurance. The Company
performs periodic evaluations of these institutions for relative credit standing and has not
experienced any losses as a result of its cash concentration. Consequently, no significant
concentrations of credit risk are considered to exist.
Receivables
Trade accounts receivable are classified as current assets and are reported net of
allowance for doubtful accounts and a reserve for returns. This estimated allowance is
20212022202320242025ThereafterTerm Credit Facility $ 10.5 $ 8.4 $ 132.2 $ - $ - $ - Europe Bank Loan 1.4 - - - - - Operating Leases5.85.55.25.04.827.7Other 0.2 - - - - 1.0 $ 17.9 $ 13.9 $ 137.4 $ 5.0 $ 4.8 $ 28.7
primarily based upon our evaluation of the financial condition of each customer, each
customer’s ability to pay and historical write-offs.
Inventories
Inventories are valued at the lower of first-in, first-out (“FIFO”) cost or net realizable value.
Property, Plant and Equipment
The Company carries property, plant and equipment at cost less accumulated
depreciation. Property and equipment additions include acquisition of property and
equipment and costs incurred for computer software purchased for internal use including
related external direct costs of materials and services and payroll costs for employees
directly associated with the project. Upon retirement or other disposition, cost and
related accumulated depreciation are removed from the accounts, and any gain or loss
is included in results of operations. Depreciation is computed on the straight-line method
using a half year convention over the estimated useful lives of the assets ranging from
(i) building and improvements - 10 to 32 years, (ii) machinery and equipment - 4 to 12
years, (iii) furniture and fixtures - 3 to 12 years, (iv) auto and trucks - 2 to 5 years, (v) data
processing — 3 to 7 years and (vi) leasehold improvements - shorter of lease or useful life.
In the ordinary course of business, we lease certain equipment, consisting mainly of autos,
and certain real property. Real property consists of manufacturing, distribution and office
facilities.
Deferred Financing Costs
Deferred financing costs are presented in the balance sheet as a direct deduction from
the carrying amount of debt liability and amortized as expense using the effective
interest
related debt
the expected
agreement. Amortization of deferred financing costs is classified as interest expense.
rate method over
term of
the
Intangible Assets and Goodwill
The Company has recognized definite lived intangible assets for patents and trademarks,
customer relationships, technologies and in-place leases. The intangible assets are
amortized on the straight-line method over an estimated weighted average useful life of
12 years for patents and trademarks, 20 years for customer relationships, 13 years for
technologies and 14 years for in-place leases.
We evaluate the carrying value of goodwill on at least an annual basis by applying a
fair-value-based test. In evaluating the recoverability of the carrying value of goodwill,
we must make assumptions regarding the fair value of our reporting units, as defined
under FASB ASC Topic 350. Goodwill impairment testing involves comparing the fair value
of our reporting units to their carrying values. If the book value of the reporting unit
exceeds its fair value, the goodwill of the reporting unit is considered to be impaired. The
amount of impairment loss is equal to the excess of the book value of the goodwill over
the fair value of goodwill. The reporting unit fair value is based upon consideration of
various valuation methodologies, including guideline transaction multiples, multiples of
current earnings, and projected future cash flows discounted at rates commensurate
with the risk involved.
Long-Lived Assets
The Company continues to evaluate the recoverability of long-lived assets including
property, plant and equipment, trademarks and patents. Impairments are recognized
when the expected undiscounted future operating cash flows derived from long-lived
assets are less than their carrying value. If impairment is identified, valuation techniques
deemed appropriate under the particular circumstances will be used to determine the
asset’s fair value. The loss will be measured based on the excess of carrying value over
the determined fair value. The review for impairment is performed whenever events or
changes in circumstances indicate that the carrying amount of assets may not be
recoverable.
Shipping and Handling
The Company periodically bills customers for shipping charges. These amounts are
included in net revenue, with the associated costs included in cost of sales.
Pensions and Other Postretirement Benefits
The Company uses appropriate actuarial methods and assumptions in accounting for its
defined benefit pension plans and non-pension postretirement benefits.
Actual results that differ from assumptions used are accumulated and amortized over
future periods and, accordingly, generally affect recognized expense and the recorded
obligation in future periods. Therefore, assumptions used to calculate benefit obligations
as of the end of a fiscal year directly impact the expense to be recognized in future
periods. The primary assumptions affecting the Company’s accounting for employee
benefits as of 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.
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
2.60% for 2020. The Company is using a weighted average discount rate of 1.68%
on its non-U.S. pension plans for 2020.
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
2020 and 2019 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 portion of our natural gas each month at fixed prices. These fixed price
agreements qualify for the “normal purchases” scope exception under derivative and
hedging standards, therefore the natural gas purchases under these contracts were
expensed as incurred and included within cost of sales. Future annual minimum
purchases remaining under the agreement are $1.2 million at December 31, 2020.
The Company’s financial instruments include cash and cash equivalents, accounts
receivable and accounts payable. The carrying amounts of these financial assets and
liabilities approximate fair value due to the short maturities of these instruments.
New Accounting Pronouncements
Please reference Footnote 1 in our Notes to Consolidated Financial Statements.
FORWARD-LOOKING STATEMENTS
This report includes “forward-looking statements.” Forward-looking statements are those
that do not relate solely to historical fact. These statements relate to future events or our
future financial performance and implicate known and unknown risks, uncertainties and
other factors that may cause the actual results, performances or levels of activity of our
business or our industry to be materially different from that expressed or implied by any
such forward-looking statements. They include, but are not limited to, any statement that
may predict, forecast, indicate or imply future results, performance, achievements or
events. In some cases, you can identify forward-looking statements by use of words such
as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “plan,” “will,”
“would,” “could,” “predict,” “propose,” “potential,” “may” or words or phrases of similar
meaning. Statements concerning our financial position, business strategy and measures
to implement that strategy, including changes to operations, competitive strengths,
goals, plans, references to future success and other similar matters are forward-looking
statements. Forward-looking statements may relate to, among other things:
our ability to meet liquidity requirements and to fund necessary capital
expenditures;
the strength of demand for our products, prices for our products and changes in
overall demand;
assessment of market and industry conditions and changes in the relative market
shares of industry participants;
consumption patterns and consumer preferences;
the effects of competition and competitor responses to our products and services ;
our ability to realize operating improvements and anticipated cost savings;
pending or future legal proceedings and regulatory matters;
general economic conditions and their effect on our business;
changes in the cost or availability of raw materials and changes in energy prices or
other costs;
pricing pressures for our products;
the cost of and compliance with environmental laws and other governmental
regulations;
our results of operations for future periods;
our anticipated capital expenditures;
our ability to pay, and our intentions with respect to the payment of, dividends on
shares of our capital stock;
our ability to protect our intellectual property;
economic and industry conditions affecting our customers and suppliers
our ability to identify, complete and integration acquisitions; and
our strategy for the future, including opportunities that may be presented to and/or
pursued by us.
These forward-looking statements are not guarantees of future performance. Forward-
looking statements are based on management’s expectations that involve risks and
uncertainties.