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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
 FORM 10-K þ       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934  OR o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934  COMMISSION FILE NUMBER: 0-5485 VISKASE COMPANIES, INC.  Delaware
(State or other jurisdiction of incorporation or organization)
    
    95-2677354
(I.R.S. Employer Identification No.)625 Willowbrook Centre Parkway
Willowbrook, Illinois 60527
(Address of Principal Executive Offices, including Zip Code)
    
    (630) 789-4900
(Registrants Telephone Number, Including Area Code)
 Securities Registered Pursuant to Section 12(b) of the Act:
None Securities Registered Pursuant to Section 12(g) of the Act:
None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that it was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of the Registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes o No þ Based on the closing price on the National Quotation Bureau pink
sheet service on June 30, 2004 of
$1.15, the aggregate market value of our voting stock held by
non-affiliates on such date was approximately $11,076,825. Shares
of common stock held by directors and certain executive officers and by each person who owns or may be deemed to own 10% or
more of our outstanding common stock have been excluded, since such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other purposes. The Registrant is filing this report on Form 10-K as a special report pursuant to Rule 15d-2 under the Securities Exchange Act
of 1934, as amended. The Registrants previously filed registration statement on Form S-4 (Registration No. 333-120002) was
declared effective by the Securities and Exchange Commission on January 25, 2005 and did not contain certified financial
statements for the Registrants fiscal year ended December 31, 2004. In accordance with Rule 15d-2, this special report is
filed under cover of Form 10-K and contains only financial
statements for the Registrants fiscal year ended
December 31, 2004.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark
whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes þ No o As of March 31, 2005,
the Registrant had 9,665,493 shares of common stock issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCENone




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TABLE OF CONTENTS  PART IIITEM 7. MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONSITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9A. CONTROLS AND PROCEDURESPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESEXHIBIT INDEXSection 302 Certification by CEOSection 302 Certification by CFOSection 906 Certification by CEOSection 906 Certification by CFO    Table of Contents  
 PART II 
  ITEM 7.
    MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS In this filing, unless indicated otherwise, Viskase or the Company refers to Viskase Companies,
Inc., and we, us and our refer to Viskase and its subsidiaries. Results of Operations Overview Viskase Companies, Inc., a Delaware Corporation, is a worldwide leader in the manufacture and sale
of cellulosic, fibrous and plastic casings for the processed meat industry. We currently operate
seven manufacturing facilities and eight distribution centers throughout North America, Europe and
South America and we derive approximately 60% of total net sales from customers located outside the
United States. We believe we are one of the two largest manufacturers of non-edible cellulose
casings for small-diameter processed meats and one of the three largest manufacturers of non-edible
fibrous casings. Our management believes that the factors most critical to the success of our
business are:  
    maintaining and building upon our reputation for providing a high level of customer and
technical services;
    maintaining and building upon our long-standing customer relationships, many of which
have continued for decades;
    developing additional sources of revenue through new products and services;
    penetrating new regional markets; and
    continuing to streamline our cost structure. 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 and fibrous casing extrusion operations are capital-intensive and are characterized
by high fixed costs. Our plastic casing extrusion and finishing operations are characterized by
dominant labor costs. 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. We believe that the industrys current output is
in balance with global demand and the recent downward trend in casing prices has stabilized.
Recently, some competitors have announced plans to expand extrusion capacity at their existing
facilities. The projected increase in global capacity from these expansion projects (and idled
capacity) is approximately 5%. Our contribution margin varies with changes in selling price, input material costs, labor costs and
manufacturing efficiencies. Subject to the limits of our capacity discussed below, 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 continue to seek ways to increase our throughput at these facilities; however, should demand for
those products increase substantially, we would not be able to meet that increased demand in the
short term. We regularly evaluate our capacity limitations and compare those limitations to
projected market demand. We operate in a competitive environment. During the mid-1990s, we experienced significant pricing
pressure and volume loss with the entrance of a foreign competitor into the United States market.
The market for cellulosic casings experienced declines in selling price over the last ten years,
which we believe only recently has stabilized. While the overall market volume has expanded during
this period, the industry continued to experience pressure on pricing. Our financial performance
moves in direct relation to our average selling price. 1




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We have continued to reduce our fixed cost structure in response to market and economic conditions.
Since 1998, we have reduced annual fixed costs by approximately $35.0 million by:  
    closing our Chicago, Illinois plant and selling the facility;
    reconfiguring our Loudon, Tennessee and Beauvais, France plants;
    closing our Thâon-les-Vosges, France extrusion operations;
    discontinuing our Nucel® operations;
    closing our Lindsay, Ontario, Canada facility; and
    reducing the number of employees at our headquarters and most of our facilities by approximately 30%. Despite these restructuring efforts, the significance of our debt load caused us to be unable to
continue meeting our debt service obligations in 2002. As a result, we filed a voluntary petition
for relief under Chapter 11 of the United States Bankruptcy Code on November 13, 2002. The
bankruptcy court confirmed the plan of reorganization and we emerged from bankruptcy on April 3,
2003. We adopted fresh-start accounting in accordance with SOP 90-7, and reflected the effects of
the adoption in the consolidated financial statements in 2003. As a result of our adoption of fresh-start accounting, the results of operations for periods ended
after April 2, 2003 are prepared on a different basis of accounting. Therefore, the results of
operations prior to April 3, 2003 are not comparable to the periods after April 3, 2003. Comparison of Results of Operations for Fiscal Years Ended December 31, 2002, 2003 and 2004.The
following discussion compares the results of operations for the fiscal year ended December 31, 2002
to the results of operations for the fiscal year ended December 31, 2003, and compares the results
of operations for the fiscal year ended December 31, 2003 to the results of operations for the
fiscal year ended December 31, 2004. We have provided the table below in order to facilitate an
understanding of this discussion. The table shows our results of operations for the 2002, 2003 and
2004 fiscal years. Results of operations for 2003 include the combined income statement activity of
the Reorganized Company (referring to the Company for the periods subsequent to the effective date
of Viskases plan of reorganization in the bankruptcy proceeding) and the Predecessor Company
(referring to the Company for the periods prior to that date),and are not intended to be a
presentation in accordance with accounting principles generally accepted in the United States. The
table (dollars in millions) is as follows: 2




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% Change
    
    
    
    
    
    
    % ChangeOver
    
    
    
    
    
    
    over2004
    
    
    2003
    
    
    2003
    
    
    2002
    
    
    2002NET SALES
    
    $
    207.1
    
    
    
    4.7
    %
    
    $
    197.8
    
    
    
    7.8
    %
    
    $
    183.5COST AND EXPENSESCost of sales
    
    
    164.5
    
    
    
    4.1
    %
    
    
    158.0
    
    
    
    7.6
    %
    
    
    146.8Selling, general and administrative
    
    
    29.2
    
    
    
    -12.9
    %
    
    
    33.5
    
    
    
    -12.9
    %
    
    
    38.5Amortization of intangibles
    
    
    1.1
    
    
    
    -17.6
    %
    
    
    1.3
    
    
    
    -34.6
    %
    
    
    2.0Restructuring expense (income)
    
    
    0.7
    
    
    
    -30.0
    %
    
    
    1.0
    
    
    NM
    
    
    (6.1
    )Asset writedown
    
    
    
    
    
    NM
    
    
    46.8
    
    
    NMOPERATING INCOME (LOSS)
    
    
    11.6
    
    
    NM
    
    
    (42.8
    )
    
    NM
    
    
    2.3Interest income
    
    
    (0.6
    )
    
    
    -31.1
    %
    
    
    (0.8
    )
    
    
    -27.6
    %
    
    
    (1.2
    )Interest expense
    
    
    13.2
    
    
    
    14.1
    %
    
    
    11.6
    
    
    
    -48.0
    %
    
    
    22.2Post-retirement benefits curtailment gain
    
    
    (34.1
    )
    
    NMLoss (gain) on early extinguishment of debt
    
    
    13.1
    
    
    NM
    
    
    (153.9
    )
    
    NMOther income, net
    
    
    (0.7
    )
    
    
    -86.9
    %
    
    
    (5.4
    )
    
    
    258.3
    %
    
    
    (1.5
    )Reorganization expense
    
    
    
    
    
    NM
    
    
    0.8
    
    
    
    -76.5
    %
    
    
    3.4Income tax benefit
    
    
    (4.6
    )
    
    
    1379.1
    %
    
    
    (0.3
    )
    
    
    -76.0
    %
    
    
    (1.3
    )NET INCOME (LOSS)
    
    $
    25.3
    
    
    
    -76.0
    %
    
    $
    105.2
    
    
    NM
    
    $
    (19.3
    )
 NM = Not meaningful when comparing positive to negative numbers or to
zero. 2004 Versus 2003 Net Sales.Our net sales for 2004 were $207.1 million, which represents an increase of $9.3 million
or 4.7% from the predecessor period January 1 through April 2, 2003 and reorganized period April 3,
2003 through December 31, 2003. Net sales benefited $1.7 million from volumes in the casings market
and $10.3 million due to translation, offset by a $2.7 million decrease due to price and mix. Cost of Sales.Cost of sales increased 4.1% over the prior year due to the increased sales level
for the same period, and decreased as a percent of sales (from 79.9% in 2003 to 79.4% in 2004). The
decrease as a percent of sales can be attributed to favorable plant absorption offset by slightly
higher expenditures. Selling, General and Administrative Expenses.We were able to reduce selling, general and
administrative expenses from 17.0% of sales in 2003 to 14.1% in 2004. This can be attributed to
reductions in overall spending and internal reorganizations that occurred in July 2003 and March
2004, which reduced employee costs. Additionally, in the first quarter of 2004 there was an unusual
income charge of $0.4 million consisting of a reversal of a legal liability recorded in fresh-start
accounting that has been settled. Operating Income.The operating income for 2004 was $11.6 million, representing an improvement of
$54.4 million from the prior year period. The improvement in the operating income resulted
primarily the absence of the $46.8 million charge for asset write-down and goodwill impairment
incurred in 2003, a $4.1 million decrease in depreciation during 2004 versus 2003 and lower
employee costs, reduced selling, general and administrative expenses. Operating income in 2004
includes a restructuring charge of $0.8 million, offset by a reversal of $0.1 million for the 2003
restructuring, in keeping with our strategy to streamline our cost structure. Also included in the
2004 operating income is an unusual income charge of $0.4 million consisting of a reversal of a
legal liability recorded in fresh-start accounting that has been settled. 3




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Interest Expense.Interest expense, net of interest income, for 2004 totaled $12.6 million, which
represented an increase of $1.8 million from the $10.8 million for the comparable period of the
prior year predecessor and reorganized periods. The increase is principally due to the interest
expense of $1.8 million on the 8% Notes during the first quarter of 2004 which was absent in the
prior predecessor period ended April 2, 2003. Other Income (Expense).Other income of approximately $0.7 million for 2004 consists principally of
a $1.4 million gain for foreign exchange gains and losses, and a $0.5 million loss on the disposal
of property held for sale. Other income in 2003 of $5.4 million for the prior year predecessor and
reorganized periods consists principally of a $4.8 million gain for foreign currency gains and
losses and a $0.5 million gain associated with the disposal of property held for sale in 2003. Gain on Curtailment.We terminated postretirement health care medical benefits as of December 31,
2004 for all active employees and retirees in the United States who were not covered by a
collective bargaining agreement. We recognized a $34.1 million gain on the curtailment of these
postretirement health care benefits. Loss on Early Retirement of Debt.The loss on debt extinguishment for 2004 of $13.1 million
consists of the losses from the early retirement of $55.5 million of the 8% Notes and of the early
termination of the GECC capital lease. The 8% Notes were purchased at a discount to the principal
amount, however, the purchase price exceeded the carrying value of the 8% Notes as established in
fresh-start accounting. The gain on debt extinguishment for the period from January 1 through April
2, 2003 of $153.9 million consisted of the elimination of the old senior debt of $163.1 million, a
gain on the elimination of the accrued interest on the debt of $25.1 million, a loss on the
establishment at fair market value of the 8% Notes of $33.2 million and a loss on the fair market
value of the new equity at $1.0 million. Reorganization Expense.The 2003 reorganization expenses of $0.8 million consist principally of
fees for legal, financial advisory and professional services incurred due to the Chapter 11
proceeding. Income Tax Benefit.During 2004, a tax benefit of $4.6 million was recognized on the income before
income taxes of $20.8 million resulting principally from the recalculation of deferred tax
liabilities and a provision for results of operations of foreign subsidiaries. Primarily as a result of the factors discussed above, income for 2004 was $25.3 million compared to
net income of $105.2 million for the predecessor and reorganized periods of 2003. 2003 Versus 2002 Net Sales.Our net sales for 2003 were $197.8 million, which represents an increase of $14.2
million from 2002. The increase in sales benefited $6.2 million from volume, $10.4 million due to
translation, offset by $2.4 million due to reduced selling prices in the casing industry. Cost of Sales.Our cost of sales increased proportionately with net sales in 2003 (from 80.0% of
net sales in 2002 to 79.9% of net sales in 2003), with the benefit of various cost reduction
programs and lower depreciation of $5.9 million due to fresh-start accounting offset, for the most
part, by increases in the costs of labor and materials. Selling, General and Administration Expense.We were able to reduce our selling, general and
administrative expenses in 2003 by $5.0 million compared to 2002, and from 21.0% to 17.0% of net
sales in the same period. This reduction reflected decreases in depreciation of certain assets that
reached the end of their depreciable lives, employee expenses and other costs associated with our
headquarters facility. Operating Income (Loss).Our operating loss during 2003 was $42.8 million. This operating loss
included net restructuring expense of $1.0 million and an asset write-down of $46.8 million. The
asset write-down occurred during our annual impairment review in the fourth quarter of the year and
resulted in a complete write-off of the goodwill created under fresh-start accounting after
consummation of our bankruptcy reorganization plan. The restructuring expense was the result of a
year 2003 charge of $2.6 million to reduce employees and employee-related costs to offset the
effects of the industrys competitive environment. This expense was offset by a reversal of $1.2
million from our year 2002 restructuring accrual due to a revised estimate of employee costs, and
by a reversal of $0.3 million from our year 2000 restructuring accrual due to the renegotiated
Nucel® license fee. 4




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Debt Extinguishment.We recognized a gain on the early extinguishment of debt in the amount of
$153.9 million in the period January 1 through April 2, 2003. We did not recognize income tax
expense on that gain. Internal Revenue Code Section 108 prescribes that we will not recognize any
taxable income for calendar year 2003 but that we must reduce tax attributes up to the extent of
the cancellation of debt income (COD). In 2003, the tax benefit recognized of $0.3 million resulted
from the benefit related to sales to customers outside the U.S. Interest Expense.Interest expense, net of interest income, during 2003 totaled $10.8 million,
which represented a decrease of $10.2 million from 2002. The decrease was due to the emergence from
bankruptcy and the establishment of 8% Notes with a fair market value of $33.3 million, which
replaced $163.1 million of 10.25% Senior Notes. The principal components of the 2003 interest
expense were approximately $4.2 million on the GECC lease and $6.6 million on the 8% Notes issued
upon emergence from bankruptcy in April 2003. The principal components of the 2002 interest expense
were approximately $15.2 million on the 10.25% Senior Notes due 2001 (10.25% Senior
Notes) that were cancelled upon emergence bankruptcy in April 2003 and $6.0 million on the
GECC lease. Cash interest paid was $4.4 million in 2003, which compared to $3.2 million in 2002.
This increase was primarily associated with the timing of payments under the GECC capital lease. Other Income (Expense).Other income (expense) of approximately $5.4 million and $1.5 million in
2003 and 2002, respectively, consisted principally of foreign exchange gains. Reorganization Expense.The reorganization expenses in 2003 of $0.8 million consisted principally
of fees for legal, financial advisory and professional services incurred due to the Chapter 11
proceeding, which compared to $3.4 million in 2002. Income Tax Benefit.Net domestic cash income taxes paid (refunded) in 2003 and 2002 were $0 and
$(2.1) million, respectively. In 2002, we received a refund of a 2001 alternative minimum tax
payment, resulting from passage of the 2002 Job Creation Act which retroactively changed the law
under which we made the 2001 payment. Net foreign cash income taxes paid during the same periods
were $3.0 million and $0.9 million, respectively. The increase in 2003 compared to 2002 was due to
improved profits reported for tax purposes in our foreign subsidiaries. Effect of Changes in Exchange Rates In general, our results of operations are affected by changes in foreign exchange rates. Subject to
market conditions, we price our products in our foreign operations in local currencies, with the
exception of the Brazilian export market and the U.S. export markets, which are priced in U.S.
dollars. As a result, a decline in the value of the U.S. dollar relative to the local currencies of
profitable foreign subsidiaries can have a favorable effect on our profitability, and an increase
in the value of the U.S. dollar relative to the local currencies of profitable foreign subsidiaries
can have a negative effect on our profitability. Exchange rate fluctuations increased comprehensive
income by $3.1 million for 2004 and $3.7 million for the comparable predecessor and reorganized
periods of 2003. Liquidity and Capital Resources Cash and cash equivalents increased by $7.1 million during 2004. Cash flows provided by operating
activities were $20.4 million, provided by investing activities were $4.5 million, and used in
financing activities were $18.4 million. Cash flows provided by operating activities were
principally attributable to net income, depreciation, amortization, the loss on debt
extinguishment, the non-cash accrued interest on the debt offset by the post-retirement curtailment
gain, the change in deferred taxes and an increase in working capital usage. Cash flows provided by
investing activities were principally attributable to the release of restricted cash, which was
used to pay the GECC capital lease obligation, capital expenditures, and the reacquisition of the
leased assets. Cash flows used in financing activities principally consisted of the proceeds from
the issuance of 11.5% Senior Secured Notes offset by the repurchase of $55.5 million of the 8%
Notes at a discount, the payment of the renegotiated GECC lease and the incurrence of financing
fees associated with the issuance of 11.5% Senior Secured Notes. As of December 31, 2004, the Company had positive working capital of approximately $61.3 million
and unrestricted cash of $30.3 million, with additional amounts available under its revolving
credit facility. While the Company could decide to raise additional amounts through the issuance of
new debt or equity, management believes that the existing resources available to it will be
adequate to satisfy current and planned operations for at least the next twelve months. 5




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On June 29, 2004, we issued $90.0 million of new 11.5% Senior Secured Notes and 90,000 warrants
(New Warrants) to purchase an aggregate of 805,230 shares of common stock of the Company.
The proceeds of the 11.5% Senior Secured Notes and the 90,000 New Warrants totaled $90.0 million.
The 11.5% Senior Secured Notes have a maturity date of, and the New Warrants expire on June 15,
2011. The $90.0 million proceeds were used for the (i) repurchase $55.527 million principal amount
of the 8% Notes at a price of 90% of the aggregate principal amount thereof, plus accrued and
unpaid interest thereon; (ii) early termination of the GECC capital lease and repurchase of the
operating assets subject thereto for a purchase price of $33.0 million; and (iii) payment of fees
and expenses associated with the refinancing and repurchase of existing debt. In addition, we
entered into a $20.0 million secured revolving credit facility (New Revolving Credit
Facility) with a financial institution. The New Revolving Credit Facility is a five-year
facility with a June 29, 2009 maturity date. The 11.5% Senior Secured Notes require that we maintain a minimum annual level of EBITDA calculated
at the end of each fiscal quarter as follows: Fiscal quarter ending
    
    AmountSeptember 30, 2004 through September 30, 2006
    
    $16.0 millionDecember 31, 2006 through September 30, 2008
    
    $18.0 millionDecember 31, 2008 and thereafter
    
    $20.0 million
 unless the sum of (i) unrestricted cash as of such day and (ii) the aggregate amount of advances
that we are actually able to borrow under the New Revolving Credit Facility on such day (after
giving effect to any borrowings thereunder on such day) is at least $15.0 million. The 11.5% Senior Secured Notes limit our ability and the ability of our subsidiaries to (i) incur
additional indebtedness; (ii) pay dividends, redeem subordinated debt, or make other restricted
payments; (iii) make certain investments or acquisitions; (iv) issue stock of subsidiaries; (v)
grant or permit to exist certain liens; (vi) enter into certain transactions with affiliates; (vii)
merge, consolidate, or transfer substantially all of our assets; (viii) incur dividend or other
payment restrictions affecting certain subsidiaries; (ix) transfer, sell or acquire assets,
including capital stock of subsidiaries; and (x) change the nature of our business. The New Revolving Credit Facility contains various covenants which will restrict our ability to,
among other things, incur indebtedness, enter into mergers or consolidation transactions, dispose
of assets (other than in the ordinary course of business), acquire assets, make certain restricted
payments, prepay any of the 8% Notes at a purchase price in excess of 90% of the aggregate
principal amount thereof (together with accrued and unpaid interest to the date of such
prepayment), create liens on our assets, make investments, create guarantee obligations and enter
into sale and leaseback transactions and transactions with affiliates, in each case subject to
permitted exceptions. If our usage of the revolving credit facility exceeds 30%, the revolving
credit facility requires that we comply with various financial covenants, including meeting a
minimum four-quarter EBITDA (calculated each calendar quarter) of $19.4 million through September
30, 2006 and $21.0 million thereafter and an annual limitation on capital expenditures of $9.7
million in 2004, $5.5 million in 2005 and $6.0 million in 2006 and thereafter (with any unused
amount being carried over to the immediately following fiscal year). The minimum level of EBITDA
and annual limitations on capital expenditures are not currently in effect because we have no
borrowings outstanding, and as such, our usage is below the 30% threshold applicable to the
covenant. The New Revolving Credit Facility also requires payment of a prepayment premium in the
event that it is terminated prior to maturity. The prepayment premium, as a percentage of the $20.0
million facility amount, is 3% through June 29, 2005, 2% through June 29, 2006, and 1% through June
29, 2007. In April 2004, we renegotiated and amended our lease arrangement with GECC. Under terms of the
amended lease, six payments of approximately $6.1 million were due semi-annually on February 28 and
August 28 beginning in February 2005. We and GECC mutually agreed to a $9.5 million fair market
sales value for the leased equipment, which amount was used to value the equipment in fresh-start
accounting. We had the option to terminate the lease early upon payment of $33.0 million through
February 28, 2005, thereafter the amount of the early termination payment would decrease upon
payment of each semi-annual capital lease payment. The equipment would transfer to us free and
clear of all liens on the earlier of (i) the payment of the early termination amount, plus any
accrued interest due and payable at 6% per annum or (ii) the payment of the final installment due
August 28, 2007. 6




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On June 29, 2004, we exercised our $33.0 million early termination payment option, terminated the
lease and acquired title to the leased equipment. The leased equipment was transferred to us free
and clear of all liens. Capital expenditures (excluding the repurchase of the leased equipment under the GECC capital
lease) for 2004 and 2003 totaled $9.7 million and $4.3 million, respectively. In June 2004, we
repurchased the leased assets under the GECC capital lease for $9.5 million. Significant 2004
capital expenditures, other than the repurchase of the leased equipment, are related to the
installation of environmental equipment to conform to MACT standards for casing manufacturers.
Significant 2003 capital expenditures included costs associated with the Viskase Food Science
Quality Institute (FSQI) plastic casing line. Significant 2002 capital expenditures
included costs associated with FSQI and numerous smaller projects throughout our manufacturing
facilities worldwide. Capital expenditures for 2005 are expected to be approximately $14 million
and $7 million to $8 million thereafter. In 2004, we spent approximately $2.7 million on research and development programs, including
product and process development, and on new technology development. The 2005 research and
development and product introduction expenses are expected to be in the $3.0 million range. Among
the projects included in the current research and development efforts are SmokeMaster® small
diameter and fibrous casings, Visflex® casings and the application of certain patents and
technology for license by Viskase. Letter of Credit Facility Letters of credit in the amount of $2.6 million were outstanding under letter of credit facilities
with commercial banks, and were cash collateralized at December 31, 2004. We finance our working capital needs through a combination of internally generated cash from
operations, cash on hand and our revolving credit facility. Revolving Credit Facility On June 29, 2004, we terminated our existing revolving credit facility with Arnos Corp., an
affiliate of Carl C. Icahn, and entered into a credit facility for up to $20.0 million with Wells
Fargo Foothill. This revolving credit facility will be used for working capital and other general
corporate purposes. Borrowings under the loan and security agreement governing this revolving credit facility (the
Credit Agreement) are subject to a borrowing base formula based on percentages of
eligible domestic receivables and eligible domestic inventory. Under the Credit Agreement, we are
able to choose between two per annum interest rate options: (x) the lenders prime rate and (y) (1)
LIBOR plus (2) a margin of 2.25% (which margin will be subject to performance based increases up to
2.50% and decreases down to 2.00%); providedthat LIBOR shall be at least equal to 1.00%. Letter of
credit fees will be charged a per annum rate equal to the then applicable margin described in
clause (y)(2) of the immediately preceding sentence less 50 basis points. The Credit Agreement also
provides for an unused line fee of 0.375% per annum and a monthly servicing fee. The Credit
Agreement has a term of five years from the date of the closing thereof. Indebtedness under the Credit Agreement is secured by liens on substantially all of our and our
domestic subsidiaries assets, which liens (i) on inventory, account receivables, lockboxes,
deposit accounts into which payments therefore are deposited and proceeds thereof, are
contractually senior to the liens securing the Notes and the related guarantees pursuant to an
intercreditor agreement, (ii) on real property, fixtures and improvements thereon, equipment and
proceeds thereof, are contractually subordinate to the liens securing the Notes and such guarantees
pursuant to such intercreditor agreement, (iii) on all other assets, are contractually pari passu
with the liens securing the Notes and such guarantees pursuant to such intercreditor agreement. The Credit Agreement also contains various covenants that restrict our and our subsidiaries
ability to, among other things, incur indebtedness, enter into mergers or consolidation
transactions, dispose of assets (other than in the ordinary course of business), acquire assets
(with permitted exceptions), make certain restricted payments, prepay any of the 8% Notes at a
purchase price in excess of 90% of the aggregate principal amount thereof, together with accrued
and unpaid interest to the date of such prepayment, create liens on our assets, make investments,
create 7




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guarantee obligations and enter into sale and leaseback transactions and transactions with
affiliates. The Credit Agreement also requires that we comply with various financial covenants,
including meeting a minimum EBITDA requirement and limitations on capital expenditures, in the
event our usage of the Credit Agreement exceeds 30%. The Credit Agreement provides for certain
events of default, including default upon the nonpayment of principal, interest, fees or other
amounts, a cross default with respect to other obligations of ours and our subsidiaries, failure to
comply with certain covenants, conditions or provisions under the Credit Agreement, the existence
of certain unstayed or undischarged judgments, the invalidity or unenforceability of the relevant
security documents, the making of materially false or misleading representations or warranties,
commencement of reorganization, bankruptcy, insolvency or similar proceedings and the occurrence of
certain ERISA events. Upon the occurrence of an event of default under the Credit Agreement, the
lender will be entitled to declare all obligations thereunder to be immediately due and payable.
The Credit Agreement requires us to pay a prepayment premium in the event that it is prepaid prior
to maturity. 8% Notes The 8% Notes are unsecured, bear interest at a rate of 8% per year, and will accrue interest from
December 1, 2001, payable semi-annually (except annually with respect to year four and quarterly
with respect to year five), with interest payable in the form of 8% Notes (paid-in-kind) for the
first three years. Interest for years four and five will be payable in cash to the extent of
available cash flow, as defined, and the balance in the form of 8% Notes (paid-in-kind).
Thereafter, interest will be payable in cash. The 8% Notes will mature on December 1, 2008 with a
principal value of approximately $18.7 million, assuming interest in the first five years is
paid-in-kind. The 8% Notes were valued at market under fresh-start accounting. The 8% Notes were recorded on the
books at April 3, 2003 at their discounted value of $33.2 million. The discount to face value is
being amortized using the effective-interest rate methodology through maturity with an effective
interest rate of 10.46%. On June 29, 2004, we purchased $55.527 million aggregate principal amount of the outstanding 8%
Notes. In connection therewith and in accordance with the indenture for the 8% Notes, the holders
thereof agreed to, among other things, release the liens on the collateral that had been securing
the 8% Notes and eliminate substantially all of the restrictive covenants contained in such
indentures governing the 8% Notes. From time to time, we may offer to purchase at a substantial
discount any or all of the remaining 8% Notes through privately negotiated transactions, purchases
in the public marketplace or otherwise. The following table summarizes the carrying value of the 8%
Notes at December 31 (in millions): 2004
    
    
    2005
    
    
    2006
    
    
    20078% Notes Principal amount outstanding
    
    $
    16.0
    
    
    $
    17.3
    
    
    $
    18.7
    
    
    $
    18.7Discount
    
    
    (4.2
    )
    
    
    (3.3
    )
    
    
    (2.3
    )
    
    
    (1.2
    )Carrying value
    
    $
    11.8
    
    
    $
    14.0
    
    
    $
    16.4
    
    
    $
    17.5
 As a result of the purchase of 8% Notes and the termination of the GECC lease on June 29, 2004, we
have recorded a net loss of approximately $13.1 million during the second quarter of 2004, which
reduced our operating income and net income, and we expect interest expense to be $13.2 million for
2004. Pension and Post-Retirement Benefits Our long-term pension and post-retirement benefit liabilities totaled $66.7 million at December 31,
2004. Expected cash contributions for pension and post-retirement benefit liabilities are expected
to be (in millions): 2005
    
    
    2006
    
    
    2006
    
    
    2007
    
    
    2008Pension
    
    $
    3.8
    
    
    $
    13.1
    
    
    $
    8.7
    
    
    $
    7.6
    
    
    $
    3.0Postretirement Benefit
    
    
    1.0
    
    
    
    1.0
    
    
    
    1.1
    
    
    
    1.2
    
    
    
    1.2Total
    
    $
    4.8
    
    
    $
    14.1
    
    
    $
    9.8
    
    
    $
    8.8
    
    
    $
    4.2
 Other 8




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##### Table of Contents



The fair value of our debt obligations (excluding capital lease obligations) is estimated based
upon the quoted market prices for the same or similar issues or on the current rates offered to us
for the debt of the same remaining maturities. At December 31, 2004, the carrying amount and
estimated fair value of our debt obligations (excluding capital lease obligations) were $100.7
million and $103.8 million, respectively. As of December 31, 2004, aggregate maturities of debt for each of the next five years are (in
thousands): 2005
    
    
    
    
    
    
    
    
    2006
    
    
    
    
    
    
    
    
    2007
    
    
    
    
    
    
    
    
    2008
    
    
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    
    
    Thereafter11.5% Senior
Secured Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    90,0008% Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    18,684Other
    
    
    
    
    
    
    
    $
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1$
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    18,684
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    90,001
 Critical Accounting Policies The preparation of financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions in certain circumstances
that affect amounts reported in the accompanying financial statements. In preparing these financial
statements, management bases our estimates on historical experience and other assumptions that they
believe are reasonable. We do not believe there is a great likelihood that materially different
amounts would be reported under different conditions or using different assumptions related to the
accounting policies described below. However, application of these accounting policies involves the
exercise of judgment and the use of assumptions as to uncertainties and, as a result, actual
results could differ from these estimates. If actual amounts are ultimately different from previous
estimates, the revisions are included in our results for the period in which the actual amounts
become known. Historically, the aggregate differences, if any, between our estimates and actual
amounts in any year have not had a significant impact on our consolidated financial statements. We
are not aware of any trend, event or uncertainty that would materially affect the methodology or
assumptions used within our critical accounting policies. We have not made any material changes to
accounting estimates in the past three years, and at this time we do not intend to make any changes
in the underlying assumptions to our accounting estimates. Revenue Recognition Our revenues are recognized at the time the products are shipped to the customer, under F.O.B.
Shipping Point terms or under F.O.B. Port terms. Revenues are net of any discounts, rebates and
allowances. We record all labor, raw materials, in-bound freight, plant receiving and purchasing,
warehousing, handling and distribution costs as a component of cost of goods sold. 9




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##### Table of Contents



Allowance for Doubtful Accounts Receivable Accounts receivable have been reduced by an allowance for amounts that may become uncollectible in
the future. This estimated allowance is primarily based upon our evaluation of the financial
condition of each customer, each customers ability to pay and historical write-offs. Allowance for Obsolete and Slow Moving Inventories Inventories are valued at the lower of cost or market. The inventories have been reduced by an
allowance for slow moving and obsolete inventories. The estimated allowance is based upon
managements estimate of specifically identified items, the age of the inventory and historical
write-offs of obsolete and excess inventories. Deferred 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. Pension Plans and Other Post-Retirement Benefit Plans Our North American operations have a defined benefit retirement plan that covers substantially all
salaried and full-time hourly employees who were hired prior to April 1, 2003 and a fixed defined
contribution plan and a discretionary profit sharing plan that covers substantially all salaried
and full-time hourly employees who were hired on or after April 1, 2003. Our operations in Germany
have a defined benefit retirement plan that covers substantially all salaried and full-time hourly
employees. Pension cost is computed using the projected unit credit method. The discount rate used
approximates the average yield for high quality corporate bonds as of the valuation date. Our
funding policy is consistent with funding requirements of the applicable federal and foreign laws
and regulations.
Our North American operations have postretirement health care and life insurance benefits. We
accrue for the accumulated postretirement benefit obligation that represents the actuarial present
value of the anticipated benefits. Measurement is based on assumptions regarding such items as the
expected cost of providing future benefits and any cost sharing provisions. We terminated
postretirement medical benefits as of December 31, 2004 for all active employees and retirees in
the U.S. who were not covered by a collective bargaining agreement. It is estimated that said
termination resulted in a $34.1 million reduction in our unfunded post-retirement liability. The weighted average plan asset allocation at December 31, 2004 and 2003, and target allocation
(not weighted) for 2005, are as follows: Percentage of Plan
    
    
    2005Assets
    
    
    TargetAsset Category
    
    2004
    
    
    2003
    
    
    AllocationEquity Securities
    
    
    62.5
    %
    
    
    58.5
    %
    
    
    60
    %Debt Securities
    
    
    35.2
    %
    
    
    37.1
    %
    
    
    40
    %Other
    
    
    2.3
    %
    
    
    4.4
    %
    
    
    0
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100
    %
 Fresh-Start Accounting As previously discussed, the accompanying consolidated financial statements reflect the use of
fresh-start accounting as required by SOP 90-7. Under fresh-start accounting, our assets and
liabilities were adjusted to fair values and a reorganization value for the entity was determined
based upon the estimated fair value of the enterprise before considering values allocated to debt.
The portion of the reorganization value that could not be attributed to specific tangible or
identified intangible assets of the Reorganized Company totaled $44.4 million. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets,
this 10




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amount was reported as goodwill in the consolidated financial statements. Fresh-start
accounting results in the creation of a new reporting entity with no accumulated deficit as of
April 3, 2003. Our reorganization value was based on the consideration of many factors and various
valuation methods, including discounted cash flow analysis using projected financial information,
selected publicly traded company market multiples of certain companies operating businesses viewed
to be similar to us, and other applicable ratios and valuation techniques believed by us to be
representative of our business and industry. The valuation was based upon a number of estimates and assumptions, which are inherently subject to
significant uncertainties and contingencies beyond our control. Upon the adoption of fresh-start accounting, as of April 3, 2003, we recorded goodwill of $44.4
million, which equals the reorganization value in excess of amounts allocable to identifiable net
assets recorded in accordance with SOP 90-7. In the fourth quarter of 2003, we performed our first
annual goodwill impairment analysis under SFAS No. 142. Due to the fact the fair value of our
single reporting unit, as estimated by our market capitalization, was significantly less than the
net book value at December 31, 2003, we wrote off the entire $44.4 million goodwill balance in the
fourth quarter of 2003. Goodwill and Intangible Assets Goodwill and intangible assets that have an indefinite useful life are not amortized and are tested
at least annually for impairment. Due to the prepackaged nature of our bankruptcy plan, goodwill
was tested for impairment by comparing the fair value with our recorded amount. As a result of
adopting SFAS No. 142, we used a discounted cash flow methodology for determining fair value. This
methodology identified an impairment of goodwill and intangible assets in the amount of $49.4
million which was written off in the fourth quarter of 2003. As part of fresh-start accounting, we
recognized intangible assets that are being amortized. Non-compete agreements in the amount of $1.2
million are being amortized over two years. The intangible backlog in the amount of $2.4 million
was written-off in its entirety during 2003. Property, Plant and Equipment We carry 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. Depreciation is
computed on the straight-line method over the estimated useful lives of the assets ranging from 2
to 32 years. 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. Long-Lived Assets We continue to evaluate the recoverability of long-lived assets including property, plant and
equipment, patents and other intangible assets. 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 at least once a year or when circumstances warrant. Other Matters We do not have off-balance sheet arrangements (sometimes referred to as special purpose
entities), financing or other relations with unconsolidated entities or other persons. In the
ordinary course of business, we lease certain casing manufacturing and finishing equipment, and
certain real property, consisting of manufacturing and distribution facilities and office
facilities. Substantially all such leases as of December 31, 2004 were operating leases, with the
majority of those leases requiring us to pay maintenance, insurance and real estate taxes. Contractual Obligations Related to Debt, Leases and Related Risk Disclosure 11




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##### Table of Contents



The following table reflects our future contractual cash obligations and commercial commitments as
of December 31, 2004, determined on a historical basis (in millions): Payments Due by Pay PeriodLess than
    
    
    Years
    
    
    Years
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    2 & 3
    
    
    4 & 5
    
    
    5 YearsLong-term debt
    
    $
    109.2
    
    
    $
    0.4
    
    
    
    
    
    
    $
    18.7
    
    
    $
    90.1Cash interest obligations
    
    
    70.4
    
    
    
    10.4
    
    
    
    22.4
    
    
    
    22.2
    
    
    
    15.4Pension
    
    
    47.8
    
    
    
    3.8
    
    
    
    21.8
    
    
    
    10.6
    
    
    
    11.6Post-retirement benefits
    
    
    22.6
    
    
    
    1.7
    
    
    
    3.0
    
    
    
    3.2
    
    
    
    14.7Operating leases
    
    
    7.1
    
    
    
    1.4
    
    
    
    2.5
    
    
    
    2.0
    
    
    
    1.2Capital expenditures
    
    
    4.7
    
    
    
    4.7Third-party license fees
    
    
    0.2
    
    
    
    0.2Total
    
    $
    262.0
    
    
    $
    22.6
    
    
    $
    49.7
    
    
    $
    56.7
    
    
    $
    133.0
 Recent Accounting Pronouncements In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable
Interest Entities  an Interpretation of ARB No. 51. FIN 46 clarified the application of
Accounting Research Bulletin Number 51, Consolidated Financial Statements, to certain entities in
which equity investors do not have the characteristics of a controlling financial interest or do
not have sufficient equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. Qualifying special-purpose entities as defined
by FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, are excluded from the scope of FIN 46. FIN 46 applied immediately
to allvariable interest entities created after January 31, 2003, and was originally effective for
fiscal periods beginning after July 1, 2003, for existing variable interest entities. In October
2003, the FASB postponed the effective date of FIN 46 to December 31, 2003. The Company does not
have any variable interest entities and, therefore, the adoption of the provisions of FIN 46 did
not have a material impact on the Companys results of operations or financial position. In December 2003, a revised version of FIN 46 (Revised FIN 46) was issued by the FASB. The
revisions clarify some requirements, ease some implementation problems, add new scope exceptions,
and add applicability judgments. Revised FIN 46 is required to be adopted by most public companies
no later than March 31, 2004. The adoption of Revised FIN 46 did not have a material impact on the
Companys results of operations or financial position. In November 2004, the FASB issued SFAS No. 151 (SFAS 151), Inventory Costs  an Amendment of ARB
No. 43 Chapter 4. SFAS 151 requires that items such as idle facility expense, excessive spoilage,
double freight, and rehandling be recognized as current-period charges rather than being included
in inventory regardless of whether the costs meet the criterion of abnormal as defined in ARB 43.
SFAS 151 is applicable for inventory costs incurred during fiscal years beginning after June 15,
2005. The Company plans to adopt this standard beginning the first quarter of fiscal year 2006 and
does not believe the adoption will have a material impact on its financial statements as such costs
have historically been expensed as incurred. In December 2004, the FASB issued SFAS No. 153 (SFAS 153), Exchanges of Nonmonetary Assets  an
Amendment of APB Opinion No. 29, which addresses the measurement of exchanges of nonmonetary assets
and eliminates the exception from fair value accounting for nonmonetary exchanges of similar
productive assets and replaces it with an exception for exchanges that do not have commercial
substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future
cash flows of an entity are expected to change significantly as a result of the exchange. This
statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after
June 15, 2005 and is not expected to have a significant impact on the Companys financial
statements. 12




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In December 2004, the FASB issued SFAS No. 123 (revised 2004) (SFAS 123R), Share-Based Payment.
SFAS 123R sets accounting requirements for share-based compensation to employees, requires
companies to recognize in the income statement the grant-date fair value of stock options and other
equity-based compensation issues to employees and disallows the use of the intrinsic value method
of accounting for stock compensation. SFAS 123R is applicable for all interim and fiscal periods
beginning after June 15, 2005. The Company is currently evaluating the impact this statement will
have on the financial statements. Quantitative and Qualitative Disclosure About Market Risk We are exposed to certain market risks related to foreign currency exchange rates. In order to
manage the risk associated with this exposure to such fluctuations, we occasionally use derivative
financial instruments. We do not enter into derivatives for trading purposes. We have prepared sensitivity analyses to determine the impact of a hypothetical 10% devaluation of
the U.S. dollar relative to our European receivables, payables, sales and purchases denominated in
U.S. dollars. Based on our sensitivity analyses at December 31, 2004, a 10% devaluation of the U.S.
dollar would affect our consolidated financial position by $47,000. Forward-looking Statements Forward-looking statements in this report are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Such forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties that could cause actual
results and our plans and objectives to differ materially from those projected. Such risks and
uncertainties include, but are not limited to, general business and economic conditions;
competitive pricing pressures for our products; changes in other costs; opportunities that may be
presented to and pursued by us; determinations by regulatory and governmental authorities, and the
ability to achieve other cost reductions and efficiencies. Related Party Transactions (Dollars in Thousands) During the year ended December 31, 2004, we purchased $98 in telecommunication services from XO
Communications, Inc., an affiliate of Carl C. Icahn, a beneficial owner whom may be deemed to be a
beneficial owner of approximately 29.1% of the common stock. We believe that the purchase of the
telecommunication services was on terms at least as favorable as we would expect to negotiate with
an unaffiliated party. Arnos Corp., an affiliate of Carl C. Icahn, was the lender under our secured revolving credit
facility (Old Revolving Credit Facility) with an initial availability of $10,000. We paid Arnos
Corp. origination fees, interest and unused commitment fees of $144 during 2004 and $175 during the
period April 3, 2003 through December 31, 2003. We believe the terms of the Old Revolving Credit
Facility were at least as favorable as those that we would have expected to negotiate with an
unaffiliated party. On June 29, 2004 we repurchased 805,270 shares of common stock (representing approximately 7.34% of
the issued and outstanding common stock on a fully diluted basis as of June 17, 2004) held by
Jefferies & Company, Inc., the initial purchaser of the 11.5% Senior Secured Notes, or our
affiliates for total consideration of $298. Predecessor Company Gregory R. Page, the President and Chief Operating Officer of Cargill, Inc., resigned as a director
of the Company as of the date we emerged from bankruptcy in April 2003. During 2003, we had sales
in the ordinary course of business of $613 to Cargill, Inc. and our affiliates, $200 of which
occurred prior to Mr. Pages resignation in April 2003. Contingencies 13




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In 1988, Viskase Canada Inc. (Viskase Canada), a subsidiary of the Company commenced a
lawsuit against Union Carbide Canada Limited and Union Carbide Corporation (Union
Carbide) in the Ontario Superior Court of Justice, Court File No.: 292270188 seeking damages
resulting from Union Carbides breach of environmental representations and warranties under the
Amended and Restated Purchase and Sale Agreement, dated January 31, 1986 (Agreement).
Pursuant to the Agreement, Viskase Corporation and various affiliates (including Viskase Canada)
purchased from Union Carbide and Union Carbide Films Packaging, Inc., our cellulosic casings
business and plastic barrier films business (Business), which purchase included a
facility in Lindsay, Ontario, Canada (Site). Viskase Canada is claiming that Union
Carbide breached several representations and warranties and deliberately and/or negligently failed
to disclose to Viskase Canada the existence of contamination on the Site. In November 2000, the Ontario Ministry of the Environment (MOE) notified Viskase Canada
that it had evidence to suggest that the Site was a source of polychlorinated biphenyl
(PCB) contamination. Viskase Canada and The Dow Chemical Company, corporate successor to
Union Carbide (Dow), have been working with the MOE in investigating the PCB
contamination and developing and implementing, if appropriate, a remedial plan for the Site and the
affected area. We and Dow have reached an agreement in principle whereby Dow would repurchase the site for $1.375
million (Canadian), would be responsible for, and assume the cost of remediation of the site, and
would indemnify Viskase Canada and our affiliates, including the Company, for all claims. As of
December 31, 2004, we had a reserve of $0.5 million (U.S.) for property remediation and cost. In 1993, the Illinois Department of Revenue (IDR) submitted a proof of claim against
Envirodyne Industries, Inc. (now known as Viskase Companies, Inc.) and our subsidiaries in
Bankruptcy Court, Bankruptcy Case Number 93 B 319 for alleged liability with respect to the IDRs
denial of our allegedly incorrect utilization of certain loss carry-forwards of certain of our
subsidiaries. In September 2001, the Bankruptcy Court denied the IDRs claim and determined the
debtors were not responsible for 1998 and 1999 tax liabilities, interest and penalties. The IDR
appealed the Bankruptcy Courts decision to the United States District Court, Northern District of
Illinois, Case Number 01 C 7861; and in February 2002 the district court affirmed the Bankruptcy
Courts order. IDR appealed the district courts order to United States Court of Appeals for the
Seventh Circuit, Case Number 02-1632. On January 6, 2004, the appeals court reversed the judgment
of the district court and remanded the case for further proceedings. The matter is now before the
Bankruptcy Court for further determination. As of December 31, 2004, the tax liabilities, interest
and penalties claimed totaled approximately $2,860. In August 2001, the Department of Revenue of the Province of Quebec, Canada issued an assessment
against Viskase Canada in the amount of $2.7 million (Canadian) plus interest and possible
penalties. This assessment is based upon Viskase Canadas failure to collect and remit sales tax
during the period July 1, 1997 to May 31, 2001. During this period, Viskase Canada did not collect
and remit sales tax in Quebec on reliance of the written advice of our outside accounting firm.
Viskase Canada filed a Notice of Objection in November 2001 with supplementary submission in
October 2002. The Notice of Objection found in favor of the Department of Revenue. We have appealed
the decision. The ultimate liability for the Quebec sales tax lies with the customers of Viskase
Canada during the relevant period. Viskase Canada could be required to pay the amount of the
underlying sales tax prior to receiving reimbursement for such tax from our customers. We have,
however, provided for a reserve of $0.3 million (U.S.) for interest and penalties, if any, but have
not provided for a reserve for the underlying sales tax. Viskase Canada is negotiating with the
Quebec Department of Ministry to avoid having to collect the sales tax from customers who will then
be entitled to credit for such sales tax collected. Those negotiations have resulted in Viskase
Canada making a settlement offer, whereby Viskase Canada would pay $0.3 million (Canadian) and
there would be no collection of the underlying sales tax from the customers of Viskase Canada. The
settlement offer has been recommended internally for approval by the ultimate decision making
authority within the Quebec Department of Revenue. During 1999 and 2000, we and certain of our subsidiaries and one other sausage casings manufacturer
were named in ten virtually identical civil complaints filed in the United States District Court
for the District of New Jersey. The District Circuit ordered all of these cases consolidated in
Civil Action No. 99-5195-MLC (D.N.J.). Each complaint brought on behalf of a purported class of
sausage casings customers alleges that the defendants unlawfully conspired to fix prices and
allocate business in the sausage casings industry. In 2001, all of the consolidated cases were 14




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##### Table of Contents



transferred to the United States District Court for the Northern District of Illinois, Eastern
Division. We strongly deny the allegations set forth in these complaints. In May 2004, we entered into settlement agreement, without the admission of any liability
(Settlement Agreement) with the plaintiffs. Under terms of the Settlement Agreement, the
plaintiffs fully released us and our subsidiaries from all liabilities and claims arising from the
civil action in exchange for the payment of a $0.3 million settlement amount, which amount was
reserved in the December 31, 2003 financial statements. Under the Clean Air Act Amendments of 1990, various industries, including casings manufacturers,
will be required to meet maximum achievable control technology (MACT) air emissions
standards for certain chemicals. MACT standards applicable to all U.S. cellulosic casing
manufacturers were promulgated June 11, 2002. We submitted extensive comments to the EPA during the
public comment period. Compliance with these new rules is required by June 13, 2005, although we
have obtained a one-year extension for both of our facilities. To date, we have spent approximately
$5.8 million in capital expenditures for MACT, and expect to spend an additional $4.5 million over
the next 12 months, to become compliant with MACT rules at our two U.S. extrusion facilities.
Although we are in the process of installing the technology necessary to meet these emissions
standards at our two extrusion facilities, our inability to do so, or our inability to receive any
further compliance extensions from the necessary regulatory agencies, if required, could result in
substantial penalties, including civil fines of up to $65 thousand per facility per day or a
shutdown of our U.S. extrusion operations. We are involved in these and various other legal proceedings arising out of our business and other
environmental matters, none of which are expected to have a material adverse effect upon results of
operations, cash flows or financial condition. 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This annual report on From 10-K for the fiscal year ended December 31, 2004, is being filed
pursuant to Rule 15d-2 under the Securities Exchange Act of 1934, as amended, and contains only
certified financial statements as required by Rule 15d-2. Rule 15d-2 provides generally that, if a
registrant files a registration statement under the Securities Act of 1933, as amended, which does
not contain certified financial statements for the registrants last full fiscal year preceding the fiscal year in which the
registration statement becomes effective, then the registrant shall, within 90 days of the
effective date of the registration statement, file a special report furnishing certified financial
statements for such last fiscal year or other period, as the case may be, meeting the requirements
of the form appropriate for annual reports of the registrant. Rule 15d-2 further provides that
such special financial report is to be filed under cover of the facing sheet of the form
appropriate for annual reports of the registrant. Viskases Registration Statement on Form S-4
(Registration No. 333-120002) was declared effective on January 25, 2005 and did not contain
certified financial statements for the fiscal year ended December 31, 2004, the registrants last
full fiscal year preceding the fiscal year in which the Registration Statement became effective.
Therefore, as required by Rule 15d-2, certified financial statements for the registrants fiscal
year ended December 31, 2004, are filed herewith under cover of the facing page of an Annual Report
on Form 10-K. 
 ITEM 9A. CONTROLS AND PROCEDURES We maintain a system of disclosure controls and procedures designed to provide reasonable assurance
that information we are required to disclose in the reports that we file or submit under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and forms. Our management,
with the participation of our chief executive officer and our chief financial officer, evaluated
the effectiveness of out disclosure controls and procedures as of December 31, 2004. Based on that
evaluation, our chief executive officer and chief financial officer have concluded that, as of such
date, our disclosure controls and procedures were effective at the reasonable assurance level. There have been no significant changes in our internal control over financial reporting that
occurred during the quarter ended December 31, 2004 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting. 15




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##### Table of Contents



PART IV 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Documents filed as part of this report. (1) Financial Statements. The following financial statements are filed as part of this report: Report of
PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm Report of
Grant Thornton LLP, Independent Registered Public Accounting Firm Consolidated
Financial Statements Consolidated
Balance Sheets Consolidated
Statements of Operations Consolidated
Statements of Stockholders Deficit Consolidated
 Statements of Cash Flows Notes to
Consolidated Financial Statements (2) Financial Statement Schedules. Schedule II  Valuation And Qualifying Accounts (3) Exhibits. The
following exhibits are filed as part of this report: Certification
by CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification
by CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification
by CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 Certification
by CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002  16




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. VISKASE
COMPANIES, INC./s/ GORDON S. DONOVANGordon S. DonovanVice President and Chief Financial Officer
 Date: April 6, 2005 According to the requirements of the Securities Exchange Act of 1934, this report has been signed
by the following persons in the capacities indicated on April 6, 2005. Signatures
    
    Capacity/s/ ROBERT L. WEISMAN
    
    President and Chief Executive OfficerRobert L. Weisman
    
    (Principal Executive Officer)/s/ GORDON S. DONOVAN
    
    Vice President and Chief Financial OfficerGordon S. Donovan
    
    (Principal Financial and Accounting Officer)/s/ VINCENT J. INTRIERI
    
    DirectorVincent J. Intrieri/s/ EUGENE I. DAVIS
    
    DirectorEugene I. Davis/s/ THOMAS S. HYLAND
    
    DirectorThomas S. Hyland/s/ JAMES L. NELSON
    
    DirectorJames L. Nelson/s/ JON F. WEBER
    
    DirectorJon F. Weber
 17




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##### Table of Contents



Consolidated Financial Statements
and Report of Independent
Registered Public Accounting Firm Viskase Companies, Inc.
and Subsidiaries
December 31, 2004, 2003, and 2002 F-1




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##### Table of Contents



Index to Financial Statements PageReport of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
    
    F-3Report of Grant Thornton LLP, Independent Registered Public Accounting Firm
    
    F-4Consolidated Financial StatementsConsolidated Balance Sheets as of December 31, 2004 and 2003
    
    F-5Consolidated Statements of Operations for the Year Ended December 31, 2004,
the Period April 3 through December 31, 2003, the Period January 1
through April 2, 2003, and the Year Ended December 31, 2002
    
    F-6Consolidated Statements of Stockholders Deficit as of December 31, 2004,
December 31, 2003, April 2, 2003, and December 31, 2002
    
    F-7Consolidated Statements of Cash Flows for the Year Ended December 31, 2004,
the Period April 3 through December 31, 2003, the Period January 1
through April 2, 2003, and the Year Ended December 31, 2002
    
    F-8Notes To Consolidated Financial Statements
    
    F-9Supplementary InformationSchedule II  Valuation And Qualifying Accounts
    
    F-49
 F-2




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of
Viskase Companies, Inc.: In our opinion, the consolidated statements of operations and comprehensive income (loss),
stockholders deficit and of cash flows for the year ended December 31, 2002 listed in the index
appearing under Item 15(a)(1) present fairly, in all material
respects, the results of
operations and cash flows of Viskase Companies, Inc. and its subsidiaries for the year ended
December 31, 2002, in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 15(a)(2) presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial statements. These
financial statements and financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit. We conducted our audit of these statements in
accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. The accompanying consolidated financial statements have been prepared assuming that Viskase
Companies, Inc. and its subsidiaries will continue as a going concern. As more fully described in
Note 2 to the consolidated financial statements, on November 13, 2002, Viskase Companies, Inc.
filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy
Code, which raises substantial doubt about the Companys ability to continue as a going concern.
Managements intentions with respect to this matter are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the outcome of this
uncertainty. PricewaterhouseCoopers LLP
Chicago, Illinois
March 14, 2003 F-3




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors
Viskase Companies, Inc. We have audited the accompanying consolidated balance sheets of Viskase Companies, Inc. (a Delaware
corporation) and Subsidiaries as of December 31, 2004 and December 31, 2003, and the related
consolidated statements of income, stockholders deficit and cash flows for the year ended December
31, 2004, the period April 3, 2003 through December 31, 2003, and the period from January 1, 2003
through April 2, 2003. In connection with our audits, we have also audited the Schedule of Valuation and
qualifying accounts (the Schedule).
These financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements and
schedule based on our audit. The financial statements and schedule of Viskase Companies, Inc. and
Subsidiaries as of and for the year ended December 31, 2002 and for the year then ended, were
audited by other auditors, whose report thereon, dated March 14, 2003, included an explanatory
paragraph that described the Companys filing of its voluntary petition for reorganization under
Chapter 11 of the United States Bankruptcy Code, which raised substantial doubt about the Companys
ability to continue as a going concern and that the financial statements were prepared assuming the
Company and its subsidiaries will continue as a going concern. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion. As discussed in Note 2 to the consolidated financial statements, the Companys plan of
reorganization under Chapter 11 of the United States Bankruptcy Code became effective on April 3,
2003. As a result of the adoption of fresh-start reporting in accordance with Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, the
consolidated financial statements as of and for the year ended December 31, 2003 and for the period
from April 3, 2003 to December 31, 2003 are presented on a different basis than the periods before
the emergence from bankruptcy, and are therefore not comparable. In our opinion, the 2004 and 2003 consolidated financial statements and schedule
referred to above present
fairly, in all material respects, the financial position of Viskase Companies, Inc. and
Subsidiaries as of December 31, 2004 and December 31, 2003, and the results of their operations and
their cash flows for the year ended December 31, 2004 , the period April 3, 2003 through December
31, 2003, and the period from January 1, 2003 through April 2, 2003, in conformity with accounting
principles generally accepted in the United States of America. Grant Thornton LLP
Chicago, Illinois
March 25, 2005 F-4




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except for Number of Shares and Per Share Amounts) Reorganized CompanyDecember 31, 2004
    
    
    December 31, 2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    30,255
    
    
    $
    23,160Restricted cash
    
    
    3,461
    
    
    
    26,245Receivables, net
    
    
    30,509
    
    
    
    29,065Inventories
    
    
    32,268
    
    
    
    31,738Other current assets
    
    
    10,469
    
    
    
    8,309Total current assets
    
    
    106,962
    
    
    
    118,517Property, plant and equipment,
including those under capital leases
    
    
    112,158
    
    
    
    99,839Less accumulated depreciation and amortization
    
    
    19,312
    
    
    
    17,109Property, plant and equipment, net
    
    
    92,846
    
    
    
    82,730Deferred financing costs, net
    
    
    4,060
    
    
    
    222Other assets
    
    
    9,564
    
    
    
    10,624Total Assets
    
    $
    213,432
    
    
    $
    212,093LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Short-term debt including current portion of long-term
debt and obligations under capital leases
    
    $
    384
    
    
    $
    21,303Accounts payable
    
    
    17,878
    
    
    
    14,893Accrued liabilities
    
    
    25,820
    
    
    
    28,276Current deferred income taxes
    
    
    1,481
    
    
    
    1,844Total current liabilities
    
    
    45,563
    
    
    
    66,316Long-term debt including obligations under capital leases
    
    
    100,962
    
    
    
    69,850Accrued employee benefits
    
    
    66,715
    
    
    
    100,652Noncurrent deferred income taxes
    
    
    12,205
    
    
    
    16,375Commitments and contingenciesStockholders deficit:Preferred stock, $.01 par value; none outstandingCommon stock, $.01 par value; 10,670,053 shares
issued and 9,632,022 shares outstanding at
December 31, 2004; and 10,670,053 shares issued
and 10,381,298 shares outstanding at December 31, 2003
    
    
    106
    
    
    
    106Paid in capital
    
    
    1,895
    
    
    
    894Accumulated (deficit)
    
    
    (21,310
    )Accumulated (deficit) from April 3 through December 31, 2003
    
    
    
    
    
    
    (46,627
    )Less 805,270 treasury shares, at cost
    
    
    (298
    )Accumulated other comprehensive income
    
    
    7,608
    
    
    
    4,547Unearned restricted stock issued for future service
    
    
    (14
    )
    
    
    (20
    )Total stockholders (deficit)
    
    
    (12,013
    )
    
    
    (41,100
    )Total Liabilities and Stockholders Deficit
    
    $
    213,432
    
    
    $
    212,093
 The accompanying notes are an integral part of the consolidated financial statements. F-5




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VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In Thousands, Except for Number of Shares and Per Share Amounts) Reorganized Company
    
    
    
    Predecessor CompanyYear
    
    
    April 3
    
    
    
    January 1
    
    
    YearEnded
    
    
    through
    
    
    
    through
    
    
    EndedDecember
    
    
    December
    
    
    
    April
    
    
    December31, 2004
    
    
    31, 2003
    
    
    
    2, 2003
    
    
    31, 2002NET SALES
    
    $
    207,106
    
    
    $
    152,408
    
    
    
    $
    45,402
    
    
    $
    183,577COSTS AND EXPENSESCost of sales
    
    
    164,490
    
    
    
    119,989
    
    
    
    
    38,031
    
    
    
    146,841Selling, general and administrative
    
    
    29,312
    
    
    
    24,664
    
    
    
    
    8,890
    
    
    
    38,526Amortization of intangibles
    
    
    1,078
    
    
    
    809
    
    
    
    
    500
    
    
    
    2,000Restructuring expense (income)
    
    
    668
    
    
    
    954
    
    
    
    
    
    
    
    
    (6,132
    )Asset write-down and charge for
goodwill impairment
    
    
    
    
    
    
    46,805OPERATING INCOME (LOSS)
    
    
    11,558
    
    
    
    (40,813
    )
    
    
    
    (2,019
    )
    
    
    2,342Interest income
    
    
    (579
    )
    
    
    (517
    )
    
    
    
    (323
    )
    
    
    (1,161
    )Interest expense
    
    
    13,192
    
    
    
    10,362
    
    
    
    
    1,204
    
    
    
    22,222Other income, net
    
    
    (759
    )
    
    
    (3,844
    )
    
    
    
    (1,505
    )
    
    
    (1,493
    )Post-retirement benefits curtailment gain
    
    
    (34,055
    )Loss (gain) on early extinguishment of debt,
net of income tax provision of $0 in 2004
and 2003
    
    
    13,083
    
    
    
    
    
    
    
    
    (153,946
    )INCOME (LOSS) BEFORE REORGANIZATION
EXPENSES AND INCOME TAXES
    
    
    20,676
    
    
    
    (46,814
    )
    
    
    
    152,551
    
    
    
    (17,226
    )Reorganization expense
    
    
    
    
    
    
    403
    
    
    
    
    399
    
    
    
    3,401INCOME (LOSS) BEFORE INCOME TAXES
    
    
    20,676
    
    
    
    (47,217
    )
    
    
    
    152,152
    
    
    
    (20,627
    )Income tax (benefit) provision
    
    
    (4,641
    )
    
    
    (590
    )
    
    
    
    279
    
    
    
    (1,297
    )NET INCOME (LOSS)
    
    
    25,317
    
    
    
    (46,627
    )
    
    
    
    151,873
    
    
    
    (19,330
    )Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    3,061
    
    
    
    4,547
    
    
    
    
    (845
    )
    
    
    3,711Minimum pension liability adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,573
    )COMPREHENSIVE INCOME (LOSS)
    
    $
    28,378
    
    
    ($
    42,080
    )
    
    
    $
    151,028
    
    
    ($
    37,192
    )WEIGHTED AVERAGE COMMON SHARES
- BASIC
    
    
    10,013,828
    
    
    
    10,381,298
    
    
    
    
    15,314,553
    
    
    
    15,316,183PER SHARE AMOUNTS:INCOME (LOSS) EARNINGS PER SHARE
- basicNet income (loss)
    
    $
    2.53
    
    
    ($
    4.49
    )
    
    
    $
    9.91
    
    
    ($
    1.26
    )WEIGHTED AVERAGE COMMON SHARES
- DILUTED
    
    
    10,868,152
    
    
    
    10,381,298
    
    
    
    
    15,314,553
    
    
    
    15,316,183PER SHARE AMOUNTS:INCOME (LOSS) EARNINGS PER SHARE
- dilutedNet income (loss)
    
    $
    2.33
    
    
    ($
    4.49
    )
    
    
    $
    9.91
    
    
    ($
    1.26
    )
 The accompanying notes are an integral part of the consolidated financial statements. F-6




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
(In Thousands) Accumulated othercomprehensive (loss) incomeForeign
    
    
    Minimum
    
    
    Restrictedcurrency
    
    
    pension
    
    
    stock
    
    
    TotalCommon
    
    
    Paid in
    
    
    Treasury
    
    
    Accumulated
    
    
    translation
    
    
    liability
    
    
    issued for
    
    
    stockholdersstock
    
    
    capital
    
    
    stock
    
    
    deficit
    
    
    adjustments
    
    
    adjustments
    
    
    future service
    
    
    equity (deficit)Predecessor CompanyBalance December 31, 2001
    
    $
    153
    
    
    $
    138,014
    
    
    
    
    
    
    $
    (272,574
    )
    
    $
    1,711
    
    
    $
    (5,172
    )
    
    $
    (185
    )
    
    $
    (138,053
    )Net (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,330
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,330
    )Issuance of Common Stock
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106
    
    
    
    99Other comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,711
    
    
    
    (21,573
    )
    
    
    
    
    
    
    (17,862
    )Balance December 31, 2002
    
    
    153
    
    
    
    138,007
    
    
    
    
    
    
    
    (291,904
    )
    
    
    5,422
    
    
    
    (26,745
    )
    
    
    (79
    )
    
    
    (175,146
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    151,873
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    151,873Issuance of Common Stock
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    23Other comprehensive (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (845
    )
    
    
    
    
    
    
    
    
    
    
    (845
    )Balance April 2, 2003
    
    
    153
    
    
    
    138,004
    
    
    
    
    
    
    
    (140,031
    )
    
    
    4,577
    
    
    
    (26,745
    )
    
    
    (53
    )
    
    
    (24,095
    )Reorganization adjustments
    
    
    (153
    )
    
    
    (138,004
    )
    
    
    
    
    
    
    140,031
    
    
    
    (4,577
    )
    
    
    26,745
    
    
    
    53
    
    
    
    24,095Reorganized Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Distribution of equity in
accordance with plan
    
    
    106
    
    
    
    894
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31
    )
    
    
    969Balance April 3, 2003
    
    
    106
    
    
    
    894
    
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (31
    )
    
    
    969Net (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46,627
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46,627
    )Issuance of Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    11Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,547
    
    
    
    
    
    
    
    
    
    
    
    4,547Balance December 31, 2003
    
    
    106
    
    
    
    894
    
    
    
    
    
    
    
    (46,627
    )
    
    
    4,547
    
    
    
    0
    
    
    
    (20
    )
    
    
    (41,100
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,317
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,317Issuance of Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    6Issuance of Warrants
    
    
    
    
    
    
    1,001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,001Purchase of Treasury Stock
    
    
    
    
    
    
    
    
    
    
    (298
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (298
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,061
    
    
    
    
    
    
    
    
    
    
    
    3,061Balance December 31, 2004
    
    $
    106
    
    
    $
    1,895
    
    
    $
    (298
    )
    
    $
    (21,310
    )
    
    $
    7,608
    
    
    $
    0
    
    
    $
    (14
    )
    
    $
    (12,013
    )
 The accompanying notes are an integral part of the consolidated financial statements. F-7




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands) Reorganized Company
    
    
    
    Predecessor CompanyYear
    
    
    April 3
    
    
    
    January 1
    
    
    YearEnded
    
    
    through
    
    
    
    through
    
    
    EndedDecember
    
    
    December
    
    
    
    April
    
    
    December 31,31, 2004
    
    
    31, 2003
    
    
    
    2, 2003
    
    
    2002(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    25,317
    
    
    $
    (46,627
    )
    
    
    $
    151,873
    
    
    $
    (19,330
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization under capital lease
    
    
    9,832
    
    
    
    9,258
    
    
    
    
    4,838
    
    
    
    20,959Amortization of intangibles
    
    
    1,078
    
    
    
    809
    
    
    
    
    500
    
    
    
    2,000Amortization of deferred financing fees
    
    
    381
    
    
    
    68
    
    
    
    
    3
    
    
    
    18Repayment of 8% interest on 8% notes
    
    
    (2,196
    )Reorganization item
    
    
    
    
    
    
    403
    
    
    
    
    399
    
    
    
    3401(Decrease) increase in deferred income taxes
    
    
    (5,203
    )
    
    
    (1,052
    )
    
    
    
    (339
    )
    
    
    (718
    )Postretirement plan curtailment gain
    
    
    (34,055
    )Foreign currency translation (gain) loss
    
    
    (679
    )
    
    
    (1,251
    )
    
    
    
    311
    
    
    
    (920
    )Loss (gain) in disposition of assets
    
    
    464
    
    
    
    (195
    )
    
    
    
    (330
    )
    
    
    (27
    )Bad debt provision
    
    
    146
    
    
    
    448
    
    
    
    
    113
    
    
    
    558Net property, plant and equipment write-off
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,029Goodwill and intangibles write-off
    
    
    
    
    
    
    46,805Non-cash interest on 8% notes and 11.5% notes
    
    
    5,855Loss (gain) on debt extinguishment
    
    
    13,083
    
    
    
    
    
    
    
    
    (153,946
    )Changes in operating assets and liabilities:(net of effects of dispositions)Receivables
    
    
    
    
    
    
    (179
    )
    
    
    
    (1,358
    )
    
    
    2,746Inventories
    
    
    (230
    )
    
    
    2,638
    
    
    
    
    (1,407
    )
    
    
    507Other current assets
    
    
    595
    
    
    
    1,563
    
    
    
    
    (2,143
    )
    
    
    2,860Accounts payable
    
    
    (1,774
    )
    
    
    (119
    )
    
    
    
    (1,429
    )
    
    
    4,432Accrued liabilities
    
    
    (34
    )Other
    
    
    7,797
    
    
    
    4,076
    
    
    
    
    (404
    )
    
    
    749Total adjustments
    
    
    (4,940
    )
    
    
    63,272
    
    
    
    
    (155,192
    )
    
    
    37,594Net cash provided by (used in) operating
activities before reorganization expense
    
    
    20,377
    
    
    
    16,645
    
    
    
    
    (3,319
    )
    
    
    18,264Net cash used for reorganization
    
    
    
    
    
    
    (403
    )
    
    
    
    (386
    )
    
    
    (1,259
    )Cash flows from investing activities:Capital expenditures
    
    
    (9,789
    )
    
    
    (3,764
    )
    
    
    
    (527
    )
    
    
    (3,824
    )Reacquisition of leased assets
    
    
    (9,511
    )Treasury stock purchase
    
    
    (298
    )Proceeds from disposition of assets
    
    
    1,349
    
    
    
    2,373
    
    
    
    
    1,302
    
    
    
    575Restricted cash
    
    
    22,784
    
    
    
    2,106
    
    
    
    
    (4
    )
    
    
    (1,789
    )Net cash provided by (used in) investing activities
    
    
    4,535
    
    
    
    715
    
    
    
    
    771
    
    
    
    (5,038
    )Cash flows from financing activities:Deferred financing costs
    
    
    (4,477
    )
    
    
    (253
    )Proceeds from issuance of long-term debt
    
    
    89,348Proceeds from issuance of warrants
    
    
    1,001Repayment of long-term borrowings
and capital obligation
    
    
    (104,273
    )
    
    
    (4,265
    )
    
    
    
    (15,242
    )
    
    
    (8,882
    )Net cash (used in) financing activities
    
    
    (18,401
    )
    
    
    (4,518
    )
    
    
    
    (15,242
    )
    
    
    (8,882
    )Effect of currency exchange rate changes on cash
    
    
    584
    
    
    
    843
    
    
    
    
    354
    
    
    
    (925
    )Net increase (decrease) in cash and equivalents
    
    
    7,095
    
    
    
    13,282
    
    
    
    
    (17,822
    )
    
    
    2,160Cash and equivalents at beginning of period
    
    
    23,160
    
    
    
    9,878
    
    
    
    
    27,700
    
    
    
    25,540Cash and equivalents at end of period
    
    $
    30,255
    
    
    $
    23,160
    
    
    
    $
    9,878
    
    
    $
    27,700Supplemental cash flow information:Interest paid less capitalized interest
    
    $
    8,449
    
    
    $
    1,107
    
    
    
    $
    3,311
    
    
    $
    3,150Income taxes paid
    
    $
    771
    
    
    $
    2,212
    
    
    
    $
    843
    
    
    $
    (1,210
    )
 The accompanying notes are an integral part of the consolidated financial statements. F-8




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) 1. Summary of Significant Accounting Policies General Viskase Companies, Inc. (formerly Envirodyne Industries, Inc.) is a Delaware corporation
organized in 1970. As used herein, the Company means Viskase Companies, Inc. and its
subsidiaries. Nature of Operations The Company is a producer of non-edible cellulosic and plastic casings used to prepare and
package processed meat products, and to provide value-added support services relating to these
products, for some of the largest global consumer products companies. The Company operates seven
manufacturing facilities and eight distribution centers in North America, Europe and Latin
America and, as a result, is able to sell its products in most countries throughout the world. Principles of Consolidation The consolidated financial statements include the accounts of the Company. Intercompany accounts
and transactions have been eliminated in consolidation. Reclassification Reclassifications have been made to the prior years financial statements to conform to the 2004
presentation. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements includes 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 post-retirement benefits and related disclosures, inventories
valued under the last-in, first-out method, reserves for excess and obsolete inventory,
allowance for doubtful accounts,
restructuring charges and income taxes. Management bases its estimates on historical experience
and other assumptions that they believe are reasonable. If actual amounts are ultimately
different from previous estimates, the revisions are included in the Companys results for the
period in which the actual amounts become known. Historically, the aggregate differences, if
any, between the Companys estimates and actual amounts in any year have not had a significant
effect on the Companys consolidated financial statements. Cash Equivalents For purposes of the statement of cash flows, the Company considers cash equivalents to consist
of all highly liquid debt investments purchased with an initial maturity of approximately three
months or less. Due to the short-term nature of these instruments, the carrying values
approximate the fair market value. Cash equivalents and restricted cash include $28,272 and
$44,172 of short-term investments at December 31, 2004 and 2003, respectively. Restricted cash
is principally cash held as collateral for outstanding letters of credit with a commercial bank. Inventories Domestic inventories are valued primarily at the lower of last-in, first-out (LIFO) cost or
market. Remaining inventories, primarily foreign, are valued at the lower of first-in, first-out
(FIFO) cost or market. F-9




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) 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 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 and (iv) auto and trucks  2 to 5
years. Deferred Financing Costs Deferred financing costs are amortized on a straight-line basis over the expected term of the
related debt agreement. Amortization of deferred financing costs is classified as interest
expense. Patents Patents are amortized on the straight-line method over an estimated average useful life of 10
years. Goodwill and Intangible Assets Goodwill and intangible assets that have an indefinite useful life are not amortized and are
tested at least annually for impairment. Due to the prepackaged nature of the Bankruptcy Plan,
goodwill was tested for impairment by comparing the fair value with its recorded amount. As a
result of adopting Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets, the Company used a discounted cash flow methodology for determining
fair value. This methodology identified an impairment and goodwill in the amount of $44,430,
which was written off in the fourth quarter of 2003. As part of fresh-start accounting, the
Company recognized intangible assets that are being amortized. Non-compete agreements in the
amount of $1,236 are being amortized over two years. The intangible backlog in the amount of
$2,375 was amortized in its entirety during 2003. Long-Lived Assets The Company continues to evaluate the recoverability of long-lived assets including property,
plant and equipment, patents and other intangible assets. 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 at least once a year or when circumstances warrant. Accounts Payable The Companys cash management system provides for the daily replenishment of its bank accounts
for check-clearing requirements. The outstanding check balances of $47 and $79 at December 31,
2004 and 2003, respectively, are not deducted from cash but are reflected in Accounts Payable on
the consolidated balance sheets. F-10




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) Pensions and Other Post-Retirement Benefits The North American operations of the Company and the Companys operations in Germany have
defined benefit retirement plans covering substantially all salaried and full time hourly
employees hired prior to March 31, 2003. Pension cost is computed using the projected unit
credit method. The discount rate used approximates the average yield for high-quality corporate
bonds as of the valuation date. The Companys funding policy is consistent with funding
requirements of the applicable Federal and foreign laws and regulations. United States employees hired after March 31, 2003, who are not covered by a collective
bargaining agreement, are eligible for a defined contribution benefit equal to three percent of
base earnings, as defined by the plan. The United States and Canadian operations of the Company have historically provided
post-retirement health care and life insurance benefits. The Company accrues for the accumulated
post-retirement benefit obligation that represents the actuarial present value of the
anticipated benefits. Measurement is based on assumptions regarding such items as the expected
cost of providing future benefits and any cost sharing provisions. The Company terminated
post-retirement medical benefits as of December 31, 2004 for all active employees and retirees
in the United States who are not covered by a collective bargaining agreement. The termination
of the United States post-retirement medical benefits resulted in a $34,055 reduction in the
unfunded post-retirement liability included in Accrued Employee Benefits on the consolidated
balance sheets. 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. Net (Loss) Income Per Share Net (loss) income per share of common stock is based upon the weighted-average number of shares
of common stock outstanding during the year. Other Comprehensive Income Comprehensive income includes all other non-shareholder changes in equity. Changes in other
comprehensive income in 2004 and 2003 resulted from changes in foreign currency translation
adjustments. Revenue Recognition The Companys revenues are recognized at the time products are shipped to the customer, under
F.O.B. Shipping Point terms or under F.O.B. Port terms. Revenues are net of any discounts,
rebates and allowances. The Company records all labor, raw materials, in-bound freight, plant
receiving and purchasing, warehousing, handling and distribution costs as a component of cost of
goods sold. Accounting
for Stock-Based Compensation The Company uses the intrinsic value method to account for options granted to employees for the
purchase of common stock. No compensation expense is recognized on the grant date, since at that F-11




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) date, the option price equals the market price of the underlying common stock. The pro forma effect of accounting for stock options under
a fair value method is as follows: (Dollars in Thousands, Except Per Share Amounts)
    
    2004Net income, as reported
    
    $
    25,317Deduct: Total stock-based compensation expense under a fair value
based method, net of related tax effects
    
    
    (22
    )Net income, pro forma
    
    $
    25,295Basic earnings per share, as reported
    
    $
    2.53Basic earnings per share, pro forma
    
    $
    2.53Diluted earnings per share, as reported
    
    $
    2.33Diluted earnings per share, pro forma
    
    $
    2.33
 Accounting Standards In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of
Variable Interest Entities  an Interpretation of ARB No. 51. FIN 46 clarified the application
of Accounting Research Bulletin Number 51, Consolidated Financial Statements, to certain
entities in which equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. Qualifying special-purpose
entities as defined by FASB Statement No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, are excluded from the scope of FIN 46. FIN
46 applied immediately to all variable interest entities created after January 31, 2003, and was
originally effective for fiscal periods beginning after July 1, 2003, for existing variable
interest entities. In October 2003, the FASB postponed the effective date of FIN 46 to December
31, 2003. The Company does not have any variable interest entities and, therefore, the adoption
of the provisions of FIN 46 did not have a material impact on the Companys results of
operations or financial position. In December 2003, a revised version of FIN 46 (Revised FIN 46) was issued by the FASB. The
revisions clarify some requirements, ease some implementation problems, add new scope
exceptions, and add applicability judgments. Revised FIN 46 is required to be adopted by most
public companies no later than March 31, 2004. The adoption of Revised FIN 46 did not have a
material impact on the Companys results of operations or financial position. In November 2004, the FASB issued SFAS No. 151 (SFAS 151), Inventory Costs  an Amendment of
ARB No. 43 Chapter 4. SFAS 151 requires that items such as idle facility expense, excessive
spoilage, double freight, and rehandling be recognized as current-period charges rather than
being included in inventory regardless of whether the costs meet the criterion of abnormal as
defined in ARB 43. SFAS 151 is applicable for inventory costs incurred during fiscal years
beginning after June 15, 2005. The Company plans to adopt this standard beginning the first
quarter of fiscal year 2006 and does not believe the adoption will have a material impact on its
financial statements as such costs have historically been expensed as incurred. In December 2004, the FASB issued SFAS No. 153 (SFAS 153), Exchanges of Nonmonetary Assets 
an Amendment of APB Opinion No. 29 which addresses the measurement of exchanges of nonmonetary
assets and eliminates the exception from fair value accounting for nonmonetary exchanges of
similar productive assets and replaces it with an exception for exchanges that do not have
commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if
the future cash flows of an entity are expected to change significantly as a result of the
exchange. This statement is effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005 and is not expected to have a significant impact on the
Companys financial statements. In December 2004, the FASB issued SFAS No. 123 (revised 2004) (SFAS 123R), Share-Based
Payment. SFAS 123R sets accounting requirements for share-based compensation to employees,
requires companies to recognize in the income statement the grant-date fair value of stock
options and other equity-based compensation issues to employees and
disallows the use of a fair value method of accounting for stock compensation. SFAS 123R is applicable for all
interim and fiscal
periods beginning after June 15, 2005. The Company is currently evaluating the impact this
statement will have on the financial statements. F-12




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)  2. Reorganization Under Chapter 11 and Basis of Presentation (Dollars in Thousands, Except Per
Share and Per Bond Amounts)
 Viskase Companies, Inc., a stand-alone-entity (VCI), filed a prepackaged Chapter 11 bankruptcy
plan in the United States Bankruptcy Court for the Northern District of Illinois (Bankruptcy
Court) on November 13, 2002. The Chapter 11 filing was for VCI only and did not include any
domestic or foreign subsidiaries. On April 3, 2003, VCI consummated its prepackaged Chapter 11 bankruptcy plan, as modified
(Plan), which had previously been confirmed by order of the Bankruptcy Court. Under the Plan,
holders of the Companys 10.25% Notes due 2001 (Old Senior Notes) received just over 90% of
the Companys equity on a fully diluted basis. Suppliers and other trade creditors were not
affected by the consummation of the Plan. As a result of VCIs emergence from Chapter 11 bankruptcy on April 3, 2003 and the application
of fresh-start accounting (see Note 3 Fresh-Start Accounting), consolidated financial statements
for the Company for the periods subsequent to the effective date of VCIs plan of reorganization
in the bankruptcy proceedings are referred to as the Reorganized Company and are not
comparable to those for the periods prior to this date, which are referred to as the
Predecessor Company. The March 31, 2003 unaudited consolidated financial statements were used
for the predecessor period ended April 2, 2003; subsequent to March 31, 2003 through the period
ending April 2, 2003, net income reflects a $153,946 gain representing the gain on debt
extinguishment (refer to Note 3). A black line has been drawn in the audited consolidated
financial statements to distinguish, for accounting purposes, the periods associated with the
Reorganized Company and the Predecessor Company. Aside from the effects of fresh-start
accounting and new accounting pronouncements adopted as of the effective date of the plan of
reorganization, the Reorganized Company follows the same accounting policies as the Predecessor
Company. Condensed financial information of VCI subsequent to the Petition Date is presented below: VISKASE COMPANIES, INC.
CHAPTER 11 FILING ENTITY
DEBTOR-IN-POSSESSION STATEMENT OF OPERATIONS
(Unaudited) January 1, 2003
    
    
    November 13, 2002to
    
    
    toMarch 31, 2003
    
    
    December 31, 2002(In Thousands)Selling, general and administrative
    
    $
    76
    
    
    $
    49Other expense, net
    
    
    34
    
    
    
    30Intercompany (expense) income, net
    
    
    (2,386
    )
    
    
    5,049Income (loss) before taxes and reorganization items
    
    
    (2,496
    )
    
    
    4,970Reorganization expense
    
    
    399
    
    
    
    452Income tax provisionNET INCOME (LOSS)
    
    $
    (2,895
    )
    
    $
    4,518
 F-13




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) VISKASE COMPANIES, INC.
CHAPTER 11 FILING ENTITY
DEBTOR-IN-POSSESSION CONDENSED STATEMENT OF CASH FLOWS
(Unaudited) January 1, 2003
    
    
    November 13, 2002to
    
    
    toMarch 31, 2003
    
    
    December 31, 2002(In Thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (2,895
    )
    
    $
    4,518Adjustments to reconcile net income to net cash:Changes in operating assets and liabilitiesOther current assets
    
    
    (1
    )
    
    
    (169
    )Accrued liabilities
    
    
    1
    
    
    
    513Decrease in deferred tax
    
    
    (12
    )
    
    
    (26
    )Intercompany accounts
    
    
    2,904
    
    
    
    (4,855
    )Other
    
    
    3
    
    
    
    19Net cash (used in) operating activities
    
    
    0
    
    
    
    0Net decrease in cash and equivalents
    
    
    0
    
    
    
    0Cash and equivalents at beginning of period
    
    
    0
    
    
    
    0Cash and equivalents at end of period
    
    $
    0
    
    
    $
    0
 VISKASE COMPANIES, INC.
CHAPTER 11 FILING ENTITY
DEBTOR-IN-POSSESSION BALANCE SHEET
(Unaudited) March 31, 2003
    
    
    December 31, 2002(In Thousands)ASSETSCurrent assetsOther current assets
    
    $
    170
    
    
    $
    169Total current assets
    
    
    170
    
    
    
    169Deferred financing
    
    
    36
    
    
    
    39Intercompany receivables
    
    
    418,647
    
    
    
    411,629Investment in affiliate entities
    
    
    (358,176
    )
    
    
    (348,254
    )Total assets
    
    $
    60,677
    
    
    $
    63,583LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities not subject to compromise:Overdrafts payable
    
    $
    52
    
    
    $
    52Accounts payable
    
    
    364
    
    
    
    407Accrued liabilities
    
    
    98
    
    
    
    54Total current liabilities not subject to compromise
    
    
    514
    
    
    
    513Current liabilities subject to compromise
    
    
    188,198
    
    
    
    188,198Deferred income taxes
    
    
    50,006
    
    
    
    50,018Total liabilities
    
    
    238,718
    
    
    
    238,729Stockholders deficit
    
    
    (178,041
    )
    
    
    (175,146
    )Total Liabilities and Stockholders Deficit
    
    $
    60,677
    
    
    $
    63,583
 F-14




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)  LiquidityAs discussed above the Company emerged from bankruptcy on April 3, 2003. For the nine months
ended December 31, 2003, the company recorded a net loss of $46,627 and positive cash flow from
operating activities before reorganization expense of $16,645. In connection with its emergence
from bankruptcy, the Company restructured its debt and equity. In addition the amounts due under
capital leases were renegotiated with the lessor.Summary of the PlanUnder the terms of the Plan, the Companys wholly-owned operating subsidiary, Viskase
Corporation, was merged into the Company with the Company being the surviving corporation.The holders of the Companys outstanding $163,060 of Old Senior Notes received a pro rata share
of $60,000 face value of new 8% Senior Subordinated Notes due December 1, 2008 (8% Notes), and
10,340,000 shares of new common stock (New Common Stock) issued by the Company on a basis of
$367.96271 principal amount of 8% Notes and 63.4122 shares of New Common Stock for each one
thousand dollar $(1,000) principal amount of Old Senior Notes.The 8% Notes bear interest at a stated rate of 8% per year, and accrue interest from December 1,
2001, payable semi-annually (except annually with respect to year four and quarterly with
respect to year five), with interest payable in the form of 8% Notes (paid-in-kind) for the
first three years. The first interest payment date on the 8% Notes was June 30, 2003. Interest
for years four and five will be payable in cash to the extent of available cash flow, as
defined, and the balance in the form of 8% Notes (paid-in-kind). Thereafter, interest will be
payable in cash. The 8% Notes mature on December 1, 2008.The 8% Notes were originally secured by a collateral pool consisting of substantially all of the
Companys personal property other than assets that were subject to the Companys capital lease
obligations. On June 29, 2004, in accordance with the indenture for the 8% Notes, holders of at
least 66 2/3% of the 8% Notes consented to the release of all of the collateral and the related
liens. As of June 29, 2004, the 8% Notes are no longer secured by the collateral pool nor are
the 8% Notes senior to the other existing senior secured debt of the Company.Shares of common stock (Old Common Stock), including the stock issued to employees to
celebrate the Companys 75th anniversary, and options of the Company outstanding prior to the
Companys emergence from bankruptcy were canceled pursuant to the Plan. In addition, the
Companys Stockholder Rights Plan was canceled pursuant to the Plan. Holders of the Old Common
Stock received a pro rata share of 306,291 warrants (Warrants) to purchase shares of New
Common Stock. The Warrants have a seven-year term expiring on April 2, 2010, and have an
exercise price of $10.00 per share.Under the restructuring, 660,000 shares of Restricted Stock were authorized for Company
management and employees under a new Restricted Stock Plan. Any such shares that are issued are
subject to a vesting schedule with acceleration upon the occurrence of certain events.The Company also entered into a three year $20,000 revolving credit facility (Old Revolving
Credit Facility) to provide the Company with additional financial flexibility. The Old
Revolving Credit Facility, which was subsequently terminated and replaced with a new revolving
credit facility, was senior to the 8% Notes. The Old Revolving Credit Facility was a three-year
facility. Interest under the Old Revolving Credit Facility was prime plus 200 basis points. The
Old Revolving Credit Facility contained one financial covenant that required a $16.0 million
minimum level of earnings before depreciation, interest, amortization and taxes (EBITDA)
calculated on a rolling four-quarter basis. F-15




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)  Following the approval of the Plan, the Company adopted Statement of Position (SOP) 90-7,
Fresh-Start accounting, resulting in recording all assets and liabilities at fair value. As a
result, the effects of the adjustments on reported amounts of individual assets and liabilities
resulting from the adoption of fresh-start accounting and the effects of the forgiveness of debt
are reflected in the Companys historical statement of operations. Upon emergence from
bankruptcy, the amounts and classifications reported in the consolidated historical financial
statements materially changed.The conversion of $163,060 of Old Senior Notes to 8% Notes and New Common Stock results in a
$103,060 reduction of debt, which represents cancellation of debt income (COD) which is
governed by Internal Revenue Code Section 108. Under Section 108, the Company did not recognize
any taxable income for calendar year 2003 but reduced tax attributes up to the extent of the COD
income. This tax attribute reduction was used to eliminate the Companys Net Operating Loss
carryforward and reduced the tax basis of assets that the Company had previously written off for
book purposes.3.
    Fresh-Start AccountingAs previously discussed, the accompanying consolidated financial statements reflect the use of
fresh-start accounting as required by SOP 90-7, because the reorganized value of the Companys
assets immediately before emergence from bankruptcy was less than all post-petition liabilities,
and the Predecessor Companys stockholders received less than 50% of the Reorganized Companys
voting shares upon emergence from bankruptcy. The reorganization value of the Company was based
upon the compilation of many factors and various valuation methods, including: (i) discounted
cash flow analysis using five-year projected financial information applying discount rates
between 16% and 18% and terminal cash flow multiples of 5.0X to 6.0X based upon review of
selected publicly traded company market multiples of certain companies operating businesses
viewed to be similar to that of the Company; and (ii) other applicable ratios and valuation
techniques believed by the Company and its financial advisors to be representative of the
Companys business and industry. Under fresh-start accounting, the Companys assets and
liabilities were adjusted to fair values and a reorganization value for the entity was
determined by the Company based upon the estimated fair value of the enterprise before
considering values allocated to debt. The portion of the reorganization value, which could not
be attributed to specific tangible or identified intangible assets of the Reorganized Company,
totaled $44,430. In accordance with SFAS No. 142, this amount is reported as Goodwill in the
consolidated financial statements. Fresh-start accounting results in the creation of a new
reporting entity with no accumulated deficit as of April 3, 2003.The valuation was based upon a number of estimates and assumptions, which are inherently subject
to significant uncertainties and contingencies beyond the control of the Company.Upon the adoption of fresh-start accounting, as of April 3, 2003, the Company recorded goodwill
of $44,430, which equals the reorganization value in excess of amounts allocable to identifiable
net assets recorded in accordance with SOP 90-7. In the fourth quarter of 2003, the Company
performed its first annual goodwill impairment analysis under SFAS No. 142. Due to the fact the
fair value of the
Companys single reporting unit, as estimated by the Companys market capitalization, was
significantly less than the net book value at December 31, 2003, goodwill was evaluated for
impairment. As a result of the Companys impairment test the entire $44,430 goodwill balance was
written off in the fourth quarter of 2003.The Bankruptcy Court confirmed Viskase Companies, Inc.s plan of reorganization as of December
20, 2002. It was determined that Viskase Companies, Inc.s reorganization value was $85,000 to
$115,000.The Company adopted fresh-start reporting as required by SOP 90-7, para. 36 because holders of
existing voting shares immediately before filing and confirmation of the plan received less than
50% of the voting shares of the emerging entity and its reorganization value is less than its
post-petition liabilities and allowed claims, as shown below: F-16




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VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) Current liabilities not subject to compromise
    
    $
    54,162Current liabilities subject to compromise
    
    
    188,198Long-term liabilities
    
    
    77,581Non-current deferred income taxes
    
    
    24,166Total post-petition liabilities and allowed claims
    
    $
    344,107Debt-free reorganization value
    
    
    115,000Excess of liabilities over reorganization value
    
    $
    229,107
 March 31, 2003
    
    
    Adjustments
    
    
    April 3, 2003Predecessor
    
    
    Pro forma
    
    
    Pro forma
    
    
    ReorganizedCompany
    
    
    reorganization
    
    
    fresh start
    
    
    CompanyAssetsCurrent assetsCash and cash equivalents
    
    $
    9,878
    
    
    $
    
    
    
    $
    
    
    
    $
    9,878Restricted cash
    
    
    28,351
    
    
    
    
    
    
    
    
    
    
    
    28,351Receivables, net
    
    
    26,715
    
    
    
    
    
    
    
    
    
    
    
    26,715Inventories
    
    
    32,235
    
    
    
    
    
    
    
    (399
    )(10)
    
    
    31,836Other current assets
    
    
    9,376
    
    
    
    
    
    
    
    
    
    
    
    9,376Total current assets
    
    
    106,555
    
    
    
    
    
    
    
    (399
    )
    
    
    106,156Property, plant and equipment, including
those under capital leases
    
    
    246,238
    
    
    
    
    
    
    
    (160,696
    )(11)
    
    
    85,542Less accumulated depreciation and
amortization
    
    
    158,903
    
    
    
    
    
    
    
    (158,903
    ) (11a)Property, plant and equipment, net
    
    
    87,335
    
    
    
    
    
    
    
    (1,793
    )
    
    
    85,542Deferred financing costs, net
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    36Other assets
    
    
    6,375
    
    
    
    
    
    
    
    6,371
    (12)
    
    
    12,746Excess reorganization value/goodwill
    
    
    
    
    
    
    30,495
    (1)
    
    
    13,935
    (13)
    
    
    44,430Total assets
    
    $
    200,301
    
    
    $
    30,495
    
    
    $
    18,114
    
    
    $
    248,910
 F-17




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) March 31, 2003
    
    
    Adjustments
    
    
    April 3, 2003Predecessor
    
    
    Pro forma
    
    
    Pro forma
    
    
    ReorganizedCompany
    
    
    reorganization
    
    
    fresh start
    
    
    CompanyLiabilities and Stockholders
(Deficit) EquityCurrent liabilities not subject to compromiseShort-term debt, including current
portion of long-term debt and obligations
under capital leases
    
    $
    14,894
    
    
    $
    
    
    
    $
    
    
    
    $
    14,894Accounts payable
    
    
    12,387
    
    
    
    
    
    
    
    
    
    
    
    12,387Accrued liabilities
    
    
    25,284
    
    
    
    40
    (2)
    
    
    3,150
    (14)
    
    
    28,474Current deferred income taxes
    
    
    1,597
    
    
    
    
    
    
    
    
    
    
    
    1,597Total current liabilities not
subject to compromise
    
    
    54,162
    
    
    
    40
    
    
    
    3,150
    
    
    
    57,352Current liabilities subject to compromise
    
    
    188,198
    
    
    
    (188,198
    )(3)
    
    
    
    
    
    
    Long-term debt including obligations under
capital leases not subject to compromise
    
    
    34,235
    
    
    
    39,643
    (4)
    
    
    
    
    
    
    73,878Accrued employee benefits
    
    
    77,581
    
    
    
    
    
    
    
    22,662
    (15)
    
    
    100,243Non-current deferred income taxes
    
    
    24,166
    
    
    
    
    
    
    
    (7,698
    )(16)
    
    
    16,468Commitments and contingenciesStockholders (deficit) equityOld Common Stock, $0.01 par value;
15,314,562 shares issued and outstanding
    
    
    153
    
    
    
    (153
    )(5)
    
    
    
    
    
    
    New Common Stock, $0.01 par value;
10,670,053 shares issued and outstanding
    
    
    
    
    
    
    106
    (6)
    
    
    
    
    
    
    106Paid in capital
    
    
    138,004
    
    
    
    (137,110
    )(7)
    
    
    
    
    
    
    894Accumulated deficit
    
    
    (293,977
    )
    
    
    293,977
    (8)
    
    
    
    
    
    
    Accumulated other comprehensive (loss)
    
    
    (22,168
    )
    
    
    22,168
    (5)
    
    
    
    
    
    
    Unearned restricted stock issued for future
service
    
    
    (53
    )
    
    
    22
    (9)
    
    
    
    
    
    
    (31
    )Total stockholders (deficit) equity
    
    
    (178,041
    )
    
    
    -179,010
    
    
    
    
    
    
    
    969Total liabilities and stockholders
(deficit) equity
    
    $
    200,301
    
    
    $
    30,495
    
    
    $
    18,114
    
    
    $
    248,910
 F-18




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) Reorganization Adjustments 1. Excess reorganization value consisted of the following:a. Eliminate the accumulated other comprehensive loss
    
    $
    22,168b. Eliminate the unearned restricted stock
    
    
    53c. Eliminate the accumulated deficit
    
    
    140,031d. Recognize the accreted interest for the period December 1, 2001 through
March 31, 2003
    
    
    6,400e. Eliminate the par value of Old Common Stock
    
    
    (153
    )f. Eliminate the paid in capital for Old Common Stock
    
    
    (138,004
    )$
    30,4952. To reclassify the pre-petition other current liabilities to accrued
liabilities
    
    $
    403. The adjustment to liabilities subject to compromise consisted of the
following:a. Pursuant to the Plan, the Old Senior Notes were exchanged for 8% Notes
    
    $
    (163,060
    )b. Pursuant to the Plan, eliminate the accrued interest payable on the Old
Senior Notes
    
    
    (25,098
    )c. Reclassify the pre-petition other current liabilities
    
    
    (40
    )$
    (188,198
    )4. The adjustment to long-term debt consisted of the following:a. Pursuant to the Plan, issuance of 8% Notes at fair market value
    
    $
    33,243b. Recognize the accreted paid-in-kind (PIK) and effective interest on the
8% Notes for the period December 1, 2001 to March 31, 2003
    
    
    6,400$
    39,6435. Eliminate Old Common Stock of $(153) and the accumulated other comprehensive
loss of $22,1686. Adjustments to New Common Stock consist of the following:a. Pursuant to the Plan, represents the par value of equity at fair market
value exchanged for Old Senior Notes
    
    $
    103b. Pursuant to the Plan, represents the par value of shares issued to
management for the new Restricted Stock Plan
    
    
    3$
    1067. The adjustment to paid in capital consists of the following:a. Eliminate the paid in capital for Old Common Stock
    
    $
    (138,004
    )b. Recognize the paid in capital on equity at fair market value exchanged
for Old Senior Notes
    
    
    866c. Recognize the paid in capital value of shares at fair market value
issued to management from the new Restricted Stock Plan
    
    
    28$
    (137,110
    )
 F-19




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) 8. The adjustment to the accumulated deficit consists of the following:a. Pursuant to the Plan, the issuance of 8% Notes at fair market value
    
    $
    (33,243
    )b. Recognize the equity at fair market value exchanged for Old Senior Notes
    
    
    (969
    )c. Pursuant to the Plan, the Old Senior Notes were exchanged for 8% Notes
    
    
    163,060d. Pursuant to the Plan, eliminate the accrued interest payable on the Old
Senior Notes
    
    
    25,098e. Eliminate accumulated deficit
    
    
    140,031$
    293,9779. a. Recognize the fair market value of the new Restricted
Stock Plan shares issued to management and employees
    
    $
    (31
    )b. Eliminate the old unearned restricted stock
    
    
    53$
    22
 Fresh-Start Adjustments 10. Represents adjustment to write down inventories to net realizable value
    
    $
    (399
    )11. Adjustments to property, plant and equipment consist of the following:a. Eliminate accumulated depreciation
    
    $
    (158,903
    )b. Write up U.S. property, plant and equipment to fair market value
    
    
    8,323c. Write up Chicago East Plant to fair market value
    
    
    1,493d. Write up Europe property, plant and equipment to fair market value
    
    
    2,747e. Write off property, plant and equipment for Brazil
    
    
    (3,436
    )f. Write down GECC assets for fair market value
    
    
    (10,920
    )$
    (160,696
    )12. Adjustments to other assets consist of the following:a. Adjustment to write up patents to fair market value
    
    $
    3,098b. Fair market value of non-compete agreements
    
    
    1,236c. Fair market value of customer backlog
    
    
    2,375d. Write off intangible pension assets
    
    
    (338
    )$
    6,37113. The adjustments to reorganization value in excess of amounts allocable to
identifiable assets and liabilities:a. Represents adjustment to write down inventories to net realizable value
    
    $
    399b. Write up U.S. property, plant and equipment to fair market value
    
    
    (8,323
    )c. Adjustment to write up patents to fair market value
    
    
    (3,098
    )d. Recognize a liability for the foreign and domestic projected benefit
obligation (PBO) in excess of plan assets
    
    
    22,662e. Recognize a liability for severance obligation due to former chief
executive officer and president that was triggered by a change of
control upon emergence from bankruptcy and recognition of reserves for legal services
related to specific loss contingencies
    
    
    3,150
 F-20




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) f. Write up Chicago East Plant to fair market value
    
    
    (1,493
    )g. Write up Europe property, plant and equipment to fair market value
    
    
    (2,747
    )h. Write off property, plant and equipment for Brazil
    
    
    3,436i. Fair market value of non-compete agreements
    
    
    (1,236
    )j. Fair market value of customer backlog
    
    
    (2,375
    )k. Write off intangible pension assets
    
    
    338l. Adjust the deferred tax liability to fair market value
    
    
    (7,698
    )m. Write down GECC assets to fair market value
    
    
    10,920$
    13,93514. Recognize a liability for severance obligation due to former chief executive
officer and president that was triggered by a change of control upon emergence from
bankruptcy and recognition of reserves for legal services related to specific loss
contingencies
    
    $
    3,15015. To recognize a liability for the foreign and domestic PBO in excess of plan
assets
    
    $
    22,66216. To
adjust the deferred tax liability to the amount
expected to be paid
    
    $
    (7,698
    )
  4.
    Cash and Cash Equivalents December 31, 2004
    
    
    December 31, 2003Cash and cash equivalents
    
    $
    30,255
    
    
    $
    23,160Restricted cash
    
    
    3,461
    
    
    
    26,245$
    33,716
    
    
    $
    49,405
  As of December 31, 2004, cash equivalents and restricted cash of $28,272 are invested in
short-term investments.5.
    ReceivablesReceivables consisted primarily of trade accounts receivable and were net of allowances for
doubtful accounts of $791 and $523 at December 31, 2004 and 2003, respectively.The Company has a broad base of customers, with no single customer accounting for more than 7%
of sales or 3% of receivables.6.
    InventoriesInventories consisted of: December 31, 2004
    
    
    December 31, 2003Raw materials
    
    $
    4,816
    
    
    $
    4,328Work in process
    
    
    13,558
    
    
    
    13,679Finished products
    
    
    13,894
    
    
    
    13,731$
    32,268
    
    
    $
    31,738
 F-21




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)  Approximately 48% and 47% of the Companys inventories at December 31, 2004 and 2003,
respectively, were valued at LIFO. Remaining inventories, primarily foreign, are valued at the
lower of FIFO cost or market. At December 31, 2004 and 2003, the LIFO values exceeded current
manufacturing cost by approximately $151 and $317, respectively. The Company wrote down $95 and
$383 of LIFO inventories to the lower of cost or market value in 2004 and 2002, respectively.
The charges were included in cost of sales.Inventories were net of reserves for obsolete and slow-moving inventory of $2,546 and $1,781 at
December 31, 2004 and 2003, respectively.7.
    Property, Plant and Equipment December
    
    
    December31, 2004
    
    
    31, 2003Property, plant and equipmentLand and improvements
    
    $
    4,613
    
    
    $
    4,733Buildings and improvements
    
    
    21,464
    
    
    
    24,273Machinery and equipment
    
    
    74,537
    
    
    
    56,254Construction in progress
    
    
    11,544
    
    
    
    5,079Capital leases:Machinery and equipment
    
    
    
    
    
    
    9,500$
    112,158
    
    
    $
    99,839
  Capitalized interest for 2004, the reorganized and predecessor periods in 2003, and predecessor
period in 2002 totaled $389, $98 and $43, and $81, respectively. Maintenance and repairs charged
to costs and expenses for 2004, 2003 and 2002 aggregated $15,310, $14,548, and $13,142,
respectively. Depreciation is computed on the straight-line method over the estimated useful
lives of the assets. Estimated useful lives of land improvements range from 15 to 30 years;
building and improvements range from 10 to 32 years; and machinery and equipment, including
capital leases, range from 2 to 15 years.Land and buildings include property held for sale; these properties had net book values of $838
and $2,293 at December 31, 2004 and 2003, respectively. Property with net book values of $1,813
and $2,179, respectively, were disposed of during 2004 and the reorganized period 2003.8.
    Other Assets December
    
    
    December31, 2004
    
    
    31, 2003Patents
    
    $
    4,598
    
    
    $
    4,598Less: Accumulated amortization
    
    
    805
    
    
    
    345Patents, net
    
    
    3,793
    
    
    
    4,253Other intangibles
    
    
    1,236
    
    
    
    1,236Less: Accumulated amortization
    
    
    1,082
    
    
    
    464Other intangibles, net
    
    
    154
    
    
    
    772Income tax refund receivable
    
    
    5,270
    
    
    
    4,969Miscellaneous
    
    
    347
    
    
    
    630$
    9,564
    
    
    $
    10,624
 F-22




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)  Patents are amortized on the straight-line method over an estimated average useful life of 10
years. Other intangibles, established in fresh-start, represent the fair market value of
non-compete agreements and is being amortized over two years, the term of the non-compete
agreement. Amortization of intangibles for each of the next five years is: $614 in 2005 and $460
for each of the next four years.9.
    Accrued LiabilitiesAccrued liabilities were comprised of: December
    
    
    December31, 2004
    
    
    31, 2003Compensation and employee benefits
    
    $
    15,948
    
    
    $
    15,990Taxes
    
    
    1,758
    
    
    
    2,525Accrued volume and sales discounts
    
    
    1,452
    
    
    
    1,566Restructuring (see note 13)
    
    
    192
    
    
    
    1,840Other
    
    
    6,470
    
    
    
    6,355$
    25,820
    
    
    $
    28,276
  10.
    Debt Obligations (Dollars in Thousands, Except For Number of Shares and Warrants, and Per
Share, Per Warrant and Per Bond Amounts)On June 29, 2004, the Company issued $90,000 of new 11.5% Senior Secured Notes due 2011 (11.5%
Senior Secured Notes) and 90,000 warrants (New Warrants) to purchase an aggregate of 805,230
shares of common stock of the Company. The proceeds of the 11.5% Senior Secured Notes and the
90,000 New Warrants totaled $90,000. The 11.5% Senior Secured Notes have a maturity date of, and
the New Warrants expire on June 15, 2011. The $90,000 proceeds were used for the (i) repurchase
of $55,527 principal amount of the 8% Notes at a price of 90% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon; (ii) early termination of the General
Electric Capital Corporation (GECC) capital lease and repurchase of the operating assets
subject thereto for a purchase price of $33,000; and (iii) payment of fees and expenses
associated with the refinancing and repurchase of existing debt. In addition, the Company
entered into a new $20,000 revolving credit facility with a financial institution. The revolving
credit facility is a five-year facility with a June 29, 2009 maturity date.Each of the 90,000 New Warrants entitles the holder to purchase 8.947 shares of the Companys
common stock at an exercise price of $.01 per share. The New Warrants were valued for accounting
purposes using a fair value method. Using a fair value method each of the 90,000 New
Warrants was valued at $11.117 for an aggregate fair value of the warrant issuance of $1,001.
The remaining $88,899 of aggregate proceeds were allocated to the carrying value of the 11.5%
Senior Secured Notes as of June 29, 2004.Outstanding short-term and long-term debt consisted of: December
    
    
    December31, 2004
    
    
    31, 2003Short-term debt, current maturity of long-term debt
and capital lease obligations:Viskase Capital Lease Obligation
    
    
    
    
    
    $
    21,299Other
    
    $
    384
    
    
    
    4Total short-term debt
    
    $
    384
    
    
    $
    21,303
 F-23




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) December
    
    
    December31, 2004
    
    
    31, 2003Long-term debt:11.5% Senior Secured Notes
    
    $
    89,0718% Notes
    
    
    11,757
    
    
    $
    46,248Viskase Capital Lease Obligation
    
    
    
    
    
    
    23,500Other
    
    
    134
    
    
    
    102Total long-term debt
    
    $
    100,962
    
    
    $
    69,850
  New Revolving Credit FacilityOn June 29, 2004, the Company entered into a new $20,000 secured revolving credit facility (New
Revolving Credit Facility). The New Revolving Credit Facility includes a letter of credit
subfacility of up to $10,000 of the total $20,000 maximum facility amount. The New Revolving
Credit Facility expires on June 29, 2009. Borrowings under the loan and security agreement
governing this New Revolving Credit Facility are subject to a borrowing base formula based on
percentages of eligible domestic receivables and eligible domestic inventory. Under the New
Revolving Credit Facility, we will be able to choose between two per annum interest rate
options: (i) the lenders prime rate and (ii) LIBOR plus a margin of 2.25% currently (which
margin will be subject to performance based increases up to 2.50% and decreases down to 2.00%);
providedthat the minimum interest rate shall be at least equal to 3.00%. Letter of credit fees
will be charged a per annum rate equal to the then applicable LIBOR rate margin less 50 basis
points. The New Revolving Credit Facility also provides for an unused line fee of 0.375% per
annum.Indebtedness under the New Revolving Credit Facility is secured by liens on substantially all of
the Company and the Companys domestic subsidiaries assets, with liens (i) on inventory,
account receivables, lockboxes, deposit accounts into which payments are deposited and proceeds
thereof, will be contractually senior to the liens securing the 11.5% Senior Secured Notes and
the related guarantees pursuant to an intercreditor agreement, (ii) on real property, fixtures
and improvements thereon, equipment and proceeds thereof, will be contractually subordinate to
the liens securing the 11.5% Senior Secured Notes and such guarantees pursuant to such
intercreditor agreement, (iii) on all other assets, will be contractually pari passuwith the
liens securing the 11.5% Senior Secured Notes and such guarantees pursuant to such intercreditor
agreement.The New Revolving Credit Facility contains various covenants which will restrict the Companys
ability to, among other things, incur indebtedness, enter into mergers or consolidation
transactions, dispose of assets (other than in the ordinary course of business), acquire assets,
make certain restricted payments, prepay any of the 8% Notes at a purchase price in excess of
90% of the aggregate principal amount thereof (together with accrued and unpaid interest to the
date of such prepayment), create liens on our assets, make investments, create guarantee
obligations and enter into sale and leaseback transactions and transactions with affiliates, in
each case subject to permitted exceptions. The New Revolving Credit Facility also requires that
we comply with various financial covenants, including meeting a minimum EBITDA requirement and
limitations on capital expenditures in the
event our usage of the New Revolving Credit Facility exceeds 30% of the facility amount. The New
Revolving Credit Facility also requires payment of a prepayment premium in the event that it is
terminated prior to maturity. The prepayment premium, as a percentage of the $20,000 facility
amount, is 3% through June 29, 2005, 2% through June 29, 2006, and 1% through June 29, 2007.Old Revolving Credit FacilityThe Company had a secured revolving credit facility (Old Revolving Credit Facility) with an
initial availability of $10,000 with Arnos Corp., an affiliate of Carl C. Icahn. During February
2004, the amount of the Old Revolving Credit Facility availability increased by $10,000 to an
aggregate amount of $20,000. The Old Revolving Credit Facility was terminated on June 29, 2004
in connection with the F-24




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)  issuance of the 11.5% Senior Secured Notes discussed below. Borrowings under the Old Revolving
Credit Facility bore interest at a rate per annum at the prime rate plus 200 basis points.The Old Revolving Credit Facility was secured by a collateral pool (Collateral Pool) comprised
of (i) all domestic accounts receivable (including intercompany receivables) and inventory; (ii)
all patents, trademarks and other intellectual property (subject to non-exclusive licensing
agreements); (iii) substantially all domestic fixed assets (other than assets subject to the
Companys lease agreement with GECC); and (iv) a pledge of 65% of the capital stock of Viskase
Europe Limited and Viskase Brasil Embalagens Ltda. The Old Revolving Credit Facility was also
guaranteed by the Companys significant domestic subsidiaries. Such guarantees and substantially
all of such collateral were shared by the lender under the Old Revolving Credit Facility, the
holders of the 8% Notes and GECC under the GECC lease pursuant to intercreditor agreements.
Pursuant to such intercreditor agreements, the security interest of the Old Revolving Credit
Facility had priority over all other liens on such Collateral Pool.Under the terms of the Old Revolving Credit Facility, the Company was required to maintain a
minimum annual level of EBITDA of $16,000 calculated at the end of each calendar quarter. The
Old Revolving Credit Facility contained covenants with respect to the Company limiting (subject
to a number of important qualifications), among other things, (i) the ability to pay dividends
or redeem or repurchase common stock, (ii) incurrence of indebtedness, (iii) creation of liens,
(iv) certain affiliate transactions, (v) the ability to merge into another entity, (vi) the
ability to consolidate with or merge with another entity and (vi) the ability to dispose of
assets.There were no short-term borrowings under either of the revolving credit facilities during 2004.The average interest rate for borrowings during 2003 under the Old Revolving Credit Facility was
6.2%.11.5% Senior Secured NotesOn June 29, 2004, the Company issued $90,000 of 11.5% Senior Secured Notes that bear interest at
a rate of 11.5% per annum, payable semi-annually in cash on June 15 and December 15, commencing
on December 15, 2004. The 11.5% Senior Secured Notes mature on June 15, 2011.The 11.5% Senior Secured Notes will be guaranteed on a senior secured basis by all of our future
domestic restricted subsidiaries that are not immaterial subsidiaries (as defined). The 11.5%
Senior Secured Notes and the related guarantees (if any) are secured by substantially all of the
tangible and intangible assets of the Company and guarantor subsidiaries (if any); and includes
the pledge of the capital stock directly owned by the Company or the guarantors; provided that
no such pledge will include more than 65% of any foreign subsidiary directly owned by the
Company or the guarantor. The Indenture and the security documents related thereto provide that, to the extent that any
rule is adopted, amended or interpreted that would require the filing with the SEC (or any other
governmental agency) of separate financial statements for any of our subsidiaries due to the
fact that such subsidiarys capital stock secures the Notes, then such capital stock will
automatically be deemed not to be part of the collateral securing the Notes to the extent
necessary to not be subject to such requirement. In such event, the security documents may be
amended, without the consent of any holder of Notes, to the extent necessary to release the
liens on such capital stock.With limited exceptions, the 11.5% Senior Secured Notes require that the Company maintain a
minimum annual level of EBITDA calculated at the end of each fiscal quarter as follows: F-25




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) Fiscal quarter ending
    
    AmountSeptember 30, 2004 through September 30, 2006
    
    $
    16,000December 31, 2006 through September 30, 2008
    
    $
    18,000December 31, 2008 and thereafter
    
    $
    20,000
  unless the sum of (i) unrestricted cash of the Company and its restricted subsidiaries as of
such day and (ii) the aggregate amount of advances that the Company is actually able to borrow
under the New Revolving Credit Facility on such day (after giving effect to any borrowings
thereunder on such day) is at least $15,000. The minimum annual level of EBITDA covenant is not
currently in effect as the Companys unrestricted cash and the amount of available credit under
the New Revolving Credit Facility exceeds $15,000. The Companys EBITDA as of December 31, 2004
would have exceeded the required covenant level if the covenant had been in effect at that time.The 11.5% Senior Secured Notes limit the ability of the Company to (i) incur additional
indebtedness; (ii) pay dividends, redeem subordinated debt, or make other restricted payments,
(iii) make certain investments or acquisitions; (iv) issue stock of subsidiaries; (v) grant or
permit to exist certain liens; (vi) enter into certain transactions with affiliates; (vii)
merge, consolidate, or transfer substantially all of our assets; (viii) incur dividend or other
payment restrictions affecting certain subsidiaries; (ix) transfer, sell or acquire assets,
including capital stock of subsidiaries; and, (x) change the nature of our business. At any time
prior to June 15, 2008, the Company may redeem, at its option, some or all of the 11.5% Senior
Secured Notes at a make-whole redemption price equal to the greater of (i) 100% of the aggregate
principal amount of the 11.5% Senior Secured Notes being redeemed and (ii) the sum of the
present values of 105 3/4% of the aggregate principal amount of such 11.5% Senior Secured Notes
and scheduled payments of interest on such 11.5% Senior Secured Notes to and including June 15,
2008, discounted to the date of redemption on a semi-annual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate plus 50 basis points, together with, in
each case, accrued and unpaid interest and additional interest, if any, to the date of
redemption. The make-whole redemption price as of December 31, 2004 is approximately 130%.On or after June 15, 2008, the Company may redeem, at its option, some or all of the 11.5%
Senior Secured Notes at the following redemption prices, plus accrued and unpaid interest to the
date of redemption: For the periods below
    
    PercentageOn or after June 15, 2008
    
    
    105 3/4
    %On or after June 15, 2009
    
    
    102 7/8
    %On or after June 15, 2010
    
    
    100
    %
  Prior to June 15, 2007, the Company may redeem, at its option, up to 35% of the aggregate
principal amount of the 11.5% Senior Secured Notes with the net proceeds of any equity offering
at 111 1/2% of their principal amount, plus accrued and unpaid interest to the date of
redemption, provided that at least 65% of the aggregate principal amount of the 11.5% Senior
Secured Notes remains outstanding immediately following the redemption.Within 90 days after the end of each fiscal year ending in 2006 and thereafter, for which the
Companys Excess Cash Flow (as defined) was greater than or equal to $2.0 million, the Company
must offer to purchase a portion of the 11.5% Senior Secured Notes at 101% of principal amount,
together with accrued and unpaid interest to the date of purchase, with 50% of our Excess Cash
Flow
from such fiscal year (Excess Cash Flow Offer Amount); except that no such offer shall be
required if the New Revolving Credit Facility prohibits such offer from being made because,
among other things, a default or an event of default is then outstanding thereunder. The Excess
Cash Flow Offer F-26




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)  Amount shall be reduced by the aggregate principal amount of 11.5% Senior Secured Notes
purchased in eligible open market purchases as provided in the indenture.If the Company undergoes a change of control (as defined), the holders of the 11.5% Senior
Secured Notes will have the right to require the Company to repurchase their 11.5% Senior
Secured Notes at 101% of their principal amount, plus accrued and unpaid interest to the date of
purchase.If the Company engages in asset sales, it must either invest the net cash proceeds from such
sales in its business within a certain period of time (subject to certain exceptions), prepay
indebtedness under the New Revolving Credit Facility (unless the assets that are the subject of
such sales are comprised of real property, fixtures or improvements thereon or equipment) or
make an offer to purchase a principal amount of the 11.5% Senior Secured Notes equal to the
excess net cash proceeds. The purchase price of each 11.5% Senior Secured Note so purchased will
be 100% of its principal amount, plus accrued and unpaid interest to the date of purchase.8% NotesThe 8% Notes bear interest at a rate of 8% per year, and accrue interest from December 1, 2001,
payable semi-annually (except annually with respect to year four and quarterly with respect to
year five), with interest payable in the form of 8% Notes (paid-in-kind) for the first three
years. Interest for years four and five will be payable in cash to the extent of available cash
flow, as defined, and the balance in the form of 8% Notes (paid-in-kind). Thereafter, interest
will be payable in cash. The 8% Notes mature on December 1, 2008.On June 29, 2004, the Company repurchased $55,527 aggregate principal amount of its 8% Notes,
and the holders (i) released the liens on the collateral that secured the 8% Notes, (ii)
contractually subordinated the Companys obligations under the 8% Notes to obligations under
certain indebtedness, including the new 11.5% Senior Secured Notes and the New Revolving Credit
Facility; and (iii) eliminated substantially all of the restrictive covenants contained in the
indenture governing the 8% Notes. The carrying amount of the remaining 8% Notes outstanding at
December 31, 2004 is $11,757.Prior to June 29, 2004, the 8% Notes were secured by a collateral pool comprised of (i) all
domestic accounts receivable and inventory; (ii) all patents, trademarks and other intellectual
property (subject to non-exclusive licensing agreements); (iii) all instruments, investment
property and other intangible assets, (iv) substantially all domestic fixed assets and (v) a
pledge of 100% of the capital stock of two of the Companys domestic subsidiaries, but excluding
assets subject to the GECC lease, certain real estate and certain assets subject to prior liens.
Pursuant to an intercreditor agreement, the prior security interest of the holders of the 8%
Notes in such collateral was subordinated to the lender under the Old Revolving Credit Facility
and was senior to the security interest of GECC under the GECC lease. As of June 29, 2004, the
8% Notes were no longer secured by the collateral pool and accordingly, are effectively
subordinated to the 11.5% Senior Secured Notes.The 8% Notes were valued at market in fresh-start accounting. The discount to face value is
being amortized using the effective-interest rate methodology through maturity with an effective
interest rate of 10.46%. F-27




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)  The following table summarizes the carrying value of the 8% Notes at December 31 assuming
interest through 2006 is paid in the form of 8% Notes (paid-in-kind): 2004
    
    
    2005
    
    
    2006
    
    
    20078% NotesPrincipal
    
    $
    15,983
    
    
    $
    17,261
    
    
    $
    18,684
    
    
    $
    18,684Discount
    
    
    4,226
    
    
    
    3,305
    
    
    
    2,283
    
    
    
    1,148Carrying value
    
    $
    11,757
    
    
    $
    13,956
    
    
    $
    16,401
    
    
    $
    17,536
  Letter of Credit FacilityLetters of credit in the amount of $2,649 were outstanding under letter of credit facilities
with commercial banks, and were cash collateralized at December 31, 2004.The Company finances its working capital needs through a combination of internally generated
cash from operations and cash on hand. The New Revolving Credit Facility provides additional
financial flexibility.GECCIn April 2004, the Company renegotiated and amended its lease arrangement with GECC. Under terms
of the amended lease, six payments of approximately $6,092 were due semi-annually on February 28
and August 28 beginning in February 2005. As part of the renegotiation of the lease, the Company
agreed to purchase the assets at their fair market value of $9,500. The Company obtained the
option to terminate the lease early upon payment of $33,000 through February 28, 2005;
thereafter the amount of the early termination payment would decrease upon payment of each
semi-annual capital lease payment. The equipment would transfer to the Company free and clear of
all liens on the earlier of (i) the payment of the early termination amount, plus any accrued
interest due and payable at 6% per annum or (ii) the payment of the final installment due August
28, 2007.On June 29, 2004, the Company exercised its $33,000 early termination payment option, terminated
the lease and acquired title to the leased equipment. The leased equipment was transferred to
the Company free and clear of all liens.Aggregate maturities of debt for each of the next five years are: 2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter11.5% Senior Secured Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    90,0008% Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    18,684Other
    
    $
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1$
    3
    
    
    
    
    
    
    
    
    
    
    $
    18,684
    
    
    
    
    
    
    $
    90,001
  11.
    Operating LeasesThe Company has operating lease agreements for machinery, equipment and facilities. The majority
of the facilities leases require the Company to pay maintenance, insurance and real estate
taxes. F-28




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)  Future minimum lease payments for operating leases that have initial or remaining non-cancelable
lease terms in excess of one year as of December 31, 2004, are: 2005
    
    $
    1,4482006
    
    
    1,3642007
    
    
    1,1432008
    
    
    9722009
    
    
    982Total thereafter
    
    
    1,213Total minimum lease payments
    
    $
    7,122
  Total rent expense during 2004, 2003 and 2002 amounted to $2,409, $2,259, and $1,971,
respectively.12.
    Retirement PlansThe Company and its subsidiaries have defined contribution and defined benefit plans varying by
country and subsidiary.At December 31, 2004, the North American operations of the Company and the Companys operation
in Germany have non-contributory defined benefit retirement plans covering substantially all
salaried and full time hourly employees hired prior to March 31, 2003. Benefits are based on
years of credited service and final average compensation, as defined in the plans. Pension cost
is computed using the projected unit credit method. The discount rate used approximates the
average yield for high-quality corporate bonds as of the valuation date. The Companys policy is
to fund the minimum actuarially computed annual contribution required under the Employee
Retirement Income Security Act of 1974 and the applicable foreign laws and regulations.Prior to April 1, 2004, participants under the United States defined benefit plan were eligible
for an unreduced benefit calculated based years of credited service and final average
compensation upon the earlier of (i) normal retirement age (i.e. 65); (ii) attainment of age 62
and 10 years of credit service; or (iii) reaching 85-points calculated based upon age and
years of credit service. Effective to April 1, 2004, the defined benefit retirement plan was
amended to (i) eliminate the unreduced early retirement option and (ii) close the define benefit
plan to employees hired after March 31, 2003, for all employees in the United States who are not
covered by a collective bargaining agreement. Retirement benefits payable for all United States
employees, who are not covered by a collective bargaining unit, will be the greater of benefits
earned as of (i) March 31, 2004 or (ii) benefits calculated after elimination of the early
retirement option, as defined in the plans. The effect of the plan amendment on the accumulated
benefit obligation is included in the pension benefit table that follows.United States employees hired after March 31, 2003, who are not covered by a collective
bargaining agreement, are eligible for a defined contribution benefit equal to three percent of
base earnings, as defined by the plan.The United States and Canadian operations of the Company have historically provided
post-retirement health care and life insurance benefits. The Company accrues for the accumulated
post-retirement benefit obligation that represents the actuarial present value of the
anticipated benefits. Measurement is based on assumptions regarding such items as the expected
cost of providing future
benefits and any cost sharing provisions. Prior to April 1, 2004, retirees under the United
States plan were eligible for post-retirement benefits at age 50 and 10 years of credited
service. Effective April 1, 2004, the post-retirement health care and life insurance benefits
eligibility requirements for United States employees who are not covered by a collective
bargaining agreement were amended to F-29




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)  increase eligibility to age 55 and 20 years of credited service. The effect of the plan
amendment on the accumulated benefit obligation is included in the other benefits table that
follows.Subsequently, the Company terminated post-retirement health care benefits as of December 31,
2004 for all active employees and all retirees in the United States who are not covered by a
collective bargaining agreement. The termination of these United States post-retirement medical
benefits resulted in a $34,055 curtailment gain.In December of 2002, the Company recognized a minimum pension liability adjustment that is due
to changes in plan return assumptions and asset performance (see note 21, Comprehensive Gain
(Loss)). F-30




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) Pensions
and Other Post-Retirement Benefits Plans - North America Reorganized Company
    
    
    
    Predecessor CompanyApril 3, 2003
    
    
    
    January 1,to
    
    
    
    2003 toDecember 31,
    
    
    
    April 2,2004
    
    
    2003
    
    
    
    2003
    
    
    2002Accumulated benefit obligation (ABO)
    
    $
    120,857
    
    
    $
    113,127
    
    
    
    $
    105,878
    
    
    $
    102,190Change in benefit obligationProjected benefit obligation at beginning of year
    
    $
    126,087
    
    
    $
    117,453
    
    
    
    $
    115,186
    
    
    $
    107,251Service cost
    
    
    1,730
    
    
    
    1,556
    
    
    
    
    545
    
    
    
    1,924Interest cost
    
    
    7,358
    
    
    
    5,634
    
    
    
    
    1,872
    
    
    
    7,521Actuarial losses
    
    
    7,303
    
    
    
    6,644
    
    
    
    
    2,353
    
    
    
    5,711Benefits paid
    
    
    (7,287
    )
    
    
    (5,818
    )
    
    
    
    (2,855
    )
    
    
    (7,275
    )Plan amendment
    
    
    (3,579
    )
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Translation
    
    
    226
    
    
    
    618
    
    
    
    
    352
    
    
    
    58Estimated benefit obligation at end of period
    
    $
    131,838
    
    
    $
    126,087
    
    
    
    $
    117,453
    
    
    $
    115,186Change in plan assetsFair value of plan assets at beginning of period
    
    $
    81,353
    
    
    $
    72,161
    
    
    
    $
    75,115
    
    
    $
    89,058Actual return on plan assets
    
    
    6,458
    
    
    
    13,768
    
    
    
    
    (798
    )
    
    
    (7,888
    )Employer contribution
    
    
    6,030
    
    
    
    633
    
    
    
    
    345
    
    
    
    1,164Benefits paid
    
    
    (7,287
    )
    
    
    (5,818
    )
    
    
    
    (2,855
    )
    
    
    (7,275
    )Translation
    
    
    214
    
    
    
    609
    
    
    
    
    354
    
    
    
    56Estimated fair value of plan assets at end of period
    
    $
    86,768
    
    
    $
    81,353
    
    
    
    $
    72,161
    
    
    $
    75,115Reconciliation of accrued benefit cost at end of periodFunded status
    
    $
    (45,070
    )
    
    $
    (44,734
    )
    
    
    $
    (45,292
    )
    
    $
    (40,071
    )Unrecognized net loss (gain)
    
    
    4,923
    
    
    
    (2,683
    )
    
    
    
    
    
    
    
    33,940Unrecognized prior service cost
    
    
    (3,306
    )
    
    
    
    
    
    
    
    
    
    
    
    437Accrued benefit cost
    
    $
    (43,453
    )
    
    $
    (47,417
    )
    
    
    $
    (45,292
    )
    
    $
    (5,694
    )Amounts recognized in statement of financial positionPrepaid benefit cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    29Accrued benefit liability
    
    $
    (43,602
    )
    
    $
    (47,517
    )
    
    
    $
    (45,292
    )
    
    
    (32,806
    )Intangible asset
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    338Accumulated other comprehensive loss
    
    
    149
    
    
    
    100
    
    
    
    
    
    
    
    
    26,745Net amount recognized
    
    $
    (43,453
    )
    
    $
    (47,417
    )
    
    
    $
    (45,292
    )
    
    $
    (5,694
    )Weighted-average assumptions as of end of periodDiscount rate
    
    
    5.74
    %
    
    
    6.25
    %
    
    
    
    6.75
    %
    
    
    6.75
    %Expected return on plan assets
    
    
    8.66
    %
    
    
    8.67
    %
    
    
    
    8.67
    %
    
    
    8.89
    %Rate of compensation increase
    
    
    3.50
    %
    
    
    3.50
    %
    
    
    
    3.75
    %
    
    
    3.75
    %
 F-31




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) Other BenefitsReorganized Company
    
    
    
    Predecessor CompanyApril 3, 2003
    
    
    
    January 1,to
    
    
    
    2003 toDecember 31,
    
    
    
    April 2,2004
    
    
    2003
    
    
    
    2003
    
    
    2002Accumulated benefit obligation (ABO)Change in benefit obligationProjected benefit obligation at beginning of period
    
    $
    57,702
    
    
    $
    53,038
    
    
    
    $
    50,846
    
    
    $
    44,615Service cost
    
    
    918
    
    
    
    709
    
    
    
    
    227
    
    
    
    777Interest cost
    
    
    3,762
    
    
    
    2,585
    
    
    
    
    837
    
    
    
    3,270Plan amendment
    
    
    (3,006
    )Actuarial losses
    
    
    10,289
    
    
    
    3,542
    
    
    
    
    1,502
    
    
    
    4,481Effect of curtailment
    
    
    (44,139
    )Benefits paid
    
    
    (3,260
    )
    
    
    (2,603
    )
    
    
    
    (574
    )
    
    
    (2,322
    )Translation
    
    
    173
    
    
    
    431
    
    
    
    
    200
    
    
    
    25Estimated benefit obligation at end of period
    
    $
    22,439
    
    
    $
    57,702
    
    
    
    $
    53,038
    
    
    $
    50,846Change in plan assetsFair value of plan assets at beginning of periodActual return on plan assetsEmployer contribution
    
    
    3,070
    
    
    
    2,603
    
    
    
    
    574
    
    
    
    2,322Benefits paid
    
    
    (3,070
    )
    
    
    (2,603
    )
    
    
    
    (574
    )
    
    
    (2,322
    )Estimated fair value of plan assets at end of period
    
    $
    0
    
    
    $
    0
    
    
    
    $
    0
    
    
    $
    0Reconciliation of accrued benefit cost at end of periodFunded status
    
    $
    (22,439
    )
    
    $
    (57,702
    )
    
    
    $
    (53,038
    )
    
    $
    (50,846
    )Unrecognized net actuarial loss
    
    
    921
    
    
    
    
    
    
    
    
    
    
    
    
    9,236Unrecognized prior service cost
    
    
    (729
    )
    
    
    3,401Accrued benefit cost
    
    $
    (22,247
    )
    
    $
    (54,301
    )
    
    
    $
    (53,038
    )
    
    $
    (41,610
    )Weighted-average assumptions as of end of periodDiscount rate
    
    
    5.82
    %
    
    
    6.27
    %
    
    
    
    6.50
    %
    
    
    6.73
    %
 For measurement purposes, the annual rate of increase in the per capita cost of covered
health care benefits was assumed to be 10.0% in 2005 for the U.S. plan and 8.0% in 2004 for the
Canadian plan. The rates were assumed to grade down to 5% by 2010 for the U.S. plan and to grade
down to 5% by 2007 for the Canadian plan. On December 8, 2003, President Bush signed into law a bill that expands Medicare, primarily by
adding a prescription drug benefit for Medicare-eligible retirees starting in 2006. Pursuant to
instructions in Financial Accounting Standards Board Staff Position 106-1 and the election by
Viskase to defer recognition, the retiree medical obligations and costs reported in these
financial statements do not yet reflect the effect of those new Medicare benefits. By 2006, the
Company expects to modify its retiree medical plans to coordinate with the new Medicare
prescription drug program. As a result, the Company anticipates that its overall obligations and
costs will be lower once those modifications are reflected. F-32




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) Pension BenefitsReorganized Company
    
    
    
    Predecessor CompanyApril 3, 2003
    
    
    
    January 1,to
    
    
    
    2003 toDecember 31,
    
    
    
    April 2,2004
    
    
    2003
    
    
    
    2003
    
    
    2002Component of net period benefit costService cost
    
    $
    1,730
    
    
    $
    1,556
    
    
    
    $
    545
    
    
    $
    1,924Interest cost
    
    
    7,357
    
    
    
    5,634
    
    
    
    
    1,872
    
    
    
    7,522Expected return on plan assets
    
    
    (7,027
    )
    
    
    (4,585
    )
    
    
    
    (1,396
    )
    
    
    (7,686
    )Amortization of prior service cost
    
    
    (273
    )
    
    
    144
    
    
    
    
    14
    
    
    
    56Amortization of actuarial (gain) loss
    
    
    265
    
    
    
    
    
    
    
    
    532
    
    
    
    463Net periodic benefit cost
    
    
    2,052
    
    
    
    2,749
    
    
    
    
    1,567
    
    
    
    2,279One-time recognition of unamortized balance
    
    
    
    
    
    
    
    
    
    
    
    38,376Total net periodic benefit cost
    
    $
    2,052
    
    
    $
    2,749
    
    
    
    $
    39,943
    
    
    $
    2,279
 Upon emergence from bankruptcy, the liabilities of the plans were re-measured as of April
2, 2003. A one-time charge of $38,376 was recorded to immediately recognize all unrecognized
gains and losses. The following table provides a summary of the estimated benefit payments for the pension plans
for the next five fiscal years individually and for the following five fiscal years in the
aggregate. Year
    
    Total Estimated Pension Payments(in thousands)2005
    
    $
    7,2662006
    
    
    7,2942007
    
    
    7,3282008
    
    
    7,3962009
    
    
    7,5022010-2014
    
    
    39,851
 Other BenefitsReorganized Company
    
    
    
    Predecessor CompanyApril 3, 2003
    
    
    
    January 1,to
    
    
    
    2003 toDecember 31,
    
    
    
    April 2,2004
    
    
    2003
    
    
    
    2003
    
    
    2002Component of net period benefit costService cost
    
    $
    918
    
    
    $
    709
    
    
    
    $
    227
    
    
    $
    777Interest cost
    
    
    3,762
    
    
    
    2,585
    
    
    
    
    837
    
    
    
    3,270Amortization of prior service cost
    
    
    (230
    )
    
    
    141Amortization of actuarial (gain) loss
    
    
    638
    
    
    
    
    
    
    
    
    112
    
    
    
    363Net periodic benefit cost
    
    
    5,088
    
    
    
    3,435
    
    
    
    
    1,176
    
    
    
    4,410One-time recognition of unamortized balance
    
    
    
    
    
    
    
    
    
    
    
    10,627Effect of curtailment
    
    
    (34,055
    )Total net periodic benefit cost
    
    $
    (28,967
    )
    
    $
    3,435
    
    
    
    $
    11,803
    
    
    $
    4,410
 F-33




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VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) The Company terminated post-retirement medical benefits as of December 31, 2004 for all
active employees and retirees in the United States who are not covered by a collective
bargaining agreement. The termination of the United States post-retirement medical benefits
resulted in a $34,055 reduction in the unfunded post-retirement liability included in Accrued
Employee Benefits on the consolidated balance sheets. The following table provides a summary of the estimated benefit payments for the post-retirement
benefit plans for the next five fiscal years individually and for the following five fiscal
years in the aggregate: Year
    
    Total Estimated Post-Retirement Benefit Payments(in thousands)2005
    
    $
    1,0232006
    
    
    1,0682007
    
    
    1,1202008
    
    
    1,1502009
    
    
    1,1962010-2014
    
    
    6,760
 Assumed health care cost trend rates have a significant effect on the amounts reported for
healthcare plans. A one-percentage point change in assumed healthcare cost trend rate would have
the following effects: Other BenefitsReorganized Company
    
    
    
    Predecessor CompanyApril 3, 2003
    
    
    
    January 1,to
    
    
    
    2003 toDecember 31,
    
    
    
    April 2,2004
    
    
    2003
    
    
    
    2003
    
    
    2002Effect of 1% change in medical trend costBased on a 1% increaseChange in accumulated post-retirement
benefit obligation
    
    $
    697
    
    
    $
    2,450
    
    
    
    $
    2,244
    
    
    $
    2,272Change in service cost and interest
    
    
    126
    
    
    
    184
    
    
    
    
    45
    
    
    
    179Based on a 1% decreaseChange in
accumulated post-retirement benefit obligation
    
    
    (746
    )
    
    
    (2,792
    )
    
    
    
    (2,563
    )
    
    
    (2,593
    )Change in service cost and interest
    
    
    (154
    )
    
    
    (210
    )
    
    
    
    (51
    )
    
    
    (207
    )
 Savings Plans The Company also has defined contribution savings and similar plans, which vary by subsidiary,
and, accordingly, are available to substantially all full-time United States employees. The
defined contribution savings plans allow employees to choose among various investment
alternatives. 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 $791,
$684 and $754 in 2004, 2003 and 2002, respectively. International Plans The Company maintains various pension and statutory separation pay plans for its European
employees. The expense for these plans in 2004, 2003 and 2002 was $1,318, $285 and $42,
respectively. As of their most recent valuation dates, in plans where vested benefits exceeded
plan F-34




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) assets, the actuarially computed value of vested benefits exceeded those plans assets by
approximately $3,534.  13.
    Restructuring Charges (Dollars in Millions) During the first quarter of 2004, the Company committed to a restructuring plan to continue to
address the Companys competitive environment. The plan resulted in a before tax charge of $0.8
million. Approximately 13% of the home office personnel were laid off due to the restructuring
plan. The 2004 restructuring charge is offset by a reversal of an excess reserve of $0.1 million
relating to the 2003 restructuring reserve. During the third and fourth quarters of 2003, the Company committed to a restructuring plan to
address the industrys competitive environment. The plan resulted in a before-tax charge of $2.6
million. Approximately 2% of the Companys worldwide workforce was laid off due to the 2003
restructuring plan. The Company reversed an excess reserve of $1.6 million, of which $1.3
million was Nucel® technology third-party license fees that had been renegotiated. The Nucel®
technology third-party license fees were originally reflected in the 2000 restructuring reserve.
The remaining $0.3 million represents an excess reserve for employee costs that were originally
reflected in the 2002 restructuring reserve. During the second quarter of 2002, the Company committed to a restructuring plan to address the
industrys competitive environment. The plan resulted in a before-tax charge of $3.2 million.
Approximately 2% of the Companys worldwide workforce was laid off due to the 2002 restructuring
plan. In connection with the restructuring, the Company wrote off the remaining net book value
of the Nucel® equipment and the costs associated with the decommissioning of this equipment. The
Company also reversed an excess reserve of $9.3 million for Nucel® technology third-party
license fees that had been renegotiated during the second quarter of 2002. The Nucel® technology
license fees were originally reflected in the 2000 restructuring reserve. In the fourth quarter of 2002 and the year-to-date period, the Company paid third-party license
fees of approximately $0.6 million and $2.3 million, respectively. The renegotiated Nucel®
technology third-party license fee payments remaining are estimated at $0.9 million, $0.4
million, $0.2 million, $0.2 million and $0.5 million for the year periods 2003 to 2007 and are
included in the 2000 restructuring reserve. Restructuring Reserves The following table provides details of the 2004, 2003 and 2000 restructuring reserves for the
period ended December 31, 2004: Restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuringreserve as of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    reserve as ofDecember 31,
    
    
    2004
    
    
    
    
    
    
    Other
    
    
    December 31,2003
    
    
    Charge
    
    
    Payments
    
    
    adjustments
    
    
    20042004 employee costs
    
    
    
    
    
    $
    0.8
    
    
    $
    (0.7
    )
    
    $
    (0.1
    )2003 employee costs
    
    $
    1.6
    
    
    
    
    
    
    $
    (1.5
    )
    
    
    
    
    
    $
    0.12000 Nucel® license fees
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Total
restructuring charge payments
    
    $
    1.8
    
    
    $
    0.8
    
    
    $
    (2.2
    )
    
    $
    (0.1
    )
    
    $
    0.3
  14.
    Capital Stock and Paid in Capital Authorized shares of preferred stock $(0.01 par value per share) and common stock $(0.01 par
value per share) for the Company are 50,000,000 shares and 50,000,000 shares, respectively. A
total of 10,670,053 shares of common stock were issued and 9,632,022 were outstanding as of
December F-35




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VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) 31, 2004. A total of 10,670,053 shares of common stock were issued and 10,381,298 were
outstanding as of December 31, 2003. Under terms of the restructuring, 660,000 shares of common stock were reserved for grant to
management and employees under the Viskase Companies, Inc. Restricted Stock Plan. On April 3,
2003, the Company granted 330,070 shares of restricted common stock (Restricted Stock) under
the Restricted Stock Plan. Shares granted under the Restricted Stock Plan vested 12.5% on grant
date; 17.5% on the first anniversary of grant date; 20% on the second anniversary of grant date;
20% on the third anniversary; and, 30% on the fourth anniversary of the grant date, subject to
acceleration upon the occurrence of certain events. The Restricted Stock expense for 2004 and
the nine-month period ended December 31, 2003, for the Reorganized Company is $6 thousand and
$11 thousand, respectively. The value of the Restricted Stock was calculated based on the fair
market value of approximately $0.10 per share for the new common stock upon emergence from
bankruptcy using a multiple of cash flow calculation to determine enterprise value and the
related equity value.  15.
    Treasury Stock In connection with the June 29, 2004 refinancing transaction, 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. The treasury shares are being held for use in
connection with any exercise of the New Warrants.  16.
    Warrants (Dollars in Thousands, Except Per Share and Per Warrant Amounts) On June 29, 2004, the Company issued $90,000 of 11.5% Senior Secured Notes together with the
90,000 Warrants to purchase an aggregate of 805,230 shares of common stock of the Company (New
Warrants). The aggregate purchase price of the 11.5% Senior Secured Notes and the 90,000 of New
Warrants was $90,000. Each of the New Warrants entitles the holder to purchase 8.947 shares of
the Companys common stock at an exercise price of $.01 per share through the June 15, 2011
expiration date. The New
Warrants were valued for accounting purposes using a fair value method.
Using a fair value method, each of the New Warrants was valued at $11.117 for an aggregate fair value
of the warrant issuance of $1,001. Pursuant to
the Bankruptcy Plan, holders of the Old Common Stock received
Warrants to purchase shares of New Common Stock.
At December 31, 2004, 304,127 Warrants are outstanding. The Warrants have
a seven-year term expiring on
April 2, 2010, and have an exercise price of $10.00 per share.  17.
    Income Taxes Reorganized Company
    
    
    
    Predecessor CompanyApril 3, 2003
    
    
    
    January 1, 2003to
    
    
    
    to2004
    
    
    December 31, 2003
    
    
    
    April 2, 2003
    
    
    2002Pretax income (loss)
from continuing operations consisted ofDomestic
    
    $
    22,242
    
    
    $
    (47,739
    )
    
    
    $
    151,141
    
    
    $
    (18,417
    )Foreign
    
    
    (1,566
    )
    
    
    522
    
    
    
    
    1,011
    
    
    
    (2,210
    )Total
    
    $
    20,676
    
    
    $
    (47,217
    )
    
    
    $
    152,152
    
    
    $
    (20,627
    )
 F-36




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) The provision (benefit) for income taxes consisted of: Reorganized Company
    
    
    
    Predecessor CompanyJanuary 1,April 3, 2003
    
    
    
    2003to
    
    
    
    toDecember 31,
    
    
    
    April 2,2004
    
    
    2003
    
    
    
    2003
    
    
    2002CurrentFederal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,145
    )Foreign
    
    $
    558
    
    
    $
    449
    
    
    
    $
    614
    
    
    
    1,530State
    
    
    4
    
    
    
    13
    
    
    
    
    4
    
    
    
    36Total current
    
    
    562
    
    
    
    462
    
    
    
    
    618
    
    
    
    (579
    )DeferredFederal
    
    
    (4,700
    )Foreign
    
    
    (503
    )
    
    
    (1,052
    )
    
    
    
    (339
    )
    
    
    (718
    )StateTotal deferred
    
    
    (5,203
    )
    
    
    (1,052
    )
    
    
    
    (339
    )
    
    
    (718
    )Total
    
    $
    (4,641
    )
    
    $
    (590
    )
    
    
    $
    279
    
    
    $
    (1,297
    )
 A reconciliation from the statutory Federal tax rate to the effective tax rate follows: Reorganized Company
    
    
    
    Predecessor CompanyJanuary 1,April 3, 2003
    
    
    
    2003to
    
    
    
    toDecember 31,
    
    
    
    April 2,2004
    
    
    2003
    
    
    
    2003
    
    
    2002Statutory Federal tax rate
    
    
    35.00
    %
    
    
    35.00
    %
    
    
    
    35.00
    %
    
    
    35.00
    %Increase (decrease) in tax rate due to:State and local taxes net of related
Federal tax benefit
    
    
    (0.02
    )
    
    
    0.03
    
    
    
    
    
    
    
    
    (0.17
    )Net effect of taxes relating to
foreign operations
    
    
    (0.06
    )
    
    
    2.28
    
    
    
    
    (0.07
    )
    
    
    (2.03
    )Reversal of overaccrued taxes
    
    
    (22.73
    )Valuation allowance changes and other
    
    
    (34.67
    )
    
    
    (35.89
    )
    
    
    
    (34.75
    )
    
    
    (26.50
    )Other
    
    
    0.03
    
    
    
    (0.06
    )
    
    
    
    0.01Effective tax rate
from continuing  operations
    
    
    (22.45
    )%
    
    
    1.36
    %
    
    
    
    0.19
    %
    
    
    6.30
    %
 F-37




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) Temporary differences and carryforwards that give rise to a significant portion of deferred tax
assets and liabilities for 2004 and 2003 are as follows: Year 2004Temporary difference
    
    
    Tax effectedDeferred
    
    
    Deferred
    
    
    Deferred
    
    
    Deferredtax
    
    
    tax
    
    
    tax
    
    
    taxassets
    
    
    liabilities
    
    
    assets
    
    
    liabilitiesDepreciation basis differences
    
    
    
    
    
    $
    51,170
    
    
    
    
    
    
    $
    19,956Inventory basis differences
    
    
    
    
    
    
    3,812
    
    
    
    
    
    
    
    1,487Employee benefits accruals
    
    
    66,715
    
    
    
    
    
    
    
    26,019Self insurance accruals and reserves
    
    
    2,763
    
    
    
    
    
    
    
    1,078Other accruals and reserves
    
    
    15
    
    
    
    
    
    
    
    6Foreign exchange and other
    
    
    
    
    
    
    23,943
    
    
    
    
    
    
    
    9,338Valuation allowances
    
    
    
    
    
    
    25,660
    
    
    
    
    
    
    
    10,008$
    69,493
    
    
    $
    104,585
    
    
    $
    27,103
    
    
    $
    40,789
 Year 2003Temporary difference
    
    
    Tax effectedDeferred
    
    
    Deferred
    
    
    Deferred
    
    
    Deferredtax
    
    
    tax
    
    
    tax
    
    
    taxassets
    
    
    liabilities
    
    
    assets
    
    
    liabilitiesDepreciation basis differences
    
    
    
    
    
    $
    66,358
    
    
    
    
    
    
    $
    25,880Inventory basis differences
    
    
    
    
    
    
    4,743
    
    
    
    
    
    
    
    1,850Lease transaction
    
    $
    44,799
    
    
    
    
    
    
    $
    17,472Pension and health care
    
    
    73,947
    
    
    
    
    
    
    
    28,838Employee benefits accruals
    
    
    5,084
    
    
    
    
    
    
    
    1,983Self insurance accruals and reserves
    
    
    3,153
    
    
    
    
    
    
    
    1,230Other accruals and reserves
    
    
    15
    
    
    
    
    
    
    
    6Foreign exchange and other
    
    
    
    
    
    
    23,943
    
    
    
    
    
    
    
    9,338Valuation allowances
    
    
    
    
    
    
    78,670
    
    
    
    
    
    
    
    30,680$
    126,998
    
    
    $
    173,714
    
    
    $
    49,529
    
    
    $
    67,748
 During the calendar year 2003, the Company emerged out of bankruptcy with the conversion of
$163 million of Old Senior Notes being converted to 8% Senior Notes and stock. This results in a
$103 million reduction of debt, which represents cancellation of debt income (COD), which is
governed by Internal Revenue Code Section 108. Under Section 108, the Company did not recognize
any taxable income for calendar year 2003 but reduced tax attributes up to the extent of the COD
income. This tax attribute reduction was used to eliminate the Companys Net Operating Loss
carryforward and reduced the tax basis of assets that the Company had previously written off for
book purposes. The Company joins in filing a United States consolidated Federal income tax return including all
of its domestic subsidiaries. F-38




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)  18.
    CommitmentsAs of December 31, 2004 and 2003, the Company had capital expenditure commitments outstanding of
approximately $4,657 and $7,373, respectively.19.
    ContingenciesIn 1988, Viskase Canada Inc. (Viskase Canada), a subsidiary of the Company, commenced a
lawsuit against Union Carbide Canada Limited and Union Carbide Corporation (Union Carbide) in
the Ontario Superior Court of Justice, Court File No.: 292270188 seeking damages resulting from
Union Carbides breach of environmental representations and warranties under the Amended and
Restated Purchase and Sale Agreement, dated January 31, 1986 (Agreement). Pursuant to the
Agreement, Viskase Corporation and various affiliates (including Viskase Canada) purchased from
Union Carbide and Union Carbide Films Packaging, Inc., its cellulosic casings business and
plastic barrier films business (Business), which purchase included a facility in Lindsay,
Ontario, Canada (Site). Viskase Canada is claiming that Union Carbide breached several
representations and warranties and deliberately and/or negligently failed to disclose the
existence of contamination on the Site.In November 2000, the Ontario Ministry of the Environment (MOE) notified Viskase Canada that
it had evidence to suggest that the Site was a source of polychlorinated biphenyl (PCB)
contamination. Viskase Canada and The Dow Chemical Company, corporate successor to Union Carbide
(Dow), have been working with the MOE in investigating the PCB contamination and developing,
if appropriate, a remedial plan for the Site and the affected area.The Company and Dow have reached an agreement in principle for resolution of all outstanding
matters between them whereby Dow would repurchase the site for $1,375 (Canadian), would be
responsible and assume the cost of remediation of the site, would indemnify Viskase Canada and
its affiliates, including the Company, in relation to all related environmental liabilities at
the site and dismissal of the action referred to above. As of December 31, 2004, the Company had
a reserve of $538 (U.S.) for property remediation and cost.In 1993, the Illinois Department of Revenue (IDR) submitted a proof of claim against
Envirodyne Industries, Inc. (now known as Viskase Companies, Inc.) and its subsidiaries in
Bankruptcy Court, Bankruptcy Case Number 93 B 319 for alleged liability with respect to the
IDRs denial of the Companys allegedly incorrect utilization of certain loss carry-forwards of
certain of its subsidiaries. In September 2001, the Bankruptcy Court denied the IDRs claim and
determined the debtors were not responsible for 1998 and 1999 tax liabilities, interest and
penalties. IDR appealed the Bankruptcy Courts decision to the United States District Court,
Northern District of Illinois, Case Number 01 C 7861; and in February 2002 the district court
affirmed the Bankruptcy Courts order. IDR appealed the district courts order to United States
Court of Appeals for the Seventh Circuit, Case Number 02-1632. On January 6, 2004, the appeals
court reversed the judgment of the district court and remanded the case for further proceedings.
The matter is now before the Bankruptcy Court for further determination. As of December 31,
2004, the tax liabilities, interest and penalties claimed totaled approximately $2,860.During 1999 and 2000, the Company and certain of its subsidiaries and one other sausage casings
manufacturer were named in ten virtually identical civil complaints filed in the United States
District Court for the District of New Jersey. The District Circuit ordered all of these cases
consolidated in Civil Action No. 99-5195-MLC (D.N.J.). Each complaint brought on behalf of a
purported class of sausage casings customers alleges that the defendants unlawfully conspired to
fix prices and allocate business in the sausage casings industry. In 2001, all of the
consolidated cases were transferred to the United States District Court for the Northern
District of Illinois, Eastern Division. The Company strongly denies the allegations set forth in
these complaints. F-39




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)  In May 2004, the Company entered into settlement agreement, without the admission of any
liability (Settlement Agreement) with the plaintiffs. Under terms of the Settlement Agreement,
the plaintiffs fully released the Company and its subsidiaries from all liabilities and claims
arising from the civil action in exchange for the payment of a $300 settlement amount, which
amount was reserved in the December 31, 2003 financial statements.In August 2001, the Department of Revenue of the Province of Quebec, Canada issued an assessment
against Viskase Canada in the amount of approximately $2,700 (Canadian) plus additional interest
and possible penalties to accrue from August 31, 2001. This assessment is based upon Viskase
Canadas failure to collect and remit sales tax during the period July 1, 1997 to May 31, 2001.
During this period, Viskase Canada did not collect and remit sales tax in Quebec on reliance of
the written advice of its outside accounting firm. Viskase Canada filed a Notice of Objection in
November 2001 with supplementary submission in October 2002. The Notice of Objection found in
favor of the Department of Revenue. The Company has appealed the decision. The Company has
provided for a reserve of $300 U.S. for interest and penalties, if any, but have not provided
for a reserve for the underlying sales tax. Although the ultimate liability for the Quebec sales
tax lies with the customers of Viskase Canada during the relevant period, Viskase Canada could
be required to pay the amount of the underlying sales tax prior to collecting such tax from its
customers, and its customers may be unwilling to fully reimburse Viskase Canada for such tax.
Viskase Canada is negotiating with the Quebec Department of Ministry to avoid having to collect
the sales tax from customers. Those negotiations have resulted in Viskase Canada making a
settlement offer, whereby Viskase Canada would pay $300 (Canadian) and there would be no
collection of the underlying sales tax from the customers of Viskase Canada. The settlement
offer has been recommended internally for approval by the ultimate decision making authority
within the Quebec Department of Revenue.Under the Clean Air Act Amendments of 1990, various industries, including casings manufacturers,
will be required to meet maximum achievable control technology (MACT) air emissions standards
for certain chemicals. MACT standards applicable to all U.S. cellulosic casing manufacturers
were promulgated June 11, 2002. The Company submitted extensive comments to the EPA during the
public comment period. Compliance with these new rules is required by June 13, 2005, although
the Company has obtained a one-year extension for both of its facilities. To date, the Company
has spent approximately $5,800 in capital expenditures for MACT, and expects to spend an
additional $4,500 over the next 12 months to become compliant with MACT rules at our two U.S.
extrusion facilities. Although the Company is in the process of installing the technology
necessary to meet these emissions standards at our two extrusion facilities, our failure to do
so, or our failure to receive any further compliance extensions from the regulatory agencies, if
required, could result in substantial penalties, including civil fines of up to $65 per facility
per day or a shutdown of our U.S. extrusion operations.The Company is involved in these and various other legal proceedings arising out of our business
and other environmental matters, none of which are expected to have a material adverse effect
upon results of operations, cash flows or financial condition. F-40




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VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)  20.
    Earnings Per Share Following are the reconciliations of the numerators and denominators of the basic and diluted
EPS (in thousands, except for number of shares and per share amounts): PredecessorReorganized Company
    
    
    
    CompanyYear
    
    
    April 3
    
    
    
    January 1Ended
    
    
    through
    
    
    
    throughDecember
    
    
    December
    
    
    
    April31, 2004
    
    
    31, 2003
    
    
    
    2, 2003
    
    
    2002NUMERATOR:Income (loss) available to common stockholders:Net income (loss)
    
    $
    25,317
    
    
    ($
    46,627
    )
    
    
    $
    151,873
    
    
    ($
    19,330
    )Net income (loss) available to common stockholders
for basic and diluted EPS
    
    $
    25,317
    
    
    ($
    46,627
    )
    
    
    $
    151,873
    
    
    ($
    19,330
    )DENOMINATOR:Weighted average shares outstanding
for basic EPS
    
    
    10,013,828
    
    
    
    10,381,298
    
    
    
    
    15,314,553
    
    
    
    15,316,183Effect of dilutive securities
    
    
    854,324Weighted average shares outstanding
for diluted EPS
    
    
    10,868,152
    
    
    
    10,381,298
    
    
    
    
    15,314,553
    
    
    
    15,316,183
 Common stock equivalents, consisting of the 2008 Warrants for 805,270 and the 500,000 stock
options issued to the President and Chief Executive Officer are dilutive and the effect of these
dilutive securities have been included in weighted average shares for diluted earning per share
using the treasury method for the Reorganized Company. Common stock equivalents, consisting of
common stock options (all of which were canceled upon emergency from bankruptcy), are excluded
from the weighted-average shares outstanding as the effect is antidilutive on the Predecessor
Company. The vested portion of the Restricted Stock is included in the weighted-average shares
outstanding for basic earnings per share for the Reorganized Company. Common stock equivalents,
consisting of the 2010 Warrants, exercisable for a total of 304,127 shares of common stock, and
the unvested restricted stock, totaling 280,005 shares, issued by the Reorganized Company have
been excluded as their effect is antidilutive. Non-vested shares that vest based solely on
continued employment and are not subject to any performance contingency are included in the
computation of diluted EPS using the treasury stock method. F-41




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VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)  21.
    Comprehensive Gain (Loss)The following sets forth the changes in the components of other comprehensive income (loss) and
the related income tax (benefit) provision (in thousands):  Reorganized Company
    
    
    
    Predecessor CompanyApril 3, 2003
    
    
    
    January 2,to
    
    
    
    2003December 31,
    
    
    
    to2004
    
    
    2003
    
    
    
    April 2, 2003
    
    
    2002Other comprehensive income (loss)Foreign currency
translation adjustment (1)
    
    $
    3,061
    
    
    $
    4,547
    
    
    
    $
    (845
    )
    
    $
    3,711Minimum pension liability
adjustment (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,573
    )Other comprehensive income
(loss), net of tax
    
    $
    3,061
    
    
    $
    4,547
    
    
    
    $
    (845
    )
    
    $
    (17,862
    )
   (1)
    
    Foreign currency translation adjustments, net of related tax provision of $0 for all periods.(2)
    
    Minimum pension liability adjustment, net of a related tax provision of $0 in 2002. The
minimum pension liability adjustment is due to changes in plan return assumptions and asset
performance.  22.
    Stock-Based Compensation (Dollars in Thousands, Except Per Share Amounts) The Companys net income and net income per common share would have been reduced to the pro
forma amounts indicated below if compensation cost for the Companys stock option plan had been
determined based on the fair value at the grant date for awards in accordance with the
provisions of SFAS No. 123. 2004Net income:As reported
    
    $
    25,317Pro forma
    
    $
    25,295Basic earnings per share:As reported
    
    $
    2.53Pro forma
    
    $
    2.53Diluted earnings per share:As reported
    
    $
    2.33Pro forma
    
    $
    2.33
 The fair values of the options granted during 2004 were estimated on the date of grant using the
binomial option pricing model. The assumptions used and the estimated fair values are as
follows: 2004Expected term
    
    5 yearsExpected stock volatility
    
    
    16.05
    %Risk-free interest rate
    
    
    3.44
    %Fair value
    
    $
    0.54
 The Company has granted non-qualified stock options to its chief executive officer for the
purchase of 500,000 shares of its common stock under an employment agreement. Options are
granted at fair market value at date of grant and one-third vests on each of the first, second
and third anniversaries F-42




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VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) of the employment agreement, subject to acceleration in certain events. The options expire five
years from the date of grant. The Companys outstanding options were: WeightedShares
    
    
    AverageUnder
    
    
    ExerciseOption
    
    
    PriceOutstanding, January 1, 2004
    
    
    0Granted
    
    
    500,000
    
    
    $
    2.40Exercised
    
    
    0Terminated and expired
    
    
    0Outstanding, December 31, 2004
    
    
    500,000
    
    
    $
    2.40
 None of the options were exercisable as of December 31, 2004.  23.
    Fair Value of Financial Instruments The following table presents the carrying value and estimated fair value as of December 31,
2004, of the Companys financial instruments (refer to Notes 4 and 10) Carrying
    
    
    Estimatedvalue
    
    
    fair valueAssetsCash and cash equivalents
    
    $
    30,255
    
    
    $
    30,255Restricted cash
    
    
    3,461
    
    
    
    3,461$
    33,716
    
    
    $
    33,716LiabilitiesLong-term debt
    
    $
    100,962
    
    
    $
    103,801
  24.
    Research and Development Costs Research and development costs from continuing operations for the Reorganized Company are
expensed as incurred and totaled $2,697 for 2004 and $2,628 for the period April 3 through
December 31, 2003. Research and development costs from continuing operations for the Predecessor
Company are expensed as incurred and totaled $970 and $4,837 for the period January 1 through
April 3, 2003 and 2002, respectively.  25.
    Related-Party Transactions Reorganized Company During the year ended December 31, 2004, the Company purchased $98 in telecommunication services
in the ordinary course of business from XO Communications, Inc., an affiliate of Carl C. Icahn,
who may be deemed to be a beneficial owner of approximately 29.1% of the Companys common stock.
The Company believes that the purchase of the telecommunications services were on terms at least
as favorable as those that the Company would expect to negotiate with an unaffiliated party. F-43




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VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) Arnos Corp., an affiliate of Carl C. Icahn, was the lender on the Companys Old Revolving Credit
Facility. The Company paid Arnos Corp. origination fees, interest and unused commitment fees of
$144 during the year ended December 31, 2004 and $175 during the period from April 3, 2003
through December 31, 2003. The Company believes that the terms of the former revolving credit
facility were at least as favorable as those that the Company would have expected to negotiate
with an unaffiliated party. On June 29, 2004 the Company repurchased 805,270 shares of common stock (representing
approximately 7.34% of the issued and outstanding common stock on a fully diluted basis as of
June 17, 2004) held by Jefferies & Company, Inc., the initial purchaser of the Outstanding
Notes, or its affiliates for total consideration of $298. Predecessor Company Gregory R. Page, the President and Chief Operating Officer of Cargill, Inc., resigned as a
director of the Company as of the date the Company emerged from bankruptcy in April 2003. During
2003, the Company had sales in the ordinary course of business of $613 to Cargill, Inc. and its
affiliates, $200 of which occurred prior to Mr. Pages resignation in April 2003.  26.
    Business Segment Information and Geographic Area Information The Company primarily manufactures and sells cellulosic food casings. The Companys operations
are primarily in North America, South America and Europe. 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. Other expense for 2004, the period April 3 through December 31, 2003 for the
Reorganized Company, the period January 1 through April 2, 2003 for the Predecessor Company, and
2002 includes net foreign exchange transaction gains (losses) of approximately $1,451, $3,280,
$1,474, and $1,659, respectively. F-44




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) Geographic Area Information Reorganized Company
    
    
    
    Predecessor CompanyNinemonthsended
    
    
    
    ThreeDecember
    
    
    
    months31,
    
    
    
    ended2004
    
    
    2003
    
    
    
    April 2, 2003
    
    
    2002Net salesUnited States
    
    $
    130,654
    
    
    $
    97,832
    
    
    
    $
    29,470
    
    
    $
    115,798Canada
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,850South America
    
    
    7,630
    
    
    
    5,857
    
    
    
    
    1,606
    
    
    
    7,424Europe
    
    
    87,072
    
    
    
    60,705
    
    
    
    
    17,939
    
    
    
    66,458Other and eliminations
    
    
    (18,250
    )
    
    
    (11,986
    )
    
    

    
    (3,613
    )
    
    
    (12,953
    )$
    207,106
    
    
    $
    152,408
    
    
    
    $
    45,402
    
    
    $
    183,577Operating income (loss)United States
    
    $
    13,488
    
    
    $
    (37,063
    )
    
    
    $
    (1,433
    )
    
    $
    4,040Canada
    
    
    (665
    )
    
    
    (376
    )
    
    
    
    (98
    )
    
    
    (449
    )South America
    
    
    (1,243
    )
    
    
    (900
    )
    
    
    
    (190
    )
    
    
    (1,435
    )Europe
    
    
    (22
    )
    
    
    (2,474
    )
    
    
    
    (298
    )
    
    
    186Other and eliminations$
    11,558
    
    
    $
    (40,813
    )
    
    
    $
    (2,019
    )
    
    $
    2,342Identifiable assetsUnited States
    
    $
    113,836
    
    
    $
    115,711
    
    
    
    $
    114,997
    
    
    $
    131,447Canada
    
    
    842
    
    
    
    745
    
    
    
    
    770
    
    
    
    1,466South America
    
    
    7,535
    
    
    
    7,870
    
    
    
    
    8,937
    
    
    
    8,849Europe
    
    
    91,219
    
    
    
    87,767
    
    
    
    
    75,597
    
    
    
    76,919Other and eliminations$
    213,432
    
    
    $
    212,093
    
    
    
    $
    200,301
    
    
    $
    218,681United States export sales
(reported in North America net sales above)Asia
    
    $
    18,159
    
    
    $
    15,566
    
    
    
    $
    4,445
    
    
    $
    15,697South and Central America
    
    
    5,529
    
    
    
    3,951
    
    
    
    
    894
    
    
    
    4,951Other international
    
    
    12,512
    
    
    
    8,831
    
    
    
    
    2,573
    
    
    
    5,211$
    36,200
    
    
    $
    28,348
    
    
    
    $
    7,912
    
    
    $
    25,859
 F-45




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)  27.
    Quarterly Data (Unaudited) Quarterly financial information for 2004 and 2003 is as follows (in thousands, except for per
share amounts): Reorganized CompanyFirst
    
    
    Second
    
    
    Third
    
    
    Fourth2004
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    AnnualNet sales
    
    $
    50,615
    
    
    $
    50,797
    
    
    $
    52,954
    
    
    $
    52,740
    
    
    $
    207,106Gross margin
    
    
    10,357
    
    
    
    11,413
    
    
    
    10,906
    
    
    
    9,940
    
    
    $
    42,616Operating (loss) income
    
    
    1,602
    
    
    
    3,555
    
    
    
    3,264
    
    
    
    3,137
    
    
    $
    11,558Net (loss) income
    
    
    (3,762
    )
    
    
    (13,341
    )
    
    
    2,000
    
    
    
    40,420
    
    
    $
    25,317Net (loss) income per share  basic
    
    $
    (0.36
    )
    
    $
    (1.28
    )
    
    $
    0.21
    
    
    $
    4.20
    
    
    $
    2.53Net (loss) income per share  diluted
    
    $
    (0.36
    )
    
    $
    (1.19
    )
    
    $
    0.19
    
    
    $
    3.86
    
    
    $
    2.33
 Predecessor
    
    
    
    Reorganized CompanyCompany
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    April 3,January 1,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    throughthrough
    
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    December2003
    
    April 2,
    
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    31,Net sales
    
    $
    45,402
    
    
    
    $
    49,636
    
    
    $
    51,458
    
    
    $
    51,314
    
    
    $
    152,408Gross margin
    
    
    7,371
    
    
    
    
    10,762
    
    
    
    11,684
    
    
    
    9,973
    
    
    
    32,419Operating (loss) income
    
    
    (2,019
    )
    
    
    
    2,498
    
    
    
    1,602
    
    
    
    (44,913
    )
    
    
    (40,813
    )Net income (loss)
    
    $
    151,873
    
    
    
    $
    830
    
    
    $
    (1,295
    )
    
    $
    (46,162
    )
    
    $
    (46,627
    )Net income (loss) per share
- basic and diluted
    
    $
    9.91
    
    
    
    $
    0.08
    
    
    $
    (0.12
    )
    
    $
    (4.33
    )
    
    $
    (4.37
    )
 Net income (loss) per share amounts are computed independently for each of the quarters
presented using weighted average shares outstanding during each quarter. The sum of the
quarterly per share amounts in 2004 due not agree principally due to treasury stock purchases
for basic and issuance of common stock equivalents for diluted per share amounts. During the period January 1 through April 2, 2003, the Predecessor Company recognized the
cancellation of debt and interest as income in the amount of $153,946 as a result of the Plan. During the second quarter of 2003, the Company recognized a reversal of $333 for an excess
reserve related to the 2002 restructuring reserve. The restructuring income is the result of a
revised estimate for employee costs. During the third quarter of 2003, the Company recognized restructuring expense of $1,500. The
restructuring expense is a result of addressing the industrys competitive environment and is
composed of U.S. employee costs. During the fourth quarter of 2003, the Company recognized a write-off of goodwill of $44,430 and
intangibles of $2,375. Reviews for impairment are performed at least once a year at year-end or
when circumstances warrant. In addition, the Company recognized a European restructuring charge
of $1,002 addressing the industrys competitive environment. This amount was offset by a
reversal of an excess reserve of $1,200 for the renegotiated Nucel® license fee, originally
recognized in the 2000 restructuring reserve. The loss will be measured based on the excess of
carrying value over the determined fair value. The Company terminated post-retirement health care benefits as of December 31, 2004 for all
active employees and all retirees in the United States who are not covered by a collective
bargaining F-46




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##### Table of Contents



VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) agreement. The termination of these United States post-retirement medical benefits resulted in a
$34,055 curtailment gain. F-47




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SUPPLEMENTARY INFORMATION F-48




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##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS Balance at
    
    
    Provision
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balancebeginning
    
    
    charged to
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    at endDescription
    
    of period
    
    
    expense
    
    
    Write-offs
    
    
    Recoveries
    
    
    Other (1)
    
    
    of periodReorganized Company2004
    
    For the year ended December 31Allowance for doubtful accounts
    
    $
    523
    
    
    $
    146
    
    
    $
    (52
    )
    
    $
    77
    
    
    $
    97
    
    
    $
    7912003
    
    For the period April 3 to December
31Allowance for doubtful accounts
    
    
    
    
    
    
    161
    
    
    
    
    
    
    
    331
    
    
    
    31
    
    
    
    523Predecessor Company2003
    
    For the period January 1 to April 2Allowance for doubtful accounts
    
    
    1,334
    
    
    
    113
    
    
    
    
    
    
    
    1
    
    
    
    (8
    )
    
    
    1,4402002
    
    For the year ended December 31Allowance for doubtful accounts
    
    
    1,470
    
    
    
    477
    
    
    
    (711
    )
    
    
    22
    
    
    
    76
    
    
    
    1,3342001
    

    For the year ended December 31
    
    
    1,675
    
    
    
    425
    
    
    
    (554
    )
    
    
    54
    
    
    
    (130
    )
    
    
    1,470Allowance for doubtful accountsReorganized Company2004
    
    For the year ended December 31Reserve for obsolete and
slow-moving inventories
    
    
    1,781
    
    
    
    1,915
    
    
    
    (1,264
    )
    
    
    
    
    
    
    114
    
    
    
    2,5462003
    
    For the period April 3 to December
31Reserve for obsolete and
slow-moving inventories
    
    
    
    
    
    
    1,605
    
    
    
    
    
    
    
    
    
    
    
    176
    
    
    
    1,781Predecessor Company2003
    
    For the period January 1 to April 2Reserve for obsolete and
slow-moving inventories
    
    
    2,725
    
    
    
    171
    
    
    
    (79
    )
    
    
    
    
    
    
    (6
    )
    
    
    2,8112002
    
    For the year ended December 31Reserve for obsolete and
slow-moving inventories
    
    
    2,816
    
    
    
    1,670
    
    
    
    (1,877
    )
    
    
    
    
    
    
    116
    
    
    
    2,7252001
    
    For the year ended December 31Reserve for obsolete and
slow-moving inventories
    
    
    5,029
    
    
    
    1,150
    
    
    
    (2,029
    )
    
    
    
    
    
    
    (1,334
    )
    
    
    2,816
   (1)
    
    Foreign currency translation F-49




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##### Table of Contents



EXHIBIT INDEX Exhibit No.
    
    
    Description of Exhibit31.1
    
    
    Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002