SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 29, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333-17827
ISP HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0376469
(State of Incorporation) (I. R. S. Employer
Identification No.)
818 Washington Street, Wilmington, Delaware 19801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (302) 428-0847
(Not applicable)
(Former name, former address and former fiscal year, if changed since last
report.)
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 the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES /X/ NO / /
As of August 12, 1997, 1,759,154 shares of the Registrant's common stock (par
value, $.01 per share) were outstanding.
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
ISP HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands, except per share amounts)
Second Quarter Ended Six Months Ended
-------------------- ----------------
June 30, June 29, June 30, June 29,
1996 1997 1996 1997
-------- -------- -------- --------
Net sales................................ $184,955 $197,849 $370,566 $389,006
------- -------- -------- --------
Costs and expenses:
Cost of products sold.................. 107,122 116,358 220,018 230,519
Selling, general and administrative.... 36,511 39,156 71,735 76,492
Goodwill amortization.................. 3,300 3,318 6,600 6,635
------- -------- -------- --------
Total costs and expenses............. 146,933 158,832 298,353 313,646
------- -------- -------- --------
Operating income......................... 38,022 39,017 72,213 75,360
Interest expense......................... (7,022) (18,933) (14,918) (37,530)
Equity in earnings of joint venture...... 1,736 1,361 3,150 2,746
Other income, net........................ 2,879 7,346 6,445 13,389
------- -------- -------- --------
Income from continuing operations before
income taxes and extraordinary item.... 35,615 28,791 66,890 53,965
Income taxes............................. (13,033) (10,386) (24,448) (19,580)
Minority interest in income of
subsidiary............................. (3,914) (3,923) (7,410) (7,699)
------- -------- -------- --------
Income from continuing operations before
extraordinary item..................... 18,668 14,482 35,032 26,686
Loss from discontinued operations, net
of income tax benefits................. (1,900) - (11,145) -
------- -------- -------- --------
Income before extraordinary item......... 16,768 14,482 23,887 26,686
Extraordinary item, net of income
tax benefit of $5,016.................. - - (8,186)
------- -------- -------- --------
Net income .............................. $ 16,768 $ 14,482 $ 15,701 $ 26,686
======== ======== ======== ========
See Notes to Consolidated Financial Statements
1
<PAGE>
ISP HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
December 31, June 29,
1996 1997
------------ -----------
ASSETS (Thousands)
Current Assets:
Cash and cash equivalents....................... $ 17,938 $ 18,465
Investments in trading securities............... 2,334 76,405
Investments in available-for-sale securities.... 158,698 150,406
Investments in held-to-maturity securities...... 1,977 1,720
Other short-term investments.................... 21,435 20,602
Accounts receivable, trade, net................. 66,875 84,067
Accounts receivable, other...................... 12,835 28,233
Receivable from affiliates, net................. 5,236 8,060
Inventories..................................... 108,586 110,683
Net current assets of discontinued operations... 206,708 -
Other current assets............................ 13,239 15,706
---------- ----------
Total Current Assets.......................... 615,861 514,347
Property, plant and equipment, net................ 493,243 501,879
Goodwill, net..................................... 421,017 417,600
Other assets...................................... 70,311 63,303
---------- ----------
Total Assets...................................... $1,600,432 $1,497,129
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Short-term debt................................. $ 22,282 $ 49,458
Current maturities of long-term debt............ 610 484
Accounts payable................................ 43,465 62,650
Accrued liabilities............................. 66,907 78,360
Income taxes.................................... 5,751 6,718
---------- ----------
Total Current Liabilities..................... 139,015 197,670
---------- ----------
Long-term debt less current maturities............ 834,284 848,764
---------- ----------
Deferred income taxes............................. 53,612 48,995
---------- ----------
Net noncurrent liabilities of discontinued
operations...................................... 353,880 -
---------- ----------
Other liabilities................................. 60,758 58,168
---------- ----------
Minority interest in subsidiary................... 116,230 117,525
---------- ----------
Shareholder's Equity:
Cumulative redeemable convertible preferred
stock, $.01 par value per share; 800,000
shares authorized: 0 shares issued........... - -
Common stock, $.01 par value per share;
3,000,000 shares authorized: 1,769,054
shares issued................................. - 18
Additional paid-in capital...................... 46,426 211,705
Treasury stock, at cost - 9,900 shares.......... - (839)
Retained earnings (accumulated deficit)......... (13,925) 12,761
Cumulative translation adjustment and other..... 10,152 2,362
---------- ----------
Shareholder's Equity.......................... 42,653 226,007
---------- ----------
Total Liabilities and Shareholder's Equity ....... $1,600,432 $1,497,129
========== ==========
See Notes to Consolidated Financial Statements
2
<PAGE>
ISP HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
-------------------
June 30, June 29,
1996 1997
--------- --------
(Thousands)
Cash and cash equivalents, beginning of period.......... $ 14,080 $ 17,938
-------- --------
Cash provided by operating activities:
Net income............................................ 15,701 26,686
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss from discontinued operations................. 11,145 -
Extraordinary item................................ 8,186 -
Depreciation...................................... 18,678 20,285
Goodwill amortization............................. 6,600 6,635
Deferred income taxes............................. (7,075) 14,184
(Increase) decrease in working capital items.......... (1,018) (7,220)
Purchases of trading securities....................... (27,403) (83,674)
Proceeds from sales of trading securities............. 27,499 23,110
Increase in net receivable from related parties....... (14,109) (2,824)
Change in cumulative translation adjustment........... (4,846) (6,491)
Change in minority interest in subsidiary............. 6,441 6,651
Other, net............................................ 2,112 5,820
-------- --------
Net cash provided by operating activities........... 41,911 3,162
-------- --------
Cash provided by (used in) investing activities:
Capital expenditures and acquisition.................. (21,197) (31,184)
Cash flow from discontinued operations................ 1,528 -
Purchases of available-for-sale securities............ (130,064) (140,454)
Purchases of held-to-maturity securities.............. (3,306) (1,623)
Proceeds from sales of available-for-sale securities.. 133,178 137,197
Proceeds from held-to-maturity securities............. 3,421 1,881
-------- --------
Net cash used in investing activities............... (16,440) (34,183)
-------- --------
Cash provided by (used in) financing activities:
Increase (decrease) in short-term debt................ (8,757) 27,176
Increase (decrease) in borrowings under revolving
credit facility... ........................... (28,800) 14,575
Other increase (decrease) in long-term debt, net...... 318 (286)
Increase in loans from affiliate...................... 15,095 -
Financing fees........................................ (51) (733)
Repurchases of common stock........................... - (839)
Subsidiary's repurchases of common stock.............. (4,816) (9,295)
Dividends and distributions to parent company......... (15,232) -
Capital contribution from parent company.............. 13,701 -
Other................................................. 772 950
-------- --------
Net cash provided by (used in) financing activities. (27,770) 31,548
-------- --------
Net change in cash and cash equivalents................. (2,299) 527
-------- --------
Cash and cash equivalents, end of period................ $ 11,781 $ 18,465
======== ========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)................ $ 17,140 $ 34,908
Income taxes........................................ 4,879 952
See Notes to Consolidated Financial Statements
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The "Company" refers to ISP Holdings Inc. and its subsidiaries, and the
"Registrant" refers to ISP Holdings Inc. These consolidated financial
statements have been prepared on a basis which retroactively reflects the
formation of the Registrant, as discussed in Note A below, for all periods
presented and reflect, in the opinion of the Registrant, all adjustments
necessary to present fairly the financial position of the Company at December
31, 1996 and June 29, 1997, and the results of operations and cash flows for
the periods ended June 30, 1996 and June 29, 1997. All adjustments are of a
normal recurring nature. These financial statements should be read in
conjunction with the annual financial statements and notes thereto included in
Amendment No. 2 to the Registrant's Form S-4 Registration Statement
(Registration No. 333-17827) (the "Form S-4").
NOTE A: Prior to January 1, 1997, the Registrant was a wholly owned
subsidiary of GAF Corporation ("GAF"). The Registrant was formed on
August 6, 1996, and 10 shares of its common stock were issued to GAF
in exchange for all of the capital stock of G-I Holdings Inc. ("G-I
Holdings"). On January 1, 1997, GAF effected a series of
transactions that resulted in, among other things, the capital stock
of the Registrant being distributed to the stockholders of GAF. As a
result of such distribution, the Registrant and its principal asset,
which is approximately 84% of the issued and outstanding shares of
capital stock of International Specialty Products Inc. ("ISP"), are
no longer direct or indirect assets of GAF or its subsidiary, G-I
Holdings, while Building Materials Corporation of America and U.S.
Intec, Inc. and certain other assets and liabilities, including
liabilities for asbestos-related claims, remain part of G-I Holdings
and GAF, but are not assets or liabilities of the Company.
NOTE B: Inventories consist of the following:
December 31, June 29,
1996 1997
------------ --------
(Thousands)
Finished goods $ 68,436 $ 73,618
Work in process............ 24,261 21,559
Raw materials and supplies 17,814 19,556
-------- --------
Total...................... 110,511 114,733
Less LIFO reserve.......... (1,925) (4,050)
-------- --------
Inventories................ $108,586 $110,683
======== ========
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C: Contingencies
Asbestos Litigation Against GAF
GAF is a defendant in a substantial number of pending lawsuits
involving asbestos-related bodily injury claims. GAF and G-I
Holdings have established reserves for such claims based on certain
assumptions, one of which was the effectiveness of a class action
settlement of future asbestos-related bodily injury claims (the
"Settlement"). On June 25, 1997, the United States Supreme Court
affirmed the ruling of the United States Court of Appeals for the
Third Circuit that the class in such action was not certifiable, thus
rendering the Settlement inoperable. GAF and G-I Holdings have
advised the Company that they are presently evaluating the effect of
this recent Supreme Court decision on the amount of their reserves
for asbestos-related liabilities, that such analysis could result in
GAF and G-I Holdings increasing their estimates of asbestos-related
liabilities, and that it is not currently possible to estimate the
range or amount, if any, of such possible additional reserves. GAF
and G-I Holdings have stated that they remain committed to
effectuating a comprehensive resolution of asbestos-related bodily
injury claims, that they are presently exploring a number of options,
both judicial and legislative, to accomplish such resolution, but
that there can be no assurance that these efforts will be successful.
Neither ISP, the Registrant nor the assets or operations of ISP,
which was operated as a division of a corporate predecessor of GAF
prior to July 1986, have been involved in the manufacture or sale of
asbestos products. The Company believes that it and ISP should have
no legal responsibility for damages in connection with asbestos-
related claims.
For further information regarding asbestos-related matters,
reference is made to Note 13 to Consolidated Financial Statements
contained in the Form S-4.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C: (Continued)
Environmental Litigation
The Company, together with other companies, is a party to a
variety of administrative proceedings and lawsuits involving
environmental matters ("Environmental Claims"), in which recovery is
sought for the cost of cleanup of contaminated sites, a number of
which Environmental Claims are in the early stages or have been
dormant for protracted periods.
In the opinion of the Company's management, the resolution of
the Environmental Claims should not be material to the business,
liquidity, results of operations, cash flows or financial position of
the Company. However, adverse decisions or events, particularly as
to the liability and the financial responsibility of the Company's
insurers and of the other parties involved at each site and their
insurers, could cause the Company to increase its estimate of its
liability in respect of such matters. It is not currently possible
to estimate the amount or range of any additional liability.
For further information regarding environmental matters,
reference is made to "Business - Environmental Litigation" contained
in the Form S-4.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Second Quarter 1997 Compared With
Second Quarter 1996
The Company recorded second quarter 1997 income from continuing operations
of $14.5 million versus $18.7 million in the second quarter of 1996. The
decrease was attributable to increased interest expense resulting from the
issuance of $524.9 million of the Registrant's senior debt in October 1996,
partially offset by higher operating and other income.
Net sales for the second quarter of 1997 were $197.8 million, a 7%
increase compared with $185 million for the second quarter of 1996. The higher
sales primarily reflected higher sales of specialty chemicals (up $12.7
million) as a result of increased sales volumes (up $21.9 million), partially
offset by the unfavorable effect of the stronger U.S. dollar relative to other
currencies in certain areas of the world ($5.1 million), and by unfavorable
selling prices. The sales growth in the second quarter reflected increased
sales in the U.S., the Asia-Pacific region and the Western Hemisphere,
partially offset by lower sales in Europe due primarily to the effect of the
stronger U.S. dollar.
Operating income for the second quarter of 1997 increased by 3% to $39
million from last year's $38 million. The higher operating income resulted
from increased sales across all business segments and improved income from
filter products (up $1.1 million) and mineral products (up $.9 million), both
due to improved gross profit margins, partially offset by slightly lower
specialty chemicals results due to lower gross profit margins resulting
primarily from the effect of the stronger U.S. dollar and product mix.
Interest expense for the second quarter was $18.9 million compared with $7
million in the second quarter of 1996. The higher interest expense was
attributable to higher debt levels. Other income, net, for the second quarter
of 1997 was $7.3 million compared with $2.9 million in the second quarter of
1996, with the increase resulting primarily from higher investment income (up
$4.1 million).
Results of Operations - Six Months 1997 Compared With
Six Months 1996
For the first six months of 1997, the Company recorded income from
continuing operations of $26.7 million compared with $35 million for the first
six months of 1996. The decrease was attributable to increased interest
expense resulting from the issuance of $524.9 million of the Registrant's
senior debt in October 1996, partially offset by higher operating and other
income.
7
<PAGE>
Net sales for the first six months of 1997 were $389 million versus net
sales of $370.6 million for the same period in 1996. The higher sales
reflected increased sales in all business segments, principally specialty
chemicals (up $15.3 million) and mineral products (up $2.8 million). The sales
growth in specialty chemicals was attributable to increased sales volumes (up
$31.2 million), partially offset by the unfavorable effect of the stronger U.S.
dollar relative to other currencies in certain areas of the world ($10
million), and by unfavorable pricing. The higher mineral products sales were
due to increased sales volumes and favorable pricing. The sales growth
reflected sales increases in the U.S., the Asia-Pacific region and the Western
Hemisphere, partially offset by lower sales in Europe due primarily to the
effect of the stronger U.S. dollar.
Operating income for the first six months of 1997 was $75.4 million, a 4%
increase over the $72.2 million recorded in the first six months of 1996. The
higher operating income reflected improved results in all business segments,
principally mineral products (up $2.4 million) and filter products (up $1.8
million), due to higher sales and improved gross profit margins.
Interest expense for the first six months of 1997 was $37.5 million
compared with $14.9 million for the same period in 1996. The higher interest
expense was primarily attributable to higher debt levels. Other income, net,
for the first six months of 1997 was $13.4 million compared with $6.4 million
last year, with the increase resulting primarily from higher investment income
(up $5.8 million) and lower miscellaneous, nonrecurring items of other expense.
Liquidity and Financial Condition
During the first six months of 1997, the Company generated cash from
operations of $3.2 million, reinvested $31.2 million for capital programs and
invested $3.0 million for net purchases of available-for-sale and held-to-
maturity securities, for a net cash outflow of $31 million before financing
activities. Cash from operations reflected a $60.6 million cash outlay for net
purchases of trading securities and also included $6.3 million of dividends
received from the GAF-Huls Chemie GmbH joint venture. Working capital
increased by $7.2 million, primarily reflecting a $17.2 million increase in
trade accounts receivable due to higher sales in June 1997 versus December
1996, a $15.4 million increase in accounts receivable, other, mainly from the
sale of ISP's domestic trade accounts receivable, and a $2.1 million increase
in inventories, partially offset by a $29.9 million increase in accounts
payable and accrued liabilities.
8
<PAGE>
Net cash generated from financing activities in the first six months of
1997 totaled $31.5 million, mainly reflecting $27.2 million of additional short-
term borrowings and a $14.6 million increase in borrowings under ISP's bank
revolving credit facility, partially offset by $9.3 million of repurchases of
ISP's common stock pursuant to ISP's share repurchase program.
As a result of the foregoing factors, cash and cash equivalents increased
by $.5 million during the first six months of 1997 to $18.5 million (excluding
$249.1 million of trading, available-for-sale and held-to-maturity securities
and other short-term investments).
The Registrant is a holding company without independent businesses or
operations and, as such, is dependent upon the cash flow of its approximately
84%-owned subsidiary, ISP, in order to satisfy its obligations. The Registrant
expects to satisfy such obligations from, among other things, refinancings of
debt, dividends and loans from ISP, as to which there are restrictions under
ISP's revolving credit facility and the indenture relating to ISP's 9% Senior
Notes, and payments pursuant to the Tax Sharing Agreement between the
Registrant and ISP. As of June 29, 1997, it would have been permissible for
ISP to pay dividends in the aggregate amount of $93.8 million, of which $78.8
million would have been available to the Registrant, and to make loans to
affiliates of $75 million. In addition, as of June 29, 1997, loans in the
aggregate amount of $50 million were owed by ISP to the Registrant.
See Note C to Consolidated Financial Statements for information regarding
contingencies.
9
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only.
(b) No Reports on Form 8-K were filed during the quarter ended
June 29, 1997.
10
<PAGE>
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.
ISP HOLDINGS INC.
DATE: August 12, 1997 BY: /s/James P. Rogers
--------------- ------------------------------
James P. Rogers
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
DATE: August 12, 1997 BY: /s/Jonathan H. Stern
--------------- ------------------------------
Jonathan H. Stern
Vice President and Controller
(Principal Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SECOND
QUARTER 10-Q OF ISP HOLDINGS INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-29-1997
<CASH> 18,465
<SECURITIES> 228,531
<RECEIVABLES> 84,067
<ALLOWANCES> 0
<INVENTORY> 110,683
<CURRENT-ASSETS> 514,347
<PP&E> 501,879
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,497,129
<CURRENT-LIABILITIES> 197,670
<BONDS> 848,764
0
0
<COMMON> 18
<OTHER-SE> 225,989
<TOTAL-LIABILITY-AND-EQUITY> 1,497,129
<SALES> 389,006
<TOTAL-REVENUES> 389,006
<CGS> 230,519
<TOTAL-COSTS> 230,519
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,530
<INCOME-PRETAX> 53,965
<INCOME-TAX> 19,580
<INCOME-CONTINUING> 26,686
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,686
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
