<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 0-24813
INSILCO HOLDING CO.
(Exact name of registrant as specified in its charter)
Delaware 06-1158291
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 Metro Place North
Fifth Floor
Dublin, Ohio 43017
(Address of principal executive offices) (Zip Code)
614-792-0468
(Registrant's telephone number, including area code)
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. (X) Yes ( ) No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 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. (X) Yes ( ) No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of May 13, 1999, 1,472,487
shares of common stock, $.001 par value, were outstanding.
<PAGE> 2
INSILCO HOLDING CO. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
- --------------------------------
Item 1. Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
Item 3. Quantitative and Qualitative Disclosure About Market Risk 17
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Securities Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
2
<PAGE> 3
INSILCO HOLDING CO. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
--------------------------------
<TABLE>
<CAPTION>
<S> <C>
Condensed Consolidated Balance Sheets at March 31, 1999 4
and December 31, 1998
Condensed Consolidated Statements of Operations for the 5
three months ended March 31, 1999 and 1998
Condensed Consolidated Statements of Cash Flows for the 6
three months ended March 31, 1999 and 1998
Notes to the Condensed Consolidated Financial Statements (Unaudited) 7
Independent Auditors' Review Report 13
</TABLE>
3
<PAGE> 4
INSILCO HOLDING CO. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
(Unaudited) (Note 1)
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,522 7,404
Trade receivables, net 80,165 74,969
Other receivables 6,394 4,337
Receivables from related party -- 4,882
Inventories, net 81,412 64,565
Deferred taxes 2,075 6,143
Prepaid expenses and other current assets 11,541 4,387
--------- ---------
Total current assets 190,109 166,687
Property, plant and equipment, net 117,843 114,756
Deferred taxes 6,683 1,902
Other assets and deferred charges 55,038 43,929
--------- ---------
Total assets $ 369,673 327,274
========= =========
Liabilities and Stockholders' Equity (Deficit)
----------------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,264 1,265
Accounts payable 39,295 34,513
Accrued expenses and other 77,183 64,333
--------- ---------
Total current liabilities 117,742 100,111
Long-term debt, excluding current portion 408,939 383,062
Other long-term obligations, excluding current portion 45,955 46,329
15% Preferred Stock; 3,000,000 shares authorized; 1,497,890 shares and
1,400,000 shares issued and outstanding at March 31, 1999 and December
31, 1998, respectively 35,516 34,094
Stockholders' equity (deficit):
Common stock, $.001 par value; 1,5000,000 shares authorized;
1,472,487 shares and 1,384,614 shares issued and outstanding at
March 31, 1999 and December 31, 1998, respectively 1 1
Other stockholders' deficit (238,480) (236,323)
--------- ---------
Contingencies (See Note 6)
Total liabilities and stockholders' equity (deficit) $ 369,673 327,274
========= =========
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
4
<PAGE> 5
INSILCO HOLDING CO. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Sales $ 126,899 117,305
Cost of products sold 96,005 85,618
Depreciation and amortization 4,858 4,240
Selling, general and administrative expenses 17,714 17,672
--------- ---------
Operating income 8,322 9,775
--------- ---------
Other income (expense):
Interest expense (11,248) (6,877)
Interest income 15 51
Equity in net income of Thermalex 980 716
Other income, net 154 613
--------- ---------
Total other income (expense) (10,099) (5,497)
--------- ---------
Income (loss) before income taxes (1,777) 4,278
Income tax benefit (expense) 838 (1,497)
--------- ---------
Income (loss) (939) 2,781
Preferred stock dividend (1,423) --
--------- ---------
Net income (loss) available to common $ (2,362) 2,781
========= =========
Earnings (loss) available per common share:
Basic net income (loss) $ (1.47) 0.68
========= =========
Diluted net income (loss) $ (1.47) 0.66
========= =========
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
5
<PAGE> 6
INSILCO HOLDING CO. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (939) 2,781
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 4,858 4,240
Deferred tax expense (612) 617
Other noncash charges and credits 1,835 (239)
Change in operating assets and liabilities:
Receivables (2,719) (6,986)
Inventories (11,736) (11,945)
Prepaids (6,638) (6,280)
Payables 2,521 (574)
Other current liabilities and other 12,795 7,164
-------- --------
Net cash used in operating activities (635) (11,222)
-------- --------
Cash flows from investing activities:
Acquisition, net of cash acquired (23,753) --
Capital expenditures (3,266) (5,813)
Other investing activities 2,866 1,193
-------- --------
Net cash used in investing activities (24,153) (4,620)
-------- --------
Cash flows from financing activities:
Proceeds from revolving credit facility 26,819 12,125
Funds received from excess deposited for 10 1/4% bonds 2,032 --
Proceeds from sale of stock 1 2,549
Retirement of 10 1/4% bonds (1,500) --
Payment of prepetition liabilities (1,086) (1,647)
Retirement of long-term debt (316) (25)
-------- --------
Net cash provided by financing activities 25,950 13,002
-------- --------
Effect of exchange rate changes on cash (44) (34)
-------- --------
Net increase (decrease) in cash and cash equivalents 1,118 (2,874)
Cash and cash equivalents at beginning of period 7,404 10,651
-------- --------
Cash and cash equivalents at end of period $ 8,522 7,777
======== ========
Interest paid $ 9,890 10,353
======== ========
Income taxes paid (refunded) $ (183) 840
======== ========
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
6
<PAGE> 7
INSILCO HOLDING CO. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 1999
(1) Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31,
1999 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in Insilco Holding Co. and Subsidiaries
("Holdings" or the "Company") Annual Report on Form 10-K for the year
ended December 31, 1998.
(2) Significant Transactions
------------------------
The Company was involved in several material transactions in 1998 that
resulted in significant changes to its debt and capital structure. The
following is a brief description of these transactions, for further
information see the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
The Mergers. On August 17, 1998, a series of transactions involving the
Company was completed. These transactions included, among other things,
the formation by Insilco Holding Co., then a wholly owned subsidiary of
Insilco Corporation ("Insilco"), of a wholly owned subsidiary
("ReorgSub"), followed by the merger of ReorgSub with and into Insilco
(the "Reorganization Merger"), pursuant to which each stockholder of
Insilco had his or her shares of Insilco converted into the same number
of shares of Holdings and the right to receive $0.01 per share in cash,
and Holdings became the parent of Insilco.
Promptly following the Reorganization Merger, a second merger took place
pursuant to which Silkworm Acquisition Corporation ("Silkworm"), an
affiliate of Donaldson, Lufkin & Jenrette Merchant Banking ("DLJMB")
merged with and into Holdings (the "Merger," and together with the
Reorganization Merger, the "Mergers") and each share of Holdings Common
Stock was converted into the right to receive $43.47 in cash and 0.03378
of a share of Holdings Common Stock. Thus, as a result of the Mergers,
each stockholder of Insilco, in respect of each of his or her shares,
received $43.48 in cash and retained 0.03378 of a share of Holdings
Common Stock. Concurrently with the consummation of the Mergers, the
DLJMB Funds purchased 1,400,000 shares of Holdings 15% Senior
Exchangeable Preferred Stock due 2010 (the "PIK Preferred Stock"), and
warrants to purchase 65,603 shares of Holdings Common Stock at an
exercise price of $0.001 per share.
Following the Mergers, (i) Insilco's existing stockholders retained, in
the aggregate, approximately 10.1% (9.4% on a fully diluted basis) of
the outstanding shares of Holdings Common Stock; (ii) the
7
<PAGE> 8
INSILCO HOLDING CO. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 1999
DLJMB Funds held approximately 69.0% (69.8% on a fully diluted basis) of
the outstanding shares of Holdings Common Stock; (iii) 399 Venture
Partners Inc., an affiliate of Citibank, N.A. ("CVC"), purchased shares
of Silkworm which in the Merger were converted into approximately 19.3%
(17.8% on a fully diluted basis) of the outstanding shares of Holdings
Common Stock; and (iv) management of the Company purchased approximately
1.7% (1.5% on a fully diluted basis) of the outstanding shares of
Holdings Common Stock.
Immediately prior to the effectiveness of the Reorganization Merger,
each outstanding option to acquire shares of the common stock of Insilco
granted to employees and directors, whether or not vested (the
"Options") was canceled and in lieu thereof, each holder of an Option
received a cash payment in an amount equal to (x) the excess, if any, of
$45.00 over the exercise price of the Option multiplied by (y) the
number of shares subject to the Option, less applicable withholding
taxes (the "Option Cash Payments"). Certain holders of such Options
elected to utilize amounts otherwise receivable by them to purchase
equity or equity units of Holdings.
The Merger Financing: The total amount of cash required to consummate
the foregoing transactions was approximately $204.4 million. This amount
was financed with (i) gross proceeds of approximately $70.2 million from
the issuance by Silkworm of units (which were converted into units of
Holdings (the "Holdings Units") in the Merger), each unit consisting of
$1,000 principal amount at maturity of 14% Senior Discount Notes due
2008 (the "14% Notes") and one warrant to purchase 0.325 of a share of
Holdings Common Stock at an exercise price of $0.01 per share, (ii) the
issuance by Holdings to the DLJMB Funds, CVC and certain members of
management of the Company, for an aggregate consideration of
approximately $56.1 million, of 1,245,138 shares of Silkworm common
stock (which were converted into Holdings Common Stock in the Merger),
(iii) the issuance to the DLJMB Funds for an aggregate consideration of
$35.0 million of 1,400,000 shares of the PIK Preferred Stock by Holdings
and the DLJMB Warrants to purchase 65,603 shares of Holdings Common
Stock at an exercise price of $.001 per share, and (iv) approximately
$43.1 million of new borrowings under the Company's existing credit
facility (the "Existing Credit Facility").
Refinancing of 10 1/4% Subordinated Debt. As a result of the Mergers,
the Company, through Insilco, was required to make an offer to purchase
all of Insilco's outstanding $150 million 10 1/4% Senior Subordinated
Notes due 2007 (the "10 1/4% Notes") at 101% of their aggregate
principal amount, plus accrued interest. To fund a portion of the
repurchase of the 10 1/4% Notes, the Company, through Insilco, sold $120
million of 12% Senior Subordinated Notes due 2007 (the "12% Notes") with
warrants to purchase 62,400 shares of Holdings Common Stock at $45 per
share on November 9, 1998. The balance of the repurchase was funded by
borrowings under Insilco's Credit Facilities.
In addition, on November 24, 1998, the Company amended and restated
Insilco's Bank Credit Agreement to, among other things, provide for two
Credit Facilities: a $175 million Revolving Facility and a $125 million
Term Facility.
8
<PAGE> 9
INSILCO HOLDING CO. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 1999
As a result of these transactions, the Company's condensed consolidated
results for the periods presented are not directly comparable. Pro forma
results of operations for the three months ended March 31, 1998, which
assumes these transactions occurred at the beginning of the period,
compared to actual results for the three months ended March 31, 1999 are
as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
---- ----
<S> <C> <C>
Net sales $ 126,899 117,305
Loss available to common (2,362) (1,591)
Diluted earnings (loss) per share available to common (1.47) (1.00)
</TABLE>
(3) Purchase of EFI
---------------
On January 25, 1999, the Company, through Insilco, purchased the stock
of Eyelets for Industries, Inc. and EFI Metal Forming, Inc.,
collectively referred to as EFI, a precision stamping manufacturer, for
$23.7 million, including estimated costs incurred directly related to
the transaction. The entire purchase was financed from borrowings under
the Company's Revolving Facility. The acquisition did not result in a
significant business combination within the definition provided by the
Securities and Exchange Commission and therefore, pro forma financial
information has not been presented.
The allocation of purchase price reflected in the March 31, 1999
condensed consolidated balance sheet is preliminary and is pending
appraisals of property, plant and equipment, actuarial valuations of
retiree medical benefits, estimated costs of plans to exit certain EFI
activities, and a final purchase price adjustment based on EFI's January
25, 1999 ending net working capital. The Company expects to have these
items quantified by the third quarter of 1999. As of March 31, 1999, a
preliminary $10.4 million of excess cost over the book value of the
acquired assets is included in "other assets and deferred charges".
(4) Inventories
-----------
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------- --------
<S> <C> <C>
Raw materials and supplies $26,289 27,238
Work-in-process 35,977 23,559
Finished goods 19,146 13,768
------- -------
Total inventories $81,412 64,565
======= =======
</TABLE>
9
<PAGE> 10
INSILCO HOLDING CO. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 1999
(5) Capital Stock and Warrants
--------------------------
Through March 31, 1999, the Company accreted $3.4 million towards the
payment of dividends on the PIK Preferred Stock.
As of March 31, 1999, all of the 65,603 PIK Preferred Stock warrants to
purchase 65,603 shares of the Company's Common Stock at a purchase price
of $0.001 per share were exercised. In addition, 69,000 of the 14% Note
warrants to purchase 22,425 shares of the Company's Common Stock at a
purchase price of $0.01 per share were exercised and 69,000 warrants to
purchase 22,425 shares of the Company's Common Stock at a purchase price
of $0.01 per share remain outstanding as of March 31, 1999.
(6) Contingencies
-------------
The Company is implicated in various claims and legal actions arising in
the ordinary course of business. Those claims or liabilities will be
addressed in the ordinary course of business and will be paid as
expenses are incurred. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.
10
<PAGE> 11
INSILCO HOLDING CO. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 1999
(7) Segment Information
-------------------
There have been no changes in the basis of segmentation or in the basis
of measurement of segment profit or loss from the Company's December 31,
1998 consolidated financial statements.
Summary financial information by business segment is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Net Sales:
Automotive Components $ 56,881 54,469
Technologies 55,414 50,210
Specialty Publishing 6,460 5,018
Other 8,144 7,608
--------- ---------
$ 126,899 117,305
========= =========
Operating income:
Automotive Components $ 5,965 6,486
Technologies 4,787 6,446
Specialty Publishing (584) (390)
Other 453 118
Unallocated amounts:
Corporate expenses (1,980) (2,259)
Significant legal expenses (58) (256)
Severance and write-downs (261) (370)
--------- ---------
Total operating income 8,322 9,775
Interest expense (11,248) (6,877)
Interest income 15 51
Equity in net income of Thermalex 980 716
Other income, net 154 613
--------- ---------
Income (loss) from operations before income
taxes $ (1,777) 4,278
========= =========
</TABLE>
A summary of identifiable assets by segment follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------- ---------
<S> <C> <C>
Automotive Components $132,674 135,525
Technologies 125,495 96,742
Specialty Publishing 58,861 42,073
Other 17,588 17,342
Corporate 35,055 35,592
-------- --------
Total $369,673 327,274
======== ========
</TABLE>
The significant increase in identifiable assets of Technologies relates to the
acquisition of EFI in January 1999 (see Note 3).
11
<PAGE> 12
INSILCO HOLDING CO. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 1999
(8) Comprehensive Income
--------------------
Comprehensive income (loss) was ($923,000), and $2,800,000 for the three
months ended March 31, 1999 and 1998, respectively, including other
comprehensive income consisting of foreign currency translation
adjustments totaling $16,000 and $19,000 respectively.
(9) Related Party Transactions
--------------------------
In the first quarter of 1999, the Company received from Donaldson, Lufkin
& Jenrette Securities Corporation ("DLJSC"), an affiliate of DLJMB,
$2,032,000 for funds deposited in excess of the retired 10 1/4% Notes,
which had been included in "Receivables from related parties" at December
31, 1998. In addition, the Company paid DLJSC advisory fees of $100,000
and at March 31, 1999 had a payable to DLJSC of $186,000 as a retainer
fee for investment banking services.
(10) Earnings Per Share
------------------
The components of basic and diluted earnings per share were as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Net income (loss) $ (939) 2,781
Preferred stock dividends (1,423) --
----------- -----------
Net income (loss) available for common $ (2,362) 2,781
=========== ===========
Average outstanding shares of common stock 1,602,823 4,086,100
Dilutive effect of stock options -- 108,477
----------- -----------
Common stock and common
stock equivalents 1,602,823 4,194,577
=========== ===========
Earnings (loss) per share available to common:
Basic $ (1.47) 0.68
=========== ===========
Diluted $ (1.47) 0.66
=========== ===========
</TABLE>
(11) Dividend Restrictions
---------------------
The Company is a holding company and its ability to make payments in
respect of the 14% Notes is dependent upon the receipt of dividends or
other distributions from its direct and indirect subsidiaries. Insilco
and its subsidiaries are parties to the Existing Credit Facility and
Insilco is party to the 10 1/4% Note Indenture, each of which imposes
substantial restrictions on Insilco's ability to pay dividends or make
other distributions to the Company. Any payment of dividends or other
distributions will be subject to certain financial conditions set forth
in such indenture and is subject to certain prohibitions contained in
the Existing Credit Facility. Under the most restrictive covenants, $0.8
million was free of limitations on the payment of dividends or other
distributions at March 31, 1999.
12
<PAGE> 13
INDEPENDENT AUDITORS' REVIEW REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
INSILCO HOLDING CO.:
We have reviewed the condensed consolidated balance sheet of Insilco Holding Co.
and subsidiaries as of March 31, 1999, and the related condensed consolidated
statements of operations and cash flows for the three-month periods ended March
31, 1999 and 1998. These condensed consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Insilco Holding Co. and
subsidiaries as of December 31, 1998, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the year then
ended (not presented herein); and in our report dated February 10, 1999, except
as to the fourth paragraph of Note 7, which is as of March 26, 1999, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1998, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
Columbus, Ohio
May 3, 1999 KPMG LLP
13
<PAGE> 14
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company consummated several material transactions in 1998 that resulted in
significant changes to its debt and capital structure. As a result of these
transactions, the Company's condensed consolidated results for the three months
ended March 31, 1999 and 1998 are not directly comparable. Pro forma results of
operations, which assume these transactions occurred at the beginning of 1998
and additional details are presented in Note 2 of the Notes to the Condensed
Consolidated Financial Statements.
RESULTS OF OPERATIONS
The discussion that follows is based on a management approach and is consistent
with the basis and manner in which the Company's management internally
disaggregates financial information for the purposes of assisting in making
internal operating decisions. See Note 7 of the Notes to the Condensed
Consolidated Financial Statements for summary financial information by business
segment.
Consolidated Results of Operations. Net sales for the three months ended March
31, 1999 increased $9.6 million, or 8% , to $126.9 million from $117.3 million
in the same period last year. Sales in the Automotive Components segment
increased $2.4 million or 4% over last year due to higher transmission
component, heat exchanger tubing, and vehicle heat exchanger sales. Sales in the
Technologies segment increased $5.2 million or 10%. Contributing to this
increase in sales was the January 25, 1999 acquisition of EFI. Seasonal sales
from the Specialty Publishing segment increased 28% due to the timing of
yearbook shipments. Finally, other segment sales, which include tubing-mill
machinery and equipment and welded stainless steel tubing products, increased a
combined $0.5 million, or 7%.
Operating income for the three months ended March 31, 1999 decreased $1.5
million, or 15%, to $8.3 million from $9.8 million in the same period last year.
Operating income in the Automotive Components segment decreased $0.5 million, or
8%. This decrease was due to lower aftermarket sales, which generally provided
higher margins and was partially offset by improved margins on vehicle heat
exchangers. Operating income from the Technologies segment declined $1.6 million
or 26%. This decline was due to lower absorption of stamping, cable assembly and
transformer overhead. Operating income from the Specialty Publishing segment was
down $0.2 million from last year due to the timing of the recognition of certain
expenses. Other segment operating income increased $0.4 million, as a result of
a lower operating loss from the Company's tube-mill equipment and machinery
product line.
Interest expense for the period increased $4.3 million to $11.2 million from
$6.9 million last year, reflecting higher interest rates on the Company's 1998
debt offerings and higher debt levels as a result of the EFI acquisition in
January 1999 and the Mergers which occurred in August 1998 (See Note 2 of the
Notes to the Condensed Consolidated Financial Statements).
The Company had an income tax benefit for the period of $0.8 million compared to
an expense of $1.5 million last year due to the loss before taxes resulting from
the increased interest expense and to a lesser degree, lower operating income in
the first quarter of 1999.
Automotive Components Segment. Net sales for the three months ended March 31,
1999 increased $2.4 million, or 4%, to $56.9 million from $54.5 million in the
same period last year. This increase was due to higher transmission component,
heat exchanger tubing, and vehicle heat exchanger sales, which were up 3%, 12%,
and 12%, respectively. Partially offsetting these sales was a 20% decrease in
industrial radiator sales due to a general
14
<PAGE> 15
softness in this market sector.
Operating income for the period decreased $0.5 million, or 8%, to $6.0 million
from $6.5 million last year. The decrease was due to lower aftermarket sales,
which generally provide higher margins, and lower absorption of heat exchanger
overhead, due to lower sales of industrial radiators. These decreases were
partially offset by improved margins on vehicle heat exchangers. Operating
income as a percent of sales fell to 10.5% from 11.9%, reflecting the mix change
and lower overhead absorption.
Technologies Segment. Net sales for the period increased $5.2 million, or 10%,
to $55.4 million from $50.2 million last year. Sales from the acquisition of EFI
and the acquisition of two cable assembly facilities in Ireland, which were all
purchased after March 31, 1998, accounted for $6.5 million and $2.8 million,
respectively, in new revenues. In addition, connector sales continue to remain
strong and were up 9% from last year. Offsetting these gains were lower
transformer, cable assembly, and precision stampings sales, which were
collectively down 14% from last year.
Operating income for the three months ended March 31, 1999 decreased $1.6
million, or 26%, to $4.8 million from $6.4 million in the same period last year.
The decline in operating income was due to lower absorption of stamping, cable
assembly, and transformer overhead. Operating profit as a percent of sales fell
to 8.5% from 12.8%, reflecting the lower overhead absorption and pricing
pressure on connector products.
Specialty Publishing Segment. Seasonal sales for the three months ended March
31, 1999 increased $1.5 million, or 28%, to $6.5 million from $5.0 million last
year due to the timing of yearbook shipments.
The seasonal operating loss for the period increased $0.2 million to $0.6
million from $0.4 million last year due to the timing of the recognition of
certain expenses. The company expects to finish its spring season with higher
on-time deliveries and lower expediting costs, which are expected to increase
operating income as compared to last year.
Other Segment. Net sales for the three months ended March 31, 1999 increased
$0.5 million, or 7%, to $8.1 million from $7.6 million last year. Sales of
tubing-mill machinery and equipment and welded stainless steel tubing products
increased 13.2% and 5.6%, respectively.
Operating income for the period increased $0.4 million to $0.5 million from $0.1
million last year as a result of a lower operating loss from the Company's
tube-mill equipment and machinery product line.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. For the three months ended March 31, 1999, net cash used
in operating activities was $0.6 million compared to $11.2 million used in
operating activities during same period last year. The $10.6 million reduction
in cash requirements due to improved working capital management, primarily
accounts receivable and accounts payable. In addition, the Company received
higher customer deposits from its Specialty Publishing customers.
On February 16, 1999, the Company paid $3.8 million in cash as its semi-annual
payment of interest on its 12% Senior Subordinated Notes due 2007.
Investing Activities. Capital expenditures for the period were $2.5 million less
than the comparable period for 1998. The Company expects its 1999 capital
expenditures to be flat compared to 1998. Capital spending allocations during
the period were 46% to the Automotive Components segment and 47% to the
Technologies segment.
15
<PAGE> 16
The Company's acquisition of EFI was funded by borrowings under its Revolving
Credit Facility (see Note 3 of the Notes to the Condensed Consolidated Financial
Statements). In addition, the Company received a cash dividend of $2.9 million
from its investment in Thermalex compared to $1.3 million in the first quarter
of 1998.
Financing Activities. During the period, the Company purchased $1.5 million in
outstanding 10 1/4% Senior Notes. The Company also paid cash of $0.3 million in
principal on its Term Loan Facility.
The Company expects its principal sources of liquidity to be from its operating
activities and funding from the revolving line-of-credit agreement. The Company
further expects that these sources will enable it to meet its cash requirements
for working capital, capital expenditures, interest, taxes and debt repayment
for the foreseeable future.
Accumulated Deficit. At March 31, 1999, the Company had a stockholders' deficit
totaling $238.5 million, which is a result of both the Mergers (see Note 2 of
the Notes to the Condensed Consolidated Financial Statements) and the 1997 share
repurchases as described in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
MARKET RISK AND RISK MANAGEMENT
The Company's general policy is to use foreign currency borrowings as needed to
finance its foreign currency denominated assets. The Company uses such
borrowings to reduce its asset exposure to the effects of changes in exchange
rates - not as speculative investments. As of March 31, 1999, the Company did
not have any derivative instruments in place for managing foreign currency
exchange rate risks.
At the end of the first quarter of 1999, the Company had $215.7 million in
variable rate debt outstanding. A one percentage point increase in interest
rates would increase the amount of annual interest paid by approximately $2.2
million. As of March 31, 1999, the Company had no interest rate derivative
instruments in place for managing interest rate risks.
THE YEAR 2000 ISSUES
As is more fully described in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, the Company commenced an assessment in 1996 of the
potential effects of the Year 2000 issue on the Company's business, financial
condition and results of operations. To date, the costs incurred to implement
the Company's Year 2000 compliance program have been immaterial. Management
estimates these costs will remain immaterial through its completion of the
program. Management's assessment of the risks associated with its Year 2000
program and the status of the Company's contingency plans are unchanged from
that described in the 1998 Annual Report on Form 10-K.
The Company's plans to complete its Year 2000 compliance program are based on
management's best estimates, which are based on numerous assumptions about
future events including the continued availability of certain resources and
other factors. Therefore, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes and similar uncertainties.
The information above contains forward-looking statements, including, without
limitation, statements relating to the Company's plans, strategies, objectives,
expectations, intentions, and adequate resources that are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Readers are
16
<PAGE> 17
cautioned that forward-looking statements about Year 2000 should be read in
conjunction with the Company's disclosures under the heading Forward Looking
Information.
FORWARD-LOOKING INFORMATION.
Except for the historical information contained herein, the matters discussed in
this Form 10-Q included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" include "Forward Looking Statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Although the
Company believes that the expectations reflected in the Forward-Looking
Statements contained herein are reasonable, no assurance can be given that such
expectations will prove to have been correct. Certain important factors that
could cause actual results to differ materially from expectations ("Cautionary
Statements") include, but are not limited to the following: delays in new
product introductions, lack of market acceptance of new products, changes in
demand for the Company's products, changes in market trends, operating hazards,
general competitive pressures from existing and new competitors, effects of
governmental regulations, changes in interest rates, and adverse economic
conditions which could affect the amount of cash available for debt servicing
and capital investments. All subsequent written and oral Forward-Looking
Statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information called for by this item is provided under the caption "Market
Risk and risk Management" under Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(None)
ITEM 2. CHANGES IN SECURITIES
(None)
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(None)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
(None)
ITEM 5. OTHER INFORMATION
(None)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
(None)
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements 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.
INSILCO HOLDING CO
----------------------------
Date: May 17, 1999 By: /s/ David A. Kauer
------------------------------
David A. Kauer
Vice President and
Chief Financial Officer
18
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