<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 June 30, 1997
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: 0-22098
INSILCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 06-0635844
(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 July 27, 1997, 6,779,375
shares of common stock, $.001 par value, were outstanding.
<PAGE> 2
INSILCO CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION Page
----
<S> <C> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
- June 30, 1997 (unaudited)
- December 31, 1996
Condensed Consolidated Income Statements 4
- Six months ended June 30, 1997 (unaudited)
- Six months ended June 30, 1996 (unaudited)
- Three months ended June 30, 1997 (unaudited)
- Three months ended June 30, 1996 (unaudited)
Condensed Consolidated Statement of Stockholders' Equity 5
- For the six months ended June 30, 1997 (unaudited)
Condensed Consolidated Statements of Cash Flows 6
- Six months ended June 30, 1997 (unaudited)
- Six months ended June 30, 1996 (unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements 7
Independent Auditors' Review Report 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $111,200 3,481
Trade receivables, net 90,920 73,874
Other receivables 7,276 8,499
Inventories, net 57,681 66,385
Deferred tax asset 2,174 29,859
Prepaid expenses and other current assets 6,616 7,010
-------- -------
Total current assets 275,867 189,108
Property, plant and equipment, net 110,397 114,379
Deferred tax asset 4,950 7,542
Investment in Thermalex 8,636 8,550
Goodwill, net 13,678 13,659
Other assets and deferred charges 9,683 18,762
-------- -------
Total assets $423,211 352,000
======== =======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt $ 24,708 24,272
Current portion of other long-term obligations 5,608 6,661
Accounts payable 34,831 37,984
Income taxes payable 11,823 3,596
Accrued expenses and other 53,927 68,639
-------- -------
Total current liabilities 130,897 141,152
Long-term debt, excluding current portion 145,112 136,770
Other long-term obligations, excluding current portion 38,740 40,676
Stockholders' equity 108,462 33,402
-------- -------
Commitments and contingencies (See Notes 6, 7 and 8)
Total liabilities and stockholders' equity $423,211 352,000
======== =======
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1996 has been
derived from the audited balance sheet as of that date.
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE> 4
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Income Statements
(Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 287,012 300,497 169,671 178,048
Cost of products sold 195,436 202,752 112,647 117,912
Depreciation and amortization 9,798 8,087 5,733 4,971
Selling, general and administrative expenses 50,811 56,773 31,879 35,580
---------- --------- --------- ---------
Operating income 30,967 32,885 19,412 19,585
---------- --------- --------- ---------
Other income (expense):
Interest expense (7,762) (9,400) (4,119) (4,888)
Interest income 2,078 460 1,589 163
Gain on sale of Rolodex 95,001 -- -- --
Other income, net 1,616 3,104 1,106 2,799
---------- --------- --------- ---------
Total other income (expense) 90,933 (5,836) (1,424) (1,926)
---------- --------- --------- ---------
Income before income taxes 121,900 27,049 17,988 17,659
Income tax expense (47,374) (9,098) (6,781) (5,854)
---------- --------- --------- ---------
Net income $ 74,526 17,951 11,207 11,805
========== ========= ========= =========
Net income per common share and common
share equivalents $ 7.55 1.81 1.14 1.20
========== ========= ========= =========
Weighted average number of common shares
and common share equivalents 9,875,401 9,908,973 9,872,287 9,859,412
========== ========= ========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE> 5
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity
For the Six Months Ended June 30, 1997
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional Accumulated Cumulative Total
Par Value Treasury Paid-in Equity Translation Stockholders'
$0.001 Stock Capital (Deficit) Adjustment Equity
------------ -------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $10 (10,745) 81,496 (37,115) (244) 33,402
Net income -- -- -- 74,526 -- 74,526
Purchase of treasury stock -- (5,523) -- -- -- (5,523)
Restricted Stock -- -- 570 -- -- 570
Shares issued upon exercise of stock options -- -- 5,581 -- -- 5,581
Tax benefit from exercise of stock options -- -- 2,556 -- -- 2,556
Foreign currency translation -- -- -- -- (2,650) (2,650)
--- ------- ------ ------- ------ -------
Balance at June 30, 1997 $10 (16,268) 90,203 37,411 (2,894) 108,462
=== ======= ====== ======= ====== =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE> 6
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 74,526 17,951
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 9,798 8,090
Deferred tax expense 31,266 7,187
Gain on sale of Rolodex (95,001) --
Other noncash charges and credits (911) 11
Change in operating assets and liabilities:
Receivables (27,063) 1,920
Inventories 563 (6,695)
Payables and other 3,239 (16,656)
Other long-term liabilities (1,576) (1,475)
-------- -------
Net cash provided by (used in) operating activities (5,159) 10,333
-------- -------
Cash flows from investing activities:
Proceeds from divestiture, net 112,610 --
Other investing activities 3,039 2,058
Capital expenditures (10,315) (9,266)
Acquisitions of businesses, net of cash acquired -- (5,129)
-------- -------
Net cash provided by (used in) investing activities 105,334 (12,337)
-------- -------
Cash flows from financing activities:
Proceeds from debt borrowing 15,340 15,653
Proceeds from sale of stock 1,944 656
Retirement of long-term debt (5,917) (8,287)
Purchase of treasury stock (1,887) (3,353)
Payment of prepetition liabilities (1,708) (1,651)
-------- -------
Net cash provided by financing activities 7,772 3,018
-------- -------
Effect of exchange rate changes on cash (228) --
-------- -------
Net increase in cash and cash equivalents 107,719 1,014
Cash and cash equivalents at beginning of period 3,481 9,894
-------- -------
Cash and cash equivalents at end of period $111,200 10,908
======== =======
Interest paid $ 7,332 8,858
-------- =======
Income taxes paid $ 6,293 1,277
======== =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
6
<PAGE> 7
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1997
(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 in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all determinable adjustments
have been made which are considered necessary to present fairly the
financial position and the results of operations and cash flows at the
dates and for the periods presented.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results are likely to differ from
those estimates and assumptions, but management does not believe such
differences will materially affect the Company's financial position,
results of operations or cash flows.
(2) Divestiture
-----------
On March 5, 1997, the Company completed the sale of its Office Products
business within the Office Products/Specialty Publishing Group with the
divestiture of its traditional office products business (the "Rolodex
Business") for $112.6 million, net of transaction costs including
investment banking fees of $2.0 million paid to Goldman Sachs & Co., an
affiliate of the Company's principal stockholder. The Company expects to
substantially limit its cash taxes on the sale by utilizing its tax loss
carryforwards.
The divestiture of the Rolodex Business was preceded in 1996 by the
divestiture of the Rolodex electronics product line ("Rolodex
Electronics") and the Company's computer accessories business
("Curtis"). (See note 9 for unaudited pro forma financial information
with respect to these divestitures).
(3) Cash and Cash Equivalents
-------------------------
The Company has placed into a restricted account $110 million of the
proceeds from the sale of the Rolodex Business which has been pledged as
security against the Company's bank loans. The entire $110 million was
invested in a money market fund with Goldman Sachs & Co. at June 30,
1997. On July 10, 1997, the Company used the $110 million to repurchase
shares of its common stock as described in Note 8.
(4) Inventories
-----------
Inventories consisted of the following at June 30, 1997 (in thousands):
<TABLE>
<S> <C>
Raw materials and supplies $25,402
Work-in-process 21,786
Finished goods 10,493
-------
Total inventories $57,681
=======
</TABLE>
7
<PAGE> 8
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1997
(5) Earnings Per Share
------------------
When dilutive, stock options are included as share equivalents using the
treasury stock method.
In March 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards ("FASB") No. 128, Earnings
Per Share, which simplifies the method for calculating earnings per
share. As defined in FASB No. 128 "basic earnings per share" is
determined using only the weighted average of the shares issued and
reserved for issuance, while "diluted earnings per share" includes stock
options (when dilutive) as share equivalents using the treasury stock
method. If FASB No. 128 had been adopted as of January 1, 1997, basic
earnings per share for the second quarter of 1997 would have been $1.16
per share and diluted earnings per share would have been $1.14 per
share; for the six months ended June 30, 1997, basic earnings per share
would have been $7.78 per share and diluted earnings per share would
have been $7.55 per share.
(6) Contingencies
-------------
The Company is implicated in various claims and legal actions arising in
the ordinary course of business. In addition, certain claims filed in
the Bankruptcy Court are in dispute. The Company has recorded these
disputed claims at the estimated settlement amounts ultimately expected
to be allowed following the Bankruptcy Court litigation. It is
reasonably possible that the estimated settlement amounts could change
in the near term but it is not expected that such a change would have a
material effect on the financial statements in the near term. Those
claims or liabilities not subject to Bankruptcy Court litigation will be
addressed in the ordinary course of business and be paid in cash as
expenses are incurred.
The United States Federal Trade Commission ("FTC") is investigating the
Company's acquisition of the automotive tubing business assets of
Helima-Helvetion International, Inc. ("HHI") (a subsidiary of Helmut
Lingemann GmbH & Co., See Note 9) to determine if the acquisition
violated U.S. antitrust laws. The Company has responded to various FTC
requests for information concerning the relevant market and competitive
conditions in that market. The Company is currently in discussion with
the FTC for a potential resolution of this issue. Revenues for the three
and six months ended June 30, 1997 associated with the automotive tubing
business acquired from HHI were $1,679,000 and $2,886,000, respectively,
and the tangible net assets at June 30, 1997 were $7,768,000.
In the opinion of management, the ultimate disposition of the matters
discussed above will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity. At
June 30, 1997, all unresolved bankruptcy settlements are included in the
shares reserved to satisfy claims.
(7) Subsequent Event-Refinancing of Existing Debt
---------------------------------------------
On July 10, 1997, the Company refinanced its existing debt under a new
six year $200 million amended and restated credit agreement with a bank
group consisting of Citicorp USA, Inc., Goldman Sachs Credit Partners,
L.P., and First National Bank of Chicago (the "Bank Credit Agreement").
The Bank Credit Agreement provides for a $200 million revolving credit
facility with a $50 million sublimit for issuance of letters of credit
and a $50 million sublimit for multi-currency borrowing. The bank loans
bear interest at various floating rates, at the Company's option, which
approximate the one to six month
8
<PAGE> 9
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1997
Libor rates plus 1.375% (such Libor rates approximated 5.75% to 6.0% at
July 10, 1997). The Company has limited its exposure to fluctuations in
interest rates on a portion of the debt.
Annual commitment fees consist of 3/8% of the average daily unused
commitment and 1 3/8% of the average outstanding letters of credit. An
underwriting fee of $1,750,000 was paid to the co-agents in July 1997.
The revolving credit facility will terminate and all amounts
outstanding, if any, will be due on July 8, 2003.
The Bank Credit Agreement is guaranteed on a joint and several basis by
the Company's material directly and indirectly wholly owned subsidiaries
(the Guarantors) and has been secured by substantially all assets of the
Guarantors. The Bank Credit Agreement contains certain financial and
other covenants usual and customary for a secured credit agreement.
(8) Subsequent Event-Repurchase of Shares of Common Stock
-----------------------------------------------------
On July 10, 1997, the Board of Directors approved the purchase of up to
$220 million of its shares of common stock. The Company first
repurchased 2,805,194 and 51,948 shares of its common stock from Water
Street Corporate Recovery Fund I, L.P. ("Water Street") and Mr. Robert
L. Smialek, the Company's Chairman and CEO, respectively, at $38.50 per
share. These purchases aggregated $110 million and were financed with
the proceeds from the sale of the Rolodex Business. In addition, the
Company has commenced a $110 million self-tender offer (the "Tender
Offer") for up to 2,857,142 shares at $38.50 per share. Water Street has
agreed that it will tender no more than 960,577 shares in the Tender
Offer so that the percentage of shares to be purchased by the Company
from Water Street will be less than the percentage of shares which the
Company will offer to purchase from shareholders other than Water
Street. In addition, Mr. Smialek has agreed that he will not tender any
additional shares in the Tender Offer. The Tender Offer will be financed
out of borrowings as described in Note 7.
The Company intends to procure $150 million of additional subordinated
new debt on or before the close of the Tender Offer. If the new debt is
obtained, the Company will have approximately $290 million of
outstanding debt and approximately $50 million of available credit.
(9) Pro Forma Result of Operations
------------------------------
Set forth below is certain unaudited pro forma consolidated financial
information (in thousands except per share information) of the Company
based on historical information that has been adjusted to reflect the
Office Product divestitures and all transactions directly or indirectly
related to the subsequent events discussed in Notes 7 and 8. In
addition, the historical financial information for the six and three
months ended June 30, 1996 has been adjusted to reflect the acquisition
of the automotive aluminum tubing business of Helmut Lingemann GmbH & Co
("the Lingemann Business") which was acquired in July 1996.
The income statement data give effect to the following transactions as
if all had occurred at the beginning of each period presented; (i) the
Company's purchase of 2,805,194 shares of common stock from Water Street
and 51,948 shares from Mr. Smialek at a price of $38.50 per share (ii)
the Company's purchase of 2,857,142 shares at a price of $38.50 per
share pursuant to the Tender Offer; (iii) the Closing of the Bank Credit
Agreement (including advances to refinance in full outstanding
9
<PAGE> 10
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1997
indebtedness under the prior credit agreement) and (iv) the incurrence
of $150 million in additional indebtedness. The income statement for the
six months ended June 30, 1997 and the 1996 periods give effect to the
sale of the Rolodex Business (which occurred on March 5, 1997) as if it
occurred at the beginning of each period. In addition, the income
statement data for the 1996 periods have been adjusted to reflect (i)
the divestiture of Rolodex Electronics, (ii) the divestiture of Curtis
and (iii) the acquisition of the Lingemann Business as if all had
occurred at the beginning of the periods presented. These divestitures
and the acquisition actually occurred in the third and fourth quarters
of 1996. The nonrecurring transactions directly related to the
aforementioned transaction are excluded from the pro forma income
statement data. The unaudited summary pro forma consolidated financial
data is based on certain assumptions and estimates, and therefore does
not purport to be indicative of the results that would actually have
been obtained had the transactions been completed as of such dates or
indicative of future results of operations and financial position.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $276,215 269,454 169,671 163,934
Net income 10,007 9,060 8,250 7,945
Net income per common
share and share equivalents $ 2.40 2.16 1.98 1.92
Weighted average number of
common shares and common
share equivalents 4,161 4,195 4,158 4,145
</TABLE>
10
<PAGE> 11
INDEPENDENT AUDITORS' REVIEW REPORT
THE BOARD OF DIRECTORS
INSILCO CORPORATION
We have reviewed the condensed consolidated balance sheet of Insilco Corporation
and subsidiaries as of June 30, 1997, and the related condensed consolidated
statements of income and cash flows for the three-month periods and six month
periods ended June 30, 1997 and 1996, and the condensed consolidated statement
of stockholders' equity for the six-month period ended June 30, 1997. 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 Corporation and
subsidiaries as of December 31, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated January 31, 1997, except as to the
second paragraph in Note 3, which is as of March 5, 1997, we expressed an
unqualified opinion on those consolidated financial statements. We did not audit
the 1996 financial statements of Thermalex, Inc., a 50 percent owned investee
company which is accounted for under the equity method. The 1996 financial
statements of Thermalex, Inc. were audited by other auditors whose report has
been furnished to us, and in our opinion, insofar as it relates to the amounts
included for Thermalex, Inc., was based solely on the report of the other
auditors. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1996, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
Columbus, Ohio
July 18, 1997 KPMG Peat Marwick LLP
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is a diversified manufacturer of automotive component products,
telecommunications and electronics components and is a publisher of specialty
publishing products. The Company's Automotive Components Group serves primarily
the automotive markets through Thermal Components and Steel Parts operating
units and manufactures stainless steel tubing used in non-automotive
applications through its Romac Metals operating unit. The Technologies Group
serves primarily the telecommunications and components markets through its
Stewart Connector Systems, Stewart Stamping, Signal Transformer and Escod
Industries operating units. The Specialty Publishing Group consists of Taylor
Publishing (a publisher of yearbooks and other specialty publications). The
Company completed the divestiture of its Office Products business with the sale
of its traditional office products business (the "Rolodex Business") on March 5,
1997 for a net sales price of $112,610,000. The Company recognized a pretax gain
on the sale totaling $95,001,000 in the first quarter of 1997. In the third and
fourth quarters of 1996, respectively, the Company divested its Curtis computer
accessories business and the Rolodex electronics product line.
Summarized sales and operating income (loss) by business segment for the three
months and six months ended June 30, 1997 compared to the corresponding periods
in 1996 are set forth in the following table (in thousands) and discussed below:
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
----------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES
Automotive Components Group $116,266 101,480 60,083 52,179
Technologies Group 97,961 92,181 50,867 47,998
Office Products/Specialty Publishing
Specialty Publishing 61,988 61,058 58,721 56,389
Office Products 10,797 45,778 -- 21,482
-------- ------- ------- -------
72,785 106,836 58,721 77,871
-------- ------- ------- -------
$287,012 300,497 169,671 178,048
======== ======= ======= =======
OPERATING INCOME (LOSS)
Automotive Components Group $ 12,600 12,278 6,924 6,658
Technologies Group 11,371 13,403 6,397 7,245
Office Products/Specialty Publishing Group
Specialty Publishing 5,114 3,657 6,113 4,728
Office Products 1,926 3,589 -- 975
-------- ------- ------- -------
7,040 7,246 6,113 5,703
-------- ------- ------- -------
Unallocated Corporate (44) (42) (22) (21)
-------- ------- ------- -------
$ 30,967 32,885 19,412 19,585
======== ======= ======= =======
</TABLE>
12
<PAGE> 13
SALES AND OPERATING INCOME. Total net sales decreased by approximately 5%
($8,377,000) in the second quarter of 1997 compared to the corresponding period
in 1996 due to the divestiture of the Office Products business in three separate
transactions completed in late 1996 and the first quarter of 1997. Sales of the
Office Products business were $21,482,000 in the second quarter of 1996.
Excluding the Office Products business, the Company's sales increased 8%
($13,105,000) in the second quarter of 1997 compared to 1996. In the first six
months of 1997, sales decreased 4% ($13,485,000) from 1996 due to the
divestiture of the Office Products business. Sales of office products totaled
$10,797,000 in the first six months of 1997 compared to $45,778,000 in 1996.
Excluding the Office Products business, sales in the first six months of 1996
increased 8% ($21,496,000).
The Automotive Components Group's sales increased 15% in both the second quarter
and first six months of 1997 ($7,904,000 and $14,786,000, respectively) compared
to the corresponding periods in 1996. The increases were due to an increase in
the sales of automotive heat exchangers and related components, primarily from
the July 1996 acquisition of the Lingemann Business which contributed $7,468,000
and $15,275,000 in the second quarter and first six months of 1997,
respectively. In addition, sales of transmission and other stamped automotive
parts at Steel Parts increased 10% and 9% in the second quarter and first six
months of 1997, respectively, compared to 1996. Partially offsetting these gains
was the continued weakness in the domestic radiator aftermarket and lower sales
of stainless steel tubing for non-automotive applications.
The Technologies Group's sales increased 6% in both the second quarter and first
six months of 1997 ($2,869,000 and $5,780,000, respectively) compared to the
corresponding periods in 1996 primarily due to growth in sales of wire and cable
assembly products at Escod. Escod's sales increased 14% and 11% in the
respective 1997 periods compared to 1996 due to strong demand from one of its
major customers, as well as continued expansion of its customer base. Signal's
sales increased 17% and 5% in the three and six months ended June 30, 1997,
respectively, compared to 1996 primarily because of higher demand from
electronics original equipment manufacturers compared to the prior year.
Partially offsetting these gains was a 4% decline in sales at Stewart Connector
for the second quarter of 1997 compared to 1996. Stewart Connector's performance
was due to a slowdown in connector assembly orders from a large
telecommunications customer, as well as lower sales to the networking industry.
Despite the decline for the quarter, Stewart Connector's sales increased 1% for
the six months ended June 30, 1997 over the corresponding period in 1996.
Taylor Publishing's sales for the second quarter and first six months of 1997
increased 4% and 2%, respectively, compared to the corresponding periods in
1996.
Operating income for the second quarter decreased slightly from $19,585,000 in
1996 to $19,412,000 in 1997 due to the divested Office Products business and
lower operating margins at the Technologies Group. Excluding the divested Office
Products business operating income of $975,000 in 1996, second quarter 1997
operating income increased 4% ($802,000), mainly due to a 29% increase at Taylor
Publishing. In the first six months of 1997, operating income decreased 6%
($1,918,000) to $30,967,000 from $32,885,000 in 1996 due to operating income
included in the 1996 results from the divested Office Products business.
Excluding the divested Office Products business decline of $1,663,000, operating
income decreased by less than 1% ($255,000).
The Automotive Components Group's operating income in the second quarter of 1997
compared to the corresponding period of 1996 increased from $6,658,000 to
$6,924,000. The Automotive Components Group was impacted by improved results at
its German based aluminum tubing facility acquired in July 1996, as well as
higher income at its stainless steel and stamped steel parts operations. For the
first six months of 1997, the Automotive Components Group's operating income
compared to the corresponding period of 1996 increased from $12,278,000 to
$12,600,000. Increased operating income at the Company's stamped steel parts
business and stainless steel tubing business units was largely offset by lower
operating income from the weak domestic automotive radiator aftermarket.
The Technologies Group's operating income decreased from $7,245,000 in the
second quarter of 1996 to
13
<PAGE> 14
$6,397,000 in the same period of 1997. Operating income at Escod and Signal
improved sharply during the quarter, however, a less favorable sales mix of
products at Stewart Connector and price degradation on certain mature connector
products contributed to the decline in the quarter. For the first six months of
1997, the Technologies Group's operating income, compared to the corresponding
period of 1996, decreased from $13,403,000 to $11,371,000. Operating income was
impacted by lower margins on power transformers and competitive pricing
pressures in the connector market. Offsetting these declines, Escod's operating
income increased 56% over the prior year due to higher margins and increased
volume.
Taylor Publishing's operating income increased from $4,728,000 to $6,113,000 in
the second quarter of 1997 compared to the same period of 1996 due to improved
productivity. For the six months ended June 30, 1997, Taylor Publishing's
operating income of $5,114,000 increased 40% over the prior year operating
income of $3,657,000, due to improved operating margins from increased
productivity.
OTHER INCOME (EXPENSE). Other income for the first six months included a pretax
gain on the sale of the Rolodex Business totaling $95,001,000. Interest expense
decreased 16% ($769,000) and 17% ($1,638,000) in the second quarter and first
six months of 1997, respectively, from the corresponding 1996 periods due to
lower debt balances. Interest income increased $1,426,000 and $1,618,000 in the
second quarter and first six months of 1997, respectively, from the
corresponding 1996 periods as a result of interest income earned on the proceeds
from the sale of the Rolodex Business. (See Note 3 to the condensed consolidated
financial statements).
"Other income, net", included in Other income (expense), for the second quarter
and first six months of 1997 decreased $1,693,000 and $1,488,000 from the
corresponding periods of 1996, respectively. The decline was due to the
favorable resolution in the second quarter of 1996 of several legal disputes
dating to prior years. Partially offsetting the decline was an increase in
equity income from the Company's unconsolidated joint venture, Thermalex. Equity
income from Thermalex in the second quarter and first six months of 1997 was
$830,000 and $1,547,000, respectively, compared to $750,000 and $1,363,000 in
the corresponding periods of 1996.
INCOME TAX EXPENSE. The Company's effective income tax rate of 38.9% for the
first six months of 1997 increased from 33.6% in the corresponding period of
1996 primarily because of the greater proportion of domestic source income
resulting from the sale of the Rolodex Business. The Company expects to
substantially offset the cash taxes resulting from the sale of the Rolodex
Business by utilizing its available tax loss carryforwards.
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES. Operations used $5,159,000 of
cash in the first six months of 1997 as compared to providing $10,333,000 in the
first six months of 1996. Cash flows from operations decreased due to cash flows
from the divested businesses included in the 1996 results, the timing of cash
receipts and higher tax payments. The Company's cash for periods prior to the
six months ended June 30, 1997 was more favorably impacted by tax loss
carryforwards, which reduced the actual cash payments for the years to well
below the financial statement income tax expense. The tax loss carryforwards
were substantially reduced in 1997 due to the gain from the sale of the Rolodex
Business. As a result, beginning in 1998 it is expected that the Company will no
longer have any tax loss carryforwards available to reduce cash tax payment
obligations.
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES. In the first six months of 1997,
the Company sold its Rolodex Business for a net sales price of $112,610,000. In
the first six months of 1996, the Company acquired businesses serving the
automotive, heavy truck and industrial manufacturing radiator replacement market
for a net purchase price of $5,129,000. In the first six months of 1997, the
Company received a $1,460,000 dividend distribution from Thermalex, compared to
a $400,000 dividend and a $1,000,000 loan repayment in the corresponding 1996
period. The Company's other current investments consist principally of capital
expenditures which totaled $10,315,000 and $9,266,000 for the first six months
of 1997 and 1996, respectively.
CASH FLOWS FROM FINANCING ACTIVITIES. Financing activities provided $7,772,000
and $3,018,000 in the first six months of 1997 and 1996, respectively. In the
first six months of 1997, the Company borrowed a net amount of $15,340,000 on
its revolving credit facility compared to borrowings of $15,400,000 in 1996.
Term loan
14
<PAGE> 15
payments of $5,625,000 and $8,000,000 were made in the first six months of 1997
and 1996, respectively. In addition, the Company paid $1,708,000 and $1,651,000
of prepetition liabilities in the first six months of 1997 and 1996,
respectively. In the first six months of 1997, the Company also repurchased its
common stock for $1,887,000 to fund income tax withholdings on the exercise of
stock options as permitted by the Company's 1993 Long-Term Incentive Plan. In
the first six months of 1996, the Company repurchased its common stock for
$3,353,000 consisting of $2,539,000 under the Company's stock buyback program
and $814,000 to fund income tax withholdings due when restrictions lapsed on
previously awarded shares of stock.
SEASONALITY. The Company's yearbook publishing business, Taylor Publishing, is
highly seasonal, with a majority of sales occurring in the second and third
quarters of the year. Taylor receives significant customer advance deposits
commencing each November and continuing through March. The Company's other
businesses are not highly seasonal.
IMPACT OF INFLATION AND CHANGING PRICES. Inflation and changing prices have not
significantly affected the Company's operating results or markets.
LIQUIDITY. At June 30, 1997, the Company's cash and cash equivalents and net
working capital amounted to $111,200,000 and $144,970,000, respectively,
representing increases in cash and cash equivalents of $107,719,000 and in net
working capital of $97,014,000. The significant increases over December 31, 1996
levels are due to the receipt of the net proceeds from the sale of the Rolodex
Business totaling $112,610,000. The borrowing ability under the Company's
revolving credit facility at June 30, 1997 was $63,207,000, including
$39,847,000 available for letters of credit.
On July 10, 1997, the Company refinanced its existing debt and repurchased
shares of its common stock. The remaining borrowing ability under the Bank
Credit Agreement was $21,847,000, including $10,153,000 available for letters of
credit. See Notes 7 and 8 to the unaudited condensed consolidated financial
statements.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. 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 Forward Looking
Statements are reasonable, they can give no assurance that such expectations
will prove to have been correct. Generally, these statements relate to business
plans or strategies, projected or anticipated benefits or other consequences of
such plans or strategies or projections involving anticipated revenues,
expenses, earnings, levels of capital expenditures, liquidity or indebtedness or
other aspects of operating results or financial position. All phases of the
operations of the Company are subject to a number of uncertainties, risks and
other influences, many of which are outside the control of the Company and any
one of which, or a combination of which, could materially affect the results of
the Company's operations and whether the Forward Looking Statements made by the
Company ultimately prove to be accurate. Important factors that could cause
actual results to differ materially from the Company's expectations are
disclosed from time to time in the Company's filings with the Securities and
Exchange Commission.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 22, 1997 for the
purpose of electing five directors to serve one-year terms expiring in 1998 and
to vote on an amendment to the Company's 1993 Long-Term Incentive Plan. The
number of votes cast for or against each director nominee is as follows:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
James J. Gaffney 8,669,354 150,709
Terence M. O'Toole 8,664,645 155,418
Thomas E. Petry 8,700,896 119,167
Robert L. Smialek 8,700,791 119,272
Barry S. Volpert 8,664,717 155,346
</TABLE>
The proposal to amend the Company's 1993 Long-Term Incentive Plan to increase
the number of shares of common stock available under the plan from 1,500,000 to
2,000,000 shares received 7,847,975 votes for, 509,496 votes against and 1,242
votes were withheld.
16
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(a) - Amended and Restated Credit Agreement, dated July 3, 1997.*
10(b) - Stock Purchase Agreement by and between the Company and
Water Street Corporate Recovery Fund I, L.P., dated July 10,
1997.*
10(c) - Stock Purchase Agreement by and between the Company and
Robert L. Smialek, dated July 10, 1997.*
27 - Financial Data Schedule
99(a) - Form of Offer to Purchase dated July 11, 1997.*
99(b) - Form of Letter of Transmittal (including Certification of
Taxpayer Identification Number on Substitute Form W-9).*
99(c) - Form of Notice of Guaranteed Delivery.*
99(d) - Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and other Nominees.*
99(e) - Form of Letter to Clients for Use by Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees.*
99(f) - Form of Letter to Participants in the Insilco Corporation
Employee Thrift Plan (including Memorandum of Questions and
Answers) and Tender Instruction Form.*
99(g) - Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.*
99(h) - Text of Press Release issued by the Company dated July 11,
1997.*
99(i) - Form of Summary Advertisement dated July 11, 1997.*
99(j) - Form of Letter to Stockholders of the Company, dated July
11, 1997 from Robert L. Smialek, Chairman of the Board and
President.*
* Incorporated by reference from the Schedule 13E-4 and exhibits thereto
previously filed with the Securities and Exchange Commission on July 11, 1997
and as amended on July 18, 1997.
(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 CORPORATION
-------------------
Registrant
Date: July 30, 1997 By: /s/ Philip K. Woodlief
-------------------------------
Philip K. Woodlief
* Corporate Controller; Principal
Accounting Officer
* In his capacity as Corporate Controller, Mr. Woodlief is duly authorized to
sign this report on behalf of the registrant.
18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 111,200
<SECURITIES> 0
<RECEIVABLES> 94,009
<ALLOWANCES> (3,089)
<INVENTORY> 57,681
<CURRENT-ASSETS> 275,867
<PP&E> 164,989
<DEPRECIATION> (54,592)
<TOTAL-ASSETS> 423,211
<CURRENT-LIABILITIES> 130,897
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 108,452
<TOTAL-LIABILITY-AND-EQUITY> 423,211
<SALES> 287,012
<TOTAL-REVENUES> 287,012
<CGS> 203,586
<TOTAL-COSTS> 203,586
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 437
<INTEREST-EXPENSE> 7,762
<INCOME-PRETAX> 121,900
<INCOME-TAX> 47,374
<INCOME-CONTINUING> 74,526
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,526
<EPS-PRIMARY> 7.55
<EPS-DILUTED> 0
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