<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
Commission File Number: 0-22098
INSILCO CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE NO. 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,
including zip code)
(614) 792-0468
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001
par value
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 the filing
requirements for at least the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant was approximately $85,655,878 on March 15,
1997.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
There were 9,407,594 shares of the Registrant's Common Stock outstanding on
March 15, 1997.
Portions of the Registrant's Proxy Statement for the 1997 Annual Meeting of
Stockholders are incorporated by reference in Part III.
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<TABLE>
TABLE OF CONTENTS
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Page
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Part I
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 18
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure 28
Part III
Item 10. Directors and Executive Officers of the Registrant 28
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners and Management 28
Item 13. Certain Relationships and Related Transactions 28
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 29
Signatures 35
Consolidated Financial Statements F-1
</TABLE>
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PART I
ITEM 1. BUSINESS
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THE COMPANY
Insilco Corporation, a Delaware corporation originally incorporated in New
Jersey in 1898 (collectively with its subsidiaries, the "Company," unless the
context indicates otherwise), directly and through its subsidiaries, is a
diversified manufacturer of automotive components and
telecommunications/electronics products and a variety of specialty consumer
products. The Company with its three reporting segments (Automotive Components
Group, Technologies Group, and Office Products/Specialty Publishing Group)
conducted business in 8 separate operating units, including both divisions and
subsidiaries. The office products business of the Office Products/Specialty
Publishing Group segment was divested in two transactions during the last half
of 1996 and in one final transaction in the first quarter of 1997. The Company's
principal executive offices are located at 425 Metro Place North, Fifth Floor,
Dublin, Ohio 43017, telephone (614) 792-0468.
REORGANIZATION HISTORY
On January 13, 1991 (the "Petition Date"), the Company and a number of its
subsidiaries sought protection under Chapter 11 of the United States Bankruptcy
Code in the United States Bankruptcy Court for the Western District of Texas
(the "Bankruptcy Court") as the Company found itself unable to service the
outstanding debt incurred in its 1988 leveraged buyout (the "LBO").
On April 1, 1993 (the "Reorganization Date"), the Company emerged from Chapter
11 bankruptcy proceedings (the "Chapter 11 cases") pursuant to an Amended and
Restated Plan of Reorganization dated November 23, 1992 (the "Plan of
Reorganization"). The Plan of Reorganization resulted in a reduction in the
Company's liabilities totaling $532.3 million, an extraordinary gain realized in
1993 of $448.3 million attributable to the discharge of such liabilities, and a
change in control of the Company.
The Plan of Reorganization among other matters provided for: (i) the issuance of
9,230,839 shares of the Company's common stock, par value $.001 per share (the
"Common Stock"), in exchange for allowed unsecured claims; (ii) deferred payment
of certain pre-petition claims, including various state and Federal taxes and
trade debt; and (iii) provisions to issue additional stock to other unsecured
creditors over time at the pre-determined rate of 18 shares of stock per $1,000
of allowed claim as those claims are determined. As of March 15, 1997, 120,571
shares of Common Stock were still reserved for issuance to holders of general
unsecured claims whose allowed amount was not finally determined by the
Reorganization Date.
The Plan of Reorganization also addressed and resolved certain issues in
connection with potential litigation on fraudulent conveyance and similar state
law claims, arising out of the LBO and related transactions.
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BUSINESS
For additional business segment information, see Note 18 to the Consolidated
Financial Statements. The percentages of the Company's total net sales by
segment in each of its last three fiscal years were as follows:
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1996 1995 1994
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Automotive Components Group:
Tubing and heat transfer 25.7 % 21.9 % 21.6 %
Transmissions and other 10.9 10.2 10.2
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Subtotal 36.6 32.1 31.8
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Technologies Group 32.1 30.4 30.3
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Office Products/Specialty Publishing Group:
Publishing 17.3 17.6 18.5
Office products 14.0 19.9 19.4
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Subtotal 31.3 37.5 37.9
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Total 100.0 % 100.0 % 100.0 %
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</TABLE>
AUTOMOTIVE COMPONENTS GROUP
The Automotive Components Group is made up of three operating units, Thermal
Components Group ("Thermal"), Romac Metals ("Romac") and a wholly owned
subsidiary, Steel Parts Corporation ("Steel Parts"). The businesses in this
segment primarily manufacture automotive heat exchangers and related tubing,
automatic transmission components and stainless steel tubing.
TUBING AND HEAT TRANSFER. Thermal is comprised of three divisions, Thermal
Components ("TCD"), General ThermoDynamics ("GTD"), McKenica ("McKenica"); three
wholly owned subsidiaries, Great Lake, Inc. ("Great Lake"), TCD, Inc., ARUP
Alu-Rohr und Profil GmbH ("ARUP"); and a 50% owned joint venture, Thermalex,
Inc. ("Thermalex"). Thermal is a vertically integrated manufacturer of heat
exchangers for the automotive and off-road equipment markets. Its products
include thin wall aluminum and brass tubes used principally in heat transfer
applications, radiators, air conditioning condensers, oil coolers and heaters
and production machinery and equipment used in the manufacture and assembly of
automotive heat exchangers.
Thermal uses a direct sales force and independent sales representatives to
market its products. Thermal sells to both original equipment manufacturers
("OEMs") and aftermarket customers. In 1996, Thermal sales to the automotive OEM
market, aftermarket and non-automotive OEM manufacturers were 29%, 33% and 38%
of total sales, respectively, compared to 23%, 37% and 40% of total sales,
respectively, in 1995.
Thermalex, a joint venture owned equally by the Company (through a holding
company subsidiary), and Mitsubishi Aluminum Co., Ltd. ("Mitsubishi"),
manufactures multiport aluminum extrusions used in
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smaller, lighter and more efficient air conditioning condensors which are
necessary to meet environmental restrictions on refrigerants.
The markets for automobile heat-exchanger products are highly competitive and
have many participants, particularly automobile OEMs that produce for their own
use and several large independent manufacturers. Thermal supplies tubes and,
through Thermalex, extrusions to domestic automobile OEMs and independent
manufacturers. Thermal is an established supplier of welded radiator tubes to
manufacturers and repair shops in the heat-exchanger aftermarket.
Thermal has manufacturing facilities in Alabama, Michigan, New York, South
Carolina, Wisconsin and Germany. At December 31, 1996, Thermal (excluding
Thermalex) had 881 employees.
On February 1, 1996, the Company, through its Great Lake subsidiary, acquired
two affiliated businesses, Great Lake Inc. and Kar Tool Co., Inc., that serve
the automotive, heavy truck and industrial manufacturing radiator replacement
market. These acquisitions did not have a material effect on the Company's
liquidity, financial position or operating results.
On July 10, 1996, the Company and its TCD, Inc. subsidiary acquired the
automotive aluminum tube business of Helmut Lingemann GmbH & Co. The
transactions included the purchase of stock of Lingemann's German subsidiary,
ARUP Alu-Rohr und-Profil GmbH, and the automotive aluminum tube business assets
of its Duncan, South Carolina based subsidiary, Helima-Helvetion International,
Inc. The cash transaction, financed principally from borrowings under the
Company's Bank Credit Agreement (as defined herein), was valued at approximately
$32.6 million including transaction fees and expenses.
AUTOMOTIVE. Steel Parts manufactures automotive parts consisting of
close-tolerance precision metal stampings at its facility in Indiana. Its
products include clutch plates for automatic transmissions, suspension parts for
vibration-reducing assemblies and engine mounts.
Substantially all Steel Parts' sales are made to the domestic automobile
industry, either directly or indirectly through other independent automotive
parts suppliers. As a result, the demand for Steel Parts' products historically
has been heavily dependent on the level of new car production by the domestic
automobile industry. Steel Parts has also seen its production content per
automobile increase in recent years as automobile manufacturers have moved from
three-speed to four and five-speed automatic transmissions. The strong domestic
automotive market resulted in Steel Parts operating at or near capacity for most
of 1996 and 1995.
The market for original equipment automobile parts is highly competitive and has
many participants, principally the automobile manufacturers themselves because
of their ability to make their own parts. Approximately 70%, 67% and 66% of
Steel Parts' sales were to one of the "Big 3" domestic automotive manufacturers
in 1996, 1995 and 1994, respectively.
At December 31, 1996, Steel Parts had 371 employees.
STAINLESS STEEL TUBING. Romac manufactures stainless steel tubing for a variety
of marine, architectural, automotive and decorative applications at its facility
in North Carolina. Substantially all of its sales are domestic.
The markets for these products are highly competitive. Competition is based
principally on price and, to a lesser extent, on the shapes and finishes that
can be achieved with the tubing.
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At December 31, 1996, Romac had 134 employees.
TECHNOLOGIES GROUP
The Technologies Group consists of four operating units, Stewart Connector,
Signal Transformer, Stewart Stamping and Escod Industries, which manufacture
telecommunication and electrical component products for the computer networking,
telephone digital switching, precision wiring, main frame computers, automotive
and medical equipment markets.
SPECIALIZED CONNECTOR SYSTEMS. The Company's specialized connector systems
business is made up of two wholly owned subsidiaries, Stewart Connector Systems,
Inc. ("SCS"), and Stewart Connector Systems (Japan), Inc. ("Stewart-Japan"), and
two subsidiaries of Stewart Connector, Stewart Connector Systems GmbH
("Stewart-Germany"), and Stewart Connector Systems de Mexico, S.A. de C.V.
("Stewart-Mexico") (collectively, "Stewart Connector").
Stewart Connector designs and manufactures specialized high speed data connector
systems, including modular plugs, modular jacks, shielded and nonshielded
specialized connectors, and cable assemblies for telecommunications, cellular
communications and data transmission, including local and wide area networks.
Its primary manufacturing facility is located in Pennsylvania, with an assembly
operation in Mexico.
Stewart Connector sells its products throughout the world, directly and through
sales subsidiaries, and through a network of manufacturers' representatives.
Foreign sales accounted for approximately 40% of Stewart Connector's sales in
1996, 43% in 1995 and 35% in 1994. It maintains direct sales offices in England,
France, Japan, Germany and has numerous domestic and foreign competitors, some
of which are substantially larger than Stewart Connector. Competition is based
principally on price with respect to older product lines, and on technology and
product features for newer products and to a lesser extent, patent protection.
At December 31, 1996, Stewart Connector had 1,002 employees, of which 302 were
employed in the U.S., 13 in Japan, 5 in Germany, 4 in the United Kingdom, 1 in
France and 677 in Mexico.
POWER TRANSFORMERS. The Company's power transformer business consists of Signal
Transformer Co., Inc. ("Signal Transformer"), Signal Caribe, Inc. ("Signal
Caribe") and Signal Dominicana S.A. ("Signal Dominicana") (collectively,
"Signal"). Signal manufactures both standard "off-the-shelf" and custom-made
power transformers serving a broad customer base in a variety of industries.
Signal's markets include telecommunications, home and retail security systems,
medical instrumentation, gaming and entertainment and process controls. Signal
markets its products directly, utilizing catalogs and print advertising, and
indirectly through selective independent sales representatives in targeted
regions of the country. It has a customer base of over nine thousand accounts,
consisting of both OEMs and aftermarket resellers.
The electronic transformer industry includes both domestic and foreign
manufacturers and there are numerous competitors to Signal. Competition is based
on price and availability of product to meet customers' needs. Signal has
directed its marketing efforts for many years towards engineers and other
customers having specialized, low-volume demand and prompt delivery
requirements. To capitalize on an identified market niche, Signal has a service
that guarantees 24 hour delivery for small order quantities of certain
"off-the-shelf" transformers.
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Currently, Signal Dominicana manufactures transformer coils at a leased
production facility in the Dominican Republic for final assembly at Signal
Caribe's leased Puerto Rico plant. The Puerto Rico plant also manufactures
transformers from basic materials and accounts for most of Signal's production.
Signal Transformer, located in New York, serves as Signal's major distribution
center and accounts for the balance of transformer production.
At December 31, 1996, Signal had 516 employees, of which 139 were employed in
the U.S., 147 in the Dominican Republic and 230 in Puerto Rico.
PRECISION STAMPINGS AND WIREFORM AND WIRE ASSEMBLIES. The Company's wholly owned
subsidiary, Stewart Stamping Corporation ("Stewart Stamping") is a tool designer
and subcontract manufacturer of high-volume precision metal stamped and wire
formed parts. Stewart Stamping serves a wide variety of markets including
electrical devices such as circuit breakers, electric fuses, lighting and
process controls and the electronic industries in passive components such as
capacitor cans and connector contacts. Stewart Stamping sells its products to a
broad customer base primarily in the U.S. through a network of manufacturers
representatives. Stewart Stamping manufactures its products at its plant in
Yonkers, New York. Stewart Stamping recently leased a manufacturing facility in
El Paso, Texas to better serve the Southwestern U.S. and Mexican assembly
operations of telecommunication and electronics customers.
Stewart Stamping's competitors in each of its product lines are numerous
(including, in the case of metal stampings, its own customers), but Stewart
Stamping traditionally has focused on products that, because of the engineering
and manufacturing capability required to produce them, have the potential for
repeat business.
At December 31, 1996, Stewart Stamping had 299 employees.
CABLE AND WIRE ASSEMBLIES. The Company's Escod Industries division ("Escod")
produces electronic cable assemblies, specialized wire harnesses and certain
telecommunication equipment subassemblies for sale to manufacturers of
telecommunications, computer and other electronics equipment. Escod's markets
generally are regional in nature, and Escod's production facilities (three in
the Carolinas and one in Florida) are operated principally to serve local plants
of OEMs. Because substantially all of Escod's customers are OEMs having a number
of production facilities, the demand for Escod's products depends not only on
the demand for its customers' products, but also on its customers' varying
utilization of their production sites.
Telecommunications and computer OEMs account for the bulk of Escod's sales. Two
telecommunications OEMs together accounted for approximately 66%, 60% and 65% of
Escod's total revenues in 1996, 1995 and 1994, respectively. Escod's dependence
on these two major customers makes its revenues and operating income sensitive
to changes in demand from those customers. In 1994, Escod experienced a
substantial drop in orders from these customers. In response, Escod permanently
closed one facility and consolidated the business in its remaining facilities.
Beginning in 1995, Escod has focused its efforts on developing a broader
customer base and a broader product line.
Competition in Escod's markets is based primarily on price and, to a lesser
extent, on responsiveness to customers' needs. The profitability of Escod's
sales generally depend on the relative raw material content, labor productivity,
quality of the products sold, proximity to customers and timeliness of delivery.
As a result of the low barriers to entry into Escod's business and increased,
low-cost foreign competition in recent years, Escod's business has become
intensely competitive.
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At December 1, 1996, Escod had 710 employees.
OFFICE PRODUCTS/SPECIALTY PUBLISHING GROUP
The Office Products/Specialty Publishing Group includes two operating units:
Taylor Publishing Company ("Taylor"), a wholly owned subsidiary engaged in
yearbook and other specialty publishing; and Rolodex office products, consisting
of Rolodex de Puerto Rico, Inc. ("Rolodex-PR"), and the Company's Rolodex
division (collectively, "Rolodex"), which manufacture and market a variety of
office products. During 1996 and the first quarter of 1997, the Office Products
business was divested. The 1996 divestitures included Curtis Manufacturing Co.,
Inc. ("Curtis"), which designed and marketed a variety of computer accessories,
and the Rolodex electronic organizer business. The remainder of the Rolodex
business consisting of card files, manual personal organizers and paper punches
was sold in March 1997.
YEARBOOKS AND OTHER PUBLICATIONS. Taylor is engaged primarily in the contract
design and printing of scholastic yearbooks from which it derived at least 87%
of its revenues in each of the last three years. Its principal yearbook
customers are secondary (middle and senior high) schools. Other yearbook
customers include elementary schools, colleges and academies. Taylor also
publishes a variety of specialty books on a contract basis and a limited number
of its own publishing titles and provides reunion planning and other services
for alumni of schools, colleges and academies.
Competition in the yearbook industry is based upon customer service, quality and
price. The market for yearbooks is affected more by demographic trends than by
business cycles. Taylor offers several yearbook lines with different graphic and
typographic options and capabilities. Taylor has expended significant resources
in recent years to develop a system of electronic copy preparation designed to
enhance the quality and consistency of photographs, reduce production costs and
shorten the time required for yearbook production. Taylor has developed
proprietary software programs for use by its customers in developing yearbooks.
This software facilitates the yearbook design work performed by schools and
improves the overall production process.
Taylor markets its yearbook services through commissioned independent sales
representatives who maintain contact with yearbook faculty advisors, school
principals and other key purchasing personnel. It also trains students and their
advisors in layout, design and marketing, conducts seminars and workshops and
provides supporting materials, including software, to assist student yearbook
staffs in the production process.
Yearbook production is highly seasonal. Orders are normally obtained in the fall
and finished yearbooks are delivered at or near the end of the school year,
typically late spring to early summer and to a lesser degree, in the fall of the
following school year.
Taylor operates four production facilities in Texas (two owned and two leased)
and one leased production facility in Pennsylvania. Its work force reflects the
seasonality of its business, typically ranging from 1,000 to 1,800 full-time
employees. At December 31, 1996, it had 170 salaried and 1,233 hourly employees.
ROLODEX(R) OFFICE PRODUCTS. Rolodex has been a manufacturer of products for the
office supply market for more than 50 years. Its traditional office products
include card files, other filing devices, paper punches and personal organizers.
Rolodex uses its own sales force as well as independent manufacturers'
representatives to market its products to office superstores, mass merchandisers
and the traditional commercial office supply market. Over the past three years,
superstores and other mass merchandisers have accounted for a significant
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portion of total sales. Sales to superstores and other mass merchandisers were
approximately 63%, 71% and 67% of total sales in 1996, 1995 and 1994,
respectively.
Rolodex has three principal competitors in its personal organizer market and
numerous competitors in the paper punch business. Product features, price and
brand name recognition are the primary factors affecting competition.
The traditional Rolodex office supply products and personal organizers are
manufactured or assembled in Puerto Rico in facilities leased by Rolodex de
Puerto Rico. Rolodex maintains an office and distribution facility in New
Jersey. Rolodex does not rely on any single supplier for either its traditional
office products or its personal organizer product lines.
At December 31, 1996, Rolodex had 394 employees, 111 in New Jersey and the
remainder in Puerto Rico.
DIVESTED ROLODEX BUSINESSES. On September 3, 1996, the Company sold Curtis, its
computer accessories business. On October 4, 1996 the Company sold the Rolodex
electronics product line, consisting of electronic personal organizers and
telephones. On March 5, 1997, the Company sold the remaining Rolodex business.
DIVESTITURES (OTHER THAN OFFICE PRODUCTS)
In 1993, the Company sold the defense and other manufacturing operations of its
subsidiary, Valentec International Corporation. In 1994, the Company sold its
paint products segment comprised of Sinclair Paint Company. See Item 7
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Discontinued Operations."
PATENTS AND TRADEMARKS
The Company holds patents or trademarks in most of its businesses which have
expiration dates ranging from 1997 to 2016. The Company expects to maintain its
material patents and to renew the trademarks important to its business prior to
their expiration and does not believe the expiration of any one of its patents
will have a material adverse effect on any of its businesses.
RAW MATERIALS AND SUPPLIES
The principal raw materials and supplies used by the Company include: (i) steel,
aluminum, copper, zinc, brass and nickel (Automotive Components); (ii) copper
wire, steel, brass, aluminum, plastics, ceramics and precious metals
(Technologies Group); and (iii) paper, film and other photographic and printing
supplies, electronic components and plastics (Office Products/Specialty
Publishing). The Company purchases these materials and supplies on the open
market to meet its current requirements and believes its sources of supply are
adequate for its needs. Except for certain aluminum alloys and extrusion dies
used by Thermalex, the Company is not substantially dependent on any one
supplier.
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BACKLOG
The Company's backlog by industry segment, believed to be firm, at December 31,
1996 and 1995 follows (in thousands):
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December 31
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1996 1995
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Automotive Components Group $ 52,372 47,974
Technologies Group 50,955 46,506
Office Products/Specialty Publishing Group 102,939 110,417
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Total $ 206,266 204,897
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</TABLE>
Management believes that approximately $180 million of its 1996 backlog will be
filled in 1997, and the remainder in 1998.
EMPLOYEES AND LABOR RELATIONS
At December 31, 1996, the Company employed approximately 5,764 people on a
full-time basis, of whom approximately 25% were covered by collective bargaining
agreements with various unions. The largest collective bargaining unit (at
Taylor) covers approximately 563 employees. Among the union agreements that will
expire in 1997 are those covering certain union employees of Taylor Publishing.
The Company considers relations with its employees to be good.
The Company has defined benefit and defined contribution pension plans covering
substantially all employees. For information respecting defined benefit pension
plans, see Note 10 to the Consolidated Financial Statements. The Company is
currently participating in the Voluntary Closing Agreement Program (established
by the Internal Revenue Service) to cure operational defects in one of the
defined contribution plans as a result of an omission of certain eligible
employees from participation. The Company has paid a $40,000 tax penalty and
expects the curative action will entail a one-time incremental contribution by
it to the plan in an amount that has not been finally determined, but that the
Company does not presently expect will be material to its consolidated financial
position, results of operations or liquidity.
ENVIRONMENTAL REGULATIONS AND PROCEEDINGS
ENVIRONMENTAL MATTERS. The Company's manufacturing operations involve the
generation of a variety of waste materials and are subject to extensive federal,
state and local environmental laws and regulations. The waste materials
generated include metal scrap from stamping operations, cutting and cooling
oils, degreasing agents, chemicals from plating and tinning operations, etching
acids and photographic and printing chemicals. The Company uses offsite disposal
facilities owned by others to dispose of its wastes and does not store wastes it
generates to the extent such storage would require a permit. The Company does
not treat, store or dispose of waste for others. The Company is required to
obtain permits to operate various of its facilities, and these permits generally
are subject to revocation or modification.
The Company has taken significant measures to address emissions, discharges and
waste generation and disposal; improve management practices and operations in
response to legal requirements; and internally audit compliance with applicable
environmental regulations and approved practices. These measures include raw
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material and process substitution, recycling and material management programs,
periodic review of hazardous waste storage and disposal practices, and reviewing
the compliance and financial status and management practices of its offsite
third-party waste management firms.
As a result of the Company's reorganization, much uncertainty has been removed
concerning the Company's potential liability for environmental contamination at
sites owned or operated by the Company (and at third party disposal and waste
management facilities used by the Company) prior to the filing of its bankruptcy
petition. During the reorganization, the Company settled all claims of the
United States relating to the Company's pre-petition conduct at previously owned
or third party sites arising under the federal Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA"). This settlement (i)
discharged the Company's liability to the United States at a number of hazardous
waste sites; (ii) protects the Company from contribution claims of the remaining
potentially responsible parties ("PRPs"); (iii) limits the amount the Company
may be required to pay the United States in any one year on pre-petition claims;
and (iv) provides that any such payment may be made in cash or, at the Company's
option, common stock at the rate of 18 shares for each $1,000 of allowed claim.
The Company is also currently engaged in clean up programs at sites located in
Newtown, Connecticut and Mount Vernon, New York, which were owned by the Company
on the Petition Date.
FINANCIAL INFORMATION ABOUT EXPORT SALES
In 1996, the Company had export sales of $71.6 million which were 12% of total
sales. Export sales in 1996 to Europe, Asia, Canada and Mexico were $29.9
million, $17.1 million, $8.4 million and $6.8 million, respectively. All other
export sales in 1996 totaled $9.4 million. In 1995, export sales were $59.7
million or 11% of total sales. In 1994, export sales were less than 10%. The
Company's transactions are primarily in U.S. dollars.
ITEM 2. PROPERTIES
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PROPERTIES
The Company manufactures its products in various locations, primarily in the
United States and Puerto Rico. Management believes that the Company's facilities
generally are well maintained and adequate for the purposes of which they are
used. The Company's principal operating plants and offices at December 31, 1996
included the following properties:
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<TABLE>
<CAPTION>
APPROXIMATE TERMS OF
BUSINESS SEGMENT LOCATION PRINCIPAL USE SQUARE FOOTAGE OCCUPANCY
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Automotive Components Group
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Thermal Components Group Montgomery, AL Office/Manufacturing 137,325 Owned(1)
Montgomery, AL Manufacturing 45,000 Leased
Buffalo, NY Office/Manufacturing 78,800 Leased
Iron Ridge, WI Office/Manufacturing 44,000 Owned
Oak Creek, WI Office/Manufacturing 39,250 Owned
Oak Creek, WI Office/Manufacturing 33,600 Leased
Montgomery, AL Office 10,890 Leased
Detroit, MI Office/Manufacturing 28,000 Leased
Romulus, MI Office/Manufacturing 16,000 Leased
Duncan, SC Office/Manufacturing 100,000 Owned
Dortmund, Germany Office/Manufacturing 45,000 Owned
Steel Parts Tipton, IN Office/Manufacturing 169,209 Owned
Tipton, IN Office/Manufacturing 60,141 Owned
Romac Metals Troutman, NC Office/Manufacturing 110,000 Owned
Technologies Group
------------------
Escod Durham, NC Office 3,205 Leased
N.Myrtle Beach, SC Office/Manufacturing 46,506 Owned
Myrtle Beach, SC Office 2,893 Leased
Lake Wales, FL Office/Manufacturing 42,000 Owned
Taylorsville, NC Office/Manufacturing 44,350 Owned
Loris, SC Office/Manufacturing 36,960 Owned
Cannon City, CO Office/Manufacturing 21,000 Owned
Signal Transformer Inwood, NY Office/Manufacturing 39,361 Owned
St. Just, PR Office/Manufacturing 41,214 Leased
San Cristobal,
Dominican Republic Office/Manufacturing 14,685 Leased
Stewart Connector Glen Rock, PA Office/Manufacturing 84,000 Owned
Santa Clara, CA Office 210 Leased
Essex, UK Office 485 Leased
Freidrichsdorf/Ts.,
Germany Office 1,500 Leased
Yokohama, Japan Office/Warehouse 4,750 Leased
Cananea, Mexico Warehouse/ 22,646 Leased
Manufacturing
Stewart Stamping Yonkers, NY Office/Manufacturing 190,000 Owned
El Paso, TX Office/Manufacturing 41,400 Leased
</TABLE>
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<TABLE>
<CAPTION>
APPROXIMATE TERMS OF
BUSINESS SEGMENT LOCATION PRINCIPAL USE SQUARE FOOTAGE OCCUPANCY
---------------- -------- ------------- -------------- ---------
<S> <C> <C> <C> <C>
Office Products/Specialty
-------------------------
Publishing Group
----------------
Rolodex Secaucus, NJ Office/Warehouse 105,211 Leased
Moca, PR Office/Warehouse 101,529 Leased
Taylor Dallas, TX Office/Manufacturing 320,000 Owned
Dallas, TX Office/Manufacturing 25,000 Owned
San Angelo, TX Office/Manufacturing 33,200 Leased
El Paso, TX Office/Manufacturing 31,000 Leased
Malvern, PA Office/Manufacturing 41,000 Leased
Dallas, TX Office 4,170 Leased
Orange, CA Office 3,373 Leased
Galveston, TX Office 1,200 Leased
Corporate Dublin, OH Office 18,300 Leased
</TABLE>
(1) Property is "leased" from an industrial development authority in connection
with an expired industrial revenue bond and is eligible for purchase by the
Company for a nominal consideration at the expiration of the lease term.
Substantially all of the Company's material domestic assets, including owned
properties, are subject to major encumbrances securing the Company's obligations
under the Bank Credit Agreement.
The Company believes that all of its production facilities have additional
production capacity, except for Stewart Connector, Steel Parts and certain
Thermal plants that are operating at or near full capacity.
-13-
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
-------------------------
THE REORGANIZATION CASE
Litigation on disputed pre-petition, administrative and rejected executory
contracts is continuing in the reorganization case (styled In re Insilco
Corporation, Jointly Administered Case No. 91-70021-RBK, Bankr., W.D. Tex.) and
the Bankruptcy Court retains jurisdiction to, among other things, resolve such
claims. Holders of disputed claims that are ultimately allowed will be satisfied
as provided in the Plan of Reorganization.
ENVIRONMENTAL PROCEEDINGS
Litigation on certain disputed pre-petition environmental claims is continuing
in the reorganization case. This litigation, which seeks to assess certain
cleanup costs against the Company, includes claims of the State of Florida and
certain private parties with respect to a site in Florida, and claims of a
private party associated with a site in California. These environmental claims,
when finally determined, will be satisfied, consistent with the Plan of
Reorganization, with common stock at the rate of 18 shares for each $1,000 of
allowed claim.
FEDERAL TRADE COMMISSION MATTER
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") to determine if the acquisition
violated federal antitrust laws. The Company has responded to various FTC
requests for information concerning the relevant market and competitive
conditions in that market. At this time it is not known whether the
investigation will result in the issuance of a complaint, or if such complaint
is issued, the relief that will be sought or obtained. The 1996 revenues
associated with the automotive tubing business acquired from HHI were $2.0
million, and the tangible net assets associated with the business at December
31, 1996 were $7.0 million.
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of its business. The Company
maintains insurance coverage against potential general liability and certain
other claims in an amount it believes to be adequate. Except as described above,
the Company has no material pending legal proceedings, other than ordinary
litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
Not Applicable
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-14-
<PAGE> 15
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
-------------------------------------------------------------
STOCKHOLDER MATTERS
-------------------
The Common Stock is the Company's only class of authorized equity securities.
Water Street Corporate Recovery Fund I, L.P. ("Water Street"), an investment
partnership of which Goldman, Sachs & Co. ("Goldman Sachs") is the general
partner, is now the Company's principal stockholder, owning approximately 62% of
the 9,407,594 shares outstanding at March 15, 1997.
The Company's Common Stock has traded on the Nasdaq National Market under the
symbol "INSL" since November 29, 1993. The following table sets forth, for the
periods indicated, the high and low sale prices for the Company's Common Stock
as reported by the Nasdaq National Market. The number of record holders of the
Common Stock of the Company on March 15, 1997 was 770. The closing sales price
of the Common Stock of the Company on March 15, 1997 was $38.50.
<TABLE>
<CAPTION>
Low Sale High Sale
-------- ---------
<S> <C> <C>
1996:
- ----
First Quarter $27.125 $36.500
Second Quarter $33.500 $37.000
Third Quarter $31.000 $37.375
Fourth Quarter $35.500 $42.000
1995:
- ----
First Quarter $23.250 $28.625
Second Quarter $26.750 $38.125
Third Quarter $34.375 $39.000
Fourth Quarter $30.000 $41.250
</TABLE>
The Company did not pay any cash dividends during the past two fiscal years. The
Company is considering a possible one time distribution to shareholders or
repurchase of shares from the proceeds of the sale of its Rolodex unit. Future
dividend policy will depend upon the earnings and financial condition of the
Company and the Company's need for funds and other factors. The payment of
dividends is also restricted by the terms of the Bank Credit Agreement.
Pursuant to a $15.0 million stock buyback program adopted July 26, 1995, 97,500
shares of Insilco's common stock were purchased in 1996 at prices ranging from
$30.60 to $36.125 per share. In 1995, 197,500 shares of Insilco's common stock
were purchased at prices ranging from $32.375 to $36.875 per share.
-15-
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information (dollars in
thousands) derived from the Company's Consolidated Financial Statements.
<TABLE>
<CAPTION>
Predecessor
-----------
1993
---------------------------------
From To
1996 1995 1994 4/1 3/31 1992
---- ---- ---- --- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA(1)
Sales (net)(2) $ 572,474 561,203 543,630 411,040 105,862 481,637
Depreciation and amortization 16,831 14,758 13,570 10,144 3,328 13,898
Amortization of Reorganization Goodwill - 32,172 69,217 54,507 1,125 4,502
Operating income (loss)(3) 59,101 24,617 (9,699) (21,488) 7,256 37,814
Other income (expense)(4)
Interest expense(5) (18,386) (19,546) (29,113) (26,905) (9,609) (31,495)
Interest income 1,010 1,577 1,842 1,710 351 1,233
Other income (expense), net 10,138 12,126 2,663 167 (40) 399
Income (loss) from continuing operations
before reorganization items, extraordinary
item and income taxes 51,863 18,774 (34,307) (46,516) (2,042) 7,951
Reorganization items, net - - - - 21,767 (22,407)
Income tax expense (12,810) (16,199) (8,585) (1,134) (873) (3,117)
Income (loss) from continuing operations
before extraordinary items 39,053 2,575 (42,892) (47,650) 18,852 (17,573)
Income (loss) from discontinued operations - - 12,914 1,041 (18,241) (13,712)
Income (loss) before extraordinary items 39,053 2,575 (29,978) (46,609) 611 (31,285)
Extraordinary items - - (2,156) - 448,334 -
Net income (loss) 39,053 2,575 (32,134) (46,609) 448,945 (31,285)
BALANCE SHEET DATA AT PERIOD END
Working capital 47,956 44,920 33,915 97,718 94,589 136,077
Total assets 352,000 340,129 368,669 517,738 562,011 547,748
Long-term debt 161,042 186,489 198,109 307,406 306,682 311,946
Other long-term liabilities 47,337 53,612 59,117 65,016 64,896 631
Liabilities subject to compromise - - - - - 608,987
CASH FLOW DATA
Net cash provided by (used in)
operating activities 55,423 37,744 34,305 52,524 (16,361) (1,684)
Net cash provided by (used in)
investing activities (29,783) (14,678) 36,295 (14,146) 2,668 (18,480)
Net cash provided by (used in)
financing activities (32,053) (21,862) (115,648) (6,774) (9,109) 2,903
PER SHARE DATA
Income (loss) per share from continuing
operations(6) 3.95 0.25 (4.42) (4.93) N/A N/A
</TABLE>
See accompanying notes to the Selected Financial Data.
-16-
<PAGE> 17
The notes to the selected financial data follow:
(1) For financial reporting purposes, March 31, 1993 is the effective date
of the Plan of Reorganization. As of that date, in accordance with
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" (the "Reorganization SOP"),
issued by the American Institute of Certified Public Accountants, the
Company adopted "fresh start" accounting as described in Note 1 to the
Consolidated Financial Statements. As a result, financial information
for all periods prior to March 31, 1993 (referred to as "Predecessor")
is not comparable to information for subsequent periods.
(2) Sales include the sales of the Office Products business of the Office
Products/Specialty Publishing Group which was divested in two separate
transactions in 1996 and one final transaction in the first quarter of
1997 as follows: 1996, $ 80.1 million; 1995, $111.7 million; 1994, $
105.2 million; 1993, $ 104.8 million; and 1992, $ 111.0 million. In
addition, operating income for the Office Products business, before
the allocation of Corporate overhead, included in the consolidated
results follow: 1996, $ 10.7 million; 1995, $ 1.7 million; 1994, $
15.2 million; 1993, $ 12.7 million; and 1992, $ 14.9 million.
(3) See Notes 15 and 19 to the Consolidated Financial Statements.
(4) See Note 14 to the Consolidated Financial Statements.
(5) Excluding $19.8 million and $79.3 million contractual interest not
accrued on unsecured debt during the Chapter 11 proceedings in the
three months ended March 31, 1993 and the year 1992, respectively.
(6) Earnings per share information for the Predecessor is not presented
because the Predecessor was closely held and the revision of the
Company's capital structure pursuant to the Plan of Reorganization
makes such information not meaningful.
[This space intentionally left blank]
-17-
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-------------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
OVERVIEW
"FRESH START" ACCOUNTING
On March 31, 1993, the Company adopted the "fresh start" accounting principles
prescribed by the Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code" (the "Reorganization SOP"), issued
by the American Institute of Certified Public Accountants. The "fresh start"
accounting principles required the Company to value its assets and liabilities
at fair values and eliminate its accumulated deficit.
"Fresh start" accounting was required because on April 1, 1993 the Company and
certain of its subsidiaries emerged from Chapter 11 of the United States
Bankruptcy Code (the "Chapter 11 cases") pursuant to a plan of reorganization
(the "Plan of Reorganization"). For financial reporting purposes, the effective
date of the Plan of Reorganization was March 31, 1993 (the "Plan Effective
Date"). For periods prior to the Plan Effective Date, the Company sometimes is
referred to herein as the "Predecessor". The Chapter 11 cases were commenced on
January 13, 1991 (the "Petition Date"). (See Item 1 - "Business Reorganization
History and Plan of Reorganization Summary.")
One notable impact of "fresh start" accounting on the financial statements was
the negative impact on the reported operating income of each business segment
and the consolidated net income resulting from the noncash amortization of the
Reorganization Goodwill. Such amortization expense totaled $32.2 million in 1995
and $69.2 million in 1994. At December 31, 1995, Reorganization Goodwill was
fully amortized.
DIVESTED BUSINESS
During the last half of 1996 and the first quarter of 1997 the Office Products
business of the Office Products/Specialty Publishing Group was divested in three
separate transactions. The disposal of this business is not accounted for as a
discontinued operation. See "Results of Operations."
DISCONTINUED OPERATIONS
On August 1, 1994, the Company completed the sale of its paint products segment
for $50.8 million and the segment is being accounted for as a discontinued
operation.
RESULTS OF OPERATIONS
Summarized sales and operating income (loss) by business segment and the other
significant components of net income (loss) for the years ended December 31,
1996, 1995 and 1994, are set forth in the following table (in thousands) and
discussed below:
-18-
<PAGE> 19
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- ----
<S> <C> <C> <C>
SALES
Automotive Components Group $209,722 180,251 173,079
Technologies Group 183,663 170,615 164,909
Office Products/Specialty Publishing Group:
Specialty Publishing 99,020 98,640 100,446
Office Products 80,069 111,697 105,196
-------- ------- -------
179,089 210,337 205,642
-------- ------- -------
572,474 561,203 543,630
-------- ------- -------
OPERATING INCOME (LOSS)(1)
Automotive Components Group 23,915 20,407 14,941
Technologies Group 24,453 20,310 7,386
Office Products/Specialty Publishing Group:
Specialty Publishing 1,650 (753) (9,892)
Office Products 9,167 (15,287) (20,921)
-------- -------- -------
10,817 (16,040) (30,813)
Unallocated corporate (84) (60) (1,213)
-------- -------- -------
59,101 24,617 (9,699)
-------- -------- -------
SUPPLEMENTAL INFORMATION: "FRESH START"
ACCOUNTING EFFECTS INCLUDED IN OPERATING
INCOME (LOSS)
Amortization of intangibles:
Automotive Components Group - 3,404 7,313
Technologies Group - 7,176 15,419
Office Products/Specialty Publishing Group:
Specialty Publishing - 5,625 12,081
Office Products - 15,967 34,404
-------- ------- -------
- 21,592 46,485
-------- ------- -------
- 32,172 69,217
-------- ------- -------
OTHER INCOME (EXPENSE)
INTEREST EXPENSE (18,386) (19,546) (29,113)
INTEREST INCOME 1,010 1,577 1,842
OTHER INCOME, NET 10,138 12,126 2,663
-------- ------- --------
(7,238) (5,843) (24,608)
-------- ------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND EXTRAORDINARY
ITEMS 51,863 18,774 (34,307)
INCOME TAX EXPENSE (12,810) (16,199) (8,585)
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEM 39,053 2,575 (42,892)
-------- -------- --------
DISCONTINUED OPERATIONS, NET OF TAX:
GAIN ON DISPOSAL - - 10,710
INCOME FROM OPERATIONS - - 2,204
-------- --------- --------
INCOME FROM DISCONTINUED OPERATIONS - - 12,914
EXTRAORDINARY ITEM - - (2,156)
-------- --------- --------
NET INCOME (LOSS) $ 39,053 2,575 (32,134)
======== ======== ========
</TABLE>
-19-
<PAGE> 20
(1) Segment operating income (loss) reflects the allocation of corporate
overhead. Unallocated corporate overhead consists of overhead
associated with discontinued operations. In 1995 corporate overhead
was reduced by a $4,300,000 gain relating to a change in the Company's
pension plan (see Note 10 to the Consolidated Financial Statements).
The allocation of corporate overhead follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Automotive Components Group $2,981 1,282 2,194
Technologies Group 3,152 1,412 2,870
Office Products/Specialty Publishing Group:
Specialty Publishing 1,986 881 1,867
Office Products 1,501 1,023 1,732
------ ----- -----
3,487 1,904 3,599
------ ----- -----
$9,620 4,598 8,663
====== ===== =====
</TABLE>
[This space intentionally left blank]
-20-
<PAGE> 21
1996 COMPARED TO 1995
SALES. Net sales in 1996 were $572.5 million, an increase of 2% over 1995 net
sales of $561.2 million. The aggregate growth rate was adversely affected by the
divestitures of the Rolodex electronics product line and Curtis in the second
half of 1996.
Sales in the Automotive Components Group segment were $209.7 million, an
increase of 16% over 1995 sales of $180.3 million. The increased sales were
attributable to $20.5 million of sales from the 1996 acquisitions of the
Lingemann automotive aluminum tube business and Great Lake as well as higher
content per automobile of clutch plates in transmissions and higher sales of
aluminum heat exchangers and related products and equipment manufactured by the
segment's Thermal unit. Approximately 29% of Thermal's sales are to the
automotive OEM market. Steel Parts achieved sales growth over 1995 due to higher
parts content per automobile, as automobile manufacturers have moved from
three-speed to four and five-speed automatic transmissions. Steel Parts is
primarily an OEM supplier of transmission and other automotive components. The
increased sales at Thermal and Steel Parts were partially offset by a decline
from the prior year at Romac, the Company's manufacturer of stainless steel
tubing sold principally in marine and distribution markets.
Sales in the Technologies Group were $183.7 million, an increase of 8% over 1995
sales of $170.6 million. Sales of the wire and cable assembly business, Escod,
were up 23% over 1995, reflecting continued expansion of its customer base and a
rebound in orders from its largest telecommunications customer. Stewart
Connector, the Company's manufacturer of high speed data transmission connectors
which serves the computer networking market, had an 8% increase in sales over
the prior year with 15% growth in the fourth quarter of the year, primarily as a
result of a new contract with a major telecommunications customer for
connector/cable assemblies. Foreign sales accounted for approximately 40% and
43% of Stewart Connector's sales in 1996 and 1995, respectively. Sales at the
segment's Signal Transformer unit were flat compared to the prior year. Sales of
precision stampings at the segment's Stewart Stamping unit increased 5% due to
the underlying strength of the markets that it serves, including the housing
construction and automotive market.
Sales in the Office Products/Specialty Publishing Group were $179.1 million, a
decrease of 15% from 1995 sales of $210.3 million, primarily due to the
divestitures of the Rolodex electronics product line in October 1996 and Curtis
in September 1996. Excluding the impact of the divestitures, sales for the Group
declined 2% from the prior year as a result of lower sales of traditional office
products. Sales at Taylor Publishing were $99.0 million, relatively flat
compared to prior year sales of $98.6 million.
OPERATING INCOME. Operating income (loss) comparisons between 1996 and 1995 are
more difficult to present than the sales comparisons because of the effects of
"fresh start" accounting on the results of operations. Due to the effects of
"fresh start" accounting, the Company's 1995 operating results were depressed by
a $32.2 million charge for the amortization of Reorganization Goodwill. The
consolidated reported operating income in 1996 improved to $59.1 million from
$24.6 million in 1995. (See the table on page 19 for the impact of "fresh start"
accounting on the reported operating income as well as the comparability between
the periods). Excluding the effects of "fresh start" accounting, as described
above, the operating performance increased $2.3 million or 4%. The increase is
primarily due to higher operating income in the Office Products business. This
gain was partially offset by higher Corporate overhead, decreased operating
margins in the Technologies Group and a $1.5 million restructuring charge
recorded by Taylor Publishing. The higher corporate overhead in 1996 is
primarily due to a $4.3 million gain recorded in 1995 related to a change in the
Company's pension plan which temporarily reduced Corporate overhead. These items
and other operational year-to-year changes are discussed below in the analysis
of each segment's operating income.
-21-
<PAGE> 22
The Automotive Components Group's operating income in 1996 compared to 1995
increased to $23.9 million from $20.4 million. The results in 1995 were
negatively impacted by the amortization of Reorganization Goodwill totaling $3.4
million. Excluding amortization of Reorganization Goodwill, the segment's
operating performance was relatively flat compared to 1995, as the effect of
higher sales was offset by a $1.7 million increase in allocated Corporate
overhead due to the 1995 pension gain noted above.
The Technologies Group's operating income in 1996 compared to 1995 increased to
$24.5 million from $20.3 million. The results in 1995 were negatively impacted
by a $7.2 million amortization charge for Reorganization Goodwill. Excluding the
amortization of Reorganization Goodwill, the segment's operating performance
decreased $3.0 million in 1996 compared to 1995, an 11% decrease, due to
decreased operating margins and a $1.7 million increase in allocated Corporate
overhead due to the 1995 pension gain noted above. The decreased operating
margins were caused principally by competitive price pressure in the connector
market and delayed introductions of new connector products.
The operating income of the Office Products/Specialty Publishing Group was $10.8
million in 1996 compared to an operating loss of $16.0 million in 1995. The
results in 1995 were negatively impacted by a $21.6 million charge for
amortization of Reorganization Goodwill. Excluding the amortization of
Reorganization Goodwill, the segment's operating performance increased $5.3
million in 1996 compared to 1995. The results in 1995, as compared to 1996, were
negatively impacted by $10.1 million of charges recorded for potentially
uncollectible accounts receivable, inventory valuation, anticipated customer
returns and other charges. The improvement in operating earnings for 1996 was
partially offset by decreased operating income at Rolodex and Taylor Publishing
and an increase in allocated Corporate overhead of $1.6 million due to the
pension gain recorded in 1995.
In 1996, the operating income of the Specialty Publishing business, Taylor
Publishing, improved to $1.7 million from an operating loss of $0.8 million in
1995 due principally to the reduction in amortization of Reorganization
Goodwill, which totaled $5.6 million in 1995. Excluding the amortization of
Reorganization Goodwill, the unit's operating performance decreased $3.2 million
in 1996 compared to 1995 due to a $1.5 million restructuring charge incurred in
1996, following Taylor's adoption of a restructuring plan to improve
profitability a $1.1 million increase in allocated corporate overhead which was
primarily attributable to the 1995 pension gain noted above, and increased
administrative costs.
OTHER INCOME (EXPENSE). Interest expense decreased approximately 6% or $1.2
million in 1996 compared to 1995 due to a lower effective interest rate and
lower debt balances. Other income for 1996 included a $3.1 million pre-tax gain
on the sale of the Rolodex electronics product line. Other income also included
a favorable adjustment of $2.2 million related to the Company's environmental
liabilities following completion of a site clean-up for an amount less than
previously estimated. Other income for 1995 included favorable adjustments of
$3.6 million related to the Company's environmental liabilities following a
review of its liabilities from previously divested operations and $1.5 million
related to the resolutions of several legal disputes. In addition, other income
included a $4.0 million gain on the sale of idle corporate assets.
INCOME TAX EXPENSE. The Company's actual income tax obligations during 1996
($2.4 million) and 1995 ($2.6 million) were substantially less than the total
amount of income taxes recognized ($12.4 million and $16.1 million respectively)
because previously generated net operating losses and other net deferred tax
assets were utilized to reduce the tax obligations. During 1996 and 1995,
additional deferred tax assets of $10.7 million and $9.2 million respectively,
were recognized and recorded on the balance sheet because it was concluded that
it was more likely than not that such amounts would be realized in future years.
In accordance with the Reorganization SOP, the tax benefits associated with the
recognition of pre-effective date deferred tax assets ($10.2 million and $1.6
million in 1996 and 1995, respectively), were recorded
-22-
<PAGE> 23
as an increase to additional paid-in capital and $7.2 million in 1995 was
recorded as a reduction to Reorganization Goodwill. The 1995 reduction
eliminated the remaining unamortized Reorganization Goodwill.
The effective tax rate on adjusted income from continuing operations (adjusted
to exclude Reorganization Goodwill amortization) was 24.7% in 1996 compared to
31.8% for 1995. The percentage decrease is primarily due to the recognition of
the tax benefit of capital loss carryforwards. (See Note 11 to the Consolidated
Financial Statements for further information.)
1995 COMPARED TO 1994
SALES. Net sales from continuing operations in 1995 were $561.2 million, an
increase of 3% over 1994 net sales of $543.6 million. The aggregate growth rate
was adversely affected by the continuation in early 1995 of declining sales at
the Company's wire and cable assembly business and to a lesser degree, by a
small decrease in school yearbook sales at Taylor Publishing.
Sales in the Automotive Components Group segment were $180.3 million, an
increase of 4% over 1994 sales of $173.1 million. The higher sales were
attributable to higher content per automobile of clutch plates in transmissions
and higher unit sales of heat exchanger products manufactured by the segment's
Thermal unit. The increase in units sold is due to increased penetration in
non-automotive aluminum heat exchanger markets and the accelerating demand for
aluminum radiator replacements. Approximately 23% of Thermal's sales are to the
automotive OEM market. Steel Parts, the segment's smaller unit, achieved sales
growth over 1994 despite a slowdown in North American automotive production. The
growth at Steel Parts was due to higher parts content per automobile, as
automobile manufacturers have moved from three-speed to four-speed automatic
transmissions. Steel Parts is primarily an OEM supplier of transmission and
other automotive components.
Sales in the Technologies Group were $170.6 million, an increase of 3% over 1994
sales of $164.9 million. This increase was offset by sharply reduced demand in
the first half of 1995 from two major customers of the segment's relatively low
margin wire and cable assembly business, Escod Industries, which resulted in a
17% or $8.9 million sales decline. Excluding this drop-off, the segment recorded
a 13% increase in sales over 1994. This increase was partly a result of the
continued growth at the segment's Stewart Connector unit, the Company's
manufacturer of high speed data transmission connectors which serves the
computer networking market. Despite the year-over-year improvement, Stewart
Connector experienced a slowdown in rate of sales growth in the second half due
to competitive pricing pressures and pending new product introductions scheduled
for introduction in 1996. Foreign sales accounted for approximately 43% and 35%
of Stewart Connector's sales in 1995 and 1994, respectively. Sales at the
segment's Signal Transformer unit increased primarily due to the continued
success of its customer-focused program to deliver transformers within
twenty-four hours of the receipt of the customer order. Sales at the segment's
Stewart Stamping unit increased due to the underlying strength of the markets
that it serves, including the telecommunications and electrical industries, and
as a result of more targeted selling efforts through the engagement of
additional independent sales representatives.
Sales in the Office Products/Specialty Publishing Group were $210.3 million, an
increase of 2% over 1994 sales of $205.6 million. Sales of the segment's office
products (Rolodex and Curtis) of $111.7 million increased 6% over 1994 sales of
$105.2 million due primarily to increases in sales of consumer electronics and
traditional card file products at Rolodex. The sales at Taylor Publishing were
$98.6 million, a decrease of 2% from 1994 sales of $100.4 million.
-23-
<PAGE> 24
OPERATING INCOME. Operating income (loss) comparisons between 1995 and 1994 are
more difficult to understand than the sales comparisons because of the effects
of "fresh start" accounting on the results of operations. Due to the effects of
"fresh start" accounting, the Company's 1995 and 1994 operating results were
depressed by a $32.2 million and $69.2 million charge, respectively, for the
amortization of Reorganization Goodwill. The consolidated reported operating
income in 1995 improved to $24.6 million from an operating loss of $9.7 million
in 1994. (See the table on page 19 for the impact of "fresh start" accounting on
the reported operating income as well as the comparability between the periods).
Excluding the effects of "fresh start" accounting, as described above, the
operating performance decreased $2.7 million, a 5% decrease. The decrease was
primarily due to $10.1 million of charges related to uncollectible accounts
receivable, sales returns and obsolete inventory recorded at Rolodex/Curtis of
which $6.2 million were classified as nonrecurring charges. These charges were
partially offset by a gain of $4.3 million related to a change in the Company's
pension plan whereby a lump sum settlement feature was adopted for retirees and
certain vested participants which resulted in the settlement of more than $42.0
million in pension obligations. As a result, corporate overhead was reduced by
$4.3 million in 1995 compared to 1994. These items and other operational
year-to-year changes are discussed below in the analysis for each segment's
operating income.
The Automotive Components Group's operating income in 1995 compared to 1994
increased from $14.9 million to $20.4 million. The results in each year were
negatively impacted by the amortization of Reorganization Goodwill ($3.4 million
and $7.3 million in 1995 and 1994, respectively). Excluding amortization of
Reorganization Goodwill, the segment's operating performance improved $1.6
million in 1995 compared to 1994, a 7% increase, due to the higher sales and a
reduction of $0.9 million in allocated Corporate overhead attributable to the
pension gain noted above.
The Technologies Group's operating income in 1995 compared to 1994 increased
from $7.4 million to $20.3 million. The results in each year are negatively
impacted by the amortization of Reorganization Goodwill ($7.2 million and $15.4
million in 1995 and 1994, respectively). Excluding the amortization of
Reorganization Goodwill, the segment's operating performance improved $4.7
million in 1995 compared to 1994, a 21% increase, due to higher sales and
improved productivity, as well as a reduction of $1.5 million in allocated
Corporate overhead attributable to the pension plan noted above.
The operating loss of the Office Products/Specialty Publishing Group, the
segment to which most of the Reorganization Goodwill was allocated, improved to
$16.0 million in 1995 from $30.8 million in 1994. In 1995 and 1994, the
amortization of Reorganization Goodwill included in the segment's operating
results was $21.6 million and $46.5 million, respectively. Excluding the
amortization of Reorganization Goodwill, the segment's operating performance
decreased $10.1 million in 1995 compared to 1994. The decrease was due to $6.2
million of nonrecurring charges recorded in the second quarter of 1995 at
Rolodex, related primarily to a number of open and unresolved customer
chargebacks, that had originated in prior years. The nonrecurring charges also
included a charge at Rolodex and Curtis (the Company's computer accessory unit)
of $1.6 million to adjust the net realizable value of inventory and related
capital assets. In addition, the Company recorded provisions totaling $3.9
million in the fourth quarter of 1995 for potentially uncollectible accounts
receivable, inventory valuation, anticipated customer returns and other charges
at Rolodex and Curtis. These charges were partially offset by a reduction in
allocated Corporate overhead, attributable to the pension gain noted above, of
$1.7 million.
In 1995, the operating losses of the Specialty Publishing business, Taylor
Publishing, improved to $0.8 million from $9.9 million in 1994 due to a $6.5
million decrease in the amortization of Reorganization Goodwill and improved
productivity relating to the introduction in 1994 of new photo processing
technology. Throughout 1995 the Company continued efforts to upgrade production
processes at Taylor
-24-
<PAGE> 25
Publishing resulting in improved quality of its school yearbooks and reduced
turnaround time to schools as well as improved financial performance.
OTHER INCOME (EXPENSE). Interest expense decreased approximately 33% or $9.5
million in 1995 compared to 1994 because of the early retirement of long-term
debt in 1994 and the refinancing of long-term debt in November 1994 (see "Cash
Flows From (Used In) Financing Activities"). Other income for 1995 included
favorable adjustments of $3.6 million related to the Company's environmental
liabilities following a review of its liabilities from previously divested
operations and $1.5 million related to the resolutions of several legal
disputes. In addition, other income included a $4.0 million gain on the sale of
idle corporate assets. Other income for 1994 included a $1.2 million gain
related to the collection of notes receivable in excess of their financial
statement carrying amount.
INCOME TAX EXPENSE. The Company's actual income tax obligations during 1995
($2.6 million) and 1994 ($2.3 million) were substantially less than the total
amount of income taxes recognized ($16.1 million and $15.5 respectively) because
previously generated net operating losses and other net deferred tax assets were
utilized to reduce the tax obligations. During 1995 and 1994, additional
deferred tax assets of $9.2 million and $40.7 million, respectively, were
recognized and recorded on the balance sheet because it was concluded that it
was more likely than not that such amounts would be realized in future years. In
accordance with the Reorganization SOP, the tax benefits associated with the
recognition of pre-effective date deferred tax assets, ($7.2 million and $39.0
million in 1995 and 1994, respectively) were recorded as a reduction to
Reorganization Goodwill. The 1995 reduction eliminated the remaining unamortized
Goodwill.
DISCONTINUED OPERATIONS. On August 1, 1994, the Company sold substantially the
entire paint products segment for net proceeds of $50.8 million, resulting in a
gain of $10.7 million, net of taxes of $8.2 million. The tax on the gain was
offset by utilization of Federal and state net operating loss carryforwards and
as a result did not result in significant cash payments. In accordance with the
Reorganization SOP the tax benefit associated with utilization of pre-effective
date loss carryforwards was recorded as a reduction in the Company's
Reorganization Goodwill. The net proceeds were utilized to reduce the Company's
long-term debt.
EXTRAORDINARY ITEM. An extraordinary charge of $2.2 million, net of $1.3 million
tax, was recorded in the fourth quarter of 1994 as a result of prepaying
post-reorganization debt prior to its maturity (see "Financial Condition").
FINANCIAL CONDITION
Factors that are expected in the future to affect the Company's financial
position are discussed below.
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES. Operations provided $55.4
million in cash in 1996 compared to $37.7 million cash in 1995 which represented
a $17.7 million or 47% year over year increase. This improvement was primarily
due to improved accounts receivable collections in the Office Products business.
The Company's cash flow was favorably affected by tax loss carryforwards, which
reduce the actual cash tax payments for the year to well below the financial
statement income tax expense. The tax loss carryforwards will be substantially
utilized in 1997 to offset the gain from the sale of the Rolodex unit, and as a
result, the Company's actual cash tax payments in future years are anticipated
to increase over 1996.
-25-
<PAGE> 26
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES. In 1996, the Company acquired
the automotive aluminum tube business of Helmut Lingemann GmbH & Co,
("Lingemann") and two affiliated businesses serving the automotive, heavy truck
and industrial manufacturing radiator replacement market, Great Lake, Inc. and
Kar Tool Co. Inc., for approximately $37.7 million including transaction fees
and expenses. In 1996, the Company received proceeds totaling $21.8 million from
the sale of Curtis and the Rolodex electronics product line; $3.6 million from
Thermalex for full repayment of loans outstanding; a $3.4 million dividend
distribution from Thermalex; and $1.3 million from the disposal of idle assets.
In 1995, the Company received $2.5 million from Thermalex relating to the
partial repayment of loans, a $0.4 million dividend distribution from Thermalex
and $4.7 million from the disposal of idle assets. In 1994, the Company received
net proceeds of $50.8 million from the sale of its paint products segment, $4.6
million for final payments on outstanding notes from previously divested
subsidiaries, and $1.0 million from Thermalex as a partial loan repayment.
The Company's capital expenditures totaled $22.6 million in 1996 and the Company
has budgeted expenditures totaling approximately $24.0 million in 1997. The
Company expects to finance these expenditures and investments with internally
generated funds. The Company does not anticipate that limitations on capital
expenditures under the Bank Credit Agreement (as defined below) will adversely
affect its ability to meet its operating goals.
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES. During 1996, the Company repaid
$22.8 million of its initial $155.0 million term loan. The Company also
repurchased an additional 97,500 shares of its common stock at prices ranging
from $30.60 to $36.125 per share under the Company's $15.0 million stock buyback
program. During 1995, the Company repaid $12.6 million of its initial $155.0
million term loan and repurchased 197,500 shares of its common stock at prices
ranging from $32.375 to $36.875 per share.
In November 1994, the Company entered into a loan agreement that provides it up
to $285 million in borrowing capacity pursuant to two credit facilities (the
"Bank Credit Agreement"). The Bank Credit Agreement consists of a $130 million
revolving credit facility, with a $50 million sublimit for issuance of letters
of credit, and a $155 million term loan. The term loan is payable in quarterly
installments through March 31, 2001. Under the terms of the Bank Credit
Agreement, proceeds from asset sales must be applied to reduce the term loan
under certain circumstances. The revolving credit facility will terminate and
all amounts outstanding, if any, will be due on March 31, 2001. (See Note 7 to
the Consolidated Financial Statements).
The Company's required debt service payments for each of the next five years are
as follows (in millions): 1997: $23.3; 1998: $26.6; 1999: $30.1; 2000: $32.4 and
2001: $4.3. In addition, any Excess Cash Flow (none in 1996), as defined in the
Bank Credit Agreement, will be applied to the term facility. The interest
requirements during the next five years will fluctuate based on the outstanding
debt balances as well as changes in interest rates. The interest rate on bank
borrowings bear interest at various fluctuating rates, at the Company's option,
which approximate the one to six month LIBOR rates plus 1.25% (such LIBOR rates
approximated 5.5% to 5.8% at December 31, 1996) subject to step downs on the
achievement of certain financial ratios. The Company reduces its exposure to
potential increases in interest rates by entering into forward rate, interest
rate cap and interest rate swap agreements with major financial institutions. A
summary of the terms of those agreements is contained in Note 8 to the
Consolidated Financial Statements.
NET INCOME (LOSS) AND ACCUMULATED EQUITY (DEFICIT). At December 31, 1996, the
Company had stockholders' equity totaling $33.4 million compared to
stockholders' deficit totaling $15.8 million at December 31, 1995. The deficit
was attributable to the effect of the Reorganization Goodwill amortization
-26-
<PAGE> 27
which amounted to $32.2, $69.2 and $54.5 million in 1995, 1994 and 1993,
respectively. At December 31, 1995, the Reorganization Goodwill was fully
amortized.
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 in
the second half of the year. 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. The Company
is generally able to pass through to its customers price changes in its major
steel, copper and aluminum based product lines.
LIQUIDITY. At December 31, 1996, the Company's cash and cash equivalents and net
working capital amounted to $3.5 million and $48.0 million, respectively. The
borrowing ability under the Company's revolving credit facility at December 31,
1996 was $78.3 million, including $39.6 million available for additional letters
of credit. The Company believes it has adequate sources of liquidity to meet its
working capital, capital expenditures and debt service requirements.
SUBSEQUENT EVENT. On March 5, 1997, the Company sold its Rolodex office
products business unit for $117,000,000 less transaction costs.
-27-
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------
The Consolidated Financial Statements of the Company, together with the reports
thereon of KPMG Peat Marwick LLP (dated January 31, 1997), are set forth on
pages F-1 through F-33 hereof (see Item 14 of this Annual Report for the Index).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-------------------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------
The information required by this Item is included under the captions "Election
of Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance" of the Company's Proxy Statement (the "Proxy Statement")
relating to the Company's 1997 Annual Meeting of Stockholders to be held on May
22, 1997 and is incorporated herein by reference. The Company anticipates filing
the Proxy Statement with the Securities and Exchange Commission in April 1997.
ITEM 11. EXECUTIVE COMPENSATION
-------------------------------
The information required by this Item is included under the captions "Director
Compensation" and "Executive Compensation" in the Proxy Statement and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
------------------------------------------------------------
MANAGEMENT
----------
The information required by this Item is included under the captions "Security
Ownership of Certain Beneficial Owners" and "Security Ownership of Directors and
Executive Officers" in the Proxy Statement and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------
The information required by this Item is included under the captions
"Compensation Committee Interlocks and Insider Participation," "Election of
Directors," "Security Ownership of Certain Beneficial Owners," and "Security
Ownership of Directors and Executive Officers" in the Proxy Statement and is
incorporated herein by reference.
-28-
<PAGE> 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
----------------------------------------------------------------
FORM 8-K
--------
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) Financial Statements
- Independent Auditors' Report
- Consolidated Balance Sheets
- December 31, 1996
- December 31, 1995
- Consolidated Statements of Operations
- Year ended December 31, 1996
- Year ended December 31, 1995
- Year ended December 31, 1994
- Consolidated Statements of Stockholders' Equity (Deficit)
- For the years ended December 31, 1996, 1995 and 1994
- Consolidated Statements of Cash Flows
- Year ended December 31, 1996
- Year ended December 31, 1995
- Year ended December 31, 1994
- Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
See Exhibit 99(a) - Schedule II - Valuation and Qualifying Accounts.
All other schedules are omitted because of the absence of the
conditions under which they are required or because the required
information is included in financial statements or the notes thereto.
-29-
<PAGE> 30
(3) Exhibits:
*2(a) - Amended and Restated Plan of Reorganization Jointly Proposed by the
Debtors and the Official Joint Committee of Unsecured Creditors dated
November 23, 1992 (Form T-3, Exhibit T3E-3, File No. 22-23356).
*2(b) - Order Confirming Plan of Reorganization and Approving Settlements
Pursuant to Bankruptcy Rule 9019 dated November 24, 1992 (Form T-3,
Exhibit T3E-4, File No. 22-23356).
*2(c) - Order on Motion for Order in Aid of Implementation of Plan dated
March 23, 1993 (Form T-3, Exhibit T3E-5, File No. 22-23356).
*2(d) - Order on Debtors' Supplemental Motion for Order in Aid of
Implementation of Plan dated March 23, 1993 (Form T-3, Exhibit T3E-6,
File No. 22-23356).
*2(e) - Notice of (1) Order Confirming Plan of Reorganization, (2) Effective
Date and (3) Administrative Claims Bar Date dated April 1, 1993 (Form
10, Exhibit 2(e), File No. 0-22098).
*2(f) - Order on Motion for Order in Aid of Implementation of Plan dated
September 14, 1993 (Form 10/A, Amendment No. 2 to Form 10, Exhibit
2(f), File No. 0-22098).
*2(g) - Share Purchase Agreement, dated as of June 28, 1996, between the
Company's subsidiary, GUVAB Gesellschaft fur
Unternehmensbeteililgungen und Vermogensverwaltung im
aluminiumverarbeitenden Bereich mbH ("GUVAB"), and Lingemann (Form 8-K
dated July 10, 1996, File No. 0-22098).**
*2(h) - Asset Purchase Agreement, dated as of July 1, 1996, among the
Company's subsidiary, HHI Acquisition Corp., Lingemann, and
Helima-Helvetion International, Inc (Form 8-K dated July 10, 1996,
File No. 0-22098).**
*2(i) - Stock Purchase Agreement, dated as of September 3, 1996, between the
Company's subsidiary and Esselte Corporation (Form 8-K dated September
6, 1996, File No. 0-22098).**
*2(j) - Asset Purchase Agreement, dated as of October 4, 1996, between the
Company and Franklin Electronic Publishers, Inc. and List of Omitted
Schedules (Form 8-K dated October 4, 1996, File No. 0-22098).**
*2(k) - Asset Purchase Agreement, dated as of February 12, 1997, between the
Company and Newell Co. (Form 8-K dated March 5, 1997, File No.
0-22098).**
*3(a) - Amended and Restated Certificate of Incorporation of the Company
(Form 10, Exhibit 3(a), File No. 0-22098).
*3(b) - Amended and Restated Bylaws of the Company (Form 10, Exhibit 3(b),
File No. 0-22098).
-30-
<PAGE> 31
*4(a) - Settlement Agreement and Stipulated Order by and between the Company,
certain subsidiaries of the Registrant, The Valspar Corporation and
the United States of America by order of the United States District
Court for the Western District of Texas, San Antonio Division, dated
January 19, 1993 (Form 10, Exhibit 4(h), File No. 0-22098).
*4(b) - Stipulation regarding Settlement Agreement and Stipulated Order
amending Exhibit 4(h) (Form 10, Exhibit 4(i), File No. 0-22098).
*4(c) - Credit Agreement, dated as of October 21, 1994, among the Company,
the institutions from time to time parties thereto as Lenders, the
institutions from time to time parties thereto as Issuing Banks,
Citicorp USA, Inc. and Pearl Street L.P., as Co-Agents, and Citicorp
USA, Inc., as Administrative Agent (Form S-8 Registrations Statement,
as amended, Exhibit 4(o), File No. 33- 86938).**
*4(d) - First Amendment to Credit Agreement, dated as of November 21, 1994,
among the Company, the institutions from time to time parties thereto
as Lenders, the institutions from time to time parties thereto as
Issuing Banks, Citicorp USA, Inc. and Pearl Street L.P., as Co-Agents,
and Citicorp USA, Inc., as Administrative Agent (Form S-8 Registration
Statement, as amended, Exhibit 4(p), File No. 33-86938).**
*4(e) - Second Amendment to Credit Agreement, dated as of March 8, 1995,
among the Company, the institutions from time to time parties thereto
as Lenders, the institutions from time to time parties thereto as
Issuing Banks, Citicorp USA, Inc. and Pearl Street L.P., as Co-Agents,
and Citicorp USA, Inc., as Administrative Agent; (Form 10-K for the
year ended December 31, 1994, Exhibit 4(f), File No. 0-22098).**
*4(f) - Third Amendment to Credit Agreement, dated as of July 18, 1995,
among the Company, the institutions from time to time parties thereto
as Lenders, the institutions from time to time parties thereto as
Issuing Banks, Citicorp USA, Inc. and Pearl Street L.P., as Co-Agents,
and Citicorp USA, Inc., as Administrative Agent (Form 10-Q for the
quarter ended June 30, 1995, Exhibit 4(g), File No. 0-22098).**
*4(g) - Fourth Amendment to Credit Agreement, dated as of June 21, 1996,
among the Company, the institutions from time to time parties
thereto as Lenders, the institutions from time to time parties
thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street L.P.,
as Co-Agents, and Citicorp USA, Inc., as Administrative Agent (Form
8-K dated July 10, 1996, File No. 0-22098).
4(h) - Fifth Amendment to Credit Agreement, dated as of March 3, 1997, among
the Company, the institutions from time to time parties thereto as
Lenders, the institutions from time to time parties thereto as Issuing
Banks, Citicorp USA, Inc. and Pearl Street L.P., as Co-Agents, and
Citicorp USA, Inc., as Administrative Agent.
The following are management contracts and compensatory plans or arrangements in
which directors or executive officers participate:
*10(a)- 1993 the Company Long-Term Incentive Plan (Form 10, Exhibit 10(j),
File No. 0-22098).
-31-
<PAGE> 32
*10(b) - Supplemental Terms and Conditions Applicable to December 1993 Option
Awards Under the Company 1993 Long-Term Incentive Plan (Form S-8
Registrations Statement, as amended, Exhibit 4(b), File No. 33-86938).
*10(c) - Employment Agreement dated as of May 1, 1993 between the Company and
Robert L. Smialek, as amended and restated (Form 10/A, Amendment No. 1
to Form 10, Exhibit 10(k), File No. 0-22098).
*10(d) - Restricted Stock Agreement dated as of June 26, 1994 between the
Company and James D. Miller. (Form 10-K for the year ended December
31, 1994, Exhibit 10(e), File No. 0-22098).
*10(e) - Form of Indemnification Agreement adopted by the Company as of
July 30, 1990, entered into between the Registrant and certain of its
officers and directors individually, together with a schedule
identifying the other documents omitted and the material details in
which such documents differ (Form 10, Exhibit 10(n), File No.
0-22098).
*10(f) - 1993 the Company Nonemployee Director Stock Incentive Plan (Form
10/A, Amendment No. 1 to Form 10, Exhibit 10(p), File No. 0-22098).
10(g) - Value Appreciation Agreement as of December, 1996, entered into
between the Registrant and the following officers: David M. Aronowitz,
Robert F. Heffron, Les G. Jacobs, David A. Kauer, Kenneth H. Koch and
Philip K. Woodlief.
10(h) - Form of Income Protection Agreement adopted by the Company as of
December, 1996, entered into between the Registrant and the officers
identified in Exhibit 10 (g) and James D. Miller.
*21 - Subsidiaries of the Registrant (Form 10-Q for the quarter ended
September 30, 1996, File No. 0-22098).
23(a) - Consent of KPMG Peat Marwick LLP.
24 - Power of Attorney of officers and directors of the Registrant
appearing on the signature page hereof.
27 - Financial Data Schedule.
99(a) - Schedule II - Valuation and Qualifying Accounts.
* Incorporated by reference, as indicated.
**The Registrant agrees to furnish to the Securities and Exchange Commission
upon request copies of any omitted schedule or exhibit to Exhibits 2(g), (h),\
(i), (j) and (k) and 4(c), 4(d), 4(e), and 4(f).
(b) REPORTS ON FORM 8-K
A report, dated July 10, 1996, on Form 8-K was filed pursuant to Item
2 of that form. No financial statements were filed as part of that
report.
-32-
<PAGE> 33
An amended report, dated July 10, 1996, on Form 8-K/A was pursuant to
Item 2 of that form. The following financial statements were filed as
part of that report:
(1) Financial Statements of Business Acquired.
Unaudited Statement of Combined Revenues and Direct
Operating Expenses for the Ten Months Ended
June 30, 1996
Unaudited Statement of Assets Acquired and
Liabilities Assumed as of July 10, 1996
(2) Pro Forma Financial Information.
Unaudited Pro Forma Condensed Balance Sheet as of
June 30, 1996
Unaudited Pro Forma Condensed Consolidated Statements
of Operations
Six Months Ended June 30, 1996
Four Months Ended December 31, 1995
A report, dated September 6, 1996, on Form 8-K was filed pursuant to
Item 2 of that form. The following financial statements were filed as
part of that report:
(1) Pro Forma Financial Information.
Pro Forma Condensed Balance Sheet as of June 30, 1996
Pro Forma Condensed Consolidated Statements of
Operations
Six Months Ended June 30, 1996
Year Ended December 31, 1995
A report, dated October 4, 1996, on Form 8-K was filed pursuant to
Item 2 of that form. The following financial statements were filed as
part of that report:
(1) Pro Forma Financial Information.
Pro Forma Condensed Balance Sheet as of June 30, 1996
Pro Forma Condensed Consolidated Statements of
Operations
Six Months Ended June 30, 1996
Year Ended December 31, 1995
A report, dated March 5, 1997, on Form 8-K was filed pursuant to Item
2 of that form. The following financial statements were filed as part
of that report:
(1) Pro Forma Financial Information.
Pro Forma Condensed Balance Sheet as of December 31,
1996
Pro Forma Condensed Consolidated Statements of
Operations for the Year Ended December 31, 1996
-33-
<PAGE> 34
(c) EXHIBITS
The Exhibits to this report begin on page 69.
(d) FINANCIAL STATEMENT SCHEDULES:
See Exhibit 99(a) - Schedule II - Valuation and Qualifying Accounts.
Note: All other schedules called for under Regulation S-X not included
herein have been omitted because they are not applicable, the
required information is not material or the required information
is included in the financial statements or notes thereto.
[This space intentionally left blank.]
-34-
<PAGE> 35
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.
INSILCO CORPORATION
By: /s/ James D. Miller
--------------------------------
James D. Miller
Executive Vice President and Chief
Financial Officer
Date: March 27, 1997 By: /s/ Philip K. Woodlief
--------------------------------
Philip K. Woodlief
Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the date indicated.
<TABLE>
<CAPTION>
Signature Title
<S> <C> <C> <C>
Robert L. Smialek* President, Chief Executive )
---------------------- Officer and Director )
Robert L. Smialek (Principal Executive Officer) )
)
/s/ James D. Miller Executive Vice )
---------------------- President and Chief )
James D. Miller Financial Officer )
(Principal Financial Officer) )
)
Philip K. Woodlief* Corporate Controller )
---------------------- (Principal Accounting Officer) )
Philip K. Woodlief )
)
James J. Gaffney* )
---------------------- )
James J. Gaffney Director )
)
Terence M. O'Toole* ) March 27, 1997
--------------------- )
Terence M. O'Toole Director )
)
Thomas E. Petry* )
--------------------- )
Thomas E. Petry Director )
)
Barry S. Volpert* )
--------------------- )
Barry S. Volpert Director )
)
)
)
/s/ James D. Miller )
--------------------- )
By: * James D. Miller )
Attorney-in-Fact )
</TABLE>
-35-
<PAGE> 36
INSILCO CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
- December 31, 1996
- December 31, 1995
Consolidated Statements of Operations F-5
- Year ended December 31, 1996
- Year ended December 31, 1995
- Year ended December 31, 1994
Consolidated Statement of Stockholders' Equity (Deficit) F-6
- For the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows F-7
- Year ended December 31, 1996
- Year ended December 31, 1995
- Year ended December 31, 1994
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE> 37
Independent Auditors' Report
The Board of Directors and Stockholders
Insilco Corporation:
We have audited the accompanying consolidated financial statements of Insilco
Corporation and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule of valuation and qualifying
accounts. These consolidated financial statements and the financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the financial statement schedule based on our audits. We did
not audit the 1996 and 1995 financial statements of Thermalex, Inc., a 50
percent owned investee company. The Company's investment in Thermalex, Inc. at
December 31, 1996 and 1995, was $8.5 million and $9.0 million, respectively,
and its equity in earnings of Thermalex, Inc. was $2.9 million and $2.3
million, for the years 1996 and 1995, respectively. The financial statements
of Thermalex, Inc. were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Thermalex, Inc., is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Insilco Corporation and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly, in all material respects, the information set
forth therein.
KPMG PEAT MARWICK LLP
Columbus, Ohio
January 31, 1997, except as to the second
paragraph in Note 3, which is as of
March 5, 1997
F-2
<PAGE> 38
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,481 9,894
Trade receivables, net 73,874 86,086
Other receivables 8,499 8,452
Inventories:
Raw materials and supplies 27,677 27,176
Work in process 25,570 20,390
Finished goods 13,138 21,723
-------- --------
Total inventories 66,385 69,289
-------- --------
Deferred tax asset 29,859 7,228
Prepaid expenses and other current assets 7,010 6,395
-------- --------
Total current assets 189,108 187,344
------- -------
Property, plant and equipment:
Land 6,310 5,047
Buildings 32,772 21,012
Machinery and equipment 125,211 102,883
------- -------
164,293 128,942
Less accumulated depreciation (49,914) (37,707)
-------- --------
Net property, plant and equipment 114,379 91,235
------- --------
Deferred tax asset 7,542 29,653
Other assets and deferred charges 18,762 21,869
Goodwill, net 13,659 -
Investment in Thermalex 8,550 10,028
-------- -------
Total assets $352,000 340,129
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 39
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(continued)
December 31, 1996 and 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity (Deficit) 1996 1995
---------------------------------------------- ---- ----
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 24,272 18,642
Current portion of other long-term obligations 6,661 7,975
Accrued interest payable 3,113 4,089
Accounts payable 37,984 45,336
Customer deposits 23,490 19,722
Salaries and wages payable 9,838 8,102
Accrued income taxes 3,596 3,126
Accrued expenses 32,198 35,432
-------- --------
Total current liabilities 141,152 142,424
Long-term debt, excluding current portion 136,770 167,847
Other long-term obligations, excluding current portion 40,676 45,637
-------- --------
Total liabilities 318,598 355,908
-------- --------
Stockholders' equity (deficit):
Common stock, $.001 par value; 15,000,000 shares authorized;
9,810,794 shares issued (9,852,751 in 1995) and 9,487,740
shares outstanding (9,650,497 in 1995) 10 10
Treasury stock, at cost (10,745) (6,813)
Additional paid-in capital 81,496 67,192
Accumulated deficit (37,115) (76,168)
Foreign currency translation adjustments (244) -
-------- --------
Total stockholders' equity (deficit) 33,402 (15,779)
-------- --------
Commitments and contingencies (See Notes 9, 11, 12 and 17)
Total liabilities and stockholders' equity (deficit) $352,000 340,129
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 40
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1996,1995 and 1994
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Sales $ 572,474 561,203 543,630
Cost of products sold 389,893 385,720 372,842
Depreciation 16,593 14,758 13,570
Selling, general and administrative expenses 106,649 97,736 97,700
Nonrecurring charges - 6,200 -
Amortization of goodwill 238 - -
Amortization of Reorganization Goodwill - 32,172 69,217
---------- -------- --------
Operating income (loss) 59,101 24,617 (9,699)
---------- -------- --------
Other income (expense):
Interest expense (18,386) (19,546) (29,113)
Interest income 1,010 1,577 1,842
Equity in net income of Thermalex 2,922 2,335 1,334
Other income, net 7,216 9,791 1,329
---------- -------- --------
(7,238) (5,843) (24,608)
---------- -------- --------
Income (loss) from continuing operations before
income taxes and extraordinary item 51,863 18,774 (34,307)
Income tax expense (12,810) (16,199) (8,585)
---------- -------- --------
Income (loss) from continuing operations before
extraordinary item 39,053 2,575 (42,892)
---------- -------- --------
Discontinued operations, net of tax:
Income from operations - - 2,204
Gain on disposal - - 10,710
---------- ----------- -------
Income from discontinued operations - - 12,914
---------- ----------- -------
Income (loss) before extraordinary item 39,053 2,575 (29,978)
Extraordinary item, net of tax - - (2,156)
---------- ----------- ---------
Net income (loss) $ 39,053 2,575 (32,134)
========= ========== =========
Earnings (loss) per common share and common
share equivalent:
Continuing operations $ 3.95 0.25 (4.42)
Discontinued operations - - 1.33
Extraordinary item - - (0.23)
---------- ----------- ---------
Net income (loss) per common share and
common share equivalent $ 3.95 0.25 (3.32)
========= ========== =========
Weighted average number of common shares outstanding and
common share equivalents 9,891,631 10,132,174 9,710,048
========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 41
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficit)
For the Years Ended December 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
Total
Additional Cumulative Stockholders'
Common Stock Treasury Paid-in Accumulated Translation Equity
Par Value $.001 Stock Capital Deficit Adjustment (Deficit)
--------------- --------- --------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 10 - 65,104 (46,609) - 18,505
Net loss - - - (32,134) - (32,134)
Shares issued - - 178 - - 178
--- ------- ------ ------- ---- ------
Balance at December 31, 1994 10 - 65,282 (78,743) - (13,451)
Net income - - - 2,575 - 2,575
Shares issued upon exercise of
stock options - - 226 - - 226
Purchase of treasury stock - (6,813) - - - (6,813)
Tax benefit from reduction of
valuation allowance for
deferred tax assets - - 1,612 - - 1,612
Tax benefit from exercise of
stock options - - 72 - - 72
--- ------- ------ ------- ---- ------
Balance at December 31, 1995 10 (6,813) 67,192 (76,168) - (15,779)
Net income - - - 39,053 - 39,053
Tax benefit from reduction
of valuation allowance for
deferred tax assets - - 10,237 - - 10,237
Purchase of treasury stock - (3,932) - - - (3,932)
Restricted stock - - 3,300 - - 3,300
Shares issued upon exercise
of stock options - - 1,071 - - 1,071
Reserved shares - - (706) - - (706)
Tax benefit from exercise of
stock options - - 402 - - 402
Foreign translation adjustment - - - - (244) (244)
--- ------- ------ ------- ---- ------
Balance at December 31, 1996 $10 (10,745) 81,496 (37,115) (244) 33,402
=== ======= ====== ======= ==== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 42
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 39,053 2,575 (32,134)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 16,831 46,930 82,787
Deferred tax expense 10,016 12,661 (1,626)
Divestiture gain, net (2,493) - -
Noncash charges in lieu of taxes - 842 7,957
Other noncash charges and credits (4,904) (6,985) (1,738)
Changes in operating assets and liabilities:
Receivables 11,749 (8,836) (4,017)
Inventories (2,899) (461) (4,800)
Payables and other (9,601) (5,519) 2,901
Other long-term liabilities (2,329) (3,463) (3,116)
Discontinued operations - - (11,909)
-------- -------- -------
Net cash provided by operating activities 55,423 37,744 34,305
-------- -------- -------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (37,726) - -
Proceeds from divestitures 21,818 - 50,788
Capital expenditures (22,579) (22,159) (19,163)
Other investing activities 8,704 7,481 4,670
-------- -------- -------
Net cash provided by (used in) investing activities (29,783) (14,678) 36,295
-------- -------- -------
Cash flows from financing activities:
Retirement of long-term debt (26,330) (12,926) (335,309)
Proceeds from debt borrowings - 600 226,500
Purchase of treasury stock (3,932) (6,813) -
Payment of prepetition liabilities (2,862) (2,949) (2,963)
Proceeds from sale of stock 1,071 226 178
Debt financing costs - - (4,054)
-------- -------- -------
Net cash used in financing activities (32,053) (21,862) (115,648)
-------- -------- -------
Net increase (decrease) in cash and cash equivalents (6,413) 1,204 (45,048)
Cash and cash equivalents at beginning of period 9,894 8,690 53,738
-------- -------- -------
Cash and cash equivalents at end of period $ 3,481 9,894 8,690
======== ======== ========
Supplemental information - cash paid for:
Interest, net of capitalized amount $ 17,820 18,199 42,494
======== ======= =======
Income taxes $ 2,081 2,407 1,899
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 43
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the financial
statements of Insilco Corporation (the "Company") and its wholly
owned subsidiaries. The Company's 50% owned subsidiary is
accounted for under the equity method. All significant
intercompany balances and transactions have been eliminated.
(b) "Fresh Start" Accounting
On March 31, 1993, the Company adopted the "fresh start"
accounting principles prescribed by the Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" (the "Reorganization SOP"), issued by the
American Institute of Certified Public Accountants. The "fresh
start" accounting principles required the Company to value its
assets and liabilities at fair values and eliminate its
accumulated deficit.
"Fresh start" accounting was required because on April 1, 1993 the
Company and certain of its subsidiaries emerged from Chapter 11 of
the United States Bankruptcy Code (the "Chapter 11 cases")
pursuant to a plan of reorganization (the "Plan of
Reorganization"). For financial reporting purposes, the effective
date of the Plan of Reorganization was March 31, 1993 (the "Plan
Effective Date"). For periods prior to the Plan Effective Date,
the Company sometimes is referred to herein as the "Predecessor".
The Chapter 11 cases were commenced on January 13, 1991 (the
"Petition Date").
(c) Cash Equivalents
All highly liquid debt instruments with original maturities of
three months or less are considered to be cash equivalents.
(d) Trade receivables
Trade receivables are presented net of allowances for doubtful
accounts and sales returns of $4,978,000 and $11,303,000 at
December 31, 1996 and 1995, respectively.
(e) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out cost method.
(f) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of
plant and equipment is calculated on the straight-line method over
the assets' estimated useful lives, which range from three to 25
years.
F-8
<PAGE> 44
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(g) Reorganization Goodwill
Reorganization Goodwill, consisted of the excess of the Company's
reorganization value over the aggregate fair value of its tangible
and identified intangible assets at the Plan Effective Date and
was amortized over a three year period. Reorganization Goodwill
was fully amortized at December 31, 1995.
(h) Other Assets
Included in other assets are debt issuance costs, net of
accumulated amortization, of $1,666,000 and $3,042,000 at December
31, 1996 and 1995, respectively. The costs are being amortized
using the effective interest method over the life of the related
debt.
(i) Goodwill
Goodwill represents the excess of the purchase price of
acquisitions over the fair values of net assets acquired and is
generally being amortized on a straight-line basis over periods
from 30 to 40 years. The recovery of the carrying value of
Goodwill is periodically evaluated in relation to the operating
performance and future undiscounted net cash flows of the related
businesses acquired.
(j) Interest Rate Hedges
The Company uses interest rate hedges to limit its exposure to the
interest rate risk associated with its floating rate long-term
bank debt. Unamortized premiums related to purchased interest
rate caps are included in other assets in the balance sheet and
are amortized using the interest method over the life of the
related agreements. Amounts received under cap agreements and net
amounts received (or paid) under swap agreements are recorded as a
reduction (addition) to interest expense.
(k) Post-retirement Benefit Costs
The estimated cost of providing post-retirement benefit costs,
principally health care, to participating employees (less than 6%
of total employees) is accrued during the years the employee
renders the necessary service.
(l) Environmental Remediation and Compliance
Environmental remediation and compliance expenditures are expensed
or capitalized, in accordance with generally accepted accounting
principles. Liabilities are recorded when it is probable the
obligations have been incurred and the amounts can be reasonably
estimated.
In 1996, the Company adopted Statement of Position ("SOP") 96-1
Environmental Remediation Liabilities, which had no material
impact on the Company's results of operations or financial
position. SOP 96-1 provides guidance on the accounting for
environmental remediation liabilities that relate to contamination
from the past.
F-9
<PAGE> 45
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(m) Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued
liabilities are reflected in the financial statements at fair
value because of the short-term maturity of those instruments.
The fair values of the Company's debt and other financial
instruments are disclosed in Note 8.
(n) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred income taxes are recognized for all temporary
differences between the financial reporting and tax basis of
assets and liabilities based upon enacted tax laws and statutory
tax rates applicable to the periods in which the differences are
expected to affect taxable income.
(o) Advertising and Research and Development Costs
The Company expenses advertising and research and development
costs as they are incurred.
(p) Earnings Per Share
Earnings per share for the years ended December 31, 1996, 1995 and
1994, were determined using the weighted average of the shares
issued and reserved for issuance (see Note 12). When dilutive,
stock options were included as share equivalents using the
treasury stock method. The weighted average number of common
shares and common share equivalents used for calculation of the
primary earnings per share as of December 31, 1996, 1995 and 1994
were 9,891,631, 10,132,174 and 9,710,048, respectively.
In 1996, fully diluted net income per share based upon 9,955,079
common shares and common share equivalents was $3.92 per share.
In 1995, fully diluted net income per share based upon 10,150,692
common shares and common share equivalents was $0.25 per share.
In 1994, stock options were anti-dilutive.
In March 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards ("SFAS") SFAS No.
128, Earnings Per Share, which simplifies the method for
calculating earnings per share. As defined in SFAS 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 SFAS No. 128 had been adopted as of December 31, 1996, basic
earnings per share for 1996 would have been $4.10 per share and
diluted earnings per share would have been $3.95 per share.
(q) Estimates
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.
F-10
<PAGE> 46
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(r) Impairment of Long-Lived Assets
On December 31, 1995, the Company adopted the Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of which had no material impact on the Company's
results of operations or financial position in 1995 or 1996. SFAS
No. 121 provides guidance for the recognition of impairment losses
related to long-lived assets and certain intangibles and related
goodwill for assets to be held and used and assets to be disposed
of.
(s) Accounting for Stock-Based Compensation
Prior to January 1, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant only
if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No.
123, Accounting for Stock-Based Compensation, which permits
entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma
net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
(t) Reclassifications
Certain 1995 and 1994 amounts have been reclassified to conform
with 1996 presentation.
(3) Divestitures and Subsequent Event
The Office Products business of the Company's Office Products/Specialty
Publishing Group was divested in three separate transactions during 1996
and the first quarter of 1997. The 1996 transactions included the
divestitures of the Company's computer accessories business and
electronic file organizer business for proceeds aggregating $21,818,000
which were used to reduce the outstanding amounts on the Company's
bank loans.
On March 5, 1997 the remainder of the Office Products business was sold
for $117,000,000 in cash. The Company expects to largely offset the
cash taxes resulting from the sale by utilizing its usable tax loss
carryforwards. The Company is considering various alternatives for the
use of the proceeds including a possible one time distribution of the
proceeds to shareholders or a repurchase of shares.
(4) Acquisitions
In 1996, the Company acquired Great Lake, Inc., ("Great Lake") which
serves the automotive, heavy truck and industrial manufacturing radiator
replacement market and the automotive aluminum tube business of Helmut
Lingemann GmbH & Co. ("Lingemann") for approximately $37,726,000
including transaction fees and expenses. The Lingemann transactions
include the purchase of stock of Lingemann's German subsidiary, ARUP
Alu-Rohr und-Profil GmbH, and the automotive aluminum tube business
assets of its Duncan, South Carolina based Helima-Helvetion
International,
F-11
<PAGE> 47
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Inc. This cash transaction was financed principally from borrowings
under the Company's Bank Credit Agreement (See Note 7).
These acquisitions have been accounted for as purchases and,
accordingly, the purchase prices have been allocated to the assets and
liabilities acquired based on their fair values at the acquisition
dates. The operating results of the businesses acquired have been
included for the period subsequent to their acquisition dates. (See
Note 20 for pro forma results.) The fair value of the assets acquired
totaled $47,478,000 and the liabilities assumed totaled $9,752,000.
(5) Discontinued Operations
On August 1, 1994, the Company sold substantially the entire paint
products segment for net proceeds of $50,788,000, resulting in a gain of
$10,710,000, net of taxes totaling $8,224,000. The tax on the gain was
offset by utilization of Federal and state net operating loss and
capital loss carryforwards and did not result in significant cash
payments. The net proceeds were utilized to reduce the Company's
long-term debt.
As a result of the sale, the paint products segment is accounted for as
a discontinued operation. Revenues associated with the discontinued
paint products segment for 1994 were $61,920,000.
(6) Investment in Thermalex
Thermalex, Inc. ("Thermalex") is a joint venture, formed in 1985 between
the Company's Thermal Components Division and Mitsubishi Aluminum, Ltd.,
which sells aluminum extruded products to the automobile industry. The
Company's equity investment in Thermalex represents a 50% ownership
interest. Under the equity method of accounting, the Company's share of
the net income of Thermalex is reflected as earned in "other income" in
the accompanying statements of operations and any cash distributions are
credited against the investment as received. The Company received
$3,400,000 and $400,000 of dividend distributions from Thermalex in 1996
and 1995, respectively.
Sales for Thermalex for the years ended December 31, 1996, 1995 and 1994
were $48,057,000, $44,839,000 and $34,510,000, respectively. Net income
for the years ended December 31, 1996, 1995 and 1994 was $5,844,000,
$4,670,000 and $2,723,000, respectively. Total assets were $28,629,000
and $32,631,000 at December 31, 1996 and 1995, respectively.
Stockholders' equity was $17,102,000 and $18,058,000 at December 31,
1996 and 1995, respectively.
During 1993, the Company loaned $4,200,000 to Thermalex at 7.95% with a
maturity date of December 15, 1999 which was fully paid as of December
31, 1996. The unpaid balance as of December 31, 1995 of $1,000,000 was
included in the Company's equity investment in Thermalex.
F-12
<PAGE> 48
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Long-term Debt
A summary of long-term debt at December 31, 1996 and 1995 follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Bank term loan $116,677 139,500
Bank revolving credit facility 41,300 44,600
Miscellaneous 3,065 2,389
-------- --------
161,042 186,489
Less current portion (24,272) (18,642)
-------- -------
$136,770 167,847
======= =======
</TABLE>
In November 1994, the Company entered into a bank credit agreement that
provided up to $285,000,000 in bank loans pursuant to two credit
facilities (the "Bank Credit Agreement"). The Bank Credit Agreement
consists of a $130,000,000 revolving credit facility, with a $50,000,000
sublimit for issuance of letters of credit and an initial $155,000,000
term loan ($116,677,000 at December 31, 1996). The bank loans bear
interest at various floating rates, at the Company's option, which
approximate the one to six month LIBOR rates plus 1.25% (such LIBOR
rates approximated 5.5% to 5.8% at December 31, 1996). The Company has
limited its exposure to fluctuations of interest rates on a portion of
debt as explained in Note 8.
Annual commitment fees consist of 3/8% of the average daily unused
commitment and 1 1/4% of the average daily outstanding letters of
credit. Letters of credit aggregating $10,430,000 were outstanding at
December 31, 1996. The term loan is payable in quarterly installments
through March 31, 2001. Partial proceeds from asset sales must be
applied to the term loan under certain circumstances. The revolving
credit facility will terminate and all amounts outstanding, if any, will
be due on March 31, 2001.
Aggregate principal payments of the Company's bank term loan for the
five years subsequent to December 31, 1996 are as follows: in 1997 -
$23,250,000; in 1998 - $26,625,000, in 1999 - $30,125,000, in 2000 -
$32,375,000, and in 2001 - $4,302,000.
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 various restrictions
and conditions regarding capital expenditures, payment of dividends,
asset sales, investments, sale of stock, incurrence of additional
indebtedness, financial covenants and other matters. The Company was in
compliance with these covenants as of December 31, 1996.
In 1994, proceeds from the Bank Credit Agreement were utilized to prepay
amounts outstanding under the Company's 10 3/8% Notes and 9 1/2% Senior
Notes, both of which were due on July 1, 1997 (collectively the "Old
Notes") and to replace the Company's post-reorganization secured
revolving credit facility (the "Revolving Credit Facility"). As a
result of the prepayment, the Company recorded an extraordinary charge
of $2,156,000, net of $1,345,000 tax benefit, due to the call premium
required by the Old Notes and expensing the related unamortized debt
financing costs.
F-13
<PAGE> 49
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Fair Value of Financial Instruments
The Company has determined the fair value of its debt and other financial
instruments as follows:
Term Loan and Revolver Loan
The fair value of the bank term loan and revolving credit facility was
determined to approximate the carrying value at December 31, 1996 and
1995 based upon the present value of expected cash flows considering
expected maturities and using interest rates currently available to the
Company for long-term borrowings with similar terms.
Miscellaneous Debt
The fair value of miscellaneous long-term debt is estimated to
approximate the carrying amount because there have not been any
significant changes in market conditions or specific circumstances since
the instruments were recorded at fair value in connection with "fresh
start" accounting on the Plan Effective Date.
Interest Rate Hedges
The fair values of the forward rate, interest rate cap and interest rate
swap obligations at December 31, 1996 were less than the carrying values
by $1,281,000. Quotes from counterparties were used to determine the
fair values of these agreements.
At December 31, 1996, the Company's forward rate agreements fixed the
interest rate on $55,000,000 of its floating rate bank debt (from
11/29/96 to 5/30/97) to a weighted average rate of 6.97% and its swap
agreement fixed the interest rate on $45,000,000 (from 5/30/95 to
5/30/98) at 8.99%. At December 31, 1996 the Company's cap agreements
limit the maximum interest rate at $40,000,000 of its floating rate debt
(from 5/28/95 to 5/27/97) to 8.25%.
The Company is exposed to market risk for changes in interest rates, but
has no off-balance sheet risk of accounting loss. The Company manages
exposure to counterparty credit risk by entering into such transactions
with major financial institutions that are expected to perform under the
terms of such agreements.
F-14
<PAGE> 50
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Other Long-Term Liabilities
A summary of other long-term liabilities at December 31 follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Prepetition and other tax liabilities $13,242 17,271
Post-retirement benefits, other than pensions 21,641 21,622
Environmental liabilities 9,208 12,294
Deferred compensation and other 3,246 2,425
------ ------
47,337 53,612
Less current portion (6,661) (7,975)
------ ------
$40,676 45,637
====== ======
</TABLE>
Prepetition and other tax liabilities
The Company entered into an agreement with the Internal Revenue Service
settling Federal income tax claims filed in the Chapter 11 cases for
open taxable years through 1990. In addition to this agreement, the tax
liabilities include Prepetition state tax claim settlements, negotiated
payment terms on certain foreign Prepetition tax liabilities, and an
estimate of the Company's obligation for curative action required by the
IRS to cure certain operational defects in one of the Company's
defined contribution plans.
Post-retirement benefits, other than pensions
The Company maintains nine post-retirement health care and life
insurance benefit plans, four of which cover approximately 500 present
retirees (the "Retiree Plans") and five of which cover certain retirees
and current employees of four operating units (the "Open Plans"). The
Company pays benefits under the plans when due and does not fund its
plan obligations as they accrue.
During 1996 the Company amended its retiree health care plans to limit
the Company's contributions and to adopt a cost-sharing method based
upon a retiree's years of service. As a result, the accumulated
postretirement benefit obligation (APBO) for these retiree health care
plans was reduced by approximately $3.4 million.
The Company's accrued post-retirement benefit cost is attributable to
the Retiree Plans and one of the Open Plans, in which approximately 100
retirees and 300 current employees were participants. It has been
assumed that plan participant contributions, if any, under these five
plans will increase as a result of increases in medical costs. The
other Open Plans have been, and are assumed will continue to be, fully
self-funded by their participants.
Periodic post-retirement benefits costs under the plans consist of
service costs representing the cost of benefits earned by participating
employees in one of the Open Plans and interest costs attributable to
the Company's accrued obligations.
F-15
<PAGE> 51
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The components of net periodic post-retirement benefit cost follow (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service Cost $ 492 503 657
Interest Cost 1,154 1,401 1,485
Amortization of prior service costs (365) (145) -
------ ----- -------
$1,281 1,759 2,142
===== ===== =====
</TABLE>
The plans' status reconciled with amounts recognized in the consolidated
balance sheet at December 31 follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accumulated post-retirement
benefit obligations for retirees $ 7,828 11,263
Other fully eligible plan participants 2,302 2,719
Other active plan participants 4,440 5,224
------- -------
Total APBO 14,570 19,206
Prior service cost 4,777 2,396
Unrecognized net gain 2,765 20
------- --------
Accrued post-retirement benefit costs $22,112 21,622
======= ======
</TABLE>
At December 31, 1996 and 1995, the weighted-average discount rates used
in determining the accumulated post-retirement benefit obligation were
7.75% and 7.25%, respectively. The recorded health care cost trend rate
assumed in measuring the accumulated post-retirement benefit obligation
was 8% in 1997, declining to an ultimate rate of 5% in 2010 and
thereafter. If these trend rate assumptions were increased by 1%, the
accumulated post-retirement benefit obligation would increase by
approximately 14% ($2,045,000). The effect of this change on the sum of
service cost and interest cost components of the net periodic
post-retirement benefit cost for the year ending December 31, 1996 would
be an increase of approximately 14% ($236,000).
Environmental liabilities
The Company's operations are subject to extensive Federal, state and
local laws and regulations relating to the generation, storage,
handling, emission, transportation and discharge of materials into the
environment. The Company has a program for monitoring its compliance
with applicable environmental regulations, the interpretation of which
often is subjective. This program includes, but is not limited to,
regular reviews of the Company operations' obligations to comply with
environmental laws and regulations in order to determine the adequacy of
the recorded liability for remediation activities.
As a result of the Chapter 11 cases, a significant amount of uncertainty
has been removed concerning the Company's liability for remediation
activities relating to acts or omissions of the Company prior to the
Petition Date at previously owned sites and independent waste management
facilities. Claims filed in the Chapter 11 cases and other known
environmental obligations that relate to locations owned by the Company
subsequent to the Petition Date or upon which the Company currently
conducts operations will be paid in cash as the environmental
remediation activities are incurred. The environmental liabilities
included in other long-term obligations represent the estimate
F-16
<PAGE> 52
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
of cash obligations that will be required in future years for these
environmental remediation activities. The Company has estimated the
potential exposure and accrued liability to be approximately $9,208,000
relating to these environmental matters at December 31, 1996. These
liabilities are undiscounted and do not assume any possible recoveries
from insurance coverage or claims which the Company may have against
third parties. The estimate is based upon in-house engineering
expertise and the professional services of outside consulting and
engineering firms. In addition, as a result of the Chapter 11 cases, a
significant portion of the claims filed in the Bankruptcy Court were
allowed as general unsecured claims to be discharged consistent with the
Plan of Reorganization. Remaining claims related to environmental
remediation obligations that are expected to be settled for stock are
included in the Company's issued shares (see Note 12 for description of
the reserved shares) and as such are not included in other long-term
liabilities. Because of uncertainty associated with the estimation of
these liabilities and potential regulatory changes, it is reasonably
possible that these estimated liabilities could change in the near term
but it is not expected that the effect of any such change would be
material to the financial statements in the near term.
(10) Pension
Pension Plans
The Company has defined benefit pension plans covering certain of its
employees. The benefits under these plans are based primarily on
employees' years of service and compensation near retirement. The
Company's funding policy is consistent with the funding requirements of
Federal laws and regulations. Plan assets consist principally of equity
investments, government obligations and corporate debt securities. The
Company also contributes to various multi-employer plans sponsored by
bargaining units for its union employees.
In the fourth quarter of 1995, the Company adopted a lump sum settlement
feature for retirees and certain vested plan participants which resulted
in the settlement of more than $42,000,000 in pension obligations. The
Company recorded a gain on the settlement of $4,300,000 in the fourth
quarter of 1995.
F-17
<PAGE> 53
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of the plans' funded status reconciled with amounts recognized
in the consolidated balance sheet at December 31 follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------------------- -------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Plan assets at fair value $ 81,025 11,467 83,113 10,042
-------- ------- ------- -------
Actuarial present value of benefit
obligations:
Vested benefits 62,230 14,078 76,224 13,150
Nonvested benefits 906 606 1,022 330
-------- ------- -------- -------
Accumulated obligation 63,136 14,684 77,246 13,480
Benefits attributable to future
compensation increases 2,504 549 4,536 283
-------- ------- ------- -------
Projected benefit obligations 65,640 15,233 81,782 13,763
-------- ------- ------- -------
Plan assets less projected
benefit obligation 15,385 (3,766) 1,331 (3,721)
Unrecognized gains (17,227) (550) (4,772) (1,446)
Unrecognized prior service costs (1,260) 1,736 203 1,893
-------- ------- ------- -------
Pension liability $ (3,102) (2,580) (3,238) (3,274)
======== ======= ======= =======
</TABLE>
The components of pension cost follow (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost $ 2,381 1,848 2,729
Interest cost 6,066 10,297 9,844
Actual return on assets (9,099) (27,531) (1,228)
Net amortization and deferral 2,183 17,375 (9,088)
------ ------ ------
Net pension cost $ 1,531 1,989 2,257
======= ====== ======
</TABLE>
In addition, the Company recognized pension costs of $880,000 in 1996,
$580,000 in 1995 and $565,000 in 1994, related to contributions to
multi-employer plans.
The assumptions used in accounting for the pension plans as of
December 31 follow:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Discount rates 7.75% 7.25%
Rates of increase in compensation levels 4.5% 4.5%
Expected long-term rate of return on assets 9.0% 9.0%
</TABLE>
In addition to the defined benefit plans described above, the Company
sponsors a qualified defined contribution 401(k) plan covering
substantially all non-union employees of the Company and its
F-18
<PAGE> 54
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
subsidiaries. The Company matches 50% of a participant's voluntary
contributions up to a maximum of 3% of a participant's compensation. The
Company's contribution expense was approximately $738,000 in 1996,
$666,000 in 1995 and $717,000 in 1994.
(11) Income Tax Expense
The Company's actual income tax obligations during 1996, 1995 and 1994
were substantially less than the total amount of income taxes recognized
because previously generated net operating losses and other net deferred
tax assets were utilized to reduce the tax obligations ("noncash
components" of income tax expense). The components of total income taxes
and a reconciliation of total income taxes to the actual income tax
obligations follow:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Total income taxes:
Continuing operations $ 12,810 16,199 8,585
Discontinued operations - - 8,224
Extraordinary items - - (1,345)
Stockholders' equity (402) (72) -
---------- --------- -------
Total income taxes 12,408 16,127 15,464
Noncash allocations:
Deferred income taxes (10,016) (12,661) 1,626
Charges in lieu of taxes:
Continuing operations - (842) (7,957)
Discontinued operations - - (8,224)
Extraordinary item - - 1,345
---------- --------- -------
Actual income tax obligations $ 2,392 2,624 2,254
========= ======== =======
</TABLE>
Deferred tax assets previously recognized on the balance sheet are
presented as a component of deferred income tax expense from continuing
operations when realized. In accordance with the Reorganization SOP,
pre-reorganization deferred tax assets not previously recognized on the
balance sheet are recorded as a reduction to Reorganization Goodwill
(until reduced to zero and then as an addition to paid in-capital) when
realized and are presented as "charges in lieu of taxes."
Pretax income (loss) from continuing operations by domestic and foreign
source follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Domestic $39,865 4,818 (44,832)
Foreign 11,998 13,956 10,525
------- ------ -------
$51,863 18,774 (34,307)
======= ====== =======
</TABLE>
F-19
<PAGE> 55
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income tax expense attributable to income from continuing operations
differs from the amount computed by applying the Federal statutory rate
to pretax income (loss) from continuing operations due to the following
(in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $18,152 6,571 (12,007)
Goodwill amortization 22 11,260 24,226
State and local taxes, net of federal
tax benefit 1,467 1,845 1,418
Foreign tax rate differential (2,076) (1,445) (2,976)
Change in deferred tax asset valuation
allowance (426) (367) (1,626)
Equity in earnings of affiliates not
subject to taxation because of
dividends-received deduction
for tax purposes (818) (654) (374)
Benefit of capital loss carryforward (2,781) - -
Other, net (730) (1,011) (76)
------- ------ -----
Income tax expense $12,810 16,199 8,585
======= ====== =====
</TABLE>
The components of income tax expense from continuing operations follow
(in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 542 758 342
State, local and foreign 2,252 1,938 1,912
------- ------- ------
2,794 2,696 2,254
------- ------- ------
Deferred:
Federal 8,336 12,370 5,787
State, local and foreign 1,680 1,133 544
------- ------- ------
10,016 13,503 6,331
------- ------ -----
Total $12,810 16,199 8,585
======= ====== ======
</TABLE>
F-20
<PAGE> 56
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The components of deferred income tax expense (benefit) attributable to
income from continuing operations follow (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Deferred tax expense (benefit) exclusive
of other components $10,442 13,028 -
Charges in lieu of taxes - 842 7,957
Changes in the valuation allowance for
deferred tax assets allocated to
income tax expense (426) (367) (1,626)
-------- -------- -------
$10,016 13,503 6,331
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31 follow (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 38,783 37,491
Accrued liabilities, primarily due to accrual for
financial reporting purposes 20,346 25,682
Pension and other post retirement benefits, primarily
due to accrual for financial reporting purposes 11,105 10,697
Capital loss carryforwards 8,812 7,234
Other 2,537 8,808
-------- --------
Total gross deferred tax assets 81,583 89,912
Less valuation allowance (34,116) (44,952)
------- -------
47,467 44,960
------- -------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation (9,199) (7,412)
Other (867) (667)
-------- --------
Total gross deferred tax liabilities (10,066) (8,079)
------- -------
Net deferred tax asset $ 37,401 36,881
======= =======
</TABLE>
F-21
<PAGE> 57
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The net reduction in the valuation allowance for deferred tax assets for
the years ended December 31, 1996 and 1995 was $10,836,000 and
$7,623,000, respectively, which primarily resulted from the recognition
of additional deferred tax assets and the expiration of capital loss
carryforwards. During the fourth quarters of 1996 and 1995, deferred tax
assets of $10,663,000 and $9,180,000, respectively, were recognized
because it was concluded that it was more likely than not that additional
deferred tax assets would be realized in future years. Accordingly, the
recognition of a pre-reorganization deferred tax asset of $7,201,000 in
1995 was recorded as a reduction to Reorganization Goodwill, $10,237,000
and $1,612,000, in 1996 and 1995 respectively, was recorded as an
increase to additional paid-in capital and $426,000 and $367,000 was
recorded as a component of deferred income tax benefit from continuing
operations in 1996 and 1995, respectively. Recognition, if any, of tax
benefits subsequent to December 31, 1996 relating to unrecognized
deferred tax assets are expected to be allocated as follows (in
thousands):
<TABLE>
<S> <C>
Income tax benefit that would be reported in
the consolidated statements of operations $ 11,314
Additional paid-in capital 22,802
------
$ 34,116
======
</TABLE>
The reduction in the 1995 deferred tax asset valuation allowance
described above followed evaluation of actual 1994 and 1995 taxable
income and projections of future taxable income. The reduction of the
1996 deferred tax asset valuation allowance described above followed the
decision to pursue the sale of the Rolodex business unit (completed in
March 1997) as well as projections of future taxable income. In order to
fully realize the net deferred tax assets recognized, the Company will
need to generate future taxable income of approximately $193 million
prior to the year 2000. Combined cumulative taxable income, before
utilization of net operating loss carryforwards, for the past three years
approximated $28 million. Based upon an evaluation of historical and
projected future taxable income, the Company believes it is more likely
than not that it will generate sufficient future taxable income to
realize its net deferred tax asset of $37,401,000 at December 31, 1996.
The amount of deferred tax assets considered realizable, however, could
be reduced in the near term if estimates of future taxable income through
the year 1999 are reduced.
At December 31, 1996, the Company had Federal net operating loss
carryforwards of approximately $88,222,000 which can be used to offset
taxable income, which begin to expire in 2005. The Company's ability to
utilize its pre-reorganization operating loss carryforwards is generally
subject to the annual limitation of approximately $9,200,000. In
addition to the annual limitation, operating loss carry forwards may be
utilized for built in gains. Net operating losses not subject to the
annual limitation (before consideration of built in gains) approximated
$35,888,000 at December 31, 1996. The Company also has capital loss
carryforwards of approximately $25,177,000 at December 31, 1996 which
will begin to expire in 1998.
The Company and its domestic subsidiaries file a consolidated U.S.
Federal income tax return. The consolidated Federal income tax returns
for 1991, 1992 and 1993 are presently being examined by the Internal
Revenue Service. Management believes that the ultimate outcome of this
examination will not have a material adverse effect on the financial
condition, results of operations or liquidity of the Company.
F-22
<PAGE> 58
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Stockholders' Equity (Deficit)
The Company's authorized capital stock consists of 15,000,000 shares of
common stock. Each share entitles its holder to one vote on matters
submitted to stockholders. At December 31, the shares of common stock
consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Issued shares 9,647,237 9,574,646
Issuable shares 42,986 55,910
Reserved shares 120,571 222,195
---------- ----------
9,810,794 9,852,751
========= =========
</TABLE>
The issuable shares are those available for settled claims pending the
return of required information by the claim holders to the Company. The
reserved shares are those available to satisfy certain disputed
Prepetition claims to be resolved in the Bankruptcy Court. During 1996,
101,624 reserved shares were eliminated because it was determined that
prepetition claims would be settled for amounts less than previously
estimated. To the extent that the remaining disputed claims are resolved
for more or less than the reserved amount, the impact may be more or less
dilutive to the Company's stockholders.
Water Street Corporate Recovery Fund I, L.P., an investment partnership
of which Goldman, Sachs & Co. ("Goldman Sachs") is the general partner,
is the Company's principal stockholder, owning approximately 62%
Company's outstanding shares of common stock.
Under the Company's 1993 Long-Term Incentive Plan and 1993 Nonemployee
Director Stock Incentive Plan, which became effective as of April 1,
1993, 1,860,000 shares of common stock have been reserved for issuance to
eligible employees and nonemployee directors. As of December 31, 1996,
the reserve has been reduced by awards for 183,336 shares and 1,179,549
granted options.
Of the shares awarded, 10,000 were purchased in 1994 for $17.75 per share
and 33,333 in 1993 for $15 per share, and the restrictions on the
transferability of these shares will lapse in all events no later than
three years after the award. Restrictions on the other 140,003 shares
awarded, for which a nominal amount was paid, generally lapsed during
1995 and 1994 as the market value of the Company's stock attained
targeted levels.
The Company repurchased 97,500 shares of its common stock during 1996 at
prices ranging from $30.60 to $36.125 under the $15,000,000 stock buyback
program approved by the Company's Board of Directors on July 26, 1995.
During the last half of 1995 the Company had repurchased 197,500 shares
of its common stock at prices ranging from $32.375 to $36.875 under the
stock buyback program.
(13) Stock Option Plan
Under the Company's 1993 Long-term Incentive Plan, 560,000 share grants
in 1993 become exercisable in 20% annual increments and such options
expire 5 years after the grant date. All other options become
exercisable in 33 1/3% annual increments and expire 10 years after the
grant date. Options not exercised by their expiration date expire on
that date. The options were considered
F-23
<PAGE> 59
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
common stock equivalents for earnings per share purposes for 1996 and
1995, but the stock options were not included in the earnings per share
calculation in 1994 because they were anti-dilutive.
The per share weighted-average fair value of stock options granted during
1996 and 1995 was $19.20 and $18.58 on the date of grant using the Black
Scholes option-pricing model with the following weighted-average
assumptions: 1996 - expected dividend yield 0.0%, risk-free interest
rate of 6.27%, and an expected life of 7 years; 1995 - expected dividend
yield 0.0%, risk-free interest rate of 6.31%, and an expected life of 7
years.
The Company applies APB Opinion No. 25 in accounting for its stock option
plans and, accordingly, no compensation cost has been recognized for its
stock options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income, and earnings per
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net income As reported $39,053 2,575
Pro forma 38,748 2,562
Earnings per share As reported 3.95 0.25
Pro forma 3.92 0.25
</TABLE>
Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over the
options' vesting period of 3 years and compensation cost for options
granted prior to January 1, 1995 is not considered.
F-24
<PAGE> 60
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of the options granted follows:
<TABLE>
<CAPTION>
Number of
Shares
----------
<S> <C>
Options outstanding December 31, 1993 844,500
Granted at $16.50 - $26.50 per share 109,800
Granted at $30.00 per share 156,300
Forfeited at $15.00 - $30.00 per share (16,333)
Exercised at $23.63 - $23.75 per share (2,099)
-----------
Options outstanding December 31, 1994 1,092,168
Granted at $30.00 - $38.50 per share 12,850
Forfeited at $15.00 - $30.00 per share (28,369)
Exercised at $15.00 - $17.25 per share (12,646)
----------
Options outstanding December 31, 1995 1,064,003
Granted at $31.13 - $35.56 per share 102,900
Forfeited at $15.00 - $35.00 per share (36,670)
Exercised at $15.00 - $30.00 per share (59,668)
----------
Options outstanding December 31, 1996 1,070,565
==========
Options exercisable at December 31:
1994 at $15.00 - $30.00 per share 202,650
1995 at $15.00 - $30.00 per share 471,614
1996 at $15.00 - $38.50 per share 682,681
</TABLE>
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $15.00 - $38.50
and 4.38 years, respectively.
At December 31, 1996 and 1995, the weighted-average exercise price of
exercisable options was $21.45 and $20.87, respectively.
(14) Other Income
Other income for 1996 included a $3,125,000 pretax gain on the sale of
the Rolodex electronics product line. Other income also included a
favorable adjustment of $2,200,000 related to the Company's environmental
liabilities following completion of a site clean-up for an amount less
than previously estimated. Other income for 1995 included favorable
adjustments of $3,600,000 related to the Company's environmental
liabilities following a review of its liabilities from previously
divested operations and $1,494,000 related to the resolutions of several
legal disputes. In addition, other income included a $3,973,000 gain on
the sale of idle corporate assets. Other income for 1994 included a
$1,167,000 gain related to the collection of notes receivable in excess
of their financial statement carrying amount.
(15) Nonrecurring Charges
During the three months ended June 30, 1995, the Company recorded
$6,200,000 in charges relating primarily to an additional valuation
allowance for customer returns and uncollectible accounts receivable at
Rolodex, the Company's office supply unit, to recognize a number of open
and
F-25
<PAGE> 61
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
unresolved customer chargebacks, primarily originating in prior years.
(16) Related Party Transactions
During 1996, the Company paid Goldman Sachs $1,000,000 in transaction fees
in connection with the purchase of Lingemann (see Note 4). During 1994,
the Company paid Goldman Sachs a fee of $750,000 for its advisory
services in connection with the sale of the paint products segment. In
addition, the Company paid $6,000 and $86,000 in 1995 and 1994,
respectively, as reimbursement of expenses relating to this and other
advisory services. In connection with such services, the Company
provides for the indemnification of Goldman Sachs against various
liabilities, including liabilities under the Federal securities laws.
As discussed in Note 7, the Company entered into a new bank credit
agreement in 1994. Pearl Street L.P., an affiliate of Goldman Sachs, had
an initial participating interest of $27,500,000 in the credit facilities
provided to the Company. Pearl Street L.P. received $931,000 and $44,000
from the agent bank for its portion of the arrangement fee and interest,
respectively, paid by the Company during 1994.
(17) Commitments and Contingencies
Rental expense for operating leases totaled $3,954,000, $3,436,000 and
$3,184,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. These leases primarily relate to production facilities.
Rentals received for subleases for operating leases totaled $206,000 in
1996, $136,000 in 1995 and $0 in 1994.
Future minimum lease payments under contractually noncancellable
operating leases (with initial lease terms in excess of one year) for
years subsequent to December 31, 1996 are as follows: 1997, $3,479,000;
1998, $2,861,000; 1999, $2,027,000; 2000, $1,196,000; 2001, $706,000; and
thereafter, $313,000. Future minimum rentals to be received under
noncancelable subleases for years subsequent to December 31, 1996 are as
follows: 1997: $248,000, 1998: $260,000, 1999: $260,000, 2000:
$260,000, 2001: $22,000 and thereafter, $0.
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") to determine if the
acquisition violated federal antitrust laws. The Company has responded
to various FTC requests for information concerning the relevant market
and competitive conditions in that market. At this time it is not known
whether the investigation will result in the issuance of a complaint, or
if such complaint is issued, the relief that will be sought or obtained.
The 1996
F-26
<PAGE> 62
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
revenues associated with the automotive tubing business acquired from HHI
were $2,019,000 million, and the tangible net assets at December 31, 1996
were $6,988,000.
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
December 31, 1996, all unresolved bankruptcy settlements are included in
the shares reserved to satisfy claims.
(18) Business Segment Information
The Company manufactures and supplies a diversity of products in three
primary business segments. The segments and products are discussed
below:
(a) Automotive Components Group
The Automotive Components Group is made up of three operating
units, Thermal Components Group ("Thermal"), Steel Parts
Corporation ("Steel Parts") and Romac Metals ("Romac"). The
businesses in this segment manufacture tubing and other heat
transfer components and assemblies and automotive parts.
Thermal's businesses are involved in the manufacture of welded
aluminum and copper/brass tubing and heat exchangers. Thermal's
heat-transfer products have a broad range of applications in motor
vehicles, railroad locomotives, construction and other industrial
equipment.
Thermal uses a direct sales force and independent sales
representatives to market its products to both original equipment
manufacturers ("OEMs") and aftermarket customers primarily in the
United States, China and Europe. In 1996, 1995 and 1994,
aftermarket sales were approximately 27%, 28% and 30%,
respectively, of revenues.
On February 1, 1996, the Company acquired Great Lake, Inc. and Kar
Tool Co., Inc., which serve the automotive, heavy truck and
industrial manufacturing radiator replacement market. These
acquisitions did not have a material effect on the Company's
financial position or its liquidity.
On July 10, 1996, the Company acquired the automotive aluminum
tube business of Helmut Lingemann GmbH & Co. The transactions
include the purchase of stock of Lingemann's German subsidiary,
ARUP Alu-Rohr und-Profil GmbH, and the automotive aluminum tube
business assets of its Duncan, South Carolina based subsidiary
Helmina-Helvetion International, Inc.
Steel Parts is a manufacturer of close tolerance, value added
stampings for the automotive industry. Its products include
clutch plates for automatic transmissions, suspension parts for
vibration-reducing assemblies and engine mounts. Substantially
all of Steel Parts' sales are made to the domestic automobile
industry, either directly or indirectly through other independent
automotive parts suppliers. Approximately 70%, 67% and 66% of
Steel Parts' sales were to one of the "Big 3" domestic automobile
manufacturers in 1996, 1995 and 1994, respectively. The strong
domestic automotive market resulted in Steel Parts operating at or
near capacity for most of 1996, 1995 and 1994.
F-27
<PAGE> 63
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Romac manufactures stainless steel tubing used principally in
marine and architectural applications.
(b) Technologies Group
The Technologies Group consists of four operating units, Stewart
Connector Systems, Inc. "Stewart Connector", Signal Transformer
Co., Inc. ("Signal"), Stewart Stamping Corporation ("Stewart
Stamping"), and Escod Industries ("Escod"), which manufacture
telecommunication and electrical component products, including:
specialized connector systems, power transformers, precision
stampings, wireform and wire assemblies, and cable and wire
assemblies.
Stewart Connector designs and manufactures high speed data
connectors primarily for the computer networking and cellular
telephone markets. Stewart Connector sells its products
throughout the world, directly and through sales subsidiaries, and
through a network of manufacturers' representatives. Foreign
sales accounted for approximately 40% of Stewart Connector's sales
in 1996, 43% in 1995 and 35% in 1994. It maintains a direct sales
office in Japan.
Signal manufactures custom and off-the-shelf small power
transformers used in telecommunications products, medical
instrumentation, electronic security systems, entertainment
equipment and industrial process controls. Signal markets its
products directly, utilizing catalogs and print advertising, and
indirectly through independent sales representatives. It has a
customer base of over nine thousand accounts, consisting of both
OEMs and aftermarket resellers.
Stewart Stamping is a tool designer and subcontract manufacturer
of high volume precision metal stamped and wire formed parts.
Stewart Stamping serves a wide variety of markets, including
electrical devices such as circuit breakers, electrical fuses,
lighting and process controls and the electronic industries in
passive components such as capacitor cans and connector contacts.
Stewart Stamping sells its products, directly and indirectly
through manufacturing representatives, primarily in the U.S.
Escod is a subcontract manufacturer in a highly fragmented market
for wire and cable assemblies, primarily for the digital
telecommunications switch market. Telecommunications and computer
OEMs account for the bulk of Escod's sales. Despite successful
recent customer diversification, two telecommunications OEMs
together accounted for approximately 66%, 60% and 65% of total
sales revenues in 1996, 1995 and 1994, respectively. Escod's
dependence on these two major customers makes its revenues and
operating income sensitive to changes in demand from those
customers.
(c) Office Products/Specialty Publishing Group
The Office Products/Specialty Publishing Group includes two
operating units: the Rolodex/Curtis operation, which manufactures
and markets a variety of office products and computer accessories
and is comprised of the Rolodex division, Rolodex de Puerto Rico,
Inc. ("Rolodex-PR"), and Curtis Manufacturing, Inc. ("Curtis");
and Taylor Publishing Company ("Taylor"), a wholly owned
subsidiary engaged in yearbook and other specialty printing and
publishing. In late 1996 and early 1997, the Company sold the
office products businesses. On September 3, 1996, the Company
sold Curtis. On October 4, 1996, the Company sold its
F-28
<PAGE> 64
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Rolodex electronics product line. On March 5, 1997, the Company
sold the remainder of its Rolodex business.
Taylor is engaged primarily in the contract printing of scholastic
yearbooks for high schools, middle and elementary schools,
colleges and universities. Its principal yearbook customers are
secondary (middle and senior high) schools throughout the United
States. Taylor also publishes a variety of specialty publications
on a contract basis and a limited number of its own publishing
titles. Through its reunion services division, Taylor also
provides reunion planning and other services for alumni of
schools, colleges and academies.
Rolodex(R) products include desktop filing devices, business card
files, electronic data bank organizers, manual personal
organizers, telephone finding lists and paper punches. Rolodex
uses its own sales force as well as independent manufacturers'
representatives to market its products to office superstores, mass
merchandisers and the traditional commercial office supply market
on a nationwide basis.
Sales of the electronic products line divested in October 1996
totaled $9,330,000 in 1996 for the period until the date of sale.
Sales of Curtis(R) brand and Curtis by RolodexTM computer
accessories totaled $12,109,000 in 1996 for the period until the
date of sale. Sales for Rolodex Offices Products (exclusive
of Curtis sales and sales of electronic products) were
$58,600,000 in 1996.
(d) Allocation of Intangibles
In accordance with the Reorganization SOP, the Company has
allocated Reorganization Goodwill and resulting amortization to
its identifiable segments.
(e) Unallocated Corporate Overhead
Segment operating income (loss) reflects the allocation of
corporate overhead. Unallocated corporate overhead in 1994
consists of overhead associated with discontinued operations.
F-29
<PAGE> 65
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Operating information of each business segment, excluding divested
subsidiaries, follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Automotive Components Group
- ---------------------------
Sales $209,722 180,251 173,079
Cost of sales 156,481 134,673 130,183
Selling, general and
administrative expenses 19,627 15,811 14,424
Allocated corporate overhead 2,981 1,282 2,194
Depreciation 6,718 4,674 4,024
Amortization of Reorganization Goodwill - 3,404 7,313
-------- ------- --------
Segment operating income $ 23,915 20,407 14,941
======== ======= ========
Technologies Group
- ------------------
Sales $183,663 170,615 164,909
Cost of sales 127,337 116,253 116,061
Selling, general and
administrative expenses 23,190 19,750 17,736
Allocated corporate overhead 3,152 1,412 2,870
Depreciation 5,531 5,714 5,437
Amortization of Reorganization Goodwill - 7,176 15,419
-------- -------- --------
Segment operating income $ 24,453 20,310 7,386
======== ======== =========
Office Products/Specialty Publishing
- ------------------------------------
Group
-----
Sales $179,089 210,337 205,642
Cost of sales 106,075 134,794 126,598
Selling, general and
administrative expenses 54,450 57,577 55,700
Nonrecurring charges - 6,200 -
Allocated corporate overhead 3,487 1,904 3,599
Depreciation 4,260 4,310 4,073
Amortization of Reorganization Goodwill - 21,592 46,485
--------- -------- --------
Segment operating income (loss) $ 10,817 (16,040) (30,813)
======== ======== =========
</TABLE>
F-30
<PAGE> 66
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A reconciliation of segment operating income (loss) to
consolidated operating income (loss) follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Total segment operating income (loss) $59,185 24,677 (8,486)
Unallocated corporate overhead - - (1,177)
Corporate depreciation (84) (60) (36)
------- ------- -------
Consolidated operating income (loss) $59,101 24,617 (9,699)
======= ====== ======
</TABLE>
A summary of identifiable assets of each business segment at
December 31 follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Automotive Components Group $144,573 97,269
Technologies Group 83,397 98,352
Office Products/Specialty Publishing Group 67,822 78,399
Corporate 56,208 66,109
-------- -------
$352,000 340,129
======== =======
</TABLE>
Corporate assets include cash, deferred taxes and other assets. A
summary of capital expenditures of each business segment follows
(in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Automotive Components Group $ 7,447 10,244 8,099
Technologies Group 9,597 7,044 4,770
Office Products/Specialty Publishing
Group 5,446 4,745 6,105
Corporate 89 126 189
Discontinued operations - - 450
------- ------ ------
$22,579 22,159 19,613
======= ====== ======
</TABLE>
In 1996, export sales were $71,571,000 or 12% of total sales.
Export sales in 1996 to Europe, Asia, Canada and Mexico were
$29,858,000, $17,133,000, $8,340,000 and $6,813,000, respectively.
All other export sales totaled $9,427,000. In 1995, export sales
were $59,669,000 or 11% of total sales. Export sales in 1995 to
Europe, Asia, Canada and Mexico were $19,777,000, $18,493,000,
$8,892,000 and $5,280,000, respectively. All other export sales
in 1995 totaled $7,227,000. In 1994, export sales were less than
10% of total sales. The Company's transactions are primarily in
U.S. dollars.
F-31
<PAGE> 67
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(19) Quarterly Financial Information (unaudited)
A summary of the quarterly financial information follows (in thousands):
<TABLE>
<CAPTION>
1996
----
Dec 31(1) Sept 30(2) June 30 March 31
------ ------- ------- --------
<S> <C> <C> <C> <C>
Sales $129,084 142,893 178,048 122,449
Gross Profit 36,230 41,038 55,621 34,882
Net income 12,620 8,482 11,805 6,146
Per Share:
Net income $ 1.27 0.86 1.20 0.61
</TABLE>
<TABLE>
<CAPTION>
1995
----
Dec 31(3) Sept 30 June 30(4) March 31
------ ------- ------- --------
<S> <C> <C> <C> <C>
Sales $134,987 137,620 167,221 121,375
Gross Profit 39,243 41,621 55,756 37,913
Net income 748 (1,564) 3,321 70
Per Share:
Net income $ 0.07 (0.15) 0.33 0.01
</TABLE>
(1) Includes the following: a) Pretax gain of $3,125,000 on the sale of
Rolodex electronics product line (See Note 3), b) recognition of a
tax benefit of $3,207,000 primarily related to a capital loss
carryforward.
(2) Includes a $2,200,000 favorable adjustment to the Company's
environmental liabilities.
(3) Includes the following: a) Pretax gain of $4,300,000 related to a
change in the Company's pension plan (See Note 10), b) gain of
$2,300,000 from the sale of idle corporate assets, c) charges
totaling $3,900,000 for Rolodex/Curtis primarily for customer
chargebacks and sales returns.
(4) Includes the following: a) nonrecurring charges of $6,200,000 (See
Note 15), b) $3,600,000 favorable adjustment to the Company's
environmental liabilities, c) $1,494,000 of favorable adjustments
related to the resolution of several legal disputes (see Note 14).
F-32
<PAGE> 68
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(20) Pro Forma Results of Operations
The following pro forma financial information presents consolidated sales
and results of operations as if the divestitures of Curtis, Rolodex
electronics product line and the Rolodex business unit (see Note 3) had
occurred as of the beginning of the periods presented. The pro forma
effect of the acquisition of the automotive aluminum tube business of
Lingemann (see Note 4) is included as if the acquisition occurred at the
beginning of the year ended December 31, 1996. The effect of the
acquisition for year ended December 31, 1995, is not included because
operating information is not available for that period. The pro forma
results of operations are as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Sales $507,140 455,379
Net income 32,456 4,685
Net income per common share
and share equivalent 3.28 0.46
</TABLE>
F-33
<PAGE> 69
INSILCO CORPORATION
FORM 10-K
EXHIBITS
<PAGE> 70
<TABLE>
<CAPTION>
Exhibit Index Page
<S> <C> <C>
*2(a) - Amended and Restated Plan of Reorganization Jointly Proposed
by the Debtors and the Official Joint Committee of Unsecured
Creditors dated November 23, 1992 (Form T-3, Exhibit T3E-3,
File No. 22-23356).
*2(b) - Order Confirming Plan of Reorganization and Approving
Settlements Pursuant to Bankruptcy Rule 9019 dated November
24, 1992 (Form T-3, Exhibit T3E-4, File No. 22-23356).
*2(c) - Order on Motion for Order in Aid of Implementation of Plan
dated March 23, 1993 (Form T-3, Exhibit T3E-5, File No.
22-23356).
*2(d) - Order on Debtors' Supplemental Motion for Order in Aid of
Implementation of Plan dated March 23, 1993 (Form T-3,
Exhibit T3E-6, File No. 22-23356).
*2(e) - Notice of (1) Order Confirming Plan of Reorganization, (2)
Effective Date and (3) Administrative Claims Bar Date dated
April 1, 1993 (Form 10, Exhibit 2(e), File No. 0-22098).
*2(f) - Order on Motion for Order in Aid of Implementation of Plan
dated September 14, 1993 (Form 10/A, Amendment No. 2 to Form
10, Exhibit 2(f), File No. 0-22098).
*2(g) - Share Purchase Agreement, dated as of June 28, 1996,
between the Company's subsidiary, GUVAB Gesellschaft fur
Unternehmensbeteililgungen und Vermogensverwaltung im
aluminiumverarbeitenden Bereich mbH ("GUVAB"), and Lingemann
(Form 8-K dated July 10, 1996, File No. 0-22098).**
*2(h) - Asset Purchase Agreement, dated as of July 1, 1996, among
the Company's subsidiary, HHI Acquisition Corp., Lingemann,
and Helima-Helvetion International, Inc (Form 8-K dated July
10, 1996, File No. 0-22098).**
*2(i) - Stock Purchase Agreement, dated as of September 3, 1996,
between the Company's subsidiary and Esselte Corporation
(Form 8-K dated September 6, 1996, File No. 0-22098).**
*2(j) - Asset Purchase Agreement, dated as of October 4, 1996,
between the Company and Franklin Electronic Publishers, Inc.
and List of Omitted Schedules (Form 8-K dated October 4,
1996, File No. 0-22098).**
*2(k) - Asset Purchase Agreement, dated as of February 12, 1997,
between the Company and Newell Co. (Form 8-K dated March 5,
1997, File No. 0-22098).**
*3(a) - Amended and Restated Certificate of Incorporation of the
Company (Form 10, Exhibit 3(a), File No. 0-22098).
*3(b) - Amended and Restated Bylaws of the Company (Form 10,
Exhibit 3(b), File No. 0-22098).
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
Exhibit Index Page
<S> <C> <C>
*4(a) - Settlement Agreement and Stipulated Order by and between
the Company, certain subsidiaries of the Registrant, The
Valspar Corporation and the United States of America by
order of the United States District Court for the Western
District of Texas, San Antonio Division, dated January 19,
1993 (Form 10, Exhibit 4(h), File No. 0-22098).
*4(b) - Stipulation regarding Settlement Agreement and Stipulated
Order amending Exhibit 4(h) (Form 10, Exhibit 4(i), File No.
0-22098).
*4(c) - Credit Agreement, dated as of October 21, 1994, among the
Company, the institutions from time to time parties thereto
as Lenders, the institutions from time to time parties
thereto as Issuing Banks, Citicorp USA, Inc. and Pearl
Street L.P., as Co-Agents, and Citicorp USA, Inc., as
Administrative Agent (Form S-8 Registrations Statement, as
amended, Exhibit 4(o), File No. 33-86938).**
*4(d) - First Amendment to Credit Agreement, dated as of November
21, 1994, among the Company, the institutions from time to
time parties thereto as Lenders, the institutions from time
to time parties thereto as Issuing Banks, Citicorp USA, Inc.
and Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc.,
as Administrative Agent (Form S-8 Registration Statement, as
amended, Exhibit 4(p), File No. 33- 86938).**
*4(e) - Second Amendment to Credit Agreement, dated as of March 8,
1995, among the Company, the institutions from time to time
parties thereto as Lenders, the institutions from time to
time parties thereto as Issuing Banks, Citicorp USA, Inc.
and Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc.,
as Administrative Agent; (Form 10-K for the year ended
December 31, 1994, Exhibit 4(f), File No. 0-22098).**
*4(f) - Third Amendment to Credit Agreement, dated as of July 18,
1995, among the Company, the institutions from time to time
parties thereto as Lenders, the institutions from time to
time arites thereto as Issuing Banks, Citicorp USA, Inc. and
Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc., as
Administrative Agent (Form 10-Q for the quarter ended June
30, 1995, Exhibit 4(g), File No. 0- 22098).**
*4(g) - Fourth Amendment to Credit Agreement, dated as of June 21,
1996, among the Company, the institutions from time to time
parties thereto as Lenders, the institutions from time to
time parties thereto as Issuing Banks, Citicorp USA, Inc.
and Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc.,
as Administrative Agent (Form 8-K dated July 10, 1996, File
No. 0-22098).**
4(h) - Fifth Amendment Credit Agreement, dated as of March 3,
1997, among the Company, the institutions from time to time
parties thereto as Lenders, the institutions from time to
time parties thereto as Issuing Banks, Citicorp USA, Inc.
and Pearl Street L.P., as Co-Agents, and Citicorp USA, Inc.,
as Administrative Agent.
The following are management contracts and compensatory plans or arrangements in
which directors or executive officers participate:
*10(a) - 1993 the Company Long-Term Incentive Plan (Form 10, Exhibit
10(j), File No. 0- 22098).
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
Exhibit Index Page
<S> <C. <C>
*10(b) - Supplemental Terms and Conditions Applicable to December
1993 Option Awards Under the Company 1993 Long-Term
Incentive Plan (Form S-8 Registrations Statement, as
amended, Exhibit 4(b), File No. 33-86938).
*10(c) - Employment Agreement dated as of May 1, 1993 between the
Company and Robert L. Smialek, as amended and restated (Form
10/A, Amendment No. 1 to Form 10, Exhibit 10(k), File No.
0-22098).
*10(d) - Restricted Stock Agreement dated as of June 26, 1994 between
the Company and James D. Miller. (Form 10-K for the year
ended December 31, 1994, Exhibit 10(e), File No. 0-22098).
*10(e) - Form of Indemnification Agreement adopted by the Company
as of July 30, 1990, entered into between the Registrant and
certain of its officers and directors individually, together
with a schedule identifying the other documents omitted and
the material details in which such documents differ (Form
10, Exhibit 10(n), File No. 0-22098).
*10(f) - 1993 the Company Nonemployee Director Stock Incentive Plan
(Form 10/A, Amendment No. 1 to Form 10, Exhibit 10(p), File
No. 0-22098).
10(g) - Value Appreciation Agreement as of December, 1996 entered
into between the Registrant and the following officers:
David M. Aronowitz, Robert F. Heffron, Les G. Jacobs, David
A. Kauer, Kenneth H. Koch and Philip K. Woodlief.
10(h) - Form of Income Protection Agreement adopted by the Company
as of December, 1996, entered into between the Registrant
and the officers identified in Exhibit 10 (g) and James D.
Miller.
*21 - Subsidiaries of the Registrant (Form 10-Q for the quarter
ended September 30, 1996, File No. 0-22098).
23(a) - Consent of KPMG Peat Marwick LLP.
24 - Power of Attorney of officers and directors of the
Registrant appearing on the signature page hereof.
99(a) - Schedule II - Valuation and Qualifying Accounts.
</TABLE>
* Incorporated by reference, as indicated.
** The Registrant agrees to furnish to the Securities and Exchange Commission
upon request copies of any omitted schedule or exhibit to Exhibits 2(g),
(h), (i), (j) and (k) and 4(c), 4(d), 4(e), 4(f) and 4(g)
<PAGE> 1
Exhibit 4(h)
EXECUTION COPY
--------------
FIFTH AMENDMENT TO CREDIT AGREEMENT
This Fifth Amendment to Credit Agreement dated as of March 3,
1997 (this "Amendment"), is entered into among Insilco Corporation, a Delaware
corporation (with its successors and permitted assigns, the "Borrower"), the
financial institutions from time to time party thereto as lenders (the
"Lenders"), the financial institutions from time to time party thereto as
issuing banks (the "Issuing Banks"), Citicorp USA, Inc. ("Citicorp") and Goldman
Sachs Credit Partners L.P. (formerly Pearl Street, L.P.), in their separate
capacities as Co-Agents for the Lenders and the Issuing Banks (the "Co-Agents")
and Citicorp, in its separate capacity as administrative and collateral agent
for the Lenders and the Issuing Banks (with its successors and permitted assigns
in such capacity, the "Administrative Agent"), and amends the Credit Agreement
dated as of October 21, 1994, as amended by the First Amendment to Credit
Agreement dated as of November 21, 1994, the Second Amendment to Credit
Agreement dated as of March 8, 1995, the Third Amendment to Credit Agreement
dated as of July 18, 1995 and the Fourth Amendment to Credit Agreement dated as
of June 21, 1996 (as so amended as amended hereby and as the same may be further
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement") entered into among the Borrower, the Lenders, the Issuing Banks, the
Co-Agents and the Administrative Agent. Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to them in the Credit
Agreement.
W I T N E S S E T H:
--------------------
WHEREAS, pursuant to a Consent dated as of February 4, 1997,
the Requisite Lenders consented to the sale by the Borrower and Rolodex
Corporation of substantially all the assets of the Borrower's Rolodex business
(the "Rolodex Sale") on the condition that, concurrently with the consummation
of the Sale, the Net Cash Proceeds arising from the consummation of such sale be
applied to the Obligations in accordance with Section 3.01(b) of the Credit
Agreement;
WHEREAS, the Borrower has requested the undersigned Lenders,
(i) to defer application of such Net Cash Proceeds arising from the Rolodex Sale
required to be applied to the Obligations pursuant to Section 3.01(b) of the
Credit Agreement immediately upon the consummation of such sale to a date no
later than December 30, 1997, (ii) to place such Net Cash Proceeds in one or
more investment accounts pledged to the Administrative Agent as security for the
Obligations and to invest such proceeds in cash and Cash Equivalents and (iii)
to amend certain financial covenants contained in Article X of the Credit
Agreement, in each
<PAGE> 2
case substantially along the lines set forth in that certain letter dated
February 20, 1997 from the Borrower to the Administrative Agent, a copy of which
is attached hereto as Exhibit A; and
WHEREAS, the parties hereto desire to amend the Credit
Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the above premises, the
Borrower, Lenders party hereto, the Issuing Banks, the Co-Agents and the
Administrative Agent agree as follows:
SECTION 1. AMENDMENT TO THE CREDIT AGREEMENT. The
Credit Agreement is, effective as determined pursuant to
Section 3 hereof, hereby amended as follows:
1.01 Section 6.01(g) of the Credit Agreement is amended by
adding the following immediately prior to the period at the end thereof:
and except the deposit of the Net Cash Proceeds arising from the sale
of the Borrower's Rolodex business into one or more investment accounts
as permitted pursuant to Section 2 of the Fifth Amendment to Credit
Agreement dated as of March 3, 1997 in anticipation of a potential
dividend to the shareholders of the Borrower (it being understood and
agreed that the payment of such dividend shall not be permitted unless
expressly permitted by the Requisite Lenders pursuant to SECTION 9.06)
1.02 Section 10.02 (Minimum Fixed Charge Coverage Ratio) of
the Credit Agreement is amended by replacing the existing ratios set forth
opposite the following fiscal periods set forth below with the following ratios
set forth opposite such periods:
First fiscal quarter of 1997 1.25 to 1
Second fiscal quarter of 1997 1.25 to 1
Third fiscal quarter of 1997 1.25 to 1
1.03 Section 10.03 (Minimum Interest Coverage Ratio) of the
Credit Agreement is amended by replacing the existing ratios set forth opposite
the following fiscal periods set forth below with the following ratios set forth
opposite such periods:
First fiscal quarter of 1997 3.75 to 1
Second fiscal quarter of 1997 3.75 to 1
Third fiscal quarter of 1997 3.75 to 1
1.04 Section 10.04 (Maximum Leverage Ratio) of the
Credit Agreement is amended by replacing the existing ratios set
-2-
<PAGE> 3
forth opposite the following fiscal periods set forth below with the following
ratios set forth opposite such periods:
First fiscal quarter of 1997 3.25 to 1
Second fiscal quarter of 1997 3.25 to 1
Third fiscal quarter of 1997 3.25 to 1
SECTION 2. CONSENT.
2.01 The Lenders hereby agree that, so long as no Event of
Default has occurred and is continuing on the date of the consummation of the
Rolodex Sale, the Borrower shall be entitled to defer application of the Net
Cash Proceeds arising from the Rolodex Sale required to be applied to the
Obligations pursuant to Section 3.01(b) of the Credit Agreement immediately upon
the consummation of such sale to a date no later than December 30, 1997;
PROVIDED, HOWEVER, such agreement shall be subject to the following conditions:
(i) All such Net Cash Proceeds (LESS an amount equal to the lesser of (A) 50% of
such Net Cash Proceeds and (B) the amount of Investments and Capital
Expenditures made by the Borrower or any of the Restricted Subsidiaries in their
respective businesses during the 180 day period following the consummation of
the Rolodex Sale) shall be applied to the Obligations in accordance with Section
3.01(b)(vii) of the Credit Agreement by no later than December 30, 1997, (ii)
prior to the application thereof to the Obligations, such Net Cash Proceeds
shall be held by the Administrative Agent in one or more investment accounts (it
being understood that such proceeds may be transferred to additional investment
accounts opened after the date of the consummation of the Rolodex Sale)
acceptable to the Administrative Agent (each an "Investment Account") pursuant
to an investment account agreement in respect of each such account to be entered
into between the Borrower, the Administrative Agent and the financial
institution (which shall be a Lender) where such account is located, in each
case in form and substance satisfactory to the Administrative Agent (each an
"Investment Account Agreement"), which agreements shall constitute Loan
Documents and shall, among other things, (x) provide the Administrative Agent
with a perfected first priority Lien on each Investment Account and all amounts
on deposit in such account and any investments made with amounts on deposit in
such account and (y) give the Administrative Agent the right, among other
things, upon the occurrence and during the continuance of an Event of Default,
to liquidate any outstanding investments made from amounts on deposit in each
Investment Account and to apply all such amounts and any other amounts on
deposit in such Investment Account immediately to the Obligations in accordance
with Section 3.02(b)(ii) of the Credit Agreement, (iii) amounts on deposit in
any Investment Account may, at the direction of the Borrower, be invested in
Cash Equivalents, but only to the extent that the Administrative Agent is able
to obtain or retain a first priority perfected Lien in such
-3-
<PAGE> 4
investments, and (iv) interest on, and other income received in respect of
investments made with, amounts on deposit in each Investment Account shall be
applied from time to time at the request of the Borrower to the Revolving Loans,
it being understood and agreed that the Administrative Agent shall only apply
such interest and other income to the Obligations to the extent such amount is
in excess of the original amount of Net Cash Proceeds deposited in such
Investment Account.
SECTION 3. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS
AMENDMENT. This Amendment shall become effective as of the date hereof on the
date (the "Amendment Effective Date") when the following conditions precedent
have been satisfied (unless waived by the Requisite Lenders or unless the
deadline for delivery has been extended by the Administrative Agent):
3.01 (a) CERTAIN DOCUMENTS. The Administrative Agent shall
have received on or before the Amendment Effective Date all of the following,
all of which, except as otherwise specifically described below, shall be in form
and substance satisfactory to the Administrative Agent and in sufficient copies
for each of the Lenders:
(i) This Amendment executed by the Borrower and
each of Lenders;
(ii) An Investment Account Agreement in respect of each
Investment Account into which Net Cash Proceeds from the Rolodex Sale
are intended to be deposited initially, duly executed by the
Administrative Agent, the Borrower and the financial institution where
such Investment Account is located;
(iii) To the extent not covered to the satisfaction of the
Administrative Agent by an appropriate certificate previously delivered
to the Administrative Agent in connection with the Credit Agreement, a
certificate of the Secretary or Assistant Secretary of the Borrower
dated the Amendment Effective Date certifying (A) the names and true
signatures of the incumbent officers of the Borrower authorized to sign
this Amendment, each Investment Account Agreement and the other
documents to be executed in connection with this Amendment, (B) the
resolutions of the Borrower's Board of Directors approving and
authorizing the execution, delivery and performance of this Amendment,
each Investment Account Agreement and the other documents to be
executed in connection with this Amendment and (C) that there have been
no changes in the Certificate of Incorporation or By-Laws of the
Borrower since the Closing Date;
-4-
<PAGE> 5
(iv) Good Standing Certificates certified by the
Secretary of State of Delaware relating to the Borrower;
(v) A favorable opinion of Borrower's counsel as
to such matters as the Administrative Agent shall reasonably
request; and
(vi) Such additional documentation as the
Administrative Agent, the Co-Agents or the Requisite Lenders
may reasonably require.
3.02 Each of the representations and warranties made by the
Borrower or the Guarantors in or pursuant to the Credit Agreement, as amended by
this Amendment, and the other Loan Documents to which the Borrower or any of the
Guarantors is a party or by which the Borrower or any of the Guarantors is
bound, shall be true and correct in all material respects on and as of the
Amendment Effective Date (except any such representations and warranties stated
to be given as of a specific date other than the Amendment Effective Date).
3.03 All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the transactions
contemplated by this Amendment shall be satisfactory in all respects in form and
substance to the Administrative Agent, the Co-Agents and the Requisite Lenders.
3.04 No Event of Default or Default shall have occurred and be
continuing on the Amendment Effective Date.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower
hereby represents and warrants to the Lenders that (a) as of the date hereof no
Event of Default or Default under the Credit Agreement shall have occurred and
be continuing and (b) all of the representations and warranties of the Borrower
contained in subsections 6.01(a) through (z) of the Credit Agreement and in any
other Loan Document (as defined under the Credit Agreement) continue to be true
and correct as of the date of execution hereof in all material respects, as
though made on and as of such date (unless stated to relate to a specific
earlier date, in which case such representations and warranties shall be true
and correct as of such earlier date).
SECTION 5. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
5.01 Upon the effectiveness of this Amendment, on and after
the date hereof, each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof" or words of like import, and each reference in the other
Loan Documents to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as amended hereby.
-5-
<PAGE> 6
5.02 Except as specifically amended above, all of the terms of
the Credit Agreement and all other Loan Documents shall remain unchanged and in
full force and effect.
5.03 The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of any Lender, any Issuing Bank, either Co-Agents or
the Administrative Agent under the Credit Agreement or any of the Loan
Documents, nor constitute a waiver of any provision of the Credit Agreement or
any of the Loan Documents.
SECTION 6. COSTS AND EXPENSES. The Borrower agrees to pay on
demand in accordance with the terms of Section 13.02 of the Credit Agreement all
costs and expenses of the Administrative Agent in connection with the
preparation, reproduction, execution and delivery of this Amendment and all
other Loan Documents entered into in connection herewith, including the
reasonable fees and out-of-pocket expenses of Sidley & Austin, counsel for the
Administrative Agent with respect thereto.
SECTION 7. EXECUTION IN COUNTERPARTS. This Amendment may be
executed and delivered in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed an original and all of which taken together shall constitute one
and the same original agreement.
SECTION 8. GOVERNING LAW. This Amendment shall be
interpreted, and the rights and liabilities of the parties determined, in
accordance with the internal law of the State of New York.
IN WITNESS WHEREOF, this Amendment has been duly executed on
the date set forth above.
INSILCO CORPORATION
By:
--------------------------------
Title:
CITICORP USA, INC., as Administrative
Agent, Co-Agent and as a Lender
By:
--------------------------------
Title: Attorney-in-fact
-6-
<PAGE> 7
GOLDMAN SACHS CREDIT PARTNERS L.P.
(formerly Pearl Street, L.P.), as Co-
Agent and as a Lender
By:
----------------------------------
Title:
BANK OF AMERICA ILLINOIS
By:
----------------------------------
Title:
BANQUE PARIBAS
By:
----------------------------------
Title:
By:
----------------------------------
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By:
----------------------------------
Title:
ABN AMRO BANK N.V., PITTSBURGH BRANCH
By: ABN AMRO NORTH AMERICA, INC., as
Agent
By:
----------------------------------
Title:
CAISSE NATIONALE DE CREDIT AGRICOLE
By:
----------------------------------
Title:
THE FUJI BANK, LIMITED
By:
--------------------------------
Title:
-7-
<PAGE> 8
FIRST BANK NATIONAL ASSOCIATION
By:
----------------------------------
Title:
THE BANK OF NEW YORK
By:
----------------------------------
Title:
THE HUNTINGTON NATIONAL BANK
By:
----------------------------------
Title:
THE BANK OF NOVA SCOTIA
By:
----------------------------------
Title:
BANK OF SCOTLAND
By:
----------------------------------
Title:
NATIONAL CITY BANK, COLUMBUS
By:
----------------------------------
Title:
STAR BANK N.A.
By:
----------------------------------
Title:
THE MITSUBISHI TRUST AND
BANKING CORPORATION
By:
---------------------------------
Title:
-8-
<PAGE> 9
GIROCREDIT BANK A.G. DER SPARKASSAN
By:
----------------------------------
Title:
THE NIPPON CREDIT BANK, LTD., NEW YORK
BRANCH
By:
----------------------------------
Title:
-9-
<PAGE> 10
ACKNOWLEDGMENT
--------------
Reference is hereby made to the Subsidiary Guaranty dated as
of November 21, 1994 (the "Subsidiary Guaranty"), to which each of the
undersigned is a party, in favor of the Administrative Agent, the Co-Agents, the
Lenders and the Issuing Banks. Each of the undersigned hereby consents to the
terms of the foregoing Fifth Amendment to Credit Agreement and agrees that the
terms thereof shall not affect in any way its obligations and liabilities under
the undersigned's Guaranty or any other Loan Document, all of which obligations
and liabilities shall remain in full force and effect and each of which is
hereby reaffirmed.
TAYLOR PUBLISHING COMPANY
By:
----------------------------------
Title:
ROLODEX CORPORATION
By:
----------------------------------
Title:
ROLODEX DE PUERTO RICO, INC.
By:
----------------------------------
Title:
SIGNAL TRANSFORMER CO., INC.
By:
----------------------------------
Title:
SIGNAL CARIBE, INC.
By:
----------------------------------
Title:
STEWART CONNECTOR SYSTEMS, INC.
By:
----------------------------------
Title:
-10-
<PAGE> 11
STEWART STAMPING CORPORATION
By:
----------------------------------
Title:
STEEL PARTS CORPORATION
By:
----------------------------------
Title:
GREAT LAKE, INC.
By:
----------------------------------
Title:
THERMAL COMPONENTS DIVISION, INC.
By:
----------------------------------
Title:
-11-
<PAGE> 1
Exhibit 10(g)
VALUE APPRECIATION AGREEMENT
THIS VALUE APPRECIATION AGREEMENT (this "Agreement") is entered into
as of the ____ day of December, 1996, by INSILCO CORPORATION, a Delaware
corporation (the "Company"), and DAVID M. ARONOWITZ, ROBERT F. HEFFRON, LES G.
JACOBS, DAVID A. KAUER, KENNETH H. KOCH, PHILIP K. WOODLIEF (collectively, the
"Executives" and, individually, an "Executive").
WHEREAS, each of the Executives is currently an employee of the
Company; and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it would be in the best interests of the Company and its
shareholders to entertain and consider a proposal or proposals regarding a
possible "Sale" (as hereinafter defined) of the Company; and
WHEREAS, the Board has determined that it would be in the best
interests of the Company to maintain continuity in the management of the
Company's business in the event of any actual or contemplated Sale of the
Company; and
WHEREAS, the Company desires to provide the Executives, on the terms
and subject to the conditions set forth in this Agreement, with an additional
incentive to remain in the Company's employ, to assist the Company to negotiate
and consummate the Sale of the Company on terms satisfactory to the Company,
and to use their best efforts to maintain and enhance the value, business,
prospects, and business relationships of the Company;
NOW, THEREFORE,for and in consideration of the premises and the mutual
covenants contained herein, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) An "Affiliate" of any specified Person means any
Subsidiary of such Person and any other Person controlled by, controlling, or
under common control with such specified Person. For purposes of this
definition, "control," when used with respect to any specified Person, means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract, or
otherwise.
(b) The "Base Salary" of an Executive means such
Executive's annual base salary payable in accordance with the regular payroll
practices of the Company.
(c) "Benefits" means any pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus or other incentive plan, all medical, vision,
dental, or other health plans, all life insurance plans, and all other employee
benefit plans or fringe benefit plans, including "employee benefit plans," as
that term is defined in Section 3(3) of ERISA, and any and all other written or
unwritten employee plans, policies,
<PAGE> 2
practices, programs, arrangements, or agreements, adopted, maintained, or
sponsored in whole or in part by, or contributed to by the Company or any of
its Subsidiaries for the benefit of the directors, officers, employees, agents,
or retirees of the Company or any of its Subsidiaries, or any of their
respective spouses or dependents, or any other beneficiaries.
(d) "Buyer" means the Person or Persons who purchase or
otherwise acquire the Company's stock or assets in a Sale of the Company.
(e) "Cause" means: (i) the conviction of the Executive
of any felony; (ii) any act of fraud, embezzlement, or willful dishonesty by
the Executive in relation to the business or affairs of the Company; (iii) any
other illegal conduct on the part of the Executive that is detrimental to the
best interests of the Company; (iv) the deliberate and gross misconduct by the
Executive in the performance of, or the deliberate and gross neglect by the
Executive of, his duties and responsibilities as an officer or employee of the
Company; or (v) a material breach by the Executive of his obligations under
this Agreement or under any other agreement between the Executive and the
Company relating to his Employment, including, but not limited to, any
employment, confidentiality, or noncompetition agreement; provided, however,
that no action or failure to act by the Executive will constitute "Cause"
hereunder if (A) the Executive believed in good faith that such action or
failure to act was in the best interest of the Company or its shareholders, or
(B) such action or failure to act occurred at any time after the occurrence of
any event that constitutes Good Reason.
(f) A "Change in Control" means any of the following:
(i) the acquisition, directly or indirectly, by
any Person or group of Persons acting in concert within any
twelve-month period of securities of the Company representing an
aggregate of 25 percent or more of the combined voting power of the
Company's then outstanding securities, provided that, upon the
consummation of such acquisition, such Person or group of Persons
holds a greater percentage of the combined voting power of the
Company's then outstanding securities than any other Person; or
(ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority thereof before
the end of such period, unless the election of each director who was
not a director at the beginning of such period was approved in advance
by directors representing at least two-thirds of the directors then in
office who were directors at the beginning of such period; or
(iii) consummation of (A) a merger, consolidation,
or other business combination of the Company with any other Person,
other than a merger, consolidation, or business combination which
would result in the common stock of the Company outstanding
immediately prior thereto continuing to represent, or being converted
into common stock
- 2 -
<PAGE> 3
of the surviving entity or a parent or Affiliate thereof representing,
at least 60 percent of the common stock of the Company or such
surviving entity or parent or Affiliate thereof outstanding
immediately after such merger, consolidation, or business combination,
or (B) a plan of complete liquidation of the Company, or (C) an
agreement for the sale or disposition by the Company of a majority (in
value) of the Company's assets; or
(iv) the occurrence of any other event or
circumstance which is not covered by (i) through (iii) above which the
Board determines affects control of the Company and, in order to
implement the purposes of this Agreement as set forth above, adopts a
resolution that such event or circumstance constitutes a Change in
Control for the purposes of this Agreement.
provided, however, that for purposes of determining whether a Change in Control
has occurred on any given date, a partner in Water Street Corporate Recovery
Fund I, Ltd. will be deemed to own that number of voting shares of the Company
determined by multiplying such partner's percentage partnership interest in
such partnership as of such date by the number of voting shares of the Company
owned by such partnership as of such date.
(g) The "Closing Date" means the date on which a Sale of
the Company is consummated or, if a Sale consists of a series of transactions
or events, the date on which the transaction or event that causes such series
of transactions or events to constitute a Sale is consummated or occurs,
provided, however, that, for the purposes of this Agreement, the date on which
an initial installment of the Purchase Price in connection with a Sale or a
series of transactions that constitutes a Sale is paid shall be deemed to be
the Closing Date.
(h) The "Commissions" means the commissions payable to
the Executives pursuant to Sections 4 and 5 hereof.
(i) "Employment" of the Executive means the regular
salaried employment of the Executive with the Company and does not include the
engagement of the Executive as an independent consultant or other independent
contractor.
(j) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
(k) "Good Reason" means the occurrence of any of the
following events at any time prior to the Closing Date: (i) a material
reduction in the Executive's Base Salary; (ii) the elimination of or a material
reduction in any Benefits provided to the Executive, unless a substitute
Benefit that is economically equivalent to the eliminated or reduced Benefit is
provided to the Executive; (ii) a material change in the Executive's position
(including status, office, title, reporting relationships, or working
conditions), responsibilities, authority, or duties; (iii) the relocation of
the Executive's office location as assigned to the Executive by the Company to
a location more than 50
- 3 -
<PAGE> 4
miles from the Executive's office location as of the date of this Agreement; or
(iv) the failure of any Successor to assume, either by an enforceable agreement
or by operation of law, all of the Company's liabilities and obligations to the
Executive under this Agreement.
(l) The "Per Share Purchase Price" means the Purchase
Price divided by the number of shares of the capital stock of the Company
outstanding on the Closing Date, on a fully diluted basis, taking into account
all shares subject to stock options outstanding as of such date.
(m) The "Per Share Value" means the average of the
closing sale prices for a share of the capital stock of the Company as reported
on the Nasdaq National Market for the 25 trading days ending on the day that is
two trading days prior to a particular Termination Date.
(n) "Person" means any individual, corporation,
partnership, limited liability company, joint venture, association, joint-stock
company, group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended), trust, unincorporated
organization or government or any agency or political subdivision thereof.
(o) The "Pro Rata Share (Sale)" of an Executive means the
ratio that such Executive's Base Salary as of (i) the Closing Date, if the
Closing Date falls on December 31 of any year, or (ii) December 31 of the year
prior to the year in which the Closing Date occurs, if the Closing Date falls
on any day other than December 31, bears to the total amount of the Base
Salaries of all of the Executives who are employed by the Company or a
Successor as of such applicable date.
(p) The "Pro Rata Share (Termination)" of an Executive
means the ratio that such Executive's Base Salary as of (i) the Termination
Date, if the Termination Date falls on December 31 of any year, or (ii)
December 31 of the year prior to the year in which the Termination Date occurs,
if the Termination Date falls on any day other than December 31, bears to the
total amount of the Base Salaries of all of the Executives as of such date.
(q) The "Purchase Price" for the Company means the total
purchase price or other consideration payable by the Buyer to the Company under
the terms of a Sale of the Company, whether payable in cash or any other
property, subject to any adjustments that may be made to the amount of such
total purchase price or other consideration, either before or after the Closing
Date, under the terms of the Sale (but no such adjustment shall be made for any
fees, expenses, or commissions payable by the Company or any other party in
connection with the consummation of the Sale); provided, however, that, for
purposes of this definition:
(i) if any part or all of the Purchase Price is
payable in property other than cash, the amount of the Purchase Price
shall be equal to the sum of the amount of cash payable in the Sale
plus the fair market value of the non-cash property to be conveyed,
transferred, or assigned to the Company, an Affiliate or Affiliates of
the Company, or the shareholders of the Company in the Sale;
- 4 -
<PAGE> 5
(ii) if any part or all of the Purchase Price is
payable in the form of securities, the value of such securities will
be determined by the average of the last sales prices for such
securities on the five trading days ending five days prior to the
consummation of the Sale, and if such securities do not have an
existing public trading market, the value of the securities shall be
the mutually agreed upon fair market value thereof on the day prior to
the consummation of the Sale;
(iii) in the case of a sale, transfer, or
disposition by the Company of less than all of the assets of the
Company, the Purchase Price shall include the fair market value of any
current assets of the Company not sold by the Company and the
principal amount of all indebtedness for borrowed money assumed by the
buyer or buyers in the Sale;
(iv) in the case of the sale, exchange, or
purchase of fewer than all of the outstanding shares of the capital
stock of the Company, the Purchase Price shall be the total
consideration that would have been paid if all such stock had been
purchased, on a fully diluted basis, taking into account all shares
subject to outstanding stock options, on the same terms, plus the
principal amount of all indebtedness for borrowed money as set forth
on the most recent consolidated balance sheet of the Company prior to
the consummation of the Sale;
(v) the Purchase Price shall include any amounts
paid into escrow and the amount of any and all deferred or contingent
payments that are or may become payable by the Buyer under the terms
of the Sale upon the expiration of time, under certain circumstances,
or on the occurrence or nonoccurrence of certain events, without any
reduction or discount whatsoever; and
(vi) the Purchase Price shall include, if
applicable, the aggregate amount of any and all dividends or other
distributions declared by the Company with respect to its stock after
the date hereof and prior to the Closing Date.
(r) A "Sale" of the Company means a transaction or event,
or a series of transactions or events, that results in (i) a sale, transfer, or
other disposition of a majority of the outstanding shares of the capital stock
of the Company to any Person or group of Persons, (ii) a sale, transfer, or
other disposition of a majority (in value) of the assets of the Company to such
a Person or group of Persons, or (iii) a merger, consolidation, or other
business combination of the Company with any such Person, other than a merger,
consolidation, or business combination which would result in the common stock
of the Company outstanding immediately prior to the consummation of such
merger, consolidation, or business combination continuing to represent (either
by remaining outstanding or by being converted into common stock of the
surviving entity or a parent or Affiliate thereof representing) at least 60
percent of the common stock of the Company or such surviving
- 5 -
<PAGE> 6
entity or parent or Affiliate thereof outstanding immediately after the
consummation thereof. For purposes of determining whether a Sale has occurred
on any given date, a partner in Water Street Corporate Recovery Fund I, Ltd.
will be deemed to own that number of voting shares of the Company determined by
multiplying such partner's percentage partnership interest in such partnership
as of such date by the number of voting shares of the Company owned by such
partnership as of such date.
(s) A "Subsidiary" of a Person means (i) a corporation,
50 percent or more of the equity ownership and outstanding voting stock of
which is at the time owned, directly or indirectly, by such Person or by one or
more other Subsidiaries of such Person or by such Person and one or more other
Subsidiaries of such Person, or (ii) if such Person is not a corporation, an
unincorporated operating division of such Person.
(t) A "Successor" means any successor in interest to the
Company by virtue of a Change in Control, a Sale, or any other merger,
consolidation, or other business combination involving the Company.
(u) The "Termination Date" means the date of a termination
of an Executive's Employment.
2. TERM. The term of this Agreement shall be two years,
commencing on the date hereof.
3. DUTIES OF THE EXECUTIVES. During the term of this Agreement
and as long as any of the Executives remains employed by the Company, each such
Executive so employed shall (i) use his best efforts to assist the Company to
negotiate and consummate the Sale of the Company on terms satisfactory to the
Company, (ii) use his best efforts to maintain and enhance the value, business,
prospects, and business relationships of the Company, and (iii) perform any and
all specific duties consistent with his position with the Company as may be
reasonably assigned to the Executive by the Board or the President of the
Company in relation to the Sale of the Company or in relation to the ongoing
business and operation of the Company.
4. COMMISSIONS UPON A TERMINATION OF EMPLOYMENT.
(a) If an Executive's Employment is terminated prior to
the Closing Date either (i) by the Company for Cause, or (ii) by the Executive
without Good Reason at any time before the occurrence of a Change in Control,
then no Commissions shall be payable to such Executive under any provisions of
this Agreement.
(b) If (i) an Executive's Employment is terminated at any
time during the term of this Agreement and prior to the Closing Date either (A)
by the Company other than for Cause or by reason of the Executive's death or
Disability, (B) by the Executive with Good Reason, or (C) by the Executive,
whether with or without Good Reason, at any time after the occurrence of a
Change in Control, and (ii) such Executive has performed the obligations to be
performed by him under Section 3 hereof through the Termination Date, then
(iii) if the Per Share Value determined as of the
- 6 -
<PAGE> 7
Termination Date is less than $36.00, no Commission shall be payable to such
Executive hereunder, except to the extent that a Commission may become payable
under subsection 4(d) below on a Sale of the Company, and (iv) if the Per Share
Value determined as of the Termination Date is greater than $36.00, the Company
shall pay to such Executive a Commission in an amount equal to the sum of the
following amounts, subject to adjustment in accordance with subsection 4(d)
below:
(A) one percent of the amount determined by
multiplying the amount by which the Per Share Value exceeds $36.00,
times the total number of shares of the capital stock of the Company
outstanding on the Termination Date, on a fully diluted basis, taking
into account all shares subject to stock options outstanding as of
such date, times such Executive's Pro Rata Share (Termination); plus
(B) an additional one percent of the amount
determined by multiplying the amount, if any, by which the Per Share
Value exceeds $40.00, times the total number of shares of the capital
stock of the Company outstanding on the Termination Date, on a fully
diluted basis, taking into account all shares subject to stock options
outstanding as of such date, times such Executive's Pro Rata Share
(Termination).
(c) Any Commission payable under subsection 4(b) above
shall be payable in full, in cash, on the Termination Date.
(d) If an Executive's Employment is terminated prior to
the Closing Date under the circumstances and subject to the conditions
described in subsection 4(b) above, and regardless of whether such Executive is
entitled to a Commission under said subsection 4(b), and if the Closing Date
occurs within one year after the Termination Date, then such Executive shall be
entitled to receive a portion of the amount, if any, by which the Commission
which he would otherwise have been entitled to receive under Section 5 below
(had such Executive been employed by the Company on the Closing Date) exceeds
the Commission which he was entitled to receive under subsection 4(b) above,
such portion to be 100 percent if the Closing Date occurs on or before the date
that is three months after the Termination Date and reduced by ten percent per
month thereafter.
(e) Any Commission payable under subsection 4(d) above
shall be payable in full, in cash, within ten days after the Closing Date.
5. COMMISSIONS UPON A SALE OF THE COMPANY.
(a) Upon a Sale of the Company, if the Per Share Purchase
Price is less than or equal to $36.00, no Commissions shall be payable to any
of the Executives under the provisions of this Section 5. Upon a Sale of the
Company during the term of this Agreement, if the Per Share Purchase Price is
greater than $36.00, then the Company shall pay to each of the Executives who
are employed by the Company or a Successor as of the Closing Date a Commission
in an amount equal to the sum of the following amounts:
- 7 -
<PAGE> 8
(i) one percent of the amount determined by
multiplying the amount by which the Per Share Purchase Price exceeds
$36.00, times the total number of shares of the capital stock of the
Company outstanding on the Closing Date, on a fully diluted basis,
taking into account all shares subject to stock options outstanding as
of such date, times such Executive's Pro Rata Share (Sale); plus
(ii) an additional one percent of the amount
determined by multiplying the amount, if any, by which the Per Share
Purchase Price exceeds $40.00, times the total number of shares of the
capital stock of the Company outstanding on the Closing Date, on a
fully diluted basis, taking into account all shares subject to stock
options outstanding as of such date, times such Executive's Pro Rata
Share (Sale);
provided, however, that the aggregate amount of the Commissions payable under
this Section 5 shall be reduced by the lesser of (A) the amount, if any, of the
Commissions paid to any of the Executives under Section 4 above prior to the
Closing Date, including Commissions payable under Section 4(d) above, or (B)
the amount of Commissions that would have been payable under the operation of
this Section 5 to any Executives who have received Commissions under Section 4
above.
(b) The Commissions payable under this Section 5 shall be
due and payable in full, in cash, within ten days after the Closing Date, and
shall be determined based on the total amount of the Purchase Price, including
any and all amounts that may be paid into escrow, and the total, gross amount
of any and all deferred or contingent payments, without any discount or other
reduction whatsoever.
6. ANTIDILUTION. In the event of any change in the number of
outstanding shares of capital stock of the Company at any time after the date
of this Agreement by reason of a stock dividend, stock split, recapitalization,
combination, share exchange, or similar transaction, the amounts of $36.00 and
$40.00 set forth in Sections 4 and 5 hereof shall be adjusted appropriately to
take into account the effects of such change.
7. TAX WITHHOLDING. The Company may withhold or cause to be
withheld from any benefits payable under this Agreement all federal, state,
city, or other taxes that are required to be withheld pursuant to any law or
governmental regulation or other taxes that are required to be withheld
pursuant to any law or governmental regulation or ruling.
8. ASSIGNABILITY; BINDING EFFECT.
(a) This Agreement is personal to each of the Executives
and, without the prior written consent of the Company, shall not be assignable
by any Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be binding on
and enforceable by each Executive's legal representatives and permitted
successors and assigns.
- 8 -
<PAGE> 9
(b) The rights of the Company under this Agreement may be
assigned or transferred by the Company, provided that the assignee or
transferee assumes all the liabilities, obligations and duties of the assignor,
as contained in this Agreement, either contractually or as a matter of law.
This Agreement shall inure to the benefit of and be binding on and enforceable
by the successors and assigns of the Company.
9. NOTICES. Any and all notices and other communications
hereunder shall be in writing and shall be given, if by the Executives, or any
of them, by facsimile transmission to the facsimile number for the Company set
forth below and if by any party, by personal delivery or by certified mail,
return receipt requested, postage prepaid, addressed as follows:
(a) If to the Company, to:
Insilco Corporation
425 Metro Place North
Fifth Floor
Dublin, Ohio 43017
Facsimile Number: (614) 791-3195
(b) If to the Executives, or to any of them, to the
addresses set forth on Schedule A attached hereto and incorporated by reference
herein.
10. AMENDMENTS. This Agreement may not be modified or amended
except by an instrument in writing signed by each of the parties hereto.
11. SEVERABILITY. If any provision of this Agreement shall be
held invalid in whole or in part, such invalidity shall in no way affect the
rest of such provision not held so invalid, and the rest of such provision,
together with all provisions of this Agreement, shall to the full extent
consistent with law continue in full force and effect.
12. GOVERNING LAW. This Agreement has been executed and
delivered in the State of Ohio and its validity, interpretation, performance
and enforcement shall be governed by the laws of said state without regard to
principles of conflicts of laws.
13. ENTIRE AGREEMENT. This Agreement represents the final
agreement between the parties relative to the subject matter hereof and may not
be contradicted by evidence of prior, contemporaneous, or subsequent oral
agreements of the parties. There are no unwritten agreements between the
parties relative to the subject matter of this Agreement.
- 9 -
<PAGE> 10
THIS SPACE INTENTIONALLY LEFT BLANK
- 10 -
<PAGE> 11
14. TITLE; REFERENCES. The titles of the Sections and
subsections of this Agreement are for reference only and are not to be
considered in construing this Agreement. References herein to Sections or
subsections are to Sections or subsections of this Agreement unless otherwise
specified.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
INSILCO CORPORATION
By: ______________________________
Robert L. Smialek, President
_______________________________
David M. Aronowitz
_______________________________
Robert F. Heffron
_______________________________
Les G. Jacobs
_______________________________
David A. Kauer
_______________________________
Kenneth H. Koch
_______________________________
Philip K. Woodlief
- 11 -
<PAGE> 1
Exhibit 10(h)
INCOME PROTECTION AGREEMENT
THIS INCOME PROTECTION AGREEMENT (this "Agreement") is made as of the
_____ day of December, 1996, by and between INSILCO CORPORATION, a Delaware
corporation (together with any and all "Successors" (as defined herein) of
Insilco Corporation, collectively, the "Company"), and (the "Executive").
WHEREAS, the Executive is currently employed by the Company; and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it would be in the best interests of the Company and its
shareholders to entertain and consider a proposal or proposals regarding a
possible sale of all or a majority of the stock or assets of the Company; and
WHEREAS, the Board has determined that it would be in the best
interests of the Company to maintain continuity in the management of the
Company's business in contemplation of such a sale; and
WHEREAS, the Board desires to provide the Executive with an incentive
to remain in the employ of the Company pending such a possible sale of the
Company;
NOW, THEREFORE,for and in consideration of the premises and the mutual
covenants contained herein, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) An "Affiliate" of any specified Person means any
Subsidiary of such Person and any other Person controlled by, controlling, or
under common control with such specified Person. For purposes of this
definition, "control," when used with respect to any specified Person, means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract, or
otherwise.
(b) The "Annual Target Bonus" of the Executive means the
annual target bonus established for the Executive for a particular year under
the Management Incentive Bonus Plan maintained by the Company.
(c) The "Base Salary" of the Executive means the
Executive's annual base salary payable in accordance with the regular payroll
practices of the Company.
(d) "Benefits" means any pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus or other incentive plan, all medical, vision,
dental, or other health plans, all life insurance plans, and all other
<PAGE> 2
employee benefit plans or fringe benefit plans, including "employee benefit
plans," as that term is defined in Section 3(3) of ERISA, and any and all other
written or unwritten employee plans, policies, practices, programs,
arrangements, or agreements, adopted, maintained, or sponsored in whole or in
part by, or contributed to by the Company or any of its Subsidiaries for the
benefit of the directors, officers, employees, agents, or retirees of the
Company or any of its Subsidiaries, or any of their respective spouses or
dependents, or any other beneficiaries.
(e) "Cause" means: (i) the conviction of the Executive
of any felony; (ii) any act of fraud, embezzlement, or willful dishonesty by
the Executive in relation to the business or affairs of the Company; (iii) any
other illegal conduct on the part of the Executive that is detrimental to the
best interests of the Company; (iv) the deliberate and gross misconduct by the
Executive in the performance of, or the deliberate and gross neglect by the
Executive of, his duties and responsibilities as an officer or employee of the
Company; or (v) a material breach by the Executive of his obligations under
this Agreement or under any other agreement between the Executive and the
Company relating to his Employment, including, but not limited to, any
employment, confidentiality, or noncompetition agreement; provided, however,
that no action or failure to act by the Executive will constitute "Cause"
hereunder if (A) the Executive believed in good faith that such action or
failure to act was in the best interest of the Company or its shareholders, or
(B) such action or failure to act occurred at any time after the occurrence of
any event that constitutes Good Reason.
(f) A "Change in Control" means any of the following:
(i) the acquisition, directly or indirectly, by
any Person or group of Persons acting in concert within any
twelve-month period of securities of the Company representing an
aggregate of 25 percent or more of the combined voting power of the
Company's then outstanding securities, provided that, upon the
consummation of such acquisition, such Person or group of Persons
holds a greater percentage of the combined voting power of the
Company's then outstanding securities than any other Person; or
(ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority thereof before
the end of such period, unless the election of each director who was
not a director at the beginning of such period was approved in advance
by directors representing at least two-thirds of the directors then in
office who were directors at the beginning of such period; or
(iii) consummation of (A) a merger, consolidation,
or other business combination of the Company with any other Person,
other than a merger, consolidation, or business combination which
would result in the common stock of the Company outstanding
immediately prior thereto continuing to represent, or being converted
into common stock of
-2-
<PAGE> 3
the surviving entity or a parent or Affiliate thereof representing, at
least 60 percent of the common stock of the Company or such surviving
entity or parent or Affiliate thereof outstanding immediately after
such merger, consolidation, or business combination, or (B) a plan of
complete liquidation of the Company, or (C) an agreement for the sale
or disposition by the Company of a majority (in value) of the
Company's assets; or
(iv) the occurrence of any other event or
circumstance which is not covered by (i) through (iii) above which the
Board determines affects control of the Company and, in order to
implement the purposes of this Agreement as set forth above, adopts a
resolution that such event or circumstance constitutes a Change in
Control for the purposes of this Agreement;
provided, however, that for purposes of determining whether a Change in Control
has occurred on any given date, a partner in Water Street Corporate Recovery
Fund I, Ltd. will be deemed to own that number of voting shares of the Company
determined by multiplying such partner's percentage partnership interest in
such partnership as of such date by the number of voting shares of the Company
owned by such partnership as of such date.
(g) "COBRA" means the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(h) The "Code" means the Internal Revenue Code of 1986,
as amended.
(i) "Disability" means the Executive's probable and
expected inability, as a result of physical or mental incapacity, to
substantially perform his duties for the Company on a full-time basis for a
period of six months. The determination of whether the Executive suffers a
Disability shall be made by a physician acceptable to both the Executive (or
his personal representative) and the Company.
(j) The "Employment" of the Executive means the regular
salaried employment of the Executive with the Company, but does not include the
engagement of the Executive as an independent consultant or other independent
contractor.
(k) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
(l) An "Excess Severance Payment" means an "excess
parachute payment" as defined in Section 280g(b)(1) of the Code.
(m) "Good Reason" means the occurrence of any of the
following events at any time prior to the Termination Date: (i) a material
reduction in the Executive's Base Salary; (ii) the elimination of, or a
material reduction in, any Benefits provided to the Executive, unless a
substitute
-3-
<PAGE> 4
Benefit that is economically equivalent to the eliminated or reduced Benefit is
provided to the Executive; (ii) a material change in the Executive's position
(including status, office, title, reporting relationships, or working
conditions), responsibilities, authority, or duties; (iii) the relocation of
the Executive's office location as assigned to the Executive by the Company to
a location more than 50 miles from the Executive's office location as of the
date of this Agreement; or (iv) the failure of any Successor to assume, either
by an enforceable agreement or by operation of law, all of the Company's
liabilities and obligations to the Executive under this Agreement.
(n) A "Person" means any individual, corporation,
partnership, limited liability company, joint venture, association, joint-stock
company, group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended), trust, unincorporated
organization, or government or any agency or political subdivision thereof.
(o) "Reasonable Compensation" shall have the same meaning
as provided in Section 280g(b)(4) of the Code.
(p) A "Severance Payment" means a "parachute payment" as
that term is defined in Section 280g(b)(2) of the Code.
(q) The "Severance Period" means the period commencing on
the Termination Date and ending on the last day of the month in which the first
anniversary of the Termination Date occurs.
(r) A "Subsidiary" of a Person means (i) a corporation,
50 percent or more of the equity ownership and outstanding voting stock of
which is owned, directly or indirectly, by such Person or by one or more other
Subsidiaries of such Person or by such Person and one or more other
Subsidiaries of such Person, or (ii) if such Person is not a corporation, an
unincorporated operating division of such Person.
(s) A "Successor" means any successor in interest to the
Company by virtue of a Change in Control, a Sale, or any other merger,
consolidation, or other business combination involving the Company.
(t) The "Termination Date" means the date of a termination
of the Executive's Employment.
2. TERM. The term of this Agreement shall be for an initial
three-year period commencing on the date hereof, and shall be automatically
renewed at the end of the first year of such initial three-year period and
annually thereafter, in each such instance for an additional one-year period
following the expiration of such initial three-year period or prior extensions
thereof, as applicable, unless either party shall give the other party written
notice of its desire not to renew this Agreement for an additional one-year
period at any time prior to the end of such first year or applicable subsequent
year.
-4-
<PAGE> 5
3. BENEFITS TO BE PROVIDED ON A TERMINATION OF EMPLOYMENT. If,
at any time during the term of this Agreement, (i) the Executive's Employment
is terminated by the Company other than for Cause or by reason of the
Executive's death or Disability, (ii) the Executive's Employment is terminated
by the Executive with Good Reason, or (iii) the Executive's Employment is
terminated by the Executive, whether with or without Good Reason, if such
termination occurs at any time within the period commencing on the date that is
six months after the occurrence of a Change in Control and ending on the date
that is one year after the occurrence of such Change in Control, then, and in
any such event, the Company shall pay or provide to the Executive the following
compensation and other benefits, which shall be in addition to any accrued
vacation pay and any and all compensation otherwise payable to the Executive,
including, but not limited to, a prorated portion of any and all bonuses
payable for or attributable to any period (or part of a period) prior to the
Termination Date:
(a) Salary. The Company shall pay to the Executive an
amount equal to the amount of the Executive's Base Salary in effect immediately
prior to the Termination Date, which shall be payable, at the Executive's
option, (i) in a lump sum on the Termination Date, or (ii) in twelve equal
monthly installments, on the first day of each month, commencing with the month
immediately following the Termination Date.
(b) Bonuses. The Company shall pay to the Executive an
amount equal to the Annual Target Bonus for the Executive for the year in which
the Termination Date occurs (or for the prior year if such Annual Target Bonus
for the Executive has not been established for such year), but in any event not
less than the amount of the Executive's Annual Target Bonus for 1996, which
shall be payable, at the Executive's option, (i) in a lump sum on the
Termination Date, or (ii) in six equal monthly installments, on the first day
of each month, commencing with the thirteenth month immediately following the
Termination Date. The payment of such bonus amount shall be considered to be
"performance based" for purposes of Section 280g of the Code.
(c) Benefit Plans. All Benefits provided to the
Executive prior to the Termination Date shall be continued by the Company for
and during the Severance Period. Without in any way limiting the generality of
the foregoing, the following specific provisions shall apply:
(i) Health and Life Insurance Coverage. The
health and life insurance benefits coverage provided to the Executive
immediately prior to the Termination Date shall be continued during
the Severance Period at the same levels and in the same manner as if
the Executive's Employment had not terminated until the end of the
Severance Period. Any additional coverages that the Executive had in
effect immediately prior to the Termination Date, including dependent
coverage, will also be continued for such period at the same levels
and on the same terms as provided to the Executive immediately prior
to the Termination Date, to the extent permitted by the applicable
policies or contracts. If the Executive was required to pay any
portions of premiums or other costs for any such coverages prior to
the Termination Date, the Executive shall be required to continue to
pay such amounts, at the same
-5-
<PAGE> 6
levels, in order to continue such coverages after the Termination
Date. If the terms of any benefit plan referred to in this Section do
not permit continued participation by the Executive, then the Company
will arrange for other coverage at its expense providing substantially
similar benefits as it can find for other officers in similar
positions. Benefits under COBRA shall be made available to the
Executive following the end of the Severance Period as though the
Executive had terminated his Employment on the last day of the
Severance Period.
(ii) Employee Retirement Plans. To the extent
permitted by the applicable plan, the Executive will be fully vested
and will be entitled to continue to participate, consistent with past
practices, in all employee retirement plans maintained by the Company
in effect as of the date of the termination of his Employment. The
Executive's participation in such retirement plans shall continue for
and during the Severance Period (at the end of which period the
Executive will be considered to have terminated his employment within
the meaning of such plans) and the compensation payable to the
Executive under subsections (a) and (b) above shall be treated (unless
otherwise excluded) as compensation under the plan. If full vesting
and continued participation in any plan is not permitted, the Company
shall pay to the Executive and, if applicable, his beneficiary, a
supplemental benefit equal to the excess of (A) the benefit the
Executive would have been paid under such plan if he had been fully
vested and had continued to be covered for the Severance Period as if
the Executive had earned compensation described under subsections (a)
and (b) above and had made contributions sufficient to earn the
maximum matching contribution, if any, under such plan (less any
amounts he would have been required to contribute), over (B) the
benefit actually payable to or on behalf of the Executive under such
plan. For purposes of determining the benefit under item (A) in the
preceding sentence, contributions deemed to be made under a defined
contribution plan will be deemed to be invested in the same manner as
the Executive's account under such plan at the Termination Date. The
Company shall pay such supplemental benefits (if any) in a lump sum
within 30 days after the Termination Date or as soon thereafter as any
required calculations or other determinations can be made.
(d) Effect of Lump Sum Payment. Any lump sum payment
made under subsection (a) or (b) above shall not alter the amounts the
Executive is entitled to receive under the Benefits described in subsection (c)
above. Benefits under such plans shall be determined as if the Executive had
remained employed and received such payments for and during the Severance
Period, unless the terms of the particular plans or applicable law specifically
prohibit such treatment of such payments.
-6-
<PAGE> 7
(e) Stock Options. Any and all stock options or stock
appreciation rights granted to the Executive prior to the Termination Date
shall become immediately and fully vested on the Termination Date.
(f) Indemnity. The Executive shall be entitled to the
benefits of the indemnity currently applicable to the Executive, if any, as
provided by the Company's articles of incorporation or bylaws or otherwise.
Any changes to the articles of incorporation or bylaws reducing the indemnity
granted to officers shall not affect the rights granted hereunder. The Company
may not reduce these indemnity benefits provided to the Executive hereunder
without the written consent of the Executive.
(g) Outplacement Services. The Company shall provide
to the Executive outplacement assistance consistent with past practices, with a
value of not less than $10,000, provided, however, that the Company shall not
be required to pay to the Executive any amount of cash in lieu of actual
outplacement services if such services are not provided for any reason.
(h) Effect of Death or Disability. The benefits
payable or to be provided under this Agreement shall continue in the event of
the Executive's death and shall be payable to his estate or named beneficiary.
In the case of the Disability of the Executive, any payments received from a
disability benefit will not be reduced by any payments paid or payable under
the terms of this Agreement.
(i) Limitation on Amount. Notwithstanding anything in
this Agreement to the contrary, any benefits payable or to be provided to the
Executive by the Company or its Affiliates, whether pursuant to this Agreement
or otherwise, which are treated as Severance Payments shall be modified or
reduced in the manner provided in subsection (j) below to the extent necessary
so that the benefits payable or to be provided to the Executive under this
Agreement that are treated as Severance Payments, as well as any payments or
benefits provided outside of this Agreement that are so treated, shall not
cause the Company to have paid an Excess Severance Payment. In computing such
amount, the parties shall take into account all provisions of Section 280g of
the Code, including making appropriate adjustments to such calculation for
amounts established to be Reasonable Compensation.
(j) Modification of Amount. In the event that the
amount of any Severance Payments that would be payable to or for the benefit of
the Executive under this Agreement must be modified or reduced to comply with
this Section 3, the Executive shall direct which Severance Payments are to be
modified or reduced.
(k) Avoidance of Penalty Taxes. This Section 3 shall
be interpreted so as to avoid the imposition of excise taxes on the Executive
under Section 4999 of the Code or the disallowance of a deduction to the
Company pursuant to Section 280g(a) of the Code with respect to amounts payable
under this Agreement or otherwise.
(l) Additional Limitation. In addition to the limits
otherwise provided in this Section 3, to the extent permitted by law, the
Executive may in his sole discretion elect to reduce any
-7-
<PAGE> 8
payments he may be eligible to receive under this Agreement to prevent the
imposition of excise taxes on the Executive under Section 4999 of the Code.
(m) No Obligation to Fund. The agreement of the
Company to make payments to the Executive hereunder shall represent solely the
unsecured obligation of the Company, except to the extent the Company, in its
sole discretion, elects in whole or in part to fund its obligations under this
Agreement pursuant to a trust arrangement or otherwise.
4. TAX WITHHOLDING. The Company may withhold or cause to be
withheld from any benefits payable under this Agreement all federal, state,
city, or other taxes that are required to be withheld pursuant to any law or
governmental regulation.
5. ASSIGNABILITY; BINDING EFFECT.
(a) This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be binding on and enforceable
by the Executive's legal representatives and permitted successors and assigns.
(b) The rights of the Company under this Agreement may be
assigned or transferred by the Company, provided that the assignee or
transferee assumes all the liabilities, obligations, and duties of the
assignor, as contained in this Agreement, either contractually or as a matter
of law. This Agreement shall inure to the benefit of and be binding on and
enforceable by any Successors.
6. NOTICES. Any and all notices and other communications
hereunder shall be in writing and shall be given, if by the Executive, by
facsimile transmission to the facsimile number for the Company set forth below
and if by either party, by personal delivery or by certified mail, return
receipt requested, postage prepaid, addressed as follows:
(a) If to the Company, to:
Insilco Corporation
425 Metro Place North
Fifth Floor
Dublin, Ohio 43017
Facsimile Number: (614) 791-3195
(b) If to the Executive, to:
James D. Miller
7109 Saw Mill Village Dr.
Columbus, Ohio 43235
-8-
<PAGE> 9
Either party may change its address or facsimile number for delivery of such
notice from time to time by giving written notice thereof to the other party in
accordance with the terms of this Section.
7. AMENDMENTS. This Agreement may not be modified or amended
except by an instrument in writing signed by the parties hereto.
8. SEVERABILITY. If any provision of this Agreement shall be
held invalid in whole or in part, such invalidity shall in no way affect the
rest of such provision not held so invalid, and the rest of such provision,
together with all provisions of this Agreement, shall to the full extent
consistent with law continue in full force and effect.
9. WAIVER. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment of
any right granted in this Agreement or of the future performance of any such
term or condition or of any other term or condition of this Agreement, unless
such waiver is contained in a writing signed by the party making the waiver.
10. APPLICABLE LAW. This Agreement has been executed and
delivered in the State of Ohio and its validity, interpretation, performance,
and enforcement shall be governed by the laws of Ohio, without regard to
principles of conflicts of laws.
11. ENTIRE AGREEMENT. This Agreement represents the final
agreement between the parties relative to the subject matter hereof and may not
be contradicted by evidence of prior, contemporaneous or subsequent oral
agreements of the parties. There are no unwritten agreements between the
parties relative to the subject matter of this Agreement.
12. TITLE; REFERENCES. The titles of the Sections and
subsections of this Agreement are for reference only and are not to be
considered in construing this Agreement. References herein to Sections or
subsections are to Sections or subsections of this Agreement unless otherwise
specified.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
INSILCO CORPORATION
By: ______________________________
Robert L. Smialek, President
__________________________________
James D. Miller
-9-
<PAGE> 1
Exhibit 23(a)
Consent of Independent Auditors
-------------------------------
The Board of Directors and Stockholders
Insilco Corporation:
We consent to the incorporation by reference in the registration statements of
the Insilco Corporation Employee Thrift Plan, the 1993 Nonemployee Director
Stock Incentive Plan and the 1993 Long-term Incentive Plan on Form S-8 of
Insilco Corporation of our report dated January 31, 1997, except as to the
second paragraph in Note 3 to the consolidated financial statements, which is as
of March 5, 1997, relating to the consolidated balance sheets of Insilco
Corporation and subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders, equity (deficit) and cash
flows for each of the years in the three-year period ended December 31, 1996,
and the related schedule, which report appears in the December 31, 1996, annual
report on Form 10-K of Insilco Corporation.
KPMG Peat Marwick LLP
Columbus, Ohio
March 28, 1997
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
Each director and officer of Insilco Corporation (the "Corporation")
whose signature appears below hereby appoints Robert L. Smialek, James D.
Miller, or Philip K. Woodlief, or any of them, as his attorney-in-fact to sign,
in his name and behalf and in any and all capacities stated below, and to cause
to be filed with the Securities and Exchange Commission, the Corporation's
Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended
December 31, 1996, and likewise to sign and file any amendments, including
post-effective amendments, to the Annual Report, and the Corporation hereby also
appoints such persons as its attorneys-in-fact and each of them as its
attorney-in-fact with like authority to sign and file the Annual Report and any
amendments thereto in its name and behalf, each such person and the Corporation
hereby granting to such attorney-in-fact full power of substitution and
revocation, and hereby ratifying all that such attorney-in-fact or his
substitute may do by virtue hereof.
IN WITNESS WHEREOF, we have hereunto set our hands this ____ day of
March, 1997.
DIRECTORS/OFFICERS:
<TABLE>
<S> <C>
/s/ Robert L. Smialek, /s/ James D. Miller
- --------------------------------------- -------------------------------
Robert L. Smialek, President, James D. Miller, Executive Vice President
Chief Executive Officer and and Chief Financial Officer
Chairman of the Board
/s/ Philip K. Woodlief /s/ Terence M. O'Toole
- --------------------------------------- -------------------------------
Philip K. Woodlief, Controller Terence M. O'Toole, Director
/s/ Thomas E. Petry /s/ James J. Gaffney
- --------------------------------------- -------------------------------
Thomas E. Petry, Director James J. Gaffney, Director
/s/ Barry S. Volpert
- ---------------------------------------
Barry S. Volpert, Director
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,481
<SECURITIES> 0
<RECEIVABLES> 73,874
<ALLOWANCES> (4,978)
<INVENTORY> 66,385
<CURRENT-ASSETS> 189,108
<PP&E> 164,293
<DEPRECIATION> (49,914)
<TOTAL-ASSETS> 352,000
<CURRENT-LIABILITIES> 141,152
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 33,392
<TOTAL-LIABILITY-AND-EQUITY> 352,000
<SALES> 572,474
<TOTAL-REVENUES> 572,474
<CGS> 389,893
<TOTAL-COSTS> 389,893
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,298
<INTEREST-EXPENSE> 18,386
<INCOME-PRETAX> 51,863
<INCOME-TAX> 12,810
<INCOME-CONTINUING> 39,053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,053
<EPS-PRIMARY> 3.95
<EPS-DILUTED> 3.92
</TABLE>
<PAGE> 1
Exhibit 99(a)
INSILCO CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Additions
---------------------
(1) (2)
Charged Charged
Balance at to costs to other Balance
beginning and accounts Deductions at end of
Description of period expenses (describe) (describe) period
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1995:
Allowances deducted from assets:
Accounts receivable (for doubtful
receivables) $2,247 9,775 - (719)(a) 11,303
Inventory (primarily for obsolescence) 4,094 9,031 - (6,971)(b) 6,154
For the year ended December 31, 1996:
Allowances deducted from assets:
Accounts receivable (for doubtful
receivables) 11,303 2,298 - (8,623)(a) 4,978
Inventory (primarily for obsolescence)
6,154 2,606 - (2,644)(b) 6,116
</TABLE>
Notes: (a) Primarily accounts written-off, net of recoveries.
(b) Primarily obsolete parts written-off.
