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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) FOR THE
SECURITIES EXCHANGE ACT OF 1934
for the Fiscal Year Ended December 31, 1997
Commission File number: 0-22098
INSILCO CORPORATION
(Exact name for Registrant as specified in its charter)
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DELAWARE NO. 06-0635844
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
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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) for 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 [/] 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. [/]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates for the Registrant was approximately $86,190,640 on March 16,
1998.
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 [/] No [ ]
There were 4,016,711 shares of the Registrant's Common Stock outstanding on
March 16, 1998.
Portions of the Registrant's Proxy Statement for the 1998 Annual Meeting of
Stockholders are incorporated by reference in Part III.
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TABLE OF CONTENTS
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Page
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Part I
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 36
Consolidated Financial Statements F-1
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-K, including without
limitation the statements under "Business", "Properties" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" are
forward-looking statements. Although the Company (as defined below) believes
that the expectations reflected in the forward-looking statements contained
herein are reasonable, no assurance can be given that such expectations will
prove to have been correct. Certain important factors that could cause actual
results to differ materially from expectations ("Cautionary Statements")
include, but are not limited to the following: delays in new product
introductions, lack of market acceptance of new products, changes in demand for
the Company's products, changes in market trends, operating hazards, general
competitive pressures from existing and new competitors, effects of governmental
regulations, changes in interest rates, and adverse economic conditions which
could affect the amount of cash available for debt servicing and capital
investments. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements.
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 and
electronics components and a publisher of specialty publishing products, chiefly
student yearbooks. The Company with three reporting segments (the Automotive
Components Group, the Technologies Group, and Specialty Publishing) conducts its
business in eight separate operating units, including both divisions and
subsidiaries. The Company's Specialty Publishing segment, formerly the Company's
Office Products/Specialty Publishing segment, was renamed following the
divestiture of the Rolodex Business (as defined below) in March 1997. The
Company's principal executive offices are located at 425 Metro Place North,
Fifth Floor, Dublin, Ohio 43017, telephone (614) 792-0468.
GENERAL DEVELOPMENT OF THE BUSINESS
The Company has undergone significant change and restructuring in the past five
years. A review of the most significant developments follows, in chronological
order:
o 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
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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.
Settlements were reached in 1997 on all remaining claims pending in the
Bankruptcy Court and the Bankruptcy Case was closed on June 12, 1997.
o In 1994, the Company sold its paint products segment for $50.8 million,
and entered into a long-term $285 million credit facility that allowed
it to retire the Company's outstanding 10 3/8% Senior Secured
Guarantied Notes due July 1, 1997 and 9 1/2% Notes due 1997.
o In 1996, the Company acquired, for an aggregate purchase price of
approximately $37 million, an aftermarket automotive, heavy truck and
industrial radiator manufacturer, Great Lake, and the automotive
aluminum tube business of Helmut Lingemann GmbH & Co.
o The Company divested the Office Products Business of the Company's
Office Products/Specialty Publishing Group 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 ("Curtis") and electronic organizer business
("Rolodex Electronics") for an aggregate $21 million. On March 5, 1997,
the remainder of the Office Products Business, which consisted of
Rolodex office products (the "Rolodex Business"), was sold for net cash
proceeds of approximately $112 million.
o Following the sale of the Rolodex Business, the Company refinanced its
existing debt and entered into an Amended and Restated Credit Agreement
as of July 3, 1997 (the "Bank Credit Agreement") to secure a $200
million revolving credit facility.
o On July 10, 1997, the Company, using the proceeds from the sale of the
Rolodex Business purchased an aggregate of 2,857,142 shares of its
common stock and commenced a tender offer (the "Tender Offer"),
pursuant to which it purchased an additional 2,857,142 shares. The
purchase of shares tendered in the Tender Offer was paid for from the
proceeds received on the issuance of the $150 million aggregate
principal amount of 10.25% Senior Subordinated Notes due 2007 (the
"Notes").
[This space intentionally left blank]
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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 sales by segment in
each of its last three fiscal years were as follows:
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1997 1996 1995
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Automotive Components Group:
Tubing and heat transfer 30.5% 25.7% 21.9%
Transmissions and other 12.4 10.9 10.2
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Subtotal 42.9 36.6 32.1
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Technologies Group 36.9 32.1 30.4
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Office Products/Specialty Publishing Group:
Specialty Publishing 18.2 17.3 17.6
Office Products (divested in 1996 and 1997) 2.0 14.0 19.9
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Subtotal 20.2 31.3 37.5
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Total 100.0% 100.0% 100.0%
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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 manufacture automotive heat exchangers and related tubing, stainless
steel tubing, and automatic transmission and suspension components,
respectively.
AUTOMOTIVE SALES BY MARKET SEGMENT
1997 1996 1995
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Automotive OEM 45.9% 45.9% 43.0%
OEM Other 27.2 22.6 21.9
Automotive Aftermarket 16.2 18.8 19.4
Other 10.7 12.7 15.7
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Total 100.0% 100.0% 100.0%
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TUBING AND HEAT TRANSFER. Thermal is a vertically integrated manufacturer of
heat exchangers for the automotive, specialty vehicle, truck, heavy equipment
and off-road vehicle and industrial 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.
Thermalex, a joint venture owned equally by the Company (through a holding
company subsidiary), and Mitsubishi Aluminum Co., Ltd., manufactures multiport
aluminum extrusions used principally in automotive air conditioning condensors.
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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, 1997, Thermal (excluding
Thermalex) had 936 employees.
TRANSMISSION COMPONENTS. 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 1997 and 1996.
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%, 70% and 67% of
Steel Parts' sales were to one of the "Big 3" domestic automotive manufacturers
in 1997, 1996 and 1995, respectively.
At December 31, 1997, Steel Parts had 383 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.
At December 31, 1997, Romac had 129 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, premises wiring, main frame computer, automotive
and medical equipment markets.
SPECIALIZED CONNECTOR SYSTEMS. 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.
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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 41% of Stewart Connector's sales in
1997, 40% in 1996 and 43% in 1995. It maintains direct sales offices (and to a
lesser extent, distribution operations) in England, 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, 1997, Stewart Connector had 796 employees, of which 372 were
employed in the U.S., 20 in Japan, 7 in Germany, 4 in the United Kingdom, and
393 in Mexico.
POWER TRANSFORMERS. Signal Transformer 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.
Signal manufactures its transformers at production facilities located in the
Dominican Republic, Puerto Rico and New York. The New York facility also serves
as Signal's major sales, administration and distribution center.
At December 31, 1997, Signal had 645 employees, of which 153 were employed in
the U.S., 250 in the Dominican Republic and 242 in Puerto Rico.
PRECISION STAMPINGS AND WIREFORMS. Stewart Stamping is a tool designer and
subcontract manufacturer of precision stampings and wireformed parts. Stewart
Stamping manufactures components used in electrical devices such as circuit
breakers, electric fuses, lighting and process controls and the electronic
industries, including 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. In early 1997,
Stewart Stamping 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, 1997, Stewart Stamping had 320 employees.
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CABLE AND WIRE ASSEMBLIES. Escod Industries 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 68%, 66% and 60% of
Escod's total revenues in 1997, 1996 and 1995, respectively. Escod's dependence
on these two major customers makes its revenues and operating income sensitive
to changes in demand from those customers. 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.
At December 31, 1997, Escod had 798 employees.
SPECIALTY PUBLISHING
Taylor Publishing Company is engaged primarily in the contract design and
printing of student 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. Deposits representing approximately 25% of the yearbook
contract price are due from the yearbook customer upon its submission of the
first set of yearbook pages.
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Given the seasonal production cycle, the Company typically receives significant
cash deposits commencing each November and continuing through each March. These
deposits are available to fund the working capital requirements of the yearbook
production cycle, and to a lesser extent, to provide the Company working capital
for general corporate purposes.
Taylor operates six production facilities in Texas (two owned and four leased)
and one leased production facility in Pennsylvania. Its work force reflects the
seasonality of its business, typically ranging from 1,000 to 1,700 full-time
employees. At December 31, 1997, it had 168 salaried and 1,194 hourly employees.
DIVESTED OFFICE PRODUCTS BUSINESSES. On September 3, 1996, the Company sold
Curtis, its computer accessories business ("Curtis"). On October 4, 1996, the
Company sold the Rolodex electronics product line, consisting of electronic
personal organizers and telephones ("Rolodex Electronics"). On March 5, 1997,
the Company sold the remaining Rolodex business ("Rolodex Business"). Curtis,
Rolodex Electronics and the Rolodex Business are referred to collectively as the
"Office Products Business."
PATENTS AND TRADEMARKS
The Company holds patents or trademarks in most of its businesses which have
expiration dates ranging from 1998 to 2018. The Company expects to maintain such
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 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 Group); (ii)
copper wire, steel, brass, aluminum, plastics, ceramics and precious metals
(Technologies Group); and (iii) paper, film and other photographic and printing
supplies (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.
BACKLOG
The Company's backlog by industry segment, believed to be firm, at December 31,
1997 and 1996 follows (in thousands):
December 31
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1997 1996
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Automotive Components Group $ 59,396 52,372
Technologies Group 51,245 50,955
Specialty Publishing Group 113,232 102,939
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Total $223,873 206,266
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Management believes that approximately $195 million of its 1997 backlog will be
filled in 1998, and the remainder in 1999.
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EMPLOYEES AND LABOR RELATIONS
At December 31, 1997, the Company employed approximately 5,418 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. The Company's union agreement with
Taylor expired and a new contract was negotiated in early 1998. Among the union
agreements that will expire in 1998 are those covering certain union employees
of McKenica and Stewart Stamping. 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 12 to the Consolidated Financial Statements.
ENVIRONMENTAL REGULATION 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
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 Date 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; (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 valued at 30% of the allowed claim.
The Company is also currently engaged in clean up programs at sites located in
Newtown, Connecticut, Mount Vernon, New York and Oak Creek, Wisconsin. The
Company has established what it believes are appropriate reserves for
anticipated remedial obligations. Due to the establishment of these reserves
and the environmental settlements reached during the Company's reorganization,
management does not believe that environmental compliance or remedial
requirements are likely to have a material adverse effect on the Company.
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FINANCIAL INFORMATION ABOUT EXPORT SALES
In 1997, the Company's export sales were $56.1 million or 10% of consolidated
sales. Export sales in 1997 to Europe, Asia, Canada and Mexico were $21.2
million, $14.0 million, $9.7 million and $4.3 million, respectively. All other
export sales in 1997 totaled $6.9 million. In 1996 and 1995 export sales were
$62.4 million and $59.7 million, respectively or 11% of consolidated sales in
each year. 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. 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, 1997 included
the following properties:
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APPROXIMATE TERMS OF
BUSINESS SEGMENT LOCATION PRINCIPAL USE SQUARE FOOTAGE OCCUPANCY
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Automotive Components Group
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Thermal Components 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/Warehouse 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 235,350 Owned
Romac Metals Troutman, NC Office/Manufacturing 110,000 Owned
Technologies Group
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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
Canon 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/
Manufacturing 22,646 Leased
Stewart Stamping Yonkers, NY Office/Manufacturing 190,000 Owned
El Paso, TX Office/Manufacturing 41,400 Leased
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APPROXIMATE TERMS OF
BUSINESS SEGMENT LOCATION PRINCIPAL USE SQUARE FOOTAGE OCCUPANCY
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Specialty Publishing Group
- --------------------------
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
El Paso, TX Manufacturing 52,000 Leased
Malvern, PA Office/Manufacturing 41,000 Leased
San Angelo, TX Manufacturing 7,800 Leased
Dallas, TX Office 1,282 Leased
Orange, CA Office 3,373 Leased
Galveston, TX Office 1,200 Leased
Garden Grove, CA Office 662 Leased
Corporate Dublin, OH Office 18,300 Leased
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(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 certain Steel Parts and Thermal plants that are
operating at or near full capacity.
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ITEM 3. LEGAL PROCEEDINGS
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LEGAL PROCEEDINGS
The U. S. Federal Trade Commission ("FTC"), in response to certain third party
complaints, investigated Insilco's acquisition of the automotive aluminum heat
exchanger tubing business of Helima-Helvetion International, Inc. ("HHI"), to
determine if the acquisition violated federal antitrust laws. The Company and
the FTC subsequently entered into a Consent Order to resolve this matter that,
among other things, requires Insilco to divest certain assets acquired from HHI.
The divestiture will not have material impact on the Company's consolidated
financial condition, results of operations, or liquidity.
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. In the Company's opinion,
the outcome of these matters will not have a material adverse effect on the
Company's financial condition, liquidity or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
Not Applicable.
[This space intentionally left blank.]
-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 45% of
the 4,016,711 shares outstanding at March 16, 1998.
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 16, 1998 was 770. The closing sales price
of the Common Stock of the Company on March 16, 1998 was $40.00.
Low Sale High Sale
-------- ---------
1997:
- -----
First Quarter $34.000 $41.000
Second Quarter $36.750 $39.000
Third Quarter $36.000 $39.250
Fourth Quarter $33.000 $38.500
1996:
- -----
First Quarter $27.750 $36.375
Second Quarter $33.500 $36.875
Third Quarter $31.000 $37.250
Fourth Quarter $36.500 $41.063
The Company did not pay any cash dividends during the past two fiscal years.
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 restricted by the terms of the Bank Credit Agreement and the 10.25%
Senior Subordinated Notes issued by the Company August 12, 1997 (the "Notes").
On July 10, 1997, the Company, using the proceeds from the sale of the Rolodex
Business, purchased an aggregate of 2,857,142 shares of its common stock for
$109,999,967 (See Note 11 to the Consolidated Financial Statements). On August
12, 1997, the Company completed a tender offer (the "Tender Offer"), pursuant to
which it purchased an additional 2,857,142 shares for $109,999,967. The purchase
of shares tendered in the Tender Offer was paid for from the proceeds received
on the issuance of $150 million aggregate amount of the Notes (See Note 8 to the
Consolidated Financial Statements).
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. In 1997, the
Company made no purchases of its common stock under the stock buyback program.
-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 (6)
---------------
1993
---------------------
From To
1997 1996 1995 1994 4/1 3/31
---- ---- ---- ---- --- ----
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA
Sales (net)(1) $ 539,030 572,474 561,203 543,630 411,040 105,862
Depreciation and amortization 18,571 16,831 14,758 13,570 10,144 3,328
Amortization of Reorganization Goodwill -- -- 32,172 69,217 54,507 1,125
Operating income (loss)(2) 53,268 59,101 24,617 (9,699) (21,488) 7,256
Other income (expense)(3)
Interest expense(4) (20,562) (18,386) (19,546) (29,113) (26,905) (9,609)
Interest income 2,877 1,010 1,577 1,842 1,710 351
Other income (expense), net 98,443 10,138 12,126 2,663 167 (40)
Income (loss) from continuing operations
before reorganization items, extraordinary
item and income taxes 134,026 51,863 18,774 (34,307) (46,516) (2,042)
Reorganization items, net -- -- -- -- -- 21,767
Income tax expense (51,654) (12,810) (16,199) (8,585) (1,134) (873)
Income (loss) from continuing operations
before extraordinary items 82,372 39,053 2,575 (42,892) (47,650) 18,852
Income (loss) from discontinued operations,
net of tax -- -- -- 12,914 1,041 (18,241)
Income (loss) before extraordinary items 82,372 39,053 2,575 (29,978) (46,609) 611
Extraordinary items, net of tax (728) -- -- (2,156) -- 448,334
Net income (loss) 81,644 39,053 2,575 (32,134) (46,609) 448,945
BALANCE SHEET DATA AT PERIOD END
Working capital 39,508 51,436 44,920 33,915 97,718 94,589
Total assets 302,673 348,393 340,129 368,669 517,738 562,011
Long-term debt 257,743 161,042 186,489 198,109 307,406 306,682
Other long-term liabilities 43,402 44,156 53,612 59,117 65,016 64,896
Stockholders' equity (deficit) (102,328) 33,402 (15,779) (13,451) 18,505 64,214
CASH FLOW DATA
Net cash provided by (used in)
operating activities 45,492 55,423 37,744 34,305 52,524 (16,361)
Net cash provided by (used in)
investing activities 95,217 (29,783) (14,678) 36,295 (14,146) 2,668
Net cash provided by (used in)
financing activities (133,237) (32,053) (21,862) (115,648) (6,774) (9,109)
PER SHARE DATA
Basic income (loss) per share from
continuing operations 11.44 4.10 0.26 (4.42) (4.93) N/A
Diluted income (loss) per share from
continuing operations(5) 11.22 3.95 0.25 (4.42) (4.93) N/A
Book value per share (25.08) 3.52 (1.64) (1.37) 1.89 N/A
</TABLE>
See accompanying notes to the Selected Financial Data.
-16-
<PAGE> 17
The notes to the selected financial data follow:
(1) Sales include the sales of the Office Products Business which was divested
in 1996 and 1997 as follows: 1997 $10.8 million; 1996, $80.1 million; 1995,
$111.7 million; 1994, $105.2 million; and 1993, $104.8 million. Sales in
1997 and 1996 include sales of $31.6 million and $13.1 million,
respectively, of the Lingemann Business.
(2) Operating income includes operating income for the Office Products
Business, before the allocation of corporate overhead, as follows: 1997,
$2.2 million; 1996, $10.7 million; 1995, $1.7 million; 1994, $15.2 million;
1993, $12.4 million; and 1992, $14.9 million.
Operating income in 1997 and 1996 includes operating income, before
allocation of corporate overhead, of $0.2 million and $0.3 million,
respectively, of the Lingemann Business.
Operating income includes the deduction for the amortization of
Reorganization Goodwill in the period from April 1, 1993 and years ended
December 31, 1994 and 1995.
Operating income in 1995 includes a nonrecurring charge of $6.2 million
relating to the Office Products Business (See Note 15 to the Consolidated
Financial Statements) and a gain of $4.3 million related to a change in the
Company's pension plan (See Note 12 to the Consolidated Financial
Statements).
(3) Other income in 1997 includes a $95.0 million gain on the sale of the
Rolodex Business. Other income in 1996 included a fourth quarter $3.1
million gain on the sale of Rolodex Electronics and a third quarter $2.2
million adjustment related to the satisfaction of certain of the Company's
environmental liabilities, following completion of a site clean-up for an
amount less than previously estimated. Other income in 1995 included
favorable adjustments of $3.6 million related to the Company's
environmental liabilities, $1.5 million related to the resolution of
several legal disputes and a $4.0 million gain on the sale of idle
corporate assets.
(4) Excluding $19.8 million contractual interest not accrued on unsecured debt
during the Chapter 11 proceedings in the three months ended March 31, 1993.
(5) 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.
(6) As of March 31, 1993, the Company adopted "fresh start" accounting as
described under "Fresh Start Accounting" on page 19 of this Annual Report.
-17-
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-------------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
OVERVIEW
The Company directly and through its subsidiaries, is a diversified manufacturer
of automotive components and telecommunications and electronics components and a
publisher of specialty publishing products, chiefly student yearbooks. The
Company, with three reporting segments (the Automotive Components Group, the
Technologies Group, and Specialty Publishing), conducts its business in eight
separate operating units, including both divisions and subsidiaries. The
Company's Specialty Publishing segment, formerly the Company's Office
Products/Specialty Publishing segment, was renamed following the divestiture of
the Rolodex Business in March 1997.
The Automotive Components Group is comprised of businesses that produce
radiators and other heat exchanger components, equipment and systems used in the
production of heat exchanges, heavy gauged stamped automotive parts
(principally, transmission clutch plates) and welded stainless steel tubing, and
a 50% owned joint venture, Thermalex, which produces precision extruded aluminum
tubing. The Automotive Components Group serves both original equipment
manufacturers and aftermarket customers in the automotive, specialty vehicle,
truck and off-road vehicle and industrial equipment markets and also serves the
marine and architectural markets with decorative stainless steel tubing.
The Technologies Group manufactures high-performance data transmission
connectors, small electric power transformers, precision stampings and wire and
cable assemblies. The Technologies Group serves the computer networking,
microwave relay, telephone digital switching, data processing, automotive
medical equipment and other markets.
Specialty Publishing consists of Taylor, a publisher of specialty publishing
products, chiefly elementary, middle school, high school and college yearbooks.
During 1996 and 1997, the Company completed several material transactions
affecting its ongoing operations and debt and capital structure. A summary of
these transactions follows:
o ACQUISITIONS: In 1996, the Company acquired Great Lake, Inc. which serves
the automotive, heavy truck and industrial manufacturing radiator
replacement market and the automotive aluminum tube business of Helmut
Lingemann GmbH & Co. (the "Lingemann Business"). 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 periods subsequent to the acquisition
date.
o DIVESTITURES: 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 ("Curtis") and electronic organizer business ("Rolodex
Electronics") for $21 million in the aggregate which was used to reduce the
outstanding amounts on the Company's bank loans. On March 5, 1997, the
remainder of the Office Products Business, which consisted of the Rolodex
Business, was sold for net cash proceeds of approximately $112 million (the
"Rolodex Proceeds").
-18-
<PAGE> 19
o REFINANCING: The Company entered into an Amended and Restated Credit
Agreement as of July 3, 1997 (the "Bank Credit Agreement") that among other
things, provides for (i) a $200 million revolving credit facility, (ii) a
$50 million sublimit for commercial and standby letters of credit and (iii)
a $50 million sublimit for advances in selected foreign currencies.
o ISSUANCE OF SUBORDINATED DEBT: On August 12, 1997, the Company issued $150
million aggregate principal amount of 10.25% Senior Subordinated Notes due
2007 (the "Notes"), realizing therefrom net proceeds of $145.9 million.
o SELF TENDER: On July 10, 1997, the Company, using the Rolodex Proceeds
purchased an aggregate of 2,857,142 shares of its common stock for
$109,999,967. On August 12, 1997, the Company completed a tender offer (the
"Tender Offer"), pursuant to which it purchased an additional 2,857,142
shares for $109,999,967. The purchase of shares tendered in the Tender
Offer was paid for from the proceeds received on the issuance of the Notes.
The discussion that follows of the financial condition and results of operations
includes the effect of the transactions discussed above in the respective
periods in which they were recorded. As a result, the comparability of the
results is significantly impacted. Pro forma results of operations, assuming all
these transactions occurred at the beginning of the respective periods, are
presented in Note 20 to the Consolidated Financial Statements.
"THE 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.")
One effect 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. At December 31, 1995, Reorganization Goodwill was fully amortized.
-19-
<PAGE> 20
RESULTS OF OPERATIONS
Summarized sales and operating income (loss) by business segment for the years
ended December 31, 1997, 1996 and 1995, are set forth in the following table (in
thousands) and discussed below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
SALES
Automotive Components Group $231,070 209,722 180,251
Technologies Group 198,941 183,663 170,615
Office Products/Specialty Publishing Group:
Specialty Publishing 98,222 99,020 98,640
Office Products 10,797 80,069 111,697
-------- ------- -------
109,019 179,089 210,337
-------- ------- -------
Consolidated sales $539,030 572,474 561,203
======== ======= =======
OPERATING INCOME (LOSS)(1)(2)
Automotive Components Group $ 23,070 23,915 20,407
Technologies Group 23,006 24,453 20,310
Office Products/Specialty Publishing Group:
Specialty Publishing 5,355 1,650 (753)
Office Products 1,926 9,167 (15,287)
-------- ------- -------
7,281 10,817 (16,040)
Unallocated corporate (89) (84) (60)
-------- ------- -------
Consolidated operating income $ 53,268 59,101 24,617
======== ======= =======
</TABLE>
(1) Segment operating income (loss) reflects the allocation of corporate
overhead. In 1995 corporate overhead was reduced by a $4,300,000 gain
relating to a change in the Company's pension plan (See Note 12 to the
Consolidated Financial Statements). The allocation of corporate overhead
follows (in thousands):
1997 1996 1995
---- ---- ----
Automotive Components Group $3,537 2,981 1,282
Technologies Group 3,728 3,152 1,412
Office Products/Specialty Publishing Group:
Specialty Publishing 1,744 1,986 881
Office Products 240 1,501 1,023
------ ----- -----
1,984 3,487 1,904
------ ----- -----
$9,249 9,620 4,598
====== ===== =====
(2) Segment operating income (loss) includes a deduction for the amortization
of Reorganization Goodwill by segment as follows:
1997 1996 1995
---- ---- ----
Automotive Components Group $ -- -- 3,404
Technologies Group -- -- 7,176
Office Products/Specialty Publishing Group:
Specialty Publishing -- -- 5,625
Office Products -- -- 15,967
---- ---- ------
-- -- 21,592
---- ---- ------
$ -- -- 32,172
==== ==== ======
-20-
<PAGE> 21
1997 COMPARED TO 1996
SALES. Consolidated sales in 1997 of $539.0 million decreased approximately 6%
($33.5 million) from 1996 sales of $572.5 million due to the divestiture of the
Office Products Business. Sales of the Office Products Business were $10.8
million in 1997 compared to $80.1 million in 1996. Excluding the Office Products
Business, the Company's consolidated sales increased 7% ($35.8 million) in 1997
compared to 1996 due to a 10% ($21.3 million) increase at the Automotive
Components Group and an 8% ($15.3 million) increase at the Technologies Group.
Sales in the Automotive Components Group segment were $231.1 million, an
increase of 10% over 1996 sales of $209.7 million. The increased sales were
attributable to Thermal's increased sales of automotive heat exchangers and
related components from the July 1996 acquisition of the Lingemann Business and
higher sales of transmission and other stamped automotive parts at Steel Parts.
The Lingemann Business contributed $31.6 million of sales in 1997 compared to
$13.1 million in 1996. Approximately 30% of Thermal's sales are to the
automotive OEM market. Steel Parts achieved sales growth over 1996 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.
Sales in the Technologies Group were $198.9 million, an increase of 8% over 1996
sales of $183.7 million. Sales of the wire and cable assembly business, Escod,
were up 19% over 1996 due to strong demand from one of its major customers as
well as continued expansion of its customer base. Sales at Signal Transformer
increased 9% over 1996 primarily due to higher demand for internationally
certified products from electronic OEMs. Sales of precision stampings at the
segment's Stewart Stamping unit increased 6% due to new product introductions,
as well as the continued strength of the automotive, electrical control and
circuit protection markets. Stewart Connector, the Company's manufacturer of
high speed data transmission connectors which serves the computer networking
market, had a 1% decrease in sales from the prior year principally as a result
of price erosion of existing products and delayed new product availability.
Foreign sales accounted for approximately 41% and 40% of Stewart Connector's
sales in 1997 and 1996, respectively.
Sales at Taylor Publishing were $98.2 million, relatively flat compared to prior
year sales of $99.0 million.
OPERATING INCOME. Operating income in 1997 of $53.3 million decreased by
approximately 10% ($5.8 million) from 1996 operating income of $59.1 million due
to the divestiture of the Office Products Business which contributed $1.9
million in 1997 compared to $9.2 million in 1996. Excluding the Office Products
Business, the Company's operating income increased 3% ($1.4 million) in 1997
compared to 1996 primarily due to higher operating income at Taylor Publishing
caused by increased productivity and a $1.5 million restructuring charge
recorded in 1996.
The Automotive Components Group's operating income in 1997 compared to 1996
decreased to $23.1 million from $23.9 million. Lower operating income from
Thermal was partially offset by increased operating income at the Company's
stainless steel tubing business and stamped steel parts business. Thermal's
operating performance was impacted by (i) decreased sales at the Company's heat
exchanger equipment manufacturer which continues to experience a substantial
decline in order backlog; (ii) increased research and development costs
associated with the Group's new technical center; (iii) additional expenses
related to the integration of the Lingemann Business into the Company's
operations; and (iv) soft aftermarket demand for automotive heat exchangers.
-21-
<PAGE> 22
The Technologies Group's operating income in 1997 compared to 1996 decreased to
$23.0 million from $24.5 million primarily due to decreased operating margins at
Stewart Connector caused principally by competitive price pressure in the
connector market and delayed introductions of new connector products. In
addition, the Company incurred additional start-up costs at its El Paso stamping
facility. These declines were partially offset by the improved sales and
operating margin at Escod.
In 1997, the operating income of the Specialty Publishing business, Taylor
Publishing, improved to $5.4 million from $1.7 million in 1996 due to improved
operating margins from increased productivity and a $1.5 million restructuring
charge incurred in 1996.
OTHER INCOME (EXPENSE). Interest expense increased approximately 12% or $2.2
million in 1997 compared to 1996 due to the refinancing completed in the third
quarter of 1997. Interest income increased $1.9 million over 1996 due to
interest income earned on the proceeds from the sale of the Rolodex Business
prior to its use in the Tender Offer transaction. Other income (expense) for
1997 included a $95.0 million gain on the sale of the Rolodex Business. Other
income for 1996 included a $3.1 million gain on the sale of Rolodex Electronics.
Other income for 1996 also included a favorable adjustment of $2.2 million
related to the Company's environmental liabilities for 1996 following completion
of a site clean-up for an amount less than previously estimated.
Equity income from the Company's unconsolidated joint venture, Thermalex, was
$2.6 million in 1997 compared to $2.9 million in 1996. Thermalex incurred
additional expenses in 1997 related to the start-up of a new extrusion press and
plant expansion.
INCOME TAX EXPENSE. The Company's actual income tax obligations during 1997
($10.5 million) and 1996 ($2.4 million) were substantially less than the total
amount of income taxes recognized ($47.9 million and $12.4 million,
respectively) because previously generated net operating losses and other
deferred tax assets were utilized to reduce the tax obligations. During 1996,
additional deferred tax assets of $10.7 million 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 in 1996) were recorded as
an increase to additional paid-in capital.
The effective tax rate was 38.5% for 1997 compared to 24.7% for 1996. The lower
1996 rate reflects the recognition of the tax benefit of capital loss
carryforwards and lower foreign taxes associated with Rolodex's Puerto Rican
operations prior to its divestiture (See Note 14 to the Consolidated Financial
Statements for further information.)
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
-22-
<PAGE> 23
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 markets.
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 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 20 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.
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
-23-
<PAGE> 24
income decreased $3.0 million in 1996 compared to 1995, an 11% decline, due to
decreased operating margins and a $1.7 million increase in allocated corporate
overhead due to the 1995 pension gain noted above. The lower 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 Rolodex Electronics. 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 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.
-24-
<PAGE> 25
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 14 to the Consolidated
Financial Statements for further information).
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 $45.5
million in cash in 1997 compared to providing $55.4 million in cash in 1996.
Cash flows from operations decreased from the prior year primarily due to cash
flows from the divested Office Products business included in 1996 results. The
Company's cash for periods prior to 1997 was more favorably impacted by tax loss
carryforwards, which reduced the actual cash payments for the years to well
below the financial statement income tax expense. The tax loss carryforwards
were substantially reduced in 1997 due to the gain from the sale of the Rolodex
Business. As a result, beginning in 1998 it is expected that the Company will no
longer have any tax loss carryforwards available to reduce cash payment
obligations.
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES. In 1997, the Company sold its
Rolodex Business for a net sales price of $112.6 million (the "Rolodex
Proceeds"). In addition, the Company received a $1.5 million dividend
distribution from Thermalex and $4.4 million from the liquidation of idle assets
in 1997. In 1996, the Company acquired the automotive aluminum tube business of
Helmut Lingemann GmbH & Co., 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 sales of Curtis and Rolodex Electronics; $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.
The Company's capital expenditures totaled $23.6 million in 1997 and the Company
has budgeted expenditures totaling approximately $22.1 million in 1998. 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 will adversely affect its ability
to meet its operating goals.
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES. On July 3, 1997, the Company
refinanced its existing bank debt (see Note 8 to the Consolidated Financial
Statements). On July 10, 1997 using the Rolodex Proceeds, the Company purchased
2,857,142 shares of its common stock, at $38.50 per share in cash, for an
aggregate purchase price of $109,999,967. On August 12, 1997, the Company
completed the Tender Offer, in which it purchased an additional 2,857,142 shares
at a price of $38.50 per share in cash for an aggregate purchase price of
$109,999,967. On August 12, 1997, the Company issued $150 million of the Notes,
for net proceeds of approximately $145.9 million (the "Offering"). The Company
used the net proceeds from the Offering to fund the purchase of shares tendered
in the Tender Offer, repay loans under the Bank Credit Agreement, pay fees and
expenses of the aforementioned transactions and for general corporate purposes.
The Company incurred $10,689,000 in costs for the refinancing, Tender Offer and
issuance of the Notes.
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<PAGE> 26
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.
The interest expense 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 5.72% to 5.84% at December 31, 1997)
subject to performance versus a leverage ratio. 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 9 to the
Consolidated Financial Statements.
NET INCOME (LOSS) AND ACCUMULATED EQUITY (DEFICIT). At December 31, 1997, the
Company had a stockholders' deficit totaling $102.3 million compared to
stockholders' equity totaling $33.4 million at December 31, 1996. The deficit
was attributable to the effect of the repurchase of shares as described in "Cash
Flow From (Used In) Financing Activities" above.
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. See "Item 1. Business - Specialty Publishing".
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, 1997, the Company's cash and cash equivalents and net
working capital amounted to $10.7 million and $39.5 million, respectively,
compared to $3.5 million and $51.4 million, respectively, in 1996. The borrowing
ability under the Company's revolving credit facility at December 31, 1997 was
$85.1 million, including $41.1 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.
YEAR 2000 COMPLIANCE. The Company is currently in the process of evaluating its
information technology infrastructure for the year 2000 ("Year 2000")
compliance. The Company's primary information systems either have recently been
or are in process of being replaced with new systems to meet the Company's
growing capacity and performance requirements. These replacements are generally
expected to be completed by early 1999.
The Company does not expect that the cost to be Year 2000 compliant will be
material to its financial condition or results of operations. The costs are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ materially from those plans. The Company does not anticipate any material
disruption in its operations as a result of any failure by the Company to be in
compliance.
-26-
<PAGE> 27
The Company does not currently have complete information concerning the Year
2000 compliance status of it suppliers and customers. In the event that any of
the Company's significant suppliers or customers do not successfully and timely
achieve Year 2000 compliance, the Company's business or operations could be
adversely affected.
The Company has not incurred significant costs including internal costs to
evaluate the extent of compliance related to Year 2000 compliance prior to
December 31, 1997.
FOREIGN SALES. In 1997 the Company had export sales of $56.1 million which were
10% of total sales. Export sales in 1997 to Europe, Asia, Canada and Mexico were
$21.2 million, $14.0 million, $9.7 million and $4.3 million, respectively. All
other export sales in 1997 totaled $6.9 million. In 1996, the Company had export
sales of $62.4 million which were 11% of total sales. In 1995, export sales were
$59.7 million or 11% of total sales. The Company's transactions are primarily in
U.S. dollars.
SUBSEQUENT EVENT. On March 24, 1998, it was announced that the Company and an
affiliate of DLJ Merchant Banking Partners II (and affiliated funds) ("DLJMB")
have signed a definitive merger agreement. Under the terms of the agreement,
the stockholders of the Company will receive total consideration of $44.50 per
share, consisting of $42.98 in cash and 0.03419 shares of retained stock of the
surviving corporation. In aggregate, stockholders will receive approximately
$172.6 million in cash and retain 137,328 shares in the surviving entity. The
retained shares will represent approximately 10% of the common stock
outstanding post-recapitalization.
The transaction, which is estimated to have a value of approximately $437
million including existing indebtedness to be assumed and/or refinanced, is
subject to terms and conditions customary in transactions of this type,
including approval by the Company's shareholders and expiration of applicable
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
and will be treated as a recapitalization for accounting purposes. Affiliates
of Donaldson, Lufkin & Jenrette Securities Corporation, which acted as
financial advisors to DLJMB, have committed to provide all debt financing
required for the transaction.
DLJMB also announced that it entered into a voting agreement in support of the
transaction with respect to 1,783,878 shares, approximately 44% of the voting
stock of the Company, with Water Street, an affiliate of Goldman Sachs, which
is the Company's largest shareholder.
As a result of the proposed merger, the Company and DLJMB will incur various
costs and expenses in connection with consummating the transaction including
professional fees, registration costs, financing costs, and compensation costs.
Pursuant to the terms of the merger, all issued employee stock options will
vest. The compensation expense associated with the option payments will include
approximately $11.4 million to employees for the excess of the $44.50 purchase
price per share over the exercise cost of all outstanding vested and unvested
options.
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<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 30, 1998), are set forth on
pages F-1 through F-35 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 1998 Annual Meeting of Stockholders to be held on May
20, 1998 and is incorporated herein by reference. The Company anticipates filing
the Proxy Statements with the Securities and Exchange Commission in April 1998.
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.
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<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
- Statement of Management's Responsibility for Financial
Statements
- Independent Auditors' Report
- Consolidated Balance Sheets
- December 31, 1997
- December 31, 1996
- Consolidated Statements of Operations
- Year ended December 31, 1997
- Year ended December 31, 1996
- Year ended December 31, 1995
- Consolidated Statements of Stockholders' Equity (Deficit)
- For the years ended December 31, 1997, 1996 and 1995
- Consolidated Statements of Cash Flows
- Year ended December 31, 1997
- Year ended December 31, 1996
- Year ended December 31, 1995
- 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).
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<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 Registration 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 of 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 (Form 10-K to the year ended December 31,
1996, Exhibit 4(h), File No. 0-022098).
*4(i) - Amended and Restated Credit Agreement, dated July 3, 1997
(Schedule 13E-4, Exhibit (b)(1), dated July 11, 1997).
*4(j) - Indenture, dated as of August 12, 1997 between the Company and
the Trustee (Form S-4 Registration Statement, dated October
15, 1997, Exhibit 4(j), File No. 333- 36523).
-31-
<PAGE> 32
*4(k) - Form of New Note (included in Exhibit 4(j) above) (Form S-4
Registration Statement, dated October 15, 1997, Exhibit 4(k),
File No. 333-36523).
*4(l) - Purchase Agreement, dated as of August 7, 1997, among the
Company and Goldman, Sachs & Co., McDonald & Company
Securities, Inc. and Citicorp Securities Inc. (the "Initial
Purchasers") (Form S-4 Registration Statement, dated October
15, 1997, Exhibit 4(l), File No. 333-36523).
*4(m) - Exchange and Registration Rights Agreement, dated as of August
12, 1997, between the Company and the Initial Purchasers (Form
S-4 Registration Statement, dated October 15, 1997, Exhibit
4(m), File No. 333-36523).
The following are management contracts and compensatory plans or arrangements in
which directors or executive officers participate:
*10(a) - The Company's 1993 Long-Term Incentive Plan (Form 10, Exhibit
10 (j), File No. 0-22098).
*10(b) - Supplemental Terms and Conditions Applicable to December 1993
Option Awards Under the Company 1993 Long-Term Incentive Plan
(Form S-8 Registration 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) - 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(e) - The Company's 1993 Nonemployee Director Stock Incentive Plan
(Form 10/A, Amendment No. 1 to Form 10, Exhibit 10(p), File
No. 0-22098).
*10(f) - 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 (Form 10-K for the year
ended December 31, 1996, Exhibit 10(g), File No. 0-22098).
*10(g) - Form for Income Protection Agreement adopted by the Company as
of December, 1996, entered into between the Registrant and the
officers identified in Exhibit 10(g) (Form 10-K for the year
ended December 31, 1996, Exhibit 10(h), File No. 0-22098).
*10(h) - Stock Purchase Agreement by and between the Company and Water
Street Corporate Recovery Fund I, L.P., dated July 10, 1997
(Schedule 13E-4, Exhibit (c)(2), filed July 11, 1997).
*10(i) - Stock Purchase Agreement by and between the Company and Robert
L. Smialek, dated July 10, 1997 (Schedule 13E-4, Exhibit
(c)(1), filed July 11, 1997).
-32-
<PAGE> 33
*10(j) - Amendment, dated August 11, 1997, Stock Purchase Agreement by
and between the Company and Water Street Corporate Recovery
Fund I, L.P., dated July 10, 1997 (Form S-4 Registration
Statement, dated October 15, 1997, Exhibit 4(k), File No.
333-36523).
10(k) - First Amendment to the Insilco Corporation 1993 Long-Term
Incentive Plan dated November 26, 1996.
10(l) - Extension Agreement between the Company and Robert L. Smialek
dated May 1, 1996.
10(m) - Second Extension Agreement between the Company and Robert L.
Smialek dated September 25, 1997.
*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.
*25 - Statement of Eligibility and Qualification Under the Trust
Indenture Act of 1939 (T-1) of The Bank of New York (bound
separately) (Form S-4 Registration Statement, dated October
15, 1997, Exhibit 25, File No. 333-36523).
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).
-33-
<PAGE> 34
(B) REPORTS ON FORM 8-K
A report, dated March 5, 1997, on Form 8-K was pursuant to Item 2 of
that form. The following financial statements were filed as part of
that report:
(1) Pro Forma Financial Information.
Unaudited Pro Forma Condensed Balance Sheet as of December
31, 1996
Unaudited Pro Forma Condensed Consolidated Statements of
Operations Year Ended December 31, 1996
A report, dated October 23, 1997, on Form 8-K was filed pursuant to
Item 2 of that form.
A report, dated November 19, 1997, on Form 8-K was filed pursuant to
Item 2 of that form.
-34-
<PAGE> 35
(C) EXHIBITS
The Exhibits to this report begin on page 72.
(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]
-35-
<PAGE> 36
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
Date March 30, 1998 By: /s/ Philip K. Woodlief
----------------------------
Philip K. Woodlief
Vice President and 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.
Robert L. Smialek* President, Chief Executive )
---------------------- Officer and Director )
Robert L. Smialek (Principal Executive Officer) )
Philip K. Woodlief Vice President and Corporate )
---------------------- Controller )
Philip K. Woodlief (Principal Accounting Officer) )
James J. Gaffney* )
---------------------- )
James J. Gaffney Director )
Terence M. O'Toole* ) March 30, 1998
---------------------- )
Terence M. O'Toole Director )
Thomas E. Petry* )
---------------------- )
Thomas E. Petry Director )
Barry S. Volpert* )
---------------------- )
Barry S. Volpert Director )
/s/ Philip K. Woodlief
----------------------
By: *Philip K. Woodlief
Attorney-in-Fact
-36-
<PAGE> 37
INSILCO CORPORATION
FORM 10-K
EXHIBITS
<PAGE> 38
Exhibit
*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 Board 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 Gessellschaft Fhr Unternehmensbeteilil
gungen und Vermogensverwaltung im aluminiumverarbeiten den Bereich
mbH ("GUVAB"), and Lingemann (Form 8-K dated July 10, 1996, File
No. 0-22098).**
*(2h) - 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).
*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).
<PAGE> 39
Exhibit
*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 Registration
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 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 (Form
10-K to the year ended December 31, 1996, Exhibit 4(h), File
No. 0-022098).
*4(i) - Amended and Restated Credit Agreement, dated July 3, 1997 (Schedule
13E-4, Exhibit (b)(1), dated July 11, 1997).
*4(j) - Indenture, dated as of August 12, 1997 between the Company and the
Trustee (Form S-4 Registration Statement, dated October 15, 1997,
Exhibit 4(j), File No. 333-36523).
*4(k) - Form of New Note (included in Exhibit 4(j) above) (Form S-4
Registration Statement, dated October 15, 1997, Exhibit 4(k), File
No. 333-36523).
<PAGE> 40
Exhibit
*4(l) - Purchase Agreement, dated as of August 7, 1997, among the Company
and Goldman, Sachs & Co., McDonald & Company Securities, Inc. and
Citicorp Securities Inc. (the "Initial Purchasers") (Form S-4
Registration Statement, dated October 15, 1997, Exhibit 4(l), File
No. 333-36523).
*4(m) - Exchange and Registration Rights Agreement, dated as of August 12,
1997, between the Company and the Initial Purchasers (Form S-4
Registration Statement, dated October 15, 1997, Exhibit 4(m), File
No. 333-36523).
The following are management contracts and compensatory plans or arrangements
in which directors or executive officers participate:
*10(a) - The Company's 1993 Long-Term Incentive Plan (Form 10, Exhibit
10(j), File No. 0-22098).
*10(b) - Supplemental Terms and Conditions Applicable to December 1993
Option Awards Under the Company 1993 Long-Term Incentive Plan
(Form S-8 Registration 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) - 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(e) - The Company's 1993 Nonemployee Director Stock Incentive Plan (Form
10/A, Amendment No. 1 to Form 10, Exhibit 10(p), File
No.0-22098).
*10(f) - 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 (Form 10-K for the year
ended December 31, 1996, Exhibit 10(g), File No. 0-22098).
*10(g) - 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) (Form 10-K for the year ended
December 31, 1996, Exhibit 10(g), 10(h), File No. 0-22098).
*10(h) - Stock Purchase Agreement by and between the Company and Water
Street Corporate Recovery Fund I, L.P., dated July 10, 1997
(Schedule 13E-4, Exhibit (c)(2), filed July 11, 1997).
*10(i) - Stock Purchase Agreement by and between the Company and Robert L.
Smialek, dated July 10, 1997 (Schedule 13E-4, Exhibit (c)(1),
filed July 11, 1997).
<PAGE> 41
Exhibit
*10(j) - Amendment, dated August 11, 1997, Stock Purchase Agreement by and
between the Company and Water Street Corporate Recovery Fund I,
L.P., dated July 10, 1997 (Form S-4 Registration Statement, dated
October 15, 1997, Exhibit 4(k), File No. 333-36523).
10(k) - First Amendment to the Insilco Corporation 1993 Long-Term
Incentive Plan dated November 26, 1996.
10(l) - Extension Agreement between the Company and Robert L. Smialek
dated May 1, 1996.
10(m) - Second Extension Agreement between the Company and Robert L.
Smialek dated September 25, 1997.
*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.
*25 - Statement of Eligibility and Qualification Under the Trust
Indenture Act of 1939 (T-1) of The Bank of New York (bound
separately) (Form S-4 Registration Statement, dated October 15,
1997, Exhibit 25, File No. 333-36523).
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), 4(f) and 4(g).
<PAGE> 1
EXHIBIT 10(k)
FIRST AMENDMENT
TO THE
INSILCO CORPORATION 1993 LONG-TERM INCENTIVE PLAN
BACKGROUND
A. Insilco Corporation, a Delaware corporation, (the "Corporation")
previously adopted the Insilco Corporation 1993 Long-Term Incentive Plan (the
"Plan") for the benefit of certain employees.
B. The Corporation desires to amend the Plan to (a) provide for full
vesting upon a change in control, and (b) protect participants from certain
corporate events that may cause awards to become diluted or less valuable.
AMENDMENTS
1. Section 12 of the Plan shall be amended by adding the following
language to the end of such Section:
Notwithstanding any other provision of this Plan to the contrary, if a
Change in Control (as defined below) occurs, each Award outstanding under
this Plan will become immediately 100% vested and exercisable with respect
to the total number of shares of Common Stock subject to such Award. As
used herein, a "Change in Control" means any of the following:
(i) the acquisition, directly or indirectly, by any person (as
defined under Section 13(d) of the Securities Exchange Act of 1934) 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; 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 which would result in the common stock of the Company
outstanding immediately prior thereto 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 entity or
parent or affiliate thereof outstanding immediately after such merger,
consolidation, or business combination, or (B) a
<PAGE> 2
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
Plan as set forth above, adopts a resolution that such event or
circumstance constitutes a Change in Control for the purposes of this
Plan.
For purposes of determining a Change in Control on any given date, a
partner in Water Street Corporate Recovery Fund I, L.P. ("Water Street")
will be deemed to own that number of voting shares of the Company
determined by multiplying such partner's pro rata partnership interest in
Water Street by the number of voting shares of the Company owned by Water
Street as of such date.
2. Section 14(b) of the Plan shall be amended by deleting the first
sentence of such Section and replacing it with the following:
In the event of any subdivision or consolidation of outstanding shares of
Common Stock, or declaration of a dividend or distribution payable in
shares of Common Stock, cash, or other property, or capital
reorganization, reclassification, merger or other transaction involving an
increase or reduction in the number of outstanding shares of Common Stock,
the Committee shall make proportional substitutions or adjustments to
appropriately reflect such event and to prevent the dilution of rights
granted in all Awards under the Plan. The Committee shall use its
discretion to determine the specific manner in which the outstanding
Awards are to be adjusted, including but not limited to proportionally
substituting or adjusting (i) the number of shares of Common Stock
reserved under this Plan and covered by outstanding Awards denominated in
Common Stock or units of Common Stock; (ii) the exercise or other price in
respect of such Awards; and (iii) the appropriate Fair Market Value and
other price determinations for such Awards. After the Committee makes
such a substitution or adjustment, the Committee shall notify the affected
Participants of the new terms and conditions of their Awards.
3. The provisions contained in this Amendment shall apply to all
currently outstanding and future awards under the Plan. All other provisions
of the Plan shall remain unchanged.
<PAGE> 3
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
For the year ended December 31, 1997
Allowances deducted from assets:
Accounts receivable (for doubtful
receivables) $4,978 701 - (3,547)(c) 2,132
Inventory (primarily for
obsolescence) 6,116 2,826 - (3,498)(b) 5,444
</TABLE>
Notes: (a) Primarily accounts written off, net of recoveries.
(b) Primarily obsolete parts written off.
(c) Primarily due to the sale of the Rolodex Business and accounts
written off, net of recoveries.
<PAGE> 4
INSILCO CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Statement of Management's Responsibility for Financial Statements F-2
Independent Auditors' Report F-3
Consolidated Balance Sheets F-4
- December 31, 1997
- December 31, 1996
Consolidated Statements of Operations F-5
- Year ended December 31, 1997
- Year ended December 31, 1996
- Year ended December 31, 1995
Consolidated Statement of Stockholders' Equity (Deficit) F-6
- For the years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows F-7
- Year ended December 31, 1997
- Year ended December 31, 1996
- Year ended December 31, 1995
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE> 5
Statement of Management's Responsibility for Financial Statements
The Consolidated Financial Statements and accompanying Notes of Insilco
Corporation and subsidiaries have been prepared by management using the best
available information and applying judgment. These statements have been
prepared in accordance with generally accepted accounting principles in the
United States. Management is responsible for the selection of appropriate
accounting principles and the fairness and integrity of such statements.
The Company maintains a system of internal controls designed to provide
reasonable assurance that accounting records are reliable for the preparation
of financial statements and for safeguarding assets. The Company's system of
internal controls includes financial written policies, guidelines and
procedures; organizational structures, staffed through the careful selection of
people that provide an appropriate division of responsibility and
accountability; and an internal audit program. Professional financial
personnel are responsible for implementing and overseeing the system of
financial controls, reporting on management's stewartship of assets and
maintaining accurate records.
KPMG Peat Marwick LLP, independent auditors, provide an objective, independent
review of management's discharge of its obligations relating to the fairness of
financial reporting. Their opinion is based on procedures believed by them to
be sufficient to provide reasonable assurance that the Consolidated Financial
Statements are not materially misstated. The independent auditors' report of
KPMG Peat Marwick LLP follows.
The Board of Directors pursues its oversight responsibility for the financial
statements through its Audit Committee, composed of Directors who are not
employees of the Company. The Audit Committee meets regularly to review with
management and KPMG Peat Marwick LLP the Company's accounting policies,
internal and external audit plans and results of audits performed. To ensure
complete independence, KPMG Peat Marwick LLP and the internal auditors have
full access to the Audit Committee and meet with the Audit Committee without
the presence of management.
Robert L. Smialek
Chairman of the Board,
President and CEO
Philip K. Woodlief
Vice President and Corporate Controller
F-2
<PAGE> 6
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 1997, 1996 and 1995 financial statements of Thermalex, Inc., a 50
percent owned investee company. The Company's investment in Thermalex, Inc. at
December 31, 1997 and 1996, was $9.7 million and $8.6 million, respectively,
and its equity in earnings of Thermalex, Inc. was $2.6 million, $2.9 million
and $2.3 million, for each of the years in the three-year period ended December
31, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, 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 30, 1998, except as
to Note 21, which is as of
March 24, 1998
F-3
<PAGE> 7
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
1997 1996
--------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $10,651 3,481
Trade receivables, net 67,209 73,874
Other receivables 3,477 8,499
Inventories 60,718 66,385
Deferred tax asset 277 29,859
Prepaid expenses and other current assets 2,716 3,403
-------- -------
Total current assets 145,048 185,501
-------- -------
Property, plant and equipment, net 113,971 114,379
Deferred tax asset 1,054 7,542
Other assets 42,600 40,971
-------- -------
Total assets $302,673 348,393
======== =======
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of long-term debt $1,684 24,272
Accounts payable 39,757 37,984
Customer deposits 20,346 23,490
Accrued expenses and other 43,753 48,319
-------- -------
Total current liabilities 105,540 134,065
Long-term debt, excluding current portion 256,059 136,770
Other long-term obligations, excluding current portion 43,402 44,156
-------- -------
Total liabilities 405,001 314,991
-------- -------
Stockholders' equity (deficit):
Common stock, $.001 par value; 15,000,000 shares authorized;
4,548,373 shares issued (9,810,794 in 1996) and 4,080,693
shares outstanding (9,487,740 in 1996) 5 10
Treasury stock, at cost (16,268) (10,745)
Additional paid-in capital - 81,496
Accumulated deficit (82,756) (37,115)
Foreign currency translation adjustments (3,309) (244)
-------- --------
Total stockholders' equity (deficit) (102,328) 33,402
-------- --------
Commitments and contingencies (See Notes 10,11,14 and 17)
Total liabilities and stockholders' equity (deficit) $302,673 348,393
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 8
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996 and 1995
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
Sales $539,030 572,474 561,203
Cost of products sold 376,328 389,893 385,720
Depreciation and amortization 18,571 16,831 14,758
Selling, general and administrative expenses 90,863 106,649 97,736
Nonrecurring charges - - 6,200
Amortization of Reorganization Goodwill - - 32,172
--------- --------- ----------
Operating income 53,268 59,101 24,617
--------- --------- ----------
Other income (expense):
Interest expense (20,562) (18,386) (19,546)
Interest income 2,877 1,010 1,577
Gain on the sale of Office Products Business 95,001 2,493 -
Equity in net income of Thermalex 2,647 2,922 2,335
Other income, net 795 4,723 9,791
--------- --------- ----------
Total other income (expense) 80,758 (7,238) (5,843)
--------- --------- ----------
Income before income taxes and
extraordinary item 134,026 51,863 18,774
Income tax expense (51,654) (12,810) (16,199)
--------- --------- ----------
Income before extraordinary item 82,372 39,053 2,575
Extraordinary item, net of tax (728) - -
--------- --------- ----------
Net income $81,644 39,053 2,575
========= ========= ==========
Earnings (loss) per common share:
Income before extraordinary item $11.44 4.10 0.26
Extraordinary item (0.10) - -
--------- --------- ----------
Basic net income per share $11.34 4.10 0.26
========= ========= ==========
Weighted average number of common shares outstanding 7,200,103 9,517,123 9,815,109
========= ========= ==========
Earnings (loss) per common share - assuming dilution:
Income before extraordinary item $11.22 3.95 0.25
Extraordinary item (0.10) - -
--------- --------- ----------
Diluted net income per share $11.12 3.95 0.25
========= ========= ==========
Weighted average number of common shares outstanding
and common share equivalents 7,345,045 9,891,631 10,132,174
========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 9
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficit)
For the Years Ended December 31, 1997, 1996 and 1995
(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, 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 currency translation adjustment - - - - (244) (244)
--- -------- ---------- ----------- ----------- -------------
Balance at December 31, 1996 10 (10,745) 81,496 (37,115) (244) 33,402
Net income - - - 81,644 - 81,644
Repurchase of shares (5) - (92,710) (127,285) - (220,000)
Costs of Tender Offer - - (889) - - (889)
Purchase of treasury stock - (5,523) - - - (5,523)
Restricted stock - - 571 - - 571
Shares issued upon exercise of stock options - - 8,255 - - 8,255
Tax benefit from exercise of stock options - - 3,277 - - 3,277
Foreign currency translation adjustment - - - - (3,065) (3,065)
--- -------- ---------- ----------- ----------- -------------
Balance at December 31, 1997 $5 (16,268) - (82,756) (3,309) (102,328)
=== ======== ========== =========== =========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 10
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $81,644 39,053 2,575
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 18,571 16,831 46,930
Deferred tax expense 37,366 10,016 12,661
Divestiture gains, net (95,001) (2,493) -
Other noncash charges and credits (127) (4,904) (6,143)
Changes in operating assets and liabilities:
Receivables (3,179) 11,749 (8,836)
Inventories (2,651) (2,899) (461)
Payables and other 11,232 (9,601) (5,519)
Other long-term liabilities (2,344) (2,329) (3,463)
-------- -------- --------
Net cash provided by operating activities 45,511 55,423 37,744
-------- -------- --------
Cash flows from investing activities:
Proceeds from divestitures, net 112,610 21,818 -
Other investing activities 6,190 8,704 7,481
Capital expenditures (23,583) (22,579) (22,159)
Acquisitions of businesses, net of cash acquired - (37,726) -
-------- -------- --------
Net cash provided by (used in) investing activities 95,217 (29,783) (14,678)
-------- -------- --------
Cash flows from financing activities:
Repurchase of shares (220,000) - -
Retirement of long-term debt (117,246) (26,330) (12,926)
Debt issuance and Tender Offer costs (10,689) - -
Payment of prepetition liabilities (2,811) (2,862) (2,949)
Purchase of treasury stock (1,887) (3,932) (6,813)
Proceeds from sale of subordinated notes 150,000 - -
Proceeds from debt borrowings 64,759 - 600
Proceeds from sale of stock 4,618 1,071 226
-------- -------- --------
Net cash used in financing activities (133,256) (32,053) (21,862)
-------- -------- --------
Effect of exchange rate changes on cash (302) - -
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 7,170 (6,413) 1,204
Cash and cash equivalents at beginning of period 3,481 9,894 8,690
-------- -------- --------
Cash and cash equivalents at end of period $10,651 3,481 9,894
======== ======== ========
Supplemental information - cash paid for:
Interest, net of capitalized amount $13,305 17,820 18,199
======== ======== ========
Income taxes $7,062 2,081 2,407
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 11
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(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 investments in companies for which the Company does not
have operational control are accounted for under the equity method. All
significant intercompany balances and transactions have been eliminated.
(b) Pro Forma Results of Operations
During 1997 and 1996, the Company entered into several divestiture and
acquisition transactions (See Notes 2 and 3). In addition, during 1997,
the Company completed a self tender and share repurchase of approximately
59% of its outstanding shares (See Note 11) partially with the proceeds
from one of the divestitures and partially through the issuance of
subordinated notes and refinancing of its bank credit agreement (See
Note 8). These transactions affect the understanding of the Company's
financial position, results of operations and cash flows for 1997
compared to prior periods. As a result of these transactions, the
Company has presented pro forma results of operations for 1997 and 1996
as if these transactions occurred at the beginning of the respective
periods in Note 20.
(c) Cash Equivalents
Cash equivalents include time deposits and highly liquid investments with
original maturities of three months or less.
(d) Trade Receivables
Trade receivables are presented net of allowances for doubtful accounts
and sales returns of $2,132,000 and $4,978,000 at December 31, 1997 and
1996, respectively.
(e) Inventories
Inventories are valued at the lower of cost or market. Cost is generally
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 is 25 years for new buildings, 9 years for
machinery and equipment and ranges from 3 to 7 years for other property,
plant and equipment.
F-8
<PAGE> 12
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(g) "Fresh Start" Accounting and Reorganization Goodwill
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.
Reorganization Goodwill, consisted of the excess of the Company's
reorganization value over the aggregate fair value of its tangible and
identified intangible assets on March 31, 1993 and was amortized over a
three year period. Reorganization Goodwill was fully amortized at
December 31, 1995.
(h) Deferred Financing Costs
Deferred financing costs are being amortized using the effective interest
method over the life of the related debt.
(i) Goodwill
Goodwill represents the excess of cost of net assets acquired in business
combinations over their fair values. It is amortized on a straight-line
basis over estimated periods to be benefited (not exceeding 40 years).
Goodwill is periodically reviewed for impairment based upon an assessment
of future operations to insure it is appropriately valued.
(j) Interest Rate Hedges
The Company periodically uses interest rate hedges to limit its exposure
to the interest rate risk associated with its floating rate long-term
bank debt. Unamortized premium related to purchased interest rate caps
is included in other assets in the balance sheet and is 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) 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.
(l) Fair Value of Financial Instruments
Fair value of cash, accounts receivable, accounts payable and accrued
liabilities approximate book value at December 31, 1997. Fair value of
debt is based upon market value, if traded, or discounted at the
estimated rate the Company would incur currently on similar debt (See
Note 9).
F-9
<PAGE> 13
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(m) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are determined based upon differences
between the financial reporting and tax basis of assets and liabilities
and are measured by applying enacted tax rates and laws to taxable years
in which such differences are expected to reverse.
(n) Earnings Per Share
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128 ("SFAS 128"), "Earnings per Share", which simplifies
the computation of earnings per share ("EPS"). SFAS 128 is effective for
financial statements issued for periods after December 15, 1997. All
prior period earnings per share amounts have been restated to conform
with SFAS 128 requirements. Under SFAS 128, the Company computes two
earnings per share amounts - basic EPS and EPS assuming dilution. Basic
EPS is calculated based on the weighted average number of shares of
common stock outstanding for the period. EPS assuming dilution is based
on the weighted average number of shares of common stock outstanding for
the period, including common stock equivalents which reflect the dilutive
effect of stock options granted to employees and directors.
(o) Estimates
In conformity with generally accepted accounting principles, the
preparation of our financial statements requires our management to make
estimates and assumptions that affect the amounts reported in our
financial statements and accompanying actual results may ultimately
differ from those estimates.
(p) Reclassifications
Certain 1996 and 1995 amounts have been reclassified to conform with 1997
presentation.
(q) Accounting Standards
In June 1997, the FASB issued Statement No. 130 ("SFAS 130"), "Reporting
Comprehensive Income" and Statement No. 131 ("SFAS 131"), "Disclosures
About Segments of an Enterprise and Related Information". SFAS 130
establishes standards for reporting and display of comprehensive income
in the financial statements. Comprehensive income is the total of net
income and most other non-owner changes in equity. SFAS 131 requires
that companies disclose segment data based on how management makes
decisions about allocating resources to segments and measuring their
performance. In addition, in February 1998, the FASB issued Statement
No. 132 ("SFAS 132"), "Employers' Disclosures About Pensions and Other
Post-retirement Benefits", concerning employer disclosure about pension
plans and other post-retirement benefits. SFAS 130, SFAS 131 and
SFAS 132 are effective for 1998. These statements expand or modify
disclosures and will have no impact on the Company's financial position,
results of operations or cash flows.
F-10
<PAGE> 14
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Divestitures
On March 5, 1997, the Company completed the sale of its Office Products
Business within the Office Products/Specialty Publishing Group with the
divestiture of its traditional office products business (the "Rolodex
Business") for $112,610,000, net of transaction costs.
The divestiture of the Rolodex Business was preceded in 1996 by the
divestiture of the Rolodex electronics product line ("Rolodex Electronics")
and the Company's computer accessories business ("Curtis"). The proceeds
from these sales aggregated $21,818,000. (See Note 20 for unaudited pro
forma financial information with respect to these divestitures).
(3) 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. (the "Lingemann Business") 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, Inc. This cash transaction was financed principally from
borrowings under the Company's prior bank credit agreement (See Note 8).
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.
(4) Inventories
A summary of inventories at December 31 follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Raw materials and supplies $25,396 27,677
Work in process 23,427 25,570
Finished goods 11,895 13,138
------- ------
$60,718 66,385
======= ======
</TABLE>
F-11
<PAGE> 15
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Property, Plant and Equipment
A summary of property, plant and equipment at December 31 follows (in
thousands):
<TABLE>
1997 1996
-------- --------
<S> <C> <C>
Land $6,267 6,310
Buildings 33,718 32,772
Machinery and equipment 137,310 125,211
-------- --------
177,295 164,293
Less accumulated depreciation (63,324) (49,914)
-------- --------
$113,971 114,379
======== ========
</TABLE>
(6) Other Assets
A summary of other assets at December 31 follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Goodwill, net $13,408 13,659
Equity investment in Thermalex 9,736 8,550
Deferred financing costs 9,246 1,666
Cash surrender value of life insurance 4,636 5,635
Other 5,574 11,461
------- ------
$42,600 40,971
======= ======
</TABLE>
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 received $1,461,000 and $3,400,000 of dividend distributions from
Thermalex in 1997 and 1996, respectively.
Sales for Thermalex for the years ended December 31, 1997, 1996 and 1995
were $47,152,000, $48,057,000 and $44,839,000, respectively. Net income
for the years ended December 31, 1997, 1996 and 1995 was $5,294,000,
$5,844,000 and $4,670,000, respectively. Total assets were $36,348,000
and $28,629,000 at December 31, 1997 and 1996, respectively. Stockholders'
equity was $19,475,000 and $17,102,000 at December 31, 1997 and 1996,
respectively.
F-12
<PAGE> 16
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Accrued Expenses and Other
A summary of accrued expenses and other at December 31 follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Salaries and wages payable $9,445 9,838
Accrued interest payable 8,038 3,113
Current portion of the long term obligations 5,393 6,661
Accrued taxes payable 1,112 116
Pension 5,523 5,682
Other accrued expenses 14,242 22,909
------- ------
$43,753 48,319
======= ======
</TABLE>
(8) Long-term Debt
A summary of long-term debt at December 31 follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Subordinated notes $150,000 -
Bank revolving credit facility 87,500 41,300
Alternative currency borrowings 18,348 -
Bank term loan - 116,677
Miscellaneous 1,895 3,065
-------- -------
257,743 161,042
Less current portion (1,684) (24,272)
-------- -------
$256,059 136,770
======== =======
</TABLE>
On July 3, 1997, the Company refinanced its existing debt under a new six
year $200 million amended and restated credit agreement with a bank group
consisting of Citicorp USA, Inc., Goldman Sachs Credit Partners L.P., (an
affiliate of the Company's principal stockholder) and First National Bank
of Chicago (the "Bank Credit Agreement"). The Bank Credit Agreement
provides for a $200 million revolving credit facility with a $50 million
sublimit for issuance of letters of credit ($9.0 million outstanding at
December 31, 1997) and a $50 million sublimit for alternative currency
borrowings. The $200 million revolving credit facility is permanently
reduced by $20 million per year beginning July 2000 through July 2002. The
bank loans and letters of credit bear interest at various floating rates,
which approximate the one to six month LIBOR rates plus 1.25% (such LIBOR
rates approximated 5.72% to 5.84% at December 31, 1997) subject to
performance versus a leverage ratio. The revolving credit facility will
terminate and all amounts outstanding, if any, will be due on July 8, 2003.
Annual commitment fees consist of 0.3% of the average daily unused
commitment.
As of December 31, 1997, under the sublimit for alternative currency
borrowings, the Company had borrowed $18.3 million (33.0 million Deutsche
Marks). The Company's alternative currency borrowing is designed to hedge
the Company's net investment in its German operations. The change, if any,
to the net investment as a result of foreign currency fluctuations is
included in stockholders' equity as a foreign currency translation
adjustment. The alternative currency
F-13
<PAGE> 17
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
borrowing is denominated in German Deutsche Marks and bears interest based
on one to six month German LIBOR rates plus 1.25% (such LIBOR rates
approximated 3.53% to 3.75% at December 31, 1997).
The Bank Credit Agreement is guaranteed on a joint and several basis by the
Company's material directly and indirectly wholly owned subsidiaries (the
"Guarantors") and has been secured by substantially all assets of the
Guarantors. The Bank Credit Agreement contains certain financial and other
covenants usual and customary for a secured credit agreement. The Company
was in compliance with these covenants as of December 31, 1997.
In 1997, proceeds from the Bank Credit Agreement were used to prepay amounts
outstanding under the prior bank credit agreement. As a result of the
prepayment, the Company recorded an extraordinary charge of $728,000 (net of
a tax benefit of $465,000) due to expensing the related unamortized debt
financing costs.
On August 12, 1997, the Company completed the issuance of $150,000,000 of
10.25% senior subordinated notes (the "Notes"). Interest is payable
semi-annually, with a maturity date of August 15, 2007.
The Company may redeem the Notes, in whole or in part, upon certain
conditions, at any time on or after August 15, 2002 and prior to maturity.
The Notes have certain covenants that have restrictions on dividends and
distributions. Upon a change of control, holders of the Notes may require
the Company to purchase all or a portion of the Notes at a purchase price
equal to 101% of their aggregate principal amount, plus accrued interest, if
any.
(9) Fair Value of Financial Instruments
The estimated fair value at December 31 of financial instruments, other than
current assets and liabilities, follow (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------------- ----------------------
Estimated Estimated
Book Value Fair Value Book Value Fair Value
------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt:
Subordinated notes $150,000 154,500 - -
Bank revolving credit facility 105,848 105,848 41,300 41,300
Bank term loan - - 116,677 116,677
Miscellaneous 1,895 1,895 3,065 3,065
-------- ------- ------- -------
$257,743 262,243 161,042 161,042
======== ======= ======= =======
Hedges:
Interest rate (asset) $ - 423 (163) 1,281
======== ======= ======= =======
</TABLE>
At December 31, 1997, the Company's only interest rate hedge consisted of a
swap agreement which fixed the interest rate on $45,000,000 (from 5/30/95 to
5/30/98) of borrowings at 8.99%.
F-14
<PAGE> 18
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
(10) Other Long-Term Liabilities
A summary of other long-term liabilities at December 31 follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Post-retirement benefits, other than pensions (Note 12) $22,191 22,112
Prepetition and other tax liabilities 15,762 16,722
Environmental liabilities 8,625 9,208
Deferred compensation and other 2,217 2,775
------- -------
48,795 50,817
Less current portion (5,393) (6,661)
------- -------
$43,402 44,156
======= =======
</TABLE>
Prepetition and other tax liabilities
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"). The
Chapter 11 cases were commenced on January 13, 1991 (the "Petition Date").
The Company entered into an agreement with the Internal Revenue Service
("IRS") 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.
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.
The environmental liabilities included in other long-term obligations
represent the estimate of cash obligations that will be required in future
years for these environmental remediation activities. The Company has
estimated the exposure and accrued liability to be approximately $8,625,000
relating to these environmental matters at December 31, 1997. 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. Because
of uncertainty associated with the
F-15
<PAGE> 19
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 consolidated financial statements in the near term.
(11) 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, 1997 and 1996, the issued shares
of common stock included 67,483 and 163,557 shares of common stock,
respectively, available to satisfy Prepetition claims.
On July 10, 1997, the Company, using the proceeds from the sale of the
Rolodex Business, purchased (i) 2,805,194 shares from Water Street Corporate
Recovery Fund I, L.P. ("Water Street") (the Company's largest stockholder
which is an investment partnership of which Goldman, Sachs & Co. is the
general partner) at $38.50 per share in cash for an aggregate purchase price
of $107,999,969 and (ii) 51,948 shares from Robert L. Smialek, the
President and Chairman of the Board of the Company, at $38.50 per share in
cash, for an aggregate purchase price of $1,999,998. On August 12, 1997,
the Company completed a tender offer (the "Tender Offer"), pursuant to which
it purchased 2,857,142 shares at a price of $38.50 per share in cash. At
the completion of the Tender Offer, the number of outstanding shares were
reduced to approximately 4.1 million.
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.
Water Street, an investment partnership of which Goldman, Sachs & Co.
("Goldman Sachs") is the general partner, is the Company's principal
stockholder, owning approximately 45% of the Company's outstanding shares of
common stock.
(12) Pension Plans and Post-retirement Benefits
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.
F-16
<PAGE> 20
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>
1997 1996
--------------------------------------------------
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 $ 86,888 11,086 81,025 11,467
-------- ------- ------- -------
Actuarial present value of benefit
obligations:
Vested benefits 69,088 14,122 62,230 14,078
Nonvested benefits 1,217 698 906 606
-------- ------- ------- -------
Accumulated obligation 70,305 14,820 63,136 14,684
Benefits attributable to future
compensation increases 5,177 666 2,504 549
-------- ------- ------- -------
Projected benefit obligations 75,482 15,486 65,640 15,233
-------- ------- ------- -------
Plan assets less projected
benefit obligation 11,406 (4,400) 15,385 (3,766)
Unrecognized losses (gains) (13,072) (323) (17,227) (550)
Unrecognized prior service costs (1,188) 2,054 (1,260) 1,736
-------- ------- ------- -------
Pension liability $ (2,854) (2,669) (3,102) (2,580)
======== ======= ======= =======
</TABLE>
The components of pension cost follow (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Service cost $2,320 2,381 1,848
Interest cost 5,639 6,066 10,297
Actual return on assets (14,689) (9,099) (27,531)
Net amortization and deferral 7,741 2,183 17,375
-------- ------- --------
Net pension cost $1,011 1,531 1,989
======== ======= ========
</TABLE>
In addition, the Company recognized pension costs of $597,000 in 1997, $880,000
in 1996 and $580,000 in 1995 related to contributions to multi-employer plans.
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> 21
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The assumptions used in accounting for the pension plans as of December 31
follow:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Discount rates 7.25% 7.75%
Rates of increase in compensation levels 4.50% 4.50%
Expected long-term rate of return on assets 9.00% 9.00%
</TABLE>
In addition to the defined benefit plans described above, the Company sponsors a
qualified defined contribution 401(k) plan, which covers substantially all
non-union employees of the Company and its subsidiaries, and which covers union
employees at one of the Company's subsidiaries. The Company matches 50% of
non-union participants' voluntary contributions up to a maximum of 3% of the
participant's compensation. The Company's expense was approximately $819,000 in
1997, $738,000 in 1996 and $666,000 in 1995.
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. 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.
During 1996, the Company amended its Retiree Plans and the one Open Plan 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 post-retirement
benefit obligation for these retiree health care plans was reduced by
approximately $3.4 million.
The components of net periodic post-retirement benefit cost follow (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Service cost $400 492 503
Interest cost 1,099 1,154 1,401
Amortization of prior service cost (437) (365) (145)
------ ----- -----
$1,062 1,281 1,759
====== ===== =====
</TABLE>
F-18
<PAGE> 22
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of the plans' status reconciled with amounts recognized in the
consolidated balance sheet at December 31 follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Accumulated post-retirement benefit obligations:
Retirees $8,421 7,828
Other fully eligible plan participants 2,616 2,302
Other active plan participants 5,811 4,440
------- ------
Total 16,848 14,570
Prior service cost 4,425 4,777
Unrecognized net gain 918 2,765
------- ------
Accrued post-retirement benefit costs $22,191 22,112
------- ------
</TABLE>
At December 31, 1997 and 1996, the weighted-average discount rates used in
determining the accumulated post-retirement benefit obligation were 7.25%
and 7.75%, respectively. The recorded health care cost trend rate assumed
in measuring the accumulated post-retirement benefit obligation was 8% in
1998, declining to an ultimate rate of 5% in 2010 and thereafter. If these
trend rate assumptions were increased by 1%, the accumulated
post-retirement benefits obligation would increase by approximately 16%
($2,751,000). 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, 1997 would be an increase of approximately
21% ($320,000).
(13) Stock-Based Compensation Plans
The Company's 1993 Long-term Incentive Plan (the "Incentive Plan"), as
amended, and the 1993 Nonemployee Director Stock Incentive Plan (the
"Director Plan") provides for the issuance of no more than 2,000,000 and
360,000, respectively, shares of common stock to eligible employees and
nonemployee directors. As of December 31, 1997, the shares available for
future awards under the Incentive Plan and the Director Plan have been
reduced to 694,136, and 146,664, due to stock options and restricted stock
awards granted since the inception of the plans.
Stock Options
Under Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation", companies can either record
expense based on the fair value of stock-based compensation upon issuance or
elect to remain under the "APB Opinion No. 25" method whereby no
compensation cost is recognized upon grant if certain conditions are met.
The Company is continuing to account for its stock-based compensation under
APB Opinion No. 25. However, pro forma disclosures as if the Company had
adopted the cost recognition requirements under SFAS 123 are presented
below.
F-19
<PAGE> 23
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options granted in 1997, 1996 and 1995 under SFAS
123, the Company's net income and earnings per share would have approximated
the pro forma amounts below:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ -----
<S> <C> <C> <C>
Net income As reported $81,644 39,053 2,575
Pro forma 81,069 38,748 2,562
Basic earnings per share As reported 11.44 4.10 0.26
Pro forma 11.26 4.07 0.26
Diluted earnings per share As reported 11.12 3.95 0.25
Pro forma 11.06 3.92 0.25
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to grants prior to
1995, and additional awards in the future are anticipated.
A summary of the options granted follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Price
--------- --------
<S> <C> <C>
Options outstanding December 31, 1994 1,092,168 $21.84
Granted 12,850 32.30
Forfeited (28,369) 21.03
Exercised (12,646) 15.39
---------
Options outstanding December 31, 1995 1,064,003 22.07
Granted 102,900 34.82
Forfeited (36,670) 26.69
Exercised (59,668) 17.95
---------
Options outstanding December 31, 1996 1,070,565 23.36
Granted 151,500 36.87
Forfeited (30,938) 24.79
Exercised (450,860) 18.27
---------
Options outstanding December 31, 1997 740,267 29.17
=========
Options exercisable at December 31:
1995 471,614 20.87
1996 682,681 21.45
1997 421,033 27.18
</TABLE>
F-20
<PAGE> 24
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding options follow:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- -----------------------------
Weighted
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Prices December 31, 1997 Life Price December 31, 1997 Price
- ------------ ----------------- ----------- --------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
$15.00-20.00 148,255 2.6 $16.33 92,255 $15.92
25.01-30.00 355,779 2.3 29.91 299,079 29.89
30.01-35.00 90,168 7.9 34.66 26,968 34.64
35.01-39.00 146,065 4.7 37.03 2,731 37.58
------- -------
740,267 421,033
======= =======
</TABLE>
The per share weighted-average fair value of stock options granted during
1997, 1996 and 1995 was $13.87, $19.20 and $18.58, respectively, on the date
of grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: 1997 - expected dividend yield 0.0%,
risk-free interest rate of 5.57%, and an expected life of 4.14 years.
Restricted Stock
The awards of restricted common stock to employees and directors has been
contingent upon the participants maintaining certain investments in the
Company's common stock and the restrictions on the awards lapse only if: (1)
the market value of the Company's common stock attains targeted levels
during a specified period; and, (2) generally only after the participants
complete a required service period. The compensation expense associated
with the restricted stock awards is recorded over the employee service
period if it is determined probable that the restrictions based upon
attaining the probable targets will lapse. The compensation expense was
$397,000, $465,000 and $1,290,000 in 1997, 1996, and 1995, respectively. As
of December 31, 1997, awards of 70,324 shares are subject to the
restrictions and will be forfeited if the restrictions are not met prior to
August 2000.
F-21
<PAGE> 25
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Income Tax Expense
The components of total income taxes and a reconciliation of total income
taxes to the actual income tax obligation follow (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Total income taxes:
Before extraordinary item:
Current:
Federal $10,362 542 758
State and local 3,148 745 1,000
Foreign 778 1,507 938
------- ------- -------
14,288 2,794 2,696
------- ------- -------
Deferred:
Federal 33,478 8,336 12,370
State and local 3,400 928 1,133
Foreign 488 752 -
------- ------- -------
37,366 10,016 13,503
------- ------- -------
Total before extraordinary item 51,654 12,810 16,199
Extraordinary item (465) - -
Stockholders' equity (3,277) (402) (72)
------- ------- -------
Total income taxes 47,912 12,408 16,127
Noncash allocations:
Deferred income taxes (37,366) (10,016) (12,661)
Charges in lieu of taxes - - (842)
------- ------- -------
Actual income tax obligations $10,546 2,392 2,624
======= ======= =======
</TABLE>
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 by domestic and foreign source follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------ ------
<S> <C> <C> <C>
Domestic $129,623 39,865 4,818
Foreign 4,403 11,998 13,956
-------- ------ ------
$134,026 51,863 18,774
======== ====== ======
</TABLE>
F-22
<PAGE> 26
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income tax expense differs from the amount computed by applying the Federal
statutory rate to pretax income due to the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense $46,909 18,152 6,571
State and local taxes 5,446 1,467 1,845
Equity in earnings of affiliates (733) (818) (654)
Foreign tax rate differential (272) (2,076) (1,445)
Goodwill amortization 20 22 11,260
Other, net 284 (730) (1,011)
Benefit of capital loss carryforwards - (2,781) -
Valuation allowance - (426) (367)
------- ------ ------
Income tax expense $51,654 12,810 16,199
======= ====== ======
</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>
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $9,526 38,783
Accrued liabilities 13,882 18,474
Pension and other post-retirement benefits 11,026 11,105
Alternative Minimum Tax Credit 7,965 1,872
Capital loss carryforwards - 8,812
Other 1,127 2,537
------- -------
Total gross deferred tax assets 43,526 81,583
Less valuation allowance (29,870) (34,116)
------- -------
13,656 47,467
------- -------
Deferred tax liabilities:
Plant and equipment (11,472) (9,199)
Other (853) (867)
------- -------
Total gross deferred tax liabilities (12,325) (10,066)
------- -------
Net deferred tax asset $1,331 37,401
======= =======
</TABLE>
The net reduction in the valuation allowance for deferred tax assets for the
years ended December 31, 1997, 1996, and 1995 was $4,246,000, $10,836,000
and $7,623,000, respectively, which primarily resulted from the reduction of
the deferred tax assets in 1997 and the recognition of additional deferred
tax assets and the expiration of capital loss carryforwards in 1996 and
1995. 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 following an evaluation of the
actual 1994, 1995 and 1996 taxable income and projections of future taxable
income. In 1996, the projections included an assessment of the impact of
the decision to pursue a sale of the Rolodex Business (completed in March
1997) on future taxable income. 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
F-23
<PAGE> 27
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
recorded as an increase to paid-in capital and $426,000 and $367,000 was
recorded as a component of deferred income tax benefit in 1996 and 1995,
respectively.
Recognition, if any, of tax benefits subsequent to December 31, 1997
relating to unrecognized deferred tax assets are expected to be allocated to
the consolidated statements of operations and additional paid-in capital in
the amounts of $17,676,000 and $12,194,000, respectively. At December 31,
1997, the Company had Federal net operating loss carryforwards of
approximately $16,682,000 which begin to expire in 2008.
The Company and its domestic subsidiaries file a consolidated U.S. Federal
income tax return. The IRS is presently examining the consolidated Federal
income tax returns for 1991 through 1996. 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.
(15) Other Income and Nonrecurring Charges
Other income for 1997 included a pretax gain on the sale of the Rolodex
Business totaling $95,001,000. Other income for 1996 included a $3,125,000
pretax gain on the sale of Rolodex Electronics. Other income for 1996 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, $1,494,000 related to the resolutions of several legal disputes
and a $3,973,000 gain on the sale of idle corporate assets.
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 the Rolodex
Business, the Company's former office supply unit, to recognize a number of
open and unresolved customer chargebacks, primarily originating in prior
years.
(16) Related Party Transactions
During 1997, the Company paid Goldman Sachs $1,996,000 in investment banking
fees and expenses related to the sale of the Rolodex Business, $2,042,000 of
fees in connection with the refinancing and issuance of the Notes and
$204,000 for services rendered in connection with the Tender Offer. During
1997, the Company paid Goldman Sachs $3,094,000 in underwriting fees related
to the issuance of the Notes.
As discussed in Note 8, the Company entered into a new bank credit agreement
in 1997. Goldman Sachs Credit Partners L.P., an affiliate of Goldman Sachs,
had an initial participating interest of $66,667,000 in the Bank Credit
Agreement. Goldman Sachs Credit Partners L.P. received $583,000 from the
agent bank for its portion of the arrangement fee paid by the Company in
1997.
During 1996, the Company paid Goldman Sachs $1,000,000 in transaction fees
in connection with the purchase of Lingemann (See Note 3). In connection
with such services, the Company provides for the indemnification of Goldman
Sachs against various liabilities, including liabilities under the Federal
securities laws.
F-24
<PAGE> 28
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) Commitments and Contingencies
Rental expense for operating leases totaled $4,283,000, $3,954,000 and
$3,436,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. These leases primarily relate to production facilities.
Rentals received for subleases for operating leases totaled $248,000 in
1997, $206,000 in 1996 and $136,000 in 1995.
Future minimum lease payments under contractually noncancellable operating
leases (with initial lease terms in excess of one year) for years subsequent
to December 31, 1997 are as follows: 1998, $3,774,000; 1999, $2,861,000;
2000, $2,209,000; 2001, $1,596,000; 2002, $874,000; and thereafter,
$1,324,000. Future minimum rentals to be received under noncancellable
subleases for years subsequent to December 31, 1997 are as follows: 1998,
$260,000; 1999, $260,000; 2000, $260,000; 2001, $22,000; and thereafter,
none.
The Company is implicated in various claims and legal actions arising in the
ordinary course of business. 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.
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.
(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 automotive heat exchangers and related tubing, automatic
transmission and suspension components and stainless steel tubing,
respectively.
In 1997, the group's sales to the automotive OEM market, aftermarket
and non-automotive OEM manufacturers were 46%, 16% and 27% of total
sales, respectively, compared to 46%, 19% and 23% of total sales,
respectively, in 1996 and 43%, 19% and 22% of total sales,
respectively, in 1995.
Thermal's heat-transfer products have a broad range of applications in
motor vehicles, railroad locomotives, construction and other industrial
equipment.
Steel Parts is a manufacturer of close tolerance precision metal
stampings for the automotive industry including clutch plates for
automatic transmissions, suspension parts for vibration-reducing
assemblies and engine mounts. Approximately 70%, 70% and 67% of Steel
Parts' sales were to one of the "Big 3" domestic automobile
manufacturers in 1997, 1996 and 1995, respectively.
F-25
<PAGE> 29
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Romac manufactures stainless steel tubing for a variety of marine,
architectural, automotive and decorative applications at its facility
in North Carolina. Competition is based principally on price and, to a
lesser extent, on the shapes and finishes that can be achieved with the
tubing.
(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"). These units manufacture telecommunication
and electrical component products for the computer networking,
telephone digital switching, precision wiring, main frame computer,
automotive and medical equipment markets.
Stewart Connector designs and manufactures specialized high speed data
connector systems for telecommunications, cellular communications and
data transmission, including local and wide area networks. Foreign
sales accounted for approximately 41% of Stewart Connector's sales in
1997, 40% in 1996 and 43% in 1995. 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.
Signal manufactures both standard off-the-shelf and custom-made power
transformers serving a broad customer base in a variety of industries.
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
precision stampings and wireformed parts. Stewart Stamping sells it
products to a broad customer base primarily in the U.S. 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.
Escod produces electronic cable assemblies, specialized wire harnesses
and certain telecommunication equipment subassemblies for sale to
manufacturers of telecommunications, computer and other electronics
equipment. Two telecommunications OEMs together accounted for
approximately 68%, 66% and 60% of Escod's total revenues in 1997, 1996
and 1995, respectively.
(c) Office Products/Specialty Publishing Group
Specialty Publishing consists of Taylor Publishing Company ("Taylor"),
a wholly owned subsidiary engaged in yearbook and other specialty
publishing.
Taylor is engaged primarily in the contract design and printing of
student yearbooks from which it derived at least 87% of its revenues in
each of the last three years. The market for yearbooks is affected
more by demographic trends than by business cycles. Taylor markets its
yearbook services through commissioned independent sales
representatives who maintain contact with yearbook faculty advisors,
school principals and other key purchasing personnel.
F-26
<PAGE> 30
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On September 3, 1996, the Company sold Curtis. On October 4, 1996, the
Company sold Rolodex Electronics. On March 5, 1997, the Company sold
the remainder of its Rolodex Business. Sales of Rolodex Office
Products (exclusive of Curtis and Rolodex Electronics sales were
$10,797,000 and $58,600,000 in 1997 and 1996, respectively). Sales of
the Rolodex Electronics divested in October 1996 totaled $9,360,000 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 of the Office
Products Business in 1995 totaled $111,697,000.
(d) Allocation of Intangibles
In accordance with the Reorganization SOP, the Company has allocated
Reorganization Goodwill and resulting amortization to its identifiable
segments.
(e) Allocated Corporate Overhead
Segment operating income (loss) reflects the allocation of corporate
overhead.
F-27
<PAGE> 31
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Operating information of each business segment, excluding divested
subsidiaries, follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Automotive Components Group
Sales $231,070 209,722 180,251
Cost of sales 171,375 156,481 134,673
Selling, general and administrative
expenses 24,398 19,627 15,811
Allocated corporate overhead 3,537 2,981 1,282
Depreciation 8,690 6,718 4,674
Amortization of Reorganization Goodwill - - 3,404
-------- ------- --------
Segment operating income $23,070 23,915 20,407
======== ======= ========
Technologies Group
Sales $198,941 183,663 170,615
Cost of sales 140,683 127,337 116,253
Selling, general and administrative
expenses 25,365 23,190 19,750
Allocated corporate overhead 3,728 3,152 1,412
Depreciation 6,159 5,531 5,714
Amortization of Reorganization Goodwill - - 7,176
-------- ------- --------
Segment operating income $23,006 24,453 20,310
======== ======= ========
Office Products/Specialty Publishing Group
Specialty Publishing:
Sales $98,222 99,020 98,640
Cost of sales 58,787 61,094 60,389
Selling, general and administrative
expenses 29,406 31,504 29,594
Allocated corporate overhead 1,744 1,986 881
Depreciation 2,930 2,786 2,904
Amortization of Reorganization Goodwill - - 5,625
-------- ------- --------
Operating income (loss) 5,355 1,650 (753)
-------- ------- --------
Office Products:
Sales 10,797 80,069 111,697
Cost of sales 5,483 44,981 74,405
Selling, general and administrative
expenses 2,954 22,946 27,983
Nonrecurring charges - - 6,200
Allocated corporate overhead 240 1,501 1,023
Depreciation 194 1,474 1,406
Amortization of Reorganization Goodwill - - 15,967
-------- ------- --------
Operating income (loss) 1,926 9,167 (15,287)
-------- ------- --------
Segment operating income (loss) $7,281 10,817 (16,040)
======== ======= ========
</TABLE>
F-28
<PAGE> 32
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A reconciliation of segment operating income to consolidated operating income
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Total segment operating income $53,357 59,185 24,677
Corporate depreciation (89) (84) (60)
------- ------ ------
Consolidated operating income $53,268 59,101 24,617
======= ====== ======
</TABLE>
A summary of identifiable assets of each business segment at December 31
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Automotive Components Group $144,847 143,628
Technologies Group 87,252 80,740
Office Products/Specialty Publishing Group:
Specialty Publishing 42,767 40,664
Office Products - 27,153
Corporate 27,807 56,208
-------- -------
$302,673 348,393
======== =======
</TABLE>
Corporate assets include cash, deferred taxes and other assets.
A summary of capital expenditures of each business segment follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Automotive Components Group $12,194 7,447 10,244
Technologies Group 8,166 9,597 7,044
Office Products/Specialty Publishing Group:
Specialty Publishing 3,161 2,876 2,776
Office Products - 2,570 1,969
Corporate 62 89 126
------- ------ ------
$23,583 22,579 22,159
======= ====== ======
</TABLE>
A summary of export sales by geographic region follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Europe $21,193 23,143 19,777
Asia 14,007 17,133 18,493
Canada 9,758 8,340 8,892
Mexico 4,292 6,813 5,280
Other 6,874 6,933 7,227
------- ------ ------
$56,124 62,362 59,669
======= ====== ======
</TABLE>
F-29
<PAGE> 33
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>
1997 Dec. 31 Sept. 30(1) June 30 March 31(2)
---- -------- -------- ------- --------
<S> <C> <C> <C> <C>
Sales $120,624 131,394 169,671 117,341
Gross profit 29,508 34,269 52,170 31,256
Net income 3,531 3,587 11,207 63,319
Per share:
Basic net income per share $ 0.87 0.64 1.16 6.65
Diluted net income per share 0.85 0.62 1.14 6.39
</TABLE>
<TABLE>
<CAPTION>
1996 Dec. 31(3) Sept. 30(4) 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:
Basic net income per share $ 1.33 0.90 1.24 0.64
Diluted net income per share 1.27 0.86 1.20 0.62
</TABLE>
(1) Includes a pretax extraordinary loss of $1,193,000 (or $.21 per share
on both a basic and diluted basis) related to the extinguishment of
debt (See Note 8).
(2) Includes a pretax gain on the sale of the Rolodex Business totaling
$95,001,000.
(3) Includes the following: (a) pretax gain of $3,125,000 on the sale of
Rolodex Electronics (See Note 2), (b) recognition of a tax benefit of
$3,207,000 primarily related to a capital loss carryforward.
(4) Includes a pretax favorable adjustment of $2,200,000 to the Company's
environmental liabilities.
F-30
<PAGE> 34
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(20) Pro Forma Results of Operations (unaudited)
Set forth below is certain unaudited pro forma consolidated financial
information of the Company based on historical information that has been
adjusted to reflect the divestiture of the Office Products Business and all
transactions directly or indirectly related to the transactions discussed
in Notes 2, 3, 8 and 11. In addition, the historical financial information
for 1996 has been adjusted to reflect the acquisition of the Lingemann
Business.
The income statement data give effect to the following transactions as if
all had occurred at the beginning of each period presented; (i) the
Company's purchase of 2,805,194 shares of common stock from Water Street
and 51,948 shares from Mr. Smialek at a price of $38.50 per share; (ii) the
Company's purchase of 2,857,142 shares at a price of $38.50 per share
pursuant to the Tender Offer; (iii) the closing of the Bank Credit
Agreement (including advances to refinance in full outstanding indebtedness
under the prior credit agreement); and (iv) the issuance of $150 million of
the Notes. The income statement for the 1997 and 1996 periods give effect
to the sale of the Rolodex Business (which occurred on March 5, 1997) as if
it occurred at the beginning of each period. In addition, the income
statement data for the 1996 period has been adjusted to reflect (i) the
divestiture of Rolodex Electronics, (ii) the divestiture of Curtis, and
(iii) the acquisition of the Lingemann Business as if all had occurred at
the beginning of the period. The Rolodex Electronics and Curtis
divestitures and the Lingemann Business acquisition actually occurred in
the third and fourth quarters of 1996. The nonrecurring transactions
directly related to the aforementioned transaction are excluded from the
pro forma income statement data. The unaudited summary pro forma
consolidated financial data is based on certain assumptions and estimates,
and therefore does not purport to be indicative of the results that would
actually have been obtained had the transactions been completed as of such
dates or indicative of future results of operations and financial position.
F-31
<PAGE> 35
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Unaudited Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Sale of the Refinancing
Rolodex and
Historical Business(1) Subtotal Tender Offer(2) Pro Forma
----------- ----------- ---------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $539,030 (10,797) 528,233 - 528,233
Cost of goods sold 376,328 (5,483) 370,845 - 370,845
Depreciation and amortization 18,571 (194) 18,377 - 18,377
Selling, general and
administrative expenses 90,863 (2,954) 87,909 - 87,909
-------- -------- -------- -------- --------
Operating income 53,268 (2,166) 51,102 - 51,102
Interest expense (20,562) - (20,562) (8,879) (29,441)
Interest income 2,877 955 3,832 (3,086) 746
Gain on sale of Rolodex 95,001 (95,001) - - -
Equity in net income of Thermalex 2,647 - 2,647 - 2,647
Other income, net 795 (1) 794 - 794
-------- -------- -------- -------- --------
Income before income taxes 134,026 (96,213) 37,813 (11,965) 25,848
Income tax expense (51,654) 37,680 (13,974) 4,606 (9,368)
-------- -------- -------- -------- --------
Income before extraordinary
item 82,372 (58,533) 23,839 (7,359) 16,480
Extraordinary item, net (728) - (728) 728 -
-------- -------- -------- -------- --------
Net income $ 81,644 (58,533) 23,111 (6,631) 16,480
======== ======== ======== ======== ========
Basic net income per share $11.34 4.15
======== ========
Weighted average number of
common shares outstanding 7,200 (3,233) 3,967
======== ======== ========
Diluted net income per common
share $11.12 4.01
======== ========
Weighted average number of
common shares and common share
equivalents outstanding 7,345 (3,233) 4,112
======== ======== ========
</TABLE>
F-32
<PAGE> 36
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Unaudited Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Acquisition Refinancing
and and
Historical Divestitures(3) Subtotal Tender Offer(2) Pro Forma
---------- ---------------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $572,474 (65,334) 507,140 - 507,140
Cost of goods sold 389,893 (32,277) 357,616 - 357,616
Depreciation and amortization 16,831 103 16,934 - 16,934
Selling, general and
administrative expenses 106,649 (20,753) 85,896 - 85,896
-------- ------- ------- ------- -------
Operating income 59,101 (12,407) 46,694 - 46,694
Interest expense (18,386) (60) (18,446) (13,770) (32,216)
Interest income 1,010 5,692 6,702 (5,978) 724
Equity in net income of Thermalex 2,922 - 2,922 - 2,922
Other income, net 7,216 (2,432) 4,784 - 4,784
-------- ------- ------- ------- -------
Income before income taxes 51,863 (9,207) 42,656 (19,748) 22,908
Income tax expense (12,810) (1,689) (14,499) 7,603 (6,896)
-------- ------- ------- ------- -------
Net income $39,053 (10,896) 28,157 (12,145) 16,012
======== ======= ======= ======= =======
Basic net income per share $4.10 4.21
======== =======
Weighted average number of
common shares outstanding 9,517 (5,714) 3,803
======== ======= =======
Diluted net income per share $3.95 3.83
======== =======
Weighted average number of
common shares and common share
equivalents outstanding 9,892 (5,714) 4,178
======== ======= =======
</TABLE>
F-33
<PAGE> 37
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Notes to the Unaudited Pro Forma Condensed Consolidated Statements of
Income follow:
(1) To record the effect on sales, costs and expenses assuming that the
divestiture of the Rolodex Business had occurred as of the beginning of
the period presented. Proceeds from the sale of the Rolodex Business
were assumed to have been held in short term investments from the
beginning of the period.
(2) To record the effect on interest expense and the related income tax
effect of (i) the purchase of 2,805,194 shares from Water Street and
51,948 shares from Mr. Smialek at $38.50 per share in cash for an
aggregate purchase price of $109,999,967, (ii) the entering into of the
Bank Credit Agreement and the issuance and sale of $150,000,000
aggregate principal amount of the Notes, and (iii) the purchase of
2,857,142 shares at $38.50 per share in cash for an aggregate purchase
price of $109,999,967 pursuant to the Tender Offer, as if the
aforementioned transactions had occurred at the beginning of the
periods presented. Interest income which was assumed to have been
earned on the proceeds from the sale of the Office Products Business
was reversed as part of this adjustment.
(3) To record the effect on sales, costs and expenses assuming that the
divestiture of the Office Products Business and the acquisition of the
Lingemann Business had occurred as of the beginning of the period
presented. Proceeds from the sale of the Rolodex Business were assumed
to have been held in short term investments from the beginning of the
period. Proceeds from the sales of Rolodex Electronics and Curtis were
assumed to have been applied to reduce the Company's outstanding debt
at the beginning of the period, reducing interest expense and the
related income tax expense. The acquisition of the Lingemann Business
was assumed to have occurred and to have been funded through borrowings
under the prior bank agreement as of the beginning of the period
presented.
(21) Subsequent Event
On March 24, 1998, it was announced that the Company and an affiliate of DLJ
Merchant Banking Partners II (and affiliated funds) ("DLJMB") have signed a
definitive merger agreement. Under the terms of the agreement, the
stockholders of the Company will receive total consideration of $44.50 per
share, consisting of $42.98 in cash and 0.03419 shares of retained stock of
the surviving corporation. In aggregate, stockholders will receive
approximately $172.6 million in cash and retain 137,328 shares in the
surviving entity. The retained shares will represent approximately 10% of
the common stock outstanding post-recapitalization.
The transaction, which is estimated to have a value of approximately $437
million including existing indebtedness to be assumed and/or refinanced, is
subject to terms and conditions customary in transactions of this type,
including approval by the Company's shareholders and expiration of
applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, and will be treated as a recapitalization for
accounting purposes. Affiliates of Donaldson, Lufkin & Jenrette Securities
Corporation, which acted as financial advisors to DLJMB, have committed to
provide all debt financing required for the transaction.
DLJMB also announced that it entered into a voting agreement in support of
the transaction with respect to 1,783,878 shares, approximately 44% of the
voting stock of the Company, with Water Street, an affiliate of Goldman
Sachs, which is the Company's largest shareholder.
F-34
<PAGE> 38
As a result of the proposed merger, the Company and DLJMB will incur various
costs and expenses in connection with consummating the transaction including
professional fees, registration costs, financing costs, and compensation
costs. Pursuant to the terms of the merger, all issued employee stock options
will vest. The compensation expense associated with the option payments will
include approximately $11.4 million to employees for the excess of the $44.50
purchase price per share over the exercise cost of all outstanding vested and
unvested options.
F-35
<PAGE> 1
Exhibit 10(l)
EXTENSION AGREEMENT
-------------------
EXTENSION AGREEMENT (the "Extension Agreement) by and between INSILCO
CORPORATION, a Delaware corporation (the "Company"), and ROBERT L. SMIALEK, (the
"Executive"), dated as of the 1st day of May, 1996.
WHEREAS, the Company and the Executive entered into an Employment
Agreement dated as of the 1st day of May, 1993, which was subsequently amended
and restated as of the 1st day of July, 1993 (the "Agreement");
WHEREAS, the period of employment under the Agreement is due to expire
April 30, 1996, and the Company and the Executive have agreed to extend the
period of employment of the Executive until April 30, 1998;
WHEREAS, the Company and the Executive entered into a Restricted Stock
Agreement dated as of the 1st day of July, 1993 (the "Restricted Stock
Agreement"); and
WHEREAS, the Company and the Executive entered into an Option Agreement
dated as of the 1st day of May, 1993 (the "Option Agreement"), and have agreed
to amend certain provisions of the Option Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Capitalized Terms. Unless otherwise provided, capitalized terms used
herein shall have the meaning given to them as capitalized terms in the
Agreement, the Restricted Stock Agreement, or the Option Agreement, as the case
may be.
<PAGE> 2
2. Employment Period. The Company shall continue to employ the
Executive, and the Executive shall serve the Company, on the terms and
conditions set forth in the Agreement, except as modified by this Extension
Agreement, for the period commencing on May 1, 1996 and ending on April 30, 1998
(the "Extended Employment Period"). Unless specifically otherwise provided
herein, or unless the context plainly provides otherwise, all references to the
Employment Period in the Agreement shall hereafter include as well the Extended
Employment Period.
3. Compensation. During the Extended Employment Period the Executive
shall receive an Annual Base Salary and an Annual Bonus in such amounts as may
be determined and awarded from time to time by the Board, but in no event shall
the Annual Base Salary be less than the amount paid the Executive for 1996.
4. Restricted Stock. The restrictions set forth in clause (iii) of
Paragraph (f) of Section 3 of the Agreement, as incorporated by cross reference
in the Restricted Stock Agreement, lapsed on March 31, 1996 due to the
satisfaction of the three (3) separate price levels as stipulated therein.
5. Acceleration of Options. Clause (ii) of Section 4 of the Option
Agreement is amended to read as follows:
"(ii) the 60th day following the Date of Termination in the
case of Termination by the Company without Cause or
Termination by the Executive for Good Reason, in either of
which events a "pro rata portion" (as hereinafter provided),
of the Base Options and Premium Options which would otherwise
have become exercisable the following May 1st shall become
fully exercisable on the Date of Termination,"
2
<PAGE> 3
6. Definition of Pro Rata Portion. The following sentence shall be
added to the end of Section 4 of the Option Agreement:
"For the purposes of this Section 4, the "pro rata portion" of
the Base Options and Premium Options shall mean the result
determined by multiplying one-fifth of each of the Base
Options and the Premium Options by a fraction, the numerator
of which is the number of days between the immediately
preceding April 30th and the Date of Termination, and the
denominator of which is 365."
7. Miscellaneous. The addresses set forth in Paragraph (b) of Section
11 of the Agreement and Paragraph (b) of Section 10 of the Option Agreement are
revised as follows:
Thomas J. Riley, Esq.
Hahn Loeser-Parks
10 West Broad Street, Ste. 1800
Columbus, Ohio 43215
Insilco Corporation
425 Metro Place North, Ste. 555
Dublin, Ohio 43017
Attn: Corporate Secretary
7. Except as hereinabove expressly provided herein, all of the terms
and conditions set forth in the Agreement, the Restricted Stock Agreement, and
Option Agreement are hereby ratified, approved and confirmed.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization of its Board of Directors, the Company has
caused this Extension Agreement to be executed in its name on its behalf, all as
of the day and year first above written.
3
<PAGE> 4
--------------------------------------
Robert L. Smialek, Executive
INSILCO CORPORATION
By:
----------------------------------
Kenneth H. Koch
Vice President & General Counsel
4
<PAGE> 1
EXHIBIT 10(M)
SECOND EXTENSION AGREEMENT
--------------------------
SECOND EXTENSION AGREEMENT (the "Second Extension Agreement") by and
between INSILCO CORPORATION, a Delaware corporation (the "Company"), and ROBERT
L. SMIALEK, (the "Executive"), dated as of the ___ day of __________ 1997.
WHEREAS, the Company and the Executive entered into an Employment
Agreement dated as of the 1st day of May 1993, which was subsequently amended
and restated as of the 1st day of July, 1993 (the "Agreement"); and the parties
have agreed to amend certain provisions of the Agreement; and
WHEREAS, the Company and the Executive also entered into an Option
Agreement dated as of the 1st day of May 1993 (the "Option Agreement"), and have
agreed to amend certain provisions of the Option Agreement; and
WHEREAS, the Company and the Executive entered into an Extension
Agreement dated as of the 1st day of May, 1996, which amended the Agreement and
the Option Agreement, and the parties have now decided to further amend certain
of the provisions of the Agreement and the Option Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Capitalized Terms. Unless otherwise provided, capitalized terms used
herein shall have the meaning given to them; as capitalized terms in the
Agreement or the Option Agreement, as the case may be.
2. Employment Period. The company shall continue to employ the
Executive, and the Executive shall serve the Company, on the terms and
conditions set forth in the Agreement, except as modified by this Second
Extension Agreement, for the period commencing on May 1, 1996 and
<PAGE> 2
ending on April 30, 2001 (the "Extended Employment Period"). Unless specifically
otherwise provided herein, or unless the context plainly provides otherwise, all
references to the Employment Period in the Agreement shall hereafter include the
Extended Employment Period.
3. Compensation. During the Extended Employment Period the Executive
shall receive an Annual base Salary and an Annual Bonus in such amounts as may
be determined and awarded from time to time by the Board, but in no event shall
the Annual Base Salary be less than the amount paid the Executive for 1996.
4. Extension of Time. Clause (iv) of Section 4 of the Option Agreement
is amended to read as follows:
"(iv) the day immediately following the eighth anniversary of
the date hereof."
5. Except as hereinabove expressly provided herein, all of the terms
and conditions set forth in the Agreement and Option Agreement, as previously
amended by the Extension Agreement, are hereby ratified, approved and confirmed.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization of its Board of Directors, the Company has
caused this Extension Agreement to be executed in its name on its behalf, all as
of the day and year first above written.
-------------------------------------
Robert L. Smialek, Executive
INSILCO CORPORATION
By:
----------------------------------
Kenneth H. Koch
Vice President & General Counsel
<PAGE> 1
EXHIBIT 23(a)
Consent of Independent Auditors'
The Board of Directors
Insilco Corporation:
We consent to 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 30, 1998, except as to Note 21, which is
as of March 24, 1998 relating to the consolidated balance sheets of Insilco
Corporation and subsidiaries as of December 31, 1997, and 1996, 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, 1997,
and the related schedule, which report appears in the December 31, 1997, annual
report on Form 10-K of Insilco Corporation.
KPMG Peat Marwick LLP
Columbus, Ohio
March 30, 1998
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures appear
below, constitute and appoint Robert L. Smialek, Kenneth H. Koch, and Philip K.
Woodlief, and each of them as their true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for them and in
their names, places, and steads, in any and all capacities, to sign the the
Insilco Corporation Annual Report on Form 10-K, pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended, for the fiscal year ended
December 31, 1997, and to file the same, with all exhibits thereto, and the
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as they might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
DATED: January 26, 1998
/s/ Robert L. Smialek /s/ Philip K. Woodlief
- ---------------------- ----------------------
Robert L. Smialek Philip K. Woodlief
/s/ Terence M. O'Toole /s/ Barry S. Volpert
- ---------------------- ----------------------
Terence M. O'Toole Barry S. Volpert
/s/ Thomas E. Petry /s/ James J. Gaffney
- ---------------------- ----------------------
Thomas E. Petry James J. Gaffney
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 10,651 3,481
<SECURITIES> 0 0
<RECEIVABLES> 67,209 73,874
<ALLOWANCES> (2,132) (4,978)
<INVENTORY> 60,718 66,385
<CURRENT-ASSETS> 145,048 189,108
<PP&E> 177,295 164,293
<DEPRECIATION> (63,324) (49,914)
<TOTAL-ASSETS> 302,673 352,000
<CURRENT-LIABILITIES> 105,540 141,152
<BONDS> 150,000 0
<COMMON> 5 10
0 0
0 0
<OTHER-SE> (102,333) 33,392
<TOTAL-LIABILITY-AND-EQUITY> 302,673 352,000
<SALES> 539,030 572,474
<TOTAL-REVENUES> 539,030 572,474
<CGS> 376,328 389,893
<TOTAL-COSTS> 376,328 389,893
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 701 2,298
<INTEREST-EXPENSE> 20,562 18,386
<INCOME-PRETAX> 134,026 51,863
<INCOME-TAX> 51,654 12,810
<INCOME-CONTINUING> 82,372 39,053
<DISCONTINUED> 0 0
<EXTRAORDINARY> (728) 0
<CHANGES> 0 0
<NET-INCOME> 81,644 39,053
<EPS-PRIMARY> 11.34 4.10
<EPS-DILUTED> 11.12 3.92
</TABLE>
