<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A No. 1
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 0-22098
INSILCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 06-0635844
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 Metro Place North
Fifth Floor
Dublin, Ohio 43017
(Address of principal executive offices) (Zip Code)
614-792-0468
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. (X) Yes ( ) No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. (X) Yes ( ) No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of July 1, 1998, 4,145,372
shares of common stock, $.001 par value, were outstanding.
<PAGE> 2
INSILCO CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
- March 31, 1998 (unaudited)
- December 31, 1997
Condensed Consolidated Statements of Income 4
- Three months ended March 31, 1998 (unaudited)
- Three months ended March 31, 1997 (unaudited)
Condensed Consolidated Statement of Stockholders' Equity (Deficit) 5
- Three months ended March 31, 1998 (unaudited)
Condensed Consolidated Statements of Cash Flows 6
- Three months ended March 31, 1998 (unaudited)
- Three months ended March 31, 1997 (unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements 7
Independent Auditors' Review Report 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1998 1997
--------- ------------
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,777 10,651
Trade receivables, net 71,688 67,209
Other receivables 5,850 3,477
Inventories, net 72,570 60,718
Deferred tax asset 371 277
Prepaid expenses and other current assets 8,993 2,716
--------- ---------
Total current assets 167,249 145,048
Property, plant and equipment, net 114,770 113,971
Deferred tax asset 654 1,054
Investment in Thermalex 9,128 9,736
Goodwill, net 13,167 13,408
Other assets and deferred charges 18,436 19,456
--------- ---------
Total assets $ 323,404 302,673
========= =========
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,113 1,684
Current portion of other long-term obligations 5,114 5,393
Accounts payable 39,118 39,757
Income taxes payable 709 1,112
Accrued expenses and other 63,933 57,594
--------- ---------
Total current liabilities 109,987 105,540
Long-term debt, excluding current portion 267,685 256,059
Other long-term obligations, excluding current portion 41,933 43,402
Stockholders' deficit (96,201) (102,328)
--------- ---------
Total liabilities and stockholders' deficit $ 323,404 302,673
========= =========
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1997 has been
derived from the audited balance sheet as of that date.
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE> 4
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
----------- -----------
<S> <C> <C>
Sales $ 117,305 106,544
Cost of products sold 85,618 77,306
Depreciation and amortization 4,240 3,871
Selling, general and administrative expenses 17,672 15,978
----------- -----------
Operating income 9,775 9,389
----------- -----------
Other income (expense):
Interest expense (6,877) (3,643)
Interest income 51 449
Other income, net 1,329 509
----------- -----------
Total other income (expense) (5,497) (2,685)
----------- -----------
Income from continuing operations before income taxes 4,278 6,704
Income tax expense (1,497) (2,343)
----------- -----------
Income from continuing operations 2,781 4,361
Discontinued operations, net of tax:
Income from operations, net of $1,037 of tax -- 1,170
Gain on disposal, net of $37,213 of tax -- 57,788
----------- -----------
Income from discontinued operations -- 58,958
----------- -----------
Net income $ 2,781 63,319
=========== ===========
Basic earnings per common share:
Income from continuing operations $ 0.68 0.45
Discontinued operations -- 6.20
----------- -----------
Basic net income per share $ 0.68 6.65
=========== ===========
Weighted average number of common shares outstanding 4,086,100 9,516,504
=========== ===========
Diluted earnings per common share:
Income from continuing operations $ 0.66 0.44
Discontinued operations -- 5.95
----------- -----------
Diluted net income per share $ 0.66 6.39
=========== ===========
Weighted average number of common shares outstanding
and common share equivalents 4,194,577 9,912,314
=========== ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE> 5
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity (Deficit)
For the Three Months Ended March 31, 1998
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Retained Other Total
Par Value Paid-in Earnings Treasury Comprehensive Stockholders'
$0.001 Capital (Deficit) Stock Income Equity (Deficit)
-------- -------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 5 -- (82,756) (16,268) (3,309) (102,328)
Net income -- -- 2,781 -- -- 2,781
Shares issued upon exercise
of stock options -- 2,549 -- -- -- 2,549
Tax benefit from exercise of
stock options -- 778 -- -- -- 778
Other comprehensive income -- -- -- -- 19 19
-------- -------- -------- -------- -------- --------
Balance at March 31, 1998 $ 5 3,327 (79,975) (16,268) (3,290) (96,201)
======== ======== ======== ======== -------- ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE> 6
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 2,781 63,319
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ................................ 4,240 3,871
Deferred tax expense ......................................... 617 2,269
Other noncash charges and credits ............................ (239) (388)
Change in operating assets and liabilities:
Receivables .................................................. (6,986) (8,670)
Inventories .................................................. (11,945) (12,815)
Payables and other ........................................... 310 7,517
Discontinued operations:
Gain on disposal of segment ............................... -- (95,001)
Deferred tax expense ...................................... -- 25,687
Depreciation .............................................. -- 194
Change in operating assets and liabilities ................ -- 9,805
-------- --------
Net cash used in operating activities .............. (11,222) (4,212)
-------- --------
Cash flows from investing activities:
Capital expenditures ............................................ (5,813) (4,505)
Other investing activities ...................................... 1,193 579
Proceeds from sale of Rolodex Business .......................... -- 112,610
-------- --------
Net cash provided by (used in) investing activities (4,620) 108,684
-------- --------
Cash flows from financing activities:
Proceeds from debt borrowings .................................. 12,125 8,440
Proceeds from sale of stock .................................... 2,549 1,777
Payment of prepetition liabilities ............................. (1,647) (1,708)
Purchase of treasury stock ..................................... -- (576)
Retirement of long-term debt ................................... (25) (161)
-------- --------
Net cash provided by financing activities .......... 13,002 7,772
-------- --------
Effect of exchange rate changes on cash ............................ (34) (202)
-------- --------
Net increase (decrease) in cash and cash equivalents (2,874) 112,042
Cash and cash equivalents at beginning of period ................... 10,651 3,481
-------- --------
Cash and cash equivalents at end of period ......................... $ 7,777 115,523
======== ========
Interest paid ...................................................... $ 10,353 3,821
======== ========
Income taxes paid .................................................. $ 840 183
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
6
<PAGE> 7
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 1998
(1) Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all determinable adjustments
have been made which are considered necessary to present fairly the
financial position and the results of operations and cash flows at the
dates and for the periods presented.
(2) Discontinued Operations
-----------------------
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 Curtis
Manufacturing Co., Inc. the Company's computer accessories business
("Curtis"). The proceeds from these sales aggregated $21,818,000.
On July 7, 1998, the Company amended its Form 10-Q to account for the
sale of the Office Products Business as a discontinued operation and,
accordingly, the accompanying consolidated statements of operations and
cash flows for the periods prior to the sale have been reclassified.
Revenues associated with the discontinued Office Products Business
segment for the first quarter of 1997 were $10,797,000.
(3) 1997 Transactions
-----------------
In 1997, the Company completed several material transactions affecting
its ongoing operations and debt and capital structure (the "1997
Transactions") as described more fully below:
o On July 3, 1997, the Company refinanced its existing debt under a new
six year $200 million amended and restated Credit Agreement.
o In the third quarter of 1997, the Company purchased an aggregate of
5,714,284 shares of its common stock in two transactions using the
proceeds from the sale of the Rolodex Business, $112,610,000, net of
transaction costs, and the proceeds received on the issuance of the
$150 million aggregate principal amount of 10.25% Senior Subordinated
Notes due 2007 (the "Notes").
7
<PAGE> 8
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 1998
(4) Inventories
-----------
Inventories consisted of the following at March 31, 1998 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Raw materials and supplies $ 25,324
Work-in-process 34,149
Finished goods 13,097
--------
Total inventories $ 72,570
========
</TABLE>
(5) Comprehensive Income
--------------------
On January 1, 1998, the Company adopted the Financial Accounting
Standards Board ("FASB") Statement No. 130 ("SFAS 130"), "Reporting
Comprehensive Income". 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. This statement expands or modifies disclosures and has
no impact on the Company's financial position, results of operations or
cash flows. Comprehensive income for the first quarters of 1998 and 1997
totaled $2,800,000 and $61,544,000, respectively, including other
comprehensive income consisting of foreign currency translation
adjustments (losses) totaling $19,000 and ($1,775,000), respectively.
(6) Earnings Per Share
------------------
The Company has adopted the FASB Statement No. 128 ("SFAS 128"),
"Earnings per Share", which simplifies the computation of earnings per
share ("EPS"). 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.
(7) Contingencies
-------------
The Company is implicated in various claims and legal actions arising in
the ordinary course of business. Those claims or liabilities will be
addressed in the ordinary course of business and be paid in cash as
expenses are incurred. In the opinion of management, the ultimate
disposition of such claims or liabilities will not have a material
adverse effect on the Company's consolidated financial position, results
of operations or liquidity.
(8) 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.
8
<PAGE> 9
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 1998
(9) Pro Forma Result of Operations
------------------------------
The following financial information presents 1998 actual and 1997 pro
forma consolidated net sales and results of operations. The 1997 pro
forma consolidated net sales and results of operations are presented as
if the 1997 Transactions had occurred at the beginning of 1997, exclusive
of nonrecurring items directly attributable to the transaction. The pro
forma results of operations are as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $ 117,305 106,544
Income from continuing operations 2,781 1,884
Basic income from continuing operations
per share 0.68 0.50
Diluted income from continuing operations
per share 0.66 0.45
</TABLE>
(10) Merger Agreement
----------------
On March 24, 1998, it was announced that the Company and an affiliate of
DLJ Merchant Banking Partners II (and affiliated funds) ("DLJMB") signed
a definitive merger agreement. Under the initial terms of the agreement,
the stockholders of the Company would have received total consideration
of $42.98 in cash and 0.03419 shares of retained stock (having a nominal
value of $44.50 per share) of the surviving corporation. On June 8, 1998,
DLJMB agreed to increase the total consideration to be paid by $0.50 in
cash to $43.48 in cash and 0.03378 shares of retained stock (having a
nominal value of $45.00 per share) of the surviving corporation. In
aggregate, stockholders will receive approximately $180.2 million in cash
and retain 140,031 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 $448
million including existing indebtedness to be assumed or refinanced, is
subject to terms and conditions customary in transactions of this type,
including approval by the Company's shareholders, 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 43% of
the voting stock of the Company, with Water Street, an affiliate of
Goldman Sachs, which is the Company's largest shareholder.
9
<PAGE> 10
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 1998
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 $9.1
million to employees for the excess of the $45.00 purchase price per
share over the exercise cost of all outstanding vested and unvested
options.
(11) Subsequent Event
----------------
On May 14, 1998, the Company announced that a jury had awarded its Taylor
Publishing unit approximately $24 million in damages in connection with
Taylor's suit against Jostens, Inc. which alleged that Jostens had
violated federal antitrust laws, unfairly interfered with Taylor's sales
representatives, improperly encouraged Taylor employees to divulge
confidential Taylor information and otherwise engaged in unfair
competition. The verdict also entitles Taylor to recover approximately $1
million in legal fees. The verdict is subject to any post trial motions
and appeals by Jostens, and Taylor's receipt of the judgment is
contingent on the results of any appeals.
10
<PAGE> 11
INDEPENDENT AUDITORS' REVIEW REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
INSILCO CORPORATION:
We have reviewed the condensed consolidated balance sheet of Insilco Corporation
and subsidiaries as of March 31, 1998, the related condensed consolidated
statements of income and cash flows for the three-month periods ended March 31,
1998 and 1997 and the condensed consolidated statement of stockholders' equity
(deficit) for the three-month period ended March 31, 1998. These condensed
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Insilco Corporation and
subsidiaries as of December 31, 1997, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the year then
ended (not presented herein), and in our report dated January 30, 1998, except
as to Note 21, which is as of June 8, 1998, and Note 2, which is as of July 7,
1998, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1997, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
Columbus, Ohio
April 22, 1998, except as to KPMG Peat Marwick LLP
Note 11, which is as of
May 14, 1998, Note 10,
which is as of June 8, 1998,
and Note 2, which is as of
July 7, 1998
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is a diversified manufacturer of automotive, telecommunications and
electronics components and is a publisher of specialty publishing products,
chiefly student yearbooks. The Company's Automotive Components Group
manufactures transmission components and assemblies at the Steel Parts unit,
heat exchangers and heat exchanger tubing at the Thermal Components unit, and
stainless steel tubing used in predominantly non-automotive applications at the
Romac Metals unit. The Technologies Group manufactures cable and wire assemblies
for the telecommunications industry, high performance data-grade connectors,
precision metal stampings and power transformers through its Escod Industries,
Stewart Connector Systems, Stewart Stamping, and Signal Transformer operating
units, respectively. The Specialty Publishing Group consists of Taylor
Publishing which produces primarily student yearbooks. The Company completed the
divestiture of its Office Products business with the sale of the Rolodex
Business in the first quarter of 1997. The Office Products Business is being
accounted for as a discontinued operation and, accordingly, the consolidated
statements of operations and cash flows for the periods prior to the sale have
been reclassified.
Summarized sales and operating income (loss) by business segment for the three
months ended March 31, 1998 compared to the corresponding period in 1997 are set
forth in the following table (in thousands) and discussed below:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
SALES
Automotive Components Group $ 62,077 56,183
Technologies Group 50,210 47,094
Specialty Publishing 5,018 3,267
-------- -------
$117,305 106,544
======== =======
OPERATING INCOME (LOSS)
Automotive Components Group $ 5,492 5,676
Technologies Group 5,271 4,974
Specialty Publishing (970) (999)
Unallocated Corporate (18) (262)
-------- -------
$ 9,775 9,389
======== =======
</TABLE>
12
<PAGE> 13
SALES AND OPERATING INCOME. Total net sales in the first quarter of 1998
increased 10% ($10,761,000) in the first quarter of 1998 compared to the first
quarter of 1997 primarily due to 10% ($5,894,000) and 7% ($3,116,000) increases
in the Automotive Components Group and Technologies Group, respectively. In
addition, the Specialty Publishing Group's sales increased 54% ($1,751,000) in
its seasonally slow first quarter due to the timing of yearbook deliveries
compared to the prior year.
The 10% increase in the Automotive Components Group's sales was primarily due to
increased sales of automotive tubing and increased sales of radiators to
original equipment manufacturers serving the off-road and industrial equipment
markets. In addition, sales of transmission components and other stamped steel
parts increased over the prior year due to increased volumes of components
supplied for light truck and sport utility transmissions.
The Technologies Group's sales increase of 7% was due to growth in sales of wire
and cable assemblies which reflects increased sales to existing customers and
continued expansion of the customer base. Sales of power transformers and
precision stampings for the first quarter of 1998 were also up over the prior
year. In addition, the El Paso stamping facility contributed to the
year-over-year increase in sales as it has moved from the start-up phase in 1997
to production phase in the first quarter of 1998. Sales of Stewart Connector's
modular data interconnect products were essentially flat compared to the first
quarter of 1997.
In a seasonally slow quarter, Taylor Publishing sales increased 54% ($1,751,000)
in the first quarter of 1998 from the corresponding period of the prior year
primarily due to timing differences in the delivery of yearbooks. (See
Seasonality.)
Operating income increased to $9,775,000 in the first quarter of 1998 from
$9,389,000 in the first quarter of 1997 primarily due to improved operating
margins in the Technologies Group.
The Automotive Components Group's operating income in the first quarter of 1998
compared to the corresponding period of 1997 decreased from $5,676,000 to
$5,492,000. Increased operating margins and sales volume at the Company's
automotive heat exchanger and related components and equipment business were
offset by lower operating margins at the Company's transmission components
business and tube mill manufacturing business.
The Technologies Group's operating income in the first quarter of 1998 increased
to $5,271,000 from $4,974,000 in the corresponding period of 1997. Operating
margins increased at Escod, Signal Transformer and Stewart Stamping. In
addition, the El Paso manufacturing facility recorded a smaller operating loss
in the quarter compared to last year. The operating margin in the first quarter
of 1998 at Stewart Connector declined slightly from the prior year primarily due
to competitive pricing pressures on mature products.
In the Specialty Publishing Group, Taylor Publishing's operating loss of
$970,000 in the first quarter of 1998 was relatively flat with the prior year.
OTHER INCOME (EXPENSE). Other income for the first quarters of 1998 and 1997
included $716,000 and $717,000, respectively, of equity income from the
Company's unconsolidated joint venture, Thermalex, which manufactures extruded
aluminum tubing primarily for automotive air conditioning condensers. Interest
expense increased 89% ($3,234,000) in the first quarter of 1998 compared to the
first quarter of 1997 due to the issuance of $150,000,000 of 10.25% Senior
Subordinated Notes (the "Notes") completed in the third quarter of 1997 (see
Note 3 to the Unaudited Condensed Consolidated Financial Statements.)
CASH FLOWS USED IN OPERATING ACTIVITIES. Operations used $11,222,000 cash in the
first quarter of 1998 as compared to a cash usage of $4,212,000 in the first
quarter of 1997. Cash flows from operations decreased from the prior year
primarily due to higher interest payments related to the Notes which are payable
semi-annually in the first and third quarters.
13
<PAGE> 14
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES. In the first quarter of 1998,
the Company received a $1,324,000 dividend distribution from Thermalex and spent
$5,813,000 in capital expenditures for its operating units. In the first quarter
of 1997, the Company sold its Rolodex Business for cash in the net amount of
$112,610,000 and spent $4,505,000 in capital expenditures.
CASH FLOWS FROM FINANCING ACTIVITIES. In the first quarter of 1998, the Company
borrowed a net amount of $12,125,000 on its revolving credit facility and paid
$1,647,000 of prepetition liabilities. In the first quarter of 1997, the Company
borrowed a net amount of $8,440,000 on its revolving credit facility and paid
$1,708,000 of prepetition liabilities.
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 first and fourth quarters of each year. The Company's other businesses are
not highly seasonal.
IMPACT OF INFLATION AND CHANGING PRICES. Inflation and changing prices have
not significantly affected the Company's operating results or markets.
LIQUIDITY. At March 31, 1998, the Company's cash and cash equivalents and net
working capital amounted to $7,777,000 and $57,262,000, respectively, compared
to $10,651,000 and $39,508,000, respectively, at December 31, 1997. The
borrowing ability under the Company's revolving credit facility as of the end of
the first quarter of 1998 was $74,318,000, including $42,050,000 available for
letters of credit.
MERGER AGREEMENT. On March 24, 1998, it was announced that the Company and an
affiliate of DLJ Merchant Banking Partners II (and affiliated funds) ("DLJMB")
signed a definitive merger agreement. Under the initial terms of the agreement,
the stockholders of the Company would have received total consideration of
$42.98 in cash and 0.03419 shares of retained stock (having a nominal value of
$44.50 per share) of the surviving corporation. On June 8, 1998, DLJMB agreed to
increase the total consideration to be paid by $0.50 in cash to $43.48 in cash
and 0.03378 shares of retained stock (having a nominal value of $45.00 per
share) of the surviving corporation. In aggregate, stockholders will receive
approximately $180.2 million in cash and retain 140,031 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 $448
million including existing indebtedness to be assumed or refinanced, is subject
to terms and conditions customary in transactions of this type, including
approval by the Company's shareholders, 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 43% 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 $9.1 million to employees for the excess of the $45.00 purchase
price per share over the exercise cost of all outstanding vested and unvested
options.
14
<PAGE> 15
SUBSEQUENT EVENT. On May 14, 1998, the Company announced that a jury has
awarded its Taylor Publishing unit approximately $24 million in damages in
connection with Taylor's suit against Jostens, Inc. which alleged that Jostens
had violated federal antitrust laws, unfairly interfered with Taylor's sales
representatives, improperly encouraged Taylor employees to divulge confidential
Taylor information and otherwise engaged in unfair competition. The verdict also
entitles Taylor to recover approximately $1 million in legal fees. The verdict
is subject to any post trial motions and appeals by Jostens, and Taylor's
receipt of the judgment is contingent on the results of any appeals.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. Except for the historical information contained herein, the matters
discussed in this Form 10-Q included in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" include "Forward Looking
Statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Although the Company believes that the expectations reflected in 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.
15
<PAGE> 16
INSILCO CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
* Exhibit 10(n) First Amendment to the Value Appreciation Agreement
Exhibit 27 Financial Data Schedule
* Previously filed with this Form 10-Q for the quarter ended March 31,
1998.
(b) Reports on Form 8-K
A report, dated March 24, 1997, on Form 8-K was filed during the
quarter ending March 31, 1998, pursuant to Item 5 of that form.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
INSILCO CORPORATION
--------------------------
Registrant
Date: July 7, 1998 By: /s/ David A. Kauer
----------------------------
David A. Kauer
Vice President and Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 115,523
<SECURITIES> 0
<RECEIVABLES> 74,476
<ALLOWANCES> (3,101)
<INVENTORY> 70,500
<CURRENT-ASSETS> 282,454
<PP&E> 159,539
<DEPRECIATION> (50,257)
<TOTAL-ASSETS> 432,520
<CURRENT-LIABILITIES> 151,540
<BONDS> 0
10
0
<COMMON> 0
<OTHER-SE> 97,450
<TOTAL-LIABILITY-AND-EQUITY> 432,520
<SALES> 106,544
<TOTAL-REVENUES> 106,544
<CGS> 77,306
<TOTAL-COSTS> 77,306
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 137
<INTEREST-EXPENSE> 3,643
<INCOME-PRETAX> 6,704
<INCOME-TAX> (2,343)
<INCOME-CONTINUING> 4,361
<DISCONTINUED> 58,958
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,319
<EPS-PRIMARY> 6.65
<EPS-DILUTED> 6.39
</TABLE>
