<PAGE> 1
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, 1998
Commission File number: 0-22098
INSILCO CORPORATION
(Exact name for Registrant as specified in its charter)
DELAWARE NO. 06-0635844
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
425 METRO PLACE NORTH, FIFTH FLOOR
DUBLIN, OHIO 43017
(Address of principal executive offices,
including zip code)
(614) 792-0468
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001
par value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) 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 [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of March 26, 1999, 100
shares of common stock, $.001 par value, were outstanding. The registrant is a
wholly owned subsidiary of Insilco Holding Co.
The registrant meets the conditions set forth in General Instruction I (i) (a)
and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
Part I
<S> <C>
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 28
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 33
Consolidated Financial Statements F-1
</TABLE>
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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
----------------
THE COMPANY
Insilco Corporation, a Delaware corporation originally incorporated in New
Jersey in 1898 (collectively with its subsidiaries is referred to hereinafter as
the "Company"), is a diversified producer of automotive, telecommunications and
electronics components, and is a leading speciality publisher of student
yearbooks.
On August 17, 1998, the Company's management, Insilco Holding Co. ("Holdings"),
and Silkworm Acquisition Corporation ("Silkworm"), an affiliate of Donaldson,
Lufkin & Jenrette Merchant Banking Partners ("DLJMB"), completed a series of
merger transactions (see Note 1 to the Company's Consolidated Financial
Statements). As a result, the Company became a wholly owned subsidiary of
Holdings and is included in Holdings' consolidated financial statements and is a
part of Holdings' consolidated group for tax purposes.
The Company's principal executive offices are located at 425 Metro Place North,
Fifth Floor, Dublin, Ohio 43017, telephone (614) 792-0468.
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BUSINESS
BUSINESS SEGMENT INFORMATION
The Company operates in three primary business segments: Automotive Components,
Technologies, which produces telecommunications and electronics components, and
Specialty Publishing. The percentages of the Company's total net sales by
segment in each of its last three fiscal years were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Automotive Components 40 % 37 % 35 %
Technologies 35 38 37
Specialty Publishing 19 18 20
Other(1) 6 7 8%
---- ---- ----
Total 100% 100% 100%
</TABLE> ==== ==== ====
(1) This segment includes two operating units that fall below the quantitative
reporting thresholds. They are a manufacturer of machinery and equipment for
the heat exchanger market and a welded stainless steel tubing manufacturer.
For additional business segment information, see Note 18 to the Consolidated
Financial Statements.
AUTOMOTIVE COMPONENTS SEGMENT
The Automotive Components Segment is made up of two operating units, Thermal
Components Group ("Thermal"), and Steel Parts Corporation ("Steel Parts"). The
businesses in this segment manufacture automotive heat exchangers and related
tubing, and automatic transmission and suspension components, respectively.
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, and oil coolers and heaters 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 condensers.
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.
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Thermal has manufacturing facilities in Alabama, Michigan, South Carolina,
Wisconsin and Germany. At December 31, 1998, Thermal (excluding Thermalex) had
883 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 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 72%, 70% and 70% of Steel
Parts' sales were to one of the "Big 3" domestic automotive manufacturers in
1998, 1997 and 1996, respectively.
At December 31, 1998, Steel Parts had 361 employees.
TECHNOLOGIES SEGMENT
The Technologies Segment 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.
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 36% of Stewart Connector's sales in
1998, 41% in 1997 and 40% in 1996. 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, 1998, Stewart Connector had 1,139 employees.
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.
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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, 1998, Signal had 519 employees.
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 electronics
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 plants in Yonkers, New York and El
Paso, Texas.
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, 1998, Stewart Stamping had 320 employees.
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.
Escod has three production facilities in the Carolinas, one in Florida, one in
Northern Ireland and one in Ireland, which 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 directly or indirectly together accounted for
approximately 64%, 68% and 66% of Escod's total revenues in 1998, 1997 and 1996,
respectively. Escod's dependence on these two major customers makes its revenues
and operating income sensitive to changes in demand from those customers.
Competition in Escod's markets is based primarily on price and, to a lesser
extent, on responsiveness to customers' needs. The profitability of Escod's
sales generally depend on the relative raw material content, labor productivity,
quality of the products sold, proximity to customers and timeliness of delivery.
As a result of the low barriers to entry into Escod's business and increased,
low-cost foreign competition in recent years, Escod's business has become
intensely competitive.
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At December 31, 1998, Escod had 292 employees.
SPECIALTY PUBLISHING SEGMENT
Taylor Publishing Company "Taylor" is engaged primarily in the contract design
and printing of student yearbooks from which it derived at least 88% 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. 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, 1998, it had 1,327 employees.
OTHER SEGMENT
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, 1998, Romac had 130 employees.
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Heat exchanger machinery and equipment. McKenica manufactures high speed welded
tube mills and other machinery and equipment for the heat exchanger market. It
sells its products predominantly to automotive suppliers and automotive OEMs.
At December 31, 1998, McKenica had 80 employees.
DIVESTED OFFICE PRODUCTS BUSINESSES
On September 3, 1996, the Company sold Curtis, its computer accessories
business. On October 4, 1996, the Company sold the Rolodex Electronics product
line. On March 5, 1997, the Company sold the Rolodex Business. Curtis, Rolodex
Electronics and the Rolodex Business are referred to collectively as the "Office
Products Business." See Item 7 "Managements Discussion and Analysis of Financial
Condition and Results of Operations - Discontinued Operations."
PATENTS AND TRADEMARKS
The Company holds patents or trademarks in most of its businesses which have
expiration dates ranging from 1999 to 2019. 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,
1998 and 1997 follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---- ----
<S> <C> <C>
Automotive Components $ 54,986 56,049
Technologies 46,528 51,245
Specialty Publishing 120,017 113,232
Other 5,190 3,347
--------- -------
Total $ 226,721 223,873
========= =======
</TABLE>
Management believes that approximately $211 million of its 1998 backlog will be
filled in 1999, and the remainder in 2000.
EMPLOYEES AND LABOR RELATIONS
At December 31, 1998, the Company employed approximately 5,541 people on a
full-time basis, of whom approximately 25% were covered by collective bargaining
agreements with various unions. The largest collective bargaining unit covers
approximately 563 employees. Among the union agreements that will
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expire in 1999 are those covering certain union employees of McKenica and Steel
Parts. 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 11 to the Consolidated Financial Statements.
ENVIRONMENTAL REGULATION AND PROCEEDINGS
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
third parties 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 1993 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.
FINANCIAL INFORMATION ABOUT EXPORT SALES
In 1998, the Company's export sales were $46.7 million or 9% of consolidated
sales. Export Sales in 1998 to Europe, Asia, Canada and Mexico were $ 22.8
million, $ 8.8 million and $ 7.7 million and $3.0, respectively. All other
export sales in 1998 totaled $4.4 million. In 1997, the Company's export sales
were
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$55.4 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 $6.2 million. In
1996, export sales were $58.2 million or 12% of consolidated sales. The
Company's transactions are primarily in U.S. dollars.
ITEM 2. PROPERTIES
------------------
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, 1998 included
the following properties:
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<TABLE>
<CAPTION>
APPROXIMATE TERMS OF
BUSINESS SEGMENT LOCATION PRINCIPAL USE SQUARE FOOTAGE OCCUPANCY
- ---------------- -------- ------------- -------------- ---------
<S> <C> <C> <C> <C>
AUTOMOTIVE COMPONENTS
Montgomery, AL Office/Manufacturing 137,325 Owned(1)
Montgomery, AL Manufacturing 45,000 Leased
Franklin, WI Office/Manufacturing 123,200 Leased
Iron Ridge, WI Office/Manufacturing 44,000 Owned
Oak Creek, WI Office/Manufacturing 39,250 Owned
Montgomery, AL Office/Warehouse 10,890 Leased
Belleville, MI Office/Manufacturing 42,000 Leased
Duncan, SC Office/Manufacturing 100,000 Owned
Dortmund, Germany Office/Manufacturing 45,000 Owned
Dortmund, Germany Office 8,500 Leased
Tipton, IN Office/Manufacturing 235,350 Owned
TECHNOLOGIES
Durham, NC Office 3,205 Leased
N. Myrtle Beach, SC Office/Manufacturing 46,506 Owned
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
Colorado Springs,
Co. Warehouse 1,400 Leased
Loris, SC Office/Warehouse 9,500 Leased
Winterhaven, FL Warehouse 3,000 Leased
Galway, Ireland
Carraoe County Manufacturing 25,120 Leased
Larne, County
Antrim, Northern
Ireland Manufacturing 25,000 Leased
Inwood, NY Office/Manufacturing 39,361 Owned
St. Just, PR Office/Manufacturing 41,214 Leased
San Cristobal,
Dominican Republic Office/Manufacturing 27,773 Leased
Glen Rock, PA Office/Manufacturing 84,000 Owned
Santa Clara, CA Office 133 Leased
Essex, UK Office 485 Leased
Freidrichsdorf/Ts.,
Germany Office 1,500 Leased
Yokohama, Japan Office/Warehouse 4,695 Leased
Cananea, Mexico Warehouse/
Manufacturing 22,646 Leased
Yonkers, NY Office/Manufacturing 190,000 Owned
El Paso, TX Office/Manufacturing 41,400 Leased
</TABLE>
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<TABLE>
<CAPTION>
APPROXIMATE TERMS OF
BUSINESS SEGMENT LOCATION PRINCIPAL USE SQUARE FOOTAGE OCCUPANCY
- ---------------- -------- ------------- -------------- ---------
<S> <C> <C> <C>
SPECIALTY PUBLISHING
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
OTHER
Troutman, NC Office/Manufacturing 110,000 Owned
Buffalo, NY Office/Manufacturing 78,800 Leased
CORPORATE
Dublin, OH Office 18,300 Leased
</TABLE>
(1)Property is leased from an industrial development authority in connection
with an expired industrial revenue bond and is eligible for purchase by the
Company for a nominal consideration at the expiration of the lease term.
Substantially all of the Company's material domestic assets, including owned
properties, are subject to major encumbrances securing the Company's obligations
under the Bank Credit Agreement.
The Company believes that all of its production facilities have additional
production capacity.
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ITEM 3. LEGAL PROCEEDINGS
-------------------------
On January 14, 1997, Taylor sued one of its principal competitors in the
yearbook business, Jostens, Inc. ("Jostens"), in the U.S. District Court for the
Eastern District of Texas, alleging violations of the federal antitrust laws as
well as various claims arising under state law. On May 13, 1998, the jury in the
case returned a verdict in favor of Taylor, and, on June 12, 1998, the judge
rendered his judgment in the amount of $25.2 million plus interest at an annual
rate of 5.434%. On January 14, 1999, in response to a motion by Jostens, the
judge entered an order vacating the jury verdict and granting judgment in
Jostens' favor. The Company will seek to overturn the order and reinstate the
jury verdict on appeal, but is uncertain what the actual amount is, if any, that
Taylor will recover from Jostens.
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.
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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.
All of the Common Stock of the Company is owned by Holdings following the
Mergers described herein. Prior to the Mergers, the Company's Common Stock was
traded on the Nasdaq National Market under the symbol "INSL". 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 through the
date of the Mergers.
<TABLE>
<CAPTION>
LOW SALE HIGH SALE
-------- ---------
<S> <C> <C>
1998:
- -----
First Quarter $ 32.000 $ 43.375
Second Quarter $ 42.875 $ 44.625
Third Quarter (thru August 17, 1998) $ 43.750 $ 45.000
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:
- -----
Fourth Quarter $ 36.500 $ 41.063
</TABLE>
On August 17, 1998, the Company completed a series of transactions. These
transactions included, among other things, the formation by Insilco Holding Co.
("Holdings") (then a wholly owned subsidiary of the Company) of a wholly owned
subsidiary ("ReorgSub"), followed by the merger of ReorgSub with and into the
Company (the "Reorganization Merger"), pursuant to which each stockholder of the
Company had his or her shares of the Company converted into the same number of
shares of Holdings and the right to receive $0.01 per share in cash, and
Holdings became the parent of the Company.
Promptly following the Reorganization Merger, a second merger took place
pursuant to which Silkworm Acquisition Corporation ("Silkworm"), an affiliate of
DLJMB, merged with and into Holdings (the "Merger", and together with the
Reorganization Merger, the "Mergers") and each share of Holdings Common Stock
was converted into the right to receive $43.47 in cash and 0.03378 of a share of
Holdings Common Stock. Thus, as a result of the Mergers, each stockholder of the
Company, in respect of each of his or her shares, received $43.48 in cash and
retained 0.03378 of a share of Holdings Common Stock.
Following the Mergers, (i) the Company's existing stockholders retained, in the
aggregate, approximately 10.1% (9.4% on a fully diluted basis) of the
outstanding shares of Holdings Common Stock; (ii) the DLJMB Funds held
approximately 69.0% (69.8% on a fully diluted basis) of the outstanding shares
of Holdings Common Stock; (iii) 399 Venture Partners Inc., an affiliate of
Citibank, N.A. ("CVC"), purchased shares of Silkworm which in the Merger were
converted into approximately 19.3% (17.8% on a fully diluted basis) of the
outstanding shares of Holdings Common Stock; (iv) management of the Company
purchased approximately 1.7% (1.5% on a fully diluted basis) of the outstanding
shares of Holdings Common Stock; and (v) the Company no longer had public equity
securities.
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<PAGE> 15
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>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA (1)
Sales (net) $ 535,629 528,233 492,405 449,506 438,434
Depreciation and amortization 20,159 18,377 15,357 13,352 12,251
Merger Expenses 20,890 - - - -
Severance and write-downs 2,542 - 1,500 - -
Amortization of Reorganization Goodwill (2) - - - 16,205 34,812
Operating income (3) 17,281 51,102 48,433 38,881 9,491
Other income (expense)
Interest expense (29,198) (20,562) (18,378) (19,546) (29,113)
Interest income 979 2,837 724 1,472 1,788
Other income (expense), net (4) 5,877 3,441 7,706 13,893 3,257
Income (loss) from continuing operations
before extraordinary item and income taxes (5,061) 36,818 38,485 34,700 (14,577)
Income tax benefit (expense) 868 (13,404) (13,272) (16,694) (5,718)
Income (loss) from continuing operations
before extraordinary items (4,193) 23,414 25,213 18,006 (20,295)
Income (loss) from discontinued operations,
net of tax - 58,958 13,840 (15,431) (9,683)
Income (loss) before extraordinary items (4,193) 82,372 39,053 2,575 (29,978)
Extraordinary items, net of tax (5,888) (728) - - (2,156)
Net income (loss) (10,081) 81,644 39,053 2,575 (32,134)
BALANCE SHEET DATA AT PERIOD END (1)
Working capital 67,242 39,508 51,436 47,436 35,327
Total assets 323,026 302,673 348,393 340,129 368,669
Long-term debt 312,409 257,743 161,042 186,489 198,109
Other long-term liabilities 46,329 43,402 44,156 48,153 60,529
Stockholders' equity (deficit) (136,909) (102,328) 33,402 (15,779) (13,451)
CASH FLOW DATA (1)
Net cash provided by
operating activities 4,305 45,511 55,423 37,744 34,305
Net cash provided by (used in)
investing activities (23,366) 95,217 (29,783) (14,678) 36,295
Net cash provided by (used in)
financing activities 15,755 (133,256) (32,053) (21,862) (115,648)
</TABLE>
See accompanying notes to the Selected Financial Data.
15
<PAGE> 16
The notes to the selected financial data follow:
(1) The Company has consummated several material transactions over the
five-year period presented here, which significantly affect the
comparability of the information shown. (See Note 1 to the Consolidated
Financial Statements.)
(2) Amortization of Reorganization Goodwill for 1995 and 1994 resulted from
the Company's emergence from Chapter 11 bankruptcy proceedings (the
"Chapter 11 Cases") on April 1, 1993 (the "Reorganization Date")
pursuant to an Amended and Restated Plan of Reorganization dated
November 23, 1992 (the "Plan of Reorganization").
(3) Operating income in 1995 includes a gain of $4.3 million related to a
change in the Company's pension plan (see Note 11 to the Consolidated
Financial Statements). In addition, operating income for 1995 and 1994
includes the deduction for Amortization of Reorganization Goodwill.
(4) Other income in 1995 includes 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.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company's three primary business segments have different operating and
growth characteristics.
The Company's Automotive Components Segment designs, manufactures, and
distributes component products used in automotive, heavy-equipment, and other
transportation vehicles. Growth and performance in this segment is tied closely
to the vehicle production rates of automotive and heavy-equipment manufacturers
as well as after-market demand for replacement products.
The growth and performance of the Company's Technologies Segment is dependent on
the demand for its customers' end products and network infrastructure
build-outs. The Company feels it has aligned itself with market leaders in the
electric, electrical, telecommunications and data communications markets.
The Company is one of the largest producers of yearbooks to middle and high
school markets and colleges. The growth and performance of the Company's
Specialty Publishing Segment is dependent on the growth rate of the domestic
school age population and on increasing the proportion of students who purchase
school yearbooks.
The Company's Other Segment includes two operating units that fall below the
quantitative reporting thresholds and do not meet all of the criteria for
aggregation with the Company's reportable segments. These operations are a
manufacturer of high speed welded tube mills and other machinery and equipment
for the heat exchanger market to automotive suppliers and OEMs and a welded
stainless steel tubing manufacturer that provides tubing and tubing products to
a variety of markets, including pipe and tube distributors, recreational, marine
and construction.
The Company consummated several material transactions in 1998, 1997 and 1996
that resulted in significant changes to its debt and capital structure. A
summary of these transactions is as follows:
The Mergers: On August 17, 1998, the Company completed a series of transactions.
These transactions included, among other things, the formation by Insilco
Holding Co. ("Holdings") (then a wholly owned subsidiary of the Company) of a
wholly owned subsidiary ("ReorgSub"), followed by the merger of ReorgSub with
and into the Company (the "Reorganization Merger"), pursuant to which each
stockholder of the Company had his or her shares of the Company converted into
the same number of shares of Holdings and the right to receive $0.01 per share
in cash, and Holdings became the parent of the Company.
Promptly following the Reorganization Merger, a second merger took place
pursuant to which Silkworm Acquisition Corporation ("Silkworm"), an affiliate of
DLJMB, merged with and into Holdings (the "Merger," and together with the
Reorganization Merger, the "Mergers") and each share of Holdings Common Stock
was converted into the right to receive $43.47 in cash and 0.03378 of a share of
Holdings Common Stock. Thus, as a result of the Mergers, each stockholder of the
Company, in respect of each of his or her shares, received $43.48 in cash and
retained 0.03378 of a share of Holdings Common Stock.
Following the Mergers, (i) the Company's existing stockholders retained, in the
aggregate, approximately 10.1% (9.4% on a fully diluted basis) of the
outstanding shares of Holdings Common Stock; (ii) the DLJMB Funds held
approximately 69.0% (69.8% on a fully diluted basis) of the outstanding shares
of Holdings
17
<PAGE> 18
Common Stock; (iii) 399 Venture Partners Inc., an affiliate of Citibank, N.A.
("CVC"), purchased shares of Silkworm which in the Merger were converted into
approximately 19.3% (17.8% on a fully diluted basis) of the outstanding shares
of Holdings Common Stock; and (iv) management of the Company purchased
approximately 1.7% (1.5% on a fully diluted basis) of the outstanding shares of
Holdings Common Stock.
Immediately prior to the effectiveness of the Reorganization Merger, each
outstanding option to acquire shares of the common stock of the Company granted
to employees and directors, whether or not vested (the "Options") was canceled
and in lieu thereof, each holder of an Option received a cash payment in an
amount equal to (x) the excess, if any, of $45.00 over the exercise price of the
Option multiplied by (y) the number of shares subject to the Option, less
applicable withholding taxes (the "Option Cash Payments"). Certain holders of
such Options elected to utilize amounts otherwise receivable by them to purchase
$1,009,000 of equity and $2,657,000 of equity units of Holdings.
The Merger Financing: The total amount of cash required to consummate the
foregoing transactions was approximately $204.4 million. This amount was
financed with (i) gross proceeds of approximately $70.2 million from the
issuance by Silkworm of units (which were converted into units of Holdings (the
"Holdings Units") in the Merger), each unit consisting of $1,000 principal
amount at maturity of 14% Senior Discount notes due 2008 (the "Holdings Senior
Discount Notes") and one warrant to purchase 0.325 of a share of Holdings Common
Stock at an exercise price of $0.01 per share, (ii) the issuance by Silkworm to
the DLJMB Funds, CVC and certain members of management of the Company, for an
aggregate consideration of approximately $56.1 million, of 1,245,138 shares of
Silkworm common stock (which were converted into Holdings Common Stock in the
Merger), (iii) the issuance by Holdings to the DLJMB Funds, for an aggregate
consideration of $35.0 million, of 1,400,000 shares of the Holding's 15% Senior
Exchangeable Preferred Stock due 2012 ("PIK Preferred Stock") and the DLJMB
Warrants to purchase 65,603 shares of Holdings Common Stock at an exercise price
of $0.001 per share, and (iv) approximately $43.1 million of new borrowings
under the Company's existing credit facility (the "Existing Credit Facility").
The Company incurred $20,890,000 of costs related to the merger in 1998.
Refinancing of 10 1/4% Subordinated Debt: As a result of the Merger, the Company
was required to make an Offer to Purchase (as defined in the indenture relating
to the 10 1/4% Notes) all of the outstanding 10 1/4% Notes at 101% of their
aggregate principal amount, plus accrued interest. To fund a portion of the
repurchase of the 10 1/4% Notes, the Company, on November 9, 1998, completed the
sale of $120 million of 12% Senior Subordinated Notes due 2007 (the "12% Notes")
with warrants to purchase 62,400 shares of Holdings common stock at $45 per
share. The net proceeds from the sale of the 12% Notes, which was approximately
$116.4 million after payment of $3.6 million in underwriting fees to DLJSC and
other expenses, along with approximately $30.0 million in borrowings under the
Company's Credit Facilities, were used to repurchase the 10 1/4% Notes plus the
accrued and unpaid interest. As of December 31, 1998, the Company purchased
$148.5 million of these notes and in February 1999, purchased an additional $1.5
million. As of March 26, 1999, there is an aggregate of $26,000 principal amount
of 10 1/4% Notes outstanding.
In addition, on November 24, 1998, the Company amended and restated its Bank
Credit Agreement to, among other things, provide for two credit facilities: a
$175 million revolving loan and $125 million term loan.
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
18
<PAGE> 19
$37,726,000 in the aggregate 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 7).
These acquisitions have been accounted for as purchases and, accordingly, the
purchase prices have been allocated to the assets and liabilities acquired based
on their fair values at the acquisition dates. The operating results of the
businesses acquired have been included for the period subsequent to their
acquisition dates. (See Note 20 for pro forma results). The fair value of the
assets acquired totaled $47,478,000 and the liabilities assumed totaled
$9,752,000.
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 $21.8 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"). As a result of the sale of
the Rolodex Business, the Office Products Business segment is being accounted
for as a discontinued operation (See "Discontinued Operations").
1997 Amended and Restated Credit Agreement: The Company entered into an Amended
and Restated Credit Agreement as of July 3, 1997 (the "1997 Bank Credit
Agreement") that among other things, provided 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.
Issuance of 10 1/4% Subordinated Debt: On August 12, 1997, the Company issued
$150 million aggregate principal amount of 10.25% Senior Subordinated Notes due
2007 (the "10 1/4% Notes"), realizing therefrom net proceeds of $145.9 million.
Share Repurchase: 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. On August 12, 1997, the Company completed a
tender offer pursuant to which it purchased an additional 2,857,142 shares for
$109,999,967. These shares were purchased with proceeds received from the
issuance of $150 million aggregate amount of the 10 1/4% Notes.
These transactions have had a significant impact on the Company's results of
operations and financial position. Results of operations have been affected by
increases in the amortization of intangibles, inventory costs, depreciation,
interest expense, and deferred financing and prepayment fees. As a result of
these transactions, the Company's consolidated results for 1998, 1997 and 1996
are not directly comparable. Pro forma results of operations, which assume these
transactions occurred at the beginning of their respective periods, are
presented in Note 20 of the Notes to the Consolidated Financial Statements.
19
<PAGE> 20
RESULTS OF OPERATIONS
The table below is a summary (in thousands) of net sales from continuing
operations, operating income from continuing operations and net income (loss)
for the periods ended December 31, 1998, 1997, and 1996, respectively. This
presentation and the discussion that follows is based on a management approach
and is consistent with the basis and manner in which the Company's management
internally disaggregates financial information for the purposes of assisting in
making internal operating decisions (see Note 18 of the Consolidated Financial
Statements).
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET SALES FROM CONTINUING OPERATIONS
Automotive Components Segment $ 213,365 193,839 169,280
Technologies Segment 189,781 198,941 183,663
Specialty Publishing Segment 101,325 98,222 99,020
Other Segment 31,158 37,231 40,442
========= ========= =========
Total $ 535,629 528,233 492,405
========= ========= =========
OPERATING INCOME FROM CONTINUING OPERATIONS
Automotive Components Segment $ 23,015 21,859 21,722
Technologies Segment 21,169 26,734 27,604
Specialty Publishing Segment 4,945 7,299 5,136
Other Segment 1,290 4,748 5,175
Unallocated amounts:
Corporate operating expenses (7,752) (9,138) (9,704)
Significant legal expenses (1,954) (400) -
Severance and write-downs (2,542) - (1,500)
Merger fees and expenses (20,890) - -
--------- --------- ---------
Total operating income from
continuing operations $ 17,281 51,102 48,433
========= ========= =========
NET INCOME (LOSS) $ (10,081) 81,644 39,053
========= ========= =========
</TABLE>
1998 COMPARED TO 1997
Consolidated Results of Operations: Net sales from continuing operations in 1998
increased $7.4 million, or 1%, to $535.6 million from $528.2 million in 1997.
The increase in sales was due primarily to higher sales from the Automotive
Components Segment, which increased $19.5 million or 10% over 1997. This
increase was due primarily to higher heat exchanger and tubing sales, which were
up 16%. These increased sales were partially offset by a 2% decrease in the
sales of transmission related components. The increase in automotive component
sales was partly offset by a decrease in sales of technologies related
components, which declined $9.1 million or 5%. Although connector product sales
increased 7%, sales of wire and cable assembles,
20
<PAGE> 21
transformers and precision stampings declined a combined 9%. In addition, sales
of heat exchanger machinery and equipment and welded stainless steel tubing
products decreased a combined $6.1 million or 16%.
Operating income from continuing operations in 1998 decreased $33.8 million, or
66%, to $17.3 million from $51.1 million in 1997. Contributing to this decrease
in operating income were merger expenses relating to the Company's August 1998
merger with DLJMB, charges for severance expenses totaling $2.3 million related
to workforce reductions at Corporate, and in the Specialty Publishing and
Technologies Segments and write-downs related to lease cancellation costs of
$0.2 million. In addition, the Company incurred higher legal expenses relating
to two significant lawsuits. Excluding the effects of these items, operating
income in 1998 would have decreased $8.4 million, or 17% to $42.7 million from
$51.5 million in 1997. This decrease (excluding the legal, and non-recurring
charges) was due to lower operating income from the Technologies, Specialty
Publishing, and Other Segments, which were partly offset by a $1.2 million
increase in operating income from the Automotive Components Segment.
Operating income from the Technologies Segment declined $5.6 million, or 21%,
from 1997 due mainly to the decline in sales and related decrease in gross
profits and higher depreciation expense. Operating income from the Specialty
Publishing Segment was down $2.4 million from 1997 due to higher delivery
expenses and higher commissions and new marketing initiatives. Operating income
from the Company's Other Segment declined $3.5 million as a result of a $3.6
million decrease in operating income relating to its tube-mill equipment and
machinery product line, which had a 45% decrease in sales.
Interest expense in 1998 increased $8.6 million to $29.2 million from $20.6
million in 1997, reflecting higher interest rates on the Company's 1998 debt
offerings and higher debt levels as a result of the August 1998 Merger and the
July 1997 Share Repurchase.
Interest income in 1998 decreased $1.8 million to $1.0 million from $2.8 million
in 1997, due to lower investment levels. Other income in 1998 increased $2.2
million to $3.0 million from $0.8 million in 1997, due to various non-operating,
non-recurring items. Equity income from the Company's unconsolidated joint
venture, Thermalex, in 1998 increased $0.2 million to $2.9 million from $2.7
million in 1997, due to an improvement in Thermalex's net income as a result of
higher sales.
The Company had an income tax benefit in 1998 of $0.9 million compared to an
expense of $13.4 million in 1997 due to the loss generated from continuing
operations in 1998. For information concerning the provision for income taxes,
as well as information regarding differences between effective tax rates and
statutory rates, see Note 13 of the Notes to the Consolidated Financial
Statements.
The Company recorded income from discontinued operations of $59.0 million in
1997 and $13.8 million in 1996 relating to the sale of its Office Products
Business, a significant line of business within the Company's then Office
Products/Specialty Publishing Segment. The sale of this line of business was
completed on March 5, 1997 with the sale of Rolodex for $112.6 million, net of
transaction costs. This sale was preceded in 1996 by the sale of Rolodex
Electronics and Curtis for an aggregate $21.8 million, net of transaction costs.
As a result of these sales, the Office Products Business has been accounted for
as a discontinued operation and, accordingly, the accompanying consolidated
statements of operations and cash flows for the periods prior to the sales have
been reclassified. Revenues associated with the discontinued Office Products
Business for the years 1998, 1997 and 1996 were $0, $10.8 million and $80.1
million, respectively.
The Company recorded an extraordinary item of $5.9 million, net of tax, in 1998
relating to the write-off of deferred financing fees associated with the 1997
Bank Credit Agreement and 10 1/4% Notes.
21
<PAGE> 22
Automotive Components Segment: Net sales in 1998 increased $19.5 million, or
10%, to $213.4 million from $193.8 million in 1997. The increase was due to
higher aluminum and charged-air-cooler tubing, aluminum heat exchangers, and
radiator sales. These sales increases were partially offset by lower
transmission component and brass tubing sales.
Operating income in 1998 increased $1.2 million, or 5%, to $23.0 million from
$21.8 million in 1997 due to higher sales and the resulting increase in gross
profits while selling, general, administrative and depreciation expenses were
flat compared to 1997. Operating margins in 1998 decreased to 10.8% from 11.3%
in 1997. This decrease is attributable to lower gross profit margins due to a
product mix shift to lower margin products offset by a decline in selling,
general and administrative expenses as a percent of sales, which fell to 8.9% in
1998 from 9.7% in 1997.
Technologies Segment: Net sales in 1998 decreased $9.1 million, or 5%, to $189.8
million from $198.9 million in 1997. While connector sales were up 7% from 1997,
sales of wire and cable assemblies, transformers and precision stampings were
collectively down 9% due a continuing slowdown in global electronics markets and
weak demand for electronic end products.
Operating income in 1998 decreased $5.5 million, or 21%, to $21.2 million from
$26.7 million in 1997. The decrease was due primarily to the decrease in sales
and a slight decrease in gross profit margins, which resulted in lower gross
profits. In addition, selling, general and administrative expenses increased 3%
and depreciation expense increased 17%. The majority of the increase in
depreciation was due to tooling investments for new connector and precision
stamped products.
Specialty Publishing Segment: Net sales in 1998 increased $3.1 million, or 3%,
to $101.3 million from $98.2 million in 1997. A 5% increase in yearbook sales
was partially offset by a $2.0 million decrease in non-yearbook publication
sales.
Operating income in 1998 decreased $2.4 million, or 32%, to $4.9 million from
$7.3 million in 1997 due to higher yearbook delivery expenses and increased
selling, general and administrative expenses due to new marketing initiatives
and increased sales commissions to sales representatives on higher yearbook
revenues.
Other Segment: Net sales in 1998 decreased $6.0 million, or 16%, to $31.2
million from $37.2 million in 1997. A 45% decrease in tube-mill capital
equipment sales, as a result of weak domestic and international demand for
milling equipment accounted for the decline.
Operating income in 1998 decreased $3.5 million, or 73%, to $1.3 million from
$4.8 million in 1997 due to the decline in tube-mill capital equipment sales.
1997 COMPARED TO 1996
Consolidated Results of Operations: Net sales from continuing operations in 1997
increased $35.8 million, or 7%, to $528.2 million from $492.4 million in 1996.
This increase was due to a $21.4 million, or 10%, increase in automotive
component sales due to the acquisition of Lingemann, which was not owned for the
full year in 1996. In addition, electronic and telecommunications component
sales increased $15.2 million, or 8%, primarily due to higher sales of wire and
cable assemblies, transformers, and precision stampings.
Operating income from continuing operations in 1997 increased $2.7 million, or
6%, to $51.1 million from $48.4 million in 1996. This increase was due to
increased productivity in the Specialty Publishing Segment, which accounted for
$2.2 million of the increase. In addition, the Company recorded a $1.5 million
22
<PAGE> 23
restructuring charge in 1996 for severance expenses relating to a salaried
workforce reduction in its Specialty Publishing Segment. A $0.9 million decrease
in operating income from the Technologies Segment due to higher selling, general
and administrative expenses partially offset these gains. Operating margins in
1997 were flat at 9.7% compared to 9.8% in 1996.
Interest expense in 1997 increased $2.2 million to $20.6 million from $18.4
million in 1996 due to higher interest costs relating to the 1997 debt financing
and higher debt levels due to the July 1997 Share Repurchase. Interest income in
1997 increased $2.1 million to $2.8 million from $0.7 million in 1996. The
increase reflects higher interest income earned on the sales proceeds derived
from the Company's sale of its Rolodex Business on March 5, 1997, which were
later used in the Company's 1997 Share Repurchase. Other income in 1997
decreased $4.0 million to $0.8 million from $4.8 million in 1996, due to the
inclusion in 1996 of a $2.2 million environmental liability settlement for an
amount less than previously estimated and several other smaller items. Equity
income from Thermalex in 1997 decreased $0.3 million to $2.6 million from $2.9
million in 1996 due to additional expenses relating to Thermalex's plant
expansion and the start-up of a new extrusion press.
Automotive Components Segment: Net sales in 1997 increased $24.6 million, or
15%, to $193.8 million from $169.2 million in 1996. The increase is primarily
attributable to the acquisition of Lingemann, which was not owned for the full
year in 1996. Sales for the full year in 1997 and the partial year of 1996
relating to this acquisition were $31.6 million and $13.1 million, respectively.
The Company also experienced higher sales of aluminum tubing, charged-air-cooler
tubing, radiators, and transmission components due to strong OEM and supplier
demand. The increase in transmission sales was also due to the shift from
three-speed to four and five-speed automatic transmissions, which increased the
Company's content per vehicle produced.
Operating income in 1997 was flat at $21.9 million compared to $21.7 million in
1996 due to increased expenses relating to the integration of Lingemann.
Selling, general and administrative expenses increased $4.8 million, of which
$2.5 million was due to the acquisition of Lingemann and $0.5 million related to
the Company's new R&D tech center.
Technologies Segment: Net sales in 1997 increased $15.2 million, or 8%, to
$198.9 million from $183.7 million in 1996. The increase is primarily due to
increased sales across all product lines except connectors. Sales of wire and
cable assemblies were up 19% due to strong demand from existing
telecommunication customers and additional sales from new customers. Transformer
sales increased 9% over 1996 due to higher demand for internationally certified
products from electronic OEMs. Precision stampings sales were up 7% due to new
products and strong demand from automotive, electrical control and circuit
protection markets. Connector sales decreased 1% from the prior year as a result
of price erosion within older product lines and delayed new product
introductions. International connector sales grew to 41% of sales in 1997 from
40% of sales in 1996.
Operating income in 1997 decreased $0.9 million, or 3%, to $26.7 million from
$27.6 million in 1996, as a result of lower operating margins on connector
products caused by competitive price pressures and delays in introducing new,
higher margin connector products. Also, impacting operating income were
additional start-up costs relating to the Company's new El Paso stamping
facility. Higher sales and gross profits from wire and cable assemblies offset a
portion of these declines.
Specialty Publishing Segment: Net sales in 1997 were flat at $98.2 million
compared to $99.0 million in 1996. The lack of growth is attributable to flat
yearbook sales and a $1.9 million decrease in non-yearbook publication sales.
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<PAGE> 24
Operating income in 1997 increased $2.2 million, or 42%, to $7.3 million from
$5.1 million in 1996 due to increased productivity relating to workflow
improvements.
Other Segment: Net sales in 1997 decreased $3.2 million, or 8%, to $37.2 million
from $40.4 million in 1996. Heat exchanger equipment sales decreased 15% and
sales of welded stainless steel tubing products were down 4%.
Operating income in 1997 decreased $0.4 million, or 8%, to $4.8 million from
$5.2 million in 1996. A $1.5 million decrease in operating income from heat
exchanger capital equipment sales was offset by a $1.1 million increase in
operating income from welded stainless steel tubing products.
LIQUIDITY AND CAPITAL RESOURCES
In general, the Company requires liquidity for working capital, capital
expenditures, interest, taxes, debt repayment and its acquisition strategy. Of
primary importance are the Company's working capital requirements, which
increase whenever the Company experiences strong incremental demand or
geographical expansion. The Company expects to satisfy its liquidity
requirements through a combination of funds generated from operating activities
and the funds available under its Bank Credit Agreement.
Operating activities: For the year ended December 31, 1998, net cash provided
from operating activities was $4.3 million compared to $45.5 million provided
from operating activities during the same period in 1997. The increase in cash
requirements was primarily the result of the merger expenses and lower operating
income as previously discussed. In addition, the Company required additional
working capital due to the timing of year-end collections from a large
automotive components customer and two large technologies customers, which
accounted for a significant increase in accounts receivable and were collected
in January.
Investing activities: For the year ended December 31, 1998, capital expenditures
were $3.4 million less than the comparable period for 1997. Capital spending for
equipment in the Automotive Components Segment accounted for approximately 47%
and spending related to connector and precision stamping equipment and tooling
in the Technologies Segment accounted for 39%. The Company expects its 1999
capital expenditures to be flat compared to 1998. The Company also acquired two
small cable assembly operations for a total of $2.3 million during 1998. These
operations are located in Ireland and Northern Ireland and are being integrated
into the Technologies Segment.
The Company received cash dividends from its investment in Thermalex in 1998 and
1997 of $1.3 million and $1.5 million, respectively. In addition, as of December
31, 1998, the Company had a dividend receivable from this investment of $2.9
million relating to the declaration of a dividend that was paid in February
1999.
Financing activities: The Company has completed several transactions during
1998, 1997 and 1996 relating to its Merger with DLJMB and changes in its debt
and equity structure. For details regarding these transactions see the beginning
of this section.
The Company's annual cash interest expense on its 12% Notes, which are due 2007,
is approximately $14.4 million. Interest on these notes is payable semi-annually
on February 15 and August 15 of each year commencing February 15, 1999.
The Company is party to a Bank Credit Agreement, which includes a $125.0 million
Term Facility and a $175.0 million Revolving Facility, which provides for
revolving loans and up to $50 million of letters of credit. The Revolving
Facility can be used to fund acquisitions, provide working capital, and for
other general
24
<PAGE> 25
corporate purposes. The Term Facility has a maturity of seven years and is
subject to mandatory quarterly prepayments of $0.3 million for the first six
years and quarterly payments of approximately $29.4 million in the seventh year.
Cash interest on the Term Facility is based on a leverage ratio. At December 31,
1998, the applicable spread was LIBOR plus 3.75%. Payments of principal and
interest on the Term Facility are due quarterly each March, June, September and
December. The Revolving Facility terminates on July 8, 2003 and interest is
based on a leverage ratio. At December 31, 1998, the applicable spread was LIBOR
plus 3.00%. Availability under the Revolving Facility will decrease by $21.4
million in May 1999 absent a signed definitive acquisition agreement entered
into prior to this date, and by $17.5 million on each of July 10, 2001 and July
10, 2002.
The Bank Credit Agreement is secured by a first-priority perfected lien on
substantially all of the Company's assets, including a pledge of all of the
stock of the Company's domestic subsidiaries and 65% of the stock of Insilco's
foreign subsidiaries. Payment of principal and interest on amounts borrowed
under the Bank Credit Agreement are guaranteed by all of the Company's domestic
subsidiaries. As of March 24, 1999, the Company has approximately $83.0 million
of available funds under this agreement.
Future cash uses during fiscal 1999 include the purchase of the remaining $1.5
million in outstanding 10 1/4% Notes. The Company also acquired the stock of
EFI, a precision stamping operation, on January 25, 1999 for $23.6 million
including acquisition costs. EFI will be integrated into the Technologies
Segment. See Note 21 of the Notes to Consolidated Financial Statements.
The Company expects its principal sources of liquidity to be from its operating
activities and funding from the Revolving Credit Facility. The Company further
expects that these sources will enable it to meet its long-term cash
requirements for working capital, capital expenditures, interest, taxes, debt
repayment, and future acquisitions for the foreseeable future.
Accumulated Deficit: At December 31, 1998, the Company had a stockholder's
deficit totaling $136.9 million, which is a result of both the 1998 merger and
1997 share repurchases previously described in this section.
MARKET RISK AND RISK MANAGEMENT
Foreign currency exchange rate movements create a degree of risk to the
Company's operations by affecting the U.S. dollar value of sales made in foreign
currencies and the U.S. dollar value of costs incurred in foreign currencies.
Foreign currency exchange rate movements also affect our competitive position,
as exchange rate changes may affect business practices and/or pricing strategies
of non-U.S. based competitors.
The Company's general policy is to use foreign currency borrowings as needed to
finance its foreign currency denominated assets. The Company uses such
borrowings to reduce its asset exposure to the effects of changes in exchange
rates - not as speculative investments.
As of December 31, 1998, the Company did not have any derivative instruments in
place for managing foreign currency exchange rate risks. Considering both the
anticipated cash flows from operations for the next quarter and the foreign
loans in place at year end, a hypothetical 10% weakening of the U.S. dollar
relative to all other currencies would not materially adversely affect expected
first quarter 1999 earnings or cash flows. This analysis is dependent on actual
foreign sales and costs during the next quarter occurring within 10% of the
budgeted forecasts. The effect of the hypothetical change in exchange rates
ignores the affect this movement may have on other variables including
competitive risk. If it were possible to quantify the competitive impact, the
results could well be different than the sensitivity effects noted above. In
addition,
25
<PAGE> 26
it is unlikely that all currencies would uniformly strengthen or weaken relative
to the U.S. dollar. In reality, some currencies may weaken while others may
strengthen.
The Company also is exposed to changes in interest rates primarily from its
long-term debt arrangements. As of December 31, 1998, the Company had no
interest rate derivative instruments to manage exposure to interest rate
changes.
A comparison of the net fair value of all interest sensitive financial
instruments using a hypothetical 100 basis point increase in interest rates
along the entire interest rate yield curve as of December 31, 1998 is as follows
(in thousands):
<TABLE>
<CAPTION>
Description of Security Hypothetical
- ------------------------ Fair Market Fair Market
Value Value
----------- ------------
<S> <C> <C>
12% Senior Subordinated Notes due 2007 $ 123,600 $ 117,852
</TABLE>
THE YEAR 2000 ISSUES
Many existing computer programs utilized globally use only two digits to
identify a year in the date field. These programs, if not corrected, could fail
or create erroneous results after the century date changes on January 1, 2000 or
when otherwise dealing with dates later than December 31, 1999. This "Year 2000"
issue is believed to affect virtually all companies and organizations, including
the Company.
The Company relies on computer-based technology and primarily utilizes a variety
of third-party hardware and software and to a minimal degree some proprietary
software. In addition to such information technology ("IT") systems, the
Company's operations rely on various non-IT equipment and systems that contain
embedded computer technology. Third parties with whom the Company has commercial
relationships, including raw materials suppliers and service providers (such as
banking and financial services, data processing services, telecommunications
services and utilities), are also highly reliant on computer-based technology.
In 1996, the Company commenced an assessment of the potential effects of the
Year 2000 issue on the Company's business, financial condition and results of
operations. In conjunction with such assessment, the Company developed and
implemented a "Year 2000" compliance program as described below.
Third-Party IT Systems. The majority of the Company's IT systems are third party
systems for which the Company has received Year 2000 compliant versions. The
Company does not expect any significant outlay of cash for these systems as all
of the third party systems are under current maintenance agreements which
provide for continuing operation including functions involving Year 2000. The
strategy instituted by the Company to identify and address Year 2000 issues
affecting third-party IT Systems includes contacting all third-party providers
of computer hardware and software to secure appropriate representations to the
effect that such hardware or software is or will timely be Year 2000 compliant.
Proprietary IT Systems. The Company does not rely heavily on Company developed
proprietary IT systems. Pursuant to the Company's Year 2000 compliance program,
the Company has examined its proprietary IT systems for Year 2000 problems. All
such systems that were identified as relating to a critical function and that
were not Year 2000 compliant are being fixed. The Company believes that nearly
26
<PAGE> 27
all of its proprietary IT systems have been fixed and the Company is in the
process of testing the remediated systems for Year 2000 compliance.
Non-IT Systems. The Company has undertaken a review of its non-IT systems and is
in the process of fixing such systems that are within its control. The Company
expects to complete this remediation effort by April 30, 1999.
Non-IT Vendors and Suppliers. The Company procures its raw materials and
operating supplies from a vast network of vendors located both within and
outside the United States. As a part of its contingency planning effort, the
Company is continually assessing the Year 2000 readiness of its important
vendors in order to identify any significant exposures that may exist and
establish alternate sources or strategies where necessary.
Costs. The costs incurred to implement the Company's Year 2000 compliance
program have been immaterial to date and the Company presently expects to incur
less than $1.0 million of costs in the aggregate. All of the Company's Year 2000
compliance costs have been or are expected to be funded from the Company's
operating cash flow. The Company's Year 2000 compliance budget does not include
material amounts for hardware replacement because the Company has historically
employed a strategy to continually upgrade its business systems. Consequently,
the Company's Year 2000 budget has not required the diversion of funds from or
the postponement of the implementation of other planned IT projects.
Risks Associated With Year 2000 Issues. The Company's Year 2000 compliance
program is directed primarily towards ensuring that the Company will be able to
continue to perform three critical functions: (i) make and sell its products,
(ii) order and receive raw material and supplies, and (iii) pay its employees
and vendors. It is difficult, if not impossible, to assess with any degree of
accuracy the impact on any of these three areas of the failure of one or more
aspects of the Company's compliance program.
The novelty and complexity of the issues presented and the proposed solutions
therefore and the Company's dependence on the technical skills of employees and
independent contractors and on the representations and preparedness of third
parties are among the factors that could cause the Company's efforts to be less
than fully effective. Moreover, Year 2000 issues present a number of risks that
are beyond the Company's reasonable control, such as the failure of utility
companies to deliver electricity, the failure of telecommunications companies to
provide voice and data services, the failure of financial institutions to
process transactions and transfer funds, the failure of vendors to deliver
materials or perform services required by the Company and the collateral effects
on the Company of the effects of Year 2000 issues on the economy in general or
on the Company's customers in particular. Although the Company believes that its
Year 2000 compliance program is designed to appropriately identify and address
those Year 2000 issues that are subject to the Company's reasonable control,
there can be no assurance that the Company's efforts in this regard will be
fully effective or that Year 2000 issues will not have a material adverse effect
on the Company's business, financial condition or results of operations.
SEASONALITY AND INFLATION
The Company's specialty publishing segment is highly seasonal, with a majority
of sales occurring in the second and third quarter of the year. The Company
receives significant advance deposits from its Specialty Publishing customers in
the first and fourth quarters of each year. The Company's other segments are not
highly seasonal. See "Item 1. Business - Specialty Publishing."
27
<PAGE> 28
The impact of inflation on the Company's operations has not been significant.
However, there can be no assurance that a high rate of inflation in the future
would not have an adverse effect on the Company's operating results.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------
See discussion in Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations, "Market Risk and Risk Management".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------
The Consolidated Financial Statements of the Company, together with the reports
thereon of KPMG LLP (dated February 30, 1999 except as to the first paragraph of
Note 7, which is as of March 26, 1999) are set forth on pages F-1 through F-43
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 Company meets the conditions set forth in General Instruction I(i)(a) and
(b) of Form 10-K. Therefore, information pertaining to this section is omitted.
ITEM 11. EXECUTIVE COMPENSATION
-------------------------------
The Company meets the conditions set forth in General Instruction I(i)(a) and
(b) of Form 10-K. Therefore, information pertaining to this section is omitted.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
------------------------------------------------------------
MANAGEMENT
----------
The Company meets the conditions set forth in General Instruction I(i)(a) and
(b) of Form 10-K. Therefore, information pertaining to this section is omitted.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------
The Company meets the conditions set forth in General Instruction I(i)(a) and
(b) of Form 10-K. Therefore, information pertaining to this section is omitted.
28
<PAGE> 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) Financial Statements
- Independent Auditors' Report
- Consolidated Balance Sheets
- December 31, 1998
- December 31, 1997
- Consolidated Statements of Operations
- Year ended December 31, 1998
- Year ended December 31, 1997
- Year ended December 31, 1996
- Consolidated Statements of Stockholders' Equity (Deficit)
- For the years ended December 31, 1998, 1997 and 1996
- Consolidated Statements of Cash Flows
- Year ended December 31, 1998
- Year ended December 31, 1997
- Year ended December 31, 1996
- 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) - Agreement and Plan of Merger, dated as of March 24, 1998,
among Insilco, INR Holding Co., and Silkworm Acquisition
Corporation (Exhibit 10(n) to the Registration Statement on
Form S-4 (File No. 333-51145)).
*2(b) - Amendment No. 1 to the Agreement and Plan of Merger, dated
June 8, 1998, among Insilco, INR Holding Co., and Silkworm
Acquisition Corporation (Exhibit 10(r) to the Registration
Statement on Form S-4 (File no. 333-51145)).
*3(a) - Certificate of Incorporation (Exhibit 3.1 to the Current
Report on Form 8-K filed on August 18, 1998 (File
No. 0-22098)).
*3(b) - Bylaws (Exhibit 3.2 to the Current Report on Form 8-K
filed on August 18, 1998 (File No. 0-22098)).
*4(a) - Investors' Agreement, dated as of August 17, 1998, among
Insilco Holding Co. and the investors named therein
(Exhibit 4.5 to the Registration Statement on Form S-1
(File No. 333-65039) of Insilco Holding Co.)
*4(b) - Indenture, dated as of November 9, 1998, between Insilco
and the Trustee (Exhibit 4(a) to the Form 10-Q filed on
November 16, 1998 (File no. 0-22098)).
*4(c) - First Supplemental Indenture, dated as of December 21,
1998, between Insilco and the Trustee (Exhibit 4.3 to the
Registration Statement on Form S-1 (File No. 333-71947)).
*4(d) - Exchange and Registration Rights Agreement, dated as of
November 9, 1998, between Insilco and Donaldson, Lufkin &
Jenrette ("DLJ") (Exhibit 4(b) to the Form 10-Q for the
Quarter Ended September 30, 1998 (File No. 0-22098)).
*4(e) - Indenture, dated as of August 12, 1997, between Insilco
and the Trustee (Exhibit 4(j) to the Registration Statement
on Form S-4 (File No. 333-36523)).
*4(f) - Form of New Note (included in Exhibit 4(e) above)
(Exhibit 4(k) to the Registration Statement on Form S-4
(File No. 333-36523)).
*4(g) - Purchase Agreement, dated as of August 7, 1997, among
Insilco and Goldman, Sachs & Co., McDonald & Company
Securities, Inc. and Citicorp Securities Inc. (the "Initial
Purchasers") (Exhibit 4(l) to the Registration Statement on
Form S-4 (File No. 333-36523)).
*4(h) - Exchange and Registration Rights Agreement, dated as of
August 12, 1997, between Insilco and the Initial Purchasers
(Exhibit 4(m) to the Registration Statement on Form S-4
(File No. 333-36523)).
4(i) - Second Supplemental Indenture, dated as of January 25,
1999, between Insilco and the Trustee.
*10(a) - Insilco Holding Co. Direct Investment Program (Exhibit
4(c) to the Registration Statement on Form S-8 (File No.
333-61809) of Insilco Holding Co.).
30
<PAGE> 31
*10(b) - Insilco Holding Co. Stock Option Plan (Exhibit 4(d) to the
Registration Statement on Form S-8 (File No. 333-61809) of
Insilco Holding Co.)**
*10(c) - Insilco Holding Co. and Insilco Corporation Equity Unit
Plan (Exhibit 4(c) to the Registration Statement on Form
S-8 (File No. 333-61811) of Insilco Holding Co.)**
*10(d) - Credit Agreement among Insilco and a syndicate of banks
and other financial institutions led by Donaldson, Lufkin &
Jenrette Securities Corporation, DLJ Capital Funding and
The First National Bank of Chicago (Exhibit 10.4 to the
Registration Statement on Form S-1 (File No. 333-71947)).
*10(e) - Employment Agreement dated as of May 1, 1993 between
Insilco and Robert L. Smialek, as amended and restated
(Exhibit 10(k) to the Form 10/A, Amendment No.
1 to Form 10 (File No. 0-22098)).**
*10(f) - Form of Indemnification Agreement adopted by Insilco as
of July 30, 1990, entered into between Insilco 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 (Exhibit
10(n) to the Form 10 (File No. 0-22098)).
*10(g) - Form for Income Protection Agreement adopted by Insilco
as of December, 1996, entered into between Insilco and the
officers identified in Exhibit 10(f) (Exhibit 10(h) to Form
10-K for the year ended December 31, 1996, (File No.
0-22098)).
*10(h) - Extension Agreement between Insilco and Robert L. Smialek,
dated May 1, 1996 (Exhibit 10(l) to the Form 10-K for the
Year Ended December 31, 1997 (File No. 0- 22098)).**
*10(i) - Second Extension Agreement between Insilco and Robert L.
Smialek, dated September 25, 1997 (Exhibit 10(m) to the
Form 10-K for the Year Ended December 31, 1997 (File No.
0-22098)).**
*10(j) - Purchase Agreement, between Insilco Corporation, Insilco
Holding Co. and Donaldson, Lufkin & Jenrette Securities
Corporation (Exhibit 10(a) to Form 10-Q filed by
Insilco on November 16, 1998).
*21 - Subsidiaries of Insilco (Exhibit 21 to the Registration
Statement on Form S-1 (File No. 333-51145)).
23(a) Consent of KPMG LLP
24 - Power of Attorney of officers and directors of Insilco
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) (Exhibit 25 to the Registration Statement on
Form S-4 (File No. 333-36523)).
27 - Financial Data Schedule.
99(a) - Schedule II - Valuation and Qualifying Accounts.
* Incorporated by reference, as indicated.
** Designates management contracts and compensatory plans or arrangements in
which directors or executive officers participate.
31
<PAGE> 32
(B) REPORTS ON FORM 8-K
A report, dated October 15, 1998, on Form 8-K was pursuant to Items 5
and 7 of that form.
A report, dated October 29, 1998, on Form 8-K was filed pursuant to
Items 5 and 7 of that form.
(C) EXHIBITS
The Exhibits to this report begin immediately following the
Consolidated Financial Statements.
(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]
32
<PAGE> 33
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 29, 1999 By: /S/ David A. Kauer
------------------
David A. Kauer
Vice President and Chief Financial Officer
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) )
David A. Kauer* Vice President and Chief )
----------------------- Financial Officer )
David A. Kauer (Principal Accounting Officer)
Thompson Dean* )
---------------------- )
Thompson Dean Director )
William F. Dawson* ) March 29, 1999
---------------------
William F. Dawson Director )
/s/ David A. Kauer
- ------------------------
By: *David A. Kauer
Attorney-in-Fact
33
<PAGE> 34
INSILCO CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
- December 31, 1998
- December 31, 1997
Consolidated Statements of Operations F-4
- Year ended December 31, 1998
- Year ended December 31, 1997
- Year ended December 31, 1996
Consolidated Statement of Stockholder's Equity (Deficit)
- For the years ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows F-7
- Year ended December 31, 1998
- Year ended December 31, 1997
- Year ended December 31, 1996
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Insilco Corporation:
We have audited the consolidated financial statements of Insilco Corporation and
subsidiaries as listed in the accompanying index. In conjunction 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 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 provide a reasonable basis for our opinion.
In our opinion, 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, 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.
Columbus, Ohio KPMG LLP
February 10, 1999, except as
to the first paragraph of
Note 7, which is as
of March 26, 1999
F-2
<PAGE> 36
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,430 10,651
Trade receivables, net 74,969 67,209
Other receivables 4,337 3,477
Receivables from related party 4,882 --
Inventories, net 64,565 60,718
Deferred taxes 6,143 277
Prepaid expenses and other current assets 4,387 2,716
--------- ---------
Total current assets 166,713 145,048
Property, plant and equipment, net 114,756 113,971
Deferred taxes 1,517 1,054
Other assets and deferred charges 40,040 42,600
--------- ---------
Total assets $ 323,026 302,673
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
----------------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,265 1,684
Accounts payable 34,513 39,757
Customer deposits 24,981 20,346
Accrued expenses and other 38,712 43,753
--------- ---------
Total current liabilities 99,471 105,540
Long-term debt, excluding current portion 311,144 256,059
Other long-term obligations, excluding current portion 46,329 43,402
Loan due Insilco Holding Co. 2,991 --
--------- ---------
Total liabilities 459,935 405,001
--------- ---------
Stockholder's equity (deficit):
Common stock, $.001 par value; 1,000 shares authorized;
100 shares issued and outstanding, 15,000,000 shares
authorized in 1997, 4,548,373 shares issued and
4,080,693 shares outstanding -- 5
Treasury stock, at cost -- (16,268)
Additional paid-in capital 3,925 --
Accumulated deficit (135,736) (82,756)
Accumulated other comprehensive income (5,098) (3,309)
--------- ---------
Total stockholder's equity (deficit) (136,909) (102,328)
--------- ---------
Commitments and contingencies (See Notes 10, 13 and 17)
Total liabilities and stockholder's equity (deficit) $ 323,026 302,673
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 37
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales $ 535,629 528,233 492,405
Cost of products sold 383,269 370,845 344,912
Depreciation and amortization 20,159 18,377 15,357
Selling, general and administrative expenses 91,488 87,909 82,203
Merger expenses 20,890 -- --
Severance and write-downs 2,542 -- 1,500
--------- --------- ---------
Operating income 17,281 51,102 48,433
--------- --------- ---------
Other income (expense):
Interest expense (29,198) (20,562) (18,378)
Interest income 979 2,837 724
Equity in net income of Thermalex 2,850 2,647 2,922
Other income, net 3,027 794 4,784
--------- --------- ---------
Total other expense (22,342) (14,284) (9,948)
--------- --------- ---------
Income (loss) from continuing operations before income
taxes and extraordinary item (5,061) 36,818 38,485
Income tax benefit (expense) 868 (13,404) (13,272)
--------- --------- ---------
Income (loss) from continuing operations before
extraordinary item (4,193) 23,414 25,213
Discontinued operations, net of tax:
Income from operations -- 1,170 8,741
Gain on disposal -- 57,788 5,099
--------- --------- ---------
Income from discontinued operations -- 58,958 13,840
--------- --------- ---------
Income (loss) before extraordinary item (4,193) 82,372 39,053
Extraordinary items, net of tax (5,888) (728) --
--------- --------- ---------
Net income (loss) $ (10,081) 81,644 39,053
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 38
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholder's Equity (Deficit)
For the Years Ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Accumulated Total
Additional Other Stockholder's
------------------------------------------------ ------------------------------
Common Stock Treasury Paid-in Accumulated Comprehensive Equity
Par Value $.001 Stock Capital Deficit Income (Deficit)
--------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 10 (6,813) 67,192 (76,168) -- (15,779)
Comprehensive income:
Net income -- -- -- 39,053 -- 39,053
Other comprehensive income:
Foreign currency translation adjustment -- -- -- -- (244) (244)
--------
Total comprehensive income 38,809
--------
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
Issuance of shares upon exercise
of stock options -- -- 1,071 -- -- 1,071
Reserved shares -- -- (706) -- -- (706)
Tax benefit from exercise of stock options -- -- 402 -- -- 402
-------- -------- -------- -------- -------- --------
Balance at December 31, 1996 10 (10,745) 81,496 (37,115) (244) 33,402
Comprehensive income:
Net income -- -- -- 81,644 -- 81,644
Other comprehensive income:
Foreign currency translation adjustment -- -- -- -- (3,065) (3,065)
--------
Total comprehensive income 78,579
--------
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
Issuance of shares upon exercise of stock options -- -- 8,255 -- -- 8,255
Tax benefit from exercise of stock options -- -- 3,277 -- -- 3,277
-------- -------- -------- -------- -------- --------
Balance at December 31, 1997 5 (16,268) -- (82,756) (3,309) (102,328)
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 39
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholder's Equity (Deficit)
For the Years Ended December 31, 1998, 1997 and 1996
(In thousands)
(continued)
<TABLE>
<CAPTION>
Accumulated Total
-------------------------------------------------------------------------------
Additional Other Stockholders
Common Stock Treasury Paid-in Accumulated Comprehensive Equity
Par Value $.001 Stock Capital Deficit Income (Deficit)
--------------- --------- ---------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 5 (16,268) -- (82,756) (3,309) (102,328)
Comprehensive income:
Net loss -- -- -- (10,081) -- (10,081)
Other Comprehensive income:
Foreign currency translation adjustment -- -- -- -- 16 16
Minimum pension liability adjustment,
net of tax of $1,130 -- -- -- -- (1,805) (1,805)
--------
Total comprehensive income (11,870)
--------
Merger Eliminations (Note 1) (5) 16,268 (4,220) (12,043) -- --
Dividend to Insilco Holding Co. (Note 1) -- -- -- (30,856) -- (30,856)
Equity investment by Insilco Holding Co.
(Note 1) -- -- 3,668 -- -- 3,668
Issuance of shares upon exercise of stock
options -- -- 3,281 -- -- 3,281
Issuance of warrants -- -- 257 -- -- 257
Tax benefit from exercise of stock options -- -- 939 -- -- 939
-------- -------- -------- -------- -------- --------
Balance at December 31, 1998 $ -- -- 3,925 (135,736) (5,098) (136,909)
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 40
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (10,081) 81,644 39,053
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 20,159 18,377 15,357
Deferred tax expense (benefit) (5,388) 11,679 11,667
Other noncash charges and credits 5,172 (127) (4,904)
Changes in operating assets and liabilities:
Receivables (7,224) (1,297) (3,370)
Inventories (2,360) (3,304) 791
Payables and other 4,027 10,171 (1,371)
Discontinued operations -- (71,632) (1,800)
--------- --------- ---------
Net cash provided by operating activities 4,305 45,511 55,423
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (20,155) (23,583) (20,009)
Acquisitions of businesses, net of cash acquired (2,308) -- (37,726)
Other investing activities (903) 6,190 8,704
Proceeds from divestitures, net -- 112,610 21,818
Discontinued operations -- -- (2,570)
--------- --------- ---------
Net cash provided by (used in) investing activities (23,366) 95,217 (29,783)
--------- --------- ---------
Cash flows from financing activities:
Sale (retirement) of 10 1/4% Notes (148,474) 150,000 --
Borrowings (repayments) of Revolving Facility (41,498) 64,759 --
Dividend to Insilco Holding Co. (30,856) -- --
Debt issuance and tender costs (12,415) (10,689) --
Payment of prepetition liabilities (2,735) (2,811) (2,862)
Funds deposited in excess of retired 10 1/4% Notes (2,032) -- --
Borrowing (retirement) of Term Facility 123,825 (117,246) (26,330)
Proceeds from 12% Notes and warrants 120,000 -- --
Equity investment by Insilco Holding Co. 3,668 -- --
Proceeds from stock option exercise 3,281 4,618 1,071
Loan from Insilco Holding Co. 2,991 -- --
Repurchase of shares -- (220,000) --
Purchase of treasury stock -- (1,887) (3,932)
--------- --------- ---------
Net cash provided by (used in) financing activities 15,755 (133,256) (32,053)
--------- --------- ---------
Effect of exchange rate changes on cash 85 (302) --
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (3,221) 7,170 (6,413)
Cash and cash equivalents at beginning of period 10,651 3,481 9,894
--------- --------- ---------
Cash and cash equivalents at end of period $ 7,430 10,651 3,481
========= ========= =========
Supplemental information - cash paid for:
Interest, net of capitalized amount $ 31,744 13,305 17,820
========= ========= =========
Income taxes paid (refunded) $ (4,908) 7,062 2,081
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 41
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(1) HISTORY OF THE COMPANY
Insilco Corporation (the "Company"), a Delaware corporation, is a
diversified producer of automotive, telecommunications and electronics
components and is a specialty publisher of student yearbooks. On August
17, 1998, through a series of transactions, the Company became a wholly
owned subsidiary of Insilco Holding Co. ("Holdings") and is included in
Holdings' consolidated financial statements and consolidated group for
tax purposes. The Company is however required to report separate
consolidated financial information under the Securities Exchange Act of
1934 because the Company's 10 1/4% Senior Subordinated Notes (the "10
1/4% Notes") are registered debt securities under the Securities Act of
1933 and the 12% Senior Subordinated Notes (the "12% Notes"), which were
offered and sold only to qualified institutional buyers as defined in
Rule 144A under the Securities Act, are expected to be declared effective
by the Securities and Exchange Commission in the near term.
The transactions completed on August 17, 1998 included, among other
things, the formation by Insilco Holding Co. (then a wholly owned
subsidiary of the Company) of a wholly owned subsidiary ("ReorgSub"),
followed by the merger of ReorgSub with and into the Company (the
"Reorganization Merger"), pursuant to which each stockholder of the
Company had his or her shares of the Company converted into the same
number of shares of Holdings and the right to receive $0.01 per share in
cash, and Holdings became the parent of the Company.
Promptly following the Reorganization Merger, a second merger took place
pursuant to which Silkworm Acquisition Corporation ("Silkworm"), an
affiliate of Donaldson, Lufkin & Jenrette Merchant Banking Partners, II,
L.P. ("DLJMB"), merged with and into Holdings (the "Merger," and together
with the Reorganization Merger, the "Mergers") and each share of Holdings
Common Stock was converted into the right to receive $43.47 in cash and
0.03378 of a share of Holdings Common Stock. Thus, as a result of the
Mergers, each stockholder of the Company, in respect of each of his or
her shares, received $43.48 in cash and retained 0.03378 of a share of
Holdings Common Stock.
Following the Mergers, (i) the Company's existing stockholders retained,
in the aggregate, approximately 10.1% (9.4% on a fully diluted basis) of
the outstanding shares of Holdings Common Stock; (ii) the DLJMB Funds
held approximately 69.0% (69.8% on a fully diluted basis) of the
outstanding shares of Holdings Common Stock; (iii) 399 Venture Partners
Inc., an affiliate of Citibank, N.A. ("CVC"), purchased shares of
Silkworm which in the Merger were converted into approximately 19.3%
(17.8% on a fully diluted basis) of the outstanding shares of Holdings
Common Stock; and (iv) management of the Company purchased approximately
1.7% (1.5% on a fully diluted basis) of the outstanding shares of
Holdings Common Stock.
Immediately prior to the effectiveness of the Reorganization Merger, each
outstanding option to acquire shares of the common stock of the Company
granted to employees and directors, whether or not vested (the "Options")
was canceled and in lieu thereof, each holder of an Option received a
cash payment in an amount equal to (x) the excess, if any, of $45.00 over
the exercise price of the Option multiplied by (y) the number of shares
subject to the Option, less applicable withholding taxes (the "Option
Cash Payments"). Certain holders of such Options elected to utilize
amounts otherwise receivable by them to purchase $1,009,000 of equity and
$2,657,000 of equity units of Holdings.
F-8
<PAGE> 42
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The total amount of cash required to consummate the foregoing
transactions was approximately $204.4 million. This amount was financed
with (i) gross proceeds of approximately $70.2 million from the issuance
by Silkworm of units (which were converted into units of Holdings (the
"Holdings Units") in the Merger), each unit consisting of $1,000
principal amount at maturity of 14% Senior Discount notes due 2008 (the
"Holdings Senior Discount Notes") and one warrant to purchase 0.325 of a
share of Holdings Common Stock at an exercise price of $0.01 per share,
(ii) the issuance by Silkworm to the DLJMB Funds, CVC and certain members
of management of the Company, for an aggregate consideration of
approximately $56.1 million, of 1,245,138 shares of Silkworm common stock
(which was converted into Holdings Common Stock in the Merger), (iii) the
issuance by Holdings to the DLJMB Funds, for an aggregate consideration
of $35.0 million, of 1,400,000 shares of the Holding's 15% Senior
Exchangeable Preferred Stock due 2012 ("PIK Preferred Stock") and the
DLJMB Warrants to purchase 65,603 shares of Holdings Common Stock at an
exercise price of $0.001 per share, and (iv) approximately $43.1 million
of new borrowings under the Company's existing credit facility (the "1997
Credit Facility"). In addition, the Company paid a cash dividend to
Holdings of $30.9 million following the Mergers.
The Company incurred $20,890,000 of costs related to the Merger in 1998.
Discontinued Operations
On March 5, 1997, the Company completed the sale of its Office Products
Business, a significant line of business within the Company's 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, which resulted in a net gain of
$57,788,000, net of taxes of $37,213,000. 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 Manufacturing Co., Inc. ("Curtis").
The proceeds from these sales aggregated $21,818,000.
The accompanying consolidated statements of operations and cash flows are
reclassified to account for the sale of the Office Products Business as a
discontinued operation. Revenues associated with the discontinued Office
Products Business for the years 1997 and 1996 were $10,797,000 and
$80,069,000, respectively. At December 31, 1996, the current and
non-current net assets of the Office Products Business were $6,531,000
and $8,934,000, respectively.
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 in the aggregate 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 7).
These acquisitions have been accounted for as purchases and, accordingly,
the purchase prices have been allocated to the assets and liabilities
acquired based on their fair values at the acquisition dates. The
operating results of the businesses acquired have been included for the
period subsequent to their
F-9
<PAGE> 43
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial
statements of 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.
PRO FORMA RESULTS OF OPERATIONS
In 1998 the Company completed the Mergers (see Note 1). In
addition, during 1997, the Company completed a Share Repurchase of
approximately 59% of its outstanding shares partially with the
proceeds from the divestiture of its traditional office products
business (see Note 1) and partially through the issuance of
subordinated notes and refinancing of its bank credit agreement
(see Note 7). These transactions affect the comparability of the
Company's financial position, results of operations and cash flows
for 1998 compared to prior periods. As a result of these
transactions, the Company has presented pro forma results of
operations for 1998 and 1997 as if all of these transactions except
the divestiture of the Office Products Business (which is being
accounted for as a discontinued operation) occurred at the
beginning of the respective periods in Note 20.
CASH EQUIVALENTS
Cash equivalents include time deposits and highly liquid
investments with original maturities of three months or less.
TRADE RECEIVABLES
Trade receivables are presented net of allowances for doubtful
accounts and sales returns of $2,780,000 and $2,132,000 at December
31, 1998 and 1997, respectively.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is
generally determined using the first-in, first-out cost method.
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 and ranges from 3 to 9 years for machinery and equipment.
F-10
<PAGE> 44
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
DEFERRED FINANCING COSTS
Deferred financing costs are being amortized using the effective
interest method over the life of the related debt.
` 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). The recovery of the carrying value of goodwill
is periodically evaluated in relation to the operating performance
and future undiscounted net cash flows of the related businesses
acquired.
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. As of December 31, 1998,
the Company had no interest rate derivative instruments to manage
exposure to interest changes.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value of cash, accounts receivable, accounts payable and
accrued liabilities approximate book value at December 31, 1998.
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 8).
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.
ESTIMATES
In conformity with generally accepted accounting principles, the
preparation of our financial statements requires management to make
estimates and assumptions that affect the amounts
F-11
<PAGE> 45
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
reported in the financial statements and therefore actual results
may ultimately differ from those estimates.
RECLASSIFICATIONS
Certain 1997 and 1996 amounts have been reclassified to conform
with 1998 presentation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In January 1998, the Company adopted 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. In addition, in January
1998, the Company adopted Statement No. 132 ("SFAS 132"),
"Employers' Disclosures About Pensions and Other Post-retirement
Benefits", which revises employer disclosure about pension plans
and other post-retirement benefits. SFAS 132 does not change the
method of accounting for such plans. Prior year amounts in the
notes to the consolidated financial statements have been
reclassified to conform to the requirements of SFAS 132.
On January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 superseded FASB Statement No.
14, "Financial Reporting for Segments of a Business Enterprise".
SFAS 131 establishes standards for reporting information about
operating segments in annual financial statements and interim
financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS 131 did
not affect results of operations or financial position, but did
affect the disclosure of segment information (See Note 18).
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which is required
to be adopted in years beginning after June 15, 1999. The Statement
permits early adoption as of the beginning of any fiscal quarter
after its issuance. The Company expects to adopt the new Statement
effective January 1, 2000. The Statement will require companies to
recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value
through income. If a derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of the derivative will
either be offset against the change in fair value of the hedged
asset, liability, or firm commitment through earnings, or
recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings.
The Company does not anticipate that the adoption of this Statement
will have a significant effect on its results of operations or
financial position.
F-12
<PAGE> 46
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) INVENTORIES
<TABLE>
<CAPTION>
A summary of inventories at December 31 follows (in thousands):
1998 1997
---- ----
<S> <C> <C>
Raw materials and supplies $ 27,238 25,396
Work in process 23,559 23,427
Finished goods 13,768 11,895
--------- ---------
$ 64,565 60,718
========= =========
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
A summary of property, plant and equipment at December 31 follows (in
thousands):
1998 1997
--------- ---------
<S> <C> <C>
Land $ 6,285 6,267
Buildings 37,311 33,718
Machinery and equipment 151,714 137,310
--------- ---------
195,310 177,295
Less accumulated depreciation (80,554) (63,324)
--------- ---------
$ 114,756 113,971
========= =========
</TABLE>
(5) OTHER ASSETS
<TABLE>
<CAPTION>
A summary of other assets at December 31 follows (in thousands):
1998 1997
--------- ---------
<S> <C> <C>
Goodwill, net $ 13,566 13,408
Equity investment in Thermalex 8,412 9,736
Deferred financing costs 10,196 9,246
Cash surrender value of life insurance 1,758 4,636
Other 6,108 5,574
--------- ---------
$ 40,040 42,600
========= =========
</TABLE>
Thermalex, Inc. ("Thermalex") is a joint venture, formed in 1985 between
a subsidiary of the Company and Mitsubishi Aluminum, Ltd., which sells
aluminum extruded products to the automobile industry. The Company
received $1,324,000 and $1,461,000 of dividend distributions from
Thermalex in 1998 and 1997, respectively.
Sales for Thermalex for the years ended December 31, 1998, 1997 and 1996
were $49,547,000, $47,152,000 and $48,057,000, respectively. Net income
for the years ended December 31, 1998, 1997 and 1996 was $5,699,000,
$5,294,000 and $5,844,000, respectively. Total assets were $35,717,000
and $36,348,000 at December 31, 1998 and 1997, respectively.
Stockholders' equity was $16,828,000 and $19,475,000 at December 31, 1998
and 1997, respectively.
F-13
<PAGE> 47
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) ACCRUED EXPENSES AND OTHER
A summary of accrued expenses and other at December 31 follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Salaries and wages payable $ 7,977 9,445
Pension 8,837 5,523
Accrued interest payable 4,227 8,038
Current portion of the long term obligations 1,945 5,393
Accrued taxes payable 1,623 1,112
Other accrued expenses 14,103 14,242
--------- ---------
$ 38,712 43,753
========= =========
</TABLE>
(7) LONG-TERM DEBT AND WARRANTS
<TABLE>
<CAPTION>
A summary of long-term debt at December 31 follows (in thousands):
1998 1997
--------- ---------
<S> <C> <C>
Term Facility $ 125,000 --
12% Senior Subordinated Notes 119,747 --
Revolving Facility 44,922 87,500
Alternative currency borrowings 21,000 18,348
10 1/4% Senior Subordinated Notes 1,526 150,000
Miscellaneous 214 1,895
--------- ---------
312,409 257,743
Less current portion (1,265) (1,684)
--------- ---------
$ 311,144 256,059
========= =========
</TABLE>
As a result of the Merger (see Note 1), the Company was required to make
an Offer to Purchase, as defined in the indenture relating to the 10 1/4%
Notes (the "10 1/4% Note Indenture"), for the entire $150 million of
outstanding 10 1/4% Notes, which were issued on August 12, 1997, at 101%
of their aggregate principal amount, plus accrued interest. Through March
26, 1999, the Company repurchased $149,974,000 of the 10 1/4% Notes.
On November 9, 1998, the Company completed the sale of $120 million of
12% Senior Subordinated Notes due 2007 (the "12% Notes") with 120,000
warrants to purchase 62,400 of Holdings common stock shares at $45 per
share. The net proceeds of $116.4 million, after payment of $3.6 million
in underwriting fees to Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJSC") and other expenses, was used (along with borrowings
from the credit facilities) to fund the repurchase of the 10 1/4% Notes.
As of December 31, 1998, all of the 120,000 warrants to purchase 62,400
shares of Holdings' Common Stock at a purchase price of $45.00 per share
remained outstanding and expire on August 1, 2010.
On November 24, 1998, the Company amended and restated its Bank Credit
Agreement ("Bank Credit Agreement"). The Bank Credit Agreement provides
for two credit facilities (the "Credit Facilities"): a $175 million, 4.8
year senior secured revolving loan ("Revolving Facility") and a $125
million, 7 year senior secured amortizing term loan ("Term Facility").
In 1998, the Company recorded an extraordinary charge of $5,888,000,
(net of a tax benefit of
F-14
<PAGE> 48
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
$3,958,000) related to the write-off of deferred financing costs
associated with its 1997 Bank Credit Agreement and 10 1/4% Notes.
The Revolving Facility provides for a $50 million sublimit for issuance
of letters of credit and a $40 million sublimit for alternative currency
borrowings. The Revolving Facility is permanently reduced by $17.5
million per year in July 2001 and July 2002.
The Term Facility is subject to mandatory quarterly prepayments of
$312,500 for the first six years and quarterly payments of approximately
$29.4 million in the seventh year.
Interest accrues under the Credit Facilities at floating rates calculated
with respect to either the London Interbank Offered Rate ("LIBOR") or The
First National Bank of Chicago's Base Rate, plus an applicable margin.
The margin, in turn, fluctuates based on the leverage ratio (as defined
in the Bank Credit Agreement). The Company also pays an unused commitment
fee, which also fluctuates based upon the leverage ratio of the Company
and is based upon availability under the Revolving Facility. At December
31, 1998, the applicable margin for the Term Facility and the Revolving
Facility were LIBOR plus 3.75% and LIBOR plus 3.00%, respectively. The
unused commitment fee at December 31, 1998 was 0.625%. The applicable
margins and unused commitment fee are fixed through May 1999 and
thereafter are determined by the Company's leverage ratio.
Both the Term Facility and Revolving Facility are subject to mandatory
prepayments due to, but not limited to, 100% of the net cash proceeds
from assets sales and issuance of debt and 50% of the net cash proceeds
from the issuance of equity.
The Credit Facilities are guaranteed by the Company and by all of the
Company's present and future domestic subsidiaries. The obligations
thereunder are secured by (i) all of the common stock of the Company;
(ii) all or a substantial portion of the common stock or other interests
in the Company's present and future subsidiaries; (iii) the present and
future property and assets, including all accounts receivable, inventory,
equipment, fixtures, patents, trademarks and specified real property of
the Company and its present and future domestic subsidiaries (subject to
certain qualifications and exceptions); and, (iv) a collateral assignment
of intercompany notes and junior security agreements securing all
obligations of the domestic subsidiaries to the Company.
The Credit Facilities contain certain consolidated financial covenants
including, but not limited to, covenants related to maximum leverage
ratio, minimum fixed charge coverage ratio, minimum interest coverage
ratio, and a limit on annual capital expenditures. The Credit Facilities
also contain certain negative covenants typical of credit agreements of
this type including, but not limited to a prohibition on the ability of
the Company and its domestic subsidiaries to incur additional
indebtedness in excess of certain agreed upon amounts, the ability to
make investments other than permitted investments, and restricts the
Company and its subsidiaries from paying any dividends, redeem or
repurchase or acquire any of the Company or Holdings shares or pay any
principal, premium or interest (in excess of certain agreed upon amounts)
on any subordinated obligations.
The Company was in compliance with the covenants of its Credit Facilities
as of December 31, 1998.
As of December 31, 1998, under the sublimit for alternative currency
borrowings, the Company had borrowed $21.0 million (35.0 million German
Deutsche Marks). The Company's alternative currency
F-15
<PAGE> 49
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
borrowing is denominated in German Deutsche Marks and bears interest
based on one to six month German LIBOR rates plus an applicable margin
based on the Company's leverage ratio (such LIBOR rates approximated
3.22% to 3.25% at December 31, 1998).
In 1997, the Company refinanced its then existing debt under a six year
$200 million amended and restated credit agreement (the "1997 Bank Credit
Agreement") which provided for the 1997 Credit Facility.
In 1997, proceeds from the 1997 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.
(8) 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>
1998 1997
---------------------- -----------------------
Estimated Estimated
Book Value Fair Value Book Value Fair Value
---------- ---------- --------- ---------
Debt:
<S> <C> <C> <C> <C>
12% Senior Subordinated Notes $119,747 123,600 -- --
10 1/4% Senior Subordinated
Notes 1,526 1,541 $150,000 154,500
Bank revolving credit facility 65,922 65,922 105,848 105,848
Bank term loan 125,000 125,000 -- --
Miscellaneous 214 214 1,895 1,895
-------- -------- -------- --------
$312,409 316,277 $257,743 262,243
======== ======== ======== ========
Hedges:
Interest rate $ -- -- $ -- 423
======== ======== ======== ========
</TABLE>
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
counterparty credit risk by only entering into derivative transactions
with high quality financial institutions that, because of their credit
profile, are expected to perform under the terms associated with such
transactions.
F-16
<PAGE> 50
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) GUARANTOR SUBSIDIARIES
In connection with the November 1998 sale of $120 million of 12% Notes,
the Company permitted its wholly-owned domestic subsidiaries
("Guarantors") to unconditionally guarantee the 12% Notes on a senior
subordinated basis.
The guarantees are general unsecured obligations of the Guarantors, are
subordinated in right of payment to all existing and future senior
indebtedness of the guarantors (including indebtedness of the Credit
Facilities) and will rank senior in right of payment to any future
subordinated indebtedness of the Guarantors. The following condensed
consolidating financial information of the Company includes the accounts
of the Guarantors, the combined accounts of the non-guarantors and the
Company for the periods indicated. Separate financial statements of each
of the Guarantors are not presented because management has determined
that such information is not material in assessing the Guarantors.
F-17
<PAGE> 51
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Balance Sheet
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Non
Assets Insilco Guarantors Guarantors Consolidated
- ------ --------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 6,472 23 935 7,430
Accounts receivable 2,131 76,899 5,158 84,188
Inventories -- 61,178 3,387 64,565
Deferred taxes 6,143 -- -- 6,143
Prepaid expenses and other 838 3,506 43 4,387
--------- --------- --------- ---------
Total current assets 15,584 141,606 9,523 166,713
Property, plant and equipment, net 208 103,061 11,487 114,756
Deferred taxes 1,517 -- -- 1,517
Other assets and deferred charges 14,035 22,463 3,542 40,040
--------- --------- --------- ---------
Total assets $ 31,344 267,130 24,552 323,026
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current portion of long-term
debt $ 1,250 15 -- 1,265
Accounts payable -- 31,097 3,416 34,513
Customer deposits -- 24,981 -- 24,981
Accrued expenses and other 12,411 5,360 20,941 38,712
--------- --------- --------- ---------
Total current liabilities 13,661 61,453 24,357 99,471
Long-term debt, less current portion 310,945 199 -- 311,144
Other long-term obligations, excluding
current portion 13,243 32,938 148 46,329
Intercompany payable (79,887) 82,878 -- 2,991
--------- --------- --------- ---------
Total liabilities 257,962 177,468 24,505 459,935
Stockholder's equity (deficit) (226,618) 89,662 47 (136,909)
--------- --------- --------- ---------
Total liabilities and stockholder's
equity (deficit) $ 31,344 267,130 24,552 323,026
========= ========= ========= =========
</TABLE>
F-18
<PAGE> 52
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Balance Sheet
December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Non
Assets Insilco Guarantors Guarantors Consolidated
- ------ ------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 9,809 (185) 1,027 10,651
Accounts receivable 190 65,879 4,617 70,686
Inventories -- 56,940 3,778 60,718
Deferred taxes 277 -- -- 277
Prepaid expenses and other 767 1,872 77 2,716
--------- --------- --------- ---------
Total current assets 11,043 124,506 9,499 145,048
Property, plant and equipment, net 228 103,147 10,596 113,971
Deferred taxes 1,054 -- -- 1,054
Other assets and deferred charges 15,608 23,531 3,461 42,600
--------- --------- --------- ---------
Total assets $ 27,933 251,184 23,556 302,673
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current portion of long-term debt $ 520 1,164 -- 1,684
Accounts payable -- 37,087 2,670 39,757
Customer deposits -- 19,234 1,112 20,346
Accrued expenses and other 19,134 2,915 21,704 43,753
--------- --------- --------- ---------
Total current liabilities 19,654 60,400 25,486 105,540
Long-term debt, less current portion 255,848 211 -- 256,059
Other long-term obligations, excluding
current portion 5,957 37,040 405 43,402
Intercompany payable (58,541) 58,541 -- --
--------- --------- --------- ---------
Total liabilities 222,918 156,192 25,891 405,001
Stockholders' equity (deficit) (194,985) 94,992 (2,335) (102,328)
--------- --------- --------- ---------
Total liabilities and stockholders'
equity (deficit) $ 27,933 251,184 23,556 302,673
========= ========= ========= =========
</TABLE>
F-19
<PAGE> 53
Condensed Consolidating Statement of Operations
Year Ended December 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
Non
Insilco Guarantors Guarantors Consolidated
------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Sales $ -- 503,471 32,158 535,629
Cost of products sold -- 357,893 25,376 383,269
Depreciation and amortization 72 18,265 1,822 20,159
Selling, general and administrative
expenses 10,287 79,686 2,850 92,823
Merger fees and restructuring charges 20,890 1,207 -- 22,097
-------- -------- -------- --------
Operating income (loss) (31,249) 46,420 2,110 17,281
Other income expense:
Interest expense (28,652) (513) (33) (29,198)
Interest income 895 34 50 979
Other income, net 3,136 2,366 375 5,877
-------- -------- -------- --------
Income (loss) before income taxes
and extraordinary item (55,870) 48,307 2,502 (5,061)
Income tax benefit (expense) 15,811 (15,272) 329 868
-------- -------- -------- --------
Income (loss) before extraordinary
item (40,059) 33,035 2,831 (4,193)
Extraordinary item, net of tax (5,888) -- -- (5,888)
-------- -------- -------- --------
Net income (loss) $(45,947) 33,035 2,831 (10,081)
======== ======== ======== ========
</TABLE>
F-20
<PAGE> 54
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Statement of Operations
Year Ended December 31, 1997
(In Thousands)
<TABLE>
<CAPTION>
Non
Insilco Guarantors Guarantors Consolidated
------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Sales $ -- 502,475 25,758 528,233
Cost of products sold -- 351,178 19,667 370,845
Depreciation and amortization 89 16,267 2,021 18,377
Selling, general and administrative
expenses 9,249 75,677 2,983 87,909
-------- -------- -------- --------
Operating income (loss) (9,338) 59,353 1,087 51,102
Other income expense:
Interest expense (19,969) (501) (92) (20,562)
Interest income 2,747 26 64 2,837
Other income, net 548 2,699 194 3,441
-------- -------- -------- --------
Income (loss) from continuing
operations before income taxes
and extraordinary item (26,012) 61,577 1,253 36,818
Income tax benefit (expense) 6,849 (20,252) (1) (13,404)
-------- -------- -------- --------
Income (loss) from continuing
operations before extraordinary
item (19,163) 41,325 1,252 23,414
Discontinued operations 57,788 1,170 -- 58,958
-------- -------- -------- --------
Income before extraordinary
item 38,625 42,495 1,252 82,372
Extraordinary item, net of tax (728) -- -- (728)
-------- -------- -------- --------
Net income $ 37,897 42,495 1,252 81,644
======== ======== ======== ========
</TABLE>
F-21
<PAGE> 55
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Non
Insilco Guarantors Guarantors Total
------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ (50,773) 53,382 1,696 4,305
--------- --------- --------- ---------
Cash flows used in investing activities:
Capital expenditures, net (50) (19,358) (747) (20,155)
Acquisitions, net of cash (2,308) -- -- (2,308)
Other investing activities (903) -- -- (903)
--------- --------- --------- ---------
Net cash used in investing
activities (3,261) (19,358) (747) (23,366)
--------- --------- --------- ---------
Cash flows provided by (used in) financing activities:
Retirement of 10 1/4% Notes (148,474) (148,474)
Repayment of revolving credit facility (41,498) -- -- (41,498)
Dividend to Insilco Holding Co. (30,856) -- -- (30,856)
Debt issuance costs (12,415) -- -- (12,415)
Payment of prepetition liabilities (2,735) -- -- (2,735)
Funds deposited in excess of retired
10 1/4% Notes (2,032) -- (2,032)
Intercompany transfer of funds 33,767 (33,767) -- --
Borrowing (repayment) of long term
debt 125,000 (49) (1,126) 123,825
Proceeds from 12% Notes and
warrants 120,000 -- -- 120,000
Issuance of common stock 3,668 -- -- 3,668
Proceeds from stock option exercise 3,281 3,281
Loan from Insilco Holding Co. 2,991 -- -- 2,991
--------- --------- --------- ---------
Net cash provided by (used in)
financing activities 50,697 (33,816) (1,126) 15,755
--------- --------- --------- ---------
Effect of exchange rate changes on cash -- -- 85 85
--------- --------- --------- ---------
Net increase (decrease) in cash
and cash equivalents (3,337) 208 (92) (3,221)
Cash and cash equivalents at
beginning of period 9,809 (185) 1,027 10,651
--------- --------- --------- ---------
Cash and cash equivalents at end of
period $ 6,472 23 935 7,430
========= ========= ========= =========
</TABLE>
F-22
<PAGE> 56
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Non
Insilco Guarantors Guarantors Total
------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ (27,771) 73,067 215 45,511
--------- --------- --------- ---------
Cash flows used in investing activities:
Capital expenditures, net (62) (22,182) (1,339) (23,583)
Other investing activities 6,190 -- -- 6,190
Proceeds from divestiture, net 112,610 -- -- 112,610
--------- --------- --------- ---------
Net cash provided by (used in) investing
activities 118,738 (22,182) (1,339) 95,217
--------- --------- --------- ---------
Cash flows provided by (used in) financing activities:
Repurchase of shares (220,000) (220,000)
Repayment of long-term debt (116,677) (569) -- (117,246)
Debt issuance and tender costs (10,689) -- -- (10,689)
Payment of prepetition liabilities (2,811) -- -- (2,811)
Purchase of treasury stock (1,887) -- -- (1,887)
Intercompany transfer of funds 49,507 (49,507) -- --
Proceeds from 10 1/4% Notes 150,000 -- -- 150,000
Proceeds from revolving credit facility 64,759 -- -- 64,759
Proceeds from stock option exercise 4,618 4,618
--------- --------- --------- ---------
Net cash used in financing
activities (83,180) (50,076) -- (133,256)
--------- --------- --------- ---------
Effect of exchange rate changes on cash -- -- (302) (302)
--------- --------- --------- ---------
Net increase (decrease) in cash
and cash equivalents 7,787 809 (1,426) 7,170
Cash and cash equivalents at
beginning of period 2,022 (994) 2,453 3,481
--------- --------- --------- ---------
Cash and cash equivalents at end of
period $ 9,809 (185) 1,027 10,651
========= ========= ========= =========
</TABLE>
F-23
<PAGE> 57
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) OTHER LONG-TERM LIABILITIES
A summary of other long-term liabilities at December 31 follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Post-retirement benefits, other than pensions (Note 11) $ 22,263 22,191
Prepetition and other tax liabilities 16,165 15,762
Environmental liabilities 7,351 8,625
Deferred compensation and other 2,495 2,217
-------- --------
48,274 48,795
Less current portion (1,945) (5,393)
-------- --------
$ 46,329 43,402
======== ========
</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 Chapter 11 Cases were
commenced on January 13, 1991. 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
$7,351,000 relating to these environmental matters at December 31, 1998.
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 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.
F-24
<PAGE> 58
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) 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 and corporate debt securities and real estate
investments. The Company also contributes to various multi-employer plans
sponsored by bargaining units for its union employees.
F-25
<PAGE> 59
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>
1998 1997
---------------------------- -----------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of
year $ 67,312 23,564 66,824 12,979
Service cost 2,241 808 1,967 352
Interest cost 4,562 1,655 4,743 895
Amendments -- -- -- 475
Actuarial (gain) loss (658) 1,904 10,412 1,563
Benefits paid (7,141) (1,362) (8,464) (870)
-------- -------- -------- --------
Benefit obligation at end of year $ 66,316 26,569 75,482 15,394
-------- -------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning
of year $ 78,440 19,535 82,046 9,718
Actual return on assets 3,274 786 13,091 1,597
Employer contribution 77 781 215 641
Benefits paid (7,141) (1,362) (8,464) (870)
-------- -------- -------- --------
Fair value of plan assets at end of year 74,650 19,740 86,888 11,086
-------- -------- -------- --------
Funded status 8,334 (6,829) 11,406 (4,308)
Unrecognized net actuarial (gain) loss (10,299) 2,131 (13,073) (414)
Unrecognized prior service cost (1,136) 1,738 (1,188) 2,054
-------- -------- -------- --------
Accrued benefit cost $ (3,101) (2,960) (2,855) (2,668)
======== ======== ======== ========
Amounts recognized in the statement of financial
position consist of:
Accrued benefit liability $ (3,101) (5,736) (2,855) (3,674)
Intangible asset -- 971 -- 1,006
Accumulated other comprehensive
income -- 1,805 -- --
-------- -------- -------- --------
Net amount recognized $ (3,101) (2,960) (2,855) (2,668)
======== ======== ======== ========
</TABLE>
F-26
<PAGE> 60
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The components of pension cost follow (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost $ 3,049 2,320 2,162
Interest cost 6,217 5,639 5,745
Actual return on assets (8,135) (6,826) (6,564)
Net amortization and deferral 263 86 97
Recognized net actuarial loss (gain) 2 (208) (142)
------- ------- -------
Net pension cost $ 1,396 1,011 1,298
======= ======= =======
</TABLE>
In addition, the Company recognized pension costs of $740,000 in 1998,
$597,000 in 1997 and $880,000 in 1996 related to contributions to
multi-employer plans.
The assumptions used in accounting for the pension plans as of December
31 follow:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Discount rates 7.00% 7.25%
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 $821,000 in 1998,
$819,000 in 1997 and $738,000 in 1996.
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.
The components of net periodic post-retirement benefit cost follow (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost $ 384 400 492
Interest cost 1,104 1,099 1,154
Amortization of prior service cost (352) (352) (274)
Recognized net actuarial gain (45) (85) (91)
------- ------- -------
$ 1,091 1,062 1,281
======= ======= =======
</TABLE>
F-27
<PAGE> 61
A summary of the plans' status reconciled with amounts recognized in the
consolidated balance sheet at December 31 follows (in thousands):
<TABLE>
<CAPTION>
Change in benefit obligation: 1998 1997
---- ----
<S> <C> <C>
Benefit obligation at beginning of year $ 16,848 14,570
Service cost 384 400
Interest cost 1,104 1,099
Actuarial gain (loss) (620) 1,762
Benefits paid (1,019) (983)
-------- --------
Benefit obligation at end of year 16,697 16,848
-------- --------
Funded status (16,697) (16,848)
Unrecognized net actuarial gain (1,493) (918)
Unrecognized prior service cost (4,073) (4,425)
-------- --------
Accrued benefit cost $(22,263) (22,191)
======== ========
</TABLE>
At December 31, 1998 and 1997, the weighted-average discount rates used
in determining the accumulated post-retirement benefit obligation were
7.00% and 7.25%, respectively. The recorded healthcare cost trend rate
assumed in measuring the accumulated post-retirement benefit obligation
was 7.5% in 1999, declining to an ultimate rate of 4.5% in 2011 and
thereafter. Assumed healthcare cost trend rates have a significant effect
on the amounts reported for the healthcare plan. A one- percentage point
change in assumed healthcare cost trend rates in 1998 would have the
following effects:
<TABLE>
<CAPTION>
1-Percentage 1-Percentage
Point Increase Point Decrease
-------------- --------------
<S> <C> <C>
Effect on total of service and interest cost components $ 255 (250)
Effect on post-retirement benefit obligation 3,264 (2,025)
</TABLE>
(12) Stock-Based Compensation Plans
In connection with the Mergers, the Company adopted on August 17, 1998,
the following plans: the Equity Unit Plan, Direct Investment Program,
and the Stock Option Plan. Following is a description of each
respective plan.
Equity Unit Plan
The Equity Unit Plan allowed members of management of the Company to
purchase Equity Units, which are considered share equivalents of Holdings
stock. The purchase price per unit was $45.00. Participants were allowed
to use either deferred compensation or the deferral of future
compensation to satisfy the purchase price of the units. The value of the
units is determined under an Earnings Before Interest, Taxes,
Depreciation and Amortization ("EBITDA") formula or by market-related
value if the actual common shares of Holdings are listed or quoted for
trading on a national exchange or NASDAQ and the aggregate market value
held by non-affiliates is $25,0000,000 or greater. The total number of
units available for purchase under this plan is 88,194. As of December
31, 1998 the number of
F-28
<PAGE> 62
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
units actually purchased was 77,457. Upon the occurrence of a Significant
Event (as defined in the Equity Unit Plan), the Company is obligated to
pay the participant, at the Company's discretion, in cash, common shares,
or a combination of both, the value of any units purchased less any
purchase price that has not been paid. If the value of the units is less
than the amount of remaining purchase price the participant is obligated
to satisfy the difference or the Company has the right to offset any
amounts owed the participant against the remaining purchase price.
Direct Investment Program
The Direct Investment Program allowed members of management of the
Company to purchase actual Holdings shares of common stock at a price of
$45.00 per share. There are certain restrictions on the sale or transfer
of these shares upon the occurrence of a Significant Event such as
termination, future recapitalization or other defined situations. The
total number of shares available for purchase by management was 22,916
shares, with 22,361 shares actually purchased and outstanding as of
December 31, 1998.
Stock Options
The Insilco Holding Co. Stock Option Plan provides for the issuance of no
more than 200,000 shares of Holdings common stock to eligible employees
of the Company. As of December 31, 1998, the Company has 200,000 shares
available for future awards under the plan.
Prior to the Mergers, the Company had the 1993 Long-term Incentive Plan,
as amended, and the 1993 Nonemployee Director Stock Incentive Plan which
provided for the issuance of no more than 2,000,000 and 360,000,
respectively, shares of common stock to eligible employees and
nonemployee directors. In connection with the Mergers, each of the
607,751 outstanding options whether or not vested was canceled and in
lieu thereof, each holder of an option received a cash payment in an
amount equal to the excess, if any, of $45.00 over the exercise price of
the option multiplied the number of shares subject to the option, less
applicable withholding taxes.
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. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options granted
in 1998, 1997 and 1996 under SFAS 123, the Company's net income and
earnings per share would have approximated the pro forma amounts below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss) As reported $(10,081) 81,644 39,053
Pro forma (10,124) 81,069 38,748
</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.
F-29
<PAGE> 63
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of the options granted follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Price
---------- ----------
<S> <C> <C>
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
Granted 15,500 33.02
Forfeited (39,067) 35.17
Exercised (108,949) 24.07
Cancelled at Merger Date (607,751) 30.04
------
Options outstanding December 31, 1998 -- --
======
Options exercisable at December 31:
1996 682,681 21.45
1997 421,033 27.18
1998 -- --
</TABLE>
The per share weighted-average fair value of stock options granted during
1998, 1997 and 1996 was $12.84, $13.87 and $19.20, respectively, on the
date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions: 1998 - expected dividend yield
0.0%, risk- free interest rate of 5.18%, and an expected life of 4.0
years.
F-30
<PAGE> 64
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) INCOME TAX EXPENSE
The components of total income tax expense (benefit) follow (in
thousands):
<TABLE>
<CAPTION>
Total income taxes: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
From continuing operations before
extraordinary item:
Current:
Federal $ 206 588 563
State and local 20 515 745
Foreign 336 622 297
-------- -------- --------
562 1,725 1,605
-------- -------- --------
Deferred:
Federal (1,220) 10,203 10,033
State and local (430) 988 882
Foreign 220 488 752
-------- -------- --------
(1,430) 11,679 11,667
-------- -------- --------
Total from continuing operations
before extraordinary item (868) 13,404 13,272
Discontinued operations -- 38,250 (462)
Extraordinary item (3,958) (465) --
Stockholders' equity (941) (3,277) (402)
-------- -------- --------
Total income taxes $ (5,767) 47,912 12,408
======== ======== ========
</TABLE>
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations follow (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Deferred tax expense (benefit) exclusive of the
effects of other components $ (408) 11,679 12,093
Changes in the valuation allowance for deferred
tax assets allocated to income tax expense (1,022) -- (426)
-------- -------- --------
$ (1,430) 11,679 11,667
======== ======== ========
</TABLE>
F-31
<PAGE> 65
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Pretax income (loss) from continuing operations by domestic and foreign sources
follows (in thousands):
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Domestic $ (9,261) 33,577 34,606
Foreign 4,200 3,241 3,879
-------- -------- --------
$ (5,061) 36,818 38,485
======== ======== ========
</TABLE>
Income tax expense (benefit) attributable to income from continuing
operations differs from the amount computed by applying the Federal
statutory rate to pretax income due to the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Computed statutory tax expense $ (1,771) 12,886 13,470
State and local taxes (410) 1,323 1,422
Equity in earnings of affiliates (798) (733) (818)
Merger fees 2,555 -- --
Foreign tax rate differential 535 (373) (296)
Other, net 43 301 (80)
Valuation allowance (1,022) -- (426)
-------- -------- --------
Income tax expense (benefit) $ (868) 13,404 13,272
======== ======== ========
</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>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 24,322 $ 9,526
Accrued liabilities 12,163 13,882
Pension and other post-retirement benefits 11,426 11,026
Tax credits 9,639 8,877
Other 650 215
-------- --------
Total gross deferred tax assets 58,200 43,526
Less valuation allowance (35,457) (29,870)
-------- --------
22,743 13,656
Deferred tax liabilities:
Plant and equipment (14,364) (11,472)
Other (719) (853)
-------- --------
Total gross deferred tax liabilities (15,083) (12,325)
-------- --------
Net deferred tax asset $ 7,660 $ 1,331
======== ========
</TABLE>
The net reduction in the valuation allowance for deferred tax assets for
the year ended December 31, 1997 was $4,246,000. Recognition, if any, of
tax benefits subsequent to December 31, 1998 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
$19,882,000 and
F-32
<PAGE> 66
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
$15,575,000, respectively. At December 31, 1998, the Company had Federal
net operating loss carryforwards of approximately $51,692,000 which begin
to expire in 2007.
In order to fully realize the net deferred tax assets recognized, the
Company will need to generate future taxable income. Combined cumulative
taxable income, before utilization of net operating loss carryforwards
for 1996 and 1997 approximated $45 million. Based upon an evaluation of
historical and projected future taxable income, the Company believes it
is more likely than not that it will generate sufficient future taxable
income to realize its net deferred tax asset of $7,660,000 at December
31, 1998. The amount of deferred tax assets considered realizable,
however, could be reduced if estimates of future taxable income are
reduced.
The Company is included in the consolidated Federal income tax return of
Insilco Holding Co., but has computed its provision for income taxes on a
separate return basis in accordance with Statement of Financial
Accounting Standards No. 109. The IRS is presently examining the
consolidated Federal income tax returns for tax years 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.
(14) SEVERANCE AND WRITE-DOWNS
In 1998, the Company incurred charges for severance expenses totaling
$2,342,000 related to workforce reductions and write-downs of $200,000
related to lease cancellations.
(15) OTHER INCOME
Other income for 1996 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.
(16) RELATED PARTY TRANSACTIONS
As of December 31, 1998, the Company had an intercompany payable of
$2,991,000 to Holdings, the parent of the Company (see Note 1). The
intercompany payable consisted of a $3,500,000 advance to the Company
from Holdings, net of $509,000 of expenses paid by the Company on behalf
of Holdings. Also as of December 31, 1998, the Company had a dividend
receivable of $2,850,000 from its Thermalex Joint Venture and a
receivable from DLJSC totaling $2,032,000 for funds deposited in excess
of the retired 10 1/4% Notes, which are included in Receivables from
Related Parties.
In connection with the sale of the 12% Notes, the Company paid $3,600,000
in underwriting fees to DLJSC. In addition the company paid DLJSC fees of
approximately $3,181,000 for services as Lead Arranger and Syndication
Agent in connection with the Company's amended and restated Bank Credit
Agreement. In connection with the Mergers, Donaldson Lufkin & Jenrettte
Capital Funding received $1,750,000 in fees from the Company to provide a
backstop credit facility and the company reimbursed DLJSC approximately
$184,000 for expenses.
Prior to the Mergers in 1998, Water Street Corporate Recovery Fund I,
L.P. ("Water Street"), an affiliate of Goldman, Sachs & Co. ("Goldman
Sachs"), beneficially owned approximately 45% (62%
F-33
<PAGE> 67
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
prior to the Share Repurchase) of the Company's common stock. Neither
Holdings nor the Company is aware of any transaction or of any currently
proposed transaction in which Goldman Sachs has any material direct or
indirect interest as a result of its ownership position in the Company
except as follows:
Goldman Sachs advised the Company in connection with the Mergers and
received a fee of $2.0 million upon the consummation of the Mergers. In
the Mergers, Water Street received approximately $81.0 million and
retained 62,962 shares of Holdings. Holdings entered into a Registration
Rights Agreement with Water Street in which Water Street has certain
registration rights with respect to such 62,962 shares.
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 Share
Repurchase. During 1997, the Company paid Goldman Sachs $3,094,000 in
underwriting fees related to the issuance of the 10 1/4% Notes.
As discussed in Note 8, the Company entered into the 1997 Bank Credit
Agreement and Goldman Sachs Credit Partners L.P., an affiliate of Goldman
Sachs, had an initial participating interest of $66,667,000. 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 1). In
connection with such services, the Company provided for the
indemnification of Goldman Sachs against various liabilities, including
liabilities under the Federal securities laws.
(17) COMMITMENTS AND CONTINGENCIES
Rental expense for operating leases totaled $4,625,000, $4,283,000 and
$3,291,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. These leases primarily relate to production facilities.
Rental income received for subleases for operating leases totaled,
$260,000 in 1998, $248,000 in 1997 and none in 1996.
Future minimum lease payments under contractually noncancellable
operating leases (with initial lease terms in excess of one year) for
years subsequent to December 31, 1998 are as follows: 1999, $4,409,000;
2000, $3,785,000; 2001, $2,746,000; 2002, $1,920,000; 2003, $1,319,000;
and thereafter, $1,675,000. Future minimum rental income to be received
under noncancellable subleases for years subsequent to December 31, 1998
are as follows: 1999, $260,000; 2000, $260,000; 2001, $260,000; 2002,
$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.
F-34
<PAGE> 68
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(18) Segment Data
Description of Segments
The Company provides a broad spectrum of products through three business
segments: automotive components, technologies related components, and
specialty publishing.
The Company's Automotive Components Segment provides products and
services to automotive OEMs and suppliers. These products include
heat-transfer products and related tubing, clutch plates for automatic
transmissions, suspension parts for vibration-reducing assemblies and
engine mounts used by automotive manufacturers and suppliers, railroad
locomotive and other heavy industrial equipment manufacturers and
suppliers. Revenues from one of the "Big 3" domestic automobile
manufacturers accounted for approximately 23%, 28%, and 29% of the
Company's Automotive Component Segment revenues for 1998, 1997, and 1996,
respectively.
Through its Technologies Segment, the Company provides a broad range of
telecommunication and electrical component products and services to the
computer networking, telephone digital switching, main frame computer,
automotive and medical equipment markets. The products include high-speed
data connectors and systems, off-the-shelf and custom power transformers,
precision stampings and wire-formed parts, and custom cable and wire
assemblies used by computer networking, telecommunications, computer,
automotive and medical equipment OEMs and suppliers. Two
telecommunications OEMs directly or indirectly accounted for
approximately 24%, 26%, and 24% of the Company's Technologies Segment
revenues for 1998, 1997, and 1996, respectively.
The Specialty Publishing Segment provides student yearbooks and other
specialty publishing services through the Company's wholly owned
subsidiary, Taylor Publishing Company ("Taylor"). Taylor is primarily
engaged in the contract design and printing of student yearbooks, which
accounted for approximately 88% of its annual revenues. Taylor markets
its yearbook services through commissioned independent sales
representatives.
The Company has included in its Other Segment two operating units that
fall below the quantitative reporting thresholds and do not meet all the
criteria for aggregation with the Company's reportable segments. These
operations are a manufacturer of high speed welded tube mills and other
machinery and equipment for automotive suppliers and OEMs and a welded
stainless steel tubing manufacturer that provides tubing and tubing
products to distributors, recreational marine and transportation markets.
Measurement of Segment Profit or Loss and Segment Assets
The Company evaluates performance and allocates resources to its
operating segments based on profit or loss from operations before certain
severance costs and write-downs, other income or expense, interest and
income taxes. The accounting policies of the reportable segments are the
same as those described in Note 2, "Significant Accounting Policies." The
Company has intra-segment sales and transfers, which are recorded at cost
or, if agreed upon, a price comparable to unaffiliated customer sales.
These intra-segment sales and related profits are eliminated in
consolidation and are not presented in the segment disclosure.
Identifiable assets are those used by each segment in its operations.
Corporate assets consist primarily of cash, deferred financing fees and
deferred tax assets.
F-35
<PAGE> 69
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Factors Used to Identify the Enterprise's Reportable Segments
The Company's reportable segments are business units that offer different
products. The reportable segments are each managed separately because
they manufacture and distribute distinct products with different
production processes. Reportable segments were determined by using a
management approach and are consistent with the basis and manner in which
the Company's management internally disaggregates financial information
for the purposes of assisting in making internal operating decisions.
Operations within segments have been aggregated on the basis of similar
economic characteristics, products or services, purposes or end uses,
production processes, geographic marketing areas and methods,
distribution methods, and regulatory environments. Due to the diverse
nature of the Company's products, consideration has been given to ensure
that the aggregation of the Company's operations helps users better
understand the Company's performance and assess its future cash flows.
F-36
<PAGE> 70
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Summary financial information by business segment is as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
Net Sales: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Automotive Components $ 213,365 193,839 169,280
Technologies 189,781 198,941 183,663
Specialty Publishing 101,325 98,222 99,020
Other 31,158 37,231 40,442
--------- --------- ---------
$ 535,629 528,233 492,405
========= ========= =========
Operating income:
Automotive Components $ 23,015 21,859 21,722
Technologies 21,169 26,734 27,604
Specialty Publishing 4,945 7,299 5,136
Other 1,290 4,748 5,175
Unallocated amounts:
Corporate expenses (7,752) (9,138) (9,704)
Significant legal expenses (1,954) (400) --
Severance and write-downs (2,542) -- (1,500)
Merger fees (20,890) -- --
--------- --------- ---------
Total operating income 17,281 51,102 48,433
Interest expense (29,198) (20,562) (18,378)
Interest income 979 2,837 724
Equity in net income of Thermalex 2,850 2,647 2,922
Other income, net 3,027 794 4,784
--------- --------- ---------
Income (loss) from continuing
operations before income taxes
and extraordinary item $ (5,061) 36,818 38,485
========= ========= =========
Depreciation and amortization expense:
Automotive Components $ 8,508 8,104 5,883
Technologies 7,216 6,159 5,531
Specialty Publishing 3,319 2,930 2,786
Other 1,044 1,095 1,073
Corporate 72 89 84
--------- --------- ---------
Total $ 20,159 18,377 15,357
========= ========= =========
Capital expenditures:
Automotive Components $ 9,132 10,531 6,747
Technologies 7,926 8,166 9,597
Specialty Publishing 2,197 3,161 2,876
Other 850 1,663 700
Corporate 50 62 89
--------- --------- ---------
Total $ 20,155 23,583 20,009
========= ========= =========
</TABLE>
F-37
<PAGE> 71
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of identifiable assets by segment at December 31 follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Automotive Components $135,525 117,602
Technologies 96,742 87,252
Specialty Publishing 42,073 42,767
Other 17,342 27,245
Corporate 31,344 27,807
-------- --------
Total $323,026 302,673
======== ========
</TABLE>
A summary of long-lived assets by geographic region is as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
United States $113,293 113,322
Germany 15,029 14,057
-------- --------
Total $128,322 127,379
======== ========
</TABLE>
Summary of export sales by geographic region is as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Europe $ 22,838 21,193 20,584
Asia 8,829 14,007 16,708
Canada 7,692 9,758 7,752
Mexico 3,005 4,292 6,660
Other 4,335 6,155 6,449
-------- -------- --------
Total $ 46,699 55,405 58,153
======== ======== ========
</TABLE>
Net sales are attributed to countries based on the location of customers.
Major Customers
Revenues from one of the "Big 3" domestic automobile manufacturers
accounted for approximately 9%, 10%, and 10% of the Company's
consolidated revenues for 1998, 1997, and 1996, respectively.
F-38
<PAGE> 72
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(19) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
A summary of quarterly financial information follows (in thousands):
<TABLE>
<CAPTION>
1998
----
DEC. 31(1) SEPT. 30(2) JUNE 30(3) MARCH 31
------- -------- ------- --------
<S> <C> <C> <C> <C>
Sales $ 113,241 135,065 170,018 117,305
Gross profit 25,252 32,873 49,644 28,318
Income (loss) before extraordinary item 650 (12,057) 4,433 2,781
Extraordinary item (5,888) -- -- --
--------- --------- --------- ---------
Net income (loss) $ (5,238) (12,057) 4,433 2,781
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1997
----
DEC. 31 SEPT. 30(4) JUNE 30 MARCH 31(5)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 120,624 131,394 169,671 106,544
Gross profit 29,508 34,269 52,170 26,011
Income from continuing
operations before extraordinary item 3,531 4,315 11,207 4,361
Discontinued operations -- -- -- 58,958
Extraordinary item -- (728) -- --
--------- --------- --------- ---------
Net income $ 3,531 3,587 11,207 63,319
========= ========= ========= =========
</TABLE>
(1) Includes a pretax extraordinary loss of $ 9,846,000 related to the
extinguishment of debt.
(2) Includes $19,549,000 of expenses related to the Mergers (See Note 1).
(3) Includes $1,341,000 of expenses related to the Mergers (See Note 1).
(4) Includes a pretax extraordinary loss of $1,193,000 related to the
extinguishment of debt (See Note 7).
(5) Includes a pretax gain on the sale of the Rolodex Business totaling
$95,001,000.
(20) PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)
Set forth below is certain unaudited pro forma condensed consolidated
financial information of the Company based upon historical consolidated
financial statements of the Company that has been adjusted to give effect
to the Refinancing (as defined below), the Mergers, including the Merger
Financing and application of the proceeds thereof (see Note 1). In
addition, the operating results for 1997 have been adjusted to give
effect to the 1997 Transactions. A summary of these adjustments follows.
The Refinancing includes the following transactions: (i) the issuance of
the 12% Notes which generated gross proceeds to the Company of
approximately $120.0 million; (ii) the repurchase of the 10 1/4% Notes at
a purchase price of 101% of principal amount plus accrued and unpaid
interest; (iii) the execution and delivery of the New Credit Facility and
borrowings thereunder to refinance the 1997 Credit Facility and to
purchase the 10 1/4% Notes at a purchase price of 101% of principal
amount plus accrued and unpaid interest; (iv) payment of fees and
expenses in connection with the
F-39
<PAGE> 73
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
offering of the Notes, the New Credit Facilities and the purchase of the
10 1/4% Notes.
The Reorganization Merger was accounted for as a reorganization of
entities under common control, and had no impact on the historical basis
of the assets or liabilities of the Company. The Merger was accounted for
as a recapitalization and had no impact on the historical basis of the
assets or liabilities of the Company.
The Mergers included the following transactions: (i) the issuance of the
Holdings Senior Discount Notes which generated gross proceeds of
approximately $70.2 million, and new borrowings under the Company's 1997
Credit Facility of approximately $43.1 million, of which $26.8 million
was paid as a dividend from the Company to Holdings to fund a portion of
the Merger Consideration; (ii) the initial capitalization of Silkworm
through the issuance of 1,245,138 shares of Silkworm common stock for
$56.1 million and the issuance of 1,400,000 shares of PIK Preferred Stock
and warrants to purchase 65,603 shares of Holdings Common Stock for
aggregate consideration of $35.0 million; (iii) payment of the Merger
Consideration for each share of the Company's common stock outstanding
immediately prior to the Mergers (4,145,372 shares) consisting of $43.48
in cash and 0.03378 of a share of Holdings; (iv) payment of fees and
expenses associated with the issuance of the Holdings Senior Discount
Notes, the waiver of certain Events of Default under the Existing Credit
Facility, and the Mergers; and (v) vesting of all outstanding options and
payment of the Option Cash Proceeds (and applicable withholding taxes)
and payments pursuant to employment related agreements.
The 1997 Transactions consisted of the following: (i) the Company entered
into the 1997 Credit Facility on July 3, 1997; (ii) on August 12, 1997,
the Company issued $150 million aggregate principal amount of the 10 1/4%
Notes; (iii) on July 10, 1997, the Company, using the proceeds of its
sale of the Rolodex Business, purchased an aggregate of 2,857,142 shares
for $110 million; and (iv) on August 12, 1997, the Company completed a
tender offer pursuant to which it purchased an additional 2,857,142
shares of common stock for $110 million. The purchase of shares of common
stock of the Company in the tender offer was paid for with proceeds
received through the issuance by the Company of the 10 1/4% Notes.
The unaudited pro forma condensed consolidated income statements have
been prepared as if the Refinancing, the Mergers and the 1997
Transactions all occurred on January 1 of the relevant period; however,
the expenses directly related to the aforementioned transactions (other
than interest expense) are excluded from the unaudited pro forma
condensed consolidated income statements. The Unaudited Pro Forma
Condensed Consolidated Financial Data are based on certain assumptions
and estimates, and therefore do not purport to be indicative of the
results that would have been obtained had the transactions been completed
as of such dates or indicative of future results of operations and
financial position.
F-40
<PAGE> 74
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Unaudited Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Merger Refinancing
Historical Adjustments Adjustments Pro Forma
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 535,629 535,629
Cost of goods sold 383,269 383,269
Depreciation and amortization 20,159 20,159
Selling, general and administrative expenses 114,920 (20,890)(1) 94,030
-------- -------- ---------- -------
Operating income 17,281 20,890 - 38,171
Interest expense (29,198) (1,955)(2) (4,167)(3) (35,320)
Interest income 979 979
Equity in net income of Thermalex 2,850 2,850
Other income, net 3,027 3,027
--------- ----------- ---------- --------
Income (loss) from continuing operations
before income taxes and extraordinary
item (5,061) 18,935 (4,167) 9,707
Income tax benefit (expense) 868 (6,311)(1)
753 (4) 1,604 (4) (3,086)
---------- --------- ------------ --------
Income (loss) from continuing
operations before extraordinary item $ (4,193) 13,377 (2,563) 6,621
======== ========= ============ ========
</TABLE>
F-41
<PAGE> 75
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>
1997 Merger Refinancing
Historical Transactions Adjustments Adjustments Pro Forma
---------- ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 528,233 528,233
Cost of goods sold 370,845 370,845
Depreciation and amortization 18,377 18,377
Selling, general and
administrative expenses 87,909 87,909
-------- --------- --------- --------- --------
Operating income 51,102 - - 51,102
Interest expense (20,562) (8,879)(5) (3,128)(2) (4,683)(3) (37,252)
Interest income 2,837 (2,091)(5) 746
Equity in net income of
Thermalex 2,647 2,647
Other income, net 794 794
-------- --------- --------- --------- --------
Income (loss) from continuing
operations before income
taxes 36,818 (10,970) (3,128) (4,683) 18,037
Income tax expense (13,404) 4,223(5) 1,204(4) 1,803(4) (6,174)
--------- --------- --------- --------- --------
Income (loss) from
continuing operations $ 23,414 (6,747) (1,924) (2,880) 11,863
======= ========= ========= ========= ========
</TABLE>
The Notes to the Unaudited Pro Forma Condensed Consolidated Statements of
Income follow:
(1) To exclude nonrecurring Merger expenses and the related income
tax effect recorded in the year ended December 31, 1998.
(2) To record the incremental interest expense of $3.1 million and
$2.0 million for the years ended December 31, 1997 and 1998,
respectively, associated with the Company's $43.1 million of
additional borrowings under the 1997 Credit Facility.
(3) To record the net increase in interest expense for the years
ended December 31, 1997 and 1998 as follows: (i) $1.8 million and
$1.8 million, respectively, increase in interest expense
associated with the increase in LIBOR spreads from 125 basis
points ("bps") under the 1997 Credit Facility to a spread of 375
bps for the Term Loan Facility under the New Credit Facility and
to a spread of 300 bps for the Revolving Credit Facility and
based on an assumed LIBOR rate of 4.98% thereunder (ii) $3.3
million and $2.9 million increase in interest expense related to
the additional borrowings under the 1997 Revolving Credit
Facility, incurred in connection with the Refinancing, and (iii)
$14.4 million and $12.6 million increase in interest expense
relating to the issuance of the 12% Notes offset by a $15.4
million and $13.6 million reduction in interest expense relating
to the repayment of the 10 1/4% Notes and the amortization
expense relating to the issuance of the 12% Notes and the New
Credit Facility partially offset by a reduction in amortization
expense relating to the repurchase of
F-42
<PAGE> 76
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
the 10 1/4% Notes and the 1997 Credit Facility.
(4) To record the tax benefit of the transaction at the statutory
rate of 38.5% (35.0% federal rate and an estimated 3.5% average
state rate.
(5) To record the effect on interest expense and the related income
tax effect of (i) the purchase on July 10, 1997 of 2,857,142
shares at $38.50 per share in cash for an aggregate purchase
price of $110.0 million, (ii) the entering into of the 1997
Credit Facility on July 3, 1997 and the issuance and sale of
$150.0 million aggregate principal amount of the 10 1/4% Notes on
August 12, 1997, and (iii) the purchase on August 12, 1997 of
2,857,142 shares at $38.50 per share in cash for an aggregate
purchase price of $110.0 million, as if the aforementioned
transactions had occurred as of the beginning of the periods
presented. Statutory tax rates used to calculate the income tax
effect was 38.5% (35.0% federal rate and an estimated 3.5%
average state rate).
(21) SUBSEQUENT EVENT
On January 25, 1999, the Company purchased the stock of Eyelets for
Industries, Inc. and EFI Metal Forming, Inc., collectively referred to as
EFI, a precision stamping manufacturer for the battery, electrical,
electronic and automotive markets. EFI has operations in Connecticut and
Texas.
The initial purchase price of $23,600,000, including estimated costs
incurred directly related to the transaction, has not yet been allocated
and is pending appraisals of property, plant and equipment, actuarial
valuations of retiree medical benefits, and estimated costs of plans to
exit certain EFI activities. The Company expects to have these items
quantified within one year of the date of acquisition. The acquisition
will be accounted for as a purchase and the Company is currently
determining the appropriate period for amortizing any resulting goodwill
from this transaction. The acquisition did not result in a significant
business combination within the definition provided by the Securities and
Exchange Commission and therefore, pro forma financial information has
not been presented.
F-43
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT LISTING
<S> <C>
*2(a) - Agreement and Plan of Merger, dated as of March 24, 1998, among Insilco, INR
Holding Co., and Silkworm Acquisition Corporation (Exhibit 10(n) to the Registration
Statement on Form S-4 (File No. 333-51145)).
*2(b) - Amendment No. 1 to the Agreement and Plan of Merger, dated June 8, 1998, among
Insilco, INR Holding Co., and Silkworm Acquisition Corporation (Exhibit 10(r) to the
Registration Statement on Form S-4 (File no. 333-51145)).
*3(a) - Certificate of Incorporation (Exhibit 3.1 to the Current Report on Form 8-K filed
on August 18, 1998 (File No. 0-22098)).
*3(b) - Bylaws (Exhibit 3.2 to the Current Report on Form 8-K filed on August 18, 1998
(File No. 0-22098)).
*4(a) - Investors' Agreement, dated as of August 17, 1998, among Insilco Holding Co. and
the investors named therein (Exhibit 4.5 to the Registration Statement on Form S-1
(File No. 333-65039) of Insilco Holding Co.)
*4(b) - Indenture, dated as of November 9, 1998, between Insilco and the Trustee (Exhibit 4(a)
to the Form 10-Q filed on November 16, 1998 (File no. 0-22098)).
*4(c) - First Supplemental Indenture, dated as of December 21,
1998, between Insilco and the Trustee (Exhibit 4.3 to the
Registration Statement on Form S-1 (File No. 333-71947)).
*4(d) - Exchange and Registration Rights Agreement, dated as of November 9, 1998, between
Insilco and Donaldson, Lufkin & Jenrette ("DLJ") (Exhibit 4(b) to the Form 10-Q for
the Quarter Ended September 30, 1998 (File No. 0-22098)).
*4(e) - Indenture, dated as of August 12, 1997, between Insilco and the Trustee (Exhibit 4(j)
to the Registration Statement on Form S-4 (File No. 333-36523)).
*4(f) - Form of New Note (included in Exhibit 4(e) above) (Exhibit 4(k) to the Registration
Statement on Form S-4 (File No. 333-36523)).
*4(g) - Purchase Agreement, dated as of August 7, 1997, among Insilco and Goldman, Sachs
& Co., McDonald & Company Securities, Inc. and Citicorp Securities Inc. (the
"Initial Purchasers") (Exhibit 4(l) to the Registration Statement on Form S-4 (File No.
333-36523)).
*4(h) - Exchange and Registration Rights Agreement, dated as of August 12, 1997, between
Insilco and the Initial Purchasers (Exhibit 4(m) to the Registration Statement on Form
S-4 (File No. 333-36523)).
4(i) - Second Supplemental Indenture, dated as of January 25, 1999, between Insilco and the
Trustee.
*10(a) - Insilco Holding Co. Direct Investment Program (Exhibit 4(c) to the Registration
Statement on Form S-8 (File No. 333-61809) of Insilco Holding Co.).
</TABLE>
<PAGE> 78
<TABLE>
<S> <C>
*10(b) - Insilco Holding Co. Stock Option Plan (Exhibit 4(d) to the Registration Statement on
Form S-8 (File No. 333-61809) of Insilco Holding Co.)**
*10(c) - Insilco Holding Co. and Insilco Corporation Equity Unit Plan (Exhibit 4(c) to the
Registration Statement on Form S-8 (File No. 333-61811) of Insilco Holding Co.)**
*10(d) - Credit Agreement among Insilco and a syndicate of banks and other financial
institutions led by Donaldson, Lufkin & Jenrette Securities Corporation, DLJ Capital
Funding and The First National Bank of Chicago (Exhibit 10.4 to the Registration
Statement on Form S-1 (File No. 333-71947)).
*10(e) - Employment Agreement dated as of May 1, 1993 between Insilco and Robert L.
Smialek, as amended and restated (Exhibit 10(k) to the Form 10/A, Amendment No.
1 to Form 10 (File No. 0-22098)).**
*10(f) - Form of Indemnification Agreement adopted by Insilco as of July 30, 1990, entered
into between Insilco 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 (Exhibit 10(n) to the Form 10 (File No. 0-22098)).
*10(g) - Form for Income Protection Agreement adopted by Insilco as of December, 1996,
entered into between Insilco and the officers identified in Exhibit 10(f) (Exhibit 10(h)
to Form 10-K for the year ended December 31, 1996, (File No. 0-22098)).
*10(h) - Extension Agreement between Insilco and Robert L. Smialek, dated May 1, 1996
(Exhibit 10(l) to the Form 10-K for the Year Ended December 31, 1997 (File No. 0-
22098)).**
*10(i) - Second Extension Agreement between Insilco and Robert L. Smialek, dated September
25, 1997 (Exhibit 10(m) to the Form 10-K for the Year Ended December 31, 1997
(File No. 0-22098)).**
*10(j) - Purchase Agreement, between Insilco Corporation, Insilco Holding Co. and
Donaldson, Lufkin & Jenrette Securities Corporation (Exhibit 10(a) to Form 10-Q
filed by Insilco on November 16, 1998).
*21 - Subsidiaries of Insilco (Exhibit 21 to the Registration Statement on Form S-1 (File
No. 333-51145)).
23(a) - Consent of KPMG LLP.
24 - Power of Attorney of officers and directors of Insilco 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) (Exhibit 25 to the Registration
Statement on Form S-4 (File No. 333-36523)).
27 - Financial Data Schedule.
99(a) - Schedule II - Valuation and Qualifying Accounts.
</TABLE>
* Incorporated by reference, as indicated.
** Designates management contracts and compensatory plans or arrangements in
which directors or executive officers participate.
<PAGE> 1
EXHIBIT 4(i)
SECOND SUPPLEMENTAL INDENTURE
dated as of January 25, 1999
among
INSILCO CORPORATION,
And its Subsidiaries
EYELETS FOR INDUSTRY, INC.
and
EFI METAL FORMING, INC.
the GUARANTORS party hereto
and
STAR BANK, N.A.,
as Trustee
with respect to
Insilco Corporation's 12% Senior Subordinated Notes due 2007
<PAGE> 2
THIS SECOND SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"),
entered into as of January 25, 1999, among Insilco Corporation, a Delaware
corporation (the "Company"), Eyelets For Industry, Inc., a Connecticut
corporation and EFI Metal Forming, Inc., a Connecticut corporation (each an
"Undersigned") and Star Bank, N.A., as trustee (the "Trustee").
RECITALS
WHEREAS, the Company and the Trustee entered into the Indenture, dated
as of November 9, 1998 (the "Indenture"), relating to the Company's 12% Senior
Subordinated Notes due 2007 (the "Notes");
WHEREAS, as a condition to the Trustee entering into the Indenture and
the Holders purchase of the Notes, the Company agreed pursuant to Section 10.21
of the Indenture to cause its Domestic Subsidiaries which are Wholly-Owned
Restricted Subsidiaries to provide the Note Guarantee in certain circumstances.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and intending to be legally bound, the parties hereto hereby
agree as follows:
SECTION 1. Definitions. Capitalized terms used herein and not otherwise
defined herein are used as defined in the Indenture.
SECTION 2. Guarantee. Pursuant to Section 9.01 of the Indenture, each
Undersigned, by its execution of this Supplemental Indenture, agrees to be bound
by the terms of the Indenture, including but not limited to Article 14 thereof
with respect to the Note Guarantees, and hereby, jointly and severally,
unconditionally guarantees to each Holder of a Note authenticated and delivered
by the Trustee and to the Trustee and its successors and assigns, irrespective
of the validity and enforceability of the Indenture, the Notes or the
obligations thereunder, that (a) the principal of and interest on the Notes will
be promptly paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue principal of and interest
on the Notes, if any, if lawful, and all other obligations of the Company to the
Holders or the Trustee thereunder will be promptly paid in full or performed,
all in accordance with the terms thereof; and (b) in case of any extension of
time of payment or renewal of any Notes or any of such other obligations, that
same will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration
or otherwise. Failing payment when due of any amount so guaranteed or any
performance so guaranteed for whatever reason, the Guarantors shall be jointly
and severally obligated to pay the same immediately. The Guarantor agrees that
this is a guarantee of payment and not a guarantee of collection.
<PAGE> 3
SECTION 3. Governing Law. This Supplemental Indenture shall be governed
by and construed in accordance with the internal laws of the State of New York.
SECTION 4. Counterparts. This Supplemental Indenture may be signed in
various counterparts which together shall constitute one and the same
instrument.
SECTION 5. Supplement to the Indenture. This Supplemental Indenture is
an amendment supplemental to the Indenture and said Indenture and this
Supplemental Indenture shall henceforth be read together.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Supplemental Indenture or have caused this Supplemental Indenture to be duly
executed on their respective behalf by their respective officers thereunto duly
authorized, as of the day and year first above written.
INSILCO CORPORATION
By:___________________________
Name: Kenneth H. Koch
Title: Vice President, General Counsel and
Secretary
EYELETS FOR INDUSTRY, INC.
By:__________________________
Name: Kenneth H. Koch
Title: Vice President, General Counsel and
Secretary
EFI METAL FORMING, INC.
By:__________________________
Name: Kenneth H. Koch
Title: Vice President, General Counsel and
Secretary
STAR BANK, N.A.
as Trustee
By: _____________________
Name:
Title:
<PAGE> 1
EXHIBIT 23(a)
Consent of Independent Auditors'
--------------------------------
The Board of Directors
Insilco Corporation:
We consent to incorporation by reference in the registration statement Nos.
333-36523 and 333-51145 on Form S-4 of Insilco Corporation of our report dated
February 10, 1999, except as to the first paragraph of Note 7, which is as of
March 26, 1999, relating to the consolidated balance sheets of Insilco
Corporation and subsidiaries as of December 31, 1998, and 1997, and the related
consolidated statements of operations, stockholder's equity (deficit), and cash
flows for each of the years in the three-year period ended December 31, 1998,
and the related schedule, which report appears in the December 31, 1998, annual
report on Form 10-K of Insilco Corporation.
KPMG LLP
Columbus, Ohio
March 30, 1999
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signature appear
below, constitute and appoint Robert L. Smialek, Kenneth, H. Koch, David A.
Kauer and Michael R. Elia, and each of them as their true and lawful
attorneys-in-fact and fact and agents, with full power of substitution and
resubstituion, for them and in their names, places, and steads, in any and all
capacities, to sign 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, 1998, 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, 1999
- ------------------------------------- --------------------------------
Robert L. Smialek Thompson Dean
- ------------------------------------- ---------------------------------
William F. Dawson David A. Kauer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,430
<SECURITIES> 0
<RECEIVABLES> 77,749
<ALLOWANCES> (2,780)
<INVENTORY> 64,565
<CURRENT-ASSETS> 166,713
<PP&E> 195,310
<DEPRECIATION> 80,554
<TOTAL-ASSETS> 323,026
<CURRENT-LIABILITIES> 99,471
<BONDS> 121,273
0
0
<COMMON> 0
<OTHER-SE> (136,909)
<TOTAL-LIABILITY-AND-EQUITY> 323,026
<SALES> 535,629
<TOTAL-REVENUES> 535,629
<CGS> 399,542
<TOTAL-COSTS> 399,542
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,460
<INTEREST-EXPENSE> 29,198
<INCOME-PRETAX> (5,061)
<INCOME-TAX> 868
<INCOME-CONTINUING> (4,193)
<DISCONTINUED> 0
<EXTRAORDINARY> (5,888)
<CHANGES> 0
<NET-INCOME> (10,081)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
Exhibit 99(a)
INSILCO CORPORATION AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
Additions
-------------------------
(1) (2)
Charged Charged
Balance at to costs to other Balance
Description beginning and accounts Deductions at end of
of period expenses (describe) (describe) period
- ------------------------------------------------------ --------------- ---------- -------------- -----------------------------
<S> <C> <C> <C> <C>
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
For the year ended December 31, 1998
Allowances deducted from assets:
Accounts receivable (for doubtful
receivables) $ 2,132 1,460 - (812)(a) 2,780
Inventory (primarily for obsolescence) 5,444 2,281 - (3,882)(b) 3,843
</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.
