PROSPECTUS SUPPLEMENT Filed Pursuant to Rule 424(b)(3) of
the Rules and Regulations Under the
(To Prospectus dated April 7, 1999, Securities Act of 1933
and to the Prospectus Supplements
dated July 2, 1999, August 11, 1999,
September 3, 1999, October 5, 1999, Registration Statement No. 333-71947
November 12, 1999, December
28, 1999, February 24, 2000, and
March 3, 2000)
INSILCO CORPORATION
12% SERIES B SUBORDINATED NOTES DUE 2007
SENIOR SUBORDINATED GUARANTEES
---------------------------------
RECENT DEVELOPMENTS
- -------------------
Attached hereto and incorporated by reference herein is the Annual
Report on Form 10-K of Insilco Corporation for the fiscal year ended December
31, 1999, filed with the Securities and Exchange Commission ("SEC") on March 27,
2000.
---------------------------------
This Prospectus Supplement, together with the Prospectus, is to be used
by Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC") in connection
with offers and sale of the above-referenced securities in market-making
transactions at negotiated prices related to prevailing market prices at the
time of the sale. DLJSC may act as principal or agent in such transactions.
March 30, 2000
<PAGE>
================================================================================
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, 1999
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 17, 2000, 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.
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
Part I
Item 1. Business 2
Item 2. Properties 8
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 23
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 23
Part III
Item 10. Directors and Executive Officers of the Registrant 24
Item 11. Executive Compensation 24
Item 12. Security Ownership of Certain Beneficial Owners
and Management 24
Item 13. Certain Relationships and Related Transactions 24
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 25
Signatures 29
Consolidated Financial Statements F-1
<PAGE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Our actual results could differ materially from those projected in
forward-looking statements. All statements other than historical facts are
forward-looking statements. Although we believe that the expectations reflected
in the forward-looking statements contained herein are reasonable, we can give
no assurance that such expectations will prove to be correct. Factors that could
cause actual results to differ materially include, but are not limited to the
following:
o delays in new product introductions
o lack of market acceptance of new products
o changes in demand for the products
o changes in market trends
o operating hazards
o general competitive pressures from existing and new competitors
o effects of governmental regulations
o changes in interest rates
o adverse economic conditions that could affect the amount of
cash available for debt servicing and capital investments
All subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements.
PART I
AS USED IN THIS ANNUAL REPORT ON FORM 10-K AND EXCEPT AS THE CONTEXT OTHERWISE
MAY REQUIRE, THE "WE," "US," "OUR," "INSILCO" OR THE "COMPANY" MEANS INSILCO
CORPORATION AND ALL ENTITIES OWNED OR CONTROLLED BY INSILCO AND ALL ENTITIES
OWNED OR CONTROLLED BY US, EXCEPT WHERE IT IS MADE CLEAR THAT THE TERM ONLY
MEANS INSILCO CORPORATION.
ITEM 1. BUSINESS
- ----------------
THE COMPANY
OVERVIEW
We are Insilco Corporation, a Delaware corporation originally incorporated in
New Jersey in 1898 and we are a diversified manufacturer of vehicle, electronic
and telecommunications components. Our business units service the automotive,
electronics, telecommunications and other industrial markets. We own and operate
a number of subsidiaries that operate in two primary business segments:
Automotive Components and Technologies. The percentage of our total net sales
for each of these segments over the last three fiscal years were:
1997 1998 1999
------ ------ ------
Automotive Components 46% 44% 48%
Technologies 45% 49% 48%
Other (1) 9% 7% 4%
------ ------ ------
Total 100% 100% 100%
====== ====== ======
2
<PAGE>
(1) This segment includes two businesses, a manufacturer of machinery and
equipment for the heat exchanger market and a welded stainless steel tubing
manufacturer, which were divested in 1999.
On August 17, 1998, our 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 our Consolidated Financial Statements). As a result,
we became a wholly owned subsidiary of Holdings and are included in Holdings'
consolidated financial statements and as a part of Holdings' consolidated group
for tax purposes.
On January 25, 1999, we purchased the stock of Eyelets for Industries, Inc. and
EFI Metal Forming, Inc., collectively EFI, a precision stamping operation with
facilities in Connecticut and Texas. EFI fits into our precision stamping and
wireforming business unit.
On June 30, 1999, we closed our McKenica business, which manufactured high speed
welded tube mills and other machinery and equipment for the heat exchanger
market. McKenica was included in our Other segment.
On July 20, 1999, we acquired Thermal Transfer Products, Ltd., or TTP, a leading
manufacturer of industrial oil coolers and other heat exchanger products based
in Racine, Wisconsin. TTP is part of our tubing and heat transfer products
business unit.
On August 23, 1999, we sold our Romac business, which manufactured stainless
steel tubing for a variety of marine, architectural, automotive and decorative
applications at its facility in North Carolina. Romac was in our Other segment.
On February 11, 2000, we sold our Taylor Publishing Company, which designed and
printed student yearbooks. Taylor represented our discontinued Specialty
Publishing segment.
On February 17, 2000, we acquired the stock of T.A.T. Technology or TAT. TAT,
headquartered in Montreal, Canada, designs and provides custom wire and cable
assemblies, and door, panel and electro-mechanical assemblies to
telecommunication equipment manufacturers. TAT will be part of our cable and
wire assembly business unit.
Our principal executive offices are located at 425 Metro Place North, Fifth
floor, Dublin, Ohio 43017, and our telephone number is (614) 792-0468.
AUTOMOTIVE COMPONENTS
Our Automotive Components segment consists of two business units: tubing and
heat transfer products and transmission and suspension components.
TUBING AND HEAT TRANSFER PRODUCTS. Through our Thermal Components Group, we are
a vertically integrated manufacturer of heat exchangers for the automotive,
specialty vehicle, truck, heavy equipment and off-road vehicle and industrial
equipment markets. Our products include thin wall aluminum and brass tubes used
principally in heat transfer applications and heat exchanger products such as
radiators, air conditioning condensers, oil coolers and heaters.
We mainly use a direct sales force to market our products. We sell to both
original equipment manufacturers or OEMs and aftermarket customers. We
manufacture and distribute tubes to domestic automobile OEMs and independent
manufacturers. We are an established supplier of welded radiator tubes to
manufacturers
3
<PAGE>
and repair shops in the heat-exchanger aftermarket. Through our joint venture,
Thermalex, we manufacture and distribute multi-port aluminum extrusions used
principally in automotive air conditioning condensers to domestic automobile
OEMs and independent manufacturers. We own Thermalex equally with Mitsubishi
Aluminum Co., Ltd.
We design and assemble heat transfer products to customer specifications for use
in a broad range of applications. The markets for heat-exchanger products are
highly competitive and have many participants, including OEMs who produce for
their own use and several large independent manufacturers.
We have manufacturing facilities in Alabama, Michigan, South Carolina, Wisconsin
and Germany.
As of December 31, 1999, we had 1,075 employees in this business unit, excluding
Thermalex.
TRANSMISSION AND SUSPENSION COMPONENTS. We manufacture automotive parts
consisting of close-tolerance precision metal stampings at our Steel Parts
facility in Indiana. Our products include clutch plates for automatic
transmissions, suspension parts for vibration-reducing assemblies and engine
mounts.
We sell most of our products to the domestic automobile industry, either
directly or indirectly through other independent automotive parts suppliers.
Accordingly, the demand for our products depends on the level of new car
production by the domestic automobile industry. We have also seen our 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. We rely heavily on sales to one of the
"Big 3" domestic automotive manufacturers. Approximately 70% of this business
unit's sales in 1997, 72% in 1998 and 68% in 1999 were to this one customer.
As of December 31, 1999, we had 380 employees associated with this business
unit.
TECHNOLOGIES
We manufacture telecommunication and electrical component products for the
computer networking, telephone digital switching, premises wiring, main frame
computer, automotive and medical equipment markets. Our Technologies segment
consists of four business units:
o specialized connector systems
o power transformers
o precision stampings and wireforms
o cable and wire assemblies
SPECIALIZED CONNECTOR SYSTEMS. Our wholly owned subsidiary Stewart Connector
Systems, Inc. designs and manufactures specialized high speed data connector
systems, including modular plugs, modular jacks, shielded and non-shielded
specialized connectors, and cable assemblies for telecommunications, cellular
communications and data transmission, including local and wide area networks.
Our primary manufacturing facility is in Pennsylvania, and we have an assembly
operation in Mexico.
We sell our products throughout the world, directly and through sales
subsidiaries, and through a network of manufacturers' representatives. We also
maintain direct sales offices (and to a lesser extent, distribution operations)
in England, Japan and Germany. We sold 41% in 1997, 36% in 1998 and 44% in 1999
of these
4
<PAGE>
products to foreign markets.
We have numerous domestic and foreign competitors; some have substantially more
resources than we have. Competition is based principally on price with respect
to older product lines and on technology and product features for newer
products. Competition for newer products is also based, to a lesser extent, on
patent protection.
As of December 31, 1999, we had 1,064 employees in this business unit.
POWER TRANSFORMERS. We manufacture both standard "off-the-shelf" and custom-made
power transformers for a broad customer base in a variety of industries, through
our wholly owned subsidiary Signal Transformer. The markets for our transformers
include telecommunications, home and retail security systems, medical
instrumentation, gaming and entertainment, and process controls.
We market our products directly, utilizing catalogs and print advertising. We
also market our products indirectly through selective independent sales
representatives in targeted regions of the country. We have a customer base of
over 9,000 accounts, consisting of both OEMs and aftermarket resellers.
We have numerous competitors, including both domestic and foreign manufacturers.
Competition is based on price and availability of product to meet customers'
needs. We have directed our marketing efforts for many years towards engineers
and other customers having specialized, low-volume demand and prompt delivery
requirements. We have attempted to capitalize on this market niche by offering a
service that guarantees 24-hour delivery for small order quantities of certain
"off-the-shelf" transformers.
We manufacture our transformers at production facilities located in the
Dominican Republic, Puerto Rico and New York. Our New York facility also serves
as Signal's major sales, administration and distribution center.
As of December 31, 1999, this business unit had 617 employees.
PRECISION STAMPINGS AND WIREFORMS. We are tool designers and subcontract
manufacturers of precision stampings and wireformed parts. Our wholly-owned
subsidiaries Stewart Stamping and EFI manufacture 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. We also sell products to a broad customer base
primarily in the U.S. through a network of manufacturers' representatives. We
manufacture our products at our plants in New York, Connecticut and Texas.
Our competitors in each of our product lines are numerous. In the case of metal
stampings, our own customers are competitors. These competitors, however, have
traditionally focused away from the highly customized products and services that
we provide.
As of December 31, 1999, this business unit had 504 employees.
CABLE AND WIRE ASSEMBLIES. Through our Escod Industries division, we produce
electronic cable assemblies, specialized wire harnesses and certain
telecommunication equipment subassemblies for sale to manufacturers of
telecommunications, computer and other electronics equipment. We have four
domestic production facilities, three in the Carolinas and one in Florida. We
also have a facility in Northern Ireland and one in Ireland. Each facility
principally serves local plants of OEMs. Substantially all of our customers are
OEMs with a number of production facilities. The demand for our products depends
not only on the demand for our customers' products, but also on our customers'
varying utilization of their own production sites.
5
<PAGE>
Telecommunications and computer OEMs account for the bulk of our sales. Two
telecommunications OEMs directly or indirectly accounted for approximately 68%
of our cable and wire assembly revenues in 1997, 64% in 1998 and 62% in 1999.
Because of our dependence on these two major customers, revenue and operating
income associated with this business unit are sensitive to changes in demand
from them.
The cable assembly industry is highly fragmented and competition in our markets
is based primarily on price and on responsiveness to customers' needs, product
quality and proximity to customers.
As of December 31, 1999, we had 1,065 employees dedicated to this business unit.
DIVESTED BUSINESSES
On September 3, 1996, we sold Curtis, our computer accessories business. On
October 4, 1996, we sold the Rolodex Electronics product line. On March 5, 1997,
we sold the Rolodex Business. Curtis, Rolodex Electronics and the Rolodex
Business are referred to collectively as the "Office Products Business." See
Item 7 "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Discontinued Operations."
As of December 31, 1999, we closed or sold the business units in our Other
segment. These business units were:
o STAINLESS STEEL TUBING.
On August 23, 1999, we sold our Romac business, which
manufactured stainless steel tubing for a variety of marine,
architectural, automotive and decorative applications at its
facility in North Carolina. See Note 1 of the Notes to the
Consolidated Financial Statements for further discussion.
o HEAT EXCHANGER MACHINERY AND EQUIPMENT.
On June 30, 1999, we closed our McKenica business, which
manufactured high speed welded tube mills and other machinery and
equipment for the heat exchanger market. See Note 1 of the Notes
to the Consolidated Financial Statements for further discussion.
Also, on February 11, 2000, we sold our specialty publishing business, Taylor
Publishing Company. More information on this sale is provided in Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Discontinued Operations." See also Note 19 of the Notes to the
Consolidated Financial Statements.
PATENTS AND TRADEMARKS
We hold patents or trademarks in most of our businesses that have expiration
dates ranging from 2000 to 2019. We expect to maintain such patents and to renew
them prior to expiration. We do not believe the expiration of any one of our
patents will have material adverse effect on any of our businesses.
RAW MATERIALS AND SUPPLIES
We rely on the following principal raw materials and supplies for the day-to-day
production of our products
6
<PAGE>
o AUTOMOTIVE COMPONENTS: steel, aluminum, copper, zinc, brass and
nickel
o TECHNOLOGIES: copper wire, steel, brass, aluminum, plastics,
ceramics and precious metals
We purchase these materials and supplies on the open market to meet current
requirements. We believe these sources of supply are adequate for our needs and
anticipate no difficulty in receiving any of our needed raw materials and
supplies.
BACKLOG
Our backlog by business segment, which we believed to be firm at December 31,
1998 and 1999, is as follows (in thousands):
December 31,
--------------------------
1998 1999
--------- ---------
Automotive Components $ 54,986 74,243
Technologies 46,528 58,305
--------- ---------
Total $ 101,514 132,548
========= =========
We believe that approximately all of our 1999 backlog will be filled in 2000.
EMPLOYEES AND LABOR RELATIONS
At December 31, 1999, we employed approximately 4,122 people on a full-time
basis. Approximately 20% of these employees were covered by collective
bargaining agreements with various unions. The largest collective bargaining
unit covers approximately 292 employees. Union agreements covering employees at
Thermal Transfer Products, Ltd. in our Automotive Components Group will expire
in November 2000. We consider relations with our employees to be good.
We have defined benefit and defined contribution pension plans covering
substantially all employees. For information regarding defined benefit pension
plans, see Note 11 to the Consolidated Financial Statements.
ENVIRONMENTAL REGULATION AND PROCEEDINGS
Our manufacturing operations are subject to extensive federal, state and local
environmental laws and regulations. We generate a variety of waste materials
including cutting and cooling oils, degreasing agents, etching acids, chemicals
from plating and trimming operations, and metals scraps from stamping
operations. We use offsite disposal facilities owned by third parties to dispose
of these wastes and we do not store any waste to the extent such storage would
require obtaining a permit. We do not treat, store or dispose of waste for
others. We obtain permits, where required, to operate all of our facilities.
These permits may be subject to revocation or modification.
We have taken significant measures to (1) address emissions, discharges and
waste generation and disposal, (2) improve management practices and operations
in response to legal requirements, and (3) internally audit compliance with
applicable environmental regulations and approved practices. In order to achieve
these goals, we have instituted several programs including (1) raw material and
process substitution, recycling and material management, (2) periodic review of
hazardous waste storage and disposal practices, and (3) review of compliance and
financial status and management practices of our offsite third-party waste
management firms.
7
<PAGE>
During our reorganization, we settled all claims of the United States relating
to our pre-petition date conduct at previously owned or third party sites
arising under the federal Comprehensive Environmental Response, Compensation,
and Liability Act, or CERCLA. This settlement (1) discharged us from
contribution claims of the United States at a number of hazardous waste sites,
(2) protects us from contribution claims of the remaining potentially
responsible parties, (3) limits the amount we may be required to pay the United
States in any one year on pre-petition claims, and (4) provides that any such
payment may be made in cash or, at our option, common stock valued at 30% of the
allowed claim.
We are also currently engaged in clean up programs at sites located in Newtown,
Connecticut, Mount Vernon, New York and Oak Creek, Wisconsin. We have
established what we believe are appropriate reserves for anticipated remedial
obligations. Because of the establishment of these reserves and our settlements
with the United States, we do not believe that environmental compliance or
remedial requirements are likely to have a material adverse effect on us.
FINANCIAL INFORMATION ABOUT EXPORT SALES
In 1997, our export sales were $55.4 million or 13% of consolidated sales. We
exported $21.2 million to Europe, $14.0 million to Asia, $9.7 million to Canada
and $4.3 million to Mexico. The remaining $6.2 million accounts for the rest of
the world. In 1998, our export sales were $46.7 million or 11% of consolidated
sales. We exported $22.8 million to Europe, $8.8 million to Asia, $7.7 million
to Canada and $3.0 million to Mexico. The remaining $4.4 million of export sales
accounts for the rest of the world. In 1999, our export sales were $62.2 million
or 13% of consolidated sales. We exported $35.4 million to Europe, $10.2 million
to Asia, $7.7 million to Canada and $3.2 million to Mexico. The remaining $5.7
million of export sales accounts for the rest of the world. Primarily, we
conduct our transactions in U.S. currency.
ITEM 2. PROPERTIES
- ------------------
PROPERTIES
We manufacture our products in various locations, primarily in the United
States. Management believes that our facilities generally are well maintained
and adequate for the purposes for which they are used. Our principal operating
plants and offices at December 31, 1999 included the following properties:
8
<PAGE>
<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/Manufacturing 10,890 Leased
Belleville, MI Office/Manufacturing 42,000 Leased
Racine, WI Office/Manufacturing 155,250 Owned
Dortmund, Germany Office/Manufacturing 45,000 Owned
Dortmund, Germany Office 8,500 Leased
Technologies Morrisville, NC Office 7,606 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, NC Office/Manufacturing 36,960 Owned
Colorado Springs, CO Warehouse 1,400 Leased
Loris, SC Office/Manufacturing 11,000 Leased
Winterhaven, FL Warehouse 3,000 Leased
Galway, Ireland Carraoe County Office/Manufacturing 26,000 Leased
Larne, Northern Ireland Antrim County Manufacturing 25,000 Owned
Inwood, NY Office/Manufacturing 39,361 Owned
St. Just, PR Office/Manufacturing 22,540 Leased
San Cristobal, Dominican Rep. Office/Manufacturing 27,773 Leased
Glen Rock, PA Office/Manufacturing 84,000 Owned
San Mateo, CA Office 133 Leased
Essex, UK Office 485 Leased
Freidrichsdorf, Germany Office/Manufacturing 5,500 Leased
Yokohama, Japan Office/Warehouse 4,695 Leased
Cananea, Mexico Warehouse/Manufacturing 51,815 Leased
Yonkers, NY Office/Manufacturing 190,000 Owned
El Paso, TX Office/Manufacturing 112,130 Leased
Thomaston, CT Office Manufacturing 65,000 Owned
Thomaston, CT Office/Manufacturing 20,000 Leased
Waterbury, CT Warehouse 24,000 Leased
Corporate Dublin, OH Office 7,535 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 us
for a nominal consideration at the expiration of the lease term.
Substantially all of our material domestic assets, including owned properties,
are subject to major encumbrances securing our obligations under the Bank Credit
Agreement.
We believe that all of our production facilities have additional production
capacity.
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
On January 14, 1997, Taylor sued one of our 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. Taylor appealed the final judgment, seeking reinstatement of the
original judgment in Taylor's favor, to the United States Court of Appeals for
the Fifth Circuit. Taylor's appeal was argued on December 8, 1999, and Taylor is
awaiting a decision. We sold Taylor Publishing Company and it is uncertain what
actual amount, if any, we will recover from Jostens.
From time to time, we are involved in litigation relating to claims arising out
of our operations in the normal course of our business. We maintain insurance
coverage against potential general liability and certain other claims in an
amount we believe to be adequate. In our opinion, the outcome of these matters
will not have a material adverse effect on our financial condition, liquidity or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
Not Applicable.
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
- -------------------------------------------------------------
STOCKHOLDER MATTERS
- -------------------
The common stock is our only class of authorized equity securities. All of the
common stock is owned by Holdings following the Mergers described herein. Prior
to the Mergers, our 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 our common stock as reported by the Nasdaq
National Market through the date of the Mergers.
Low Sale High Sale
-------- ---------
1998:
- -----
First Quarter $ 32.000 $ 43.375
Second Quarter $ 42.875 $ 44.625
Third Quarter (through 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
On August 17, 1998, we completed a series of transactions. These transactions
included, among other things, the formation by Insilco Holding Co. ("Holdings")
(then a wholly-owned subsidiary of us) of a wholly-owned subsidiary
("ReorgSub"), followed by the merger of ReorgSub with and into us (the
"Reorganization Merger"), pursuant to which each stockholder of us had his or
her shares of us 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 us.
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 us,
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, (1) our existing stockholders retained, in the aggregate,
approximately 10.1% (9.4% on a fully diluted basis) of the outstanding shares of
Holdings common stock; (2) the DLJMB Funds held approximately 69.0% (69.8% on a
fully diluted basis) of the outstanding shares of Holdings common stock; (3) 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;
(4) our management purchased approximately 1.7% (1.5% on a fully diluted basis)
of the outstanding shares of Holdings common stock; and (5) we no longer had
public equity securities.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
The following table sets forth selected financial information (dollars in
thousands) derived from our Consolidated Financial Statements.
<TABLE><CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA (1)
Sales (net) $ 350,866 393,385 430,011 434,304 476,355
Depreciation and Amortization 10,448 12,571 15,447 16,840 19,541
Merger Expenses -- -- -- 20,890 --
Restructuring charge -- -- -- -- 6,382
Amortization Of Reorganization Goodwill 16,205 -- -- -- --
Operating Income (3) 33,128 44,797 44,003 13,735 22,119
Other Income
Interest Expense (18,991) (17,789) (20,003) (28,588) (36,475)
Interest Income 1,472 724 2,837 979 389
Other Income (expense), net (4) 14,407 8,122 3,825 6,593 13,107
Income (loss) from continuing operations
before extraordinary items and income taxes 30,016 35,854 30,662 (7,281) (860)
Income tax benefit (expense) (15,051) (12,348) (11,148) 1,576 5,078
Income (loss) from continuing operations
before extraordinary items 14,965 23,506 19,514 (5,705) 4,218
Income (loss) from discontinued operations,
net of tax (12,390) 15,547 62,858 1,512 5,550
Income (loss) before extraordinary items 2,575 39,053 82,372 (4,193) 9,768
Extraordinary items, net of tax -- -- (728) (5,888) --
Net Income (loss) 2,575 39,053 81,644 (10,081) 9,768
As of December 31,
-------------------------------------------------------------
BALANCE SHEET DATA AT PERIOD END (1) 1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
Working Capital 54,704 60,859 46,275 82,230 83,007
Total Assets 264,095 273,054 230,955 287,634 316,029
Long-term Debt 186,489 161,042 257,743 312,409 319,104
Other Long-term Liabilities 46,875 43,086 42,432 45,438 47,400
Stockholders' Equity (Deficit) (17,867) 34,680 (101,080) (136,909) (125,003)
Year Ended December 31,
-------------------------------------------------------------
CASH FLOW DATA (1) 1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
Net cash provided by operating activities 37,744 55,423 44,723 4,636 22,586
Net cash provided by (used in)
investing activities (14,678) (29,783) 95,217 (23,366) (33,084)
Net cash provided by (used in)
financing activities (21,862) (32,053) (133,256) 15,755 9,016
</TABLE>
Notes to the Selected Financial Data are as follows:
(1) We have 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.)
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(2) Amortization of Reorganization Goodwill for 1995 resulted from our
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 our pension plan. In addition, operating income for 1995 includes
the deduction for Amortization of Reorganization Goodwill.
(4) Other income in 1995 includes favorable adjustments of $3.6 million related
to our 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.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- -------------------------------------------------------------------
AND RESULTS OF OPERATIONS
- -------------------------
OVERVIEW
Our two primary business segments have different operating and growth
characteristics.
Our 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 our Technologies segment is dependent on the
demand for its customers' end products and network infrastructure build-outs. We
feel we have aligned ourselves with market leaders in the electric, electrical,
telecommunications and data communications markets.
Our Other segment includes two business units, which were either sold or closed
as of December 31, 1999. These business units were a manufacturer of high-speed
welded tube mills and other machinery (McKenica) and a welded stainless steel
tubing manufacturer (Romac).
We consummated several material transactions in 1997, 1998 and 1999 that
resulted in significant changes to our debt and capital structure. A summary of
these transactions is as follows:
1997
1997 AMENDED AND RESTATED CREDIT AGREEMENT: As of July 3, 1997, we entered into
an Amended and Restated Credit Agreement (the "1997 Bank Credit Agreement").
This agreement among other things, provided for (1) a $200 million revolving
credit facility, (2) a $50 million sublimit for commercial and standby letters
of credit, and (3) a $50 million sublimit for advances in selected foreign
currencies.
ISSUANCE OF 10 1/4% SUBORDINATED DEBT: On August 12, 1997, we issued $150
million aggregate principal amount of 10.25% Senior Subordinated Notes due 2007
(the "10 1/4% Notes"), realizing net proceeds of $145.9 million from issuance.
SHARE REPURCHASE: On July 10, 1997, using the proceeds from the sale of the
Rolodex Business, we purchased an aggregate of 2,857,142 shares of our common
stock for $109,999,967. On August 12, 1997, we completed a tender offer pursuant
to which we purchased 2,857,142 additional shares for $109,999,967. These shares
were purchased with proceeds received from the issuance of our 10 1/4% Notes.
1998
THE MERGERS: On August 17, 1998, Insilco Holding Co. completed a series of
mergers and transactions reorganizing our corporate structure. After the
reorganization, Insilco Holding Co. became the parent of all our subsidiaries
and us. Pursuant to the reorganization plan each stockholder of us converted his
or her shares into shares of Insilco Holding Co. and the right to receive $0.01
per share in cash. Promptly following the reorganization, Silkworm Acquisition
Corporation, an affiliate of DLJMB, merged with and into Insilco Holding Co.
THE MERGER FINANCING: Insilco Holding Co. financed the foregoing transactions
with approximately $204.4 million of cash from: (1) gross proceeds of
approximately $70.2 million from the issuance of 14% Senior Discount Notes, (2)
the issuance of 1,245,138 shares of common stock for approximately $56.1
million, (3) the issuance of 1,400,000 shares of the PIK Preferred Stock for
$35.0 million and (4) approximately $43.1
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million of new borrowings under our existing credit facility.
We incurred $20,890,000 of costs related to these mergers in 1998.
REFINANCING OF 10 1/4% SUBORDINATED DEBT: As a result of the merger, we
purchased all the outstanding 10 1/4% Notes at 101% of their aggregate principal
amount, plus accrued interest by selling $120 million of 12% Senior Subordinated
Notes on November 9, 1998, which generated approximately $116.4 million, and
borrowing approximately $30.0 million under our credit facilities.
In addition, on November 24, 1998, we amended and restated our Bank Credit
Agreement to provide, among other things, for two credit facilities: a $175
million revolving loan and a $125 million term loan.
DIVESTITURES: We sold our Office Products Business, which was part of our Office
Products/Specialty Publishing Group, in three separate transactions. First, on
September 3, 1996, we sold our computer accessories business (Curtis) and next,
on October 4, 1996, we sold our electronic organizer business (Rolodex
Electronics). The aggregate proceeds from these sales of $21.8 million were used
to reduce the outstanding amounts on our bank loans. Finally, on March 5, 1997,
we sold the remainder of the Office Products Business, which consisted of the
Rolodex Business, for net cash proceeds of approximately $112 million (the
"Rolodex Proceeds"). As a result of these sales, our Office Products Business is
accounted for as a discontinued operation (See "Discontinued Operations").
1999
ACQUISITIONS: On July 20, 1999, we executed a definitive merger agreement with
Thermal Transfer Products, Ltd., whereby Thermal Transfer Acquisition
Corporation, a newly created wholly owned subsidiary of us, was merged with
Thermal Transfer Products. The surviving entity, Thermal Transfer Products, Ltd.
or TTP is a wholly owned subsidiary of us. TTP, a leading manufacturer of
industrial oil coolers and other heat exchanger products, is based in Racine,
Wisconsin.
On January 25, 1999, we purchased the stock of Eyelets for Industries, Inc. and
EFI Metal Forming, Inc., collectively EFI, a precision-stamping manufacturer.
DIVESTITURES: On December 17, 1999, we entered into a definitive sale agreement
with TP Acquisition Corp., a wholly owned subsidiary of Castle Harlan Partners
III, L.P. to sell our specialty publishing business, Taylor Publishing Company.
Our accompanying consolidated statements of operations and cash flows are
reclassified to account for the sale of the Specialty Publishing Business as a
discontinued operation. The sale was completed on February 11, 2000.
These transactions have had a significant impact on our 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, our consolidated results for 1998 and 1999 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 18
of the Notes to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
In conjunction with our reorganization, we adopted earnings before interest,
taxes, depreciation and amortization (EBITDA) as a basis and manner for
presenting and using financial information to assist us in making internal
operating decisions. Certain investors use EBITDA as a measure of operations and
the ability to meet debt service requirements. EBITDA is not intended to
represent and should not be considered more meaningful than, or an alternative
to, operating income, cash flows from operating
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activities or other measures of performance in accordance with generally
accepted accounting principles. Moreover, the EBITDA amount presented herein is
not necessarily comparable to other similarly titled captions of other
companies, or as defined by the Company's Bank Credit Agreement or Debentures
due to inconsistencies in the method of calculation. The table included in our
segment data footnote (Note 17 of the Notes to the Consolidated Financial
Statements) is a summary (in thousands) of our net sales and income (loss) from
continuing operations before income taxes and extraordinary items, and our net
income (loss) for the periods ended December 31, 1997, 1998, and 1999. This
presentation and the discussion that follows are consistent with the basis and
manner in which our management internally uses financial information to assist
them in making internal operating decisions.
1998 COMPARED TO 1999
CONSOLIDATED RESULTS OF OPERATIONS: Our results for 1998 include the following:
o Our merger fees relating to the August 1998 merger with DLJMB of
$20.9 million, which are included in merger expenses (see Note 1
of the Notes to the Condensed Consolidated Financial Statements).
o $1.3 million in legal fees relating to antitrust and other
significant legal proceedings, which are included in significant
legal expenses.
o Relocation expenses of $0.5 million relating to the consolidation
our Great Lake and General ThermoDynamics locations, which are
included in severance, writedowns and other.
o Lease cancellation costs incurred at our Stamping El Paso
location of $0.2 million, which are include in severance,
writedowns and other.
o Our severance costs relating to corporate staff reductions of
$1.4 million and rationalization activities at our operating
locations of $1.3 million, which are included in severance,
writedowns and other.
Similarly, our results for 1999 included the following:
o Our closing of our heat exchanger machinery and equipment
business (McKenica) and a $5.8 million charge relating to this
action, which is included in severance, writedowns and other.
o Our closing of our Duncan, South Carolina heat exchanger tubing
manufacturing facility and a $1.1 million charge relating to this
action, which is included in severance, writedowns and other.
o $4.7 million charge relating to the restructuring of our
corporate staff and rationalization activities within our
operating units, which is included in severance, writedowns and
other.
o Consulting fees relating to the analysis of potential cost
benefits and the expense of establishing a separate legal entity
to better manage our future health care costs of $1.8 million,
which are included in significant legal expenses.
o $0.9 million of legal fees relating to antitrust and other
significant legal proceedings, which are included in significant
legal expenses.
o Our acquisition of EFI and TTP, which required $48.7 million of
borrowings under our Revolving Facility.
o The sales of (1) our welded stainless steel tubing business
assets for $16.5 million, (2) certain assets, including the
intellectual property, of our heat exchanger machinery and
equipment business for $1.7 million and (3) our Duncan, South
Carolina facility for $3.2 million. Our net gain on these sales
of $9.1 million is reflected in other income and the proceeds
were used to pay down our Revolving and Term Loan Facilities.
Our net sales from continuing operations for 1999 increased $55.1 million, or
14%, to $458.2 million from $403.1 million last year. Sales in the Automotive
Components segment increased $14.9 million, or 7%, over last year to $228.3
million. Sales in the Technologies segment increased $40.2 million, or 21%, to
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$230.0 million. Contributing $54.4 million to these sales increases were this
year's acquisitions of EFI and TTP in January and July 1999, respectively, as
well as last year's acquisition of two cable assembly operations in Ireland.
Other segment sales, which include heat exchanger machinery and equipment and
welded stainless steel tubing products declined by $13.1 million, or 42%, from
the prior year as a result of our divesting the two business units that comprise
this segment.
EBITDA from continuing operations for 1999 increased $2.4 million, or 5%, to
$54.7 million from $52.3 million last year. Lower corporate expense due to a
reduction in staff in June 1999 accounted for the majority of the increase,
while EBITDA from the Automotive Components and Technologies segments was
essentially flat. Other segment EBITDA declined by $1.1 million, or 50%, as a
result of the aforementioned divestitures.
Operating income from continuing operations increased $8.4 million from $13.7
million in 1998 to $22.1 million in 1999. The increase was due to the current
year absence of $20.9 million of merger fees and expenses incurred in 1998. The
merger fee and expenses reduction was partially offset by increases in
depreciation and amortization, significant legal expenses, and reorganization,
severance and writedown expenses.
Interest expense for 1999 increased $7.9 million to $36.5 million from $28.6
million last year, reflecting the higher interest rates of our 1998 debt
offerings and higher debt levels as a result of our acquiring EFI and Thermal
Transfer Products and the merger with DLJMB. On a cash basis, excluding the
amortization of debt issuance and other costs, interest expense increased $7.2
million to $34.3 million from $27.1 million.
Net gain on asset disposals increased by $8.7 million due mainly to the $9.1
million net gain on the sales of the Romac business, the McKenica equipment and
intellectual property and the TCD, Inc., building.
Other income, net, decreased by $2.8 million due mainly to various miscellaneous
liability releases in 1998.
We had an income tax benefit of $5.1 million for the period compared to a
benefit of $1.6 million last year. This change in our effective tax rate
occurred because the merger expenses incurred in the prior year were mainly not
tax deductible, while the gain on the sale of our welded stainless steel tubing
business was not taxable in the current year. 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.
We recorded income from discontinued operations of $1.5 million in 1998 and $5.6
million in 1999 related to the sale of our Specialty Publishing segment, a
significant line of business. The sale of this line of business was completed on
February 11, 2000 for $93.5 million before adjustments for working capital and
other transaction-related fees and expenses (see Note 19 of the Notes to the
Consolidated Financial Statements). As a result of this sale, the Specialty
Publishing segment 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 sale have been reclassified. Revenues
associated with the discontinued business for 1998 were $101.3 million and 1999
were $103.7 million.
We 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.
AUTOMOTIVE COMPONENTS: Net sales increased $14.9 million, or 7%, to $228.3
million from $213.4 million last year. Sales benefited $12.0 million from our
acquisition of Thermal Transfer Products on July 20, 1999. The segment's base
business increased $2.9 million, or 1%, from last year. The increase in base
business was primarily due to strong demand for aluminum radiator tubing. This
increase was partially offset by declining copper and brass tubing sales due to
weaker demand for industrial radiators and an
17
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industry shift toward lighter weight aluminum heat exchanger products. A weaker
U.S. dollar against the German Deutsche Mark lowered the translation of
German-based sales by approximately $3.3 million.
EBITDA for the period increased slightly from $31.6 million in 1998 to $32.5
million in 1999. The increase was due to the incremental contribution from the
Thermal Transfer Products acquisition coupled with the margin on increased
aluminum radiator sales. These increases were partially offset by the decline in
the higher margin copper and brass tubing sales. A weaker U.S. dollar against
the German Deutsche Mark lowered the translation of German-based EBITDA by
approximately $0.4 million.
TECHNOLOGIES: Net sales for the period increased $40.2 million, or 21%, to
$230.0 million from $189.8 million last year. Our acquisitions of EFI on January
25, 1999 and two cable assembly operations in Ireland in the fourth quarter of
1998 accounted for approximately $42.4 million in incremental sales. Offsetting
these increases were lower domestic cable assembly, transformer, precision
stampings and patch cord assembly sales, reflecting inventory corrections and
weakness in worldwide demand for electronic components during the first half of
1999. A weaker U.S. dollar against the German Deutsche Mark lowered the
translation of German-based sales by approximately $1.0 million.
EBITDA for the period decreased slightly to $28.2 million in 1999 from $28.4
million in 1998. The decrease was due to the lower sales mentioned above
partially offset by the incremental contribution from the EFI acquisition. A
weaker U.S. dollar against the German Deutsche Mark lowered the translation of
German-based EBITDA by approximately $1.0 million.
OTHER: Net sales decreased $13.1 and EBITDA decreased $1.1 million due to the
divestiture of the segment in two separate transactions during 1999.
1997 COMPARED TO 1998
CONSOLIDATED RESULTS OF OPERATIONS: Our net sales from continuing operations in
1998 increased $10.3 million, or 3%, to $403.1 million from $392.8 million in
1997. The increase in sales was primarily due to higher sales from our
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 partially offset by a decrease in sales in our Technologies segment,
which declined $9.1 million or 5%. Although connector product sales increased
7%, sales of wire and cable assembles, transformers and precision stampings
collectively declined 9%. Other segment sales, which includes heat exchanger
machinery and equipment and welded stainless steel tubing products, decreased a
combined $6.1 million or 16%.
EBITDA from continuing operations in 1998 decreased slightly to $52.3 million
from $53.6 million. The decrease was due to the weak sales in our Technologies
segment reflecting a general industry inventory correction and weakness in
worldwide demand for electronic components during the second half of 1998. This
shortfall was partially offset by increased performance in the Automotive
Components segment and lower corporate expense due to staff reductions. Other
segment EBITDA suffered from the performance in the heat exchanger machinery and
equipment business.
Operating income decreased to $13.7 million in 1998 from $44.0 million in 1997.
Contributing to this decrease in operating income were: (1) $20.9 million of
expenses relating to our August 1998 merger with DLJMB, (2) charges for
severance expenses totaling $1.6 million related to workforce reductions at the
corporate office and Technologies segment, (3) $1.3 million higher legal
expenses relating to two significant lawsuits, (4) $0.7 million related to
facilities consolidations and lease cancellation costs and (5) the erosion of
performance in the heat exchanger machinery and capital equipment business.
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Interest expense in 1998 increased $8.6 million to $28.6 million from $20.0
million in 1997, reflecting higher interest rates on our 1998 debt offerings and
higher debt levels as a result of the August 1998 Merger and the July 1997 Share
Repurchase. On a cash basis, excluding the amortization of debt issuance and
other costs, interest expense increased $8.4 million to $27.1 million from $18.7
million.
Net gain on asset dispositions and other income, net, increased $0.9 million to
$7.6 million from $6.7 million in 1997, due to various non-operating,
non-recurring items.
We had an income tax benefit in 1998 of $1.6 million compared to an expense of
$11.1 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.
We recorded income from discontinued operations of $1.5 million in 1998 and
$62.9 million in 1997 relating to the: (1) operations of the Specialty
Publishing segment in 1998 and 1997, (2) operations of the Office Products
Business in 1997 and (3) sale of its Office Products Business in 1997. The
Office Products Business and Specialty Publishing segment are considered
significant lines of business. The sale of the Office Products Business was
completed on March 5, 1997 with the sale of Rolodex for $112.6 million, net of
transaction costs. As a result of this sale, 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 businesses for 1997 were $109.0 million and 1998 were $101.3
million.
We 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.
AUTOMOTIVE COMPONENTS: 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 copper and brass tubing sales.
EBITDA in 1998 increased $1.6 million, or 5%, to $31.6 million from $30.0
million in 1997 due to higher sales and the resulting increase in gross profits
while selling, general and administrative expenses were flat compared to 1997.
TECHNOLOGIES: 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.
EBITDA in 1998 decreased $4.5 million, or 14%, to $28.4 million from $32.9
million in 1997. The decrease was due primarily to the decrease in sales and a
slight decrease in gross profit margins. In addition, selling, general and
administrative expenses increased 3%.
OTHER: 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.
EBITDA in 1998 decreased $3.6 million, or 61%, to $2.2 million from $5.8 million
in 1997 due to the decline in tube mill capital equipment sales.
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LIQUIDITY AND CAPITAL RESOURCES
In general, we require liquidity for working capital, capital expenditures,
interest, taxes, debt repayment and our acquisition strategy. Of primary
importance are our working capital requirements, which increase whenever we
experience strong incremental demand or geographical expansion. We expect to
satisfy our liquidity requirements through a combination of funds generated from
operating activities and the funds available under our Bank Credit Agreement.
OPERATING ACTIVITIES: Net cash provided by operating activities was $22.6
million compared to $4.6 million provided by operating activities last year. The
$18.0 million increase was primarily due to increased net income. We paid cash
interest of $31.7 million in 1998 and $32.0 million in 1999 on our 12% notes,
our revolving and term credit facility and miscellaneous other items.
INVESTING ACTIVITIES: Capital expenditures from continuing operations for 1998
were $18.0 million compared to $15.1 million in 1999. We expect our 2000 capital
expenditures to be slightly less than 1999. Capital spending allocations during
the period were 52% to the Automotive Components segment and 48% to the
Technologies segment.
We borrowed $48.7 million under our Revolver Facility in 1999 to acquire EFI and
Thermal Transfer Products. Also, we received cash dividends in 1999 of $10.4
million from our investment in the Thermalex joint venture compared to $1.3
million in 1998. These dividends reflect a special dividend of $7.5 million.
2000 dividends are expected to be approximately $1.0 million.
We received proceeds of $16.5 million on the sale of our welded stainless steel
tubing products business, $1.7 million of proceeds from the sale of certain
equipment and intellectual property of our heat exchanger machinery and
equipment business and $3.2 million in proceeds from the sale of Duncan, South
Carolina facility. These proceeds were used to reduce borrowings under our
revolving and term credit facilities.
In addition, on February 11, 2000, we sold our Specialty Publishing business for
$93.5 million. The net proceeds of approximately $70.0 million from this
transaction plus approximately $21.2 million in retained customer deposits, net
of other working capital adjustments, were used to reduce borrowings under our
revolving and term credit facilities.
FINANCING ACTIVITIES: Our annual cash interest expense on our 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.
Our Bank Credit Agreement, as of March 17, 2000, includes a $119.3 million Term
Facility and a $166.1 million Revolving Facility. The agreement 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 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,
1999, the applicable interest rate 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, 1999, the applicable interest rate
was LIBOR plus 2.50%. Availability under the Revolving Facility will decrease 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 our assets, including a pledge of all of the stock of our
domestic subsidiaries and 65% of the stock of our foreign Subsidiaries. Payment
of principal and interest on amounts borrowed under the Bank Credit Agreement
are
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guaranteed by substantially all of our domestic subsidiaries. As of March 17,
2000, we had approximately $50.2 million of available funds under this
agreement.
On February 16, 2000, we amended certain terms of our Bank Credit Agreement to,
among other things, (1) permit us to consummate the TAT acquisition, (2) provide
that TAT assume up to $90.0 million in aggregate principal amount of the Term
Loans, (3) release our direct obligations in respect of such assumed portion of
the Term Loans and (4) increase the interest rates applicable to the loans in
certain circumstances. On February 17, 2000 we purchased TAT Technology for
$91.2 million, using the $90.0 million of borrowings from our Term Loan Facility
and $1.2 million from our Revolving Credit Facility (see Note 19 of the Notes to
the Consolidated Financial Statements).
We expect our principal sources of liquidity to be from our operating activities
and funding from our Revolving Credit Facility. We further expect that these
sources will enable us to meet our 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, 1999, we had a stockholders' deficit
totaling $125.0 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 our
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.
Our general policy is to use foreign currency borrowings as needed to finance
our foreign currency denominated assets, principally German Deutsche Marks. We
use such borrowings to reduce our asset exposure to the effects of changes in
exchange rates - not as speculative investments.
As of December 31, 1999, we did not have any derivative instruments in place for
managing foreign currency exchange rate risks. We do not engage in hedging or
other market structure derivative trading activities. At December 31, 1999, we
had $199.1 million in variable rate debt outstanding. A one-percentage point
increase in interest rates would increase the amount of annual interest paid by
approximately $2.2 million. We do not believe that our market risk financial
instruments on December 31,1999 would have a material effect on future
operations or cash flows.
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, 1999 is as follows
(in thousands):
Hypothetical
Fair Market Fair Market
Description of Security Value Value
- -------------------------------------- --------- ---------
12% Senior subordinated Notes due 2007 $ 117,381 $ 111,839
THE YEAR 2000 ISSUES
We did not experience any significant problems as a result of the year 2000.
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COSTS. The costs incurred to implement our Year 2000 compliance program were
immaterial and we incurred less than $1.0 million of costs in the aggregate. All
of our Year 2000 compliance costs were funded from our operating cash flow. Our
Year 2000 compliance budget did not include material amounts for hardware
replacement because we have historically employed a strategy to continually
upgrade our business systems.
SEASONALITY AND INFLATION
Our segments are not highly seasonal.
The impact of inflation on our 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 our operating results.
22
<PAGE>
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
- ---------------------------------------------------
Our Consolidated Financial Statements, together with the reports thereon of KPMG
LLP (dated February 17, 2000) are set forth on pages F-1 through F-45 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.
23
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
We meet the conditions set forth in General Instruction I(i)(a) and (b) of Form
10-K. Accordingly, information pertaining to this section is omitted.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
We meet the conditions set forth in General Instruction I(i)(a) and (b) of Form
10-K. Accordingly, information pertaining to this section is omitted.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
We meet the conditions set forth in General Instruction I(i)(a) and (b) of Form
10-K. Accordingly, information pertaining to this section is omitted.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
We meet the conditions set forth in General Instruction I(i)(a) and (b) of Form
10-K. Accordingly, information pertaining to this section is omitted.
24
<PAGE>
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, 1999
- December 31, 1998
- Consolidated Statements of Operations
- Year ended December 31, 1999
- Year ended December 31, 1998
- Year ended December 31, 1997
- Consolidated Statements of Stockholders' Deficit
- For the years ended December 31, 1999, 1998 and 1997
- Consolidated Statements of Cash Flows
- Year ended December 31, 1999
- Year ended December 31, 1998
- Year ended December 31, 1997
- 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.
25
<PAGE>
(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.).
*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.) **
26
<PAGE>
*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.
27
<PAGE>
(B) REPORTS ON FORM 8-K
A report, dated October 4, 1999, on Form 8-K was filed during the
quarter ended December 31, 1999, pursuant to Item 7 of that form.
A report, dated November 4, 1999, on Form 8-K was filed during the
quarter ended December 31, 1999, pursuant to Items 5 and 7 of that
form.
A report, dated December 20, 1999, on Form 8-K was filed during the
quarter ended December 31, 1999, pursuant to Items 5 and 7 of that
form.
A report, dated February 11, 2000, on Form 8-K was filed with the
SEC on February 17, 2000, pursuant to Items 5 and 7 of that form.
A report, dated February 11, 2000, on Form 8-K was filed with the
SEC on February 25, 2000, pursuant to Items 2 and 7 of that form.
A report, dated February 17, 2000, on Form 8-K was filed with the
SEC on March 1, 2000, pursuant to Items 2 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.
28
<PAGE>
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 27, 2000 By: /s/ Michael R. Elia
--------------------
Michael R. Elia
Vice President, Chief Financial
Officer, Treasurer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the date indicated.
<TABLE><CAPTION>
<S> <C>
David A. Kauer* President, Chief Executive )
----------------------- Officer and Director )
David A. Kauer (Principal Executive Officer) )
Michael R. Elia* Vice President, Chief Financial Officer, )
----------------------- Treasurer and Secretary )
Michael R. Elia (Principal Accounting Officer) )
Thompson Dean* Director )
----------------------- )
Thompson Dean
William F. Dawson* Director ) March 27, 2000
----------------------- )
William F. Dawson
/s/ David A. Kauer
-----------------------
By: *David A. Kauer
Attorney-in-Fact
</TABLE>
29
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
- December 31, 1999
- December 31, 1998
Consolidated Statements of Operations F-4
- Year ended December 31, 1999
- Year ended December 31, 1998
- Year ended December 31, 1997
Consolidated Statement of Stockholder's Deficit
- For the years ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows F-7
- Year ended December 31, 1999
- Year ended December 31, 1998
- Year ended December 31, 1997
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, 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, presents fairly, in all material respects, the information set forth
therein.
Columbus, Ohio KPMG LLP
February 17, 2000
F-2
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands, except share data)
<TABLE><CAPTION>
Assets 1999 1998
------ --------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,495 7,533
Trade receivables, net 77,698 63,826
Other receivables 1,836 2,625
Receivables from related party -- 4,882
Inventories, net 58,273 53,037
Deferred taxes 9,603 6,143
Net assets of discontinued operation 830 6,681
Prepaid expenses and other current assets 2,731 2,473
--------- ---------
Total current assets 157,466 147,200
Property, plant, and equipment, net 109,606 101,319
Deferred taxes 3,852 1,517
Other assets and deferred charges 45,105 37,598
--------- ---------
Total assets $ 316,029 287,634
========= =========
Liabilities and Stockholders' Deficit
-------------------------------------
Current Liabilities:
Current portion of long-term debt $ 1,266 1,265
Accounts payable 39,247 30,465
Customer deposits -- 932
Accrued expenses and other 33,946 32,308
--------- ---------
Total current liabilities 74,459 64,970
Long-term debt, excluding current portion 317,838 311,144
Other long-term liabilities, excluding current portion 47,400 45,438
Loan due Insilco Holding Company 1,235 2,991
--------- ---------
Total liabilities 440,932 424,543
--------- ---------
Minority interest 100 --
Stockholder's deficit:
Common stock, $.001 par value; 1,000 shares authorized:
100 shares issued and outstanding -- --
Additional paid-in capital 4,188 3,925
Accumulated deficit (125,968) (135,736)
Accumulated other comprehensive loss (3,223) (5,098)
--------- ---------
Total stockholders' deficit (125,003) (136,909)
--------- ---------
Commitments and contingencies (See Notes 10, 13, and 16)
Total liabilities and stockholders' deficit $ 316,029 287,634
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statement of Operations
Years Ended December 31, 1999, 1998, 1997
(In Thousands)
<TABLE><CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Sales $ 476,355 434,304 430,011
Cost of products sold (Note 14) 367,905 322,591 312,058
Depreciation and amortization 19,541 16,840 15,447
Selling, general and administrative expenses (Note 14) 60,408 60,248 58,503
Merger expenses -- 20,890 --
Restructuring charge (Note 14) 6,382 -- --
--------- --------- ---------
Operating income 22,119 13,735 44,003
--------- --------- ---------
Other income (expense):
Interest expense (36,475) (28,588) (20,003)
Interest income 389 979 2,837
Equity in net income of Thermalex 3,043 2,850 2,647
Other income, net 10,064 3,743 1,178
--------- --------- ---------
Total other expense (22,979) (21,016) (13,341)
--------- --------- ---------
Income (loss) from continuing operations
before income taxes and extraordinary items (860) (7,281) 30,662
Income tax benefit (expense) 5,078 1,576 (11,148)
--------- --------- ---------
Income (loss) from continuing operations
before extraordinary items 4,218 (5,705) 19,514
Discontinued operations, net of tax:
Income from operations 5,550 1,512 5,070
Gain on disposal -- -- 57,788
--------- --------- ---------
Income from discontinued operations 5,550 1,512 62,858
--------- --------- ---------
Income (loss) before extraordinary items 9,768 (4,193) 82,372
Extraordinary items, net of tax -- (5,888) (728)
--------- --------- ---------
Net income (loss) $ 9,768 (10,081) 81,644
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholder's Deficit
For the Years Ended December 31, 1999, 1998, and 1997
(In Thousands)
<TABLE><CAPTION>
Common Additional Accum. Other Total Stock-
Stock Par Treasury Paid-in Accumulated Comprehensive holder's
Value $.001 Stock Capital Deficit Loss Deficit
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
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 loss:
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)
Comprehensive income:
Net loss -- -- -- (10,081) -- (10,081)
Other comprehensive loss:
Foreign currency translation adjustment -- -- -- -- 16 16
Minimum pension liability adjustment (1,805) (1,805)
--------
Total comprehensive loss (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-5
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholder's Deficit
For the Years Ended December 31, 1999, 1998, and 1997
(In Thousands)
(continued)
<TABLE><CAPTION>
Common Additional Accum. Other Total Stock-
Stock Par Treasury Paid-in Accumulated Comprehensive holder's
Value $.001 Stock Capital Deficit Loss Deficit
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ -- -- 3,925 (135,736) (5,098) (136,909)
Comprehensive income:
Net income -- -- -- 9,768 -- 9,768
Other comprehensive income:
Foreign currency translation adjustment -- -- -- -- 70 70
Minimum pension liability adjustment 1,805 1,805
--------
Total comprehensive income 11,643
--------
Tax benefit from valuation allowance -- -- 263 -- -- 263
-------- -------- -------- -------- -------- --------
Balance at December 31, 1999 $ -- -- 4,188 (125,968) (3,223) (125,003)
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998, and 1997
(In thousands)
<TABLE><CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 9,768 (10,081) 81,644
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 19,541 16,840 15,447
Deferred tax expense (benefit) (5,694) (5,388) 11,679
Gain on sale of Romac and McKenica equipment (9,485) -- --
Loss on sale of TCD, Inc. building 414 -- --
Other noncash charges and credits 1,433 5,172 (127)
Changes in operating assets and liabilities:
Receivables (8,802) (7,397) (1,065)
Inventories (208) (1,881) (2,591)
Prepaids 152 28 4,001
Payables 8,005 (5,047) 260
Other current liabilities and other (1,775) 5,549 7,292
Discontinued operations:
Depreciation 3,386 3,319 3,124
Changes in operating assets and liabilities 5,851 3,522 (74,941)
-------- -------- --------
Net cash provided by operating activities 22,586 4,636 44,723
-------- -------- --------
Cash flows from investing activities:
Proceeds from divestitures, net 21,062 -- 112,610
Other investing activities 11,009 (903) 6,190
Discontinued operations (1,366) (2,197) (3,161)
Capital expenditures (15,094) (17,958) (20,422)
Acquisitions, net of cash acquired (48,695) (2,308) --
-------- -------- --------
Net cash provided by (used in) investing activities (33,084) (23,366) 95,217
-------- -------- --------
Cash flows from financing activities:
Borrowings (repayments) of Revolving Facility 16,207 (41,498) 64,759
Funds received (deposited) in excess of retired 10.25% Notes 2,032 (2,032) --
Proceeds from sale of minority interest 100 -- --
Loan from (to) Insilco Holding Co. (1,756) 2,991 --
Payment of prepetition liabilities (1,086) (2,735) (2,811)
Sale (retirement) of 10.25% Notes (1,526) (148,474) 150,000
Retirement of long term debt (4,955) -- --
Dividend to Insilco Holding Co. -- (30,856) --
Debt issuance and tender costs -- (12,415) (10,689)
Borrowing (retirement) of Term Facility -- 123,825 (117,246)
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
Repurchase of shares -- -- (220,000)
Purchase of treasury stock -- -- (1,887)
-------- -------- --------
Net cash provided by (used in) financing activities 9,016 15,755 (133,256)
-------- -------- --------
Effect of exchange rate changes on cash 444 85 (302)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (1,038) (2,890) 6,382
Cash and cash equivalents at beginning of period 7,533 10,423 4,041
-------- -------- --------
Cash and cash equivalents at end of period $ 6,495 7,533 10,423
======== ======== ========
Supplemental information - cash paid for:
Interest, net of capitalized amount $ 31,993 31,744 17,820
======== ======== ========
Income taxes paid (refunded) $ 561 (4,908) 2,081
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) History of the Company
----------------------
Insilco Corporation (the "Company"), a Delaware corporation, is a
diversified producer of automotive, telecommunications and electronics
components. 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
required to report separate consolidated financial information under the
Securities Exchange Act of 1934 because the Company's 12% Senior
Subordinated Notes (the "12% Notes") are registered debt securities under
the Securities Act of 1933.
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.
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,
F-8
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 December 17, 1999, the Company entered into a definitive sale
agreement with TP Acquisition Corp., a wholly owned subsidiary of Castle
Harlan Partners III, L.P. to sell it publishing business, Taylor
Publishing Company. The accompanying consolidated statements of
operations and cash flows are reclassified to account for the sale of the
Publishing Business as a discontinued operation. Revenues associated with
the discontinued Publishing Business for the years 1999, 1998 and 1997
were $103,671,000, $101,325,000 and $98,222,000, respectively. At
December 31, 1999 and 1998, the net assets of the Publishing Business
were $830,000 and $5,961,000, respectively. (See subsequent event
discussion at Note 19).
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 year 1997 were $10,797,000.
ACQUISITIONS
On July 20, 1999, the Company executed a definitive merger agreement with
Thermal Transfer Products, Ltd., whereby Thermal Transfer Acquisition
Corporation, a newly created wholly owned subsidiary of the Company, was
merged with Thermal Transfer Products. The surviving entity, Thermal
Transfer Products, Ltd. ("TTP"), is a wholly-owned subsidiary of the
company and is a leading manufacturer of industrial oil coolers and other
heat exchanger products. TTP is based in Racine, Wisconsin. The purchase
price of $27.0 million, including costs incurred directly related to the
transaction, was financed from borrowings under the Company's Revolving
Credit Facility. The preliminary excess of the purchase price over net
identifiable assets acquired is $8.7 million, including costs for
employee terminations of $0.1 million, and has been recorded as goodwill,
which is being amortized on a straight-line basis over 20 years. The
Company expects any further purchase price adjustments to be completed
within one year from the date of purchase.
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 $25.3 million, including
costs incurred directly related to the transaction. The entire purchase
was financed from borrowings under the Company's Revolving Credit
Facility. The acquisition has been accounted for using the purchase
method of accounting. The excess of the purchase price over the net
identifiable assets acquired of $3.7
F-9
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
million includes costs for employee terminations, facility closure and
related costs of $0.4 million, has been recorded as goodwill and is being
amortized on a straight-line basis over 20 years. In addition, the
Company also entered into a Sales Participation Agreement, which provides
for additional payments over the next 13 years contingent on future sales
of a specific product line. The additional payments, if any, will be
accounted for as additional goodwill.
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. The fair value of the
assets acquired totaled $45,963,000 and the liabilities assumed totaled
$6,007,000.
(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 1999, the Company acquired Thermal Transfer Products, Ltd. (see
Note 1) and in 2000 the Company acquired TAT Technologies (see Note
19) with borrowings under the Company's Credit Facilities. In 1998
the Company completed the Mergers (See Note 1). These transactions
affect the comparability of the Company's financial position,
results of operations and cash flows for 1999 compared to prior
periods. As a result of these transactions, the Company has
presented pro forma results of operations for 1999 and 1998 as if
all of these transactions occurred at the beginning of the
respective periods in Note 18.
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 $2,734,000 and $2,214,000 at December
31, 1999 and 1998, 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>
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, 1999
and 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, 1999 and
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.
Comprehensive Income (Loss)
---------------------------
Comprehensive income (loss) consists of net income (loss), minimum
pension liability adjustment and foreign currency translation
adjustments and is presented in the consolidated financial
statements of stockholder's deficit.
F-11
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 reported in the
financial statements and therefore actual results may ultimately
differ from those estimates.
Reclassifications
-----------------
Certain 1998 and 1997 amounts have been reclassified to conform
with 1999 presentation.
Impact of Recently Issued Accounting Standards
----------------------------------------------
In June 1999, the FASB issued Statement No. 137, "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE
EFFECTIVE DATE OF FASB STATEMENT NO. 133", which deferred the
effective date of FASB Statement No. 133 until years beginning
after June 15, 2000. 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, 2001. 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.
(3) Inventories
-----------
A summary of inventories at December 31 follows (in thousands):
1999 1998
---------- ----------
Raw materials and supplies $ 28,410 24,918
Work in process 12,113 14,885
Finished goods 17,750 13,234
---------- ----------
$ 58,273 53,037
========== ==========
F-12
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Property, Plant and Equipment
-----------------------------
A summary of property, plant and equipment at December 31 follows (in
thousands):
1999 1998
---------- ----------
Land $ 4,084 4,637
Buildings 33,833 32,417
Machinery and equipment 147,160 129,193
---------- ----------
185,077 166,247
Less accumulated depreciation (75,471) (64,928)
---------- ----------
$ 109,606 101,319
========== ==========
(5) Other Assets
------------
A summary of other assets at December 31 follows (in thousands):
1999 1998
---------- ----------
Goodwill, net $ 26,356 14,483
Equity investment in Thermalex 3,909 8,412
Deferred financing costs 8,571 10,196
Cash surrender value of life insurance 2,728 1,758
Other 3,541 2,749
---------- ----------
$ 45,105 37,598
========== ==========
Goodwill amortization for the years ended December 31, 1999, 1998 and
1997 was $1.0 million, $0.6 million and $0.5, respectively. Accumulated
amortization at December 31, 1999 and 1998 was $2.3 million and $1.3
million, respectively.
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 $2,850,000, $1,324,000 and $1,461,000 of regular dividend
distributions from Thermalex in 1999, 1998 and 1997, respectively. The
Company also received special dividends of $7,546,000 in 1999.
Sales for Thermalex for the years ended December 31, 1999, 1998 and 1997
were $59,504,000, $49,547,000 and $47,152,000, respectively. Net income
for the years ended December 31, 1999, 1998 and 1997 was $6,086,000,
$5,699,000 and $5,294,000, respectively. Total assets were $39,199,000
and $35,717,000 at December 31, 1999 and 1998, respectively.
Stockholders' equity was $7,818,000 and $16,824,000 at December 31, 1999
and 1998, respectively.
F-13
<PAGE>
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):
1999 1998
---------- ----------
Salaries and wages payable $ 4,913 5,623
Pension 8,091 8,112
Accrued interest payable 7,502 4,227
Current portion of the long
term liabilities 919 1,945
Accrued taxes payable 1,293 1,623
Restructuring accrual 1,718 --
Other accrued expenses 9,510 10,058
---------- ----------
$ 33,946 31,588
========== ==========
(7) Long-term Debt and Warrants
---------------------------
A summary of long-term debt at December 31 follows (in thousands):
1999 1998
---------- ----------
Term Facility $ 120,061 125,000
12% Senior Subordinated Notes 119,777 119,747
Revolving Facility 60,000 44,922
Alternative Currency Borrowings 19,068 21,000
101/4% Senior Subordinated Notes -- 1,526
Miscellaneous 198 214
---------- ----------
319,104 312,409
Less current portion (1,266) (1,265)
---------- ----------
$ 317,838 311,144
========== ==========
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"), 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. The Company
has repurchased all $150,000,000 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, 1999, 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"). On
February 16, 2000 we amended certain terms of the
F-14
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Company's Bank Credit Agreement to, among other things, (1) permit us to
consummate the TAT acquisition, (2) provide that TAT assume up to $90.0
million in aggregate principal amount of the Term Loans, (3) release our
direct obligations in respect of such assumed portion of the Term Loans
and (4) increase the interest rate applicable to the loans in certain
circumstances. The Company has $166.1 million of commitments under the
Revolving Loan Facility and $119.3 million of commitments under the Term
Loan Facility.
In 1998, the Company recorded an extraordinary charge of $5,888,000, (net
of a tax benefit of $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
Bank One'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, 1999, the
applicable margin for the Term Facility and the Revolving Facility were
LIBOR plus 3.75% and LIBOR plus 2.5%, respectively. The unused commitment
fee at December 31, 1999 was 0.5%. The applicable margins and unused
commitment fee 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. On September 3, 1999, a mandatory term
prepayment of $3.7 million was made from the proceeds of the sale of
Romac Metals.
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.
F-15
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company was in compliance with the covenants of its Credit Facilities
as of December 31, 1999.
As of December 31, 1999, under the sublimit for alternative currency
borrowings, the Company had borrowed $19.1 million (37.1 million German
Deutsche Marks). The Company's alternative currency borrowing is designed
to hedge the Company's net investment in its German operations. The
change, if any, to the net investment as a result of foreign currency
fluctuations is included in stockholders' equity as a foreign currency
translation adjustment. The alternative currency 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 3.17% to 3.52% at December
31, 1999).
The combined aggregate amount of maturities for all long-term borrowings
for each of the next five years is as follows (in thousands):
2000 2001 2002 2003 2004
------ ------ ------ ------ ------
Term Facility $1,250 1,250 1,250 1,250 1,250
Revolving Facility -- -- -- 79,068 --
Miscellaneous 16 16 16 17 17
------ ------ ------ ------ ------
$1,266 1,266 1,266 80,335 1,267
====== ====== ====== ====== ======
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>
1999 1998
----------------------- -----------------------
Estimated Estimated
Book Value Fair Value Book Value Fair Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Debt:
12% Senior Subordinated Notes $ 119,777 117,381 119,747 123,600
101/4% Senior Subordinated Notes -- -- 1,526 1,541
Bank revolving credit facility 79,068 79,068 65,922 65,922
Bank term loan 120,061 120,061 125,000 125,000
Miscellaneous 198 198 214 214
--------- --------- --------- ---------
$ 319,104 316,708 312,409 316,277
========= ========= ========= =========
</TABLE>
The Company is exposed to market risk for changes in interest rates, but
has no off-balance sheet risk of accounting loss.
F-16
<PAGE>
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.
F-17
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Balance Sheet
December 31, 1999
(In thousands)
<TABLE><CAPTION>
Non
Assets: Insilco Guarantors Guarantors Consolidated
- ------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 4,625 867 1,003 6,495
Trade receivables, net -- 73,798 3,900 77,698
Other receivables 24 1,339 473 1,836
Inventories, net -- 56,070 2,203 58,273
Deferred taxes 9,603 -- -- 9,603
Net assets of discontinued operation -- 830 -- 830
Prepaid expenses and other current assets 410 2,286 35 2,731
--------- --------- --------- ---------
Total current assets 14,662 135,190 7,614 157,466
Property, plant, and equipment, net 124 99,635 9,847 109,606
Deferred taxes 3,751 101 -- 3,852
Other assets and deferred charges 15,401 26,895 2,809 45,105
--------- --------- --------- ---------
Total assets $ 33,938 261,821 20,270 316,029
========= ========= ========= =========
Liabilities and Stockholders' Equity (Deficit)
- ----------------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,250 16 -- 1,266
Accounts payable -- 36,762 2,485 39,247
Accrued expenses and other 12,835 20,043 1,068 33,946
--------- --------- --------- ---------
Total current liabilities 14,085 56,821 3,553 74,459
Long-term debt, excluding current portion 317,656 182 -- 317,838
Other long-term liabilities, excluding current
portion 17,116 30,284 -- 47,400
Intercompany payable (103,193) 90,495 13,933 1,235
--------- --------- --------- ---------
Total liabilities 245,664 177,782 17,486 440,932
Minority interest 100 -- -- 100
Stockholders' equity (deficit) (211,826) 84,039 2,784 (125,003)
--------- --------- --------- ---------
Total liabilities and stockholders'
equity (deficit) $ 33,938 261,821 20,270 316,029
========= ========= ========= =========
</TABLE>
F-18
<PAGE>
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 $ 6,472 126 935 7,533
Trade receivables, net -- 59,307 4,519 63,826
Other receivables 2,131 4,737 639 7,507
Inventories, net -- 49,650 3,387 53,037
Deferred taxes 6,143 -- -- 6,143
Net assets of discontinued operation -- 6,681 -- 6,681
Prepaid expenses and other current assets 838 1,592 43 2,473
--------- --------- --------- ---------
Total current assets 15,584 122,093 9,523 147,200
Property, plant, and equipment, net 208 89,624 11,487 101,319
Deferred taxes 1,517 -- -- 1,517
Other assets and deferred charges 14,035 20,021 3,542 37,598
--------- --------- --------- ---------
Total assets $ 31,344 231,738 24,552 287,634
========= ========= ========= =========
Liabilities and Stockholders' Equity (Deficit)
- ----------------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,250 15 -- 1,265
Accounts payable -- 27,049 3,416 30,465
Customer deposits -- 932 -- 932
Accrued expenses and other 12,411 18,928 969 32,308
--------- --------- --------- ---------
Total current liabilities 13,661 46,924 4,385 64,970
Long-term debt, excluding current portion 310,945 199 -- 311,144
Other long-term liabilities, excluding current
portion 13,243 32,047 148 45,438
Intercompany payable (79,887) 62,906 19,972 2,991
--------- --------- --------- ---------
Total liabilities 257,962 142,076 24,505 424,543
Stockholders' equity (deficit) (226,618) 89,662 47 (136,909)
--------- --------- --------- ---------
Total liabilities and stockholders'
equity (deficit) $ 31,344 231,738 24,552 287,634
========= ========= ========= =========
</TABLE>
F-19
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Statement of Operations
Year Ended December 31, 1999
(In Thousands)
<TABLE><CAPTION>
Non
Insilco Guarantors Guarantors Consolidated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ -- 444,289 32,066 476,355
Cost of products sold (Note 14) -- 342,471 25,434 367,905
Depreciation and amortization 49 17,900 1,592 19,541
Selling, general and administrative expenses (Note 14) 8,670 48,688 3,050 60,408
Merger expenses 3,300 3,082 -- 6,382
-------- -------- -------- --------
Operating income (loss) (12,019) 32,148 1,990 22,119
-------- -------- -------- --------
Other income (expense):
Interest expense (36,430) (22) (23) (36,475)
Interest income 323 62 4 389
Equity in net income of Thermalex -- 3,043 -- 3,043
Other income, net 2,242 5,141 2,681 10,064
-------- -------- -------- --------
Total other income (expense) (33,865) 8,224 2,662 (22,979)
-------- -------- -------- --------
Income (loss) from continuing operations
before income taxes and extraordinary items (45,884) 40,372 4,652 (860)
Income tax benefit (expense) 15,686 (10,057) (551) 5,078
-------- -------- -------- --------
Income (loss) from continuing operations
before extraordinary items (30,198) 30,315 4,101 4,218
Discontinued operations net of tax:
Income from operations -- 5,550 -- 5,550
-------- -------- -------- --------
Income from discountinued operations -- 5,550 -- 5,550
-------- -------- -------- --------
Net income (loss) $(30,198) 35,865 4,101 9,768
======== ======== ======== ========
</TABLE>
F-20
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 $ -- 402,146 32,158 434,304
Cost of products sold -- 297,213 25,378 322,591
Depreciation and amortization 72 14,946 1,822 16,840
Selling, general and administrative expenses 10,287 46,830 3,131 60,248
Merger expenses 20,890 -- -- 20,890
-------- -------- -------- --------
Operating income (loss) (31,249) 43,157 1,827 13,735
-------- -------- -------- --------
Other income (expense):
Interest expense (28,652) 97 (33) (28,588)
Interest income 895 34 50 979
Equity in net income of Thermalex -- 2,850 -- 2,850
Other income, net 3,136 734 (127) 3,743
-------- -------- -------- --------
Total other income (expense) (24,621) 3,715 (110) (21,016)
-------- -------- -------- --------
Income (loss) from continuing operations
before income taxes and extraordinary items (55,870) 46,872 1,717 (7,281)
Income tax benefit (expense) 15,811 (14,564) 329 1,576
-------- -------- -------- --------
Income (loss) from continuing operations
before extraordinary items (40,059) 32,308 2,046 (5,705)
Discontinued operations net of tax:
Income from operations -- 1,512 -- 1,512
-------- -------- -------- --------
Income (loss) before extraordinary items (40,059) 33,820 2,046 (4,193)
-------- -------- -------- --------
Extraordinary items, net of tax (5,888) -- -- (5,888)
-------- -------- -------- --------
Net income (loss) $(45,947) 33,820 2,046 (10,081)
======== ======== ======== ========
</TABLE>
F-21
<PAGE>
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 $ -- 404,253 25,758 430,011
Cost of products sold -- 292,391 19,667 312,058
Depreciation and amortization 89 13,337 2,021 15,447
Selling, general and administrative expenses 9,249 46,271 2,983 58,503
-------- -------- -------- --------
Operating income (loss) (9,338) 52,254 1,087 44,003
-------- -------- -------- --------
Other income (expense):
Interest expense (19,969) 58 (92) (20,003)
Interest income 2,747 26 64 2,837
Equity in net income of Thermalex -- 2,647 -- 2,647
Other income, net 548 436 194 1,178
-------- -------- -------- --------
Total other income (expense) (16,674) 3,167 166 (13,341)
-------- -------- -------- --------
Income (loss) from continuing operations
before income taxes and extraordinary items (26,012) 55,421 1,253 30,662
Income tax benefit (expense) 6,849 (17,996) (1) (11,148)
-------- -------- -------- --------
Income (loss) from continuing operations
before extraordinary items (19,163) 37,425 1,252 19,514
Discontinued operations net of tax:
Income from operations -- 5,070 -- 5,070
Gain on disposal 57,788 -- -- 57,788
-------- -------- -------- --------
Income from discontinued operations 57,788 5,070 -- 62,858
-------- -------- -------- --------
Income (loss) before extraordinary items 38,625 42,495 1,252 82,372
Extraordinary items, net of tax (728) -- -- (728)
-------- -------- -------- --------
Net income (loss) $ 37,897 $ 42,495 $ 1,252 $ 81,644
======== ======== ======== ========
</TABLE>
F-22
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Statement of Cash Flows
December 31, 1999
(In thousands)
<TABLE><CAPTION>
Non
Insilco Guarantors Guarantor Consolidated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(41,985) 63,546 1,025 22,586
Cash flows used in investing activities:
Proceeds from divestitures, net 16,465 4,597 -- 21,062
Other investing activities 11,009 -- -- 11,009
Discontinued operations -- (1,366) -- (1,366)
Capital expenditures, net (18) (13,675) (1,401) (15,094)
Acquisitions, net of cash acquired (48,695) -- -- (48,695)
-------- -------- -------- --------
Net cash used in investing activities (21,239) (10,444) (1,401) (33,084)
-------- -------- -------- --------
Cash flows provided by (used in)
financing activities
Intercompany transfer of funds 52,345 (52,345) -- --
Repayment of revolving credit facility 16,207 -- -- 16,207
Funds received in excess of retired
10 1/4% Notes 2,032 -- -- 2,032
Proceeds from sale of minority interest 100 100
Loan to Insilco Holding Co. (1,756) -- -- (1,756)
Payment of prepetition liabilities (1,086) -- -- (1,086)
Retirement of 101/4% Notes (1,526) -- -- (1,526)
Retirement of long term debt (4,939) (16) -- (4,955)
-------- -------- -------- --------
Net cash provided by (used in)
financing activities 61,377 (52,361) -- 9,016
-------- -------- -------- --------
Effect of exchange rate changes on cash -- -- 444 444
-------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents (1,847) 741 68 (1,038)
Cash and cash equivalents at
beginning of period 6,472 126 935 7,533
-------- -------- -------- --------
Cash and cash equivalents at end
of period $ 4,625 867 1,003 6,495
======== ======== ======== ========
</TABLE>
F-23
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Statement of Cash Flows
December 31, 1998
(In thousands)
<TABLE><CAPTION>
Non
Insilco Guarantors Guarantor Consolidated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(38,810) 41,750 1,696 4,636
Cash flows used in investing activities:
Capital expenditures, net (50) (17,161) (747) (17,958)
Discontinued operations -- (2,197) -- (2,197)
Acquisitions, net of cash acquired (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:
Intercompany transfer of funds 21,804 (21,804) -- --
Repayment of revolving credit facility (41,498) -- -- (41,498)
Funds deposited in excess of retired
10.25% Notes (2,032) -- -- (2,032)
Loan from Insilco Holding Co. 2,991 -- -- 2,991
Payment of prepetition liabilities (2,735) -- -- (2,735)
Retirement of 101/4% Notes (148,474) -- -- (148,474)
Dividend to Insilco Holding Co. (30,856) -- -- (30,856)
Debt issuance costs (12,415) -- -- (12,415)
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
-------- -------- -------- --------
Net cash provided by (used in)
financing activities 38,734 (21,853) (1,126) 15,755
-------- -------- -------- --------
Effect of exchange rate changes on cash -- -- 85 85
-------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents (3,337) 539 (92) (2,890)
Cash and cash equivalents at
beginning of period 9,809 (413) 1,027 10,423
-------- -------- -------- --------
Cash and cash equivalents at end
of period $ 6,472 126 935 7,533
======== ======== ======== ========
</TABLE>
F-24
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Statement of Cash Flows
December 31, 1997
(In thousands)
<TABLE><CAPTION>
Non
Insilco Guarantors Guarantor Consolidated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(27,771) 72,279 215 44,723
Cash flows used in investing activities:
Proceeds from divestitures, net 112,610 -- 112,610
Capital expenditures, net (62) (19,021) (1,339) (20,422)
Discontinued operations -- (3,161) -- (3,161)
Other investing activities 6,190 -- -- 6,190
-------- -------- -------- --------
Net cash provided by (used in)
investing activities 118,738 (22,182) (1,339) 95,217
-------- -------- -------- --------
Cash flows used in financing activities:
Intercompany transfers to parent 49,507 (49,507) -- --
Borrowings of Revolving Facility 64,759 -- -- 64,759
Payment of prepetition liabilities (2,811) -- -- (2,811)
Sale of 101/4% Notes 150,000 -- -- 150,000
Debt issuance and tender costs (10,689) -- -- (10,689)
Retirement of Term Facility (116,677) (569) -- (117,246)
Proceeds from stock option exercise 4,618 -- -- 4,618
Repurchase of shares (220,000) -- -- (220,000)
Purchase of treasury stock (1,887) -- -- (1,887)
-------- -------- -------- --------
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 21 (1,426) 6,382
Cash and cash equivalents at
beginning of period 2,022 (434) 2,453 4,041
-------- -------- -------- --------
Cash and cash equivalents at end
of period $ 9,809 (413) 1,027 10,423
======== ======== ======== ========
</TABLE>
F-25
<PAGE>
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>
1999 1998
-------- --------
<S> <C> <C>
Post-retirement benefits, other than pensions (Note 11) $ 22,137 21,627
Prepetition and other tax liabilities 17,843 16,165
Environmental liabilities 6,411 7,351
Deferred compensation and other 1,928 2,240
-------- --------
48,319 47,383
Less current portion (919) (1,945)
-------- --------
$ 47,400 45,438
======== ========
</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, tax adjustments proposed by the Internal
Revenue Service and various states and foreign jurisdictions for various
years 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, periodic
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
$6,411,000 relating to these environmental matters at December 31, 1999.
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 research 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-26
<PAGE>
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.
A summary of the plans' funded status reconciled with amounts recognized
in the consolidated balance sheet at December 31 follows (in thousands):
<TABLE><CAPTION>
1999 1998
------------------------ ------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Changes in benefit obligation:
Benefit obligation at beginning of year $ 66,316 17,396 67,312 15,395
Service cost 2,346 558 2,241 501
Interest cost 4,367 1,185 4,562 1,082
Amendments -- 1,050 -- --
Actuarial (gain) loss (1,452) (2,190) (658) 1,281
Benefits paid (8,261) (896) (7,141) (863)
-------- -------- -------- --------
Benefit obligation at end of year $ 63,316 17,103 66,316 17,396
-------- -------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning of year $ 74,650 11,459 78,440 11,087
Actual return on assets 4,506 914 3,274 453
Employer contribution -- 481 77 781
Benefits paid (8,261) (896) (7,141) (862)
-------- -------- -------- --------
Fair value of plan asset at end of year 70,895 11,958 74,650 11,459
-------- -------- -------- --------
Funded status 7,580 (5,145) 8,334 (5,938)
Unrecognized net actuarial (gain) loss (9,691) (648) (10,299) 1,395
Unrecognized prior service costs (1,065) 2,472 (1,136) 1,738
-------- -------- -------- --------
Accrued benefit cost $ (3,176) (3,321) (3,101) (2,805)
======== ======== ======== ========
Amounts recognized in the statement of
financial position consist of:
Accrued benefit liability $ (3,176) (4,915) (3,101) (5,011)
Intangible asset -- 1,594 -- 971
Accumulated other comprehensive income -- -- -- 1,235
-------- -------- -------- --------
Net amount recognized $ (3,176) (3,321) (3,101) (2,805)
======== ======== ======== ========
</TABLE>
F-27
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The components of pension cost follow (in thousands):
1999 1998 1997
------- ------- -------
Service cost $ 2,904 2,742 2,068
Interest cost 5,552 5,644 5,100
Actual return on assets (7,656) (7,409) (6,208)
Net amortization and deferral 245 263 86
Recognized net actuarial loss (gain) 27 2 (208)
------- ------- -------
Net pension cost $ 1,072 1,242 838
======= ======= =======
In addition, the Company recognized pension costs of $526,000 in 1999,
$572,000 in 1998 and $597,000 in 1997 related to contributions to
multi-employer plans.
The assumptions used in accounting for the pension plans as of December
31 follow:
1999 1998
------ ------
Discount Rates 8.00% 7.00%
Rates of increase in compensation levels 4.50% 4.50%
Expected long-term rate of return on assets 9.00% 10.00%
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 $1,160,000 in 1999,
$821,000 in 1998 and $819,000 in 1997.
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):
1999 1998 1997
------- ------- -------
Service cost $ 516 384 400
Interest cost 1,130 1,104 1,099
Amortization of prior service cost (358) (352) (352)
Recognized net actuarial gain -- (45) (85)
------- ------- -------
$ 1,288 1,091 1,062
======= ======= =======
A summary of the plans' status reconciled with amounts recognized in the
consolidated balance sheet at December 31 follows (in thousands):
F-28
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1999 1998
-------- --------
Change in benefit obligation:
Benefit obligation at beginning of year $ 16,697 16,848
Service cost 516 384
Interest cost 1,130 1,104
Actuarial gain (1,881) (620)
Benefits paid (823) (1,019)
-------- --------
Benefit obligation at end of year 15,639 16,697
-------- --------
Funded status (15,639) (16,697)
Unrecognized net actuarial gain (3,311) (1,493)
Unrecognized prior service cost (3,714) (4,073)
-------- --------
Accrued benefit cost $(22,664) (22,263)
======== ========
At December 31, 1999 and 1998, the weighted-average discount rates used
in determining the accumulated post-retirement benefit obligation were
8.0% and 7.0%, respectively. The recorded healthcare cost trend rates
assumed in measuring the accumulated post-retirement benefit obligation
were 9.0% and 7.5% in 2000, declining to an ultimate rates of 6.05% and
4.5% in 2010 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
1999 would have the following effects:
1-Percentage 1-Percentage
Point Increase Point Decrease
-------------- --------------
Effect on total of service and
interest cost components $ 260 (222)
Effect on post-retirement benefit
obligation 1,049 (894)
(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 units actually purchased was 77,457. At December
31, 1999, the number of unit purchased under the plan was 38,484. Upon
the occurrence of a Significant Event, (as defined in the Equity Unit
Plan), the Company is
F-29
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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. At December 31, 1999, 22,418 shares remain
outstanding, with 19,996 of these shares being accounted for as treasury
shares.
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, 1999, the Company has 75,988 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 1999, 1998 and 1997 under SFAS 123, the Company's net income and
earnings per share would have approximated the pro forma amounts below:
1999 1998 1997
------- ------- -------
Net income (loss) As reported $ 9,768 (10,081) 81,644
Pro forma 9,745 (10,124) 81,069
F-30
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of the options granted follows:
Weighted
Number Average
of Shares Price
--------- ---------
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 --
Granted 200,162 45.00
Forfeited (76,150) 45.00
Exercised --
---------
Options outstanding December 31, 1999 124,012 45.00
=========
Options exercisable at December 31:
1997 421,033 27.18
1998 -- --
1999 -- --
The per share weighted-average fair value of stock options granted during
1999, 1998 and 1997 was $14.41, $12.84 and $13.87, respectively, on the
date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions: 1999 - expected dividend yield
0.0%, risk-free interest rate of 5.50%, volatility of 30%, and an
expected life of 10 years.
F-31
<PAGE>
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>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Total income taxes:
From continuing operations before extraordinary item:
Current:
Federal $ 460 206 484
State and Local 161 20 515
Foreign 987 336 622
------- ------- -------
1,608 562 1,621
------- ------- -------
Deferred:
Federal (7,089) (2,017) 8,130
State and Local (479) (341) 909
Foreign 882 220 488
------- ------- -------
(6,686) (2,138) 9,527
------- ------- -------
Total from continuing operations
before extraordinary item (5,078) (1,576) 11,148
Discontinued operations 3,217 708 40,506
Extraordinary item -- (3,958) (465)
Stockholders' equity -- (941) (3,277)
------- ------- -------
Total income taxes $(1,861) (5,767) 47,912
======= ======= =======
</TABLE>
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations follow (in thousands):
<TABLE><CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Deferred tax expense (benefit) exclusive of the
effects of other components $(5,698) (1,116) 9,527
Changes in the valuation allowance for deferred
tax assets allocated to income tax expense (988) (1,022) --
------- ------- -------
$(6,686) (2,138) 9,527
======= ======= =======
</TABLE>
Pretax income (loss) from continuing operations by domestic and foreign
sources follows (in thousands):
1999 1998 1997
------- ------- -------
Domestic $(6,888) (11,481) 27,421
Foreign 6,028 4,200 3,241
------- ------- -------
$ (860) (7,281) 30,662
======= ======= =======
F-32
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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):
1999 1998 1997
------- ------- -------
Computed statutory tax expense $ (301) (2,548) 10,731
State and local taxes (622) (361) 1,244
Equity in earnings of affiliates (852) (798) (733)
Merger fees -- 2,555 --
Foreign tax rate differential 347 535 (373)
Professional fees 628 -- --
Severance expenses (356) -- --
Life insurance (33) (461) (595)
Goodwill amortization 147 22 20
Disposition of operating divisions (2,827) -- --
Other, net (221) 502 854
Valuation allowance (988) (1,022) --
------- ------- -------
Income tax expense (benefit) $(5,078) (1,576) 11,148
======= ======= =======
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>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 28,668 24,322
Accrued liabilities 8,981 12,163
Pension and other post-retirement benefits 12,962 11,426
Tax credits 9,917 9,639
Other 1,538 650
-------- --------
Total gross deferred tax assets 62,066 58,200
Less valuation allowance (32,254) (35,457)
-------- --------
Total gross deferred tax assets after valuation allowance 29,812 22,743
Deferred tax liabilities:
Plant and equipment (14,490) (14,364)
Other (1,867) (719)
-------- --------
Total gross deferred tax liabilities (16,357) (15,083)
-------- --------
Net deferred tax asset $ 13,455 7,660
======== ========
</TABLE>
The net reduction in the valuation allowance for deferred tax assets for
the years ended December 31, 1999 and 1998 was $3,203,000 and $6,636,000,
respectively. Recognition, if any, of tax benefits subsequent to December
31, 1999 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 $20,723,000 and $11,531,000,
respectively. At December 31, 1999, the Company had Federal net operating
loss carryforwards of approximately $41,567,000. Substantially all of the
Federal net operating loss carryforwards will be utilized in the year
2000 to offset the gain on the sale of Taylor Publishing Company.
F-33
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In order to fully realize the net deferred tax assets recognized, the
Company will need to generate future taxable income. 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 $13,455,00
at December 31, 1999. The amount of deferred tax assets considered
realizable, however, could be reduced if estimates of future taxable
income are reduced.
Deferred taxes are not provided on unremitted earnings of subsidiaries
outside the United States because it is expected that the earnings are
permanently reinvested and such determination is not practical. Such
earnings may become taxable upon the sale or liquidation of these
subsidiaries or upon the remittance of dividends. Deferred taxes are
provided in situations where the Company's subsidiaries plan to make
future dividend distributions.
The Company and its domestic subsidiaries file a consolidated U.S.
Federal income tax return. The IRS is presently examining the
consolidated Federal income tax returns for 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) Restructuring and Plant Closing Costs
-------------------------------------
During the year ended December 31, 1999, the Company recorded $9,749,000
of restructuring and plant closing costs relating to corporate office
staff reductions, restructuring of certain heat exchanger and tubing
manufacturing facilities, and the closure of its heat exchanger machinery
and equipment manufacturing operation (McKenica) with the objectives of
lowering operating costs and focusing resources on core business units.
The cost of these actions has been reflected in cost of sales
($3,156,000), SG&A ($211,000) and restructuring and plant closing costs
($6,382,000). The charge consists of employee separation costs of
$4,090,000, asset impairments of $922,000, remaining noncancellable lease
costs of $912,000, other exit costs of $1,467,000 and non-cash charges of
$2,358,000. Employee separations occurred at manufacturing facilities
affected by the plan and at the corporate office. The decision to exit
the heat exchanger machinery and equipment business decreased cash flows
triggering the asset impairment. The amount of impairment of such assets
was based on the estimated net realizable market value of the assets.
Other exit costs consist of warranty reserves and losses on remaining
percentage of completion contracts. Non-cash charges consist of inventory
write-downs and accounts receivable write-offs. Asset impairments consist
of the write off of the carrying value of abandoned fixed assets.
As of December 31, 1999, the Company has an accrual of $1,718,000
relating to these restructuring charges, which is included in accrued
expenses and other on the balance sheet. A summary of this accrual is as
follows (in thousands):
<TABLE><CAPTION>
As of As of
December Cash December
31, 1998 Accruals Outlays 31, 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Restructuring charges:
Employee separations $ -- 4,090 (3,178) 912
Other exit costs -- 1,467 (1,355) 112
Remaining noncancellable lease costs -- 912 (218) 694
------ ------ ------ ------
Subtotal $ -- 6,469 (4,751) 1,718
====== ------ ====== ======
Noncash charges 2,358
Asset impairments 922
------
Total restructuring and plant closing costs $9,749
======
</TABLE>
F-34
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The headcount reduction from these activities was approximately 172
employees.
In 1998, the Company incurred charges for severance expenses totaling
$1,622,000 related to workforce reductions and charges of $200,000
related to lease cancellations. These costs have been reflected in cost
of sales ($487,000) and SG&A ($1,355,000). At December 31, 1998, the
Company had no accrual remaining relating to these items.
The headcount reduction related to these items was approximately 25
employees.
(15) Related Party Transactions
--------------------------
As of December 31, 1999, the Company had an intercompany payable of
$2,954,000 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 $546,000 of expenses paid by the Company on behalf
of Holdings. In the first quarter of 1999, the Company received from
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"), an
affiliate of DLJMB, $2,032,000 for funds deposited in excess of the
retired 10 1/4% Notes, which had been included in "Receivables from
related parties" at December 31, 1998. In 1999, the Company paid DLJSC
advisory and retainer fees of $500,000 and $336,000, respectively. At
December 31, 1999, the Company had a payable to DLJSC of $75,000 of
retainer fees for investment banking services.
At 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 & Jenrette
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% 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 7, the Company entered into the 1997 Bank Credit
Agreement and Goldman Sachs
F-35
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
(16) Commitments and Contingencies
-----------------------------
Rental expense for operating leases totaled $3,993,000, $3,364,000 and
$3,110,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. These leases primarily relate to production facilities.
Rental income received for subleases for operating leases totaled
$257,000 in 1999, $248,000 in 1998 and none in 1997.
Future minimum lease payments under contractually noncancellable
operating leases (with initial lease terms in excess of one year) for
years subsequent to December 31, 1999 are as follows: 2000, $3,291,000;
2001, $2,432,000; 2002, $1,848,000; 2003, $1,119,000; 2004, $427,000 and
thereafter, none. Future minimum rental income to be received under
noncancellable subleases for years subsequent to December 31, 1999 are as
follows: 2000, $257,000; 2001, $257,000; 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.
(17) Segment Data
------------
DESCRIPTION OF SEGMENTS
The Company provides a broad spectrum of products through two business
segments: Automotive Components and Technologies related components.
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 20%, 22%, and 24% of the
Company's Automotive Component revenues for 1999, 1998, and 1997,
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 22%, 25%, and 25% of the Company's Technologies revenues
for 1999, 1998, and 1997, respectively.
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
F-36
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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. Both of
these operating units were divested in 1999.
MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS
The Company evaluates performance and allocates resources to its
operating segments based on earnings before interest, taxes, depreciation
and amortization (EBITDA). Certain investors use EBITDA as a measure of
operations and ability to meet debt service requirements. EBITDA is not
intended to represent and should not be considered more meaningful than,
or an alternative to operating income, cash flows from operating
activities or other measures of performance in accordance with generally
accepted accounting principles. Moreover, the EBITDA amount presented
herein is not necessarily comparable to other similarly titled captions
of other companies, or as defined by the Company's Bank Credit Agreement
or Debentures due to inconsistencies in the method of calculation. The
accounting policies used in preparing the following segment data 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.
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-37
<PAGE>
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,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
NET SALES:
Automotive Components $ 228,313 213,365 193,839
Technologies 229,975 189,781 198,941
--------- --------- ---------
On-going operations 458,288 403,146 392,780
Other 18,067 31,158 37,231
--------- --------- ---------
Total $ 476,355 434,304 430,011
========= ========= =========
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS
Automotive Components $ 32,457 31,591 29,963
Technologies 28,199 28,385 32,893
Unallocated amount
Corporate operating expenses (5,895) (7,680) (9,249)
--------- --------- ---------
On-going operations 54,761 52,296 53,607
Other 1,136 2,263 5,843
--------- --------- ---------
Earnings before interest, taxes
depreciation and amortization 55,897 54,559 59,450
Depreciation (19,541) (16,840) (15,447)
Significant legal expenses (2,653) (1,272) --
Severance and write-downs (5,202) (1,822) --
Restructuring charge (6,382) -- --
Merger fees -- (20,890) --
--------- --------- ---------
Total operating income 22,119 13,735 44,003
Interest expense (36,475) (28,588) (20,003)
Net gain on asset disposals 9,071 397 120
Other income, net 4,425 7,175 6,542
--------- --------- ---------
Income (loss) from continuing operations
before income taxes and extraordinary item $ (860) (7,281) 30,662
========= ========= =========
Net Income (loss) $ 9,768 (10,081) 81,644
========= ========= =========
DEPRECIATION AND AMORTIZATION EXPENSE:
Automotive Components $ 9,365 8,508 8,104
Technologies 9,577 7,216 6,159
Other 550 1,044 1,095
Corporate 49 72 89
--------- --------- ---------
Total $ 19,541 16,840 15,447
========= ========= =========
CAPITAL EXPENDITURES:
Automotive Components $ 7,879 9,132 11,659
Technologies 7,133 7,926 8,166
Other 64 850 535
Corporate 18 50 62
--------- --------- ---------
Total $ 15,094 17,958 20,422
========= ========= =========
</TABLE>
F-38
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of identifiable assets by segment at December 31 follows (in
thousands):
1999 1998
--------- ---------
Automotive Components $ 150,229 135,525
Technologies 131,695 96,742
Other (31) 17,342
Corporate 33,306 31,344
--------- ---------
Total $ 315,199 280,953
========= =========
A summary of long-lived assets by geographic region is as follows (in
thousands):
1999 1998
--------- ---------
United States $ 175,580 151,701
Germany 12,656 15,029
--------- ---------
Total $ 188,236 166,730
========= =========
Summary of export sales by geographic region is as follows (in
thousands):
1999 1998 1997
------- ------- -------
Europe $35,444 22,838 21,193
Asia 10,203 8,829 14,007
Canada 7,748 7,692 9,758
Mexico 3,161 3,005 4,292
Other 5,683 4,335 6,155
------- ------- -------
Total $62,239 46,699 55,405
======= ======= =======
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 10%, 11%, and 11% of the Company's
consolidated revenues for 1999, 1998, and 1997, respectively.
(18) 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 Purchases of Thermal Transfer Products, LTD and TAT Technologies
(See Notes 1 and 19), the Refinancing (as defined below), the Mergers,
including the Merger Financing and application of the proceeds thereof
(See Note 1). A summary of these adjustments follows.
On July 20, 1999, the Company, executed a definitive merger agreement
with Thermal Transfer Products, Ltd. The entire purchase price was
financed from borrowings under the Company's Revolving Credit Facility.
The gross purchase price paid was $26.5 million. The purchase price net
F-39
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
of cash acquired and including estimated costs incurred directly related
to the transactions was $23.3 million. The preliminary excess of the
purchase price over net identifiable assets acquired is $8.7 million,
which is being amortized on a straight-line basis over 20 years.
On February 17, 2000, the Company through two newly created wholly-owned
subsidiaries, Insilco Technology (Canada) Corporation and 9087-3498
Quebec Inc., executed a definitive agreement to purchase 9011-7243 Quebec
Inc., known as TAT Technologies. The gross purchase price paid was $91.2
million and is subject to certain post closing adjustments. The initial
purchase price has not yet been allocated. 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 entire purchase price was financed
with borrowings under the Company's Term Loan Facility.
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 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 unaudited pro forma condensed consolidated income statements have
been prepared as if the Refinancing and the Mergers 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>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Unaudited Pro Forma condensed consolidated Statement of Income
Year Ended December 31, 1999
(In thousands, except per share data)
<TABLE><CAPTION>
(1)
Thermal TTP
Transfer Pro Forma
Historical Products, Ltd. Adjustments
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 476,355 12,477 --
Cost of goods sold 367,905 10,271 114 (2)
Depreciation and amortization 19,541 356 429 (3)
Selling, general, and administrative expenses 60,408 1,382 (420)(4)
Reorganization expense 6,382 -- --
--------- --------- ---------
Operating income 22,119 468 (123)
Interest expense (36,475) 61 (994)(5)
Interest income 389 -- --
Equity in net income of Thermalex 3,043 -- --
Other income, net 10,064 4 --
--------- --------- ---------
Income (loss) from continuing operations
before income taxes (860) 533 (1,117)
Income tax benefit (expense) 5,078 (256) 402 (6)
--------- --------- ---------
Income (loss) from continuing operations $ 4,218 277 (715)
========= ========= =========
(7) TAT
TAT Purchase
Operations Adjustments Pro Forma
--------- --------- ---------
Net sales 46,549 -- 535,381
Cost of goods sold 29,668 -- 407,958
Depreciation and amortization 100 4,115 (8) 24,541
Selling, general, and administrative expenses 9,795 -- 71,165
Reorganization expense -- -- 6,382
--------- --------- ---------
Operating income 6,986 (4,115) 25,335
Interest expense -- (6,662)(9) (44,070)
Interest income 164 -- 553
Equity in net income of Thermalex -- -- 3,043
Other income, net -- -- 10,068
--------- --------- ---------
Income (loss) from continuing operations
before income taxes 7,150 (10,777) (5,071)
Income tax benefit (expense) (2,470) 2,398 (10) 5,152
--------- --------- ---------
Income (loss) from continuing operations 4,680 (8,379) 81
========= ========= =========
</TABLE>
F-41
<PAGE>
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>
(5)
Thermal
Merger Refinancing Transfer
Historical Adjustments Adjustments Products, Ltd.
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 434,304 27,792
Cost of goods sold 322,104 22,916
Depreciation and amortization 16,840 710
Selling, general, and
administrative expenses 81,625 (20,890)(1) 2,989
--------- --------- --------- ---------
Operating income 13,735 20,890 -- 1,177
Interest expense (28,588) (1,955)(2) (4,167)(3) 89
Interest income 979 --
Equity in net income of Thermalex 2,850 --
Other income, net 3,743 18
--------- --------- --------- ---------
Income (loss) from continuing
operations before income taxes (7,281) 18,935 (4,167) 1,284
Income tax benefit (expense) 1,576 (6,311)(1)
753 (4) 1,604 (4) (514)
--------- --------- --------- ---------
Income (loss) from
continuing operations $ (5,705) 13,377 (2,563) 770
========= ========= ========= =========
TTP (11) Net
Pro Forma TAT Purchase
Adjustments Technologies Adjustments Pro Forma
--------- --------- --------- ---------
<S>
Net sales -- 20,001 -- 482,097
Cost of goods sold 114 (6) 12,710 -- 357,844
Depreciation and amortization 857 (7) 80 4,115 (12) 22,602
Selling, general, and
administrative expenses (475)(8) 3,609 -- 66,858
--------- --------- --------- ---------
Operating income (496) 3,602 (4,115) 34,793
Interest expense (1,989)(9) -- (5,829)(13) (42,439)
Interest income -- 34 -- 1,013
Equity in net income of Thermalex -- -- -- 2,850
Other income, net -- -- -- 3,761
--------- --------- --------- ---------
Income (loss) from continuing
operations before income taxes (2,485) 3,636 (9,944) (22)
Income tax benefit (expense) (4,735)
895 (10) (1,206) 2,098 (14) 3,630
--------- --------- --------- ---------
Income (loss) from
continuing operations (1,590) 2,430 (7,846) (1,127)
========= ========= ========= =========
</TABLE>
F-42
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Notes to the Unaudited Pro Forma Condensed Consolidated Statements of Income
follow:
For 1999:
(1) To include 6 months of Thermal Transfer Products, LTD. in the
Company's financial statement.
(2) To reflect the write-off of the market value step-up in inventory.
(3) To reflect the increase in depreciation and amortization due to 1)
the amortization of goodwill on a straight-line basis over 20 years
and 2) additional straight-line depreciation relating to the
step-up of property, plant and equipment, which is being
depreciated over periods of 3 to 25 years.
(4) To reflect the elimination of the net excess cost of the former
owners salaries ($340,500) less the salaries of management
replacements ($103,000) and to reflect the elimination of
professional fees ($182,000) relating to the sale transaction.
(5) To reflect the increase in interest expense resulting from the
borrowings under Insilco's credit facility to finance the
acquisition. Interest is calculated based on the new debt of $26.5
million less the cash acquired of $3.9 million using an assumed
interest rate of 8.8 percent. A change of 1/8 percent in the
interest rate would result in a change in interest expense and net
income of $28,250 and $23,448 before and after taxes, respectively.
(6) To reflect the tax effect of the pro forma adjustments at a
statutory rate, 34 percent for federal and 2 percent for state.
(7) To include TAT Technologies twelve-month translated statement of
operations in the Company's financial statement.
(8) To reflect the increase in amortization due to the amortization of
goodwill on a straight-line basis over 20 years.
(9) To reflect increase in interest expense resulting from the
borrowings under Insilco Corporation's credit facility to finance
the acquisition. Interest is calculated on the new debt of $91.1
million less the cash acquired of $7.9 million using an assumed
interest rate of 8 percent. A change of 1/8 percent in the interest
rate would result in a change in interest expense and net income of
$104,091 and $66,618 before and after taxes, respectively.
(10) To reflect the tax effect of the deductible pro forma adjustments
at a statutory rate, 34 percent for federal and 2% for state. The
amortization of the goodwill is not tax deductible.
For 1998:
(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 $2.0 million for the
year ended December 31, 1998, respectively, associated with the
Company's $43.1 million of additional borrowings under the 1997
Credit Facility.
F-43
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) To record the net increase in interest expense for the year ended
December 31, 1998 as follows: (i) $1.8 million 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) $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) $12.6 million increase
in interest expense relating to the issuance of the 12% Notes
offset by a $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 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 include Thermal Transfer Products, LTD. in the Company's
financial statement.
(6) To reflect the write-off of the market value step-up in inventory.
(7) To reflect the increase in depreciation and amortization due to 1)
the amortization of goodwill on a straight-line basis over 20 years
and 2) additional straight-line depreciation relating to the
step-up of property, plant and equipment, which is being
depreciated over periods of 3 to 25 years.
(8) To reflect the elimination of the net excess cost of the former
owners salaries ($681,000) less the salaries of management
replacements ($206,000).
(9) To reflect the increase in interest expense resulting from the
borrowings under Insilco's credit facility to finance the
acquisition. Interest is calculated based on the new debt of $26.5
million less the cash acquired of $3.9 million using an assumed
interest rate of 8.8 percent. A change of 1/8 percent in the
interest rate would result in a change in interest expense and net
income of $28,250 and $23,448 before and after taxes, respectively.
(10) To reflect the tax effect of the pro forma adjustments at a
statutory rate, 34 percent for federal and 2 percent for state.
(11) To include TAT Technologies twelve-month translated statement of
operations in the Company's financial statement.
(12) To reflect the increase in amortization due to the amortization of
goodwill on a straight-line basis over 20 years.
(13) To reflect the increase in interest expense resulting from the
borrowings under Insilco's credit facility to finance the
acquisition. Interest is calculated based on the new debt of $91.1
million less the cash acquired of $7.9 million using an assumed
interest rate of 7 percent. A change of 1/8 percent in the interest
rate would result in a change in interest expense and net income of
$104,091 and $66,618 before and after taxes, respectively.
(14) To reflect the tax effect of the deductible pro forma adjustments
at a statutory rate, 34 percent for federal and 2 percent for
state. The amortization of the goodwill is not tax deductible.
F-44
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(19) Subsequent Events
-----------------
On February 17, 2000, the Company through two newly created wholly-owned
subsidiaries, Insilco Technology (Canada) Corporation and 9087-3498
Quebec Inc., executed a definitive agreement to purchase 9011-7243 Quebec
Inc., known as TAT Technologies. 9087-3498 Quebec Inc. purchased
9011-7243 Quebec Inc. The surviving entity, TAT Technologies, is a wholly
owned subsidiary of Insilco Technology (Canada) Corporation and is a
Montreal-based provider of cable and wire assemblies. The gross purchase
price paid was $91.2 million and is subject to certain post closing
adjustments. The initial purchase price has not yet been allocated. 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 entire
purchase price was financed with borrowings under Insilco Corporation's
Term Loan Facility. See pro forma disclosure at Note 18.
On February 11, 2000, the Company sold its publishing business, Taylor
Publishing Company to TP Acquisition Corp., a newly created, wholly-owned
subsidiary of Castle Harlan Partners III, L.P., for gross proceeds of
approximately $93.5 million. The net proceeds of approximately $70.0
million from this transaction plus approximately $21.2 million in
retained customer deposits, net of other working adjustments were used to
reduce borrowings under the Company's Term Credit Facility.
F-45
<PAGE>
EXHIBIT LISTING
---------------
*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
by Insilco 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 by Insilco 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, dates 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.).
*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.).**
<PAGE>
*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(g) (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 ("DLJ") (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.
** The following are management contracts and compensatory plans or
arrangements in which directors or executive officers participate:
<PAGE>
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 17, 2000, relating to the consolidated balance sheets of Insilco
Corporation and subsidiaries as of December 31, 1999, and 1998, and the related
consolidated statements of operations, stockholder's deficit, and cash flows for
each of the years in the three-year period ended December 31, 1999, and the
related schedule, which report appears in the December 31, 1999, annual report
on Form 10-K of Insilco Corporation.
KPMG LLP
Columbus, Ohio
March 24, 2000
<PAGE>
TYPE> EX-27
DESCRIPTION> FINANCIAL DATA SCHEDULE
TEXT>
ARTICLE> 5
TABLE>
S> C>
PERIOD-TYPE> 12-MOS
FISCAL-YEAR-END> DEC-31-1999
PERIOD-START> JAN-01-1999
PERIOD-END> DEC-31-1999
CASH> 6495
SECURITIES> 0
RECEIVABLES> 80432
ALLOWANCES> (2734)
INVENTORY> 58273
CURRENT-ASSETS> 157466
PP&E> 185077
DEPRECIATION> (75471)
TOTAL-ASSETS> 316029
CURRENT-LIABILITIES> 74449
BONDS> 119777
PREFERRED-MANDATORY> 0
PREFERRED> 0
COMMON> 0
OTHER-SE> 125003
TOTAL-LIABILITY-AND-EQUITY> 316029
SALES> 476355
TOTAL-REVENUES> 476355
CGS> 367905
TOTAL-COSTS> 367905
OTHER-EXPENSES> 0
LOSS-PROVISION> 964
INTEREST-EXPENSE> 36475
INCOME-PRETAX> (860)
INCOME-TAX> (5078)
INCOME-CONTINUING> 4218
DISCONTINUED> 5550
EXTRAORDINARY> 0
CHANGES> 0
NET-INCOME> 9768
EPS-BASIC> 0
EPS-DILUTED> 0
/TABLE>
<PAGE>
EXHIBIT 99(a)
-------------
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
(2)
(1) Charged Changes
Balance at Charged to to other due to Balance at
beginning costs and accounts Deductions acquisitions end of
Description of period expenses (describe) (describe) or dispositions period
----------- --------- -------- ---------- ---------- --------------- ------
<S> <C> <C> <C> <C> <C> <C>
For the year ended December 31,1997
Allowances deducted from assets
Accounts receivable (for doubtful receivables) $ 2,766 165 - (1,300)(a) - 1,631
Inventory (primarily for obsolescence) 4,449 2,611 - (2,664)(b) - 4,396
For the year ended December 31,1998
Allowances deducted from assets
Accounts receivable (for doubtful receivables) $ 1,631 1,092 - (509)(a) - 2,214
Inventory (primarily for obsolescence) 4,396 1,434 - (2,582)(b) - 3,248
For the year ended December 31,1999
Allowances deducted from assets
Accounts receivable (for doubtful receivables) $ 2,214 688 - (409)(a) 241(c) 2,734
Inventory (primarily for obsolescence) 3,248 1,374 - (1,030)(b) 909(c) 4,501
- ----------
(a)Primarily accounts written off, net of recoveries
(b)Primarily obsolete parts written off
(c)Primarily due to the purchase of EFI and Thermal Transfer Products, the sale of Romac and the shutdown of McKenica.
</TABLE>
