================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 0-22098
INSILCO CORPORATION
-------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 06-0635844
-------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
425 Metro Place North
Fifth Floor
Dublin, Ohio 43017
------------ -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
614-792-0468
------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
The registrant meets the conditions set forth in General Instruction H (1) (a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of May 11, 2000, 100 shares
of common stock, $.001 par value, were outstanding.
================================================================================
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Item 3. Quantitative and Qualitative Disclosure About Market Risk 21
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Securities Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
2
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Page
-------------------------------- ----
Condensed Consolidated Balance Sheets at March 31, 2000
and December 31, 1999 4
Condensed Consolidated Statements of Operations for the three
months ended March 31, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2000 and 1999 6
Notes to the Condensed Consolidated Financial Statements 7
Independent Auditors' Review Report 17
3
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE><CAPTION>
As of
--------------------------
March 31, December 31,
2000 1999
---------- ----------
(Unaudited) (Note 1)
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 21,425 6,495
Trade receivables, net 100,725 77,698
Other receivables 2,371 1,836
Inventories, net 67,268 58,273
Deferred taxes 9,424 9,603
Net assets of discontinued operation -- 830
Prepaid expenses and other current assets 2,919 2,731
---------- ----------
Total current assets 204,132 157,466
Property, plant and equipment, net 109,436 109,606
Deferred taxes -- 3,852
Other assets and deferred charges 128,815 45,105
---------- ----------
Total assets $ 442,383 316,029
========== ==========
Liabilities and Stockholder's Deficit
-------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,266 1,266
Accounts payable 49,198 39,247
Accrued expenses and other 61,617 33,946
---------- ----------
Total current liabilities 112,081 74,459
Long-term debt, excluding current portion 353,442 317,838
Other long-term obligations, excluding current portion 57,842 47,400
Amounts due to Insilco Holding Co. 1,339 1,235
Minority interest 100 100
Stockholder's deficit:
Common stock, $.001 par value; 1,000 shares authorized; 100 shares
issued and outstanding at March 31, 2000 and December 31, 1999 -- --
Additional paid-in capital 4,185 4,188
Accumulated deficit (83,602) (125,968)
Accumulated other comprehesive loss (3,004) (3,223)
Contingencies (See Note 6)
---------- ----------
Total liabilities and stockholder's deficit $ 442,383 316,029
========== ==========
See accompanying notes to the unaudited condensed consolidated financial statements.
</TABLE>
4
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands)
<TABLE><CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
Sales $ 141,407 120,439
Cost of products sold 105,998 91,480
Depreciation and amortization 5,603 4,675
Selling, general and administrative expenses 16,702 15,378
---------- ----------
Operating income 13,104 8,906
---------- ----------
Other income (expense):
Interest expense (9,449) (8,612)
Interest income 99 15
Equity in net income of Thermalex 488 980
Other income, net (301) 281
---------- ----------
Total other expense (9,163) (7,336)
---------- ----------
Income before income taxes and
discontinued operations 3,941 1,570
Income tax expense (1,774) (599)
---------- ----------
Income before discontinued operations 2,167 971
---------- ----------
Income (loss) from discontinued operations:
Loss from operations, net of tax (3,249) (450)
Gain on sale of discontinued operations, net of tax 43,448 --
---------- ----------
Income (loss) from discontinued operations 40,199 (450)
---------- ----------
Net income $ 42,366 521
========== ==========
See accompanying notes to the unaudited condensed consolidated financial statements.
</TABLE>
5
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE><CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 42,366 521
Adjustments to reconcile net income to net cash used in
operating activities:
Net loss from discontinued operations 3,249 450
Depreciation and amortization 5,603 4,675
Deferred taxes 791 265
Other noncash charges and credits 369 (800)
Change in operating assets and liabilities:
Receivables (7,509) (2,719)
Inventories (1,775) (11,736)
Prepaids (150) (6,638)
Payables 3,880 2,521
Other current liabilities and other (1,501) 13,101
Discontinued operations:
Gain on sale (43,448) --
Depreciation 112 183
Changes in discontinued operations (2,419) (547)
---------- ----------
Net cash used in operating activities (432) (724)
---------- ----------
Cash flows from investing activities:
Acquisitions, net of cash acquired (89,734) (23,753)
Capital expenditures (3,495) (3,084)
Other investing activities (564) 2,866
Discontinued operations:
Proceeds from sale 72,845 --
Capital expenditures (292) (182)
---------- ----------
Net cash used in investing activities (21,240) (24,153)
---------- ----------
Cash flows from financing activities:
Proceeds from revolving credit facility 37,646 26,819
Loan (to) from Insilco Holding Co. 104 (33)
Retirement of long-term debt (1,073) (316)
Funds received from excess deposited for 10 1/4% bonds -- 2,032
Payment of prepetition liabilities -- (1,086)
Retirement of 10 1/4% bonds -- (1,500)
---------- ----------
Net cash provided by financing activities 36,677 25,916
---------- ----------
Effect of exchange rate changes on cash (75) (44)
---------- ----------
Net increase in cash and cash equivalents 14,930 995
Cash and cash equivalents at beginning of period 6,495 7,533
---------- ----------
Cash and cash equivalents at end of period $ 21,425 8,528
========== ==========
Interest paid $ 12,166 9,890
========== ==========
Income taxes paid $ (198) (183)
========== ==========
See accompanying notes to the unaudited condensed consolidated financial statements.
</TABLE>
6
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 2000
(1) Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31,
2000 are not necessarily indicative of the results that may be expected
for the year ended December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
Insilco Corporation and Subsidiaries (the "Company") is a wholly-owned
subsidiary of Insilco Holding Co. ("Holdings") and is included in
Holdings' consolidated financial statements and is a part of Holdings'
consolidated group for tax purposes. For further information, refer to
the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1999.
(2) Discontinued Operations
-----------------------
On February 11, 2000, the Company sold its publishing business, Taylor
Publishing Company to TP Acquisition Corp, a wholly owned subsidiary of
Castle Harlan Partners III, L.P., for gross proceeds of approximately
$93.5 million. Closing proceeds of approximately $72.8 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. The gain on the
sale was $43.4 million, net of taxes of $23.2 million. The accompanying
consolidated statements of operations and cash flows are reclassified to
account for the sale of the Publishing Business as a discontinued
operation.
(3) Acquisitions
------------
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
entire purchase price was financed with borrowings under the Company's
Term Credit Facility.
The gross purchase price paid by the Company was $91.2 million. The
purchase price, net of cash acquired and including estimated costs
incurred directly related to the transaction was $89.7 million. The
purchase has been accounted for using the purchase method of accounting
and, accordingly, the results of operations of TAT have been included in
the Company's consolidated financial statements from February 17, 2000.
The excess of the purchase price over net identifiable assets acquired
is $82.7 million, which is being amortized on a straight-line basis over
20 years.
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
7
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 2000
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 entire purchase price was financed from borrowings under
the Company's Revolving Credit Facility.
The gross purchase price paid by the Company was $26.5 million. The
purchase price net of cash acquired and including estimated costs
incurred directly related to the transaction was $23.3 million. The
merger has been accounted for using the purchase method of accounting
and, accordingly, the results of operations of TTP have been included in
the Company's consolidated financial statements from July 20, 1999. 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
Industry, 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 $4.4 million includes costs for employee
terminations, excess compensation, facility closure and related costs of
$0.4 million and 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.
As a result of these transactions, the Company's condensed consolidated
results for the periods presented are not directly comparable. Pro forma
results of operations for the three months ended March 31, 2000 and
1999, which assume the transactions occurred at the beginning of the
period are as follows (in thousands):
Three months ended
March 31,
---------------------
2000 1999
-------- --------
Net Sales $147,226 140,567
Income (loss) from continuing operations $ 1,705 (1,361)
(4) Divestitures
------------
On August 20, 1999, the Company sold the assets of its welded stainless
steel tubing business (Romac) for $16.5 million, which resulted in a
gain of $9.2 million.
On July 16, 1999, the Company sold certain assets and intellectual
property relating to its heat exchanger machinery and equipment business
(McKenica) for $1.7 million, which resulted in a gain of $0.4 million.
These gains were included in other income on the statement of operations
in the period they occurred and the proceeds from the sales were used to
8
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 2000
pay down $3.7 million of its Term Facility and the balance was used to
pay down on the Company's Revolving Facility.
(5) Inventories
-----------
Inventories consisted of the following (in thousands):
As of As of
March 31, December 31,
2000 1999
---------- ----------
Raw materials and supplies $ 36,222 28,410
Work-in-process 12,357 12,113
Finished goods 18,689 17,750
---------- ----------
Total inventories $ 67,268 58,273
========== ==========
(6) Contingencies
-------------
The Company is implicated in various claims and legal actions arising in
the ordinary course of business. Those claims or liabilities will be
addressed in the ordinary course of business and will be paid as
expenses are incurred. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.
(7) Segment Information
-------------------
There have been no changes in the basis of segmentation or in the basis
of measurement of segment profit or loss from the Company's December 31,
1999 consolidated financial statements.
Summary financial information by business segment is as follows (in
thousands):
9
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 2000
<TABLE><CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
Net Sales:
Automotive Components $ 63,042 56,881
Technologies 78,365 55,414
---------- ----------
On-going operations 141,407 112,295
Other -- 8,144
---------- ----------
Total net sales $ 141,407 120,439
========== ==========
Income from continuing operations
before income taxes:
Automotive Components $ 8,909 8,187
Technologies 11,706 7,012
Unallocated amount:
Corporate operating expenses (1,058) (1,961)
---------- ----------
On-going operations 19,557 13,238
Other -- 662
---------- ----------
Earnings before interest, taxes
depreciation and amortization 19,557 13,900
Depreciation and amortization (5,603) (4,675)
Significant legal expense -- (58)
Severance and write-downs (850) (261)
---------- ----------
Total operating income 13,104 8,906
Interest expense (9,449) (8,612)
Interest income 99 15
Other income, net 187 1,261
---------- ----------
Income from continuing operations
before income taxes $ 3,941 1,570
========== ==========
Income before discontinued operations $ 2,167 971
========== ==========
</TABLE>
A summary of identifiable assets by segment follows (in thousands):
As of As of
March 31, December 31,
2000 1999
---------- ----------
Automotive Components $ 148,393 150,229
Technologies 254,322 131,695
Corporate 39,668 33,275
========== ==========
Total $ 442,383 315,199
========== ==========
The significant increase in identifiable assets of Technologies relates
to the acquisition of TAT in February 2000 (see Note 3).
10
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 2000
(8) Comprehensive Income
--------------------
Comprehensive income was $42,387,000 and $540,000 for the three months
ended March 2000 and 1999, respectively, including other comprehensive
income consisting of foreign currency translation adjustments totaling
$21,000 and $19,000, respectively.
(9) Related Party Transactions
--------------------------
The Company paid Donaldson, Lufkin & Jenrette Securities Corporation
("DLJSC") retainer fees of $75,000 in the first quarter of 2000 and paid
$100,000 for advisory fees in the first quarter of 1999. The Company had
a payable to DLJSC for retainer fees related to investment banking
services of $75,000 and $186,000 at March 31, 2000 and 1999,
respectively. In the first quarter of 1999, the Company received from
DLJSC $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.
(10) Guarantor Subsidiaries
----------------------
In connection with the November 1998 sale of $120 million of 12% Notes,
the Company permitted its wholly-owned domestic subsidiaries
("Guarantors") to unconditionally guarantee the 12% Notes on a senior
subordinated basis.
The guarantees are general unsecured obligations of the Guarantors, are
subordinated in right of payment to all existing and future senior
indebtedness of the guarantors (including indebtedness of the Credit
Facilities) and will rank senior in right of payment to any future
subordinated indebtedness of the Guarantors. The following condensed
consolidating financial information of the Company includes the accounts
of the Guarantors, the combined accounts of the non-guarantors and the
Company for the periods indicated. Separate financial statements of each
of the Guarantors are not presented because management has determined
that such information is not material in assessing the Guarantors.
11
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31,2000
(10) Guarantor Subsidiaries (continued)
<TABLE><CAPTION>
Condensed Consolidating Balance Sheet (in thousands)
-----------------------------------------------------
March 31, 2000
-----------------------------------------------------
Non-
Insilco Guarantors Guarantors Consolidated
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets:
-------
Current assets:
Cash and cash equivalents $ 14,657 (2,219) 8,987 21,425
Accounts receivable 834 78,151 24,111 103,096
Inventories -- 57,659 9,609 67,268
Deferred taxes 9,424 -- -- 9,424
Net assets of discontinued operations -- -- -- --
Prepaid expenses and other 536 2,265 118 2,919
--------- --------- --------- ---------
Total current assets 25,451 135,856 42,825 204,132
Property, plant and equipment, net 120 98,534 10,782 109,436
Deferred taxes -- -- -- --
Other assets and deferred charges 13,871 28,242 86,702 128,815
--------- --------- --------- ---------
Total assets $ 39,442 262,632 140,309 442,383
========= ========= ========= =========
Liabilities and Stockholder's Equity (Deficit)
-----------------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,250 16 -- 1,266
Accounts payable -- 38,087 11,111 49,198
Accrued expenses and other 24,082 19,540 17,995 61,617
--------- --------- --------- ---------
Total current liabilities 25,332 57,643 29,106 112,081
Long-term debt, less current portion 263,263 179 90,000 353,442
Other long-term obligations, excluding
current portion, and minority interest 39,150 18,360 432 57,942
Intercompany payable (107,834) 95,067 14,106 1,339
--------- --------- --------- ---------
Total liabilities 219,911 171,249 133,644 524,804
Stockholder's equity (deficit) (180,469) 91,383 6,665 (82,421)
--------- --------- --------- ---------
Total liabilities and
stockholder's equity (deficit) $ 39,442 262,632 140,309 442,383
========= ========= ========= =========
Condensed Consolidating Balance Sheet (in thousands)
-----------------------------------------------------
December 31, 1999
-----------------------------------------------------
Non-
Insilco Guarantors Guarantors Consolidated
--------- --------- --------- ---------
Assets:
-------
Current assets:
Cash and cash equivalents $ 4,625 867 1,003 6,495
Accounts receivable 24 75,137 4,373 79,534
Inventories -- 56,070 2,203 58,273
Deferred taxes 9,603 -- -- 9,603
Net assets of discontinued operations -- 830 -- 830
Prepaid expenses and other 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 Stockholder's 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, less current portion 317,656 182 -- 317,838
Other long-term obligations, excluding
current portion, and minority interest 17,216 30,284 -- 47,500
Intercompany payable (103,193) 90,495 13,933 1,235
--------- --------- --------- ---------
Total liabilities 245,764 177,782 17,486 441,032
Stockholder's equity (deficit) (211,826) 84,039 2,784 (125,003)
--------- --------- --------- ---------
Total liabilities and
stockholder's equity (deficit) $ 33,938 261,821 20,270 316,029
========= ========= ========= =========
</TABLE>
12
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31,2000
(10) Guarantor Subsidiaries (continued)
<TABLE><CAPTION>
Condensed Consolidating Statement of Operations (in thousands)
------------------------------------------------------
Three Months Ended March 31, 2000
------------------------------------------------------
Non-
Insilco Guarantors Guarantors Consolidated
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ -- 118,277 23,130 141,407
Cost of products sold -- 90,446 15,552 105,998
Depreciation and amortization 6 4,732 865 5,603
Selling, general and administrative
expenses 1,058 12,161 3,483 16,702
--------- --------- --------- ---------
Operating income (loss) (1,064) 10,938 3,230 13,104
Other income (expense):
Interest expense (8,283) (8) (1,158) (9,449)
Interest income 54 22 23 99
Other income, net (40) 46 181 187
--------- --------- --------- ---------
Income (loss) before income taxes (9,333) 10,998 2,276 3,941
Income tax benefit (expense) 1,195 (2,537) (432) (1,774)
--------- --------- --------- ---------
Income (loss) from continuing operations
before discontinued operations (8,138) 8,461 1,844 2,167
--------- --------- --------- ---------
Income (loss) from discontinued
operations, net of tax -- 40,199 -- 40,199
--------- --------- --------- ---------
Net income (loss) $ (8,138) 48,660 1,844 42,366
========= ========= ========= =========
Condensed Consolidating Statement of Operations (in thousands)
------------------------------------------------------
Three Months Ended March 31, 1999
------------------------------------------------------
Non-
Insilco Guarantors Guarantors Consolidated
--------- --------- --------- ---------
Sales $ -- 112,157 8,282 120,439
Cost of products sold -- 84,879 6,601 91,480
Depreciation and amortization 18 4,262 395 4,675
expenses 2,047 12,570 761 15,378
--------- --------- --------- ---------
Operating income (loss) (2,065) 10,446 525 8,906
Interest expense (8,603) (9) -- (8,612)
Interest income 16 16 (17) 15
Other income, net 158 981 122 1,261
--------- --------- --------- ---------
Income (loss) before income taxes (10,494) 11,434 630 1,570
Income tax benefit (expense) 2,981 (3,580) -- (599)
--------- --------- --------- ---------
Income (loss) from continuing operations
before discontinued operations (7,513) 7,854 630 971
--------- --------- --------- ---------
Income (loss) from discontinued
operations, net of tax -- (450) -- (450)
--------- --------- --------- ---------
Net income (loss) $ (7,513) 7,404 630 $ 521
========= ========= ========= =========
</TABLE>
13
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 2000
(10) Guarantor Subsidiaries (continued)
Condensed Statement of Cash Flows
For the Three Months Ended March 31, 2000
(In thousands)
<TABLE><CAPTION>
Non-
Insilco Guarantors Guarantors Consolidated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(14,005) 5,406 8,167 (432)
-------- -------- -------- --------
Cash flows used in investing activities:
Acquisitions, net of cash acquired (89,734) -- -- (89,734)
Capital expenditures, net (2) (3,385) (108) (3,495)
Other investing activities (564) -- -- (564)
Discontinued operations:
Proceeds from sale 72,845 -- -- 72,845
Capital expenditures -- (292) -- (292)
-------- -------- -------- --------
Net cash used in investing activities (17,455) (3,677) (108) (21,240)
-------- -------- -------- --------
Cash flows provided by (used in)
financing activities:
Proceeds from revolving credit facility 37,646 -- -- 37,646
Loan to Insilco Holding Co. 104 -- -- 104
Retirement of long-term debt (1,070) (3) -- (1,073)
Transfers from parent 4,812 (4,812) -- --
-------- -------- -------- --------
Net cash provided by (used in)
financing activities 41,492 (4,815) -- 36,677
-------- -------- -------- --------
Effect of exchange rate changes on cash -- -- (75) (75)
-------- -------- -------- --------
Net increase(decrease) in cash
and cash equivalents 10,032 (3,086) 7,984 14,930
Cash and cash equivalents at
beginning of the period 4,625 867 1,003 6,495
-------- -------- -------- --------
Cash and cash equivalents
at end of the period $ 14,657 (2,219) 8,987 21,425
======== ======== ======== ========
</TABLE>
14
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 2000
(10) Guarantor Subsidiaries (continued)
Condensed Statement of Cash Flows
Three Months Ended March 31, 1999
(In thousands)
<TABLE><CAPTION>
Non-
Insilco Guarantors Guarantors Consolidated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(15,328) 13,871 733 (724)
-------- -------- -------- --------
Cash flows used in investing activities:
Acquisition, net of cash acquired (23,753) -- -- (23,753)
Capital expenditures, net -- (2,910) (174) (3,084)
Other investing activities 2,866 -- -- 2,866
Discontinued operations -- (182) -- (182)
-------- -------- -------- --------
Net cash used in investing activities (20,887) (3,092) (174) (24,153)
-------- -------- -------- --------
Cash flows provided by
financing activities:
Proceeds from revolving credit facility 26,819 -- -- 26,819
Loan from Insilco Holding Co. (33) -- -- (33)
Repayment of long term debt (316) -- -- (316)
Funds deposited in excess of retired 10 1/4% Bonds 2,032 -- -- 2,032
Payment of prepetition liabilities (1,086) -- -- (1,086)
Retirement of 10 1/4% Bonds (1,500) -- -- (1,500)
Intercompany transfer of funds 10,843 (10,843) -- --
-------- -------- -------- --------
Net cash provided by (used in)
financing activities 36,759 (10,843) -- 25,916
-------- -------- -------- --------
Effect of exchange rate changes on cash -- -- (44) (44)
-------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents 544 (64) 515 995
Cash and cash equivalents at
beginning of the period 6,472 126 935 7,533
-------- -------- -------- --------
Cash and cash equivalents
at end of the period $ 7,016 62 1,450 8,528
======== ======== ======== ========
</TABLE>
15
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 2000
(11) Restructuring and Plant Closing Costs
-------------------------------------
During the year ended December 31, 1999, the Company reduced its
corporate staff, restructured certain heat exchanger and tubing
manufacturing facilities, and closed its heat exchanger machinery and
equipment manufacturing operation (McKenica).
As of March 31, 2000, the Company has an accrual of $851,000 relating
to these restructuring charges, which is included in accrued expenses
and other on the balance sheet. A summary of the accrual is as follows
(in thousands):
As of As of
December Cash March
31, 1999 Outlays 31, 2000
------ ------ ------
Restructuring charges:
Employee separations $ 912 (670) 242
Other exit costs 112 (106) 6
Remaining noncancellable lease costs 694 (91) 603
------ ------ ------
Restructuring costs $1,718 (867) 851
====== ====== ======
The headcount reduction from these activities was approximately 172
employees.
16
<PAGE>
INDEPENDENT AUDITORS' REVIEW REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDER
INSILCO CORPORATION:
We have reviewed the condensed consolidated balance sheet of Insilco Corporation
and subsidiaries as of March 31, 2000, and the related condensed consolidated
statements of operations and cash flows for the three-month periods ended March
31, 2000 and 1999. These condensed consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Insilco Corporation and
subsidiaries as of December 31, 1999, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the year then
ended (not presented herein); and in our report dated February 17, 2000, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1999, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
Columbus, Ohio
May 12, 2000 KPMG LLP
17
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Our condensed consolidated results for the three-month periods ended March 31,
2000 and 1999 include the acquisition and divestitures of various operations and
therefore are not directly comparable. Pro forma results of operations, which
assume these transactions occurred at the beginning of their respective periods,
were disclosed in our Annual Report on Form 10-K for the year ended December 31,
1999 and in Note 3 of Notes to the Unaudited Condensed Consolidated Financial
Statements.
RESULTS OF OPERATIONS
The discussion that follows is based on our management's approach and is
consistent with the basis and manner in which our management internally
disaggregates financial information for the purposes of assisting in making
internal operating decisions. See Note 7 of the Notes to the Condensed
Consolidated Financial Statements for summary financial information by business
segment.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
-------------------------------------------------------------------------------
CONSOLIDATED RESULTS OF OPERATIONS. Our results for the first quarter of 1999
were impacted by the following:
o On January 25, 1999, we purchased the stock of Eyelets for Industry,
Inc. and EFI Metal Forming, Inc., for $25.3 million. The entire
purchased was financed from borrowings under the Company's Revolving
Credit Facility.
o We incurred $0.1 million in legal fees relating to significant legal
cases; these expenses are included in significant legal expenses.
o We incurred $0.3 million of severance costs relating to
rationalization activities within our operating units and the
reduction of our corporate office staff, which are included in
severance, and write-downs.
Similarly, our results for the first quarter of 2000 were impacted by the
following:
o Our McKenica division was closed June 30, 1999, and thus there are no
results from McKenica recorded in the first quarter of 2000.
o Our Romac division was sold on August 23, 1999 and thus there are no
results for Romac recorded in the first quarter of 2000.
o We incurred $0.7 million of severance costs relating to on-going
rationalization activities within our operating units, which are
included in severance and write-downs.
o We incurred $0.1 million of expenses related to the final stage of
transferring the tube mills in our Duncan, South Carolina facility to
our Montgomery, Alabama plant.
o On February 11, 2000, we sold our publishing business, Taylor
Publishing Company for gross proceeds of approximately $93.5 million.
Proceeds of approximately $72.8 million at closing plus approximately
$21.2 million of retained customer deposits were used to reduce
borrowings under our Term Credit Facilities. The publishing business
is recorded as a discontinued operation.
o On February 17, 2000, we acquired TAT Technologies, for $87.5 million,
net of cash acquired, with borrowings under our Term Credit Facility.
Our net sales for the three months ended March 31, 2000, increased $21.0
million, or 17%, to $141.4 million from $120.4 million for the same period last
year. Sales in the Automotive Components segment increased $6.2 million, or 11%,
over last year. Sales in the Technologies segment increased $23.0 million or
41%. Contributing to these sales increases were $16.8 million in the
Technologies segment from this year's acquisition of TAT on February 11, 2000,
and last year's acquisition of EFI on January 25, 1999; and $7.1 million in the
Automotive segment from last year's acquisition of TTP on July 20, 1999.
18
<PAGE>
Finally, other segment sales decreased 100% due to the divestitures of the
welded stainless steel tubing products and the heat exchanger machinery and
equipment businesses in 1999.
EBITDA for the three months ended March 31, 2000, increased $5.7 million, or
41%, to $19.6 million from $13.9 million for the same period last year. EBITDA
for the Automotive Components segment increased $0.7 million, or 9%. The
increase was primarily due to the results from the TTP acquisition. EBITDA from
the Technologies segment increased $4.7 million, or 67%, as a result of improved
margins in power transformers, wire and cable assemblies and precision stampings
and the results from the acquired businesses. Other segment EBITDA decreased as
a result of the divestitures. Lower corporate expenses reflect corporate staff
reductions made at the end of the second quarter of 1999.
Operating income for the three months ended March 31, 2000 increased $4.2
million to $13.1 million from $8.9 million for the same period last year.
Operating income for the Automotive Components segment increased $0.4 million,
or 6%. Operating income from the Technologies segment increased $3.9 million, or
81%. Other segment operating income decreased due to the divestitures.
Depreciation expenses increased $1.0 million due primarily to increased
amortization and depreciation from the acquisitions.
Interest expense for the quarter ended March 31, 2000 increased $0.8 million to
$9.4 million from $8.6 million last year, reflecting the higher interest rates
due to prime rate increases and higher debt levels as a result of our
acquisition of TAT.
Other income decreased $1.1 million due to lower income from our unconsolidated
subsidiary, Thermalex, and various other miscellaneous income and expense items.
We had an income tax expense of $1.8 million compared to an expense of $0.6
million last year as a result of the increase in net income of $2.4 million. The
effective income tax expense rate of 45% for the first quarter of 2000 increased
from the 1999 first quarter income tax expense rate of 38%. The increase in the
rate was caused by increases in state and foreign tax expense in the first
quarter of 2000.
DISCONTINUED OPERATIONS. We recorded loss from discontinued operations of $0.4
million in the first quarter of 1999 and income from discontinued operations of
$40.2 million in the first quarter of 2000, 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. As a result of
this sale, the Specialty Publishing has been accounted for as a discontinued
operation. First quarter revenues for 1999 and 2000 were $6.5 million and $1.6
million, respectively.
AUTOMOTIVE COMPONENTS SEGMENT. Net sales for the quarter increased $6.1 million,
or 11%, to $63.0 million from $56.9 million in the same period last year.
Current quarter sales benefited $7.1 million from our acquisition of Thermal
Transfer Products, which was acquired in July 1999, and were partially offset by
lower copper and brass tubing sales, due to the relocation of tubing mills from
our Duncan, South Carolina facility to our Montgomery, Alabama facility, and
slightly lower transmission components sales.
EBITDA for the period increased $0.7 million, or 9%, to $8.9 million from $8.2
million last year. The increase was due mainly to the incremental contribution
from the TTP acquisition.
TECHNOLOGIES SEGMENT. Net sales for the period increased $23.0 million, or 41%,
to $78.4 million from $55.4 million last year. Sales increased across all
product categories, with the strongest demand in precision stampings and wire
and cable assemblies. The first quarter also benefited from $16.8 million in
sales from the EFI and TAT acquisitions.
EBITDA for the quarter increased $4.7 million, or 67%, to $11.7 million from
$7.0 million last year. Margins for power transformers, wire and cable
assemblies and precision stamping all increased from a year ago and the
inclusion of TAT's results lead to the substantial improvement in EBITDA.
19
<PAGE>
OTHER SEGMENT. Sales and EBITDA decreased 100% due to the divestiture of these
businesses in 1999.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. For the three months ended March 31, 2000, net cash used
in operating activities was $0.4 million compared to $0.7 million used in
operating activities during same period last year. The $0.3 million reduction in
cash requirements was due to increased net income and improved working capital
management, including inventories, prepaids and other current liabilities and
other.
Through March 31, 2000, we paid $7.2 million in interest on our 12% Senior
Subordinated Notes due 2007.
INVESTING ACTIVITIES. Capital expenditures for the three months ended March 31,
2000 were $0.4 million more than the comparable period for 1999. Capital
spending allocations during the period were 47% to the Automotive Components
segment and 53% to the Technologies segment.
On February 11, 2000, we sold our Specialty Publishing business for $93.5
million. Closing proceeds of approximately $72.8 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.
As a result of special cash dividends received in 1999, no cash dividends from
our investment in Thermalex were received in the first quarter of 2000 compared
to $2.9 million received in the first quarter of 1999.
FINANCING ACTIVITIES. We used the proceeds, from the divestiture, discussed in
Investing Activities, to pay down our Term Loan Facility.
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) provided
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.
We expect our principal sources of liquidity to be from our operating activities
and funding from the Revolving Facility. We expect that these sources will
enable us to meet our cash requirements for working capital, capital
expenditures, interest, taxes, and debt repayments and to execute our
acquisition strategies for the foreseeable future.
ACCUMULATED DEFICIT. At March 31, 2000, we had a stockholder's deficit totaling
$82.4 million, which is a result of both the Mergers and the 1997 share
repurchases as described in our Annual Report on Form 10-K for the year ended
December 31, 1998.
MARKET RISK AND RISK MANAGEMENT
Our general policy is to use foreign currency borrowings as needed to finance
our foreign currency denominated assets. We use such borrowings to reduce our
asset exposure to the effects of changes in exchange rates - not as speculative
investments. As of March 31, 2000, we did not have any derivative instruments in
place for managing foreign currency exchange rate risks.
At the end of the first quarter of 2000, we had $234.7 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. As of
March 31, 2000 we had no interest rate derivative instruments in place for
managing interest rate risks.
20
<PAGE>
FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, the matters discussed in
this Form 10-Q included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" include "Forward Looking Statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Although we
believe that the expectations reflected in the Forward-Looking Statements
contained herein are reasonable, no assurance can be given that such
expectations will prove to have been correct. Certain important factors that
could cause actual results to differ materially from expectations ("Cautionary
Statements") include, but are not limited to the following:
o delays in new product introductions
o lack of market acceptance of new products
o changes in demand for our 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 and, adverse economic conditions which could affect the amount of cash
available for debt servicing and capital investments
All subsequent written and oral Forward-Looking Statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
The information called for by this item is provided under the caption "Market
Risk and Risk Management" under Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.
21
<PAGE>
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
(None)
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
(None)
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
(None)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
-----------------------------------------------------
(None)
ITEM 5. OTHER INFORMATION
-----------------
(None)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
A report, dated February 11, 2000, on Form 8-K was filed during the
quarter ended March 31, 2000, pursuant to Items 5 and 7 of that form.
A report, dated February 11, 2000, on Form 8-K was filed during the
quarter ended March 31, 2000, pursuant to Items 2 and 7 of that form.
A report dated February 17, 2000, on Form 8-K was filed during the
quarter ended March 31, 2000, pursuant to Items 2 and 7 of that form.
22
<PAGE>
SIGNATURES
Pursuant to the requirements 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: May 15, 2000 By: /s/ Michael R. Elia
----------------------------------
Michael R. Elia
Senior Vice President, Chief
Financial Officer, Treasurer and
Secretary
23
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 21425
<SECURITIES> 0
<RECEIVABLES> 105841
<ALLOWANCES> (2745)
<INVENTORY> 67268
<CURRENT-ASSETS> 204132
<PP&E> 189435
<DEPRECIATION> (79999)
<TOTAL-ASSETS> 442383
<CURRENT-LIABILITIES> 112081
<BONDS> 119784
0
0
<COMMON> 0
<OTHER-SE> (82421)
<TOTAL-LIABILITY-AND-EQUITY> 442383
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<CGS> 105998
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