================================================================================
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 September 30, 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 TECHNOLOGIES, INC.
------------------------------------------------------
(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 November 8, 2000, 100
shares of common stock, $.001 par value, were outstanding.
================================================================================
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE><CAPTION>
<S> <C>
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 22
Item 3. Quantitative and Qualitative Disclosure About Market Risk 25
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings 26
Item 2. Changes in Securities and Use of Proceeds 26
Item 3. Defaults upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Securities Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
</TABLE>
2
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
-----------------------------
<TABLE><CAPTION>
<S> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Page
-------------------------------- ----
Condensed Consolidated Balance Sheets at September 30, 2000 4
and December 31, 1999
Condensed Consolidated Statements of Operations for the three 5
months and nine months ended September 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows for the 6
nine months ended September 30, 2000 and 1999
Notes to the Condensed Consolidated Financial Statements 7
Independent Auditors' Review Report 21
</TABLE>
3
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE><CAPTION>
As of
---------------------------
September 30, December 31,
2000 1999
---------- ----------
<S> <C> <C>
(Unaudited) (Note 1)
Assets
------
Current assets:
Cash and cash equivalents $ 17,557 6,380
Trade receivables, net 75,279 39,347
Other receivables 1,106 861
Inventories, net 59,859 34,900
Deferred taxes 9,572 9,603
Net assets of discontinued operations -- 107,638
Prepaid expenses and other current assets 7,600 2,066
---------- ----------
Total current assets 170,973 200,795
Property, plant and equipment, net 55,858 49,555
Deferred taxes -- 3,852
Goodwill, net 126,004 5,688
Other assets and deferred charges 14,913 13,600
---------- ----------
Total assets $ 367,748 273,490
========== ==========
Liabilities and Stockholder's Deficit
-------------------------------------
Current liabilities:
Current portion of long-term debt $ 4,876 1,266
Accounts payable 40,618 20,164
Accrued expenses 33,008 16,578
Income taxes payable 27,368 2,856
Other current liabilities 4,960 7,540
---------- ----------
Total current liabilities 110,830 48,404
Long-term debt, excluding current portion 275,350 317,838
Other long-term obligations, excluding current portion 39,647 30,916
Amounts due to Insilco Holding Co. 452 1,235
Minority interest -- 100
Stockholder's deficit:
Common stock, $.001 par value; 1,000 shares authorized;
100 shares issued and outstanding at September 30,
2000 and December 31, 1999 -- --
Additional paid-in capital 4,188 4,188
Accumulated deficit (58,841) (125,968)
Accumulated other comprehesive loss (3,878) (3,223)
Contingencies (See Note 6)
---------- ----------
Total liabilities and stockholder's deficit $ 367,748 273,490
========== ==========
See accompanying notes to the unaudited condensed consolidated financial statements.
</TABLE>
4
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands)
<TABLE><CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 99,510 62,054 270,179 188,230
Cost of products sold 70,503 46,796 194,367 145,093
Depreciation and amortization 3,707 2,541 10,386 7,705
Selling, general and administrative expenses 13,718 8,329 37,653 31,102
Restructuring charge -- 535 -- 5,937
-------- -------- -------- --------
Operating income (loss) 11,582 3,853 27,773 (1,607)
-------- -------- -------- --------
Other income (expense):
Interest expense (9,594) (9,195) (29,317) (27,217)
Interest income 14 48 167 355
Other income, net 25 9,937 (327) 10,230
-------- -------- -------- --------
Total other income (expense) (9,555) 790 (29,477) (16,632)
-------- -------- -------- --------
Income (loss) before income taxes, extra-
ordinary item and discontinued operations 2,027 4,643 (1,704) (18,239)
Income tax (expense) benefit 2,890 899 (1,375) 8,267
-------- -------- -------- --------
Income (loss) before extraordinary
item and discontinued operations 4,917 5,542 (3,079) (9,972)
-------- -------- -------- --------
Extraordinary item, net of tax (2,924) -- (2,924) --
-------- -------- -------- --------
Income (loss) before discontinued operations 1,993 5,542 (6,003) (9,972)
-------- -------- -------- --------
Discontinued operations, net of tax:
Income (loss) from operations (4,021) 3,718 6,202 16,985
Gain on sale 23,479 -- 66,928 --
-------- -------- -------- --------
Income from discontinued operations 19,458 3,718 73,130 16,985
-------- -------- -------- --------
Net income $ 21,451 9,260 67,127 7,013
======== ======== ======== ========
See accompanying notes to the unaudited condensed consolidated financial statements.
</TABLE>
5
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE><CAPTION>
Nine Months Ended
September 30,
---------------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 67,127 7,013
Adjustments to reconcile net income to net cash
used in operating activities:
Net income from discontinued operations (6,203) (26,428)
Depreciation and amortization 10,386 7,705
Deferred taxes 189 8
Other noncash charges and credits 6,140 3,921
Gain on sale of Romac and McKenica equip -- (9,576)
Change in operating assets and liabilities:
Receivables (7,626) (5,731)
Inventories (10,220) 1,512
Prepaids (5,129) 452
Payables 5,989 3,779
Other current liabilities and other (13,306) (4,546)
Discontinued operations:
Gain on sale (66,928) --
Depreciation 6,950 9,802
Changes in discontinued operations 11,637 (11,436)
---------- ----------
Net cash used in operating activities (994) (23,525)
---------- ----------
Cash flows from investing activities:
Capital expenditures (6,074) (5,147)
Acquisitions, net of cash acquired (156,193) (25,340)
Proceeds from disposal of businesses and other investing activities 319 18,116
Discontinued operations:
Proceeds from sale 217,343 --
Capital expenditures (5,341) (5,587)
---------- ----------
Net cash provided by (used in) investing activities 50,054 (17,958)
---------- ----------
Cash flows from financing activities:
Proceeds from (payments of) long-term debt 39,918 (4,639)
Loan to Insilco Holding Co. (783) (2,311)
Proceeds from (payments on) revolving credit facility (77,027) 52,343
Return of excess funds deposited for retirement of 10 1/4% bonds -- 2,032
Proceeds from sale of minority interest -- 100
Payment of prepetition liabilities -- (1,086)
Retirement of 10 1/4% bonds -- (1,526)
---------- ----------
Net cash provided by (used in) financing activities (37,892) 44,913
---------- ----------
Effect of exchange rate changes on cash 9 10
---------- ----------
Net increase in cash and cash equivalents 11,177 3,440
Cash and cash equivalents at beginning of period 6,380 7,636
---------- ----------
Cash and cash equivalents at end of period $ 17,557 11,076
========== ==========
Interest paid $ 31,000 27,690
========== ==========
Income taxes paid $ 2,629 776
========== ==========
See accompanying notes to the unaudited condensed consolidated financial statements.
</TABLE> 6
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 2000
(1) Basis of Presentation
---------------------
On August 25, 2000, in conjunction with the completion of several
transactions, Insilco Corporation changed its name to Insilco
Technologies, Inc. ("Insilco Technologies") to reflect the
telecommunications and electronics nature of its business.
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 and nine month periods
ended September 30, 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 Technologies 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 August 25, 2000, Holdings sold its "Automotive Businesses" to
ThermaSys Holding Company, ThermaSys Corporation, a wholly owned
subsidiary of ThermaSys Holding Company, ThermaSys I, Inc., ThermaSys
II, Inc., and ThermaSys III, Inc., for net proceeds of $144.5 million.
The gain on the sale was $23.5 million, net of taxes of $13.9 million.
The "Automotive Businesses" manufacture, sell and distribute tubing and
heat exchanger products and transmission and suspension components
through General Thermodynamics and Thermal Components, both divisions of
the Company, and the following wholly-owned subsidiaries of the Company:
Steel Parts Corporation, Arup Alu-Rohr und Profil GmbH, Thermal Transfer
Products, Ltd., Great Lake, Inc., Thermal Components Division, Inc., and
Thermal Components, Inc., as well as the Company's 51% ownership in
Dalian General Thermodynamics Incorporated, Ltd. As a result of this
sale, the accompanying consolidated statements of operations and cash
flows are reclassified to account for the sale of the "Automotive
Businesses" as a discontinued operation. Proceeds from the sale were
used to reduce bank debt.
On February 11, 2000, the Company sold its "Specialty 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 "Specialty Publishing
Business" as a discontinued operation.
7
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 2000
(3) Acquisitions
------------
On August 25, 2000, the Company purchased Precision Cable Manufacturing
(Precision) for a gross purchase price of $55.5 million, including
estimated working capital adjustments. The purchase price, net of cash
acquired, and including estimated costs incurred directly related to the
transaction and estimated working capital adjustments, was $55.6
million. Precision is a Rockwall, Texas-based cable and wire assembly
provider primarily to the telecommunications industry. The purchase
price was financed with borrowings under the Company's amended credit
facility. The purchase has been accounted for using the purchase method
of accounting and, accordingly, the results of operations of Precision
have been included in the Company's consolidated financial statements
from August 25, 2000. The preliminary excess of the purchase price over
net identifiable assets acquired is $39.9 million, which is being
amortized on a straight-line basis over 20 years. The Company expects
any adjustments to the excess to be resolved within one year of the
purchase. This acquisition did not result in a significant business
combination within the definition provided by the Securities and
Exchange Commission and therefore, pro forma financial information has
not been presented.
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 $102.1 million. The
purchase price, net of cash acquired and including estimated costs
incurred directly related to the transaction was $100.6 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 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.
8
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 2000
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 and nine months ended
September 30, 2000 and 1999, which assume the transactions occurred at
the beginning of the period are as follows (in thousands):
<TABLE><CAPTION>
Three months ended Nine months ended
September 30, September 30,
-----------------------------------------------------------
2000 1999 2000 1999
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 110,753 81,306 315,630 249,639
Income (loss) from continuing operations $ 5,392 3,711 (2,564) (15,822)
</TABLE>
(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. The proceeds from the sales were used to
reduce the Company's Term Facility by $3.7 million and the balance was
used to reduce the Company's Revolving Facility.
(5) Inventories
-----------
Inventories consisted of the following (in thousands):
As of
September 30, December 31,
2000 1999
---------- ----------
Raw materials and supplies $ 35,453 17,042
Work-in-process 10,944 6,382
Finished goods 13,462 11,476
---------- ----------
Total inventories $ 59,859 34,900
========== ==========
(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.
9
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 2000
(7) Long-term Debt
--------------
On August 25, 2000, the Company amended and restated its Bank Credit
Agreement ("Bank Credit Agreement"). The Bank Credit Agreement provides
for three credit facilities (the "Credit Facilities"): a $50.0 million,
6 year senior secured revolving loan ("Revolving Facility"), a $35.0
million 6 year senior secured amortizing Term A loan ("Term A Facility")
and a $125.0 million, 7 year senior secured amortizing Term B loan
("Term Facility"). The Company also has the option to increase the
Credit Facilities by an additional $25.0 million. As of September 30,
2000, the Company had outstanding $0.0 million under the Revolving
Facility, $35.0 million under the Term A Facility and $125.0 million
under the Term B Facility.
As a result of these actions, the Company recorded an extraordinary
charge of $4.8 million (net of a tax benefit of $1.9 million) related to
the write-off of unamortized debt issuance costs associated with its
1998 Bank Credit Agreement.
The Revolving Facility provides for a $35.0 million sublimit for
issuance of letters of credit and up to a $15.0 million sublimit for
Canadian Dollar borrowings and up to a $15.0 million sublimit for Euro
Dollar borrowings. The Revolving Facility matures on the sixth
anniversary of the agreement. There are no mandatory prepayments.
The Term A Facility is subject to mandatory quarterly prepayments in
each of its six years, beginning with December 2000, as follows:
$875,000 for the first two years, $1,312,500 for the third year,
$1,750,000 for the fourth and fifth years and $2,187,500 for the final
year. The Term B Facility is subject to mandatory quarterly prepayments
of $312,500 for the first six years and quarterly payments of $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
September 30, 2000, the applicable margin for the Term A Facility and
the Revolving Facility was LIBOR plus 3.25%. At September 30, 2000, the
applicable margin for the Term B Facility was LIBOR plus 3.75%. The
unused commitment fee at September 30, 2000 was 0.5%. The applicable
margins and unused commitment fee are determined by the Company's
leverage ratio.
The Company was in compliance with the covenants of its Credit
Facilities as of September 30, 2000.
The combined aggregate amount of maturities for all long-term borrowings
for each of the next five years is as follows (in thousands):
2001 2002 2003 2004 2005
------ ------ ------ ------ ------
Term A Facility $3,500 3,500 5,250 7,000 7,000
Term B Facility 1,250 1,250 1,250 1,250 1,250
Revolving Facility -- -- -- -- --
Miscellaneous 126 126 38 17 17
------ ------ ------ ------ ------
$4,876 4,876 6,538 8,267 8,267
====== ====== ====== ====== ======
10
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 2000
(8) Segment Information
-------------------
Due to the sale of the "Automotive Businesses", the Company has
re-evaluated its basis of segmentation and measurement of segment profit
or loss from the December 31, 1999 consolidated financial statements. As
a result, the Company is disaggregating and disclosing its operations
into three main segments: Custom Assemblies, Passive Components and
Precision Stampings. The Custom Assemblies segment primarily designs and
assembles custom electronic and fiber-optic cable, wire harness and
electromechanical assemblies. The Passive Components segment designs,
manufacturers and globally distributes high-speed data connector systems
and power transformers. The Precision Stampings segment designs and
manufactures precision stampings and wire-formed parts. Third quarter
and year-to-date 1999 have been restated to reflect the new basis of
segmentation.
11
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 2000
Summary financial information by business segment is as follows (in thousands):
<TABLE><CAPTION>
Three-Months Ended Nine-Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES:
Custom Assemblies $ 52,566 17,915 131,693 48,609
Passive Components 28,191 21,493 78,138 66,110
Precision Stampings 18,753 19,493 60,348 55,444
-------- -------- -------- --------
On-going operations 99,510 58,901 270,179 170,163
Other -- 3,153 -- 18,067
-------- -------- -------- --------
Total net sales $ 99,510 62,054 270,179 188,230
======== ======== ======== ========
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES:
Custom Assemblies $ 8,964 1,797 20,918 4,319
Passive Components 4,738 3,578 13,402 11,101
Precision Stampings 2,752 2,765 8,330 6,867
Unallocated operating amount:
Corporate operating expenses (1,077) (1,183) (3,298) (4,870)
-------- -------- -------- --------
On-going operations 15,377 6,957 39,352 17,417
Other -- 203 -- 1,079
-------- -------- -------- --------
Earnings before interest, taxes
depreciation and amortization (EBITDA) 15,377 7,160 39,352 18,496
Depreciation and amortization (3,707) (2,541) (10,386) (7,705)
Unallocated non-operating amounts:
Significant legal expense (88) -- (431) (2,503)
Severance and write-downs -- (766) (762) (9,895)
-------- -------- -------- --------
Total operating income (loss) 11,582 3,853 27,773 (1,607)
Interest expense (9,594) (9,195) (29,317) (27,217)
Interest income 14 48 167 355
Other income, net 25 9,937 (327) 10,230
-------- -------- -------- --------
Income (loss) from continuing operations
before income taxes $ 2,027 4,643 (1,704) (18,239)
======== ======== ======== ========
Income (loss) before extraordinary item and
discontinued operations $ 4,917 5,542 (3,079) (9,972)
======== ======== ======== ========
</TABLE>
12
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 2000
A summary of identifiable assets by segment follows (in thousands):
As of
September 30, December 31,
2000 1999
--------- ---------
Custom Assemblies $ 221,783 29,220
Passive Components 54,518 51,124
Precision Stampings 52,849 52,233
Corporate 38,598 33,275
--------- ---------
Total $ 367,748 165,852
========= =========
The significant increase in identifiable assets of Custom Assemblies
relates to the acquisitions of TAT in February 2000 and Precision Cable
in August 2000 (see Note 3).
EBITDA, which is defined as earnings before interest expense (net),
income taxes, depreciation and amortization and non-operating items, 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. EBITDA data is included because the
Company understands that such information is used by certain investors as
one measure of an issuer's historical ability to service debt. While
EBITDA is frequently used as a measure of operations and the ability to
meet debt service requirements, it is not necessarily comparable to other
similarly titled captions of other companies, or used in the Company's
debentures, credit or other similar agreements, due to potential
inconsistencies in the method of calculation.
(9) Comprehensive Income
--------------------
Comprehensive income was $21,202,000 and $9,569,000 for the three-months
ended September 30, 2000 and 1999, respectively, consisting of foreign
currency translation income (loss) totaling ($249,000) and $308,000,
respectively. For the nine months ended September 30, 2000 and 1999,
comprehensive income was $66,472,000 and $7,009,000, respectively,
consisting of foreign currency translation losses totaling ($655,000) and
($3,000), respectively.
(10) Related Party Transactions
--------------------------
The Company paid Donaldson, Lufkin & Jenrette Securities Corporation
("DLJSC") advisory and retainer fees of $104,000 and $75,000 year to date
September 30, 2000 and $500,000 and $110,000 year to date September 30,
1999. The Company had a payable to DLJSC for retainer fees related to
investment banking services of $225,000 at September 30, 2000 and 1999.
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.
13
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 2000
(11) 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.
14
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 2000
(11) Guarantor Subsidiaries (continued)
----------------------
<TABLE><CAPTION>
Condensed Consolidating Balance Sheet (in thousands)
-------------------------------------------------------------------------------------------------
September 30, 2000 December 31, 1999
----------------------------------------------- ----------------------------------------------
Non- Non-
Insilco Guarantors Guarantors Consolidated Insilco Guarantors Guarantors Consolidated
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 16,608 993 (44) 17,557 4,625 1,287 468 6,380
Accounts receivable 607 56,389 19,389 76,385 24 39,772 412 40,208
Inventories -- 51,283 8,576 59,859 -- 34,900 -- 34,900
Deferred taxes 9,572 -- -- 9,572 9,603 -- -- 9,603
Net assets of discontinued
operations -- -- -- -- -- 91,356 16,282 107,638
Prepaid expenses and other 443 7,118 39 7,600 410 1,654 2 2,066
--------- --------- --------- --------- --------- --------- --------- ---------
Total current assets 27,230 115,783 27,960 170,973 14,662 168,969 17,164 200,795
Property, plant and equipment, net 66 54,111 1,681 55,858 124 49,431 -- 49,555
Deferred taxes -- -- -- -- 3,751 101 -- 3,852
Other assets and deferred charges 11,052 44,766 85,099 140,917 14,769 4,519 -- 19,288
--------- --------- --------- --------- --------- --------- --------- ---------
Total assets $ 38,348 214,660 114,740 367,748 33,306 223,020 17,164 273,490
========= ========= ========= ========= ========= ========= ========= =========
Liabilities and Stockholder's
Equity (Deficit)
Current liabilities:
Current portion of long-term debt $ 4,750 126 -- 4,876 1,250 16 -- 1,266
Accounts payable 1,488 33,965 5,165 40,618 -- 20,164 -- 20,164
Accrued expenses and other 30,445 18,817 16,074 65,336 12,792 13,735 447 26,974
--------- --------- --------- --------- --------- --------- --------- ---------
Total current liabilities 36,683 52,908 21,239 110,830 14,042 33,915 447 48,404
Long-term debt, less current
portion 185,049 301 90,000 275,350 317,656 182 -- 317,838
Other long-term obligations,
excluding current portion, and
minority interest 37,808 1,839 -- 39,647 17,259 13,757 -- 31,016
Intercompany payable (44,736) 60,731 (15,543) 452 (103,825) 91,127 13,933 1,235
--------- --------- --------- --------- --------- --------- --------- ---------
Total liabilities 214,804 115,779 95,696 426,279 245,132 138,981 14,380 398,493
Stockholder's equity (deficit) (176,456) 98,881 19,044 (58,531) (211,826) 84,039 2,784 (125,003)
--------- --------- --------- --------- --------- --------- --------- ---------
Total liabilities and
stockholder's equity (deficit) $ 38,348 214,660 114,740 367,748 33,306 223,020 17,164 273,490
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
15
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 2000
(11) Guarantor Subsidiaries (continued)
----------------------
<TABLE><CAPTION>
Condensed Consolidating Statement of Operations (in thousands)
------------------------------------------------------------------------------------
Three Months Ended September 30, 2000 Three Months Ended September 30, 1999
---------------------------------------- ----------------------------------------
Non- Non-
Insilco Guarantors Guarantors Consolidated Insilco Guarantors Guarantors Consolidated
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ -- 70,167 29,343 99,510 -- 62,054 -- 62,054
Cost of products sold -- 52,992 17,511 70,503 (100) 46,896 -- 46,796
Depreciation and amortization 7 2,624 1,076 3,707 9 2,532 -- 2,541
Selling, general and
administrative expenses 1,077 7,875 4,766 13,718 1,208 7,103 18 8,329
Restructuring charge -- -- -- -- 535 -- -- 535
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss) (1,084) 6,676 5,990 11,582 (1,652) 5,523 (18) 3,853
Other income (expense):
Interest expense (7,321) (17) (2,256) (9,594) (9,197) 2 -- (9,195)
Interest income (39) 2 51 14 21 25 2 48
Other income, net 251 (227) 1 25 9,466 471 -- 9,937
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes (8,193) 6,434 3,786 2,027 (1,362) 6,021 (16) 4,643
Income tax benefit (expense) 8,157 (2,887) (2,380) 2,890 2,101 (1,202) -- 899
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from continuing
operations before
extraordinary item and
discontinued operations (36) 3,547 1,406 4,917 739 4,819 (16) 5,542
------- ------- ------- ------- ------- ------- ------- -------
Extraordinary item, net of tax (2,924) -- -- (2,924) -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before discontinued
operations (2,960) 3,547 1,406 1,993 739 4,819 (16) 5,542
------- ------- ------- ------- ------- ------- ------- -------
Income from discontinued
operations, net of tax -- 15,773 3,685 19,458 -- 3,493 225 3,718
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) $(2,960) 19,320 5,091 21,451 739 8,312 209 9,260
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
16
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 2000
(11) Guarantor Subsidiaries (continued)
----------------------
<TABLE><CAPTION>
Condensed Consolidating Statement of Operations (in thousands)
---------------------------------------------------------------------------------------------
Nine Months Ended September 30, 2000 Nine Months Ended September 30, 1999
-------------------------------------------- ---------------------------------------------
Non- Non-
Insilco Guarantors Guarantors Consolidated Insilco Guarantors Guarantors Consolidated
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ -- 196,319 73,860 270,179 -- 188,230 -- 188,230
Cost of products sold -- 148,453 45,914 194,367 -- 145,093 -- 145,093
Depreciation and amortization 20 7,688 2,678 10,386 41 7,664 -- 7,705
Selling, general and administrative
expenses 3,641 22,223 11,789 37,653 7,495 23,573 34 31,102
Restructuring charge -- -- -- -- 3,450 2,487 -- 5,937
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss) (3,661) 17,955 13,479 27,773 (10,986) 9,413 (34) (1,607)
Other income (expense):
Interest expense (23,358) (37) (5,922) (29,317) (27,206) (11) -- (27,217)
Interest income 21 36 110 167 298 54 3 355
Other income, net 266 (553) (40) (327) 9,588 640 2 10,230
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes (26,732) 17,401 7,627 (1,704) (28,306) 10,096 (29) (18,239)
Income tax benefit (expense) 11,918 (9,519) (3,774) (1,375) 10,079 (1,812) -- 8,267
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before extraordinary
item and discontinued operations (14,814) 7,882 3,853 (3,079) (18,227) 8,284 (29) (9,972)
-------- -------- -------- -------- -------- -------- -------- --------
Extraordinary item, net of tax (2,924) -- -- (2,924) -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
discontinued operations (17,738) 7,882 3,853 (6,003) (18,227) 8,284 (29) (9,972)
-------- -------- -------- -------- -------- -------- -------- --------
Income from discontinued
operations, net of tax -- 68,487 4,643 73,130 -- 16,188 797 16,985
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) $(17,738) 76,369 8,496 67,127 (18,227) 24,472 768 7,013
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
17
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 2000
(11) Guarantor Subsidiaries (continued)
----------------------
Condensed Statement of Cash Flows
For the Nine Months Ended September 30, 2000
(In thousands)
<TABLE><CAPTION>
Insilco Guarantors Non-Guarantors Consolidated
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ (73,186) 43,319 28,873 (994)
--------- --------- --------- ---------
Cash flows provided by (used in)
investing activities:
Other investing activities -- 319 -- 319
Capital expenditures, net (11) (5,855) (208) (6,074)
Acquisitions, net of cash acquired (145,333) -- (10,860) (156,193)
Discontinued operations:
Proceeds from sale 202,343 -- 15,000 217,343
Capital expenditures -- (5,146) (195) (5,341)
--------- --------- --------- ---------
Net cash provided by (used in)
investing activities 56,999 (10,682) 3,737 50,054
--------- --------- --------- ---------
Cash flows provided by (used in)
financing activities:
Proceeds from (payments on) long-term debt 39,939 (21) -- 39,918
Loan to Insilco Holding Co. (783) -- -- (783)
Capital transactions (6,810) -- 6,810 --
Payments on revolving credit facility (77,027) -- -- (77,027)
Transfers from parent 72,851 (32,910) (39,941) --
--------- --------- --------- ---------
Net cash provided by (used in)
financing activities 28,170 (32,931) (33,131) (37,892)
--------- --------- --------- ---------
Effect of exchange rates on cash -- -- 9 9
--------- --------- --------- ---------
Net increase (decrease) in cash
and cash equivalents 11,983 (294) (512) 11,177
Cash and cash equivalents at
beginning of the period 4,625 1,287 468 6,380
--------- --------- --------- ---------
Cash and cash equivalents
at end of the period $ 16,608 993 (44) 17,557
========= ========= ========= =========
</TABLE>
18
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 2000
(11) Guarantor Subsidiaries (continued)
----------------------
Condensed Statement of Cash Flows
Nine Months Ended September 30, 1999
(In thousands)
<TABLE><CAPTION>
Insilco Guarantors Non-Guarantors Consolidated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(24,430) 624 281 (23,525)
-------- -------- -------- --------
Cash flows used in investing activities:
Other investing activities -- 1 -- 1
Capital expenditures, net (9) (5,138) -- (5,147)
Proceeds from disposal 18,115 -- -- 18,115
Acquisition, net of cash acquired (25,340) -- -- (25,340)
Discontinued operations -- (4,828) (759) (5,587)
-------- -------- -------- --------
Net cash used in investing activities (7,234) (9,965) (759) (17,958)
-------- -------- -------- --------
Cash flows provided by financing activities
Repayment of long term debt (4,627) (12) -- (4,639)
Loan to Insilco Holding Co. (2,311) -- -- (2,311)
Proceeds from revolving credit facility 52,343 -- -- 52,343
Return of excess funds deposited for
retirement of 10 1/4% bonds 2,032 -- -- 2,032
Proceed from sale of minority interest 100 -- -- 100
Payment of prepetition liabilities (1,086) -- -- (1,086)
Retirement of 10 1/4% Bonds (1,526) -- -- (1,526)
Intercompany transfer of funds (9,389) 8,630 759 --
-------- -------- -------- --------
Net cash provided by financing activities 35,536 8,618 759 44,913
-------- -------- -------- --------
Effect of exchange rate changes on cash -- -- 10 10
-------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents 3,872 (723) 291 3,440
Cash and cash equivalents at
beginning of the period 6,472 1,082 82 7,636
-------- -------- -------- --------
Cash and cash equivalents
at end of the period $ 10,344 359 373 11,076
======== ======== ======== ========
</TABLE>
19
<PAGE>
INSILCO TECHNOLOGIES AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 2000
(12) Restructuring and Plant Closing Costs
-------------------------------------
During the year ended December 31, 1999, the Company reduced its
corporate staff and closed its heat exchanger machinery and equipment
manufacturing operation (McKenica).
As of September 30, 2000, the Company had an accrual of $420,000
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):
<TABLE><CAPTION>
As of As of
December 31, Cash September 30,
1999 Outlays 2000
---------- ---------- ----------
<S> <C> <C> <C>
Restructuring charges:
Employee separations $ 699 (534) 165
Other exit costs 309 (104) 205
Remaining noncancellable lease costs 442 (392) 50
---------- ---------- ----------
Restructuring costs $ 1,450 (1,030) 420
========== ========== ==========
</TABLE>
20
<PAGE>
INDEPENDENT AUDITORS' REVIEW REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDER
INSILCO TECHNOLOGIES, INC.:
We have reviewed the condensed consolidated balance sheet of Insilco
Technologies, Inc. (formerly Insilco Corporation) and subsidiaries as of
September 30, 2000, and the related condensed consolidated statements of
operations and cash flows for the three-month and nine-month periods ended
September 30, 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 accounting principles generally accepted in the
United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Insilco Technologies, Inc. and subsidiaries as of December 31, 1999, and the
related consolidated statements of operations, stockholders' 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
November 3, 2000 KPMG LLP
21
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Our condensed consolidated results of the three-month and nine-month periods
ended September 30, 1999 and 2000, include the acquisition and divestiture 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 Notes 2 and 3 of the Notes to the
Unaudited Condensed Consolidated Financial Statements.
The discussion that follows is based on our management's approach to decision
making and is consistent with the basis and manner in which they internally
disaggregate financial information for the purposes of assisting them in making
such decisions. See Note 8 of the Notes to the Unaudited Condensed Consolidated
Financial Statements for summary financial information by business segment.
CONSOLIDATED RESULTS OF OPERATIONS
As a result of their respective sales, we have reported our specialty publishing
and automotive segments as discontinued operations and therefore the results of
these segments are not included in consolidated sales, EBITDA, or operating
income. Our consolidated results for 1999 do include the results of an Other
Segment, which consisted of two business units, Romac Metals and McKenica that
were divested in mid-1999.
In the third quarter of 2000, our consolidated net sales increased 60% to $99.5
million from $62.1 million recorded in the third quarter of 1999. For the first
nine months of 2000, consolidated net sales of $270.2 million were $82.0
million, or 44% higher than the same period in 1999. Excluding sales from the
divested Other Segment, which amounted to $3.2 million and $18.1 million in the
third quarter and first nine months of 1999, respectively, consolidated net
sales increased $40.6 million in the third quarter and $100.1 million in the
first nine months of 2000 as compared to the same periods in 1999. The improved
sales results reflect strong worldwide demand from optical and networking
equipment manufacturers for custom assemblies and electronic components and our
current year acquisitions of two custom assembly businesses, which accounted for
$37.4 million and $82.0 million in new revenues in the third quarter and first
nine months of 2000, respectively. Revenue by segment in the third quarter and
year-to-date, respectively, was as follows:
o Custom Assemblies increased 193% and 171% reflecting new revenues from our
acquisition of TAT on February 11, 2000 and of Precision Cable
Manufacturing on August 25, 2000, as well as higher domestic sales.
o Passive Components increased 31% and 18% due to strong sales of high-speed
data grade connectors and our new MagJack product line, which combines
high-speed modular connector technology with discrete magnetic technology.
o Precision Stampings decreased 4% and increased 9%, the year-to-date
increase includes approximately $2.3 million of new revenues from our
acquisition of EFI on January 25, 1999.
For the current quarter, our EBITDA increased 115% to $15.4 million, compared to
$7.2 million recorded in the third quarter of 1999. For the first nine months of
2000, EBITDA of $39.4 million was $20.9 million, or 113% higher than the same
period in 1999. A favorable sales mix for higher-margin data grade connector
products, improved margins on precision stampings, the contributions from our
current year acquisitions, and lower corporate expenses all contributed to the
strong EBITDA performance. Partially offsetting these gains was the missing
EBITDA from the divested Other Segment, which amounted to $0.2 million and $1.1
million in the third quarter and first nine months of 1999, respectively. EBITDA
by segment in the third quarter and year-to-date, respectively, was as follows:
22
<PAGE>
o Custom Assemblies increased $7.2 million and $16.6 million reflecting the
contribution of our recent acquisitions and incremental earnings on higher
domestic sales. EBITDA margins for the quarter and year-to-date improved to
17.1% from 10.0% and to 15.9% from 8.9%, respectively.
o Passive Components increased $1.2 million and $2.3 million due to strong
sales of high-speed data grade connectors and strong market fundamentals in
the electronic component industry. EBITDA margins for the quarter and
year-to-date increased slightly to 16.8% from 16.6% and to 17.2% from
16.8%, respectively.
o Precision Stampings had little change in EBITDA from that of the third
quarter 1999. Year to date EBITDA increased $1.5 million, reflecting the
incremental earnings on higher sales and cost reduction initiatives. In
addition, the year-to-date increase includes approximately $0.2 million
from our acquisition of EFI. EBITDA margins for the quarter and
year-to-date improved to 14.7% from 14.2% and to 13.8% from 12.4%,
respectively.
Operating income for the third quarter of 2000 increased to $11.6 million, from
$3.9 million recorded in the third quarter of 1999. For the first nine months of
2000, operating income increased to $27.8 million, from a loss of $1.6 million
recorded in the same period in 1999. These increases are due to the increase in
EBITDA and lower legal, severance and write-down expenses as we have completed
our initiatives to restructure, reorganize and close certain businesses,
operations, and functions of the corporate office. Depreciation and amortization
expenses increased in the third quarter of 2000 and in the first nine months of
2000 as a result of our recent acquisitions.
Our income from continuing operations before income taxes decreased $2.6 million
to $2.0 million in the third quarter of 2000 from $4.6 million recorded in the
third quarter of 1999. The decrease can be attributable to the one-time gain
realized on the sale of Romac Metals, which accounted for $9.9 million in other
income for the third quarter 1999. For the first nine months of 2000, the loss
from continuing operations before income taxes was $1.7 million compared to a
loss of $18.2 million for the same period in 1999. The improvement during this
period reflects the higher operating income, and the lack of the large
restructuring charges incurred in 1999. Income from continuing operations was
also impacted by increases in interest expense reflecting higher short-term
borrowing rates and borrowings to finance our acquisition activities. For the
current quarter, our interest expense was $9.6 million compared to $9.2 million
recorded in the third quarter of 1999. For the first nine months of 2000,
interest expense was $29.3 million compared to $27.2 million for the same period
in 1999.
In the third quarter of 2000, we recorded an income tax benefit of $2.9 million
as opposed to an income tax benefit of $0.9 million in the third quarter of
1999. For the first nine months of 2000, we recorded an income tax expense of
$1.4 million compared to a benefit of $8.3 million for the same period in 1999.
These increases reflect differences in the tax deductibility of certain
expenses, and the improved earnings performance.
We incurred a $2.9 million extraordinary item relating to the write-off of
unamortized 1998 debt issuance costs as a result of restructuring our Bank
Credit Facility. See "Liquidity and Capital Resources" in this section.
On August 25, 2000, we sold a combination of stock and assets of our "Automotive
Businesses" for net proceeds of $144.5 million. On February 11, 2000, we sold
our "Specialty Publishing Business" for $93.5 million. As a result of these
transactions, we recorded income from discontinued operations of $19.5 million
for the third quarter of 2000 and $3.7 million for the third quarter of 1999. We
recorded income from discontinued operations of $73.1 million and $17.0 million
for the first nine months of 2000 and for the same period in 1999, respectively.
After accounting for the extraordinary item and discontinued operations, net
income was $21.4 million for the current quarter compared to $9.3 million
recorded in the third quarter of 1999. For the first nine months of 2000, net
income was $67.1 million compared to a net income of $7.0 million for the same
period in 1999.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations were a use of $1.0 million for the nine-month period
ended September 30, 2000 as compared to a use of $23.5 million for the same
period in 1999. The decrease in net cash used in operating activities reflects
the increase in earnings. Through the first nine months of 2000, we paid $14.4
million in interest on our 12% Senior Subordinated Notes due 2007.
Capital expenditures for the first nine months of 2000 were $1.0 million more
than the comparable period of 1999 ($6.1 million versus $5.1 million). Capital
spending allocations during the current period by segment were 28% to Custom
Assemblies, 26% to Passive Components, and 46% to Precision Stampings.
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 the revolving
and term credit facilities.
On February 17, 2000, we purchased TAT Technology for $91.2 million, using $90.0
million of borrowings from the term loan facility and $1.2 million from the
revolving credit facility. On April 5, 2000, we paid $10.9 million in post
closing adjustments to the previous owners of TAT out of cash acquired in the
acquisition and borrowings under the revolving credit facility.
On August 25, 2000, we sold our "Automotive Businesses" for net proceeds of
$144.5 million. Proceeds from the sale were used to reduce our borrowings under
Insilco Technologies' revolving and term credit facility. We also amended our
Bank Credit Facility to include a $35.0 million Term A facility, a $125.0
million Term B facility, and a $50.0 million undrawn revolving credit facility.
We also have the ability to increase the total of these facilities by an
additional $25.0 million. The Term A Facility is subject to mandatory quarterly
prepayments in each of its six years as follows: $875,000 for the first two
years, $1,312,500 for the third year, $1,750,000 for the fourth and fifth years
and $2,187,500 for the final year. The Term B Facility is subject to mandatory
quarterly prepayments of $312,500 for the first six years and quarterly payments
of $29.4 million in the seventh year. Proceeds from the amended Bank Credit
Facility were used to payoff outstanding balances of the previous Bank Credit
Facility and to acquire Precision Cable Manufacturing for $55.6 million,
including an estimated working capital adjustment. Precision is a Rockwall,
Texas-based provider of custom cable and wire assemblies primarily to the
telecommunications industry.
We expect our principal sources of liquidity to be from our operating activities
and funding from our senior credit facilities. 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.
As of September 30, 2000, our stockholders' deficit totaled $58.5 million, which
is the result of both the 1998 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 September 30, 2000, we did not have any derivative
instruments in place for managing foreign currency exchange rate risks.
24
<PAGE>
At the end of the third quarter of 2000, we had $160.0 million in variable rate
debt outstanding. A one-percentage point increase in interest rates would
increase the amount of annual interest paid by approximately $1.9 million. As of
September 2000 we had no interest rate derivative instruments in place for
managing interest rate risks.
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.
25
<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 July 20, 2000 on Form 8-K was filed with the SEC
on July 26, 2000, pursuant to Items 5 and 7 of that form.
A report, dated July 28, 2000 on Form 8-K was filed with the SEC
on July 31, 2000, pursuant to Items 5 and 7 of that form.
A report, dated August 25, 2000 on Form 8-K was filed with the
SEC on September 7, 2000, pursuant to Items 2, 5 and 7 of that
form.
A report, dated November 7, 2000 on Form 8-K was filed with the
SEC on November 7, 2000, pursuant to Items 5 and 7 of that form.
26
<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 TECHNOLOGIES, INC.
Date: November 14, 2000 By: /s/ MICHAEL R. ELIA
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Michael R. Elia
Senior Vice President, Chief
Financial Officer, Treasurer and
Secretary
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