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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 June 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 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 August 9, 2000, 100
shares of common stock, $.001 par value, were outstanding.
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<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 21
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 24
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 3. Defaults upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Securities Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
2
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Page
-------------------------------- ----
Condensed Consolidated Balance Sheets at June 30,
2000 and December 31, 1999 4
Condensed Consolidated Statements of Operations
for the three months and six months ended June
30, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 2000 and 1999 6
Notes to the Condensed Consolidated Financial
Statements 7
Independent Auditors' Review Report 20
3
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE><CAPTION>
As of
------------------------
June 30, December 31,
2000 1999
--------- ---------
(Unaudited) (Note 1)
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 3,751 6,380
Trade receivables, net 60,308 39,347
Other receivables 899 861
Inventories, net 48,255 34,900
Deferred taxes 9,424 9,603
Net assets of discontinued operations 106,685 107,638
Prepaid expenses and other current assets 2,078 2,066
--------- ---------
Total current assets 231,400 200,795
Property, plant and equipment, net 49,655 49,555
Deferred taxes -- 3,852
Goodwill, net 87,407 5,688
Other assets and deferred charges 14,109 13,600
--------- ---------
Total assets $ 382,571 273,490
========= =========
Liabilities and Stockholder's Deficit
-------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,266 1,266
Accounts payable 26,164 20,164
Accrued expenses 27,265 16,578
Income taxes payable 16,237 2,856
Other current liabilities 7,581 7,540
--------- ---------
Total current liabilities 78,513 48,404
Long-term debt, excluding current portion 343,576 317,838
Other long-term obligations, excluding current portion 38,758 30,916
Amounts due to Insilco Holding Co. 1,356 1,235
Minority interest 100 100
Stockholder's deficit:
Common stock, $.001 par value; 1,000 shares authorized; 100 shares
issued and outstanding at June 30, 2000 and December 31, 1999 -- --
Additional paid-in capital 4,188 4,188
Accumulated deficit (80,292) (125,968)
Accumulated other comprehesive loss (3,628) (3,223)
Contingencies (See Note 6)
--------- ---------
Total liabilities and stockholder's deficit $ 382,571 273,490
========= =========
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 Six Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 92,304 62,618 170,669 126,176
Cost of products sold 66,584 50,565 123,864 98,298
Depreciation and amortization 3,649 2,692 6,679 5,164
Selling, general and administrative expenses 12,972 12,337 23,935 22,772
Restructuring charge -- 5,402 -- 5,402
-------- -------- -------- --------
Operating income (loss) 9,099 (8,378) 16,191 (5,460)
-------- -------- -------- --------
Other income (expense):
Interest expense (10,274) (9,410) (19,723) (18,022)
Interest income 56 275 153 307
Other income, net (31) 85 (404) 305
-------- -------- -------- --------
Total other expense (10,249) (9,050) (19,974) (17,410)
-------- -------- -------- --------
Loss before income taxes and
discontinued operations (1,150) (17,428) (3,783) (22,870)
Income tax (expense) benefit (337) 5,496 (74) 7,368
-------- -------- -------- --------
Loss before discontinued operations (1,487) (11,932) (3,857) (15,502)
-------- -------- -------- --------
Income from discontinued operations:
Income from operations, net of tax 4,797 9,190 6,085 13,266
Gain on sale of discontinued operations, net of tax -- -- 43,448 --
-------- -------- -------- --------
Income from discontinued operations 4,797 9,190 49,533 13,266
-------- -------- -------- --------
Net income (loss) $ 3,310 (2,742) 45,676 (2,236)
======== ======== ======== ========
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>
Six Months Ended
June 30,
--------- ---------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 45,676 (2,236)
Adjustments to reconcile net income to net cash
provided by operating activities:
Net income from discontinued operations (14,302) (14,012)
Depreciation and amortization 6,679 5,164
Deferred taxes 2,747 83
Other noncash charges and credits 695 4,835
Change in operating assets and liabilities:
Receivables (4,740) (594)
Inventories (6,326) 1,849
Prepaids 28 383
Payables (236) 1,155
Other current liabilities and other (120) 1,660
Discontinued operations:
Gain on sale (43,448) --
Depreciation 5,242 6,621
Changes in discontinued operations 13,467 3,437
--------- ---------
Net cash provided by operating activities 5,362 8,345
--------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired (100,594) (25,340)
Capital expenditures (3,473) (3,554)
Other investing activities 5 1
Discontinued operations:
Proceeds from sale 72,845 --
Capital expenditures (3,634) (4,175)
--------- ---------
Net cash used in investing activities (34,851) (33,068)
--------- ---------
Cash flows from financing activities:
Proceeds from revolving credit facility 28,128 28,396
Loan (to) from Insilco Holding Co. 121 (27)
Retirement of long-term debt (1,389) (633)
Funds received from excess deposited for 10 1/4% bonds -- 2,032
Proceeds from sale of minority interest -- 100
Proceeds from sale of stock -- 1
Payment of prepetition liabilities -- (1,086)
Retirement of 10 1/4% bonds -- (1,526)
--------- ---------
Net cash provided by financing activities 26,860 27,257
--------- ---------
Effect of exchange rate changes on cash -- (9)
--------- ---------
Net (decrease) increase in cash and cash equivalents (2,629) 2,525
Cash and cash equivalents at beginning of period 6,380 7,636
--------- ---------
Cash and cash equivalents at end of period $ 3,751 10,161
========= =========
Interest paid $ 19,038 15,592
========= =========
Income taxes paid (refunded) $ 2,118 (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)
June 30, 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 and six month periods
ended June 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 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 July 20, 2000, Holdings entered into a definitive agreement with
ThermaSys Holding Company, ThermaSys Corporation, a wholly-owned
subsidiary of ThermaSys Holding Company, ThermaSys I, Inc., ThermaSys
II, Inc., and ThermaSys III, Inc., to sell the "Automotive Businesses"
for $147 million subject to closing costs and a working capital
adjustment. 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 51% Company
ownership in Dalian General Thermodynamics Incorporated, Ltd. The
transaction is expected to be completed in the third quarter of 2000. As
a result of this agreement, 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 will be used to reduce bank debt and to gain financial
flexibility to execute the Company's acquisition strategy.
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.
7
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
(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 $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 July 20, 1999, the Company executed a definitive merger agreement
with Thermal Transfer Products, Ltd., whereby Thermal Transfer
Acquisition Corporation, a newly created wholly-owned subsidiary of the
Company, was merged with Thermal Transfer Products. The surviving
entity, Thermal Transfer Products, Ltd. ("TTP"), is a wholly-owned
subsidiary of the Company and is a leading manufacturer of industrial
oil coolers and other heat exchanger products. TTP is based in Racine,
Wisconsin. The 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
excess of the purchase price over net identifiable assets acquired is
$10.0 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.
8
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
June 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 six months ended June 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 Six months ended
June 30, June 30,
--------------------------------------------------
2000 1999 2000 1999
--------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 92,304 80,494 176,488 164,180
Loss from continuing operations $ (1,487) (12,894) (4,319) (18,797)
</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):
<TABLE><CAPTION>
As of
June 30, December 31,
2000 1999
------- -------
<S> <C> <C>
Raw materials and supplies $29,252 17,042
Work-in-process 7,193 6,382
Finished goods 11,810 11,476
------- -------
Total inventories $48,255 34,900
======= =======
</TABLE>
9
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
(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
-------------------
Due to the pending 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. Second quarter
and year-to-date 1999 have been restated to reflect the new basis of
segmentation.
Summary financial information by business segment is as follows (in
thousands):
10
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
<TABLE><CAPTION>
Three-Months Ended Six-Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales:
Custom Assemblies $ 46,628 15,294 79,127 30,694
Passive Components 25,212 21,790 49,947 44,617
Precision Stampings 20,464 18,764 41,595 35,951
-------- -------- -------- --------
On-going operations 92,304 55,848 170,669 111,262
Other -- 6,770 -- 14,914
-------- -------- -------- --------
Total net sales $ 92,304 62,618 170,669 126,176
======== ======== ======== ========
Loss from continuing operations
before income taxes:
Custom Assemblies $ 7,503 1,392 11,954 2,522
Passive Components 4,210 3,375 8,664 7,523
Precision Stampings 2,792 2,371 5,578 4,102
Unallocated operating amount:
Corporate operating expenses (1,163) (1,725) (2,221) (3,687)
-------- -------- -------- --------
On-going operations 13,342 5,413 23,975 10,460
Other -- 214 -- 876
-------- -------- -------- --------
Earnings before interest, taxes
depreciation and amortization (EBITDA) 13,342 5,627 23,975 11,336
Depreciation and amortization (3,649) (2,692) (6,679) (5,164)
Unallocated non-operating amounts:
Significant legal expense (343) (2,445) (343) (2,503)
Severance and write-downs (251) (8,868) (762) (9,129)
-------- -------- -------- --------
Total operating income (loss) 9,099 (8,378) 16,191 (5,460)
Interest expense (10,274) (9,410) (19,723) (18,022)
Interest income 56 275 153 307
Other income, net (31) 85 (404) 305
-------- -------- -------- --------
Loss from continuing operations
before income taxes $ (1,150) (17,428) (3,783) (22,870)
======== ======== ======== ========
Loss before discontinued operations $ (1,487) (11,932) (3,857) (15,502)
======== ======== ======== ========
</TABLE>
11
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
A summary of identifiable assets by segment follows (in thousands):
As of
June 30, December 31,
2000 1999
-------- --------
Custom Assemblies $141,266 29,220
Passive Components 53,362 51,124
Precision Stampings 52,326 52,233
Corporate 28,932 33,275
-------- --------
Total $275,886 165,852
======== ========
The significant increase in identifiable assets of Custom Assemblies
relates to the acquisition of TAT in February 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.
(8) Comprehensive Income
--------------------
Comprehensive income (loss) was $2,686,000 and ($3,100,000) for the
three-months ended June 30, 2000 and 1999, respectively, consisting of
foreign currency translation losses totaling ($624,000) and ($331,000),
respectively. For the six months ended June 30, 2000 and 1999,
comprehensive income (loss) was $45,271,000 and ($2,560,000),
respectively, consisting of foreign currency translation losses totaling
($405,000) and ($310,000), respectively.
(9) Related Party Transactions
--------------------------
The Company paid Donaldson, Lufkin & Jenrette Securities Corporation
("DLJSC") advisory and retainer fees of $0 and $75,000 year to date June
30, 2000 and $500,000 and $110,000 year to date June 30, 1999. The
Company had a payable to DLJSC for retainer fees related to investment
banking services of $150,000 at June 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.
12
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
(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.
13
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
(10) Guarantor Subsidiaries (continued)
<TABLE><CAPTION>
Condensed Consolidating Balance Sheet (in thousands)
---------------------------------------------------------------
June 30, 2000
---------------------------------------------------------------
Insilco Guarantors Non-Guarantors Consolidated
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 4,970 (584) (635) 3,751
Accounts receivable 457 42,454 18,296 61,207
Inventories -- 40,215 8,040 48,255
Deferred taxes 9,424 -- -- 9,424
Net assets of discontinued operations -- 90,139 16,546 106,685
Prepaid expenses and other 418 1,595 65 2,078
--------- --------- --------- ---------
Total current assets 15,269 173,819 42,312 231,400
Property, plant and equipment, net 120 47,900 1,635 49,655
Deferred taxes -- -- -- --
Other assets and deferred charges 13,355 5,067 83,094 101,516
--------- --------- --------- ---------
Total assets $ 28,744 226,786 127,041 382,571
========= ========= ========= =========
Liabilities and Stockholder's Equity (Deficit)
Current liabilities:
Current portion of long-term debt $ 1,250 16 -- 1,266
Accounts payable -- 22,614 3,550 26,164
Accrued expenses and other 27,636 14,650 8,797 51,083
--------- --------- --------- ---------
Total current liabilities 28,886 37,280 12,347 78,513
Long-term debt, less current portion 253,401 175 90,000 343,576
Other long-term obligations, excluding
current portion, and minority interest 37,046 1,712 -- 38,758
Intercompany payable (99,651) 91,992 9,015 1,356
--------- --------- --------- ---------
Total liabilities 219,682 131,159 111,362 462,203
Stockholder's equity (deficit) (190,938) 95,627 15,679 (79,632)
--------- --------- --------- ---------
Total liabilities and
stockholder's equity (deficit) $ 28,744 226,786 127,041 382,571
========= ========= ========= =========
Condensed Consolidating Balance Sheet (in thousands)(continued)
---------------------------------------------------------------
December 31, 1999
-------------------------------------------------------------
Insilco Guarantors Non-Guarantors Consolidated
--------- --------- --------- ---------
Assets:
Current assets:
Cash and cash equivalents 4,625 1,287 468 6,380
Accounts receivable 24 39,772 412 40,208
Inventories -- 34,900 -- 34,900
Deferred taxes 9,603 -- -- 9,603
Net assets of discontinued operations -- 91,356 16,282 107,638
Prepaid expenses and other 410 1,654 2 2,066
--------- --------- --------- ---------
Total current assets 14,662 168,969 17,164 200,795
Property, plant and equipment, net 124 49,431 -- 49,555
Deferred taxes 3,751 101 -- 3,852
Other assets and deferred charges 14,769 4,519 -- 19,288
--------- --------- --------- ---------
Total assets 33,306 223,020 17,164 273,490
========= ========= ========= =========
Liabilities and Stockholder's Equity (Deficit)
Current liabilities:
Current portion of long-term debt 1,250 16 -- 1,266
Accounts payable -- 20,164 -- 20,164
Accrued expenses and other 12,792 13,735 447 26,974
--------- --------- --------- ---------
Total current liabilities 14,042 33,915 447 48,404
Long-term debt, less current portion 317,656 182 -- 317,838
Other long-term obligations, excluding
current portion, and minority interest 17,159 13,757 -- 30,916
Intercompany payable (103,825) 91,127 13,933 1,235
--------- --------- --------- ---------
Total liabilities 245,032 138,981 14,380 398,393
Stockholder's equity (deficit) (211,726) 84,039 2,784 (124,903)
--------- --------- --------- ---------
Total liabilities and
stockholder's equity (deficit) 33,306 223,020 17,164 273,490
========= ========= ========= =========
</TABLE>
14
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
(10) Guarantor Subsidiaries (continued)
<TABLE><CAPTION>
Condensed Consolidating Statement of Operations
(in thousands)
-------------------------------------------------------
Three Months Ended June 30, 2000
-------------------------------------------------------
Insilco Guarantors Non-Guarantors Consolidated
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $ -- 62,378 29,926 92,304
Cost of products sold -- 47,226 19,358 66,584
Depreciation and amortization 7 2,559 1,083 3,649
Selling, general and administrative
expenses 1,506 7,104 4,362 12,972
Restructuring charge -- -- -- --
------- ------- ------- -------
Operating income (loss) (1,513) 5,489 5,123 9,099
Other income (expense):
Interest expense (7,754) (12) (2,508) (10,274)
Interest income 6 12 38 56
Other income, net 55 (29) (57) (31)
------- ------- ------- -------
Income (loss) before income taxes (9,206) 5,460 2,596 (1,150)
Income tax benefit (expense) 2,566 (1,941) (962) (337)
------- ------- ------- -------
Income (loss) from continuing operations
before discontinued operations (6,640) 3,519 1,634 (1,487)
------- ------- ------- -------
Income from discontinued
operations, net of tax -- 4,216 581 4,797
------- ------- ------- -------
Net income (loss) $(6,640) 7,735 2,215 3,310
======= ======= ======= =======
Condensed Consolidating Statement of Operations
(in thousands)(continued)
-------------------------------------------------------
Three Months Ended June 30, 1999
-------------------------------------------------------
Insilco Guarantors Non-Guarantors Consolidated
------- ------- ------- -------
Sales -- 62,618 -- 62,618
Cost of products sold 100 50,465 -- 50,565
Depreciation and amortization 14 2,678 -- 2,692
Selling, general and administrative
expenses 4,240 8,084 13 12,337
Restructuring charge 2,915 2,487 -- 5,402
------- ------- ------- -------
Operating income (loss) (7,269) (1,096) (13) (8,378)
Other income (expense):
Interest expense (9,406) (4) -- (9,410)
Interest income 261 13 1 275
Other income, net (36) 119 2 85
------- ------- ------- -------
Income (loss) before income taxes (16,450) (968) (10) (17,428)
Income tax benefit (expense) 4,997 499 -- 5,496
------- ------- ------- -------
Income (loss) from continuing operations
before discontinued operations (11,453) (469) (10) (11,932)
------- ------- ------- -------
Income from discontinued
operations, net of tax -- 8,899 291 9,190
------- ------- ------- -------
Net income (loss) (11,453) 8,430 281 (2,742)
======= ======= ======= =======
</TABLE>
15
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
(10) Guarantor Subsidiaries (continued)
<TABLE><CAPTION>
Condensed Consolidating Statement of Operations
(in thousands)
-----------------------------------------------------------
Six Months Ended June 30, 2000
-----------------------------------------------------------
Insilco Guarantors Non-Guarantors Consolidated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ -- 126,152 44,517 170,669
Cost of products sold -- 95,461 28,403 123,864
Depreciation and amortization 13 5,064 1,602 6,679
Selling, general and administrative
expenses 2,564 14,348 7,023 23,935
Restructuring charge -- -- -- --
-------- -------- -------- --------
Operating income (loss) (2,577) 11,279 7,489 16,191
Other income (expense):
Interest expense (16,037) (20) (3,666) (19,723)
Interest income 60 34 59 153
Other income, net 15 (378) (41) (404)
-------- -------- -------- --------
Income (loss) before income taxes (18,539) 10,915 3,841 (3,783)
Income tax benefit (expense) 3,761 (2,441) (1,394) (74)
-------- -------- -------- --------
Income (loss) from continuing operations
before discontinued operations (14,778) 8,474 2,447 (3,857)
-------- -------- -------- --------
Income from discontinued
operations, net of tax -- 48,481 1,052 49,533
-------- -------- -------- --------
Net income (loss) $(14,778) 56,955 3,499 45,676
======== ======== ======== ========
Condensed Consolidating Statement of Operations
(in thousands)(continued)
-----------------------------------------------------------
Six Months Ended June 30, 1999
-----------------------------------------------------------
Insilco Guarantors Non-Guarantors Consolidated
-------- -------- -------- --------
Sales -- 126,176 -- 126,176
Cost of products sold 100 98,198 -- 98,298
Depreciation and amortization 32 5,132 -- 5,164
Selling, general and administrative
expenses 6,287 16,469 16 22,772
Restructuring charge 2,915 2,487 -- 5,402
-------- -------- -------- --------
Operating income (loss) (9,334) 3,890 (16) (5,460)
Other income (expense):
Interest expense (18,009) (13) -- (18,022)
Interest income 277 29 1 307
Other income, net 122 181 2 305
-------- -------- -------- --------
Income (loss) before income taxes (26,944) 4,087 (13) (22,870)
Income tax benefit (expense) 7,978 (610) -- 7,368
-------- -------- -------- --------
Income (loss) from continuing operations
before discontinued operations (18,966) 3,477 (13) (15,502)
-------- -------- -------- --------
Income from discontinued
operations, net of tax -- 12,694 572 13,266
-------- -------- -------- --------
Net income (loss) (18,966) 16,171 559 (2,236)
======== ======== ======== ========
</TABLE>
16
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
(10) Guarantor Subsidiaries (continued)
Condensed Statement of Cash Flows
For the Six Months Ended June 30, 2000
(In thousands)
<TABLE><CAPTION>
Insilco Guarantors Non-Guarantors Consolidated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(14,947) 9,452 10,857 5,362
-------- -------- -------- --------
Cash flows used in investing activities:
Acquisitions, net of cash acquired (89,734) -- (10,860) (100,594)
Capital expenditures, net (8) (3,372) (93) (3,473)
Other investing activities -- 5 -- 5
Discontinued operations:
Proceeds from sale 72,845 -- -- 72,845
Capital expenditures -- (3,515) (119) (3,634)
-------- -------- -------- --------
Net cash used in investing activities (16,897) (6,882) (11,072) (34,851)
-------- -------- -------- --------
Cash flows provided by (used in)
financing activities:
Proceeds from revolving credit facility 28,128 -- -- 28,128
Loan to Insilco Holding Co. 121 -- -- 121
Retirement of long-term debt (1,381) (8) -- (1,389)
Capital transactions (6,810) -- 6,810 --
Transfers from parent 12,131 (4,433) (7,698) --
-------- -------- -------- --------
Net cash provided by (used in)
financing activities 32,189 (4,441) (888) 26,860
-------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents 345 (1,871) (1,103) (2,629)
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 $ 4,970 (584) (635) 3,751
======== ======== ======== ========
</TABLE>
17
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
(10) Guarantor Subsidiaries (continued)
Condensed Statement of Cash Flows
Six Months Ended June 30, 1999
(In thousands)
<TABLE><CAPTION>
Insilco Guarantors Non-Guarantors Consolidated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(13,740) 21,867 218 8,345
-------- -------- -------- --------
Cash flows used in investing activities:
Acquisition, net of cash acquired (25,340) -- -- (25,340)
Capital expenditures, net (6) (3,548) -- (3,554)
Other investing activities -- 1 -- 1
Discontinued operations -- (3,656) (519) (4,175)
-------- -------- -------- --------
Net cash used in investing activities (25,346) (7,203) (519) (33,068)
-------- -------- -------- --------
Cash flows provided by (used in)
financing activities:
Proceeds from revolving credit facility 28,396 -- -- 28,396
Loan from Insilco Holding Co. (27) -- -- (27)
Repayment of long term debt (625) (8) -- (633)
Funds deposited in excess of retired 10 1/4% Bonds 2,032 -- -- 2,032
Proceed from sale of minority interest 100 -- -- 100
Proceeds from sale of stock 1 -- -- 1
Payment of prepetition liabilities (1,086) -- -- (1,086)
Retirement of 10 1/4% Bonds (1,526) -- -- (1,526)
Intercompany transfer of funds 13,876 (14,395) 519 --
-------- -------- -------- --------
Net cash provided by (used in)
financing activities 41,141 (14,403) 519 27,257
-------- -------- -------- --------
Effect of exchange rate changes on cash -- -- (9) (9)
-------- -------- -------- --------
Net increase in cash
and cash equivalents 2,055 261 209 2,525
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 $ 8,527 1,343 291 10,161
======== ======== ======== ========
</TABLE>
18
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
(11) 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 June 30, 2000, the Company had an accrual of $762,000 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 June 30,
1999 Outlays 2000
------ ------ ------
<S> <C> <C> <C>
Restructuring charges:
Employee separations $ 663 (439) 224
Other exit costs 93 (93) --
Remaining noncancellable lease costs 694 (156) 538
------ ------ ------
Restructuring costs $1,450 (688) 762
====== ====== ======
</TABLE>
(12) Subsequent Event
----------------
On July 20, 2000, the Company entered into a definitive agreement to
purchase Rockwall, Texas based Precision Cable Manufacturing, a cable
and wire assembly provider to the telecommunications equipment OEMs. The
purchase price is $50.0 million plus $5.0 million in sign-on bonuses to
key executives. The transaction, which is expected to close in the third
quarter, is subject to closing adjustments, closing on a commitment for
financing and other customary terms and conditions.
19
<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 June 30, 2000, and the related condensed consolidated
statements of operations and cash flows for the three-month and six-month
periods ended June 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 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
July 26, 2000 KPMG LLP
20
<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 six-month periods
ended June 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 7 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 our agreement to sell the businesses that comprise our automotive
segment, we have reported this segment as a discontinued operation and therefore
the results of this segment are not included in consolidated sales, EBITDA, or
operating income. Our consolidated results for 1999 include our Other Segment,
which was divested in mid-1999 and consisted of our Romac Metals and McKenica
operations.
In the second quarter of 2000, our net sales increased 47% to $92.3 million from
$62.6 million recorded in the second quarter of 1999. For the first six months
of 2000, net sales of $170.7 million were $44.5 million, or 35% higher than the
same period in 1999. Our results reflect strong worldwide OEM demand for our
optical and networking equipment assemblies and electronic components and our
recently acquired custom assembly business, which accounted for $29.8 million
and $44.5 million in new revenues in the second quarter and first six months of
2000, respectively. Partially offsetting these higher sales were the missing
revenues from the divested Other Segment, which amounted to $6.8 million and
$14.9 million in the second quarter and first six months of 2000, respectively.
Revenue by segment in the second quarter and year-to-date, respectively, was as
follows:
o Custom Assemblies increased 205% and 158% reflecting our acquisition of TAT
on February 11, 2000 and higher domestic sales.
o Passive Components increased 16% and 12% 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 increased 9% and 16%, 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 138% to $13.3 million, compared to
$5.6 million recorded in the second quarter of 1999. For the first six months of
2000, EBITDA of $24.0 million was $12.6 million, or 111% higher than the same
period in 1999. A favorable sales mix for higher-margin data grade connector
products, improved margins on precision stampings, the contribution from our
recent acquisition, 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 $0.9 million in
the second quarter and first six months of 2000, respectively. EBITDA by segment
in the second quarter and year-to-date, respectively, was as follows:
21
<PAGE>
o Custom Assemblies increased $6.1 million and $9.4 million reflecting the
contribution of our recent acquisition and incremental earnings on higher
domestic sales. EBITDA margins for the quarter and year-to-date improved to
16.1% from 9.1% and to 15.1% from 8.2%, respectively.
o Passive Components increased $0.8 million and $1.2 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 improved to 16.7% from 15.5% and to 17.4% from 16.9%,
respectively.
o Precision Stampings increased $0.4 million and $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 13.6% from 12.6% and to 13.4% from 11.4%,
respectively.
Operating income for second quarter of 2000 increased to $9.1 million, or $17.5
million, from a loss of $8.4 million recorded in the second quarter of 1999. For
the first six months of 2000, operating income increased to $16.2 million, or
$21.7 million, from a loss of $5.5 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 substantially completed our initiatives to
restructure, reorganize and close certain businesses, operations, and functions
of the corporate office. Depreciation and amortization expenses increased in the
second quarter of 2000 and in the first six months of 2000 as a result of our
recent acquisition.
Our loss from continuing operations before income taxes improved $16.2 million
to a loss of $1.2 million in the second quarter of 2000 from a loss of $17.4
million recorded in the second quarter of 1999. For the first six months of
2000, the loss from continuing operations before income taxes was $3.8 million
compared to a loss of $22.9 million for the same period in 1999. The
improvements during these periods reflect the higher operating income which was
partially offset by an increase in interest expense. For the current quarter,
our interest expense was $10.3 million compared to $9.4 million recorded in the
second quarter of 1999. For the first six months of 2000, interest expense was
$19.7 million compared to $18.0 million for the same period in 1999. Increased
interest expense reflects higher short-term borrowing rates and borrowings to
finance our acquisition activities.
In the second quarter of 2000 we recorded an income tax expense of $0.3 million
as opposed to an income tax benefit of $5.4 million in the second quarter of
1999. For the first six months of 2000, we recorded an income tax expense of
$0.1 million compared to a benefit of $7.4 million for the same period in 1999.
These increases reflect differences in the tax deductibility of certain
expenses, and the improved earnings performance.
On July 20, 2000, we signed a definitive agreement to sell to our majority
shareholders the assets of our automotive segment for proceeds of $147 million,
subject to closing adjustments, closing on a commitment for financing, and other
customary terms and conditions. On February 11, 2000, we sold our Specialty
Publishing segment for $93.5 million. As a result of these transactions, we
recorded income from discontinued operations of $4.8 million for the second
quarter of 2000 and $9.2 million for the second quarter of 1999. We recorded
income from discontinued operations of $49.5 million and $13.3 million for the
first six months of 2000 and for the same period in 1999, respectively.
After accounting for discontinued operations, net income was $3.3 million for
the current quarter compared to a net loss of $2.7 million recorded in the
second quarter of 1999. For the first six months of 2000, net income was $45.7
million compared to a net loss of $2.3 million for the same period in 1999.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations were a source of $5.4 million for the six-month
period ended June 30, 2000 as compared to a source of $8.3 million for the same
period in 1999. The decline in net cash provided by operating activities
reflects increases in working capital accounts. Accounts receivable balance
increased $4.1 million over 1999 levels as a result of higher sales. Inventory
balances increased $8.1 million over 1999 levels to support projected sales
increases. Through the first six months of 2000, we paid $7.2 million in
interest on our 12% Senior Subordinated Notes due 2007.
Capital expenditures for the first six months of 2000 were $0.1 million less
than the comparable period of 1999 ($3.4 million versus $3.5 million). Capital
spending allocations during the current period by segment were 26% to Custom
Assemblies, 34% to Passive Components, and 40% 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 our revolving and term
credit facilities. These proceeds were used to reduce our Term Loan Facility. We
also plan to use the proceeds from the sale of our automotive segment, which is
expected to close before the end of the third quarter, to reduce bank debt and
to gain financial flexibility to execute our acquisition strategies.
On February 16, 2000, we amended certain terms of our Bank Credit Agreement to,
among other things (1) permit us to consummate the TAT acquisition, (2) provide
TAT to 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 $90.0 million of borrowings from our Term Loan Facility and
$1.2 million from our 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 our revolving credit facility.
On July 20, 2000, we signed a definitive agreement to acquire Precision Cable
Manufacturing, a Rockwall, Texas based provider of custom cable and wire
assemblies to telecommunications equipment OEMs for $50.0 million, plus $5.0
million in sign-on bonuses to key executives. The transaction, which we expect
to close in the third quarter, is subject to closing adjustments; closing on a
commitment for financing; and other customary terms and conditions.
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 June 30, 2000, our stockholders' deficit totaled $79.5 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 June 30, 2000, we did not have any derivative instruments in
place for managing foreign currency exchange rate risks.
23
<PAGE>
At the end of the second quarter of 2000, we had $227.2 million in variable rate
debt outstanding. A one-percentage point increase in interest rates would
increase the amount of annual interest paid by approximately $2.3 million. As of
June 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.
24
<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 May 4, 2000, on Form 8-K was filed with the SEC on
May 8, 2000, pursuant to Items 5 and 7 of that form.
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.
25
<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: August 11, 2000 By: /s/ MICHAEL R. ELIA
--------------------
Michael R. Elia
Senior Vice President, Chief
Financial Officer, Treasurer and
Secretary
