-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QvFqK1YWbmd1CUeXwM1ztc1mUQBsQf33oQfmt4nZaGay8aMmAQiW9cjLBy+YDfEa uGZaURNUE9nI9ebI0+S9Nw== 0000950152-98-005873.txt : 19980709 0000950152-98-005873.hdr.sgml : 19980709 ACCESSION NUMBER: 0000950152-98-005873 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980708 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSILCO CORP/DE/ CENTRAL INDEX KEY: 0000863204 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD FURNITURE [2510] IRS NUMBER: 060635844 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-22098 FILM NUMBER: 98662073 BUSINESS ADDRESS: STREET 1: 425 METRO PL N STE 500 STREET 2: FIFTH FL CITY: DUBLIN STATE: OH ZIP: 43017 BUSINESS PHONE: 6147920468 MAIL ADDRESS: STREET 1: 425 METRO PLACE NORTH STREET 2: FIFTH FLOOR SUITE 500 CITY: DUBLIN STATE: OH ZIP: 43017 10-Q/A 1 INSILCO CORPORATION FORM 10-Q/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A No. 1 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 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 Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. (X) Yes ( ) No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of July 1, 1998, 4,145,372 shares of common stock, $.001 par value, were outstanding. 2 INSILCO CORPORATION AND SUBSIDIARIES INDEX TO FORM 10-Q
Part I. FINANCIAL INFORMATION Page Item 1. Financial Statements Condensed Consolidated Balance Sheets 3 - March 31, 1998 (unaudited) - December 31, 1997 Condensed Consolidated Statements of Income 4 - Three months ended March 31, 1998 (unaudited) - Three months ended March 31, 1997 (unaudited) Condensed Consolidated Statement of Stockholders' Equity (Deficit) 5 - Three months ended March 31, 1998 (unaudited) Condensed Consolidated Statements of Cash Flows 6 - Three months ended March 31, 1998 (unaudited) - Three months ended March 31, 1997 (unaudited) Notes to Unaudited Condensed Consolidated Financial Statements 7 Independent Auditors' Review Report 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INSILCO CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands)
(unaudited) March 31, December 31, 1998 1997 --------- ------------ Assets ------ Current assets: Cash and cash equivalents $ 7,777 10,651 Trade receivables, net 71,688 67,209 Other receivables 5,850 3,477 Inventories, net 72,570 60,718 Deferred tax asset 371 277 Prepaid expenses and other current assets 8,993 2,716 --------- --------- Total current assets 167,249 145,048 Property, plant and equipment, net 114,770 113,971 Deferred tax asset 654 1,054 Investment in Thermalex 9,128 9,736 Goodwill, net 13,167 13,408 Other assets and deferred charges 18,436 19,456 --------- --------- Total assets $ 323,404 302,673 ========= ========= Liabilities and Stockholders' Deficit ------------------------------------- Current liabilities: Current portion of long-term debt $ 1,113 1,684 Current portion of other long-term obligations 5,114 5,393 Accounts payable 39,118 39,757 Income taxes payable 709 1,112 Accrued expenses and other 63,933 57,594 --------- --------- Total current liabilities 109,987 105,540 Long-term debt, excluding current portion 267,685 256,059 Other long-term obligations, excluding current portion 41,933 43,402 Stockholders' deficit (96,201) (102,328) --------- --------- Total liabilities and stockholders' deficit $ 323,404 302,673 ========= =========
Note: The condensed consolidated balance sheet at December 31, 1997 has been derived from the audited balance sheet as of that date. See accompanying notes to unaudited condensed consolidated financial statements. 3 4 INSILCO CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Income (Unaudited) (In thousands, except share and per share data)
Three Months Three Months Ended Ended March 31, March 31, 1998 1997 ----------- ----------- Sales $ 117,305 106,544 Cost of products sold 85,618 77,306 Depreciation and amortization 4,240 3,871 Selling, general and administrative expenses 17,672 15,978 ----------- ----------- Operating income 9,775 9,389 ----------- ----------- Other income (expense): Interest expense (6,877) (3,643) Interest income 51 449 Other income, net 1,329 509 ----------- ----------- Total other income (expense) (5,497) (2,685) ----------- ----------- Income from continuing operations before income taxes 4,278 6,704 Income tax expense (1,497) (2,343) ----------- ----------- Income from continuing operations 2,781 4,361 Discontinued operations, net of tax: Income from operations, net of $1,037 of tax -- 1,170 Gain on disposal, net of $37,213 of tax -- 57,788 ----------- ----------- Income from discontinued operations -- 58,958 ----------- ----------- Net income $ 2,781 63,319 =========== =========== Basic earnings per common share: Income from continuing operations $ 0.68 0.45 Discontinued operations -- 6.20 ----------- ----------- Basic net income per share $ 0.68 6.65 =========== =========== Weighted average number of common shares outstanding 4,086,100 9,516,504 =========== =========== Diluted earnings per common share: Income from continuing operations $ 0.66 0.44 Discontinued operations -- 5.95 ----------- ----------- Diluted net income per share $ 0.66 6.39 =========== =========== Weighted average number of common shares outstanding and common share equivalents 4,194,577 9,912,314 =========== ===========
See accompanying notes to unaudited condensed consolidated financial statements. 4 5 INSILCO CORPORATION AND SUBSIDIARIES Condensed Consolidated Statement of Stockholders' Equity (Deficit) For the Three Months Ended March 31, 1998 (unaudited) (In thousands)
Accumulated Common Stock Additional Retained Other Total Par Value Paid-in Earnings Treasury Comprehensive Stockholders' $0.001 Capital (Deficit) Stock Income Equity (Deficit) -------- -------- -------- -------- -------- --------------- Balance at December 31, 1997 $ 5 -- (82,756) (16,268) (3,309) (102,328) Net income -- -- 2,781 -- -- 2,781 Shares issued upon exercise of stock options -- 2,549 -- -- -- 2,549 Tax benefit from exercise of stock options -- 778 -- -- -- 778 Other comprehensive income -- -- -- -- 19 19 -------- -------- -------- -------- -------- -------- Balance at March 31, 1998 $ 5 3,327 (79,975) (16,268) (3,290) (96,201) ======== ======== ======== ======== -------- ========
See accompanying notes to unaudited condensed consolidated financial statements. 5 6 INSILCO CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Three Months Three Months Ended Ended March 31, March 31, 1998 1997 ---------- ---------- Cash flows from operating activities: Net income ...................................................... $ 2,781 63,319 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization ................................ 4,240 3,871 Deferred tax expense ......................................... 617 2,269 Other noncash charges and credits ............................ (239) (388) Change in operating assets and liabilities: Receivables .................................................. (6,986) (8,670) Inventories .................................................. (11,945) (12,815) Payables and other ........................................... 310 7,517 Discontinued operations: Gain on disposal of segment ............................... -- (95,001) Deferred tax expense ...................................... -- 25,687 Depreciation .............................................. -- 194 Change in operating assets and liabilities ................ -- 9,805 -------- -------- Net cash used in operating activities .............. (11,222) (4,212) -------- -------- Cash flows from investing activities: Capital expenditures ............................................ (5,813) (4,505) Other investing activities ...................................... 1,193 579 Proceeds from sale of Rolodex Business .......................... -- 112,610 -------- -------- Net cash provided by (used in) investing activities (4,620) 108,684 -------- -------- Cash flows from financing activities: Proceeds from debt borrowings .................................. 12,125 8,440 Proceeds from sale of stock .................................... 2,549 1,777 Payment of prepetition liabilities ............................. (1,647) (1,708) Purchase of treasury stock ..................................... -- (576) Retirement of long-term debt ................................... (25) (161) -------- -------- Net cash provided by financing activities .......... 13,002 7,772 -------- -------- Effect of exchange rate changes on cash ............................ (34) (202) -------- -------- Net increase (decrease) in cash and cash equivalents (2,874) 112,042 Cash and cash equivalents at beginning of period ................... 10,651 3,481 -------- -------- Cash and cash equivalents at end of period ......................... $ 7,777 115,523 ======== ======== Interest paid ...................................................... $ 10,353 3,821 ======== ======== Income taxes paid .................................................. $ 840 183 ======== ========
See accompanying notes to unaudited condensed consolidated financial statements. 6 7 INSILCO CORPORATION AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 1998 (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 in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all determinable adjustments have been made which are considered necessary to present fairly the financial position and the results of operations and cash flows at the dates and for the periods presented. (2) Discontinued Operations ----------------------- On March 5, 1997, the Company completed the sale of its Office Products Business within the Office Products/Specialty Publishing Group with the divestiture of its traditional office products business (the "Rolodex Business") for $112,610,000, net of transaction costs. The divestiture of the Rolodex Business was preceded in 1996 by the divestiture of the Rolodex electronics product line ("Rolodex Electronics") and Curtis Manufacturing Co., Inc. the Company's computer accessories business ("Curtis"). The proceeds from these sales aggregated $21,818,000. On July 7, 1998, the Company amended its Form 10-Q to account for the sale of the Office Products Business as a discontinued operation and, accordingly, the accompanying consolidated statements of operations and cash flows for the periods prior to the sale have been reclassified. Revenues associated with the discontinued Office Products Business segment for the first quarter of 1997 were $10,797,000. (3) 1997 Transactions ----------------- In 1997, the Company completed several material transactions affecting its ongoing operations and debt and capital structure (the "1997 Transactions") as described more fully below: o On July 3, 1997, the Company refinanced its existing debt under a new six year $200 million amended and restated Credit Agreement. o In the third quarter of 1997, the Company purchased an aggregate of 5,714,284 shares of its common stock in two transactions using the proceeds from the sale of the Rolodex Business, $112,610,000, net of transaction costs, and the proceeds received on the issuance of the $150 million aggregate principal amount of 10.25% Senior Subordinated Notes due 2007 (the "Notes"). 7 8 INSILCO CORPORATION AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 1998 (4) Inventories ----------- Inventories consisted of the following at March 31, 1998 (in thousands):
Raw materials and supplies $ 25,324 Work-in-process 34,149 Finished goods 13,097 -------- Total inventories $ 72,570 ========
(5) Comprehensive Income -------------------- On January 1, 1998, the Company adopted the Financial Accounting Standards Board ("FASB") Statement No. 130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS 130 establishes standards for reporting and display of comprehensive income in the financial statements. Comprehensive income is the total of net income and most other non-owner changes in equity. This statement expands or modifies disclosures and has no impact on the Company's financial position, results of operations or cash flows. Comprehensive income for the first quarters of 1998 and 1997 totaled $2,800,000 and $61,544,000, respectively, including other comprehensive income consisting of foreign currency translation adjustments (losses) totaling $19,000 and ($1,775,000), respectively. (6) Earnings Per Share ------------------ The Company has adopted the FASB Statement No. 128 ("SFAS 128"), "Earnings per Share", which simplifies the computation of earnings per share ("EPS"). All prior period earnings per share amounts have been restated to conform with SFAS 128 requirements. Under SFAS 128, the Company computes two earnings per share amounts - basic EPS and EPS assuming dilution. Basic EPS is calculated based on the weighted average number of shares of common stock outstanding for the period. EPS assuming dilution is based on the weighted average number of shares of common stock outstanding for the period, including common stock equivalents which reflect the dilutive effect of stock options granted to employees and directors. (7) 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 be paid in cash as expenses are incurred. In the opinion of management, the ultimate disposition of such claims or liabilities will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. (8) Estimates --------- In conformity with generally accepted accounting principles, the preparation of our financial statements requires our management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying actual results may ultimately differ from those estimates. 8 9 INSILCO CORPORATION AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 1998 (9) Pro Forma Result of Operations ------------------------------ The following financial information presents 1998 actual and 1997 pro forma consolidated net sales and results of operations. The 1997 pro forma consolidated net sales and results of operations are presented as if the 1997 Transactions had occurred at the beginning of 1997, exclusive of nonrecurring items directly attributable to the transaction. The pro forma results of operations are as follows (in thousands, except per share data):
Three Months Ended March 31, -------------------- 1998 1997 ---- ---- Net sales $ 117,305 106,544 Income from continuing operations 2,781 1,884 Basic income from continuing operations per share 0.68 0.50 Diluted income from continuing operations per share 0.66 0.45
(10) Merger Agreement ---------------- On March 24, 1998, it was announced that the Company and an affiliate of DLJ Merchant Banking Partners II (and affiliated funds) ("DLJMB") signed a definitive merger agreement. Under the initial terms of the agreement, the stockholders of the Company would have received total consideration of $42.98 in cash and 0.03419 shares of retained stock (having a nominal value of $44.50 per share) of the surviving corporation. On June 8, 1998, DLJMB agreed to increase the total consideration to be paid by $0.50 in cash to $43.48 in cash and 0.03378 shares of retained stock (having a nominal value of $45.00 per share) of the surviving corporation. In aggregate, stockholders will receive approximately $180.2 million in cash and retain 140,031 shares in the surviving entity. The retained shares will represent approximately 10% of the common stock outstanding post-recapitalization. The transaction, which is estimated to have a value of approximately $448 million including existing indebtedness to be assumed or refinanced, is subject to terms and conditions customary in transactions of this type, including approval by the Company's shareholders, and will be treated as a recapitalization for accounting purposes. Affiliates of Donaldson, Lufkin & Jenrette Securities Corporation, which acted as financial advisors to DLJMB, have committed to provide all debt financing required for the transaction. DLJMB also announced that it entered into a voting agreement in support of the transaction with respect to 1,783,878 shares, approximately 43% of the voting stock of the Company, with Water Street, an affiliate of Goldman Sachs, which is the Company's largest shareholder. 9 10 INSILCO CORPORATION AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 1998 As a result of the proposed merger, the Company and DLJMB will incur various costs and expenses in connection with consummating the transaction including professional fees, registration costs, financing costs, and compensation costs. Pursuant to the terms of the merger, all issued employee stock options will vest. The compensation expense associated with the option payments will include approximately $9.1 million to employees for the excess of the $45.00 purchase price per share over the exercise cost of all outstanding vested and unvested options. (11) Subsequent Event ---------------- On May 14, 1998, the Company announced that a jury had awarded its Taylor Publishing unit approximately $24 million in damages in connection with Taylor's suit against Jostens, Inc. which alleged that Jostens had violated federal antitrust laws, unfairly interfered with Taylor's sales representatives, improperly encouraged Taylor employees to divulge confidential Taylor information and otherwise engaged in unfair competition. The verdict also entitles Taylor to recover approximately $1 million in legal fees. The verdict is subject to any post trial motions and appeals by Jostens, and Taylor's receipt of the judgment is contingent on the results of any appeals. 10 11 INDEPENDENT AUDITORS' REVIEW REPORT THE BOARD OF DIRECTORS AND SHAREHOLDERS INSILCO CORPORATION: We have reviewed the condensed consolidated balance sheet of Insilco Corporation and subsidiaries as of March 31, 1998, the related condensed consolidated statements of income and cash flows for the three-month periods ended March 31, 1998 and 1997 and the condensed consolidated statement of stockholders' equity (deficit) for the three-month period ended March 31, 1998. 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, 1997, 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 January 30, 1998, except as to Note 21, which is as of June 8, 1998, and Note 2, which is as of July 7, 1998, 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, 1997, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Columbus, Ohio April 22, 1998, except as to KPMG Peat Marwick LLP Note 11, which is as of May 14, 1998, Note 10, which is as of June 8, 1998, and Note 2, which is as of July 7, 1998 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company is a diversified manufacturer of automotive, telecommunications and electronics components and is a publisher of specialty publishing products, chiefly student yearbooks. The Company's Automotive Components Group manufactures transmission components and assemblies at the Steel Parts unit, heat exchangers and heat exchanger tubing at the Thermal Components unit, and stainless steel tubing used in predominantly non-automotive applications at the Romac Metals unit. The Technologies Group manufactures cable and wire assemblies for the telecommunications industry, high performance data-grade connectors, precision metal stampings and power transformers through its Escod Industries, Stewart Connector Systems, Stewart Stamping, and Signal Transformer operating units, respectively. The Specialty Publishing Group consists of Taylor Publishing which produces primarily student yearbooks. The Company completed the divestiture of its Office Products business with the sale of the Rolodex Business in the first quarter of 1997. The Office Products Business is being accounted for as a discontinued operation and, accordingly, the consolidated statements of operations and cash flows for the periods prior to the sale have been reclassified. Summarized sales and operating income (loss) by business segment for the three months ended March 31, 1998 compared to the corresponding period in 1997 are set forth in the following table (in thousands) and discussed below:
Three Months Ended March 31, ------------------ 1998 1997 ---- ---- SALES Automotive Components Group $ 62,077 56,183 Technologies Group 50,210 47,094 Specialty Publishing 5,018 3,267 -------- ------- $117,305 106,544 ======== ======= OPERATING INCOME (LOSS) Automotive Components Group $ 5,492 5,676 Technologies Group 5,271 4,974 Specialty Publishing (970) (999) Unallocated Corporate (18) (262) -------- ------- $ 9,775 9,389 ======== =======
12 13 SALES AND OPERATING INCOME. Total net sales in the first quarter of 1998 increased 10% ($10,761,000) in the first quarter of 1998 compared to the first quarter of 1997 primarily due to 10% ($5,894,000) and 7% ($3,116,000) increases in the Automotive Components Group and Technologies Group, respectively. In addition, the Specialty Publishing Group's sales increased 54% ($1,751,000) in its seasonally slow first quarter due to the timing of yearbook deliveries compared to the prior year. The 10% increase in the Automotive Components Group's sales was primarily due to increased sales of automotive tubing and increased sales of radiators to original equipment manufacturers serving the off-road and industrial equipment markets. In addition, sales of transmission components and other stamped steel parts increased over the prior year due to increased volumes of components supplied for light truck and sport utility transmissions. The Technologies Group's sales increase of 7% was due to growth in sales of wire and cable assemblies which reflects increased sales to existing customers and continued expansion of the customer base. Sales of power transformers and precision stampings for the first quarter of 1998 were also up over the prior year. In addition, the El Paso stamping facility contributed to the year-over-year increase in sales as it has moved from the start-up phase in 1997 to production phase in the first quarter of 1998. Sales of Stewart Connector's modular data interconnect products were essentially flat compared to the first quarter of 1997. In a seasonally slow quarter, Taylor Publishing sales increased 54% ($1,751,000) in the first quarter of 1998 from the corresponding period of the prior year primarily due to timing differences in the delivery of yearbooks. (See Seasonality.) Operating income increased to $9,775,000 in the first quarter of 1998 from $9,389,000 in the first quarter of 1997 primarily due to improved operating margins in the Technologies Group. The Automotive Components Group's operating income in the first quarter of 1998 compared to the corresponding period of 1997 decreased from $5,676,000 to $5,492,000. Increased operating margins and sales volume at the Company's automotive heat exchanger and related components and equipment business were offset by lower operating margins at the Company's transmission components business and tube mill manufacturing business. The Technologies Group's operating income in the first quarter of 1998 increased to $5,271,000 from $4,974,000 in the corresponding period of 1997. Operating margins increased at Escod, Signal Transformer and Stewart Stamping. In addition, the El Paso manufacturing facility recorded a smaller operating loss in the quarter compared to last year. The operating margin in the first quarter of 1998 at Stewart Connector declined slightly from the prior year primarily due to competitive pricing pressures on mature products. In the Specialty Publishing Group, Taylor Publishing's operating loss of $970,000 in the first quarter of 1998 was relatively flat with the prior year. OTHER INCOME (EXPENSE). Other income for the first quarters of 1998 and 1997 included $716,000 and $717,000, respectively, of equity income from the Company's unconsolidated joint venture, Thermalex, which manufactures extruded aluminum tubing primarily for automotive air conditioning condensers. Interest expense increased 89% ($3,234,000) in the first quarter of 1998 compared to the first quarter of 1997 due to the issuance of $150,000,000 of 10.25% Senior Subordinated Notes (the "Notes") completed in the third quarter of 1997 (see Note 3 to the Unaudited Condensed Consolidated Financial Statements.) CASH FLOWS USED IN OPERATING ACTIVITIES. Operations used $11,222,000 cash in the first quarter of 1998 as compared to a cash usage of $4,212,000 in the first quarter of 1997. Cash flows from operations decreased from the prior year primarily due to higher interest payments related to the Notes which are payable semi-annually in the first and third quarters. 13 14 CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES. In the first quarter of 1998, the Company received a $1,324,000 dividend distribution from Thermalex and spent $5,813,000 in capital expenditures for its operating units. In the first quarter of 1997, the Company sold its Rolodex Business for cash in the net amount of $112,610,000 and spent $4,505,000 in capital expenditures. CASH FLOWS FROM FINANCING ACTIVITIES. In the first quarter of 1998, the Company borrowed a net amount of $12,125,000 on its revolving credit facility and paid $1,647,000 of prepetition liabilities. In the first quarter of 1997, the Company borrowed a net amount of $8,440,000 on its revolving credit facility and paid $1,708,000 of prepetition liabilities. SEASONALITY. The Company's yearbook publishing business, Taylor Publishing, is highly seasonal, with a majority of sales occurring in the second and third quarters of the year. Taylor receives significant customer advance deposits in the first and fourth quarters of each year. The Company's other businesses are not highly seasonal. IMPACT OF INFLATION AND CHANGING PRICES. Inflation and changing prices have not significantly affected the Company's operating results or markets. LIQUIDITY. At March 31, 1998, the Company's cash and cash equivalents and net working capital amounted to $7,777,000 and $57,262,000, respectively, compared to $10,651,000 and $39,508,000, respectively, at December 31, 1997. The borrowing ability under the Company's revolving credit facility as of the end of the first quarter of 1998 was $74,318,000, including $42,050,000 available for letters of credit. MERGER AGREEMENT. On March 24, 1998, it was announced that the Company and an affiliate of DLJ Merchant Banking Partners II (and affiliated funds) ("DLJMB") signed a definitive merger agreement. Under the initial terms of the agreement, the stockholders of the Company would have received total consideration of $42.98 in cash and 0.03419 shares of retained stock (having a nominal value of $44.50 per share) of the surviving corporation. On June 8, 1998, DLJMB agreed to increase the total consideration to be paid by $0.50 in cash to $43.48 in cash and 0.03378 shares of retained stock (having a nominal value of $45.00 per share) of the surviving corporation. In aggregate, stockholders will receive approximately $180.2 million in cash and retain 140,031 shares in the surviving entity. The retained shares will represent approximately 10% of the common stock outstanding post-recapitalization. The transaction, which is estimated to have a value of approximately $448 million including existing indebtedness to be assumed or refinanced, is subject to terms and conditions customary in transactions of this type, including approval by the Company's shareholders, and will be treated as a recapitalization for accounting purposes. Affiliates of Donaldson, Lufkin & Jenrette Securities Corporation, which acted as financial advisors to DLJMB, have committed to provide all debt financing required for the transaction. DLJMB also announced that it entered into a voting agreement in support of the transaction with respect to 1,783,878 shares, approximately 43% of the voting stock of the Company, with Water Street, an affiliate of Goldman Sachs, which is the Company's largest shareholder. As a result of the proposed merger, the Company and DLJMB will incur various costs and expenses in connection with consummating the transaction including professional fees, registration costs, financing costs, and compensation costs. Pursuant to the terms of the merger, all issued employee stock options will vest. The compensation expense associated with the option payments will include approximately $9.1 million to employees for the excess of the $45.00 purchase price per share over the exercise cost of all outstanding vested and unvested options. 14 15 SUBSEQUENT EVENT. On May 14, 1998, the Company announced that a jury has awarded its Taylor Publishing unit approximately $24 million in damages in connection with Taylor's suit against Jostens, Inc. which alleged that Jostens had violated federal antitrust laws, unfairly interfered with Taylor's sales representatives, improperly encouraged Taylor employees to divulge confidential Taylor information and otherwise engaged in unfair competition. The verdict also entitles Taylor to recover approximately $1 million in legal fees. The verdict is subject to any post trial motions and appeals by Jostens, and Taylor's receipt of the judgment is contingent on the results of any appeals. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. 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 the Company believes that the expectations reflected in the Forward-Looking Statements contained herein are reasonable, no assurance can be given that such expectations will prove to have been correct. Certain important factors that could cause actual results to differ materially from expectations ("Cautionary Statements") include, but are not limited to the following: delays in new product introductions, lack of market acceptance of new products, changes in demand for the Company's products, changes in market trends, operating hazards, general competitive pressures from existing and new competitors, effects of governmental regulations, changes in interest rates, and adverse economic conditions which could affect the amount of cash available for debt servicing and capital investments. All subsequent written and oral Forward-Looking Statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. 15 16 INSILCO CORPORATION AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits * Exhibit 10(n) First Amendment to the Value Appreciation Agreement Exhibit 27 Financial Data Schedule * Previously filed with this Form 10-Q for the quarter ended March 31, 1998. (b) Reports on Form 8-K A report, dated March 24, 1997, on Form 8-K was filed during the quarter ending March 31, 1998, pursuant to Item 5 of that form. 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned thereunto duly authorized. INSILCO CORPORATION -------------------------- Registrant Date: July 7, 1998 By: /s/ David A. Kauer ---------------------------- David A. Kauer Vice President and Chief Financial Officer 17 EX-27 2 EXHIBIT 27
5 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 115,523 0 74,476 (3,101) 70,500 282,454 159,539 (50,257) 432,520 151,540 0 10 0 0 97,450 432,520 106,544 106,544 77,306 77,306 0 137 3,643 6,704 (2,343) 4,361 58,958 0 0 63,319 6.65 6.39
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