-----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, SO28V4UTauAtI+YHQwWsWr0Mhyckc3RXXlnsQdpT4yBTWKUjAoYOzk+Hda2ZsEFB rvtFWSrNKjTMHpWy2iFeaA== 0000950152-99-004589.txt : 19990518 0000950152-99-004589.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950152-99-004589 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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 SEC ACT: SEC FILE NUMBER: 333-71947 FILM NUMBER: 99626241 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 1 INSILCO CORPORATION 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 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 The registrant meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of May 13, 1999, 100 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 (unaudited) 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 3. Quantitative and Qualitative Disclosure About Market Risk 19 PART II. OTHER INFORMATION Item 1. Legal Proceedings 19 Item 2. Changes in Securities 19 Item 3. Defaults upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Securities Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19
2 3 INSILCO CORPORATION AND SUBSIDIARIES PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page -------------------------------- ---- Condensed Consolidated Balance Sheets at March 31, 1999 4 and December 31, 1998 Condensed Consolidated Statements of Operations for the 5 three months ended March 31, 1999 and 1998 Condensed Consolidated Statements of Cash Flows for the 6 three months ended March 31, 1999 and 1998 Notes to the Condensed Consolidated Financial Statements (Unaudited) 7 Independent Auditors' Review Report 15
3 4 INSILCO CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands)
March 31, December 31, 1999 1998 ----------- ------------- (Unaudited) (Note 1) Assets ------ Current assets: Cash and cash equivalents $ 8,522 7,430 Trade receivables, net 80,165 74,969 Other receivables 6,394 4,337 Receivables from related party -- 4,882 Inventories, net 81,412 64,565 Deferred taxes 2,001 6,143 Prepaid expenses and other current assets 11,541 4,387 --------- --------- Total current assets 190,035 166,713 Property, plant and equipment, net 117,843 114,756 Deferred taxes 5,495 1,517 Other assets and deferred charges 51,210 40,040 --------- --------- Total assets $ 364,583 323,026 ========= ========= Liabilities and Stockholder's Deficit ------------------------------------- Current liabilities: Current portion of long-term debt $ 1,264 1,265 Accounts payable 39,295 34,513 Accrued expenses and other 76,848 63,693 --------- --------- Total current liabilities 117,407 99,471 Long-term debt, excluding current portion 334,447 311,144 Other long-term obligations, excluding current portion 45,955 46,329 Amounts due to Insilco Holding Co. 2,958 2,991 Stockholder's deficit: Common stock, $.001 par value; 1,000 shares authorized; 100 shares issued and outstanding at March 31, 1999 and December 31, 1998 -- -- Other stockholder's deficit (136,184) (136,909) --------- --------- Contingencies (See Note 5) Total liabilities and stockholder's deficit $ 364,583 323,026 ========= =========
See accompanying notes to the unaudited condensed consolidated financial statements. 4 5 INSILCO CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) (In thousands)
Three Months Ended March 31, ----------------------------- 1999 1998 --------- -------- Sales $ 126,899 117,305 Cost of products sold 96,005 85,618 Depreciation and amortization 4,858 4,240 Selling, general and administrative expenses 17,714 17,672 --------- --------- Operating income 8,322 9,775 --------- --------- Other income (expense): Interest expense (8,612) (6,877) Interest income 15 51 Equity in net income of Thermalex 980 716 Other income, net 154 613 --------- --------- Total other income (expense) (7,463) (5,497) --------- --------- Income before income taxes 859 4,278 Income tax expense (338) (1,497) --------- --------- Net income $ 521 2,781 ========= =========
See accompanying notes to the unaudited condensed consolidated financial statements. 5 6 INSILCO CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Three Months Ended March 31, ---------------------- 1999 1998 ---- ---- Cash flows from operating activities: Net income $ 521 2,781 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 4,858 4,240 Deferred tax expense 265 617 Other noncash charges and credits (800) (239) Change in operating assets and liabilities: Receivables (2,719) (6,986) Inventories (11,736) (11,945) Prepaids (6,638) (6,280) Payables 2,521 (574) Other current liabilities and other 13,101 7,164 -------- -------- Net cash used in operating activities (627) (11,222) -------- -------- Cash flows from investing activities: Acquisition, net of cash acquired (23,753) -- Capital expenditures (3,266) (5,813) Other investing activities 2,866 1,193 -------- -------- Net cash used in investing activities (24,153) (4,620) -------- -------- Cash flows from financing activities: Proceeds from revolving credit facility 26,819 12,125 Funds received from excess deposited for 10 1/4% bonds 2,032 -- Retirement of 10 1/4% bonds (1,500) -- Payment of prepetition liabilities (1,086) (1,647) Retirement of long-term debt (316) (25) Loan from Insilco Holding Co. (33) -- Proceeds from sale of stock -- 2,549 -------- -------- Net cash provided by financing activities 25,916 13,002 -------- -------- Effect of exchange rate changes on cash (44) (34) -------- -------- Net increase (decrease) in cash and cash equivalents 1,092 (2,874) Cash and cash equivalents at beginning of period 7,430 10,651 -------- -------- Cash and cash equivalents at end of period $ 8,522 7,777 ======== ======== Interest paid $ 9,890 10,353 -------- ======== Income taxes paid (refunded) $ (183) 840 ======== ========
See accompanying notes to the unaudited condensed consolidated financial statements. 6 7 INSILCO CORPORATION AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) March 31, 1999 (1) Basis of Presentation --------------------- The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. The balance sheet at December 31, 1998 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. As a result of the transactions described in Note 2, 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, 1998. (2) Significant Transactions ------------------------ The Company consummated several material transactions in 1998 that resulted in significant changes to its debt and capital structure. The following is a brief description of these transactions, for further information see the Company's Annual Report on Form 10-K for the year ended December 31, 1998. The Mergers. On August 17, 1998, the Company's management, Holdings and Silkworm Acquisition Corporation ("Silkworm"), an affiliate of Donaldson, Lufkin & Jenrette Merchant Banking Partners ("DLJMB"), completed a series of merger transactions. As a result, the Company became a wholly owned subsidiary of Holdings and is included in Holdings' consolidated financial statements and is a part of Holdings' consolidated group for tax purposes. Refinancing of 10 1/4% Subordinated Debt. As a result of the Mergers, the Company was required to make an offer to purchase all of the $150 million of outstanding 10 1/4% Senior Subordinated Notes due 2007 (the "10 1/4% Notes") at 101% of their aggregate principal amount, plus accrued interest. To fund a portion of the repurchase of the 10 1/4% Notes, the Company sold $120 million of 12% Senior Subordinated Notes due 2007 (the "12% Notes") with warrants to purchase 62,400 shares of Holdings common stock at $45 per share on November 9, 1998. The balance of the repurchase was funded by borrowings under the Company's Credit Facilities. In addition, on November 24, 1998, the Company amended and restated its Bank Credit Agreement to, among other things, provide for two Credit Facilities: a $175 million Revolving Facility and $125 million Term Facility. As a result of these transactions, the Company's condensed consolidated results for the periods 7 8 INSILCO CORPORATION AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) March 31, 1999 presented are not directly comparable. Pro forma results of operations for the three months ended March 31, 1998 which assumes these transactions occurred at the beginning of the period and actual results for the three months ended March 31, 1999, are as follows (in thousands):
Three Months Ended March 31, ------------------------ 1999 1998 ---- ---- Net sales $ 126,899 117,305 Income from continuing operations 521 1,568
(3) Purchase of EFI --------------- On January 25, 1999, the Company purchased the stock of Eyelets for Industries, Inc. and EFI Metal Forming, Inc., collectively referred to as EFI, a precision stamping manufacturer, for $23.7 million, including estimated costs incurred directly related to the transaction. The entire purchase was financed from borrowings under the Company's Revolving Facility. The acquisition did not result in a significant business combination within the definition provided by the Securities and Exchange Commission and therefore, pro forma financial information has not been presented. The allocation of purchase price reflected in the March 31, 1999 condensed consolidated balance sheet is preliminary and is pending appraisals of property, plant and equipment, actuarial valuations of retiree medical benefits, estimated costs of plans to exit certain EFI activities, and a final purchase price adjustment based on EFI's January 25, 1999 ending net working capital. The Company expects to have these items quantified by the third quarter of 1999. As of March 31, 1999, a preliminary $10.4 million of excess cost over the book value of the acquired assets is included in "other assets and deferred charges". (4) Inventories ----------- Inventories consisted of the following (in thousands):
March 31, December 31, 1999 1998 ------- ------ Raw materials and supplies $26,289 27,238 Work-in-process 35,977 23,559 Finished goods 19,146 13,768 ------- ------ Total inventories $81,412 64,565 ======= ======
(5) 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 8 9 INSILCO CORPORATION AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) March 31, 1999 will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. (6) Segment Information ------------------- There have been no changes in the basis of segmentation or in the basis of measurement of segment profit or loss from the Company's December 31, 1998 consolidated financial statements. Summary financial information by business segment is as follows (in thousands):
Three Months Ended March 31, ------------------------------ Net Sales: 1999 1998 --------- ---------- Automotive Components $ 56,881 54,469 Technologies 55,414 50,210 Specialty Publishing 6,460 5,018 Other 8,144 7,608 --------- --------- $ 126,899 117,305 ========= ========= Operating income: Automotive Components $ 5,965 6,486 Technologies 4,787 6,446 Specialty Publishing (584) (390) Other 453 118 Unallocated amounts: Corporate expenses (1,980) (2,259) Significant legal expenses (58) (256) Severance and write-downs (261) (370) --------- --------- Total operating income 8,322 9,775 Interest expense (8,612) (6,877) Interest income 15 51 Equity in net income of Thermalex 980 716 Other income, net 154 613 --------- --------- Income from operations before income taxes $ 859 4,278 ========= =========
A summary of identifiable assets by segment follows (in thousands):
March 31, December 31, 1999 1998 -------- ---------- Automotive Components $132,674 135,525 Technologies 125,495 96,742 Specialty Publishing 58,861 42,073 Other 17,588 17,342 Corporate 29,965 31,344 -------- -------- Total $364,583 323,026 ======== ========
9 10 INSILCO CORPORATION AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) March 31, 1999 The significant increase in identifiable assets of Technologies relates to the acquisition of EFI in January 1999 (see Note 3). (7) Comprehensive Income -------------------- Comprehensive income was $537,000 and $2,800,000 for the three months ended March 31, 1999 and 1998 respectively, including other comprehensive income consisting of foreign currency translation adjustments totaling $16,000 and $19,000 respectively. (8) Related Party Transactions -------------------------- In the first quarter of 1999, the Company received from Donaldson, Lufkin & Jenrette Securities Corporation ("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. In addition, the Company paid DLJSC advisory fees of $100,000 and at March 31, 1999 had a payable to DLJSC of $186,000 as a retainer fee for investment banking services. (9) Guarantor Subsidiaries ---------------------- In connection with the November 1998 sale of $120 million of 12% Notes, the Company permitted its wholly-owned domestic subsidiaries ("Guarantors") to unconditionally guarantee the 12% Notes on a senior subordinated basis. The guarantees are general unsecured obligations of the Guarantors, are subordinated in right of payment to all existing and future senior indebtedness of the guarantors (including indebtedness of the Credit Facilities) and will rank senior in right of payment to any future subordinated indebtedness of the Guarantors. The following condensed consolidating financial information of the Company includes the accounts of the Guarantors, the combined accounts of the non-guarantors and the Company for the periods indicated. 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. 10 11 INSILCO CORPORATION AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) March 31, 1999 (9) Guarantor Subsidiaries (continued)
Condensed Consolidating Balance Sheet (in thousands) ----------------------------------------------------------- March 31 ,1999 ----------------------------------------------------------- Non Assets Insilco Guarantors Guarantors Consolidated - ------ --------- ---------- ---------- ------------ Current assets: Cash and cash equivalents $ 7,016 56 1,450 8,522 Accounts receivable 145 81,453 4,961 86,559 Inventories -- 78,884 2,528 81,412 Deferred taxes 2,001 -- -- 2,001 Prepaid expenses and other 1,415 10,059 67 11,541 --------- --------- --------- --------- Total current assets 10,577 170,452 9,006 190,035 Property, plant and equipment, net 190 107,262 10,391 117,843 Deferred taxes 5,394 101 -- 5,495 Other assets and deferred charges 13,804 34,195 3,211 51,210 --------- --------- --------- --------- Total assets $ 29,965 312,010 22,608 364,583 ========= ========= ========= ========= Liabilities and Stockholder's Equity - ------------------------------------ (Deficit) --------- Current liabilities: Current portion of long-term debt $ 1,250 14 -- 1,264 Accounts payable -- 36,132 3,163 39,295 Customer deposits -- 40,737 -- 40,737 Accrued expenses and other 9,716 25,396 999 36,111 --------- --------- --------- --------- Total current liabilities 10,966 102,279 4,162 117,407 Long-term debt, less current portion 334,251 196 -- 334,447 Other long-term obligations, excluding current portion 27,135 18,751 69 45,955 Intercompany payable (120,529) 105,845 17,642 2,958 --------- --------- --------- --------- Total liabilities 251,823 227,071 21,873 500,767 Stockholder's equity (deficit) (221,858) 84,939 735 (136,184) --------- --------- --------- --------- Total liabilities and stockholder's equity (deficit) $ 29,965 312,010 22,608 364,583 ========= ========= ========= =========
Condensed Consolidating Balance Sheet (in thousands) ---------------------------------------------------------- December 31, 1998 ---------------------------------------------------------- Non Assets Insilco Guarantors Guarantors Consolidated - ------ --------- ---------- ---------- ------------ Current assets: Cash and cash equivalents $ 6,472 23 935 7,430 Accounts receivable 2,131 76,899 5,158 84,188 Inventories -- 61,178 3,387 64,565 Deferred taxes 6,143 -- -- 6,143 Prepaid expenses and other 838 3,506 43 4,387 --------- --------- --------- --------- Total current assets 15,584 141,606 9,523 166,713 Property, plant and equipment, net 208 103,061 11,487 114,756 Deferred taxes 1,517 -- -- 1,517 Other assets and deferred charges 14,035 22,463 3,542 40,040 --------- --------- --------- --------- Total assets 31,344 267,130 24,552 323,026 ========= ========= ========= ========= Liabilities and Stockholder's Equity - ------------------------------------ (Deficit) --------- Current liabilities: Current portion of long-term debt $ 1,250 15 -- 1,265 Accounts payable -- 31,097 3,416 34,513 Customer deposits -- 24,981 -- 24,981 Accrued expenses and other 12,411 5,360 20,941 38,712 --------- --------- --------- --------- Total current liabilities 13,661 61,453 24,357 99,471 Long-term debt, less current portion 310,945 199 -- 311,144 Other long-term obligations, excluding current portion 13,243 32,938 148 46,329 Intercompany payable (79,887) 82,878 -- 2,991 --------- --------- --------- --------- Total liabilities 257,962 177,468 24,505 459,935 Stockholder's equity (deficit) (226,618) 89,662 47 (136,909) --------- --------- --------- --------- Total liabilities and stockholder's equity (deficit) $ 31,344 267,130 24,552 323,026 ========= ========= ========= =========
11 12 INSILCO CORPORATION AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) March 31, 1999 (9) Guarantor Subsidiaries (continued)
Condensed Consolidating Statement of Operations (in thousands) -------------------------------------------------------------- Three Months Ended March 31, 1999 -------------------------------------------------------------- Non Insilco Guarantors Guarantors Consolidated ------- ---------- ---------- ------------ Sales $ -- 118,617 8,282 126,899 Cost of products sold -- 89,405 6,600 96,005 Depreciation and amortization 18 4,445 395 4,858 Selling, general and administrative expenses 2,047 14,986 681 17,714 -------- -------- -------- -------- Operating income (loss) (2,065) 9,781 606 8,322 Other income expense: Interest expense (8,603) (9) -- (8,612) Interest income 16 16 (17) 15 Other income, net 158 933 43 1,134 -------- -------- -------- -------- Income (loss) before income taxes (10,494) 10,721 632 859 Income tax benefit (expense) 2,981 (3,319) -- (338) -------- -------- -------- -------- Net income (loss) $ (7,513) 7,402 632 521 ======== ======== ======== ========
Condensed Consolidating Statement of Operations (in thousands) -------------------------------------------------------------- Three Months Ended March 31, 1998 -------------------------------------------------------------- Non Insilco Guarantors Guarantors Consolidated ------- ---------- ---------- ------------ Sales -- 110,098 7,207 117,305 Cost of products sold -- 80,206 5,412 85,618 Depreciation and amortization 18 3,729 493 4,240 Selling, general and administrative expenses 2,849 14,077 746 17,672 -------- -------- -------- -------- Operating income (loss) (2,867) 12,086 556 9,775 Other income expense: Interest expense (6,875) 12 (14) (6,877) Interest income 11 11 29 51 Other income, net 978 270 81 1,329 -------- -------- -------- -------- Income (loss) before income taxes (8,753) 12,379 652 4,278 Income tax benefit (expense) 2,512 (4,040) 31 (1,497) -------- -------- -------- -------- Net income (loss) (6,241) 8,339 683 2,781 ======== ======== ======== ========
12 13 INSILCO CORPORATION AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) March 31, 1999 (9) Guarantor Subsidiaries (continued) Condensed Statement of Cash Flows Three Months Ended March 31, 1999 (In thousands)
Non Insilco Guarantors Guarantors Total ------- ---------- ---------- ----- Net cash provided by (used in) operating activities $(15,328) 13,968 733 (627) -------- -------- -------- -------- Cash flows used in investing activities: Acquisitions, net of cash (23,753) -- -- (23,753) Capital expenditures, net -- (3,092) (174) (3,266) Other investing activities 2,866 -- -- 2,866 -------- -------- -------- -------- Net cash used in investing activities (20,887) (3,092) (174) (24,153) -------- -------- -------- -------- Cash flows provided by (used in) financing activities: Proceeds from revolving credit facility 26,819 -- -- 26,819 Intercompany transfer of funds 10,843 (10,843) -- -- Funds deposited in excess of retired 10 1/4% Notes 2,032 -- -- 2,032 Retirement of 10 1/4% Notes (1,500) -- (1,500) Payment of prepetition liabilities (1,086) -- -- (1,086) Repayment of long term debt (316) -- -- (316) Loan from Insilco Holding Co. (33) -- -- (33) -------- -------- -------- -------- Net cash provided by (used in) financing activities 36,759 (10,843) -- 25,916 -------- -------- -------- -------- Effect of exchange rate changes on cash -- -- (44) (44) -------- -------- -------- -------- Net increase in cash and cash equivalents 544 33 515 1,092 Cash and cash equivalents at beginning of period 6,472 23 935 7,430 -------- -------- -------- -------- Cash and cash equivalents at end of period $ 7,016 56 1,450 8,522 ======== ======== ======== ========
13 14 INSILCO CORPORATION AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) March 31, 1999 (9) Guarantor Subsidiaries (continued) Condensed Statement of Cash Flows Three Months Ended March 31, 1998 (In thousands)
Non Insilco Guarantors Guarantors Total --------- ---------- ---------- -------- Net cash provided by (used in) operating activities $(16,343) 4,661 460 (11,222) -------- -------- -------- -------- Cash flows used in investing activities: Capital expenditures, net (17) (5,695) (101) (5,813) Other investing activities 1,193 -- -- 1,193 -------- -------- -------- -------- Net cash provided by (used in) investing activities 1,176 (5,695) (101) (4,620) -------- -------- -------- -------- Cash flows provided by (used in) financing activities: Proceeds from revolving credit facility 12,125 -- -- 12,125 Proceeds from stock option exercise 2,549 -- -- 2,549 Intercompany transfer of funds (2,435) 2,435 -- -- Payment of prepetition liabilities (1,647) -- -- (1,647) Repayment of long-term debt (25) -- -- (25) -------- -------- -------- -------- Net cash used in financing activities 10,567 2,435 -- 13,002 -------- -------- -------- -------- Effect of exchange rate changes on cash -- -- (34) (34) -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents (4,600) 1,401 325 (2,874) Cash and cash equivalents at beginning of period 9,809 (185) 1,027 10,651 -------- -------- -------- -------- Cash and cash equivalents at end of period $ 5,209 1,216 1,352 7,777 ======== ======== ======== ========
14 15 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, 1999, and the related condensed consolidated statements of operations and cash flows for the three-month periods ended March 31, 1999 and 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, 1998, 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 10, 1999, except as to the first paragraph of Note 7, which is as of March 26, 1999, 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, 1998, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Columbus, Ohio May 3, 1999 KPMG LLP 15 16 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company consummated several material transactions in 1998 that resulted in significant changes to its debt and capital structure. As a result of these transactions, the Company's condensed consolidated results for the three months ended March 31, 1999 and 1998 are not directly comparable. Pro forma results of operations, which assume these transactions occurred at the beginning of their respective periods, and additional details are presented in Note 2 of the Notes to the Condensed Consolidated Financial Statements. RESULTS OF OPERATIONS The discussion that follows is based on a management approach and is consistent with the basis and manner in which the Company's management internally disaggregates financial information for the purposes of assisting in making internal operating decisions. See Note 6 of the Notes to the Condensed Consolidated Financial Statements for summary financial information by business segment. Consolidated Results of Operations. Net sales for the three months ended March 31, 1999 increased $9.6 million, or 8% , to $126.9 million from $117.3 million in the same period last year. The increase in sales was due to higher sales from all segments. Sales in the Automotive Components segment increased $2.4 million or 4% over last year due to higher transmission component, heat exchanger tubing, and vehicle heat exchanger sales. Sales in the Technologies segment increased $5.2 million or 10%. Contributing to this increase in sales was the January 25, 1999 acquisition of EFI. Seasonal sales from the Specialty Publishing segment increased 28% due to the timing of yearbook shipments. Finally, other segment sales, which include tubing-mill machinery and equipment and welded stainless steel tubing products, increased a combined $0.5 million, or 7%. Operating income for the three months ended March 31, 1999 decreased $1.5 million, or 15%, to $8.3 million from $9.8 million in the same period last year. Operating income in the Automotive Components segment decreased $0.5 million, or 8%. This decrease was due to lower aftermarket sales, which generally provide higher margins, and was partially offset by improved margins on vehicle heat exchangers. Operating income from the Technologies segment declined $1.6 million or 26%. This decline was due to lower absorption of stamping, cable assembly and transformer overhead. Operating income from the Specialty Publishing segment was down $0.2 million from last year due to the timing of the recognition of certain expenses. Other segment operating income increased $0.4 million, as a result of a lower operating loss from the Company's tube-mill equipment and machinery product line. Interest expense for the period increased $1.7 million to $8.6 million from $6.9 million last year, reflecting higher interest rates on the Company's 1998 debt offerings and higher debt levels as a result of the EFI acquisition in January 1999 and the August 1998 Mergers (see Note 2 of the Notes to the Condensed Consolidated Financial Statements). The Company had an income tax expense for the period of $0.3 million compared to an expense of $1.5 million last year due to lower pre-tax earnings in the first quarter of 1999. Automotive Components Segment. Net sales for the three months ended March 31, 1999 increased $2.4 million, or 4%, to $56.9 million from $54.5 million in the same period last year. This increase was due to higher transmission component, heat exchanger tubing, and vehicle heat exchanger sales, which were up 3%, 12%, and 12%, respectively. Partially offsetting these sales was a 20% decrease in industrial radiator sales due to a general softness in this market sector. 16 17 Operating income for the period decreased $0.5 million, or 8%, to $6.0 million from $6.5 million last year. The decrease was due to lower aftermarket sales which generally provide higher margins, and lower absorption of heat exchanger overhead, due to lower sales of industrial radiators. These decreases were partial offset by improve margins of vehicle heat exchangers. Operating income as a percent of sales fell to 10.5% from 11.9%, reflecting the mix change and lower overhead absorption. Technologies Segment. Net sales for the period increased $5.2 million, or 10%, to $55.4 million from $50.2 million last year. Sales from the acquisition of EFI and the acquisition of two cable assembly facilities in Ireland, which were all purchased after March 31, 1998, accounted for $6.5 million and $2.8 million, respectively, in new revenues. In addition, connector sales continue to remain strong and were up 9% from last year. Offsetting these gains were lower transformer, cable assembly, and precision stampings sales, which were collectively down 14% from last year. Operating income for the three months ended March 31, 1999 decreased $1.6 million, or 26%, to $4.8 million from $6.4 million the same period last year. The decline in operating income was due to lower absorption of stamping, cable assembly, and transformer overhead. Operating profit as a percent of sales fell to 8.5% from 12.8%, reflecting the lower overhead absorption and pricing pressure on connector products. Specialty Publishing Segment. Seasonal sales for the three months ended March 31, 1999 increased $1.5 million, or 28%, to $6.5 million from $5.0 million last year due to the timing of yearbook shipments. The seasonal operating loss for the period increased $0.2 million to $0.6 million from $0.4 million last year due to the timing of the recognition of certain expenses. The company expects to finish its spring season with higher on-time deliveries and lower expediting costs, which are expected to increase operating income as compared to last year. Other Segment. Net sales for the three months ended March 31, 1999 increased $0.5 million, or 7%, to $8.1 million from $7.6 million last year. Sales of tubing-mill machinery and equipment and welded stainless steel tubing products increased 13.2% and 5.6%, respectively. Operating income for the period increased $0.4 million to $0.5 million from $0.1 million last year as a result of a lower operating loss from the Company's tube-mill equipment and machinery product line. LIQUIDITY AND CAPITAL RESOURCES Operating Activities. For the three months ended March 31, 1999, net cash used in operating activities was $0.7 million compared to $11.2 million used in operating activities during same period last year. The $10.5 million reduction in cash requirements was due to improved working capital management, primarily accounts receivable and accounts payable. In addition, the Company received higher customer deposits from its Specialty Publishing customers. On February 16, 1999, the Company paid $3.8 million in cash as its semi-annual payment of interest on its 12% Senior Subordinated Notes due 2007. Investing Activities. Capital expenditures for the period were $2.5 million less than the comparable period for 1998. The Company expects its 1999 capital expenditures to be flat compared to 1998. Capital spending allocations during the period were 46% to the Automotive Components segment and 47% to the Technologies segment. 17 18 The Company's acquisition of EFI was funded by borrowings under its Revolving Credit Facility (see Note 3 of the Notes to the Condensed Consolidated Financial Statements). In addition, the Company received a cash dividend of $2.9 million from its investment in Thermalex compared to a $1.3 million dividend received in the first quarter of 1998. Financing Activities. During the period, the Company purchased $1.5 million of outstanding 10 1/4% Senior Notes. The Company also paid cash of $0.3 million in principal on its Term Loan Facility. The Company expects its principal sources of liquidity to be from its operating activities and funding from the revolving line-of-credit agreement. The Company further expects that these sources will enable it to meet its cash requirements for working capital, capital expenditures, interest, taxes and debt repayment for the foreseeable future. Accumulated Deficit. At March 31, 1999, the Company had a stockholders' deficit totaling $136.2 million, which is a result of both the Mergers (see Note 2 of the Notes to the Condensed Consolidated Financial Statements) and the 1997 share repurchases as describe in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. MARKET RISK AND RISK MANAGEMENT The Company's general policy is to use foreign currency borrowings as needed to finance its foreign currency denominated assets. The Company uses such borrowings to reduce its asset exposure to the effects of changes in exchange rates - not as speculative investments. As of March 31, 1999, the Company did not have any derivative instruments in place for managing foreign currency exchange rate risks. At the end of the first quarter of 1999, the Company had $ 215.7 million in variable rate debt outstanding. A one percentage point increase in interest rates would increase the amount of annual interest paid by approximately $2.2 million. As of March 31, 1999, the Company had no interest rate derivative instruments in place for managing interest rate risks. THE YEAR 2000 ISSUES As is more fully described in the Company's Annual Report on Form 10-K for the year ended December 31, 1998, the Company commenced an assessment in 1996 of the potential effects of the Year 2000 issue on the Company's business, financial condition and results of operations. To date, the costs incurred to implement the Company's Year 2000 compliance program have been immaterial. Management estimates these costs will remain immaterial through its completion of the program. Management's assessment of the risks associated with its Year 2000 program and the status of the Company's contingency plans are unchanged from that described in the 1998 Annual Report on Form 10-K. The Company's plans to complete its Year 2000 compliance program are based on management's best estimates, which are based on numerous assumptions about future events including the continued availability of certain resources and other factors. Therefore, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes and similar uncertainties. The information above contains forward-looking statements, including, without limitation, statements relating to the Company's plans, strategies, objectives, expectations, intentions, and adequate resources that are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that forward-looking statements about Year 2000 should be read in conjunction with the Company's 18 19 disclosures under the heading Forward Looking Information. 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 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. 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. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS (None) ITEM 2. CHANGES IN SECURITIES (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 (None) 19 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INSILCO CORPORATION Date: May 17, 1999 By: /s/ David A. Kauer ------------------------ David A. Kauer Vice President and Chief Financial Officer 20 EX-27.1 2 EXHIBIT 27.1
5 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 8,522 0 82,868 (2,703) 81,412 190,035 203,398 (85,555) 364,583 117,407 119,780 0 0 0 (136,184) 364,583 126,899 126,899 99,984 99,984 0 121 8,612 859 (338) 521 0 0 521 0 0 0
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