ITEM 1. BUSINESS - ----------------
THE COMPANY OVERVIEW
We are Insilco Corporation, a Delaware corporation originally incorporated in New Jersey in 1898 and we are a diversified manufacturer of vehicle, electronic and telecommunications components. Our business units service the automotive, electronics, telecommunications and other industrial markets. We own and operate a number of subsidiaries that operate in two primary business segments: Automotive Components and Technologies. The percentage of our total net sales for each of these segments over the last three fiscal years were:
1997 1998 1999 ------ ------ ------ Automotive Components 46% 44% 48% Technologies 45% 49% 48% Other (1) 9% 7% 4% ------ ------ ------ Total 100% 100% 100% ====== ====== ======
(1) This segment includes two businesses, a manufacturer of machinery and equipment for the heat exchanger market and a welded stainless steel tubing manufacturer, which were divested in 1999.
On August 17, 1998, our management, Insilco Holding Co. ("Holdings"), and Silkworm Acquisition Corporation ("Silkworm"), an affiliate of Donaldson, Lufkin & Jenrette Merchant Banking Partners ("DLJMB"), completed a series of merger transactions (see Note 1 to our Consolidated Financial Statements). As a result, we became a wholly owned subsidiary of Holdings and are included in Holdings' consolidated financial statements and as a part of Holdings' consolidated group for tax purposes.
On January 25, 1999, we purchased the stock of Eyelets for Industries, Inc. and EFI Metal Forming, Inc., collectively EFI, a precision stamping operation with facilities in Connecticut and Texas. EFI fits into our precision stamping and wireforming business unit.
On June 30, 1999, we closed our McKenica business, which manufactured high speed welded tube mills and other machinery and equipment for the heat exchanger market. McKenica was included in our Other segment.
On July 20, 1999, we acquired Thermal Transfer Products, Ltd., or TTP, a leading manufacturer of industrial oil coolers and other heat exchanger products based in Racine, Wisconsin. TTP is part of our tubing and heat transfer products business unit.
On August 23, 1999, we sold our Romac business, which manufactured stainless steel tubing for a variety of marine, architectural, automotive and decorative applications at its facility in North Carolina. Romac was in our Other segment.
On February 11, 2000, we sold our Taylor Publishing Company, which designed and printed student yearbooks. Taylor represented our discontinued Specialty Publishing segment.
On February 17, 2000, we acquired the stock of T.A.T. Technology or TAT. TAT, headquartered in Montreal, Canada, designs and provides custom wire and cable assemblies, and door, panel and electro-mechanical assemblies to telecommunication equipment manufacturers. TAT will be part of our cable and wire assembly business unit.
Our principal executive offices are located at 425 Metro Place North, Fifth floor, Dublin, Ohio 43017, and our telephone number is (614) 792-0468.
AUTOMOTIVE COMPONENTS
Our Automotive Components segment consists of two business units: tubing and heat transfer products and transmission and suspension components.
TUBING AND HEAT TRANSFER PRODUCTS. Through our Thermal Components Group, we are a vertically integrated manufacturer of heat exchangers for the automotive, specialty vehicle, truck, heavy equipment and off-road vehicle and industrial equipment markets. Our products include thin wall aluminum and brass tubes used principally in heat transfer applications and heat exchanger products such as radiators, air conditioning condensers, oil coolers and heaters.
We mainly use a direct sales force to market our products. We sell to both original equipment manufacturers or OEMs and aftermarket customers. We manufacture and distribute tubes to domestic automobile OEMs and independent manufacturers. We are an established supplier of welded radiator tubes to manufacturers
and repair shops in the heat-exchanger aftermarket. Through our joint venture, Thermalex, we manufacture and distribute multi-port aluminum extrusions used principally in automotive air conditioning condensers to domestic automobile OEMs and independent manufacturers. We own Thermalex equally with Mitsubishi Aluminum Co., Ltd.
We design and assemble heat transfer products to customer specifications for use in a broad range of applications. The markets for heat-exchanger products are highly competitive and have many participants, including OEMs who produce for their own use and several large independent manufacturers.
We have manufacturing facilities in Alabama, Michigan, South Carolina, Wisconsin and Germany.
As of December 31, 1999, we had 1,075 employees in this business unit, excluding Thermalex.
TRANSMISSION AND SUSPENSION COMPONENTS. We manufacture automotive parts consisting of close-tolerance precision metal stampings at our Steel Parts facility in Indiana. Our products include clutch plates for automatic transmissions, suspension parts for vibration-reducing assemblies and engine mounts.
We sell most of our products to the domestic automobile industry, either directly or indirectly through other independent automotive parts suppliers. Accordingly, the demand for our products depends on the level of new car production by the domestic automobile industry. We have also seen our production content per automobile increase in recent years as automobile manufacturers have moved from three-speed to four- and five-speed automatic transmissions.
The market for original equipment automobile parts is highly competitive and has many participants, principally the automobile manufacturers themselves because of their ability to make their own parts. We rely heavily on sales to one of the "Big 3" domestic automotive manufacturers. Approximately 70% of this business unit's sales in 1997, 72% in 1998 and 68% in 1999 were to this one customer.
As of December 31, 1999, we had 380 employees associated with this business unit.
TECHNOLOGIES
We manufacture telecommunication and electrical component products for the computer networking, telephone digital switching, premises wiring, main frame computer, automotive and medical equipment markets. Our Technologies segment consists of four business units:
o specialized connector systems o power transformers o precision stampings and wireforms o cable and wire assemblies
SPECIALIZED CONNECTOR SYSTEMS. Our wholly owned subsidiary Stewart Connector Systems, Inc. designs and manufactures specialized high speed data connector systems, including modular plugs, modular jacks, shielded and non-shielded specialized connectors, and cable assemblies for telecommunications, cellular communications and data transmission, including local and wide area networks. Our primary manufacturing facility is in Pennsylvania, and we have an assembly operation in Mexico.
We sell our products throughout the world, directly and through sales subsidiaries, and through a network of manufacturers' representatives. We also maintain direct sales offices (and to a lesser extent, distribution operations) in England, Japan and Germany. We sold 41% in 1997, 36% in 1998 and 44% in 1999 of these
products to foreign markets.
We have numerous domestic and foreign competitors; some have substantially more resources than we have. Competition is based principally on price with respect to older product lines and on technology and product features for newer products. Competition for newer products is also based, to a lesser extent, on patent protection.
As of December 31, 1999, we had 1,064 employees in this business unit.
POWER TRANSFORMERS. We manufacture both standard "off-the-shelf" and custom-made power transformers for a broad customer base in a variety of industries, through our wholly owned subsidiary Signal Transformer. The markets for our transformers include telecommunications, home and retail security systems, medical instrumentation, gaming and entertainment, and process controls.
We market our products directly, utilizing catalogs and print advertising. We also market our products indirectly through selective independent sales representatives in targeted regions of the country. We have a customer base of over 9,000 accounts, consisting of both OEMs and aftermarket resellers.
We have numerous competitors, including both domestic and foreign manufacturers. Competition is based on price and availability of product to meet customers' needs. We have directed our marketing efforts for many years towards engineers and other customers having specialized, low-volume demand and prompt delivery requirements. We have attempted to capitalize on this market niche by offering a service that guarantees 24-hour delivery for small order quantities of certain "off-the-shelf" transformers.
We manufacture our transformers at production facilities located in the Dominican Republic, Puerto Rico and New York. Our New York facility also serves as Signal's major sales, administration and distribution center.
As of December 31, 1999, this business unit had 617 employees.
PRECISION STAMPINGS AND WIREFORMS. We are tool designers and subcontract manufacturers of precision stampings and wireformed parts. Our wholly-owned subsidiaries Stewart Stamping and EFI manufacture components used in electrical devices such as circuit breakers, electric fuses, lighting and process controls and the electronics industries, including passive components such as capacitor cans and connector contacts. We also sell products to a broad customer base primarily in the U.S. through a network of manufacturers' representatives. We manufacture our products at our plants in New York, Connecticut and Texas.
Our competitors in each of our product lines are numerous. In the case of metal stampings, our own customers are competitors. These competitors, however, have traditionally focused away from the highly customized products and services that we provide.
As of December 31, 1999, this business unit had 504 employees.
CABLE AND WIRE ASSEMBLIES. Through our Escod Industries division, we produce electronic cable assemblies, specialized wire harnesses and certain telecommunication equipment subassemblies for sale to manufacturers of telecommunications, computer and other electronics equipment. We have four domestic production facilities, three in the Carolinas and one in Florida. We also have a facility in Northern Ireland and one in Ireland. Each facility principally serves local plants of OEMs. Substantially all of our customers are OEMs with a number of production facilities. The demand for our products depends not only on the demand for our customers' products, but also on our customers' varying utilization of their own production sites.
Telecommunications and computer OEMs account for the bulk of our sales. Two telecommunications OEMs directly or indirectly accounted for approximately 68% of our cable and wire assembly revenues in 1997, 64% in 1998 and 62% in 1999. Because of our dependence on these two major customers, revenue and operating income associated with this business unit are sensitive to changes in demand from them.
The cable assembly industry is highly fragmented and competition in our markets is based primarily on price and on responsiveness to customers' needs, product quality and proximity to customers.
As of December 31, 1999, we had 1,065 employees dedicated to this business unit.
DIVESTED BUSINESSES
On September 3, 1996, we sold Curtis, our computer accessories business. On October 4, 1996, we sold the Rolodex Electronics product line. On March 5, 1997, we sold the Rolodex Business. Curtis, Rolodex Electronics and the Rolodex Business are referred to collectively as the "Office Products Business." See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Discontinued Operations."
As of December 31, 1999, we closed or sold the business units in our Other segment. These business units were:
o STAINLESS STEEL TUBING.
On August 23, 1999, we sold our Romac business, which manufactured stainless steel tubing for a variety of marine, architectural, automotive and decorative applications at its facility in North Carolina. See Note 1 of the Notes to the Consolidated Financial Statements for further discussion.
o HEAT EXCHANGER MACHINERY AND EQUIPMENT.
On June 30, 1999, we closed our McKenica business, which manufactured high speed welded tube mills and other machinery and equipment for the heat exchanger market. See Note 1 of the Notes to the Consolidated Financial Statements for further discussion.
Also, on February 11, 2000, we sold our specialty publishing business, Taylor Publishing Company. More information on this sale is provided in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Discontinued Operations." See also Note 19 of the Notes to the Consolidated Financial Statements.
PATENTS AND TRADEMARKS
We hold patents or trademarks in most of our businesses that have expiration dates ranging from 2000 to 2019. We expect to maintain such patents and to renew them prior to expiration. We do not believe the expiration of any one of our patents will have material adverse effect on any of our businesses.
RAW MATERIALS AND SUPPLIES
We rely on the following principal raw materials and supplies for the day-to-day production of our products
o AUTOMOTIVE COMPONENTS: steel, aluminum, copper, zinc, brass and nickel o TECHNOLOGIES: copper wire, steel, brass, aluminum, plastics, ceramics and precious metals
We purchase these materials and supplies on the open market to meet current requirements. We believe these sources of supply are adequate for our needs and anticipate no difficulty in receiving any of our needed raw materials and supplies.
BACKLOG
Our backlog by business segment, which we believed to be firm at December 31, 1998 and 1999, is as follows (in thousands):
December 31, -------------------------- 1998 1999 --------- --------- Automotive Components $ 54,986 74,243 Technologies 46,528 58,305 --------- --------- Total $ 101,514 132,548 ========= =========
We believe that approximately all of our 1999 backlog will be filled in 2000.
EMPLOYEES AND LABOR RELATIONS
At December 31, 1999, we employed approximately 4,122 people on a full-time basis. Approximately 20% of these employees were covered by collective bargaining agreements with various unions. The largest collective bargaining unit covers approximately 292 employees. Union agreements covering employees at Thermal Transfer Products, Ltd. in our Automotive Components Group will expire in November 2000. We consider relations with our employees to be good.
We have defined benefit and defined contribution pension plans covering substantially all employees. For information regarding defined benefit pension plans, see Note 11 to the Consolidated Financial Statements.
ENVIRONMENTAL REGULATION AND PROCEEDINGS
Our manufacturing operations are subject to extensive federal, state and local environmental laws and regulations. We generate a variety of waste materials including cutting and cooling oils, degreasing agents, etching acids, chemicals from plating and trimming operations, and metals scraps from stamping operations. We use offsite disposal facilities owned by third parties to dispose of these wastes and we do not store any waste to the extent such storage would require obtaining a permit. We do not treat, store or dispose of waste for others. We obtain permits, where required, to operate all of our facilities. These permits may be subject to revocation or modification.
We have taken significant measures to (1) address emissions, discharges and waste generation and disposal, (2) improve management practices and operations in response to legal requirements, and (3) internally audit compliance with applicable environmental regulations and approved practices. In order to achieve these goals, we have instituted several programs including (1) raw material and process substitution, recycling and material management, (2) periodic review of hazardous waste storage and disposal practices, and (3) review of compliance and financial status and management practices of our offsite third-party waste management firms.
During our reorganization, we settled all claims of the United States relating to our pre-petition date conduct at previously owned or third party sites arising under the federal Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA. This settlement (1) discharged us from contribution claims of the United States at a number of hazardous waste sites, (2) protects us from contribution claims of the remaining potentially responsible parties, (3) limits the amount we may be required to pay the United States in any one year on pre-petition claims, and (4) provides that any such payment may be made in cash or, at our option, common stock valued at 30% of the allowed claim.
We are also currently engaged in clean up programs at sites located in Newtown, Connecticut, Mount Vernon, New York and Oak Creek, Wisconsin. We have established what we believe are appropriate reserves for anticipated remedial obligations. Because of the establishment of these reserves and our settlements with the United States, we do not believe that environmental compliance or remedial requirements are likely to have a material adverse effect on us.
FINANCIAL INFORMATION ABOUT EXPORT SALES
In 1997, our export sales were $55.4 million or 13% of consolidated sales. We exported $21.2 million to Europe, $14.0 million to Asia, $9.7 million to Canada and $4.3 million to Mexico. The remaining $6.2 million accounts for the rest of the world. In 1998, our export sales were $46.7 million or 11% of consolidated sales. We exported $22.8 million to Europe, $8.8 million to Asia, $7.7 million to Canada and $3.0 million to Mexico. The remaining $4.4 million of export sales accounts for the rest of the world. In 1999, our export sales were $62.2 million or 13% of consolidated sales. We exported $35.4 million to Europe, $10.2 million to Asia, $7.7 million to Canada and $3.2 million to Mexico. The remaining $5.7 million of export sales accounts for the rest of the world. Primarily, we conduct our transactions in U.S. currency.
ITEM 2.
ITEM 2. PROPERTIES - ------------------
PROPERTIES
We manufacture our products in various locations, primarily in the United States. Management believes that our facilities generally are well maintained and adequate for the purposes for which they are used. Our principal operating plants and offices at December 31, 1999 included the following properties:
(1) Property is leased from an industrial development authority in connection with an expired industrial revenue bond and is eligible for purchase by us for a nominal consideration at the expiration of the lease term.
Substantially all of our material domestic assets, including owned properties, are subject to major encumbrances securing our obligations under the Bank Credit Agreement.
We believe that all of our production facilities have additional production capacity.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS - -------------------------
On January 14, 1997, Taylor sued one of our principal competitors in the yearbook business, Jostens, Inc. ("Jostens"), in the U.S. District Court for the Eastern District of Texas, alleging violations of the federal antitrust laws as well as various claims arising under state law. On May 13, 1998, the jury in the case returned a verdict in favor of Taylor, and, on June 12, 1998, the judge rendered his judgment in the amount of $25.2 million plus interest at an annual rate of 5.434%. On January 14, 1999, in response to a motion by Jostens, the judge entered an order vacating the jury verdict and granting judgment in Jostens' favor. Taylor appealed the final judgment, seeking reinstatement of the original judgment in Taylor's favor, to the United States Court of Appeals for the Fifth Circuit. Taylor's appeal was argued on December 8, 1999, and Taylor is awaiting a decision. We sold Taylor Publishing Company and it is uncertain what actual amount, if any, we will recover from Jostens.
From time to time, we are involved in litigation relating to claims arising out of our operations in the normal course of our business. We maintain insurance coverage against potential general liability and certain other claims in an amount we believe to be adequate. In our opinion, the outcome of these matters will not have a material adverse effect on our financial condition, liquidity or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - -----------------------------------------------------------
Not Applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED - ------------------------------------------------------------- STOCKHOLDER MATTERS - -------------------
The common stock is our only class of authorized equity securities. All of the common stock is owned by Holdings following the Mergers described herein. Prior to the Mergers, our common stock was traded on the Nasdaq National Market under the symbol "INSL". The following table sets forth, for the periods indicated, the high and low sale prices for our common stock as reported by the Nasdaq National Market through the date of the Mergers.
Low Sale High Sale -------- --------- 1998: - ----- First Quarter $ 32.000 $ 43.375 Second Quarter $ 42.875 $ 44.625 Third Quarter (through August 17, 1998) $ 43.750 $ 45.000
1997: - ----- First Quarter $ 34.000 $ 41.000 Second Quarter $ 36.750 $ 39.000 Third Quarter $ 36.000 $ 39.250 Fourth Quarter $ 33.000 $ 38.500
On August 17, 1998, we completed a series of transactions. These transactions included, among other things, the formation by Insilco Holding Co. ("Holdings") (then a wholly-owned subsidiary of us) of a wholly-owned subsidiary ("ReorgSub"), followed by the merger of ReorgSub with and into us (the "Reorganization Merger"), pursuant to which each stockholder of us had his or her shares of us converted into the same number of shares of Holdings and the right to receive $0.01 per share in cash, and Holdings became the parent of us.
Promptly following the Reorganization Merger, a second merger took place pursuant to which Silkworm Acquisition Corporation ("Silkworm"), an affiliate of DLJMB, merged with and into Holdings (the "Merger", and together with the Reorganization Merger, the "Mergers") and each share of Holdings common stock was converted into the right to receive $43.47 in cash and 0.03378 of a share of Holdings common stock. Thus, as a result of the Mergers, each stockholder of us, in respect of each of his or her shares, received $43.48 in cash and retained 0.03378 of a share of Holdings common stock.
Following the Mergers, (1) our existing stockholders retained, in the aggregate, approximately 10.1% (9.4% on a fully diluted basis) of the outstanding shares of Holdings common stock; (2) the DLJMB Funds held approximately 69.0% (69.8% on a fully diluted basis) of the outstanding shares of Holdings common stock; (3) 399 Venture Partners Inc., an affiliate of Citibank, N.A. ("CVC"), purchased shares of Silkworm which in the Merger were converted into approximately 19.3% (17.8% on a fully diluted basis) of the outstanding shares of Holdings common stock; (4) our management purchased approximately 1.7% (1.5% on a fully diluted basis) of the outstanding shares of Holdings common stock; and (5) we no longer had public equity securities.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA - -------------------------------
The following table sets forth selected financial information (dollars in thousands) derived from our Consolidated Financial Statements.
Notes to the Selected Financial Data are as follows:
(1) We have consummated several material transactions over the five-year period presented here, which significantly affect the comparability of the information shown. (See Note 1 to the Consolidated Financial Statements.)
(2) Amortization of Reorganization Goodwill for 1995 resulted from our emergence from Chapter 11 bankruptcy proceedings (the "Chapter 11 Cases") on April 1, 1993 (the "Reorganization Date") pursuant to an Amended and Restated Plan of Reorganization dated November 23, 1992 (the "Plan of Reorganization").
(3) Operating income in 1995 includes a gain of $4.3 million related to a change in our pension plan. In addition, operating income for 1995 includes the deduction for Amortization of Reorganization Goodwill.
(4) Other income in 1995 includes favorable adjustments of $3.6 million related to our environmental liabilities, $1.5 million related to the resolution of several legal disputes, and a $4.0 million gain on the sale of idle corporate assets.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------------------------------------------------------------------- AND RESULTS OF OPERATIONS - ------------------------- OVERVIEW
Our two primary business segments have different operating and growth characteristics.
Our Automotive Components segment designs, manufactures, and distributes component products used in automotive, heavy-equipment, and other transportation vehicles. Growth and performance in this segment is tied closely to the vehicle production rates of automotive and heavy-equipment manufacturers as well as after-market demand for replacement products.
The growth and performance of our Technologies segment is dependent on the demand for its customers' end products and network infrastructure build-outs. We feel we have aligned ourselves with market leaders in the electric, electrical, telecommunications and data communications markets.
Our Other segment includes two business units, which were either sold or closed as of December 31, 1999. These business units were a manufacturer of high-speed welded tube mills and other machinery (McKenica) and a welded stainless steel tubing manufacturer (Romac).
We consummated several material transactions in 1997, 1998 and 1999 that resulted in significant changes to our debt and capital structure. A summary of these transactions is as follows:
1997 AMENDED AND RESTATED CREDIT AGREEMENT: As of July 3, 1997, we entered into an Amended and Restated Credit Agreement (the "1997 Bank Credit Agreement"). This agreement among other things, provided for (1) a $200 million revolving credit facility, (2) a $50 million sublimit for commercial and standby letters of credit, and (3) a $50 million sublimit for advances in selected foreign currencies.
ISSUANCE OF 10 1/4% SUBORDINATED DEBT: On August 12, 1997, we issued $150 million aggregate principal amount of 10.25% Senior Subordinated Notes due 2007 (the "10 1/4% Notes"), realizing net proceeds of $145.9 million from issuance.
SHARE REPURCHASE: On July 10, 1997, using the proceeds from the sale of the Rolodex Business, we purchased an aggregate of 2,857,142 shares of our common stock for $109,999,967. On August 12, 1997, we completed a tender offer pursuant to which we purchased 2,857,142 additional shares for $109,999,967. These shares were purchased with proceeds received from the issuance of our 10 1/4% Notes.
THE MERGERS: On August 17, 1998, Insilco Holding Co. completed a series of mergers and transactions reorganizing our corporate structure. After the reorganization, Insilco Holding Co. became the parent of all our subsidiaries and us. Pursuant to the reorganization plan each stockholder of us converted his or her shares into shares of Insilco Holding Co. and the right to receive $0.01 per share in cash. Promptly following the reorganization, Silkworm Acquisition Corporation, an affiliate of DLJMB, merged with and into Insilco Holding Co.
THE MERGER FINANCING: Insilco Holding Co. financed the foregoing transactions with approximately $204.4 million of cash from: (1) gross proceeds of approximately $70.2 million from the issuance of 14% Senior Discount Notes, (2) the issuance of 1,245,138 shares of common stock for approximately $56.1 million, (3) the issuance of 1,400,000 shares of the PIK Preferred Stock for $35.0 million and (4) approximately $43.1
million of new borrowings under our existing credit facility.
We incurred $20,890,000 of costs related to these mergers in 1998.
REFINANCING OF 10 1/4% SUBORDINATED DEBT: As a result of the merger, we purchased all the outstanding 10 1/4% Notes at 101% of their aggregate principal amount, plus accrued interest by selling $120 million of 12% Senior Subordinated Notes on November 9, 1998, which generated approximately $116.4 million, and borrowing approximately $30.0 million under our credit facilities.
In addition, on November 24, 1998, we amended and restated our Bank Credit Agreement to provide, among other things, for two credit facilities: a $175 million revolving loan and a $125 million term loan.
DIVESTITURES: We sold our Office Products Business, which was part of our Office Products/Specialty Publishing Group, in three separate transactions. First, on September 3, 1996, we sold our computer accessories business (Curtis) and next, on October 4, 1996, we sold our electronic organizer business (Rolodex Electronics). The aggregate proceeds from these sales of $21.8 million were used to reduce the outstanding amounts on our bank loans. Finally, on March 5, 1997, we sold the remainder of the Office Products Business, which consisted of the Rolodex Business, for net cash proceeds of approximately $112 million (the "Rolodex Proceeds"). As a result of these sales, our Office Products Business is accounted for as a discontinued operation (See "Discontinued Operations").
ACQUISITIONS: On July 20, 1999, we executed a definitive merger agreement with Thermal Transfer Products, Ltd., whereby Thermal Transfer Acquisition Corporation, a newly created wholly owned subsidiary of us, was merged with Thermal Transfer Products. The surviving entity, Thermal Transfer Products, Ltd. or TTP is a wholly owned subsidiary of us. TTP, a leading manufacturer of industrial oil coolers and other heat exchanger products, is based in Racine, Wisconsin.
On January 25, 1999, we purchased the stock of Eyelets for Industries, Inc. and EFI Metal Forming, Inc., collectively EFI, a precision-stamping manufacturer.
DIVESTITURES: On December 17, 1999, we entered into a definitive sale agreement with TP Acquisition Corp., a wholly owned subsidiary of Castle Harlan Partners III, L.P. to sell our specialty publishing business, Taylor Publishing Company. Our accompanying consolidated statements of operations and cash flows are reclassified to account for the sale of the Specialty Publishing Business as a discontinued operation. The sale was completed on February 11, 2000.
These transactions have had a significant impact on our results of operations and financial position. Results of operations have been affected by increases in the amortization of intangibles, inventory costs, depreciation, interest expense, and deferred financing and prepayment fees. As a result of these transactions, our consolidated results for 1998 and 1999 are not directly comparable. Pro forma results of operations, which assume these transactions occurred at the beginning of their respective periods, are presented in Note 18 of the Notes to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
In conjunction with our reorganization, we adopted earnings before interest, taxes, depreciation and amortization (EBITDA) as a basis and manner for presenting and using financial information to assist us in making internal operating decisions. Certain investors use EBITDA as a measure of operations and the ability to meet debt service requirements. EBITDA 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. Moreover, the EBITDA amount presented herein is not necessarily comparable to other similarly titled captions of other companies, or as defined by the Company's Bank Credit Agreement or Debentures due to inconsistencies in the method of calculation. The table included in our segment data footnote (Note 17 of the Notes to the Consolidated Financial Statements) is a summary (in thousands) of our net sales and income (loss) from continuing operations before income taxes and extraordinary items, and our net income (loss) for the periods ended December 31, 1997, 1998, and 1999. This presentation and the discussion that follows are consistent with the basis and manner in which our management internally uses financial information to assist them in making internal operating decisions.
1998 COMPARED TO 1999
CONSOLIDATED RESULTS OF OPERATIONS: Our results for 1998 include the following:
o Our merger fees relating to the August 1998 merger with DLJMB of $20.9 million, which are included in merger expenses (see Note 1 of the Notes to the Condensed Consolidated Financial Statements). o $1.3 million in legal fees relating to antitrust and other significant legal proceedings, which are included in significant legal expenses. o Relocation expenses of $0.5 million relating to the consolidation our Great Lake and General ThermoDynamics locations, which are included in severance, writedowns and other. o Lease cancellation costs incurred at our Stamping El Paso location of $0.2 million, which are include in severance, writedowns and other. o Our severance costs relating to corporate staff reductions of $1.4 million and rationalization activities at our operating locations of $1.3 million, which are included in severance, writedowns and other.
Similarly, our results for 1999 included the following:
o Our closing of our heat exchanger machinery and equipment business (McKenica) and a $5.8 million charge relating to this action, which is included in severance, writedowns and other. o Our closing of our Duncan, South Carolina heat exchanger tubing manufacturing facility and a $1.1 million charge relating to this action, which is included in severance, writedowns and other. o $4.7 million charge relating to the restructuring of our corporate staff and rationalization activities within our operating units, which is included in severance, writedowns and other. o Consulting fees relating to the analysis of potential cost benefits and the expense of establishing a separate legal entity to better manage our future health care costs of $1.8 million, which are included in significant legal expenses. o $0.9 million of legal fees relating to antitrust and other significant legal proceedings, which are included in significant legal expenses. o Our acquisition of EFI and TTP, which required $48.7 million of borrowings under our Revolving Facility. o The sales of (1) our welded stainless steel tubing business assets for $16.5 million, (2) certain assets, including the intellectual property, of our heat exchanger machinery and equipment business for $1.7 million and (3) our Duncan, South Carolina facility for $3.2 million. Our net gain on these sales of $9.1 million is reflected in other income and the proceeds were used to pay down our Revolving and Term Loan Facilities.
Our net sales from continuing operations for 1999 increased $55.1 million, or 14%, to $458.2 million from $403.1 million last year. Sales in the Automotive Components segment increased $14.9 million, or 7%, over last year to $228.3 million. Sales in the Technologies segment increased $40.2 million, or 21%, to
$230.0 million. Contributing $54.4 million to these sales increases were this year's acquisitions of EFI and TTP in January and July 1999, respectively, as well as last year's acquisition of two cable assembly operations in Ireland. Other segment sales, which include heat exchanger machinery and equipment and welded stainless steel tubing products declined by $13.1 million, or 42%, from the prior year as a result of our divesting the two business units that comprise this segment.
EBITDA from continuing operations for 1999 increased $2.4 million, or 5%, to $54.7 million from $52.3 million last year. Lower corporate expense due to a reduction in staff in June 1999 accounted for the majority of the increase, while EBITDA from the Automotive Components and Technologies segments was essentially flat. Other segment EBITDA declined by $1.1 million, or 50%, as a result of the aforementioned divestitures.
Operating income from continuing operations increased $8.4 million from $13.7 million in 1998 to $22.1 million in 1999. The increase was due to the current year absence of $20.9 million of merger fees and expenses incurred in 1998. The merger fee and expenses reduction was partially offset by increases in depreciation and amortization, significant legal expenses, and reorganization, severance and writedown expenses.
Interest expense for 1999 increased $7.9 million to $36.5 million from $28.6 million last year, reflecting the higher interest rates of our 1998 debt offerings and higher debt levels as a result of our acquiring EFI and Thermal Transfer Products and the merger with DLJMB. On a cash basis, excluding the amortization of debt issuance and other costs, interest expense increased $7.2 million to $34.3 million from $27.1 million.
Net gain on asset disposals increased by $8.7 million due mainly to the $9.1 million net gain on the sales of the Romac business, the McKenica equipment and intellectual property and the TCD, Inc., building.
Other income, net, decreased by $2.8 million due mainly to various miscellaneous liability releases in 1998.
We had an income tax benefit of $5.1 million for the period compared to a benefit of $1.6 million last year. This change in our effective tax rate occurred because the merger expenses incurred in the prior year were mainly not tax deductible, while the gain on the sale of our welded stainless steel tubing business was not taxable in the current year. For information concerning the provision for income taxes, as well as information regarding differences between effective tax rates and statutory rates, see Note 13 of the Notes to the Consolidated Financial Statements.
We recorded income from discontinued operations of $1.5 million in 1998 and $5.6 million in 1999 related to the sale of our Specialty Publishing segment, a significant line of business. The sale of this line of business was completed on February 11, 2000 for $93.5 million before adjustments for working capital and other transaction-related fees and expenses (see Note 19 of the Notes to the Consolidated Financial Statements). As a result of this sale, the Specialty Publishing segment has been accounted for 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 business for 1998 were $101.3 million and 1999 were $103.7 million.
We recorded an extraordinary item of $5.9 million, net of tax, in 1998 relating to the write-off of deferred financing fees associated with the 1997 Bank Credit Agreement and 10 1/4% Notes.
AUTOMOTIVE COMPONENTS: Net sales increased $14.9 million, or 7%, to $228.3 million from $213.4 million last year. Sales benefited $12.0 million from our acquisition of Thermal Transfer Products on July 20, 1999. The segment's base business increased $2.9 million, or 1%, from last year. The increase in base business was primarily due to strong demand for aluminum radiator tubing. This increase was partially offset by declining copper and brass tubing sales due to weaker demand for industrial radiators and an
industry shift toward lighter weight aluminum heat exchanger products. A weaker U.S. dollar against the German Deutsche Mark lowered the translation of German-based sales by approximately $3.3 million.
EBITDA for the period increased slightly from $31.6 million in 1998 to $32.5 million in 1999. The increase was due to the incremental contribution from the Thermal Transfer Products acquisition coupled with the margin on increased aluminum radiator sales. These increases were partially offset by the decline in the higher margin copper and brass tubing sales. A weaker U.S. dollar against the German Deutsche Mark lowered the translation of German-based EBITDA by approximately $0.4 million.
TECHNOLOGIES: Net sales for the period increased $40.2 million, or 21%, to $230.0 million from $189.8 million last year. Our acquisitions of EFI on January 25, 1999 and two cable assembly operations in Ireland in the fourth quarter of 1998 accounted for approximately $42.4 million in incremental sales. Offsetting these increases were lower domestic cable assembly, transformer, precision stampings and patch cord assembly sales, reflecting inventory corrections and weakness in worldwide demand for electronic components during the first half of 1999. A weaker U.S. dollar against the German Deutsche Mark lowered the translation of German-based sales by approximately $1.0 million.
EBITDA for the period decreased slightly to $28.2 million in 1999 from $28.4 million in 1998. The decrease was due to the lower sales mentioned above partially offset by the incremental contribution from the EFI acquisition. A weaker U.S. dollar against the German Deutsche Mark lowered the translation of German-based EBITDA by approximately $1.0 million.
OTHER: Net sales decreased $13.1 and EBITDA decreased $1.1 million due to the divestiture of the segment in two separate transactions during 1999.
1997 COMPARED TO 1998
CONSOLIDATED RESULTS OF OPERATIONS: Our net sales from continuing operations in 1998 increased $10.3 million, or 3%, to $403.1 million from $392.8 million in 1997. The increase in sales was primarily due to higher sales from our Automotive Components segment, which increased $19.5 million or 10% over 1997. This increase was due primarily to higher heat exchanger and tubing sales, which were up 16%. These increased sales were partially offset by a 2% decrease in the sales of transmission related components. The increase in Automotive Component sales was partially offset by a decrease in sales in our Technologies segment, which declined $9.1 million or 5%. Although connector product sales increased 7%, sales of wire and cable assembles, transformers and precision stampings collectively declined 9%. Other segment sales, which includes heat exchanger machinery and equipment and welded stainless steel tubing products, decreased a combined $6.1 million or 16%.
EBITDA from continuing operations in 1998 decreased slightly to $52.3 million from $53.6 million. The decrease was due to the weak sales in our Technologies segment reflecting a general industry inventory correction and weakness in worldwide demand for electronic components during the second half of 1998. This shortfall was partially offset by increased performance in the Automotive Components segment and lower corporate expense due to staff reductions. Other segment EBITDA suffered from the performance in the heat exchanger machinery and equipment business.
Operating income decreased to $13.7 million in 1998 from $44.0 million in 1997. Contributing to this decrease in operating income were: (1) $20.9 million of expenses relating to our August 1998 merger with DLJMB, (2) charges for severance expenses totaling $1.6 million related to workforce reductions at the corporate office and Technologies segment, (3) $1.3 million higher legal expenses relating to two significant lawsuits, (4) $0.7 million related to facilities consolidations and lease cancellation costs and (5) the erosion of performance in the heat exchanger machinery and capital equipment business.
Interest expense in 1998 increased $8.6 million to $28.6 million from $20.0 million in 1997, reflecting higher interest rates on our 1998 debt offerings and higher debt levels as a result of the August 1998 Merger and the July 1997 Share Repurchase. On a cash basis, excluding the amortization of debt issuance and other costs, interest expense increased $8.4 million to $27.1 million from $18.7 million.
Net gain on asset dispositions and other income, net, increased $0.9 million to $7.6 million from $6.7 million in 1997, due to various non-operating, non-recurring items.
We had an income tax benefit in 1998 of $1.6 million compared to an expense of $11.1 million in 1997 due to the loss generated from continuing operations in 1998. For information concerning the provision for income taxes, as well as information regarding differences between effective tax rates and statutory rates, see Note 13 of the Notes to the Consolidated Financial Statements.
We recorded income from discontinued operations of $1.5 million in 1998 and $62.9 million in 1997 relating to the: (1) operations of the Specialty Publishing segment in 1998 and 1997, (2) operations of the Office Products Business in 1997 and (3) sale of its Office Products Business in 1997. The Office Products Business and Specialty Publishing segment are considered significant lines of business. The sale of the Office Products Business was completed on March 5, 1997 with the sale of Rolodex for $112.6 million, net of transaction costs. As a result of this sale, the Office Products Business has been accounted for as a discontinued operation and, accordingly, the accompanying consolidated statements of operations and cash flows for the periods prior to the sales have been reclassified. Revenues associated with the discontinued businesses for 1997 were $109.0 million and 1998 were $101.3 million.
We recorded an extraordinary item of $5.9 million, net of tax, in 1998 relating to the write-off of deferred financing fees associated with the 1997 Bank Credit Agreement and 10 1/4% Notes.
AUTOMOTIVE COMPONENTS: Net sales in 1998 increased $19.5 million, or 10%, to $213.4 million from $193.8 million in 1997. The increase was due to higher aluminum and charged-air-cooler tubing, aluminum heat exchangers, and radiator sales. These sales increases were partially offset by lower transmission component and copper and brass tubing sales.
EBITDA in 1998 increased $1.6 million, or 5%, to $31.6 million from $30.0 million in 1997 due to higher sales and the resulting increase in gross profits while selling, general and administrative expenses were flat compared to 1997.
TECHNOLOGIES: Net sales in 1998 decreased $9.1 million, or 5%, to $189.8 million from $198.9 million in 1997. While connector sales were up 7% from 1997, sales of wire and cable assemblies, transformers and precision stampings were collectively down 9% due a continuing slowdown in global electronics markets and weak demand for electronic end products.
EBITDA in 1998 decreased $4.5 million, or 14%, to $28.4 million from $32.9 million in 1997. The decrease was due primarily to the decrease in sales and a slight decrease in gross profit margins. In addition, selling, general and administrative expenses increased 3%.
OTHER: Net sales in 1998 decreased $6.0 million, or 16%, to $31.2 million from $37.2 million in 1997. A 45% decrease in tube mill capital equipment sales, as a result of weak domestic and international demand for milling equipment accounted for the decline.
EBITDA in 1998 decreased $3.6 million, or 61%, to $2.2 million from $5.8 million in 1997 due to the decline in tube mill capital equipment sales.
LIQUIDITY AND CAPITAL RESOURCES
In general, we require liquidity for working capital, capital expenditures, interest, taxes, debt repayment and our acquisition strategy. Of primary importance are our working capital requirements, which increase whenever we experience strong incremental demand or geographical expansion. We expect to satisfy our liquidity requirements through a combination of funds generated from operating activities and the funds available under our Bank Credit Agreement.
OPERATING ACTIVITIES: Net cash provided by operating activities was $22.6 million compared to $4.6 million provided by operating activities last year. The $18.0 million increase was primarily due to increased net income. We paid cash interest of $31.7 million in 1998 and $32.0 million in 1999 on our 12% notes, our revolving and term credit facility and miscellaneous other items.
INVESTING ACTIVITIES: Capital expenditures from continuing operations for 1998 were $18.0 million compared to $15.1 million in 1999. We expect our 2000 capital expenditures to be slightly less than 1999. Capital spending allocations during the period were 52% to the Automotive Components segment and 48% to the Technologies segment.
We borrowed $48.7 million under our Revolver Facility in 1999 to acquire EFI and Thermal Transfer Products. Also, we received cash dividends in 1999 of $10.4 million from our investment in the Thermalex joint venture compared to $1.3 million in 1998. These dividends reflect a special dividend of $7.5 million. 2000 dividends are expected to be approximately $1.0 million.
We received proceeds of $16.5 million on the sale of our welded stainless steel tubing products business, $1.7 million of proceeds from the sale of certain equipment and intellectual property of our heat exchanger machinery and equipment business and $3.2 million in proceeds from the sale of Duncan, South Carolina facility. These proceeds were used to reduce borrowings under our revolving and term credit facilities.
In addition, on February 11, 2000, we sold our Specialty Publishing business for $93.5 million. The net proceeds of approximately $70.0 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.
FINANCING ACTIVITIES: Our annual cash interest expense on our 12% Notes, which are due 2007, is approximately $14.4 million. Interest on these notes is payable semi-annually on February 15 and August 15.
Our Bank Credit Agreement, as of March 17, 2000, includes a $119.3 million Term Facility and a $166.1 million Revolving Facility. The agreement provides for revolving loans and up to $50 million of letters of credit. The Revolving Facility can be used to fund acquisitions, provide working capital and for other general corporate purposes. The Term Facility has a maturity of seven years and is subject to mandatory quarterly prepayments of $0.3 million for the first six years and quarterly payments of approximately $29.4 million in the seventh year. Cash interest on the Term Facility is based on a leverage ratio. At December 31, 1999, the applicable interest rate was LIBOR plus 3.75%. Payments of principal and interest on the Term Facility are due quarterly each March, June, September and December. The Revolving Facility terminates on July 8, 2003, and interest is based on a leverage ratio. At December 31, 1999, the applicable interest rate was LIBOR plus 2.50%. Availability under the Revolving Facility will decrease by $17.5 million on each of July 10, 2001 and July 10, 2002.
The Bank Credit Agreement is secured by a first-priority perfected lien on substantially all of our assets, including a pledge of all of the stock of our domestic subsidiaries and 65% of the stock of our foreign Subsidiaries. Payment of principal and interest on amounts borrowed under the Bank Credit Agreement are
guaranteed by substantially all of our domestic subsidiaries. As of March 17, 2000, we had approximately $50.2 million of available funds under this agreement.
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 that TAT assume up to $90.0 million in aggregate principal amount of the Term Loans, (3) release our direct obligations in respect of such assumed portion of the Term Loans and (4) increase the interest rates applicable to the loans in certain circumstances. On February 17, 2000 we purchased TAT Technology for $91.2 million, using the $90.0 million of borrowings from our Term Loan Facility and $1.2 million from our Revolving Credit Facility (see Note 19 of the Notes to the Consolidated Financial Statements).
We expect our principal sources of liquidity to be from our operating activities and funding from our Revolving Credit Facility. We further expect that these sources will enable us to meet our long-term cash requirements for working capital, capital expenditures, interest, taxes, debt repayment, and future acquisitions for the foreseeable future.
ACCUMULATED DEFICIT: At December 31, 1999, we had a stockholders' deficit totaling $125.0 million, which is a result of both the 1998 merger and 1997 share repurchases previously described in this section.
MARKET RISK AND RISK MANAGEMENT
Foreign currency exchange rate movements create a degree of risk to our operations by affecting the U.S. dollar value of sales made in foreign currencies and the U.S. dollar value of costs incurred in foreign currencies. Foreign currency exchange rate movements also affect our competitive position, as exchange rate changes may affect business practices and/or pricing strategies of non-U.S. based competitors.
Our general policy is to use foreign currency borrowings as needed to finance our foreign currency denominated assets, principally German Deutsche Marks. We use such borrowings to reduce our asset exposure to the effects of changes in exchange rates - not as speculative investments.
As of December 31, 1999, we did not have any derivative instruments in place for managing foreign currency exchange rate risks. We do not engage in hedging or other market structure derivative trading activities. At December 31, 1999, we had $199.1 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. We do not believe that our market risk financial instruments on December 31,1999 would have a material effect on future operations or cash flows.
A comparison of the net fair value of all interest sensitive financial instruments using a hypothetical 100 basis point increase in interest rates along the entire interest rate yield curve as of December 31, 1999 is as follows (in thousands): Hypothetical Fair Market Fair Market Description of Security Value Value - -------------------------------------- --------- --------- 12% Senior subordinated Notes due 2007 $ 117,381 $ 111,839
THE YEAR 2000 ISSUES
We did not experience any significant problems as a result of the year 2000.
COSTS. The costs incurred to implement our Year 2000 compliance program were immaterial and we incurred less than $1.0 million of costs in the aggregate. All of our Year 2000 compliance costs were funded from our operating cash flow. Our Year 2000 compliance budget did not include material amounts for hardware replacement because we have historically employed a strategy to continually upgrade our business systems.
SEASONALITY AND INFLATION
Our segments are not highly seasonal.
The impact of inflation on our operations has not been significant. However, there can be no assurance that a high rate of inflation in the future would not have an adverse effect on our operating results.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------
See discussion in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, "Market Risk and Risk Management".
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------
Our Consolidated Financial Statements, together with the reports thereon of KPMG LLP (dated February 17, 2000) are set forth on pages through hereof (see Item 14 of this Annual Report for the Index).
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING - ------------------------------------------------------------------- AND FINANCIAL DISCLOSURE - ------------------------
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -----------------------------------------------------------
We meet the conditions set forth in General Instruction I(i)(a) and (b) of Form 10-K. Accordingly, information pertaining to this section is omitted.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION - -------------------------------
We meet the conditions set forth in General Instruction I(i)(a) and (b) of Form 10-K. Accordingly, information pertaining to this section is omitted.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -----------------------------------------------------------------------
We meet the conditions set forth in General Instruction I(i)(a) and (b) of Form 10-K. Accordingly, information pertaining to this section is omitted.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------
We meet the conditions set forth in General Instruction I(i)(a) and (b) of Form 10-K. Accordingly, information pertaining to this section is omitted.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) Financial Statements
- Independent Auditors' Report
- Consolidated Balance Sheets
- December 31, 1999 - December 31, 1998
- Consolidated Statements of Operations
- Year ended December 31, 1999 - Year ended December 31, 1998 - Year ended December 31, 1997
- Consolidated Statements of Stockholders' Deficit
- For the years ended December 31, 1999, 1998 and 1997
- Consolidated Statements of Cash Flows
- Year ended December 31, 1999 - Year ended December 31, 1998 - Year ended December 31, 1997
- Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
See Exhibit 99(a) - Schedule II - Valuation and Qualifying Accounts.
All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in financial statements or the notes thereto.
(3) Exhibits:
*2(a) - Agreement and Plan of Merger, dated as of March 24, 1998, among Insilco, INR Holding Co., and Silkworm Acquisition Corporation (Exhibit 10(n) to the Registration Statement on Form S-4 (File No. 333-51145)).
*2(b) - Amendment No. 1 to the Agreement and Plan of Merger, dated June 8, 1998, among Insilco, INR Holding Co., and Silkworm Acquisition Corporation (Exhibit 10(r) to the Registration Statement on Form S-4 (File no. 333-51145)).
*3(a) - Certificate of Incorporation (Exhibit 3.1 to the Current Report on Form 8-K filed on August 18, 1998 (File No. 0-22098)).
*3(b) - Bylaws (Exhibit 3.2 to the Current Report on Form 8-K filed on August 18, 1998 (File No. 0-22098)).
*4(a) - Investors' Agreement, dated as of August 17, 1998, among Insilco Holding Co. and the investors named therein (Exhibit 4.5 to the Registration Statement on Form S-1 (File No. 333-65039) of Insilco Holding Co.)
*4(b) - Indenture, dated as of November 9, 1998, between Insilco and the Trustee (Exhibit 4(a) to the Form 10-Q filed on November 16, 1998 (File no. 0-22098)).
*4(c) - First Supplemental Indenture, dated as of December 21, 1998, between Insilco and the Trustee (Exhibit 4.3 to the Registration Statement on Form S-1 (File No. 333-71947)).
*4(d) - Exchange and Registration Rights Agreement, dated as of November 9, 1998, between Insilco and Donaldson, Lufkin & Jenrette ("DLJ") (Exhibit 4(b) to the Form 10-Q for the Quarter Ended September 30, 1998 (File No. 0-22098)).
*4(e) - Indenture, dated as of August 12, 1997, between Insilco and the Trustee (Exhibit 4(j) to the Registration Statement on Form S-4 (File No. 333-36523)).
*4(f) - Form of New Note (included in Exhibit 4(e) above) (Exhibit 4(k) to the Registration Statement on Form S-4 (File No. 333-36523)).
*4(g) - Purchase Agreement, dated as of August 7, 1997, among Insilco and Goldman, Sachs & Co., McDonald & Company Securities, Inc. and Citicorp Securities Inc. (the "Initial Purchasers") (Exhibit 4(l) to the Registration Statement on Form S-4 (File No. 333-36523)).
*4(h) - Exchange and Registration Rights Agreement, dated as of August 12, 1997, between Insilco and the Initial Purchasers (Exhibit 4(m) to the Registration Statement on Form S-4 (File No. 333-36523)).
4(i) - Second Supplemental Indenture, dated as of January 25, 1999, between Insilco and the Trustee.
*10(a) - Insilco Holding Co. Direct Investment Program (Exhibit 4(c) to the Registration Statement on Form S-8 (File No. 333-61809) of Insilco Holding Co.).
*10(b) - Insilco Holding Co. Stock Option Plan (Exhibit 4(d) to the Registration Statement on Form S-8 (File No. 333-61809) of Insilco Holding Co.) **
*10(c) - Insilco Holding Co. and Insilco Corporation Equity Unit Plan (Exhibit 4(c) to the Registration Statement on Form S-8 (File No. 333-61811) of Insilco Holding Co.) **
*10(d) - Credit Agreement among Insilco and a syndicate of banks and other financial institutions led by Donaldson, Lufkin & Jenrette Securities Corporation, DLJ Capital Funding and The First National Bank of Chicago (Exhibit 10.4 to the Registration Statement on Form S-1 (File No. 333-71947)).
*10(e) - Employment Agreement dated as of May 1, 1993 between Insilco and Robert L. Smialek, as amended and restated (Exhibit 10(k) to the Form 10/A, Amendment No. 1 to Form 10 (File No. 0-22098)).**
*10(f) - Form of Indemnification Agreement adopted by Insilco as of July 30, 1990, entered into between Insilco and certain of its officers and directors individually, together with a schedule identifying the other documents omitted and the material details in which such documents differ (Exhibit 10(n) to the Form 10 (File No. 0-22098)).
*10(g) - Form for Income Protection Agreement adopted by Insilco as of December, 1996, entered into between Insilco and the officers identified in Exhibit 10(f) (Exhibit 10(h) to Form 10-K for the year ended December 31, 1996, (File No. 0-22098)).
*10(h) - Extension Agreement between Insilco and Robert L. Smialek, dated May 1, 1996 (Exhibit 10(l) to the Form 10-K for the Year Ended December 31, 1997 (File No. 0-22098)).**
*10(i) - Second Extension Agreement between Insilco and Robert L. Smialek, dated September 25, 1997 (Exhibit 10(m) to the Form 10-K for the Year Ended December 31, 1997 (File No. 0-22098)).**
*10(j) - Purchase Agreement, between Insilco Corporation, Insilco Holding Co. and Donaldson, Lufkin & Jenrette Securities Corporation (Exhibit 10(a) to Form 10-Q filed by Insilco on November 16, 1998).
*21 - Subsidiaries of Insilco (Exhibit 21 to the Registration Statement on Form S-1 (File No. 333-51145)).
23(a) - Consent of KPMG LLP
24 - Power of Attorney of officers and directors of Insilco appearing on the signature page hereof.
*25 - Statement of Eligibility and Qualification Under the Trust Indenture Act of 1939 (T-1) of The Bank of New York (bound separately) (Exhibit 25 to the Registration Statement on Form S-4 (File No. 333-36523)).
27 - Financial Data Schedule.
99(a) - Schedule II - Valuation and Qualifying Accounts
- ---------------
* Incorporated by reference, as indicated.
** Designates management contracts and compensatory plans or arrangements in which directors or executive officers participate.
(B) REPORTS ON FORM 8-K
A report, dated October 4, 1999, on Form 8-K was filed during the quarter ended December 31, 1999, pursuant to Item 7 of that form.
A report, dated November 4, 1999, on Form 8-K was filed during the quarter ended December 31, 1999, pursuant to Items 5 and 7 of that form.
A report, dated December 20, 1999, on Form 8-K was filed during the quarter ended December 31, 1999, pursuant to Items 5 and 7 of that form.
A report, dated February 11, 2000, on Form 8-K was filed with the SEC on February 17, 2000, pursuant to Items 5 and 7 of that form.
A report, dated February 11, 2000, on Form 8-K was filed with the SEC on February 25, 2000, pursuant to Items 2 and 7 of that form.
A report, dated February 17, 2000, on Form 8-K was filed with the SEC on March 1, 2000, pursuant to Items 2 and 7 of that form.
(C) EXHIBITS
The Exhibits to this report begin immediately following the Consolidated Financial Statements.
(D) FINANCIAL STATEMENT SCHEDULES:
See Exhibit 99(a) - Schedule II - Valuation and Qualifying Accounts.
NOTE: ALL OTHER SCHEDULES CALLED FOR UNDER REGULATION S-X NOT INCLUDED HEREIN HAVE BEEN OMITTED BECAUSE THEY ARE NOT APPLICABLE, THE REQUIRED INFORMATION IS NOT MATERIAL OR THE REQUIRED INFORMATION IS INCLUDED IN THE FINANCIAL STATEMENTS OR NOTES THERETO.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 27, 2000 By: /s/ Michael R. Elia -------------------- Michael R. Elia Vice President, Chief Financial Officer, Treasurer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the date indicated.
INSILCO CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1999 - December 31, 1998
Consolidated Statements of Operations - Year ended December 31, 1999 - Year ended December 31, 1998 - Year ended December 31, 1997
Consolidated Statement of Stockholder's Deficit - For the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Year ended December 31, 1999 - Year ended December 31, 1998 - Year ended December 31, 1997
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT ----------------------------
The Board of Directors and Stockholder Insilco Corporation:
We have audited the consolidated financial statements of Insilco Corporation and subsidiaries as listed in the accompanying index. In conjunction with our audits of the consolidated financial statements, we also have audited the financial statement schedule of valuation and qualifying accounts. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Insilco Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
Columbus, Ohio KPMG LLP February 17, 2000
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets December 31, 1999 and 1998 (In thousands, except share data)
See accompanying notes to consolidated financial statements.
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statement of Operations Years Ended December 31, 1999, 1998, 1997 (In Thousands)
See accompanying notes to consolidated financial statements.
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholder's Deficit For the Years Ended December 31, 1999, 1998, and 1997 (In Thousands)
See accompanying notes to consolidated financial statements.
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholder's Deficit For the Years Ended December 31, 1999, 1998, and 1997 (In Thousands) (continued)
See accompanying notes to consolidated financial statements.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Consolidated Statements of Cash Flows Years Ended December 31, 1999, 1998, and 1997 (In thousands)
See accompanying notes to consolidated financial statements.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) History of the Company ----------------------
Insilco Corporation (the "Company"), a Delaware corporation, is a diversified producer of automotive, telecommunications and electronics components. On August 17, 1998, through a series of transactions, the Company became a wholly owned subsidiary of Insilco Holding Co. ("Holdings") and is included in Holdings' consolidated financial statements and consolidated group for tax purposes. The Company is required to report separate consolidated financial information under the Securities Exchange Act of 1934 because the Company's 12% Senior Subordinated Notes (the "12% Notes") are registered debt securities under the Securities Act of 1933.
The transactions completed on August 17, 1998 included, among other things, the formation by Insilco Holding Co. (then a wholly owned subsidiary of the Company) of a wholly owned subsidiary ("ReorgSub"), followed by the merger of ReorgSub with and into the Company (the "Reorganization Merger"), pursuant to which each stockholder of the Company had his or her shares of the Company converted into the same number of shares of Holdings and the right to receive $0.01 per share in cash, and Holdings became the parent of the Company.
Promptly following the Reorganization Merger, a second merger took place pursuant to which Silkworm Acquisition Corporation ("Silkworm"), an affiliate of Donaldson, Lufkin & Jenrette Merchant Banking Partners, II, L.P. ("DLJMB"), merged with and into Holdings (the "Merger," and together with the Reorganization Merger, the "Mergers") and each share of Holdings Common Stock was converted into the right to receive $43.47 in cash and 0.03378 of a share of Holdings Common Stock. Thus, as a result of the Mergers, each stockholder of the Company, in respect of each of his or her shares, received $43.48 in cash and retained 0.03378 of a share of Holdings Common Stock.
Following the Mergers, (i) the Company's existing stockholders retained, in the aggregate, approximately 10.1% (9.4% on a fully diluted basis) of the outstanding shares of Holdings Common Stock; (ii) the DLJMB Funds held approximately 69.0% (69.8% on a fully diluted basis) of the outstanding shares of Holdings Common Stock; (iii) 399 Venture Partners Inc., an affiliate of Citibank, N.A. ("CVC"), purchased shares of Silkworm which in the Merger were converted into approximately 19.3% (17.8% on a fully diluted basis) of the outstanding shares of Holdings Common Stock; and (iv) management of the Company purchased approximately 1.7% (1.5% on a fully diluted basis) of the outstanding shares of Holdings Common Stock.
Immediately prior to the effectiveness of the Reorganization Merger, each outstanding option to acquire shares of the common stock of the Company granted to employees and directors, whether or not vested (the "Options") was canceled and in lieu thereof, each holder of an Option received a cash payment in an amount equal to (x) the excess, if any, of $45.00 over the exercise price of the Option multiplied by (y) the number of shares subject to the Option, less applicable withholding taxes (the "Option Cash Payments"). Certain holders of such Options elected to utilize amounts otherwise receivable by them to purchase $1,009,000 of equity and $2,657,000 of equity units of Holdings.
The total amount of cash required to consummate the foregoing transactions was approximately $204.4 million. This amount was financed with (i) gross proceeds of approximately $70.2 million from the issuance by Silkworm of units (which were converted into units of Holdings (the "Holdings Units") in the Merger), each unit consisting of $1,000 principal amount at maturity of 14% Senior Discount notes due 2008 (the "Holdings Senior Discount Notes") and one warrant to purchase 0.325 of a share of Holdings Common Stock at an exercise price of $0.01 per share, (ii) the issuance by Silkworm to the DLJMB Funds, CVC and certain members of management of the Company, for an aggregate consideration of approximately $56.1 million,
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
of 1,245,138 shares of Silkworm common stock (which was converted into Holdings Common Stock in the Merger), (iii) the issuance by Holdings to the DLJMB Funds, for an aggregate consideration of $35.0 million, of 1,400,000 shares of the Holding's 15% Senior Exchangeable Preferred Stock due 2012 ("PIK Preferred Stock") and the DLJMB Warrants to purchase 65,603 shares of Holdings Common Stock at an exercise price of $0.001 per share, and (iv) approximately $43.1 million of new borrowings under the Company's existing credit facility (the "1997 Credit Facility"). In addition, the Company paid a cash dividend to Holdings of $30.9 million following the Mergers.
The Company incurred $20,890,000 of costs related to the Merger in 1998.
DISCONTINUED OPERATIONS
On December 17, 1999, the Company entered into a definitive sale agreement with TP Acquisition Corp., a wholly owned subsidiary of Castle Harlan Partners III, L.P. to sell it publishing business, Taylor Publishing Company. The accompanying consolidated statements of operations and cash flows are reclassified to account for the sale of the Publishing Business as a discontinued operation. Revenues associated with the discontinued Publishing Business for the years 1999, 1998 and 1997 were $103,671,000, $101,325,000 and $98,222,000, respectively. At December 31, 1999 and 1998, the net assets of the Publishing Business were $830,000 and $5,961,000, respectively. (See subsequent event discussion at Note 19).
On March 5, 1997, the Company completed the sale of its Office Products Business, a significant line of business within the Company's 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, which resulted in a net gain of $57,788,000, net of taxes of $37,213,000. The divestiture of the Rolodex Business was preceded in 1996 by the divestiture of the Rolodex electronics product line ("Rolodex Electronics") and the Company's computer accessories business, Curtis Manufacturing Co., Inc. ("Curtis"). The proceeds from these sales aggregated $21,818,000.
The accompanying consolidated statements of operations and cash flows are reclassified to account for the sale of the Office Products Business as a discontinued operation. Revenues associated with the discontinued Office Products Business for the year 1997 were $10,797,000.
ACQUISITIONS
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 purchase price of $27.0 million, including costs incurred directly related to the transaction, was financed from borrowings under the Company's Revolving Credit Facility. The preliminary excess of the purchase price over net identifiable assets acquired is $8.7 million, including costs for employee terminations of $0.1 million, and has been recorded as goodwill, which is being amortized on a straight-line basis over 20 years. The Company expects any further purchase price adjustments to be completed within one year from the date of purchase.
On January 25, 1999, the Company purchased the stock of Eyelets for Industries, 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 $3.7
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
million includes costs for employee terminations, facility closure and related costs of $0.4 million, 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.
These acquisitions have been accounted for as purchases and, accordingly, the purchase prices have been allocated to the assets and liabilities acquired based on their fair values at the acquisition dates. The operating results of the businesses acquired have been included for the period subsequent to their acquisition dates. The fair value of the assets acquired totaled $45,963,000 and the liabilities assumed totaled $6,007,000.
(2) Summary of Significant Accounting Policies ------------------------------------------
Principles of Consolidation --------------------------- The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries. The Company's investments in companies for which the Company does not have operational control are accounted for under the equity method. All significant intercompany balances and transactions have been eliminated.
Pro Forma Results of Operations ------------------------------- In 1999, the Company acquired Thermal Transfer Products, Ltd. (see Note 1) and in 2000 the Company acquired TAT Technologies (see Note 19) with borrowings under the Company's Credit Facilities. In 1998 the Company completed the Mergers (See Note 1). These transactions affect the comparability of the Company's financial position, results of operations and cash flows for 1999 compared to prior periods. As a result of these transactions, the Company has presented pro forma results of operations for 1999 and 1998 as if all of these transactions occurred at the beginning of the respective periods in Note 18.
Cash Equivalents ---------------- Cash equivalents include time deposits and highly liquid investments with original maturities of three months or less.
Trade Receivables ----------------- Trade receivables are presented net of allowances for doubtful accounts and sales returns of $2,734,000 and $2,214,000 at December 31, 1999 and 1998, respectively.
Inventories ----------- Inventories are valued at the lower of cost or market. Cost is generally determined using the first-in, first-out cost method.
Property, Plant and Equipment ----------------------------- Property, plant and equipment are stated at cost. Depreciation of plant and equipment is calculated on the straight-line method over the assets' estimated useful lives, which is 25 years for new buildings and ranges from 3 to 9 years for machinery and equipment.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Deferred Financing Costs ------------------------ Deferred financing costs are being amortized using the effective interest method over the life of the related debt.
Goodwill -------- Goodwill represents the excess of cost of net assets acquired in business combinations over their fair values. It is amortized on a straight-line basis over estimated periods to be benefited (not exceeding 40 years). The recovery of the carrying value of goodwill is periodically evaluated in relation to the operating performance and future undiscounted net cash flows of the related businesses acquired.
Interest Rate Hedges -------------------- The Company periodically uses interest rate hedges to limit its exposure to the interest rate risk associated with its floating rate long-term bank debt. Unamortized premium related to purchased interest rate caps is included in other assets in the balance sheet and is amortized using the interest method over the life of the related agreements. Amounts received under cap agreements and net amounts received (or paid) under swap agreements are recorded as a reduction (addition) to interest expense. As of December 31, 1999 and 1998, the Company had no interest rate derivative instruments to manage exposure to interest changes.
Environmental Remediation and Compliance ---------------------------------------- Environmental remediation and compliance expenditures are expensed or capitalized in accordance with generally accepted accounting principles. Liabilities are recorded when it is probable the obligations have been incurred and the amounts can be reasonably estimated.
Fair Value of Financial Instruments ----------------------------------- Fair value of cash, accounts receivable, accounts payable and accrued liabilities approximate book value at December 31, 1999 and 1998. Fair value of debt is based upon market value, if traded, or discounted at the estimated rate the Company would incur currently on similar debt (See Note 8).
Income Taxes ------------ Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured by applying enacted tax rates and laws to taxable years in which such differences are expected to reverse.
Comprehensive Income (Loss) --------------------------- Comprehensive income (loss) consists of net income (loss), minimum pension liability adjustment and foreign currency translation adjustments and is presented in the consolidated financial statements of stockholder's deficit.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Estimates --------- In conformity with generally accepted accounting principles, the preparation of our financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and therefore actual results may ultimately differ from those estimates.
Reclassifications ----------------- Certain 1998 and 1997 amounts have been reclassified to conform with 1999 presentation.
Impact of Recently Issued Accounting Standards ---------------------------------------------- In June 1999, the FASB issued Statement No. 137, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133", which deferred the effective date of FASB Statement No. 133 until years beginning after June 15, 2000. The Statement permits early adoption as of the beginning of any fiscal quarter after its issuance. The Company expects to adopt the new Statement effective January 1, 2001. The Statement will require companies to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position.
(3) Inventories -----------
A summary of inventories at December 31 follows (in thousands):
1999 1998 ---------- ---------- Raw materials and supplies $ 28,410 24,918 Work in process 12,113 14,885 Finished goods 17,750 13,234 ---------- ---------- $ 58,273 53,037 ========== ==========
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Property, Plant and Equipment -----------------------------
A summary of property, plant and equipment at December 31 follows (in thousands):
1999 1998 ---------- ---------- Land $ 4,084 4,637 Buildings 33,833 32,417 Machinery and equipment 147,160 129,193 ---------- ---------- 185,077 166,247 Less accumulated depreciation (75,471) (64,928) ---------- ---------- $ 109,606 101,319 ========== ==========
(5) Other Assets ------------
A summary of other assets at December 31 follows (in thousands):
1999 1998 ---------- ---------- Goodwill, net $ 26,356 14,483 Equity investment in Thermalex 3,909 8,412 Deferred financing costs 8,571 10,196 Cash surrender value of life insurance 2,728 1,758 Other 3,541 2,749 ---------- ---------- $ 45,105 37,598 ========== ==========
Goodwill amortization for the years ended December 31, 1999, 1998 and 1997 was $1.0 million, $0.6 million and $0.5, respectively. Accumulated amortization at December 31, 1999 and 1998 was $2.3 million and $1.3 million, respectively.
Thermalex, Inc. ("Thermalex") is a joint venture, formed in 1985 between a subsidiary of the Company and Mitsubishi Aluminum, Ltd., which sells aluminum extruded products to the automobile industry. The Company received $2,850,000, $1,324,000 and $1,461,000 of regular dividend distributions from Thermalex in 1999, 1998 and 1997, respectively. The Company also received special dividends of $7,546,000 in 1999.
Sales for Thermalex for the years ended December 31, 1999, 1998 and 1997 were $59,504,000, $49,547,000 and $47,152,000, respectively. Net income for the years ended December 31, 1999, 1998 and 1997 was $6,086,000, $5,699,000 and $5,294,000, respectively. Total assets were $39,199,000 and $35,717,000 at December 31, 1999 and 1998, respectively. Stockholders' equity was $7,818,000 and $16,824,000 at December 31, 1999 and 1998, respectively.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Accrued Expenses and Other --------------------------
A summary of accrued expenses and other at December 31 follows (in thousands):
1999 1998 ---------- ---------- Salaries and wages payable $ 4,913 5,623 Pension 8,091 8,112 Accrued interest payable 7,502 4,227 Current portion of the long term liabilities 919 1,945 Accrued taxes payable 1,293 1,623 Restructuring accrual 1,718 -- Other accrued expenses 9,510 10,058 ---------- ---------- $ 33,946 31,588 ========== ==========
(7) Long-term Debt and Warrants ---------------------------
A summary of long-term debt at December 31 follows (in thousands):
1999 1998 ---------- ---------- Term Facility $ 120,061 125,000 12% Senior Subordinated Notes 119,777 119,747 Revolving Facility 60,000 44,922 Alternative Currency Borrowings 19,068 21,000 101/4% Senior Subordinated Notes -- 1,526 Miscellaneous 198 214 ---------- ---------- 319,104 312,409 Less current portion (1,266) (1,265) ---------- ---------- $ 317,838 311,144 ========== ==========
As a result of the Merger (see Note 1), the Company was required to make an Offer to Purchase, as defined in the indenture relating to the 10 1/4% Notes (the "10 1/4% Note Indenture"), the entire $150 million of outstanding 10 1/4% Notes, which were issued on August 12, 1997, at 101% of their aggregate principal amount, plus accrued interest. The Company has repurchased all $150,000,000 of the 10 1/4 % Notes.
On November 9, 1998, the Company completed the sale of $120 million of 12% Senior Subordinated Notes due 2007 (the "12% Notes") with 120,000 warrants to purchase 62,400 of Holdings common stock shares at $45 per share. The net proceeds of $116.4 million, after payment of $3.6 million in underwriting fees to Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC") and other expenses, was used (along with borrowings from the credit facilities) to fund the repurchase of the 10 1/4% Notes. As of December 31, 1999, all of the 120,000 warrants to purchase 62,400 shares of Holdings' Common Stock at a purchase price of $45.00 per share remained outstanding and expire on August 1, 2010.
On November 24, 1998, the Company amended and restated its Bank Credit Agreement ("Bank Credit Agreement"). The Bank Credit Agreement provides for two credit facilities (the "Credit Facilities"): a $175 million, 4.8 year senior secured revolving loan ("Revolving Facility") and a $125 million, 7 year senior secured amortizing term loan ("Term Facility"). On February 16, 2000 we amended certain terms of the
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Company's Bank Credit Agreement to, among other things, (1) permit us to consummate the TAT acquisition, (2) provide that TAT assume up to $90.0 million in aggregate principal amount of the Term Loans, (3) release our direct obligations in respect of such assumed portion of the Term Loans and (4) increase the interest rate applicable to the loans in certain circumstances. The Company has $166.1 million of commitments under the Revolving Loan Facility and $119.3 million of commitments under the Term Loan Facility.
In 1998, the Company recorded an extraordinary charge of $5,888,000, (net of a tax benefit of $3,958,000) related to the write-off of deferred financing costs associated with its 1997 Bank Credit Agreement and 10 1/4% Notes.
The Revolving Facility provides for a $50 million sublimit for issuance of letters of credit and a $40 million sublimit for alternative currency borrowings. The Revolving Facility is permanently reduced by $17.5 million per year in July 2001 and July 2002.
The Term Facility is subject to mandatory quarterly prepayments of $312,500 for the first six years and quarterly payments of approximately $29.4 million in the seventh year.
Interest accrues under the Credit Facilities at floating rates calculated with respect to either the London Interbank Offered Rate ("LIBOR") or Bank One's Base Rate, plus an applicable margin. The margin, in turn, fluctuates based on the leverage ratio (as defined in the Bank Credit Agreement). The Company also pays an unused commitment fee, which also fluctuates based upon the leverage ratio of the Company and is based upon availability under the Revolving Facility. At December 31, 1999, the applicable margin for the Term Facility and the Revolving Facility were LIBOR plus 3.75% and LIBOR plus 2.5%, respectively. The unused commitment fee at December 31, 1999 was 0.5%. The applicable margins and unused commitment fee are determined by the Company's leverage ratio.
Both the Term Facility and Revolving Facility are subject to mandatory prepayments due to, but not limited to, 100% of the net cash proceeds from assets sales and issuance of debt and 50% of the net cash proceeds from the issuance of equity. On September 3, 1999, a mandatory term prepayment of $3.7 million was made from the proceeds of the sale of Romac Metals.
The Credit Facilities are guaranteed by the Company and by all of the Company's present and future domestic subsidiaries. The obligations thereunder are secured by (i) all of the common stock of the Company; (ii) all or a substantial portion of the common stock or other interests in the Company's present and future subsidiaries; (iii) the present and future property and assets, including all accounts receivable, inventory, equipment, fixtures, patents, trademarks and specified real property of the Company and its present and future domestic subsidiaries (subject to certain qualifications and exceptions); and, (iv) a collateral assignment of intercompany notes and junior security agreements securing all obligations of the domestic subsidiaries to the Company.
The Credit Facilities contain certain consolidated financial covenants including, but not limited to, covenants related to maximum leverage ratio, minimum fixed charge coverage ratio, minimum interest coverage ratio, and a limit on annual capital expenditures. The Credit Facilities also contain certain negative covenants typical of credit agreements of this type including, but not limited to a prohibition on the ability of the Company and its domestic subsidiaries to incur additional indebtedness in excess of certain agreed upon amounts, the ability to make investments other than permitted investments, and restricts the Company and its subsidiaries from paying any dividends, redeem or repurchase or acquire any of the Company or Holdings shares or pay any principal, premium or interest (in excess of certain agreed upon amounts) on any subordinated obligations.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company was in compliance with the covenants of its Credit Facilities as of December 31, 1999.
As of December 31, 1999, under the sublimit for alternative currency borrowings, the Company had borrowed $19.1 million (37.1 million German Deutsche Marks). The Company's alternative currency borrowing is designed to hedge the Company's net investment in its German operations. The change, if any, to the net investment as a result of foreign currency fluctuations is included in stockholders' equity as a foreign currency translation adjustment. The alternative currency borrowing is denominated in German Deutsche Marks and bears interest based on one to six month German LIBOR rates plus an applicable margin based on the Company's leverage ratio (such LIBOR rates approximated 3.17% to 3.52% at December 31, 1999).
The combined aggregate amount of maturities for all long-term borrowings for each of the next five years is as follows (in thousands):
2000 2001 2002 2003 2004 ------ ------ ------ ------ ------ Term Facility $1,250 1,250 1,250 1,250 1,250 Revolving Facility -- -- -- 79,068 -- Miscellaneous 16 16 16 17 17 ------ ------ ------ ------ ------ $1,266 1,266 1,266 80,335 1,267 ====== ====== ====== ====== ======
In 1997, the Company refinanced its then existing debt under a six year $200 million amended and restated credit agreement (the "1997 Bank Credit Agreement") which provided for the 1997 Credit Facility.
In 1997, proceeds from the 1997 Bank Credit Agreement were used to prepay amounts outstanding under the prior bank credit agreement. As a result of the prepayment, the Company recorded an extraordinary charge of $728,000 (net of a tax benefit of $465,000) due to expensing the related unamortized debt financing costs.
(8) Fair Value of Financial Instruments -----------------------------------
The estimated fair value at December 31 of financial instruments, other than current assets and liabilities, follow (in thousands):
The Company is exposed to market risk for changes in interest rates, but has no off-balance sheet risk of accounting loss.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Balance Sheet December 31, 1999 (In thousands)
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Balance Sheet December 31, 1998 (In thousands)
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Statement of Operations Year Ended December 31, 1999 (In Thousands)
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Statement of Operations Year Ended December 31, 1998 (In Thousands)
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Statement of Operations Year Ended December 31, 1997 (In Thousands)
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Statement of Cash Flows December 31, 1999 (In thousands)
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Statement of Cash Flows December 31, 1998 (In thousands)
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Statement of Cash Flows December 31, 1997 (In thousands)
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Other Long-Term Liabilities ---------------------------
A summary of other long-term liabilities at December 31 follows (in thousands):
Prepetition and other tax liabilities ------------------------------------- On April 1, 1993, the Company and certain of its subsidiaries emerged from Chapter 11 of the United States Bankruptcy Code (the "Chapter 11 Cases") pursuant to a plan of reorganization. The Chapter 11 Cases were commenced on January 13, 1991. The Company entered into an agreement with the Internal Revenue Service ("IRS") settling Federal income tax claims filed in the Chapter 11 Cases for open taxable years through 1990. In addition to this agreement, the tax liabilities include prepetition state tax claim settlements, negotiated payment terms on certain foreign prepetition tax liabilities, tax adjustments proposed by the Internal Revenue Service and various states and foreign jurisdictions for various years and an estimate of the Company's obligation for curative action required by the IRS to cure certain operational defects in one of the Company's defined contribution plans.
Environmental liabilities ------------------------- The Company's operations are subject to extensive Federal, state and local laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. The Company has a program for monitoring its compliance with applicable environmental regulations, the interpretation of which often is subjective. This program includes, but is not limited to, periodic reviews of the Company operations' obligations to comply with environmental laws and regulations in order to determine the adequacy of the recorded liability for remediation activities.
The environmental liabilities included in other long-term obligations represent the estimate of cash obligations that will be required in future years for these environmental remediation activities. The Company has estimated the exposure and accrued liability to be approximately $6,411,000 relating to these environmental matters at December 31, 1999. These liabilities are undiscounted and do not assume any possible recoveries from insurance coverage or claims which the Company may have against third parties. The estimate is based upon in-house research and the professional services of outside consulting and engineering firms. Because of uncertainty associated with the estimation of these liabilities and potential regulatory changes, it is reasonably possible that these estimated liabilities could change in the near term but it is not expected that the effect of any such change would be material to the consolidated financial statements in the near term.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Pension Plans and Post-retirement Benefits ------------------------------------------
Pension Plans ------------- The Company has defined benefit pension plans covering certain of its employees. The benefits under these plans are based primarily on employees' years of service and compensation near retirement. The Company's funding policy is consistent with the funding requirements of Federal laws and regulations. Plan assets consist principally of equity investments, government and corporate debt securities and real estate investments. The Company also contributes to various multi-employer plans sponsored by bargaining units for its union employees.
A summary of the plans' funded status reconciled with amounts recognized in the consolidated balance sheet at December 31 follows (in thousands):
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The components of pension cost follow (in thousands):
1999 1998 1997 ------- ------- ------- Service cost $ 2,904 2,742 2,068 Interest cost 5,552 5,644 5,100 Actual return on assets (7,656) (7,409) (6,208) Net amortization and deferral 245 263 86 Recognized net actuarial loss (gain) 27 2 (208) ------- ------- ------- Net pension cost $ 1,072 1,242 838 ======= ======= =======
In addition, the Company recognized pension costs of $526,000 in 1999, $572,000 in 1998 and $597,000 in 1997 related to contributions to multi-employer plans.
The assumptions used in accounting for the pension plans as of December 31 follow:
1999 1998 ------ ------ Discount Rates 8.00% 7.00% Rates of increase in compensation levels 4.50% 4.50% Expected long-term rate of return on assets 9.00% 10.00%
In addition to the defined benefit plans described above, the Company sponsors a qualified defined contribution 401(k) plan, which covers substantially all non-union employees of the Company and its subsidiaries, and which covers union employees at one of the Company's subsidiaries. The Company matches 50% of non-union participants' voluntary contributions up to a maximum of 3% of the participant's compensation. The Company's expense was approximately $1,160,000 in 1999, $821,000 in 1998 and $819,000 in 1997.
Post-retirement benefits, other than pensions --------------------------------------------- The Company maintains nine post-retirement health care and life insurance benefit plans, four of which cover approximately 500 present retirees (the "Retiree Plans") and five of which cover certain retirees and current employees of four operating units (the "Open Plans"). The Company pays benefits under the plans when due and does not fund its plan obligations as they accrue. The Company's accrued post-retirement benefit cost is attributable to the Retiree Plans and one of the Open Plans, in which approximately 100 retirees and 300 current employees were participants. It has been assumed that plan participant contributions, if any, under these five plans will increase as a result of increases in medical costs. The other Open Plans have been, and are assumed will continue to be, fully self-funded by their participants.
The components of net periodic post-retirement benefit cost follow (in thousands):
1999 1998 1997 ------- ------- ------- Service cost $ 516 384 400 Interest cost 1,130 1,104 1,099 Amortization of prior service cost (358) (352) (352) Recognized net actuarial gain -- (45) (85) ------- ------- ------- $ 1,288 1,091 1,062 ======= ======= =======
A summary of the plans' status reconciled with amounts recognized in the consolidated balance sheet at December 31 follows (in thousands):
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1999 1998 -------- -------- Change in benefit obligation:
Benefit obligation at beginning of year $ 16,697 16,848 Service cost 516 384 Interest cost 1,130 1,104 Actuarial gain (1,881) (620) Benefits paid (823) (1,019) -------- -------- Benefit obligation at end of year 15,639 16,697 -------- --------
Funded status (15,639) (16,697) Unrecognized net actuarial gain (3,311) (1,493) Unrecognized prior service cost (3,714) (4,073) -------- -------- Accrued benefit cost $(22,664) (22,263) ======== ========
At December 31, 1999 and 1998, the weighted-average discount rates used in determining the accumulated post-retirement benefit obligation were 8.0% and 7.0%, respectively. The recorded healthcare cost trend rates assumed in measuring the accumulated post-retirement benefit obligation were 9.0% and 7.5% in 2000, declining to an ultimate rates of 6.05% and 4.5% in 2010 and thereafter. Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plan. A one-percentage point change in assumed healthcare cost trend rates in 1999 would have the following effects:
1-Percentage 1-Percentage Point Increase Point Decrease -------------- -------------- Effect on total of service and interest cost components $ 260 (222)
Effect on post-retirement benefit obligation 1,049 (894)
(12) Stock-Based Compensation Plans ------------------------------
In connection with the Mergers, the Company adopted on August 17, 1998, the following plans: the Equity Unit Plan, Direct Investment Program, and the Stock Option Plan. Following is a description of each respective plan.
EQUITY UNIT PLAN
The Equity Unit Plan allowed members of management of the Company to purchase Equity Units, which are considered share equivalents of Holdings stock. The purchase price per unit was $45.00. Participants were allowed to use either deferred compensation or the deferral of future compensation to satisfy the purchase price of the units. The value of the units is determined under an Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") formula or by market-related value if the actual common shares of Holdings are listed or quoted for trading on a national exchange or NASDAQ and the aggregate market value held by non-affiliates is $25,0000,000 or greater. The total number of units available for purchase under this plan is 88,194. As of December 31, 1998 the number of units actually purchased was 77,457. At December 31, 1999, the number of unit purchased under the plan was 38,484. Upon the occurrence of a Significant Event, (as defined in the Equity Unit Plan), the Company is
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
obligated to pay the participant, at the Company's discretion in cash, common shares, or a combination of both, the value of any units purchased less any purchase price that has not been paid. If the value of the units is less than the amount of remaining purchase price the participant is obligated to satisfy the difference or the Company has the right to offset any amounts owed the participant against the remaining purchase price.
DIRECT INVESTMENT PROGRAM
The Direct Investment Program allowed members of management of the Company to purchase actual Holdings shares of common stock at a price of $45.00 per share. There are certain restrictions on the sale or transfer of these shares upon the occurrence of a Significant Event such as termination, future recapitalization or other defined situations. The total number of shares available for purchase by management was 22,916 shares, with 22,361 shares actually purchased and outstanding as of December 31, 1998. At December 31, 1999, 22,418 shares remain outstanding, with 19,996 of these shares being accounted for as treasury shares.
STOCK OPTIONS
The Insilco Holding Co. Stock Option Plan provides for the issuance of no more than 200,000 shares of Holdings common stock to eligible employees of the Company. As of December 31, 1999, the Company has 75,988 shares available for future awards under the plan.
Prior to the Mergers, the Company had the 1993 Long-term Incentive Plan, as amended, and the 1993 Nonemployee Director Stock Incentive Plan which provided for the issuance of no more than 2,000,000 and 360,000, respectively, shares of common stock to eligible employees and nonemployee directors. In connection with the Mergers, each of the 607,751 outstanding options whether or not vested was canceled and in lieu thereof, each holder of an option received a cash payment in an amount equal to the excess, if any, of $45.00 over the exercise price of the option multiplied the number of shares subject to the option, less applicable withholding taxes.
Under Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "ACCOUNTING FOR STOCK-BASED COMPENSATION", companies can either record expense based on the fair value of stock-based compensation upon issuance or elect to remain under the "APB Opinion No. 25" method whereby no compensation cost is recognized upon grant if certain conditions are met. The Company is continuing to account for its stock-based compensation under APB Opinion No. 25. Had the Company determined compensation cost based on the fair value at the grant date for its stock options granted in 1999, 1998 and 1997 under SFAS 123, the Company's net income and earnings per share would have approximated the pro forma amounts below:
1999 1998 1997 ------- ------- ------- Net income (loss) As reported $ 9,768 (10,081) 81,644 Pro forma 9,745 (10,124) 81,069
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of the options granted follows:
Weighted Number Average of Shares Price --------- --------- Options outstanding December 31, 1996 1,070,565 23.36 Granted 151,500 36.87 Forfeited (30,938) 24.79 Exercised (450,860) 18.27 ---------
Options outstanding December 31, 1997 740,267 29.17 Granted 15,500 33.02 Forfeited (39,067) 35.17 Exercised (108,949) 24.07 Cancelled at Merger Date (607,751) 30.04 ---------
Options outstanding December 31, 1998 -- Granted 200,162 45.00 Forfeited (76,150) 45.00 Exercised -- ---------
Options outstanding December 31, 1999 124,012 45.00 =========
Options exercisable at December 31: 1997 421,033 27.18 1998 -- -- 1999 -- --
The per share weighted-average fair value of stock options granted during 1999, 1998 and 1997 was $14.41, $12.84 and $13.87, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1999 - expected dividend yield 0.0%, risk-free interest rate of 5.50%, volatility of 30%, and an expected life of 10 years.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Income Tax Expense ------------------
The components of total income tax expense (benefit) follow (in thousands):
The significant components of deferred income tax expense (benefit) attributable to income from continuing operations follow (in thousands):
Pretax income (loss) from continuing operations by domestic and foreign sources follows (in thousands):
1999 1998 1997 ------- ------- ------- Domestic $(6,888) (11,481) 27,421 Foreign 6,028 4,200 3,241 ------- ------- ------- $ (860) (7,281) 30,662 ======= ======= =======
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income tax expense (benefit) attributable to income from continuing operations differs from the amount computed by applying the Federal statutory rate to pretax income due to the following (in thousands):
1999 1998 1997 ------- ------- ------- Computed statutory tax expense $ (301) (2,548) 10,731 State and local taxes (622) (361) 1,244 Equity in earnings of affiliates (852) (798) (733) Merger fees -- 2,555 -- Foreign tax rate differential 347 535 (373) Professional fees 628 -- -- Severance expenses (356) -- -- Life insurance (33) (461) (595) Goodwill amortization 147 22 20 Disposition of operating divisions (2,827) -- -- Other, net (221) 502 854 Valuation allowance (988) (1,022) -- ------- ------- ------- Income tax expense (benefit) $(5,078) (1,576) 11,148 ======= ======= =======
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 follow (in thousands):
The net reduction in the valuation allowance for deferred tax assets for the years ended December 31, 1999 and 1998 was $3,203,000 and $6,636,000, respectively. Recognition, if any, of tax benefits subsequent to December 31, 1999 relating to unrecognized deferred tax assets are expected to be allocated to the consolidated statements of operations and additional paid-in capital in the amounts of $20,723,000 and $11,531,000, respectively. At December 31, 1999, the Company had Federal net operating loss carryforwards of approximately $41,567,000. Substantially all of the Federal net operating loss carryforwards will be utilized in the year 2000 to offset the gain on the sale of Taylor Publishing Company.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In order to fully realize the net deferred tax assets recognized, the Company will need to generate future taxable income. Based upon an evaluation of historical and projected future taxable income, the Company believes it is more likely than not that it will generate sufficient future taxable income to realize its net deferred tax asset of $13,455,00 at December 31, 1999. The amount of deferred tax assets considered realizable, however, could be reduced if estimates of future taxable income are reduced.
Deferred taxes are not provided on unremitted earnings of subsidiaries outside the United States because it is expected that the earnings are permanently reinvested and such determination is not practical. Such earnings may become taxable upon the sale or liquidation of these subsidiaries or upon the remittance of dividends. Deferred taxes are provided in situations where the Company's subsidiaries plan to make future dividend distributions.
The Company and its domestic subsidiaries file a consolidated U.S. Federal income tax return. The IRS is presently examining the consolidated Federal income tax returns for tax years 1991 through 1996. Management believes that the ultimate outcome of this examination will not have a material adverse effect on the financial condition, results of operations or liquidity of the Company.
(14) Restructuring and Plant Closing Costs -------------------------------------
During the year ended December 31, 1999, the Company recorded $9,749,000 of restructuring and plant closing costs relating to corporate office staff reductions, restructuring of certain heat exchanger and tubing manufacturing facilities, and the closure of its heat exchanger machinery and equipment manufacturing operation (McKenica) with the objectives of lowering operating costs and focusing resources on core business units.
The cost of these actions has been reflected in cost of sales ($3,156,000), SG&A ($211,000) and restructuring and plant closing costs ($6,382,000). The charge consists of employee separation costs of $4,090,000, asset impairments of $922,000, remaining noncancellable lease costs of $912,000, other exit costs of $1,467,000 and non-cash charges of $2,358,000. Employee separations occurred at manufacturing facilities affected by the plan and at the corporate office. The decision to exit the heat exchanger machinery and equipment business decreased cash flows triggering the asset impairment. The amount of impairment of such assets was based on the estimated net realizable market value of the assets. Other exit costs consist of warranty reserves and losses on remaining percentage of completion contracts. Non-cash charges consist of inventory write-downs and accounts receivable write-offs. Asset impairments consist of the write off of the carrying value of abandoned fixed assets.
As of December 31, 1999, the Company has an accrual of $1,718,000 relating to these restructuring charges, which is included in accrued expenses and other on the balance sheet. A summary of this accrual is as follows (in thousands):
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The headcount reduction from these activities was approximately 172 employees.
In 1998, the Company incurred charges for severance expenses totaling $1,622,000 related to workforce reductions and charges of $200,000 related to lease cancellations. These costs have been reflected in cost of sales ($487,000) and SG&A ($1,355,000). At December 31, 1998, the Company had no accrual remaining relating to these items.
The headcount reduction related to these items was approximately 25 employees.
(15) Related Party Transactions --------------------------
As of December 31, 1999, the Company had an intercompany payable of $2,954,000 to Holdings, the parent of the Company (see Note 1). The intercompany payable consisted of a $3,500,000 advance to the Company from Holdings, net of $546,000 of expenses paid by the Company on behalf of Holdings. In the first quarter of 1999, the Company received from Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"), an affiliate of DLJMB, $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 1999, the Company paid DLJSC advisory and retainer fees of $500,000 and $336,000, respectively. At December 31, 1999, the Company had a payable to DLJSC of $75,000 of retainer fees for investment banking services.
At December 31, 1998, the Company had a dividend receivable of $2,850,000 from its Thermalex Joint Venture and a receivable from DLJSC totaling $2,032,000 for funds deposited in excess of the retired 10 1/4% Notes, which are included in Receivables from Related Parties.
In connection with the sale of the 12% Notes, the Company paid $3,600,000 in underwriting fees to DLJSC. In addition the company paid DLJSC fees of approximately $3,181,000 for services as Lead Arranger and Syndication Agent in connection with the Company's amended and restated Bank Credit Agreement. In connection with the Mergers, Donaldson Lufkin & Jenrette Capital Funding received $1,750,000 in fees from the Company to provide a backstop credit facility and the company reimbursed DLJSC approximately $184,000 for expenses.
Prior to the Mergers in 1998, Water Street Corporate Recovery Fund I, L.P. ("Water Street"), an affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), beneficially owned approximately 45% (62% prior to the Share Repurchase) of the Company's common stock. Neither Holdings nor the Company is aware of any transaction or of any currently proposed transaction in which Goldman Sachs has any material direct or indirect interest as a result of its ownership position in the Company except as follows:
Goldman Sachs advised the Company in connection with the Mergers and received a fee of $2.0 million upon the consummation of the Mergers. In the Mergers, Water Street received approximately $81.0 million and retained 62,962 shares of Holdings. Holdings entered into a Registration Rights Agreement with Water Street in which Water Street has certain registration rights with respect to such 62,962 shares.
During 1997, the Company paid Goldman Sachs $1,996,000 in investment banking fees and expenses related to the sale of the Rolodex Business, $2,042,000 of fees in connection with the refinancing and issuance of the Notes and $204,000 for services rendered in connection with the Share Repurchase. During 1997, the Company paid Goldman Sachs $3,094,000 in underwriting fees related to the issuance of the 10 1/4% Notes.
As discussed in Note 7, the Company entered into the 1997 Bank Credit Agreement and Goldman Sachs
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Credit Partners L.P., an affiliate of Goldman Sachs, had an initial participating interest of $66,667,000. Goldman Sachs Credit Partners L.P. received $583,000 from the agent bank for its portion of the arrangement fee paid by the Company in 1997.
(16) Commitments and Contingencies -----------------------------
Rental expense for operating leases totaled $3,993,000, $3,364,000 and $3,110,000 for the years ended December 31, 1999, 1998 and 1997, respectively. These leases primarily relate to production facilities. Rental income received for subleases for operating leases totaled $257,000 in 1999, $248,000 in 1998 and none in 1997.
Future minimum lease payments under contractually noncancellable operating leases (with initial lease terms in excess of one year) for years subsequent to December 31, 1999 are as follows: 2000, $3,291,000; 2001, $2,432,000; 2002, $1,848,000; 2003, $1,119,000; 2004, $427,000 and thereafter, none. Future minimum rental income to be received under noncancellable subleases for years subsequent to December 31, 1999 are as follows: 2000, $257,000; 2001, $257,000; 2002, $22,000; and thereafter, none.
The Company is implicated in various claims and legal actions arising in the ordinary course of business. Those claims or liabilities not subject to Bankruptcy Court litigation 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 the matters discussed above will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.
(17) Segment Data ------------
DESCRIPTION OF SEGMENTS
The Company provides a broad spectrum of products through two business segments: Automotive Components and Technologies related components.
The Company's Automotive Components segment provides products and services to automotive OEMs and suppliers. These products include heat-transfer products and related tubing, clutch plates for automatic transmissions, suspension parts for vibration-reducing assemblies and engine mounts used by automotive manufacturers and suppliers, railroad locomotive and other heavy industrial equipment manufacturers and suppliers. Revenues from one of the "Big 3" domestic automobile manufacturers accounted for approximately 20%, 22%, and 24% of the Company's Automotive Component revenues for 1999, 1998, and 1997, respectively.
Through its Technologies segment, the Company provides a broad range of telecommunication and electrical component products and services to the computer networking, telephone digital switching, main frame computer, automotive and medical equipment markets. The products include high-speed data connectors and systems, off-the-shelf and custom power transformers, precision stampings and wire-formed parts, and custom cable and wire assemblies used by computer networking, telecommunications, computer, automotive and medical equipment OEMs and suppliers. Two telecommunications OEMs directly or indirectly accounted for approximately 22%, 25%, and 25% of the Company's Technologies revenues for 1999, 1998, and 1997, respectively.
The Company has included in its Other segment two operating units that fall below the quantitative reporting thresholds and do not meet all the criteria for aggregation with the Company's reportable segments. These operations are a manufacturer of high speed welded tube mills and other machinery and
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
equipment for automotive suppliers and OEMs and a welded stainless steel tubing manufacturer that provides tubing and tubing products to distributors, recreational marine and transportation markets. Both of these operating units were divested in 1999.
MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS
The Company evaluates performance and allocates resources to its operating segments based on earnings before interest, taxes, depreciation and amortization (EBITDA). Certain investors use EBITDA as a measure of operations and ability to meet debt service requirements. EBITDA 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. Moreover, the EBITDA amount presented herein is not necessarily comparable to other similarly titled captions of other companies, or as defined by the Company's Bank Credit Agreement or Debentures due to inconsistencies in the method of calculation. The accounting policies used in preparing the following segment data are the same as those described in Note 2, "Significant Accounting Policies". The company has intra-segment sales and transfers, which are recorded at cost or, if agreed upon, a price comparable to unaffiliated customer sales. These intra-segment sales and related profits are eliminated in consolidation and are not presented in the segment disclosure. Identifiable assets are those used by each segment in its operations. Corporate assets consist primarily of cash, deferred financing fees, and deferred tax assets.
FACTORS USED TO IDENTIFY THE ENTERPRISE'S REPORTABLE SEGMENTS
The Company's reportable segments are business units that offer different products. The reportable segments are each managed separately because they manufacture and distribute distinct products with different production processes. Reportable segments were determined by using a management approach and are 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.
Operations within segments have been aggregated on the basis of similar economic characteristics, products or services, purposes or end uses, production processes, geographic marketing areas and methods, distribution methods, and regulatory environments. Due to the diverse nature of the Company's products, consideration has been given to ensure that the aggregation of the Company's operations helps users better understand the Company's performance and assess its future cash flows.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Summary financial information by business segment is as follows (in thousands):
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of identifiable assets by segment at December 31 follows (in thousands): 1999 1998 --------- --------- Automotive Components $ 150,229 135,525 Technologies 131,695 96,742 Other (31) 17,342 Corporate 33,306 31,344 --------- --------- Total $ 315,199 280,953 ========= =========
A summary of long-lived assets by geographic region is as follows (in thousands): 1999 1998 --------- --------- United States $ 175,580 151,701 Germany 12,656 15,029 --------- --------- Total $ 188,236 166,730 ========= =========
Summary of export sales by geographic region is as follows (in thousands): 1999 1998 1997 ------- ------- ------- Europe $35,444 22,838 21,193 Asia 10,203 8,829 14,007 Canada 7,748 7,692 9,758 Mexico 3,161 3,005 4,292 Other 5,683 4,335 6,155 ------- ------- ------- Total $62,239 46,699 55,405 ======= ======= =======
Net sales are attributed to countries based on the location of customers.
MAJOR CUSTOMERS
Revenues from one of the "Big 3" domestic automobile manufacturers accounted for approximately 10%, 11%, and 11% of the Company's consolidated revenues for 1999, 1998, and 1997, respectively.
(18) Pro Forma Results of Operations (unaudited) -------------------------------------------
Set forth below is certain unaudited pro forma condensed consolidated financial information of the Company based upon historical consolidated financial statements of the Company that has been adjusted to give effect to the Purchases of Thermal Transfer Products, LTD and TAT Technologies (See Notes 1 and 19), the Refinancing (as defined below), the Mergers, including the Merger Financing and application of the proceeds thereof (See Note 1). A summary of these adjustments follows.
On July 20, 1999, the Company, executed a definitive merger agreement with Thermal Transfer Products, Ltd. The entire purchase price was financed from borrowings under the Company's Revolving Credit Facility. The gross purchase price paid was $26.5 million. The purchase price net
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
of cash acquired and including estimated costs incurred directly related to the transactions was $23.3 million. The preliminary excess of the purchase price over net identifiable assets acquired is $8.7 million, which is being amortized on a straight-line basis over 20 years.
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. The gross purchase price paid was $91.2 million and is subject to certain post closing adjustments. The initial purchase price has not yet been allocated. The Company expects to have these items quantified within one year of the date of acquisition. The acquisition will be accounted for as a purchase and the Company is currently determining the appropriate period for amortizing any resulting goodwill from this transaction. The entire purchase price was financed with borrowings under the Company's Term Loan Facility.
The Refinancing includes the following transactions: (i) the issuance of the 12% Notes which generated gross proceeds to the Company of approximately $120.0 million; (ii) the repurchase of the 10 1/4% Notes at a purchase price of 101% of principal amount plus accrued and unpaid interest; (iii) the execution and delivery of the New Credit Facility and borrowings thereunder to refinance the 1997 Credit Facility and to purchase the 10 1/4% Notes at a purchase price of 101% of principal amount plus accrued and unpaid interest; (iv) payment of fees and expenses in connection with the offering of the Notes, the New Credit Facilities and the purchase of the 10 1/4% Notes.
The Reorganization Merger was accounted for as a reorganization of entities under common control, and had no impact on the historical basis of the assets or liabilities of the Company. The Merger was accounted for as a recapitalization and had no impact on the historical basis of the assets or liabilities of the Company.
The Mergers included the following transactions: (i) the issuance of the Holdings Senior Discount Notes which generated gross proceeds of approximately $70.2 million, and new borrowings under the Company's 1997 Credit Facility of approximately $43.1 million, of which $26.8 million was paid as a dividend from the Company to Holdings to fund a portion of the Merger Consideration; (ii) the initial capitalization of Silkworm through the issuance of 1,245,138 shares of Silkworm common stock for $56.1 million and the issuance of 1,400,000 shares of PIK Preferred Stock and warrants to purchase 65,603 shares of Holdings Common Stock for aggregate consideration of $35.0 million; (iii) payment of the Merger Consideration for each share of the Company's common stock outstanding immediately prior to the Mergers (4,145,372 shares) consisting of $43.48 in cash and 0.03378 of a share of Holdings; (iv) payment of fees and expenses associated with the issuance of the Holdings Senior Discount Notes, the waiver of certain Events of Default under the Existing Credit Facility, and the Mergers; and (v) vesting of all outstanding options and payment of the Option Cash Proceeds (and applicable withholding taxes) and payments pursuant to employment related agreements.
The unaudited pro forma condensed consolidated income statements have been prepared as if the Refinancing and the Mergers occurred on January 1 of the relevant period; however, the expenses directly related to the aforementioned transactions (other than interest expense) are excluded from the unaudited pro forma condensed consolidated income statements. The Unaudited Pro Forma Condensed Consolidated Financial Data are based on certain assumptions and estimates, and therefore do not purport to be indicative of the results that would have been obtained had the transactions been completed as of such dates or indicative of future results of operations and financial position.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Unaudited Pro Forma condensed consolidated Statement of Income Year Ended December 31, 1999 (In thousands, except per share data)
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Unaudited Pro Forma condensed consolidated Statement of Income Year Ended December 31, 1998 (In thousands, except per share data)
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Notes to the Unaudited Pro Forma Condensed Consolidated Statements of Income follow:
For 1999:
(1) To include 6 months of Thermal Transfer Products, LTD. in the Company's financial statement.
(2) To reflect the write-off of the market value step-up in inventory.
(3) To reflect the increase in depreciation and amortization due to 1) the amortization of goodwill on a straight-line basis over 20 years and 2) additional straight-line depreciation relating to the step-up of property, plant and equipment, which is being depreciated over periods of 3 to 25 years.
(4) To reflect the elimination of the net excess cost of the former owners salaries ($340,500) less the salaries of management replacements ($103,000) and to reflect the elimination of professional fees ($182,000) relating to the sale transaction.
(5) To reflect the increase in interest expense resulting from the borrowings under Insilco's credit facility to finance the acquisition. Interest is calculated based on the new debt of $26.5 million less the cash acquired of $3.9 million using an assumed interest rate of 8.8 percent. A change of 1/8 percent in the interest rate would result in a change in interest expense and net income of $28,250 and $23,448 before and after taxes, respectively.
(6) To reflect the tax effect of the pro forma adjustments at a statutory rate, 34 percent for federal and 2 percent for state.
(7) To include TAT Technologies twelve-month translated statement of operations in the Company's financial statement.
(8) To reflect the increase in amortization due to the amortization of goodwill on a straight-line basis over 20 years.
(9) To reflect increase in interest expense resulting from the borrowings under Insilco Corporation's credit facility to finance the acquisition. Interest is calculated on the new debt of $91.1 million less the cash acquired of $7.9 million using an assumed interest rate of 8 percent. A change of 1/8 percent in the interest rate would result in a change in interest expense and net income of $104,091 and $66,618 before and after taxes, respectively.
(10) To reflect the tax effect of the deductible pro forma adjustments at a statutory rate, 34 percent for federal and 2% for state. The amortization of the goodwill is not tax deductible.
For 1998:
(1) To exclude nonrecurring Merger expenses and the related income tax effect recorded in the year ended December 31, 1998.
(2) To record the incremental interest expense of $2.0 million for the year ended December 31, 1998, respectively, associated with the Company's $43.1 million of additional borrowings under the 1997 Credit Facility.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) To record the net increase in interest expense for the year ended December 31, 1998 as follows: (i) $1.8 million increase in interest expense associated with the increase in LIBOR spreads from 125 basis points ("bps") under the 1997 Credit Facility to a spread of 375 bps for the Term Loan Facility under the New Credit Facility and to a spread of 300 bps for the Revolving Credit Facility and based on an assumed LIBOR rate of 4.98% thereunder (ii) $2.9 million increase in interest expense related to the additional borrowings under the 1997 Revolving Credit Facility, incurred in connection with the Refinancing, and (iii) $12.6 million increase in interest expense relating to the issuance of the 12% Notes offset by a $13.6 million reduction in interest expense relating to the repayment of the 10 1/4% Notes and the amortization expense relating to the issuance of the 12% Notes and the New Credit Facility partially offset by a reduction in amortization expense relating to the repurchase of the 10 1/4% Notes and the 1997 Credit Facility.
(4) To record the tax benefit of the transaction at the statutory rate of 38.5% (35.0% federal rate and an estimated 3.5% average state rate.
(5) To include Thermal Transfer Products, LTD. in the Company's financial statement.
(6) To reflect the write-off of the market value step-up in inventory.
(7) To reflect the increase in depreciation and amortization due to 1) the amortization of goodwill on a straight-line basis over 20 years and 2) additional straight-line depreciation relating to the step-up of property, plant and equipment, which is being depreciated over periods of 3 to 25 years.
(8) To reflect the elimination of the net excess cost of the former owners salaries ($681,000) less the salaries of management replacements ($206,000).
(9) To reflect the increase in interest expense resulting from the borrowings under Insilco's credit facility to finance the acquisition. Interest is calculated based on the new debt of $26.5 million less the cash acquired of $3.9 million using an assumed interest rate of 8.8 percent. A change of 1/8 percent in the interest rate would result in a change in interest expense and net income of $28,250 and $23,448 before and after taxes, respectively.
(10) To reflect the tax effect of the pro forma adjustments at a statutory rate, 34 percent for federal and 2 percent for state.
(11) To include TAT Technologies twelve-month translated statement of operations in the Company's financial statement.
(12) To reflect the increase in amortization due to the amortization of goodwill on a straight-line basis over 20 years.
(13) To reflect the increase in interest expense resulting from the borrowings under Insilco's credit facility to finance the acquisition. Interest is calculated based on the new debt of $91.1 million less the cash acquired of $7.9 million using an assumed interest rate of 7 percent. A change of 1/8 percent in the interest rate would result in a change in interest expense and net income of $104,091 and $66,618 before and after taxes, respectively.
(14) To reflect the tax effect of the deductible pro forma adjustments at a statutory rate, 34 percent for federal and 2 percent for state. The amortization of the goodwill is not tax deductible.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(19) Subsequent Events -----------------
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 gross purchase price paid was $91.2 million and is subject to certain post closing adjustments. The initial purchase price has not yet been allocated. The Company expects to have these items quantified within one year of the date of acquisition. The acquisition will be accounted for as a purchase and the Company is currently determining the appropriate period for amortizing any resulting goodwill from this transaction. The entire purchase price was financed with borrowings under Insilco Corporation's Term Loan Facility. See pro forma disclosure at Note 18.
On February 11, 2000, the Company sold its publishing business, Taylor Publishing Company to TP Acquisition Corp., a newly created, wholly-owned subsidiary of Castle Harlan Partners III, L.P., for gross proceeds of approximately $93.5 million. The net proceeds of approximately $70.0 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.
EXHIBIT LISTING ---------------
*2(a) - Agreement and Plan of Merger, dated as of March 24, 1998, among Insilco, INR Holding Co., and Silkworm Acquisition Corporation (Exhibit 10(n) to the Registration Statement on Form S-4 (File No. 333-51145)).
*2(b) - Amendment No. 1 to the Agreement and Plan of Merger, dated June 8, 1998, among Insilco, INR Holding Co., and Silkworm Acquisition Corporation (Exhibit 10(r) to the Registration Statement on Form S-4 (File no. 333-51145)).
*3(a) - Certificate of Incorporation (Exhibit 3.1 to the Current Report on Form 8-K filed on August 18, 1998 (File No.0-22098)).
*3(b) - Bylaws (Exhibit 3.2 to the Current Report on Form 8-K filed by Insilco on August 18, 1998 (File No. 0-22098)).
*4(a) - Investors' Agreement, dated as of August 17, 1998, among Insilco Holding Co. and the investors named therein (Exhibit 4.5 to the Registration Statement on Form S-1 (File No. 333-65039) of Insilco Holding Co.)
*4(b) - Indenture, dated as of November 9, 1998 between Insilco and the Trustee (Exhibit 4(a) to the Form 10-Q filed by Insilco on November 16, 1998 (File no. 0-22098)).
*4(c) - First Supplemental Indenture, dated as of December 21, 1998 between Insilco and the Trustee (Exhibit 4.3 to the Registration Statement on Form S-1 (File No. 333-71947)).
*4(d) - Exchange and Registration Rights Agreement, dated as of November 9, 1998, between Insilco and Donaldson, Lufkin & Jenrette ("DLJ") (Exhibit 4(b) to the Form 10-Q for the Quarter Ended September 30, 1998 (File No. 0-22098)).
*4(e) - Indenture, dated as of August 12, 1997, between Insilco and the Trustee (Exhibit 4(j) to the Registration Statement on Form S-4 (File No. 333-36523)).
*4(f) - Form of New Note (included in Exhibit 4(e) above) (Exhibit 4(k) to the Registration Statement on Form S-4 (File No. 333-36523)).
*4(g) - Purchase Agreement, dated as of August 7, 1997, among Insilco and Goldman, Sachs & Co., McDonald & Company Securities, Inc. and Citicorp Securities Inc. (the "Initial Purchasers") (Exhibit 4(l) to the Registration Statement on Form S-4, (File No. 333-36523)).
*4(h) - Exchange and Registration Rights Agreement, dated as of August 12, 1997, between Insilco and the Initial Purchasers (Exhibit 4(m) to the Registration Statement on Form S-4 (File No. 333-36523)).
*4(i) - Second Supplemental Indenture, dates as of January 25, 1999, between Insilco and the Trustee.
*10(a) - Insilco Holding Co. Direct Investment Program (Exhibit 4(c) to the Registration Statement on Form S-8 (File No. 333-61809) of Insilco Holding Co.).
*10(b) - Insilco Holding Co. Stock Option Plan (Exhibit 4(d) to the Registration Statement on Form S-8 (File No. 333-61809) of Insilco Holding Co.).**
*10(c) - Insilco Holding Co. and Insilco Corporation Equity Unit Plan (Exhibit 4(c) to the Registration Statement on Form S-8 (File No. 333-61811) of Insilco Holding Co.). **
*10(d) - Credit Agreement among Insilco and a syndicate of banks and other financial institutions led by Donaldson, Lufkin & Jenrette Securities Corporation, DLJ Capital Funding and The First National Bank of Chicago (Exhibit 10.4 to the Registration Statement on Form S-1 (File No. 333-71947)).
*10(e) - Employment Agreement dated as of May 1, 1993 between Insilco and Robert L. Smialek, as amended and restated (Exhibit 10(k) to the Form 10/A, Amendment No. 1 to Form 10, (File No. 0-22098)).**
*10(f) - Form of Indemnification Agreement adopted by Insilco as of July 30, 1990, entered into between Insilco and certain of its officers and directors individually, together with a schedule identifying the other documents omitted and the material details in which such documents differ (Exhibit 10(n) to the Form 10, (File No. 0-22098)).
*10(g) - Form for Income Protection Agreement adopted by Insilco as of December, 1996, entered into between Insilco and the officers identified in Exhibit 10(g) (Exhibit 10(h) to Form 10-K for the year ended December 31, 1996, (File No. 0-22098)).
*10(h) - Extension Agreement between Insilco and Robert L. Smialek dated May 1, 1996 (Exhibit 10(l) to the Form 10-K for the year ended December 31, 1997 (File No. 0-22098)).**
*10(i) - Second Extension Agreement between Insilco and Robert L. Smialek dated September 25, 1997 (Exhibit 10(m) to the Form 10-K for the year ended December 31, 1997 (File No. 0-22098)).**
*10(j) - Purchase Agreement between Insilco Corporation, Insilco Holding Co. and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") (Exhibit 10(a) to Form 10-Q filed by Insilco on November 16, 1998).
*21 - Subsidiaries of Insilco (Exhibit 21 to the Registration Statement on Form S-1 (File No. 333-51145)).
23(a) - Consent of KPMG LLP.
24 - Power of Attorney of officers and directors of Insilco appearing on the signature page hereof.
*25 - Statement of Eligibility and Qualification Under the Trust Indenture Act of 1939 (T-1) of The Bank of New York (bound separately) (Exhibit 25 to the Registration Statement on Form S-4 (File No. 333-36523)).
27 - Financial Data Schedule.
99(a) - Schedule II - Valuation and Qualifying Accounts.
_______________ * Incorporated by reference, as indicated.
** The following are management contracts and compensatory plans or arrangements in which directors or executive officers participate: