<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-2
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------- -------------------
Commission File Number 0-828
-----
BIRD CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3082903
- ---------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
980 Washington Street, Dedham, MA 02026
- ---------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 461-1414
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
------------------- on which registered
---------------------
NONE NONE
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1 per share
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
---
The aggregate market value of common stock, par value $1 per share, held by
non-affiliates as of March 1, 1994 was $33,134,000. As of March 1, 1994 there
were 4,118,441 shares of Bird Corporation common stock, par value $1 per share,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1993 Annual Meeting of Stockholders to
be filed with the Commission by April 30, 1994 are incorporated by reference
into Parts I and III of this report.
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Bird Corporation's current manufacturing operations comprise two primary
business units: (i) roofing manufacturing and marketing and (ii) vinyl siding
and window profile manufacturing and marketing and vinyl window fabrication and
marketing. In addition to the manufacturing operations Bird Corporation also
has a business segment known as the Environmental Group. Products currently
manufactured at Bird Corporation's facilities include asphalt shingles, roll
roofing, vinyl siding, vinyl window profiles and windows and other exterior
building products for commercial and residential use. These products are
marketed directly and through independent wholesalers, including wholesalers
whose primary customers are roofing and vinyl siding contractors. All
references herein to the "Company" or "Bird" refer to Bird Corporation and its
subsidiaries unless otherwise indicated by the context.
The Company sells approximately 75% of its vinyl siding products to short line
specialty distributors serving both re-siding and new construction markets.
About 19% of its vinyl siding products are sold to home centers and lumber
yards, and about 6% to the manufactured housing market.
The Environmental Group's business designs, markets, operates, and services
on-site and off-site environmental waste treatment, recovery, and pre-treatment
systems, with a focus on the petrochemical industry. In July 1993 the Company
sold a portion of the business of the Environmental Group to Browning-Ferris
Industries, Inc., and in late 1993 the Company made a decision to close all
other aspects of its environmental business with the exception of a
developmental stage fixed site petrochemical waste processing facility in San
Leon, Texas (the "San Leon Facility"), which is scheduled to commence
commercial operations in early 1994. The San Leon Facility provides off-site
processing capabilities for numerous classifications of refinery waste that are
not economically treatable at the point of origin. The process at the San Leon
Facility is designed to recover commercial grade fuel oil and hazardous waste
derived fuels for cement kiln operations and to reduce the volume of residual
waste material for incineration.
GENERAL DEVELOPMENT OF BUSINESS
There were a number of significant developments in the business of the Company
during 1993, including the following:
_ In November 1993 the Company announced that it was in
technical violation of certain loan covenants under its
$50,000,000 Revolving Credit Agreement with its banks (the
"Revolving Credit Agreement"), and that the loan had
accordingly been classified as a current liability as of the
September 30, 1993 balance sheet of the Company. The
2
<PAGE> 3
Company also announced that because of the defaults under the
Revolving Credit Agreement, it was suspending payment of
dividends on all classes of its stock after the payments made
in November. In March 1994 the Company successfully completed
a refinancing with its banks, as a result of which the
Revolving Credit Agreement was amended to permit borrowings up
to $65,000,000 until January 31, 1996. As a result of the
refinancing, the loan is reclassified as long term as of
December 31, 1993. A description of the principal provisions
of the Revolving Credit Agreement appears in Item 7,
Management's Discussion and Analysis of Financial Condition
and Results of Operations ("Management's Discussions and
Analysis"), of this Form 10-K, and in Note 3 of the Notes to
Consolidated Financial Statements filed herewith.
_ In December 1993, the Company decided to withdraw from the
"on-site" environmental remediation business of its
Environmental Group. As a result of this decision, the
Company's only remaining environmental business will be
focused on the San Leon Facility which is scheduled to begin
commercial operations in early 1994. See Management's
Discussion and Analysis and Note 9 and Note 13 of the Notes to
Consolidated Financial Statements filed herewith. Certain
litigation involving the San Leon Facility, which the Company
believes will not affect the operations or profitability of
the Facility, is described in Item 3, "Legal Proceedings",
below.
_ In 1993, Kensington Partners ("Kensington"), a partnership in
which Bird then had a 50% joint venture interest with an
unrelated company to manufacture vinyl replacement windows,
became overextended, and as a result Kensington violated
certain covenants in a loan agreement with its financing bank.
The Company is a guarantor of the Kensington loan. After
negotiations with its partner, Bird agreed to make an
additional cash investment in Kensington and to provide cash
collateral to the lending bank in return for a temporary
increase in ownership to 90% as well as other significant
changes in its contractual arrangement with its partner. For
further information, see Note 10 of the Notes to Consolidated
Financial Statements filed herewith.
_ The Company was notified by the local supplier of asphalt
saturants and coatings used in the manufacture of roofing
products of its intent to discontinue the production of
asphalt in early 1994. As a result, the Company, after
investigating a number of alternatives to insure a continuous
supply of this raw material on an economical basis, has
decided to make a significant capital expenditure to build an
asphalt oxidizing plant at its Norwood, Massachusetts facility
for this purpose. See Management's Discussion and Analysis.
3
<PAGE> 4
PRINCIPAL PRODUCTS
Asphalt roofing products are manufactured at the Company's facilities in
Norwood, Massachusetts. Asphalt shingles and roll roofing are produced by
coating a fiberglass mat with a mixture of hot asphalt and crushed rock filler
and covering the coated mat with rhyolite granules. Its facilities include a
roofing manufacturing facility, a granule plant, a rhyolite quarry, and a
private landfill for the Company's use. In addition, the Company is in the
process of constructing an oxidizer to ensure a continuous supply of processed
asphalt.
In 1993, net sales of the components of the Housing Group as a percentage of
consolidated net sales of the Company was as follows: sales of asphalt roofing
products, 23% in 1993, 24% in 1992, and 31% in 1991; sales of vinyl products,
20% in 1993, 23% in 1992, and 29% in 1991; and sales of building materials
distribution centers (including roofing and vinyl products manufactured by the
Company), 57% in 1993, 53% in 1992, and 40% in 1991.
Vinyl products are produced at the Company's plant in Bardstown, Kentucky by
the process of high pressure extrusion of polychloride vinyl resin through
dies. Vinyl siding products are sold through wholesale distributors, including
several captive wholesale distribution outlets owned by the Company in Texas,
Louisiana, and Kentucky. Commodity products are generally purchased by home
centers, new construction and installer-type contractors, whereas the
higher-end products are generally sold to professional siding and remodeling
contractors. The Company would have to introduce several commodity-type siding
products in order to penetrate the home center and new construction markets,
and thereby increase its volume. Vinyl window profiles are primarily produced
to supply Kensington, Bird's joint venture company in the replacement window
fabrication business. Kensington is a major supplier of custom fabricated
vinyl windows to installers of replacement windows.
The Housing Group's distribution business is comprised of Southwest Roofing
Supply, Inc., a wholesale building materials distributor based in Arizona;
Atlantic Building Products Corporation, a wholesale building materials
distributor with outlets in Vermont, Massachusetts and Connecticut; Southland
Building Products, Inc., a distributor with outlets in Texas and Louisiana; New
York Building Products, Inc. with outlets on Long Island; and GLACO, Inc., a
distributor located in Kentucky. These distributors sell building material
products, including both those manufactured by Bird and products purchased from
other manufacturers, to wholesalers and applicators primarily for use in the
residential building market and designed to focus on roofing and vinyl siding
contractors. Over the last few years, the Company has grown the distribution
business of the Housing Group primarily through a series of acquisitions of
small distribution centers. None of these acquisitions were material to the
financial condition of the Company in the year of the acquisition. The
principal geographic markets for the Company's manufactured roofing products,
due to limitations imposed by freight costs, are the Northeastern states. The
Company's vinyl products are sold principally in states east of the Rocky
Mountains.
4
<PAGE> 5
The building materials business is seasonal to the extent that outside repair
and remodeling and new construction decline during the winter months. To
reduce the impact of this seasonal factor, the Company generally employs what
it believes to be an industry-wide practice of "winter dating", pursuant to
which extended or discounted payment terms are offered to credit-worthy
customers who order and accept delivery of roofing and vinyl products during
specified periods of time in the slow season.
RAW MATERIALS
The principal raw materials used in the manufacture of asphalt roofing products
are fiberglass mat, asphalt saturants and coatings and crushed rhyolite
granules. The Company's requirements for fiberglass mat are met primarily
under a Glass Mat Supply Agreement with one vendor which expires on December
31, 1995. Fiberglass mat is also generally available in adequate quantities
from a number of outside suppliers. Asphalt saturants and coatings were, until
recently, purchased from a major oil refinery. These materials are also
available from other sources at a higher delivered cost. Since the refinery's
discontinuation of its production of asphalt in April 1994, the Company has
been relying on a number of alternative sources for this raw material. Upon
completion of construction of its asphalt oxidizer, which is anticipated to
occur in the first quarter of 1995, the Company will be able to process asphalt
at its roofing facility, thereby reducing its costs and decreasing the
potential for temporary interruptions in its manufacturing operations. The
Company believes that it can produce all of its current granule requirements at
its quarry in Massachusetts.
The principal raw material used in the manufacture of vinyl products is
polyvinyl chloride resin, a petroleum derivative. This resin is purchased
primarily from two suppliers and is available in sufficient quantities from
several outside sources. Raw materials and packaging costs increased
substantially during 1994, including an increase in the cost of polyvinyl
chloride resin due to heightened domestic and export demand. Further increases
are projected for 1995, but to a lesser degree than in 1994. The Company
believes that, as compared to industry leaders, it is disadvantaged on a cost
basis by as much as 4% to 5% with respect to raw materials such as polyvinyl
chloride resin due to the fact that it is unable to take advantage of volume
discounts to which raw materials used to manufacture vinyl siding are often
subject. The Company believes that the raw materials requirements of the
Company's larger competitors in this industry are five to six times that of the
Company. The Company believes that it has been able to compensate
substantially for its raw materials cost disadvantages through well-managed
SG&A costs and by passing along the bulk of such increased raw materials costs
to the Company's customers.
BACKLOG
Order backlog is not a meaningful measure of the Company's building materials
business because there are fewer sales during the last quarter of the fiscal
year and the order-to-shipment cycle is
5
<PAGE> 6
relatively short. Additionally, it is very rare, at any time, to require more
than 30 days from the receipt of a product order to delivery of the product.
COMPETITION
The building materials business is, to a large degree, a commodities-type
business and is highly competitive with respect to price as well in other
aspects, such as delivery terms and consistent product quality. Many of the
Company's competitors are larger and financially stronger than the Company, but
none is dominant in any of its markets.
The strengths of its vinyl business arise, in part, from the unique marketing
programs the Company directs toward its indirect customer base, professional
siding and remodeling contractors, combined with an industry-wide reputation of
providing quality products with a high level of service. The Company's
comprehensive contractor marketing program is designed to support the position
of the Company's contractors in the industry. Such marketing program includes
a special system for in-home sales promotions and an exclusive Household
International homeowner financing program. Pursuant to its exclusive
certification program, the Company also certifies contractors who have recorded
five (5) successful years in business, who provide the Company with names of
customers for quality checks, sign a letter of ethics, have a good credit
history, warrant their workmanship for two (2) years, attend annual training
meetings and supply Bird siding on at least 85% of the jobs they install.
Contractors must pay a fee to be certified and must be recertified annually.
Certified contractors are supplied with a wide array of marketing materials,
including customized sample cases, special mailers and custom job site signs.
INTELLECTUAL PROPERTY
The Company owns a number of trademarks, as well as significant technology and
know-how, which it utilizes in connection with its building materials business.
The Company believes that its trademarks are strong and well recognized in the
industry.
The Company is not aware of any significant proprietary technology in the vinyl
siding industry. However, within the last two years, several leading vinyl
products manufacturers have upgraded their extrusion equipment, thereby
increasing the efficiency and relative productivity of such equipment. Due to
its financial constraints during such period, the Company has not kept pace
with the conversion to higher speed machines. Given adequate financial
resources, the Company could be competitive from a manufacturing standpoint.
Notwithstanding its failure to upgrade its equipment to date, the Company
believes that it has been able to compensate substantially for any productivity
deficiencies through high standard and premium product sales.
6
<PAGE> 7
Environmental Products and Services
The Company markets the products and services of its environmental business
primarily in the Gulf Coast of the United States, focusing solely on
petrochemical waste streams requiring special processing. Processing is
performed at the San Leon Facility.
Financial and Related Information about Industry Segments
While the Company formerly operated in two major business segments, its housing
segment and its environmental segment, the Company no longer operates its
environmental segment. For financial information regarding the industry
segments in which the Company previously operated, see the Company's
consolidated financial statements for 1993 filed herewith.
Compliance with Certain Environmental Laws
The Company has expended and expects to continue to expend funds to comply with
federal, sate and local provisions and orders which relate to the environment.
Based on the information available to the Company at this time, the Company
believes that the effect of compliance with these provisions on the capital
expenditures, earnings and competitive position of the Company is not material.
Litigation and other proceedings involving environmental matters are described
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
ENVIRONMENTAL GROUP
During 1993, the business of the Environmental Group consisted of providing
recycling, remediation, and beneficial re-use services for applications as
diverse as food processing waste streams, oily waste recovery, and the
treatment of municipal wastes. Generally, these services are designed to
recover valuable constituents, remove wastes, and reduce the volume of
materials which must be disposed of by other means. The Environmental Group
accepts operational responsibility either as a prime contractor or a
subcontractor to the waste generator.
In 1993, the Company went through a number of transitional events in an attempt
to make the Environmental Group profitable. First, the Company re-focused its
efforts in the environmental business by making the decision to sell its
municipal sludge disposal business to Browning-Ferris Industries, Inc. in July.
In December 1993, the Company decided to withdraw entirely from the on-site
environmental remediation business, which focused on providing services at
waste generators' facilities. The Company is in the process of closing the
on-site remediation business.
The remaining business of the Environmental Group consists of the recycling of
oily sludges at its fixed site facility in San Leon, Texas. This new facility,
in which Bird has a $16,000,000 investment, provides off-site processing
capabilities for numerous classifications of refinery waste that are not
economically treatable at the point of
7
<PAGE> 8
origin. The process at the facility is designed to recover commercial grade
fuel oil and hazardous waste derived fuels for cement kiln operations and to
reduce the volume of residual waste material for incineration and is currently
in its testing and debugging stage. It is presently anticipated that the San
Leon Facility can commence commercial operations in early 1994 under an interim
Part A permit. This permit allows the facility to be commercially operated as
designed albeit with limited operation pending the issuance of its permanent
Part B permit.
The Company's limited capital as a result of its 1993 losses and certain
covenants of the new Revolving Credit Agreement may prevent the Company from
making necessary additional capital improvements to this facility. Therefore,
to bring this business to fruition, the Company may need to sell all or part of
this facility to a strategic partner in the hazardous waste industry. Results
of the debugging process will determine how much additional capital is required
and the direction the Company will need to take. All permitting requirements
are complete and the Part B permit is currently subject to a required public
notice period to allow for any possible objections. If no objections are filed
the permit should be issued in April 1994.
RAW MATERIALS
The fixed site facility is designed to recycle and dispose of a variety of
petrochemical hazardous wastes. In that capacity the plant receives wastes
from generators and processes them to allow for safe disposal. The process
relies primarily on public utilities and does not require raw materials.
MARKETS AND DISTRIBUTION
The Company markets the products and services of its environmental segment
primarily in the Gulf Coast of the United States and revised its marketing
strategy to focus on petrochemical waste streams requiring special processing.
BACKLOG
The Company's fixed site petroleum waste recycling center is scheduled to open
in early 1994. Therefore, there was no backlog at year end. It is anticipated
that the facility will be at full capacity by end of 1994. Environmental
regulations require immediate processing of waste material, so a large backlog
would hardly ever exist.
COMPETITION
The desorber technology which will be operated by the Company's San Leon
facility is patented by and licensed from one of the facility's minority
partners. The Company believes there is no direct equivalent to this process;
however, there are alternative treatment technologies
8
<PAGE> 9
which customers, for a variety of reasons, may continue to consider for the
disposal or recycling of their wastes.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information about the industrial segments in which the Company
operates, for the three years ended December 31, 1993, appear in Note 13 of the
Notes to Consolidated Financials which is incorporated herein by reference
thereto.
ENVIRONMENT
The Company has expended and expects to continue to expend funds to comply with
federal, sate and local provisions and orders which relate to the environment.
Based on the information available to the Company at this time, the Company
believes that the effect of compliance with these provisions on the capital
expenditures, earnings and competitive position of the Company is not material.
Litigation and other proceedings involving environmental matters are described
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
EMPLOYEES
At December 31, 1993, the Company employed 889 people.
ITEM 2. PROPERTIES
The Company's executive offices are located in Dedham, Massachusetts and are
leased. The Company believes that its plant and facilities, as described
below, are suitable and adequate for its current and anticipated business.
Operating capacity can be increased by additional man hours, changing product
mix, and/or minimal capital investment should the need arise. All facilities
are well maintained, in sound operating condition, and in regular use.
Roofing Manufacturing Facility
The Company owns its asphalt roofing manufacturing facility in Norwood,
Massachusetts. The Norwood plant includes the manufacturing facility, a
granule plant, a rhyolite quarry and a Company-owned landfill for the Company's
use. The Company formerly leased its roofing machine and purchased such
equipment from the former lessor in November 1994. The Company also leases an
industrial laminator and certain other equipment which were fabricated for use
in its roofing plant. The laminator lease expires in 1998. As mentioned
above, the Company is in the process of constructing an asphalt oxidizer plant
expansion at the Norwood premises to ensure a continuous supply of asphalt.
The Company also leases storage and terminal facilities in Providence, Rhode
Island.
9
<PAGE> 10
Vinyl Siding and Window Manufacturing Facilities
The Company owns its vinyl product plant in Bardstown, Kentucky. Such plant
was constructed in 1967 with the proceeds of an industrial revenue bond issue.
Kensington leases its manufacturing facility in Leechburg, Pennsylvania.
BEGCI's Environmental Business.
The Company's on-site environmental remediation business will close its leased
offices located in Houston, Texas and Trumbull, Connecticut in mid-1994 when
the Company completes the disposal of the on-site environmental business. The
San Leon Facility is owned by BEGCI.
ITEM 3. LEGAL PROCEEDINGS
The Company monitors its compliance with environmental regulations on an
ongoing basis. Periodically (at least twice a year), the Company's general
counsel receives environmental site assessments from the operating managers
responsible for site environmental compliance. Appropriate action is
undertaken where needed. In addition, when environmental claims are asserted
against the Company, the claims are evaluated by the Company's general counsel
and operating management in conjunction with external legal counsel and
environmental engineers as necessary, and action is taken with respect to all
known sites, as appropriate. The Company is currently engaged in proceedings
relating to or has received notice of the following environmental matters:
In March 1994, the Company received a notice of violation from the Texas
Natural Resource Conservation Commission ("TNRCC"). The notice alleged that
the Company was not in compliance with regulations of the TNRCC relating to
labeling, permitting, storage and disposal of certain hazardous waste. The
notice proposed certain corrective action on the part of the Company as well as
payment of certain unqualified administrative penalties. The Company is aware
of former uses at the site which may have resulted in the release of oil and/or
hazardous substances and materials, and which may become the subject of
corrective actions required by law. The Company has met with the TNRCC to
assess the nature and extent of any corrective action which may be required
with respect thereto, and to ascertain whether any penalties would be asserted.
There has been no subsequent communication from the TNRCC, however. Based on
management's preliminary estimate, the penalties, if any, would be immaterial.
Accordingly, no amounts have been accrued for this matter at December 31, 1993.
On March 15, 1994 the Company received a draft of an Administrative Consent
Order and Notice of Noncompliance from the Massachusetts Department of
Environmental Protection ("DEP") concerning operations at its Norwood,
Massachusetts manufacturing facility and associated rock granule processing
facility. The draft alleges that the Company was not in compliance with
regulations of the DEP relating to air emissions, granule plant operation, and
labeling, handling and storage of certain hazardous waste. The draft proposes
certain corrective
10
<PAGE> 11
action on the part of the Company as well as payment of civil administrative
penalties. On June 10, 1994, the Company's roofing division entered into an
administrative consent order and notice of noncompliance with respect to the
alleged violations. The consent order requires the Company to undertake
certain modifications and corrective actions with respect to certain hazardous
waste handling and storage facilities at the Norwood facility, to conduct an
environmental audit of its operations at such facility and to undertake various
modifications of air pollution control equipment. In addition, the Company is
required to pay an administrative penalty of $30,000. The Company estimates
that the cost of corrective action to be taken by it in accordance with the
consent order will be approximately $100,000.
On March 25, 1994, the Company received a notice from the United States
Environmental Protection Agency (the "EPA") regarding a site inspection
prioritization report prepared by DEP. The notice alleges a potential release
of hazardous substances into the environment at the Company's former mill site
in East Walpole, Massachusetts. The EPA has reserved the right to conduct
further site tests on the location. In the opinion of management and based on
management's understanding that the alleged releases are in de minimis
quantities, this matter should not have a material adverse affect on the
Company's financial position or on the results of its operations.
Site assessments performed for the Company by its environmental consultants GZA
GeoEnvironmental, Inc. in connection with the construction of the new asphalt
oxidizer at the Norwood roofing facility indicated the presence of reportable
quantities of hazardous or toxic material, most of which has since been
removed. The Company must complete certain additional remedial activities
described in the new MCP on or before August 2, 1996. In the opinion of
management, any costs associated with these additional remedial activities will
not have a material effect on the results of operations or financial condition
of the Company.
In 1986, the Company, along with numerous other companies, was named by the EPA
and other governmental agencies responsible for regulation of the environment
as a Potentially Responsible Person ("PRP") pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
Paragraph 9601, et seq. ("CERCLA") in connection with hazardous substances at a
site known as the Fulton Terminal Superfund site located in Fulton, Oswego
County, New York. On September 28, 1990, the Company and a number of other
PRPs reached a negotiated settlement with the EPA pursuant to which the
settling PRPs agreed to pay the costs of certain expenses in connection with
the proceedings and to pay certain other expenses, including the costs and
expenses of administering a trust fund to be established by the settling PRPs.
The settlement agreement is embodied in a consent decree lodged with the United
States District Court for the Western District of New York and fixed the
Company's proportionate share of the total expenses. The ultimate cost to the
Company of the remedial work and other expenses covered by the settlement
agreement is estimated to be between $1,000,000 to $2,000,000 payable over a
period of 3 to 15 years (depending upon the duration of remediation efforts).
The Company has provided a reserve
11
<PAGE> 12
of approximately $920,000 at December 31, 1993 to offset its estimate of the
proportionate share (i.e., 16.5%) of the ultimate cost of cleanup. Under a
cost-sharing arrangement set forth in a consent decree with the EPA, the other
PRPs have agreed to incur 83.5% of the aggregate cost of remediation of this
site.
The Company has been named as a PRP with respect to certain other sites which
are being investigated by federal or state agencies responsible for regulation
of the environment. As a consequence of its status as a PRP, the Company may
be jointly and severally liable for all of the potential monetary sanctions and
remediation costs applicable to each site. In assessing the potential
liability of the Company at each site, management has considered, among other
things, the aggregate potential cleanup costs of each site; the apparent
involvement of the Company at each site and its prospective share of the
remediation costs attributable thereto; the number of PRPs identified with
respect to each site and their financial ability to contribute their
proportionate shares of the remediation costs for such site; the availability
of insurance coverage for the Company's involvement at each site and the
likelihood that such coverage may be contested; and whether and to what extent
potential sources of contribution from other PRPs or indemnification by
insurance companies constitute reliable sources of recovery for the Company.
Similar consideration has been given in determining the exposure and potential
liability of the Company in connection with other significant legal proceedings
to which the Company is a party. On the basis of such consideration,
management has determined that such environmental matters will not have a
material adverse effect on the Company's financial position or results of
operations. The Company has provided an aggregate reserve amounting to
approximately $200,000 for its estimated share of the ultimate cost of clean-up
for claims (without taking into account any potential indemnification or
recovery from third parties).
The Company's roofing facility at Norwood, Massachusetts is one of 4,000 sites
on the DEP list. The site was inspected by the DEP in the early 1980s when
capital improvements were being made to the roofing plant. At that time, the
DEP requested that the Company perform certain remediation measures. The
Company complied with such request. The environmental condition of the site
was studied in 1985 by an independent engineering firm. The assessment was
prompted by the request of a potential lender which planned to take a mortgage
on the property to collateralize a line of credit to the Company. Upon review
of the study, the lender extended credit to the Company secured by a mortgage
on the site. The DEP significantly revised the regulations that govern the
reporting, assessment and remediation of hazardous waste sites in
Massachusetts. The new Massachusetts Contingency Plan ("MCP") however, does
not alter the ultimate liability for any remediation that may be necessary at
the Norwood facility. Under the new MCP, the roofing facility is again listed
on the August 1993 "Transition List of Confirmed Disposal Sites and Locations
to be Investigated."
Since 1981 Bird has been named as a defendant in approximately 450 product
liability cases throughout the United States by persons claiming to have
suffered asbestos-related diseases as a result of
12
<PAGE> 13
alleged exposure to asbestos in products manufactured and sold by Bird.
Approximately 140 of these cases are currently pending and costs of
approximately $1.4 million in the aggregate have been incurred in the defense
of these claims since 1981. Employers Insurance of Wausau ("Wausau") has
accepted the defense of these cases under an agreement for sharing of the costs
of defense, settlements and judgments, if any. In light of nature and merits
of the claims alleged, in the opinion of management, the resolution of these
remaining claims will not have a material effect on the results of operations
or financial condition of the Company.
In January 1994, the minority shareholders of the Company's Bird Environmental
Gulf Coast, Inc. ("BEGCI") subsidiary, a company formed to build and operate
the San Leon Facility, a fixed site oily waste treatment facility, sued the
Company for breach of contract, fraud and other unlawful conduct. The Company
has counter-sued the plaintiffs and a company owned by one of the plaintiffs
that acted as a sub-contractor for BEGCI. It is the Company's opinion that the
suit should not affect the operation or profitability of the facility and that
it is mutually beneficial for the suit to be settled.
The Company is also exposed to a number of other asserted and unasserted
potential claims encountered in the normal course of business. In the opinion
of management, the resolution of such claims will not have a material adverse
affect on the Company's financial position or results of operations.
The Company is a defendant in a number of suits alleging product defects, the
outcome of which management believes will not in the aggregate have a material
impact on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of the executive officers of the Company as of
March 1, 1994, the date from which they have served as officers and their
present positions with the Company are as follows:
Joseph D. Vecchiolla 38 January 1994 President, Chief
Executive Officer
and Chief Financial
Officer
Frank S. Anthony 47 May 1984 Vice President,
General Counsel and
Corporate Secretary
13
<PAGE> 14
William C. Kinsey 59 January 1985 Vice President and
President Vinyl
Group
William A. Krivsky 64 December 1986 Executive Vice
President and
President Bird
Environmental
Technologies, Inc.
Richard C. Maloof 48 January 1985 Vice President and
President Roofing
and Distribution
Groups
Joseph M. Grigelevich 50 December 1988 Treasurer
Mr. Vecchiolla joined the Company in June 1993 as Vice President and Chief
Financial Officer. He was elected President, COO and CFO in November 1993 and
was given the additional responsibility of Acting CEO in December 1993 and was
elected to the Board of Directors. In January 1994, Mr. Vecchiolla was given
the full responsibility of CEO in addition to his other offices. Prior to his
association with Bird, Mr. Vecchiolla was Vice President and Chief Financial
Officer of Horizon Cellular Telephone Company (1991-1993). Prior to that Mr.
Vecchiolla held the position of Executive Vice President of Educational
Publishing Corporation (1987-1991). Mr. Anthony is an attorney and served in
the law department of Westinghouse Electric Corporation (1976-1983). Mr. Kinsey
has served in executive capacities with the Company since 1982 and prior to
joining the Company held various management positions with CertainTeed
Corporation. Mr. Krivsky was President of Velcro Industries, N.V. (1982-1986).
Mr. Maloof and Mr. Grigelevich have served in their current management
capacities with the Company for more than five years.
These officers are appointed annually at an organizational meeting of the Board
of Directors immediately following the annual meeting of stockholders. There
are no family relationships among any of the officers of the Company nor are
any of the officers related to any member of the Board of Directors.
The Company had an employment agreement with Mr. Haufler, the former CEO. The
Employment Agreement was terminated on January 25, 1994. In December 1993, the
Company entered into an employment contract and a severance agreement with Mr.
Vecchiolla. The Company has also entered into agreements with several of its
other executive officers which become operative in the event of termination of
employment after a change in control of the Company or a change in the
individual's responsibilities following a change in control. These agreements
are described in the Company's definitive proxy statement for its 1994 Annual
Meeting which is to be filed with the Commission by April 30, 1994 and is
incorporated herein by reference.
14
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
COMMON STOCK INFORMATION
The Company had 2,245 common shareholders of record at December 31, 1993.
The common stock is quoted in the National Market System under the NASDAQ
symbol BIRD. The range of high and low prices for the common stock as reported
by NASDAQ for the periods indicated is set forth below.
1993 1992
---- ----
QUARTER HIGH LOW HIGH LOW
------- ---- --- ---- ---
FIRST 14 1/4 11 3/4 18 3/4 14 1/4
SECOND 13 1/2 11 1/2 18 12
THIRD 13 1/4 11 1/2 14 11 1/4
FOURTH 13 1/2 6 1/2 13 1/2 11
The terms of the Company's amended Revolving Credit Agreement with its lending
banks limits the declaration and payment of cash dividends on 5 percent
cumulative preferred stock to $350,000 per year, and on $1.85 cumulative
convertible preference stock to $1,550,000 per year. Dividends can be paid in
each case only if the Company meets certain levels of interest coverage.
The Company paid a cash dividend of 5 cents per common share in each quarter
during 1992 and 1993. At the end of 1993 the Company suspended dividends on
all classes of stock until further notice.
15
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth certain financial data and are qualified in
their entirety by the more detailed Consolidated Financial Statements and
information included elsewhere herein:
Selected Consolidated Statement of Operations Data
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(Thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $187,745 $164,202 $137,059 $128,997 $122,013
-------- -------- -------- -------- --------
Costs and expenses:
Cost of sales 151,664 128,371 107,226 99,811 95,450
Selling, general and
administrative expenses 32,716 27,811 23,023 21,588 20,506
Interest expense 2,472 1,506 1,026 414 1,562
Discontinued business activities (income) 268 178 189 (681) (6,478)
Other (income) expense 5,903 (197) (331) (547) (1,323)
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations
before income taxes (5,278) 6,533 5,926 8,412 12,296
Provision (benefit) for income taxes (637) 869 498 614 1,063
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations (4,641) 5,664 5,428 7,798 11,233
-------- -------- -------- -------- --------
Discontinued operations:
Gain (loss) from operations of discontinued
businesses, net of taxes (15,414) (2,573) (249) (1,073) (1,347)
Gain (loss) on disposal of businesses (11,000) 0 0 0 9,806
-------- -------- -------- -------- --------
Net gain (loss) from discontinued operations (26,414) (2,573) (249) (1,073) 8,459
Cumulative effect of accounting change 2,733 0 0 0 0
-------- -------- -------- -------- --------
Net earnings (loss) ($28,322) $3,091 $5,179 $6,725 $19,692
======== ======== ======== ======== ========
</TABLE>
16
<PAGE> 17
Selected Consolidated Statement of Operations Data (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(Thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Primary earnings (loss) per common share:
Continuing operations ($1.51) $1.00 $1.01 $1.73 $2.43
Discontinued operations (6.45) (0.62) (0.06) (0.30) 2.12
Cumulative effect of accounting change 0.67 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Net earnings (loss) ($7.29) $0.38 $0.95 $1.43 $4.55
======== ======== ======== ======== ========
Fully diluted earnings (loss) per common share:
Continuing operations ($1.51) $1.00 $1.01 $1.73 $2.08
Discontinued operations (6.45) (0.62) (0.06) (0.30) 2.08
Cumulative effect of accounting change 0.67 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Net earnings (loss) ($7.29) $0.38 $0.95 $1.43 $4.16
======== ======== ======== ======== ========
Cash dividend per common share $0.15 $0.20 $0.20 $0.20 $0.00
======== ======== ======== ======== ========
Book Value Per Common Share $5.75 $12.83 $12.61 $11.59 $10.36
======== ======== ======== ======== ========
</TABLE>
Selected Consolidated Balance Sheet Data
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C>
Total assets $123,229 $119,075 $99,904 $80,835 $76,383
Working capital $30,090 $43,782 $34,179 $32,022 $29,333
Long-term debt, excluding current portion $43,127 $30,374 $12,150 $4,492 $1,370
Stockholders' equity $40,561 $69,101 $68,602 $60,323 $55,410
</TABLE>
17
<PAGE> 18
BIRD CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company's external financial needs are satisfied primarily by borrowing
under the Revolving Credit Agreement with its lending banks. The Revolving
Credit Agreement contains financial and operating covenants which, among other
things, require the Company to maintain prescribed levels of pre-tax earnings,
net worth, ratios of debt to net worth and ratios of current assets to current
liabilities. There are also restrictions on indebtedness, liens, investments,
acquisitions, dispositions, mergers, and the payment of dividends. As of
September 30, 1993, covenants regarding the ratio of adjusted earnings before
interest and taxes to total interest expense, maximum permitted capital
expenditures and investments by the Company in a non-consolidated joint venture
had been breached. As a result of these defaults in the Revolving Credit
Agreement, the related debt was classified as current on the September 30, 1993
balance sheet. The banks have indicated their consent to payment of the
dividend payable on November 15, 1993 to holders of the Company's $1.85
cumulative convertible preference stock.
The Company's banking group agreed on February 14, 1994 to forbear from
exercising their rights and remedies under the Revolving Credit Agreement and
to continue to extend credit under the Revolving Credit Agreement through March
15, 1994. For this period of time certain default criteria were specified and
the Company agreed to collateralize the loan with the accounts receivable of
its roofing distribution companies. During this forbearance period any loans
by the Company bore interest of base rate plus one and one half percent
(1 1/2%) or a total of 7 1/2%.
On March 4, 1994 the banks agreed to amend the Revolving Credit Agreement to
allow the Company to borrow up to $65 million until January 31, 1996. The
loan, which is secured by substantially all of the Company's assets, is defined
as a $40 million revolving credit line for working capital and letters of
credit and a $25 million term loan for general corporate purposes. The
revolving credit availability is determined with reference to a percentage of
accounts receivable and inventory which are pledged to the bank. The Company
believes that the availability calculation will allow borrowing to the full
amount of the loan. The term loan must be reduced by $2.6 million on October
31, 1994, by $11.2 million on April 30, 1995 and by $11.2 million on January
31, 1996. Other repayment options and a further explanation of financing are
described in Note 3 of the Notes to Consolidated Financial Statements. The
Company believes these terms are adequate to allow for the ongoing
restructuring to be complete. Interest on the revolving credit portion of the
Revolving Credit Agreement will be base rate plus 1% on all borrowings and
1/2% on any unused portion. The interest on the term portion will be Base Rate
plus 2%. Certain
18
<PAGE> 19
financial covenants such as a current ratio calculation and a minimum tangible
net worth will need to be met.
Repayment may also be made from excess proceeds from asset sales (calculated as
the amount remaining after net asset sale proceeds are used to reduce revolving
credit loans to less than borrowing base availability with borrowing base
availability being calculated after the effect of such an asset sale). The
difference of excess proceeds and the reductions as described in the paragraph
above shall be applied to the Term Loan in inverse order of maturity. The term
loan may also be required to be reduced on any other date by the amount (if
any) by which the term loan exceeds 70% of the fair market value of all of the
Company's fixed assets.
In order to meet the Company's cash needs for 1994 some strict cash controls
will be required, but the Company feels the situation is manageable. Certain
measures, such as the decision to close the On-site environmental business,
have already been taken and other cost cutting steps are anticipated, including
a substantial reduction in the Company's corporate staff and overhead.
Due to the seasonal aspects of the Company's business and its standby letter of
credit needs, total bank debt reflected in the Company's financial statements
at year-end is not fully indicative of the Company's external financing needs.
The Company's peak bank debt during 1993 was $44,000,000 plus standby letters
of credit approximating $2,761,000.
Capital expenditures were $16,251,000 in 1993 and $6,482,000 in 1992. Planned
capital expenditures in 1994 are expected to approximate $8,500,000. Capital
expenditures in 1993 were primarily related to the construction of an oily
waste treatment facility in the Environmental Group. Capital expenditures in
1994 are limited to projects that are required by regulation or essential to
remain competitive. More than half of the 1994 capital expenditures are
designated for the construction of an asphalt oxidizing plant at the Norwood
Roofing Facility. The Company was notified by the supplier of asphalt saturant
and coating used in the manufacturing of roofing products of its intent to
discontinue the production of asphalt in early 1994. Until the construction of
the oxidizer is complete in mid-1994, the Company will face significantly
higher raw material costs and greater potential for temporary interruption in
its manufacturing operation. The completed project will provide the most
economical, continuous supply of this raw material.
In December 1990, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("FAS 106"). This statement
establishes accounting standards principally for employers' accounting for
postretirement health care and life insurance benefits. It requires the
accrual of the expected cost of providing those benefits during the period that
employee services are rendered.
The Company adopted FAS 106 in 1993. Adoption of the new statement did not
have a material effect on the Company's financial position or results of
operations.
19
<PAGE> 20
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("FAS
109"). Under this asset and liability method, the Company is required to
recognize income tax benefits for loss carryforwards, credit carryforwards and
certain temporary differences for which tax benefits have not previously been
recorded. The Company adopted FAS 109 in 1993 and recorded the cumulative
effect of the change in accounting principle of approximately $2.7 million as a
benefit in the results of operations for the first quarter of 1993. The
Company did not restate prior years' financial statements upon adoption of this
statement. This accounting change also requires the recording of a valuation
reserve if it is more likely than not that the Company may not be able to
realize the benefits of recorded deferred tax assets. At December 31, 1993 the
Company recorded a net deferred tax asset of approximately $14.2 million and a
valuation reserve of $9.0 million. As required under FAS 109, this valuation
reserve was determined based upon the Company's review of all available
evidence including projections of future taxable income. The Company has
announced the closing of the majority of the environmental business. This
segment of the Company was the main cause of recent poor earnings performance.
As the effects of this action and other cost cutting measures produce favorable
results, the deferred tax asset and related valuation reserve will be reviewed.
In January 1994, the minority shareholders of the Company's Bird Environmental
Gulf Coast, Inc. ("BEGCI") subsidiary, a company formed to build and operate a
fixed site oily waste treatment facility sued the Company for breach of
contract, fraud and other unlawful conduct. The claim settled pursuant to the
Settlement Agreement was based on the minority stockholders' allegations that
the Company, without minority stockholder approval, caused BEGCI to fund the
construction of a solid waste treatment facility featuring desorption
technology owned by one of the minority stockholders rather than funding a less
costly liquid waste treatment facility featuring centrifuge technology.
Pursuant to the Settlement Agreement, the Company has agreed to sell its 80%
interest in BEGCI to the minority stockholders for approximately $7.5 million
in cash on or before February 28, 1995. Such proposed sale is subject to
financing and also allows the Company to sell all of its interest in BEGCI to
another buyer, provided that the shares of common stock of BEGCI owned by the
minority stockholders are also sold at no less than the same price per share.
The minority stockholders continue to discuss financing with various interest
parties. However, the minority stockholders and the Company are working
together to sell the Company's interest or the entire facility to any of a
number of potential acquirors who are in various stages of their due diligence
reviews. As the Board of Directors' decision to sell BEGCI and this Settlement
Agreement established a measurement date for financial accounting purposes, the
Company has written down the recorded value of BEGCI as of June 30, 1994 to
$7.5 million. The Company has counter-sued the plaintiffs and a company owned
by one of the plaintiffs that acted as a sub-contractor for BEGCI. It is the
management's opinion that the suit should not affect the operation or
profitability of the facility and that resolution of this matter will not have
a material adverse affect on the Company's financial position or results of
operations.
20
<PAGE> 21
ENVIRONMENTAL MATTERS
The Company monitors its compliance with environmental regulations on an
ongoing basis. Periodically (at least twice a year), the Company's general
counsel receives environmental site assessments from the operating managers
responsible for site environmental compliance. Appropriate action is
undertaken where needed. In addition, when environmental claims are asserted
against the Company, the claims are evaluated by the Company's general counsel
and operating management in conjunction with external legal counsel and
environmental engineers as necessary, and action is taken with respect to all
known sites, as appropriate. The Company is currently engaged in proceedings
relating to or has received notice of the following environmental matters:
In March 1994, the Company received a notice of violation from the Texas
Natural Resource Conservation Commission ("TNRCC"). The notice alleged that
the Company was not in compliance with regulations of the TNRCC relating to
labeling, permitting, storage and disposal of certain hazardous waste. The
notice proposed certain corrective action on the part of the Company as well as
payment of certain unqualified administrative penalties. The Company is aware
of former uses at the site which may have resulted in the release of oil and/or
hazardous substances and materials, and which may become the subject of
corrective actions required by law. The Company has met with the TNRCC to
assess the nature and extent of any corrective action which may be required
with respect thereto, and to ascertain whether any penalties would be asserted.
There has been no subsequent communication from the TNRCC, however. Based on
management's preliminary estimate, the penalties, if any, would be immaterial.
Accordingly, no amounts have been accrued for this matter at December 31, 1993.
On March 15, 1994 the Company received a draft of an Administrative Consent
Order and Notice of Noncompliance from the Massachusetts Department of
Environmental Protection ("DEP") concerning operations at its Norwood,
Massachusetts manufacturing facility and associated rock granule processing
facility. The draft alleges that the Company was not in compliance with
regulations of the DEP relating to air emissions, granule plant operation, and
labeling, handling and storage of certain hazardous waste. The draft proposes
certain corrective action on the part of the Company as well as payment of
civil administrative penalties. On June 10, 1994, the Company's roofing
division entered into an administrative consent order and notice of
noncompliance with respect to the alleged violations. The consent order
requires the Company to undertake certain modifications and corrective actions
with respect to certain hazardous waste handling and storage facilities at the
Norwood facility, to conduct an environmental audit of its operations at such
facility and to undertake various modifications of air pollution control
equipment. In addition, the Company is required to pay an administrative
penalty of $30,000. The Company estimates that the cost of corrective action
to be taken by it in accordance with the consent order will be approximately
$100,000.
On March 25, 1994, the Company received a notice from the United States
Environmental Protection Agency (the "EPA") regarding a site inspection
prioritization report prepared by DEP. The notice alleges a potential release
of hazardous substances into the environment at the Company's
21
<PAGE> 22
former mill site in East Walpole, Massachusetts. The EPA has reserved the
right to conduct further site tests on the location. In the opinion of
management and based on management's understanding that the alleged releases
are in de minimis quantities, this matter should not have a material adverse
affect on the Company's financial position or on the results of its operations.
Site assessments performed for the Company by its environmental consultants GZA
GeoEnvironmental, Inc. in connection with the construction of the new asphalt
oxidizer at the Norwood roofing facility indicated the presence of reportable
quantities of hazardous or toxic material, most of which has since been
removed. The Company must complete certain additional remedial activities
described in the new MCP on or before August 2, 1996. In the opinion of
management, any costs associated with these additional remedial activities will
not have a material effect on the results of operations or financial condition
of the Company.
In 1986, the Company, along with numerous other companies, was named by the EPA
and other governmental agencies responsible for regulation of the environment
as a Potentially Responsible Person ("PRP") pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
Paragraph 9601, et seq. ("CERCLA") in connection with hazardous substances at a
site known as the Fulton Terminal Superfund site located in Fulton, Oswego
County, New York. On September 28, 1990, the Company and a number of other
PRPs reached a negotiated settlement with the EPA pursuant to which the
settling PRPs agreed to pay the costs of certain expenses in connection with
the proceedings and to pay certain other expenses, including the costs and
expenses of administering a trust fund to be established by the settling PRPs.
The settlement agreement is embodied in a consent decree lodged with the United
States District Court for the Western District of New York and fixed the
Company's proportionate share of the total expenses. The ultimate cost to the
Company of the remedial work and other expenses covered by the settlement
agreement is estimated to be between $1,000,000 to $2,000,000 payable over a
period of 3 to 15 years (depending upon the duration of remediation efforts).
The Company has provided a reserve of approximately $920,000 at December 31,
1993 to offset its estimate of the proportionate share (i.e., 16.5%) of the
ultimate cost of cleanup. Under a cost-sharing arrangement set forth in a
consent decree with the EPA, the other PRPs have agreed to incur 83.5% of the
aggregate cost of remediation of this site.
The Company has been named as a PRP with respect to certain other sites which
are being investigated by federal or state agencies responsible for regulation
of the environment. As a consequence of its status as a PRP, the Company may
be jointly and severally liable for all of the potential monetary sanctions and
remediation costs applicable to each site. In assessing the potential
liability of the Company at each site, management has considered, among other
things, the aggregate potential cleanup costs of each site; the apparent
involvement of the Company at each site and its prospective share of the
remediation costs attributable thereto; the number of PRPs identified with
respect to each site and their financial ability to contribute their
proportionate shares of the remediation costs for such site; the availability
of
22
<PAGE> 23
insurance coverage for the Company's involvement at each site and the
likelihood that such coverage may be contested; and whether and to what extent
potential sources of contribution from other PRPs or indemnification by
insurance companies constitute reliable sources of recovery for the Company.
Similar consideration has been given in determining the exposure and potential
liability of the Company in connection with other significant legal proceedings
to which the Company is a party. On the basis of such consideration,
management has determined that such environmental matters will not have a
material adverse effect on the Company's financial position or results of
operations. The Company has provided an aggregate reserve amounting to
approximately $200,000 for its estimated share of the ultimate cost of clean-up
for claims (without taking into account any potential indemnification or
recovery from third parties).
The Company's roofing facility at Norwood, Massachusetts is one of 4,000 sites
on the DEP list. The site was inspected by the DEP in the early 1980s when
capital improvements were being made to the roofing plant. At that time, the
DEP requested that the Company perform certain remediation measures. The
Company complied with such request. The environmental condition of the site
was studied in 1985 by an independent engineering firm. The assessment was
prompted by the request of a potential lender which planned to take a mortgage
on the property to collateralize a line of credit to the Company. Upon review
of the study, the lender extended credit to the Company secured by a mortgage
on the site. The DEP significantly revised the regulations that govern the
reporting, assessment and remediation of hazardous waste sites in
Massachusetts. The new Massachusetts Contingency Plan ("MCP") however, does
not alter the ultimate liability for any remediation that may be necessary at
the Norwood facility. Under the new MCP, the roofing facility is again listed
on the August 1993 "Transition List of Confirmed Disposal Sites and Locations
to be Investigated."
Since 1981 Bird has been named as a defendant in approximately 450 product
liability cases throughout the United States by persons claiming to have
suffered asbestos-related diseases as a result of alleged exposure to asbestos
in products manufactured and sold by Bird. Approximately 140 of these cases
are currently pending and costs of approximately $1.4 million in the aggregate
have been incurred in the defense of these claims since 1981. Employers
Insurance of Wausau ("Wausau") has accepted the defense of these cases under an
agreement for sharing of the costs of defense, settlements and judgments, if
any. In light of nature and merits of the claims alleged, in the opinion of
management, the resolution of these remaining claims will not have a material
effect on the results of operations or financial condition of the Company.
In January 1994, the minority shareholders of the Company's Bird Environmental
Gulf Coast, Inc. ("BEGCI") subsidiary, a company formed to build and operate
the San Leon Facility, a fixed site oily waste treatment facility, sued the
Company for breach of contract, fraud and other unlawful conduct. The Company
has counter-sued the plaintiffs and a company owned by one of the plaintiffs
that acted as a sub-contractor for BEGCI. It is the Company's opinion that the
suit should
23
<PAGE> 24
not affect the operation or profitability of the facility and that it is
mutually beneficial for the suit to be settled.
The Company is also exposed to a number of other asserted and unasserted
potential claims encountered in the normal course of business. In the opinion
of management, the resolution of such claims will not have a material adverse
affect on the Company's financial position or results of operations.
The Company is a defendant in a number of suits alleging product defects, the
outcome of which management believes will not in the aggregate have a material
impact on the Company's financial condition.
RESULTS OF OPERATIONS
1993 COMPARED WITH 1992
Losses from continuing operations before income taxes in 1993 were
approximately $5.3 million compared to earnings of approximately $6.5 million
in 1992. The write-off of non-performing assets and other corporate charges
were significant contributing factors to the 1993 aggregate loss.
Net sales from continuing operations in fiscal year 1993 increased
approximately $23.5 million or 14.3% over fiscal year 1992. The increase in
net sales was mostly due to the building products distribution business. The
year-to-year comparison also reflects the sale of the municipal sludge business
in mid-1993. During fiscal year 1993, it was the Company's intention to focus
its future efforts on its roofing manufacturing business and its vinyl
business. However, the Company was required to devote a greater amount of
working capital to support its environmental remediation business due to prior
contractual commitments to provide remediation services. Cost of sales in 1993
was approximately $151.7 million as compared to approximately $128.4 million in
1992, constituting an increase of 18%. Cost of sales stated as a percentage of
net sales was 80.8% in 1993 as compared to 78.2% in 1992. The major
contributing factor in such percentage increase was the increased expense of
raw materials primarily related to the roofing manufacturing business and, to a
lesser degree, to the Vinyl Business. The significant increase in cost of
sales in the fourth quarter in comparison to the third quarter related to
losses on contracts in the on-site environmental remediation business.
Interest expense was approximately $2.5 million in 1993 as compared to
approximately $1.5 million in 1992, constituting a 64% increase. The increase
was a result of the Company requiring a consistently higher debt level
throughout 1993, mainly to support its environmental remediation business.
This segment of business used more working capital in 1993 than 1992 and also
needed funds to complete the San Leon Facility. The increased debt levels and
higher interest rates resulted in higher interest expense. Cash flow
projections indicated that with the closing of the on-site business, completion
of the San Leon Facility, the amendment of the Second Amended Credit Agreement
and
24
<PAGE> 25
other cash conservation measures, debt levels would be rendered manageable.
Other non-recurring expenses totalled $6.0 million (net of income of
approximately $1.3 million from a settlement with a former vendor and of
approximately $2,625,000 constituting that portion of expenses incurred by
Kensington which are allocable to the Company) in 1993 compared to other income
of $200,000 in 1992. A series of non-recurring items at the end of 1993
required the Company to record a number of special charges to 1993 results of
operations. The principal items relating to such charges are outlined in the
following paragraphs:
_ The Company increased by $500,000 a reserve for its
environmental cleanup of the Fulton Terminal Superfund Site
described under "Environmental Matters" below, based on site
assessments and on Bird's estimated share of the proportionate
costs, without regard to anticipated insurance proceeds.
_ The Company wrote off approximately $1.3 million in real
property investments it deemed imprudent to pursue in light of
current financing considerations. This write-off was based on
the estimated net realizable value of the property.
_ A promissory note in the principal amount of approximately
$1.3 million previously accepted by the Company to satisfy the
remaining portion of an outstanding receivable, which note was
collateralized by a second interest in an unsecured portfolio
of home improvement loans, was deemed to be of no value, based
on an assessment of the portfolio and the bankruptcy of the
debtor; therefore, it was written off.
_ In connection with its termination of George J. Haufler, the
former Chief Executive Office of Bird, the Company established
an $850,000 reserve to cover a cash settlement provided for
under Mr. Haufler's employment agreement (which settlement has
been paid in full) and the Company's agreement to pay health
insurance premiums until 1997. The Company's obligations in
this respect have terminated in light of Mr. Haufler's recent
death.
Kensington experienced severe operational problems due to a rapid increase in
business and product line changes in the latter part of 1993. This resulted in
a loss of approximately $5.2 million, half of which was allocable to the
Company under the terms of the Kensington partnership Agreement (as defined in
the Purchase Agreement).
In the third quarter of 1993, the restructuring reserve initially established
in 1992 to cover expenses related to severance payments, office closure,
relocation and other contractual liabilities for the consolidation and
reorganization of the environmental business was increased by $2.0 million.
(See the Notes to the 1993 Consolidated Financial Statements). On July 22,
1993, the Company sold its environmental municipal sludge disposal business
aggregating a net pretax gain of $858,000 which is included in the loss from
operations
25
<PAGE> 26
of discontinued businesses. Additionally, the Company recorded a provision
totalling approximately $11.0 million which represented the estimated net costs
associated with the closing of the "on-site" business. These costs include the
write-down of assets to net realizable value, the expected loss from operations
resulting from projects being closed and general expenses associated with
closing a business and are shown as a loss in connection with the disposal of
the "on-site" business in the 1993 results. (See the Notes to the 1993
Consolidated Financial Statements). All other results of the Company's
environmental operations for the comparative periods were reclassified as
discontinued operations upon the Company's decision to exit the off-site
environmental remediation business as described above.
A 12.1% tax benefit from continuing operations was booked in 1993 as compared
to a 13.3% tax provision in 1992. The Company's decision to record an
approximately $9.0 million valuation reserve in 1993 in accordance with the
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes" ("FAS 109") issued by the Financial Accounting Standards Board in
February 1992 (as further described in Note 4 of the Notes to the 1993
Consolidated Financial Statements) was the primary reason the effective rate
was lower than the statutory rate.
1992 COMPARED WITH 1991
Earnings from continuing operations before income taxes amounted to $6.5
million compared to $5.9 million in 1991.
Net sales of approximately $164.2 million were approximately $27.1 million
higher than in 1991, constituting an increase of 19.8%. The increase in sales
related to acquisitions by, and increased business (primarily in the Southwest)
of, the Company's roofing manufacturing business and its Vinyl Business. Cost
of sales in 1992 was approximately $128.4 million compared with approximately
$107.2 million for 1991. Gross profit (expressed as a percentage of sales for
1992) remained constant at 21.8%.
SG&A expenses in 1992 were approximately $27.8 million as compared to
approximately $23.0 million for 1991. The 20.8% increase in SG&A expenses was
a result of acquisitions in the roofing manufacturing business and the Vinyl
Business. SG&A expenses (expressed as a percentage of net sales) were 16.9% in
1992 and 16.8% in 1991.
Interest expense of approximately $1.5 million in 1992 increased $480,000 over
that in 1991 as a result of increased bank debt to fund new acquisitions and
capital expenditures made to expand the Company's environmental remediation
business.
The Company's effective tax rate from continuing operations and related tax
provisions for the fiscal year ended December 31, 1992 increased from the
comparable 1991 period due primarily to an increase in the alternative minimum
tax (the "AMT") as a result of the full utilization of AMT net operating loss
carryforwards in 1992.
26
<PAGE> 27
Due to the Company's decision to exit completely from the environmental
business in June 1994, results of operations from all environmental business in
1992 and 1991 have been reclassified as discontinued operations.
1991 COMPARED WITH 1990
Earnings from continuing operations before income taxes amounted to $5.9
million in 1991 compared with $8.4 million in 1990. Net earnings from
operations were reduced by $.25 million as a result of discontinued operations
expense reducing the net earnings to $5.2 million. Due to the Company's
decision to exit completely from the environmental business in June 1994,
results of operations from all environmental business in 1991 and 1990 have
been reclassified as discontinued operations. Discontinued operating expense
also includes legal fees associated with the defense of litigation brought by
TRW, Inc. On April 24, 1992, the court dismissed the Company from the lawsuit
by granting the Company's motion for a directed verdict.
Net sales of $137.1 million were $8.1 million, or 5.9% higher than those in
1990. This increase is due to increased sales related to acquisitions in the
Housing Group. These sales more than offset lower sales volume from the asphalt
roofing and vinyl siding products and from the Company's roofing products
distribution centers in the Arizona market, all affected by the economy and
competitive pressures.
Cost of sales in 1991 was $107.2 million compared with $99.8 million in 1990.
Gross profit expressed as a percentage of sales for 1991 was 21.8% versus 22.6%
for 1990. The increase in total gross profit dollars is a result of the
acquisitions in the housing group.
Selling, general, and administrative expenses in 1991 of $23.0 million
increased $1.4 million as compared to 1990. This increase is primarily due to
additional SG&A expenses associated with new acquisitions. These expenses
expressed as a percentage of net sales were 16.8% in 1991 and 16.7% in 1990.
Interest expense of $1.0 million in 1991 increased $.6 million over 1990 as a
result of increased bank debt due to cash needed for acquisitions.
INFLATION
The Company is continually seeking ways to deal with cost increases by
productivity improvements and cost reduction programs. In the Housing Group,
in recent years, the Company has not always been able to pass increased raw
material costs on by increasing selling prices because of intense competitive
pressures. The Company has an ongoing program of updating productive capacity
to take advantage of improved technology, and although the cumulative impact of
inflation has resulted in higher costs for replacement of plant and equipment,
these costs have been offset by productivity savings. Since the Environmental
Group is primarily a service business and the need for this service is mostly a
result of government regulations, inflation is not a major factor.
27
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and schedules of the Company are included
in a separate section of this report and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
28
<PAGE> 29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Items 10, 11, 12 and 13 (except the information on
executive officers) is included in the Company's definitive proxy statement for
its 1994 Annual Meeting of Stockholders which will be filed with the Commission
by April 30, 1994 and which is incorporated herein by reference. Information
on executive officers, required by Item 10, is included in PART I of this
report under the heading "Executive Officers of the Registrant".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) An Index of Financial Statements and Schedules is on page F1 of this
report. The Exhibit Index is on pages 25 thru 29 of this report.
(b) On October 13, 1993 the Company filed a report on Form 8-K announcing
a $2 million restructuring reserve, the re-focus of the business of
the Environmental Group in the Petrochemical market and the intent to
disclose quarterly segmented earnings.
29
<PAGE> 30
Items 14 (a) (3) and (c)
Exhibits
Bird Corporation
Dedham, Massachusetts
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit No. Page No.
- ----------- ----------
<S> <C> <C>
3(a) Articles of Organization (Filed as Appendix B to the Company's Registration Statement on Form S-4,
Registration No 33-34440 and incorporated herein by reference.)
3(b) By-laws of the Company as amended to date. (Filed as Exhibit 3(b) to the Company's report on
Form 10-K for the year ended December 31, 1990 and incorporated herein by reference.)
4(a)(1) Amended and Restated Revolving Credit Agreement dated as of December 17, 1990 (the "Revolving
Credit Agreement") among Bird Corporation, Bird Holding Co., Inc., Bird Incorporated, Bird
Environmental Systems & Services, Inc., Southland Building Products, Inc., Southwest Roofing
Supply, Inc., Southwest Express, Inc., The First National Bank of Boston, individually and as
Agent for the Banks, and Philadelphia National Bank, Incorporated as CoreStates Bank, N.A.
(Filed as Exhibit 4(a) to the Company's report on Form 10-K for the year ended December 31, 1990
and incorporated herein by reference.)
4(a)(2) Amendment dated as of September 30, 1991 to the Revolving Credit Agreement. (Filed as
Exhibit 4(a)(2) on Form 10-K for the year ended December 31, 1991 and incorporated herein
by reference.)
4(a)(3) Forbearance Agreement dated as of February 14, 1994 with regard to the Revolving Credit Agreement.
4(a)(4) The Second Amendment dated as of June 29, 1992 to the Revolving Credit Agreement.
4(a)(5) The Third Amended and Restated Revolving Credit and Term Loan dated as of March 4, 1994 (Filed
as an exhibit 4(a) to the Company's Form 8-K dated March 14, 1994 and incorporated herein by
reference)
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
Sequential
Exhibit No. Page No.
- ----------- ----------
<S> <C> <C>
4(a)(6) Rights Agreement dated as of November 25, 1986 between the Company and the First National Bank
of Boston, as Rights Agent. (Filed as Exhibit 1 to Registration Statement on Form 8-A dated
December 5, 1986 and incorporated herein by reference.)
4(a)(7) First Amendment dated May 24, 1990 to Rights Agreement dated as of November 25, 1986. (Filed as
Exhibit 4(b)(2) to the Company's report on Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.)
10(a)* Plan for Assistance to Key Employees in Financing Purchases of Company Stock (Filed as Exhibit 10(b)
to the Company's report on Form 10-K for the year ended December 31, 1980 and incorporated herein
by reference.)
10(b)* Plan for Deferring Payment of Senior Officer's Compensation (Adopted December 22, 1975). (Filed as
Exhibit 10(c) to the Company's report on Form 10-K for the year ended December 31, 1980 and
incorporated herein by reference.)
10(c)* 1975 Plan for Deferring Payment of Director's Compensation (Adopted June 23, 1975). (Filed as
Exhibit 10(d) to the Company's report on Form 10-K for the year ended December 31, 1980 and
incorporated herein by reference.)
10(d)(1)* Employment Agreement dated as of February 25, 1986 between the Company and George J. Haufler.
(Filed as Exhibit 10(g) to the Company's report on Form 10-K for the year ended December 31, 1985
and incorporated herein by reference.)
10(d)(2)* First Amendment dated January 27, 1987 to Employment Agreement between Bird Incorporated and
George J. Haufler. (Filed as Exhibit 10(d)(2) to the Company's report on Form 10-K for the year
ended December 31, 1990 and incorporated herein by reference.)
</TABLE>
31
<PAGE> 32
<TABLE>
<CAPTION>
Sequential
Exhibit No. Page No.
- ----------- ----------
<S> <C> <C>
10(d)(3)* Second Amendment dated May 24, 1990 to Employment Agreement dated February 25, 1986 by and between
Bird Incorporated and George J. Haufler. (Filed as Exhibit 10(d)(3) to the Company's report on
Form 10-K for the year ended December 31, 1990 and incorporated herein by reference.)
10(e)* Management Incentive Compensation Program adopted January 25, 1983. (Filed as Exhibit 10(m) to the
Company's report on Form 10-K for the year ended December 31, 1982 and incorporated herein by
reference.)
10(f)* Bird Corporation 1982 Stock Option Plan as amended through January 29, 1992. (Filed as Exhibit 10(f)
to the Company's report on Form 10-K for the year ended December 31, 1991 and incorporated herein
by reference.)
10(g)* Bird Corporation 1992 Stock Option Plan. (Filed as Exhibit 10(g) to the Company's report on Form 10-K
for the year ended December 31, 1992 incorporated herein by reference.)
10(h)* Bird Corporation Non-Employee Director Stock Option Plan. (Filed as Exhibit 10(h) to the Company's
report on Form 10-K for the year ended December 31, 1992 incorporated herein by reference.)
10(i)(1)* Form of severance agreement with eight key executive employees of the Company. (Filed as Exhibit 10(n)
to the Company's report on Form 10-K for the year ended December 31, 1984 and incorporated herein
by reference.)
10(i)(2)* Form of Amendment dated May 24, 1990 to form of severance agreement. (Filed as Exhibit 10(g)(2) to the
Company's report on Form 10-K for the year ended December 31, 1990 and incorporated herein by
reference.)
10(j) Equipment Leasing Agreement dated as of December 28, 1984 between the Company and Citicorp Industrial
Credit, Inc. relating to lease of Norwood Roofing Machine. (Filed as Exhibit 10(q) to Amendment No. 1
to the Company's report on Form 10-K for the year ended December 31, 1984 and incorporated herein
by reference.)
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
Sequential
Exhibit No. Page No.
- ----------- ----------
<S> <C> <C>
10(k) Glass Mat Supply Agreement dated as of February 20, 1985 between the Company, The Flintkote Company and
Genstar Roofing Company, Inc. (Filed as Exhibit 10(s) to Amendment No. 1 to the Company's report on
Form 10-K for the year ended December 31, 1984 and incorporated herein by reference.)
10(l) Equipment Acquisition Agreement dated May 25, 1990 between BancBoston Leasing Inc. and Bird Incorporated.
(Filed as Exhibit 10(j) to the Company's report on Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.)
10(m) Equipment Acquisition Agreement dated July 23, 1986 between BancBoston Leasing Inc. and Bird Incorporated.
(Filed as Exhibit 10(s) to the Company's report on Form 10-K for the year ended December 31, 1986 and
incorporated herein by reference.)
10(n)(1)* Long Term Incentive Compensation Plan dated June 28, 1988. (Filed as Exhibit 10(v) to the Company's report
on Form 10-Q for the quarter ended September 30, 1988 and incorporated herein by reference.)
10(n)(2)* Amendment dated May 24, 1990 to Long Term Incentive Compensation Plan. (Filed as Exhibit 10(o)(2) to the
Company's report on Form 10-K for the year ended December 31, 1990 and incorporated herein by reference.)
10(o)(1) Participation Agreement dated as of July 1, 1992 by and between Bird Vinyl Products, Inc. and Kensington
Manufacturing Company (filed as Exhibit 10(a) to the Company's report on Form 10-Q for the quarter ended
June 30, 1992 and incorporated herein by reference).
10(o)(2) Amendment dated February 1, 1994 to the First Amended and Restated Partnership Agreement between Bird
Vinyl Products, Inc. and Kensington Manufacturing Company.
10(p)* Employment Agreement dated as of December 1, 1993 between the Company and Joseph D. Vecchiolla.
</TABLE>
33
<PAGE> 34
<TABLE>
<CAPTION>
Sequential
Exhibit No. Page No.
- ----------- ----------
<S> <C> <C>
10(q)* Severance Agreement dated as of December 21, 1993 between the Company and Joseph D. Vecchiolla.
11 Statement regarding computation of per share earnings(loss).
22 Significant subsidiaries.
23(a) Consent of Price Waterhouse LLP to incorporation by reference of 1993 financial statements in the
Company's Registration Statements on Form S-3, Registration No. 33-44475; Form S-4, Registration
No. 33-44403; and Form S-8, Registration Nos. 33-36304, 33-36305, 33-67826 and 33-67828.
23(b) Consent of Alpern & Rosenthal, independent accountants for Kensington Partners to incorporation
by reference of the 1993 Kensington Partners independent auditors' report in the Company's
Registration Statements on Form S-3, Registration No. 33-44475; Form S-4, Registration No. 33-44403;
and Form S-8, Registration No. 33-36304, 33-36305, 33-67826 and 33-67828.
28 Annual report on Form 11-K of the Bird Employees' Savings and Profit Sharing Plan for the fiscal
year ended December 31, 1993. (To be filed by amendment.)
</TABLE>
* Indicates management contract or compensatory plans or arrangements
34
<PAGE> 35
POWER OF ATTORNEY
We, the undersigned officers and Directors of Bird Corporation, hereby
severally constitute and appoint Joseph D. Vecchiolla, Robert A. Muccini and
Frank S. Anthony, and each of them severally, our true and lawful attorneys or
attorney, with full power to them and each of them to execute for us, and in
our names in the capacities indicated below, and to file with the Securities
and Exchange Commission the Annual Report on Form 10-K of Bird Corporation, for
the fiscal year ended December 31, 1993, and any and all amendments thereto.
IN WITNESS WHEREOF, we have signed this Power of Attorney in the
capacities indicated on March 22, 1994.
Principal Executive and
Financial Officer:
/s/ Joseph D. Vecchiolla President, Director and
- ------------------------ Chief Financial Officer
Joseph D. Vecchiolla
Directors
/s/ R.P. Bass, Jr. /s/ F.J. Dunleavy
- ------------------ -----------------
Robert P. Bass, Jr. Francis J. Dunleavy
/s/ Charles S. Bird, Jr. /s/ John T. Dunlop
- ------------------------ ------------------
Charles S. Bird, Jr. John T. Dunlop
/s/ Robert L. Cooper /s/ Guy W. Fiske
- -------------------- ----------------
Robert L. Cooper Guy W. Fiske
/s/ Loren R. Watts
- ------------------
Loren R. Watts
35
<PAGE> 36
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.
BIRD CORPORATION
(Registrant)
By /s/ Joseph D. Vecchiolla
------------------------
JOSEPH D. VECCHIOLLA
PRESIDENT, CEO
February 21, 1995
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 and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOSEPH D. VECCHIOLLA
- ------------------------------------------ President, Director, February 21, 1995
JOSEPH D. VECCHIOLLA and CEO (Principal
Executive Officer)
/s/ JOSEPH M. GRIGELEVICH, JR.
- ------------------------------------------ Vice President, February 21, 1995
JOSEPH M. GRIGELEVICH, JR. and CFO (Principal
Financial Officer)
/s/ DONALD L. SLOPER, JR.
- ------------------------------------------ Corporate Controller February 21, 1995
DONALD L. SLOPER, JR. (Principal Accounting
Officer)
*
- ------------------------------------------ Director February 21, 1995
ROBERT P. BASS, JR.
*
- ------------------------------------------ Director February 21, 1995
CHARLES S. BIRD, JR.
</TABLE>
36
<PAGE> 37
SIGNATURES
(continued)
<TABLE>
<S> <C> <C>
*
- ------------------------------------------ Director February 21, 1995
ROBERT L. COOPER
*
- ------------------------------------------ Director February 21, 1995
FRANCIS J. DUNLEAVY
*
- ------------------------------------------ Director February 21, 1995
JOHN T. DUNLOP
*
- ------------------------------------------ Director February 21, 1995
GUY W. FISKE
*
- ------------------------------------------ Director February 21, 1995
LOREN R. WATTS
</TABLE>
* By /s/ Frank S. Anthony
--------------------
Frank S. Anthony as
Attorney-in-fact
37
<PAGE> 38
Bird Corporation and Subsidiaries
Form 10-K
Items 14(a)(1) and (2)
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements of the registrant and its
subsidiaries required to be included in Item 8 are listed below.
Consolidated Financial Statements: Page
----
Reports of independent accountants ________________________ F2
Balance sheets at December 31, 1993 and 1992 ______________ F4
Statements of operations for each of the three years in
the period ended December 31, 1993 _______________________ F6
Statements of stockholders' equity for each of the three
years in the period ended December 31, 1993 ______________ F7
Statements of cash flows for each of the
three years in the period ended December 31, 1993 ________ F10
Notes to consolidated financial statements ________________ F12
The following consolidated financial statement schedules of Bird Corporation
and its subsidiaries are included in Item 14(a)(2) and should be read in
conjunction with the financial statements included herein:
Schedules V -Property, plant and equipment and
VI -Accumulated depreciation and amortization
of property, plant and equipment __________ F33
Schedule VIII -Valuation and qualifying accounts _________ F36
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not applicable or the required information is shown in the financial
statements or the notes thereto.
F1
<PAGE> 39
Report of Independent Accountants
To the Board of Directors and Stockholders
of Bird Corporation
We have audited the consolidated balance sheets of Bird Corporation and its
subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of operations, of stockholders' equity and of cash flows for the
three years in the period ended December 31, 1993. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did
not audit the financial statements of Kensington Partners, a 50% owned joint
venture, which statements reflect total assets of $11.3 million and $7.8
million at December 31, 1993 and 1992, respectively, total revenues of $21.4
million and $10.4 million and net losses of $5.2 million and $36,000 for the
year ended December 31, 1993 and the six months ended December 31, 1992,
respectively. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for Kensington Partners, is based solely on the report of the other
auditors.
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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements listed in the index appearing under Item 14
(a)(1) and (2) on Page F1 present fairly, in all material respects, the
financial position of Bird Corporation and its subsidiaries as of December 31,
1993 and 1992, and the results of their operations and their cash flows for the
three years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
As explained in Note 9, in June 1994, the Company agreed to sell its interest
in the San Leon Recycling Center resulting in a write-down of approximately $9
million to its estimated realizable value. The consolidated financial
statements as of December 31, 1993 do not reflect any such adjustment to the
recorded investment in this facility.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993 to comply with a new
pronouncement issued by the Financial Accounting Standards Board.
/s/ Price Waterhouse LLP
Boston, Massachusetts
March 10, 1994, except as
to Note 9, which is as of
June 18, 1994
F2
<PAGE> 40
[ALPERN, ROSENTHAL & COMPANY LETTERHEAD]
Independent Auditors' Report
To the Partners
Kensington Partners and Affiliate
(Joint Venture Partnerships)
Leechburg, Pennsylvania
We have audited the accompanying combined balance sheets of Kensington
Partners and Affiliate as of December 31, 1993 and 1992 and the related
combined statements of operations, changes in partners' capital (deficit), and
cash flows for the year ended December 31, 1993 and the period from July 1,
1992 (Inception) to December 31, 1992. These financial statements are the
responsibility of the Partnerships' management. Our responsibility is to
express an opinion on these financial statements 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 combined financial statements referred to above
present fairly, in all material respects, the financial position of Kensington
Partners and Affiliate as of December 31, 1993 and 1992, and the results of
their operations and their cash flows for the year ended December 31, 1993 and
the period from July 1, 1992 (Inception) to December 31, 1992, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Kensington Partners and Affiliate will continue as going concerns. As
discussed in Note 3 to the financial statements, the Companies have incurred
significant operating losses, current liabilities exceed current assets and
their line of credit was under a forebearance agreement with their lender.
Those conditions raise substantial doubt about the Companies' ability to
continue as going concerns. Management's plans regarding those matters are
also described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Alpern, Rosenthal & Company
- -------------------------------
Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania
February 19, 1994 (Except for the last three paragraphs of
Note 8, the second paragraph of Note 13B, and Note 14, as
to which the date is September 14, 1994.)
A Professional Corporation
F3
<PAGE> 41
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1993 1992
------------ ------------
<S> <C> <C>
Assets
Current Assets:
Cash and equivalents $7,518,000 $3,223,000
Accounts and notes receivable, less
allowances - $4,273,000 in 1993
and $2,978,000 in 1992 32,696,000 29,991,000
Inventories 22,157,000 26,702,000
Prepaid expenses 4,046,000 2,134,000
Deferred income tax 170,000 0
------------ ------------
Total current assets 66,587,000 62,050,000
------------ ------------
Property, Plant and Equipment:
Land and land improvements 4,716,000 3,718,000
Buildings 14,700,000 14,436,000
Machinery and equipment 40,686,000 45,470,000
Construction in progress 14,882,000 3,032,000
------------ ------------
74,984,000 66,656,000
Less - Depreciation and amortization 30,410,000 29,105,000
------------ ------------
44,574,000 37,551,000
------------ ------------
Other investments 5,551,000 12,742,000
Deferred tax asset 5,051,000 0
Other assets 1,466,000 6,732,000
------------ ------------
$123,229,000 $119,075,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F4
<PAGE> 42
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1993 1992
------------ ------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $26,377,000 $16,453,000
Long-term debt, portion due within one year 3,400,000 1,041,000
Retirement plan contributions payable 513,000 507,000
Income taxes payable 809,000 267,000
Liquidation reserve 5,398,000 0
------------ ------------
Total current liabilities 36,497,000 18,268,000
Long-term debt, portion due after one year 43,127,000 30,374,000
------------ ------------
Other liabilities 3,021,000 996,000
------------ ------------
Deferred income taxes 23,000 336,000
------------ ------------
Total liabilities 82,668,000 49,974,000
------------ ------------
Stockholders' Equity
5% cumulative preferred stock, par
value $100. Authorized 15,000 shares;
issued 5,820 shares in 1993 and 1992
(liquidating preference $110 per share,
aggregating $640,000) 582,000 582,000
Preference stock, par value $1. Authorized
1,500,000 shares; issued 814,300 shares
of $1.85 cumulative convertible preference
stock in 1993 and 1992(liquidating value $20
per share, aggregating $16,286,000) 814,000 814,000
Common stock, par value $1. Authorized
15,000,000 shares; 4,291,565 shares issued
in 1993 and 4,267,166 shares issued in 1992 4,291,000 4,267,000
Other capital 26,456,000 25,401,000
Retained earnings 11,551,000 41,645,000
------------ ------------
43,694,000 72,709,000
Less -
Treasury stock, at cost, Common:
163,791 shares in 1993 and 153,672 in 1992 (2,179,000) (2,059,000)
Unearned compensation (954,000) (1,549,000)
------------ ------------
40,561,000 69,101,000
------------ ------------
Commitments and contingencies (Note 13)
$123,229,000 $119,075,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F5
<PAGE> 43
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales $187,745,000 $164,202,000 $137,059,000
------------ ------------ ------------
Costs and expenses:
Cost of sales 151,664,000 128,371,000 107,226,000
Selling, general and administrative expense 32,716,000 27,811,000 23,023,000
Interest expense 2,472,000 1,506,000 1,026,000
Discontinued business activities expense 268,000 178,000 189,000
Equity losses from partnership 2,625,000 0 0
Other (income) expense 3,278,000 (197,000) (331,000)
------------ ------------ ------------
Total costs and expenses 193,023,000 157,669,000 131,133,000
------------ ------------ ------------
Earnings (loss) from continuing
operations before income taxes (5,278,000) 6,533,000 5,926,000
Provision (benefit) for income taxes (637,000) 869,000 498,000
------------ ------------ ------------
Earnings (loss) from continuing operations
before cumulative effect of accounting change (4,641,000) 5,664,000 5,428,000
------------ ------------ ------------
Discontinued operations (Note 9):
Loss from operations of discontinued
businesses, net of taxes (15,414,000) (2,573,000) (249,000)
Loss on disposal of environmental business,
including provision of $5,200,000 for
operating losses during phase out period,
net of taxes (11,000,000) 0 0
------------ ------------ ------------
Net loss from discontinued operations (26,414,000) (2,573,000) (249,000)
------------ ------------ ------------
Cumulative effect of accounting change 2,733,000 0 0
------------ ------------ ------------
Net earnings (loss) before dividends (28,322,000) 3,091,000 5,179,000
Preferred and preference stock
cumulative dividends 1,536,000 1,536,000 1,536,000
------------ ------------ ------------
Net earnings (loss) applicable to common
stockholders ($29,858,000) $1,555,000 $3,643,000
============ ============ ============
Primary earnings (loss) per common share:
Continuing operations ($1.51) $1.00 $1.01
Discontinued operations ($6.45) ($0.62) ($0.06)
Cumulative effect of accounting change $0.67 $0.00 $0.00
------------ ------------ ------------
Net earnings (loss) after dividends ($7.29) $0.38 $0.95
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F6
<PAGE> 44
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
$1.85
5% CUMULATIVE
CUMULATIVE CONVERTIBLE COMMON
PREFERRED PREFERENCE COMMON OTHER RETAINED STOCK IN
STOCK STOCK STOCK CAPITAL EARNINGS TREASURY
---------- ----------- ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1993 $ 582,000 $ 814,000 $ 4,267,000 $ 25,401,000 $ 41,645,000 $ (2,059,000)
Net (loss) (28,322,000)
Cash dividends declared:
5% cumulative preferred
stock - $5 per share (29,000)
$1.85 cumulative
convertible preference stock
$1.85 per share (1,130,000)
Common stock $.15 per share (613,000)
Common stock issued as
compensation - 1,200 shares 1,000 13,000
Common stock issued for
contributions to employees'
saving plan - 19,119 shares 19,000 210,000
Common stock issued and note
repayment upon exercise of stock
options - 4,080 shares 4,000 210,000
Purchase of 10,119 shares of
common stock (120,000)
Amortization of unearned
compensation
Cumulative effect of
accounting change 323,000
Tax effect of stock options
exercised 303,000
Cumulative foreign currency
translation (4,000)
------------ ------------ ----------- ------------ ------------- ------------
Balance December 31, 1993 $ 582,000 $ 814,000 $ 4,291,000 $ 26,456,000 $ 11,551,000 $ (2,179,000)
============ ============ =========== ============ ============= ============
<CAPTION>
TOTAL
UNEARNED STOCKHOLDERS'
COMPENSATION EQUITY
------------ -------------
<S> <C> <C>
Balance January 1, 1993 $ (1,549,000) $ 69,101,000
Net (loss) (28,322,000)
Cash dividends declared:
5% cumulative preferred
stock - $5 per share (29,000)
$1.85 cumulative
convertible preference stock
$1.85 per share (1,130,000)
Common stock $.15 per share (613,000)
Common stock issued as
compensation - 1,200 shares 14,000
Common stock issued for
contributions to employees'
saving plan - 19,119 shares 229,000
Common stock issued and note
repayment upon exercise of stock
options - 4,080 shares 214,000
Purchase of 10,119 shares of
common stock (120,000)
Amortization of unearned
compensation 595,000 595,000
Cumulative effect of
accounting change 323,000
Tax effect of stock options
exercised 303,000
Cumulative foreign currency
translation (4,000)
------------- --------------
Balance December 31, 1993 $ (954,000) $ 40,561,000
============= ==============
</TABLE>
F7
<PAGE> 45
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
$1.85
5% CUMULATIVE
CUMULATIVE CONVERTIBLE COMMON
PREFERRED PREFERENCE COMMON OTHER RETAINED STOCK IN
STOCK STOCK STOCK CAPITAL EARNINGS TREASURY
------------ ----------- ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1992 $ 590,000 $ 814,000 $ 4,213,000 $ 24,900,000 $ 40,906,000 $ (876,000)
Net earnings 3,091,000
Cash dividends declared:
5% cumulative preferred
stock - $5 per share (29,000)
$1.85 cumulative
convertible preference
stock - $1.85 per share (1,506,000)
Common stock - $.20 per share (817,000)
Common stock issued principally
12,820 shares 13,000 153,000
Common stock issued as
compensation- 1,200 shares 1,000 19,000
Common stock issued for
contributions to employees'
saving plan - 14,355 shares 14,000 195,000
Common stock issued upon
exercise of stock options
26,250 shares 26,000 178,000
Purchase of 91,981 shares of
common stock (1,183,000)
Amortization of unearned
compensation
5% cumulative preferred stock
purchased and retired-86 shares (8,000) 4,000
Cumulative foreign currency
translation (48,000)
------------ ------------ ----------- ------------ ------------- ------------
Balance December 31, 1992 $ 582,000 $ 814,000 $ 4,267,000 $ 25,401,000 $ 41,645,000 $ (2,059,000)
============ ============ =========== ============ ============= ============
<CAPTION>
TOTAL
UNEARNED STOCKHOLDERS'
COMPENSATION EQUITY
------------ -------------
<S> <C> <C>
Balance January 1, 1992 $ (1,945,000) $ 68,602,000
Net earnings 3,091,000
Cash dividends declared:
5% cumulative preferred
stock - $5 per share (29,000)
$1.85 cumulative
convertible preference
stock - $1.85 per share (1,506,000)
Common stock - $.20 per share (817,000)
Common stock issued principally
in connection with acquisitions
12,820 shares 166,000
Common stock issued as
compensation- 1,200 shares 20,000
Common stock issued for
contributions to employees'
saving plan - 14,355 shares 209,000
Common stock issued upon
exercise of stock options
26,250 shares 204,000
Purchase of 91,981 shares of
common stock (1,183,000)
Amortization of unearned
compensation 396,000 396,000
5% cumulative preferred stock
purchased and retired-86 shares (4,000)
Cumulative foreign currency 0
translation (48,000)
------------- --------------
Balance December 31, 1992 $ (1,549,000) $ 69,101,000
============= ==============
</TABLE>
F8
<PAGE> 46
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
$1.85
5% CUMULATIVE
CUMULATIVE CONVERTIBLE COMMON
PREFERRED PREFERENCE COMMON OTHER RETAINED STOCK IN
STOCK STOCK STOCK CAPITAL EARNINGS TREASURY
---------- ----------- ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1991 $ 590,000 $ 814,000 $ 3,752,000 $ 19,419,000 $ 38,052,000 $ (106,000)
Net earnings 5,179,000
Cash dividends declared:
5% cumulative preferred
stock - $5 per share (29,000)
$1.85 cumulative
convertible preference
stock - $1.85 per share (1,506,000)
Common stock - $.20 per share (790,000)
Common stock - issued principally
in connection with
acquisitions - 313,817 shares 314,000 4,534,000
Common stock issued as
compensation- 1,200 shares 1,000 15,000 2,000
Common stock issued for
contributions to employees'
saving plan - 9,619 shares 10,000 131,000
Common stock and note issued
upon exercise of stock options
136,140 shares 136,000 801,000
Purchase of 52,751 shares of
common stock (772,000)
Amortization of unearned
compensation ------------ ------------ ----------- ------------ ------------ ------------
Balance December 31, 1991 $ 590,000 $ 814,000 $ 4,213,000 $ 24,900,000 $ 40,906,000 $ (876,000)
============ ============ =========== ============ ============ ============
<CAPTION>
TOTAL
UNEARNED STOCKHOLDERS'
COMPENSATION EQUITY
------------ -------------
<S> <C> <C>
Balance January 1, 1991 $ (2,198,000) $ 60,323,000
Net earnings 5,179,000
Cash dividends declared:
5% cumulative preferred
stock - $5 per share (29,000)
$1.85 cumulative
convertible preference
stock - $1.85 per share (1,506,000)
Common stock - $.20 per share (790,000)
Common stock - issued principally
in connection with
acquisitions - 313,817 shares 4,848,000
Common stock issued as
compensation- 1,200 shares 18,000
Common stock issued for
contributions to employees'
saving plan - 9,619 shares 141,000
Common stock and note issued
upon exercise of stock options
136,140 shares 937,000
Purchase of 52,751 shares of
common stock (772,000)
Amortization of unearned
compensation 253,000 253,000
------------- --------------
Balance December 31, 1991 $ (1,945,000) $ 69,101,000
============= ==============
</TABLE>
F9
<PAGE> 47
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Brackets denote cash outflows)
Cash flow provided (used) by continuing operations:
Earnings from continuing operations ($28,322,000) $3,091,000 $5,179,000
Adjustments to reconcile to net
cash provided by continuing operations:
Writedown of assets to net realizable value 5,800,000 0 0
Depreciation and amortization 8,714,000 6,150,000 4,488,000
Provision for losses on accounts receivable 2,162,000 1,365,000 1,015,000
Deferred income taxes (1,044,000) 196,000 9,000
Cumulative effect of accounting change (2,733,000) 0 0
Gain on sale of assets (858,000) 0 0
Changes in balance sheet items:
Accounts receivable (8,199,000) (4,031,000) (1,994,000)
Inventories 4,538,000 (6,373,000) 1,653,000
Prepaid expenses (2,039,000) (324,000) (529,000)
Liabilities not related to financing activities 11,646,000 (1,290,000) (2,251,000)
Liquidation reserve 5,398,000 0 0
Other assets 2,564,000 526,000 (611,000)
----------- ---------- ----------
Cash flow provided (used) by continuing operations: (2,373,000) (690,000) 6,959,000
Cash flow used by discontinued operations 0 (100,000) 0
----------- ---------- ----------
Net cash provided (used) by operating activities ($2,373,000) ($790,000) $6,959,000
----------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F10
<PAGE> 48
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash flows from investing activities:
Acquisition of property, plant and equipment,net (16,251,000) (6,482,000) (5,488,000)
Acquisition of businesses, less cash acquired 0 (2,800,000) (8,757,000)
Proceeds from disposal of assets 9,141,000 0 0
Other investments 159,000 (4,715,000) (894,000)
--------------- ------------ -------------
Net cash used in investing activities (6,951,000) (13,997,000) (15,139,000)
--------------- ------------ -------------
ash flows from financing activities:
Debt proceeds 1,286,500,000 723,489,000 496,034,000
Debt repayments (1,270,987,000) (705,938,000) (488,361,000)
Dividends paid (2,351,000) (2,353,000) (2,325,000)
Purchase of treasury stock (120,000) (1,183,000) (770,000)
Other equity changes 577,000 381,000 1,279,000
--------------- ------------ -------------
Net cash provided by financing activities 13,619,000 14,396,000 5,857,000
--------------- ------------ -------------
Net increase (decrease) in cash and equivalents 4,295,000 (391,000) (2,323,000)
Cash and cash equivalents at beginning of year 3,223,000 3,614,000 5,937,000
--------------- ------------ -------------
Cash and cash equivalents at end of year $7,518,000 $3,223,000 $3,614,000
=============== ============ =============
Supplemental Disclosures:
Cash paid during the year for:
Interest $2,160,000 $1,521,000 $1,061,000
Income taxes 291,000 1,762,000 755,000
Non-cash investing and financing activities:
Acquisition of businesses:
Fair value of assets 0 5,281,000 18,272,000
Stock issued for acquisitions 0 166,000 4,848,000
Cash paid 0 2,800,000 9,065,000
--------------- ------------ -------------
Liabilities assumed $0 $2,315,000 $4,359,000
=============== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F11
<PAGE> 49
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of Bird
Corporation and its majority-owned subsidiaries (the Company). All material
intercompany activity has been eliminated from the financial statements.
Investments in less than majority-owned companies are accounted for by the
equity method. Certain prior year amounts have been reclassified to conform
with the 1993 presentation.
REVENUE RECOGNITION
The Company recognizes revenue when products are shipped or services are
performed.
STATEMENT OF CASH FLOWS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined for
a large portion of the inventories by the last-in, first-out (LIFO) method
computed using the dollar value method for natural business unit pools. The
cost of the remaining inventories is determined generally on a first-in,
first-out (FIFO) basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation has been
provided in the financial statements primarily on the straight-line method at
rates, based on reasonable estimates of useful lives, which fall within the
following ranges for major asset classifications:
- -------------------------------------------------------------------------------
Land improvements 10 to 20 years
Buildings 20 to 40 years
Machinery and equipment 5 to 20 years
- -------------------------------------------------------------------------------
Maintenance, repairs and minor renewals are charged to earnings in the year in
which the expense is incurred. Additions, improvements and major renewals are
capitalized. The cost of assets retired or sold,
F12
<PAGE> 50
together with the related accumulated depreciation, are removed from the
accounts, and any gain or loss on disposition is credited or charged to
earnings. The Company capitalizes interest cost on construction projects while
in progress. The capitalized interest is recorded as part of the asset to
which it is related and is amortized over the asset's estimated useful life.
RETIREMENT PLANS
The Company has a defined contribution plan covering substantially all eligible
non-union salaried and non-union hourly employees. Annual contributions are
made to the plan based on rates identified in the plan agreement.
INCOME TAXES
The Company changed its method of accounting for income taxes from the
liability method under Statement of Financial Accounting Standards No. 96 to
the asset and liability method required by Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", ("FAS 109"), effective
January 1, 1993. As permitted under the new rules, prior years' financial
statements have not been restated. FAS 109 requires the recognition of
deferred taxes for the difference between financial statement and tax basis of
assets and liabilities utilizing current tax rates. Additionally, FAS 109
allows the recognition of a deferred tax asset for the estimated future tax
effect attributable to carryforwards.
EARNINGS (LOSS) PER COMMON SHARE
Primary earnings (loss) per common share are determined after deducting the
dividend requirements of the preferred and preference shares and are based on
the weighted average number of common shares outstanding during each period
increased by the effect of dilutive stock options. Fully diluted
earnings (loss) per common share also give effect to the reduction in earnings
per share, if any, which would result from the conversion of the $1.85
cumulative convertible preference stock at the beginning of each period if the
effect is dilutive.
ENVIRONMENTAL MATTERS
The Company records a liability for environmental matters when it is probable
that a liability has been incurred and the amount of the liability can be
reasonably estimated based on the available evidence and site assessments. If
an amount is likely to fall within a range and no amount within that range can
be determined to be the better estimate, the minimum amount of the range is
recorded. In addition, the liability excludes claims for recoveries from
insurance companies and other third parties until such claims for recoveries
are probable of realization at which point they would be classified separately
as a receivable.
F13
<PAGE> 51
WARRANTY COSTS
The Company warrants under certain circumstances that its building material
products meet certain manufacturing and material specifications. The warranty
policy is unique to each product, ranges from twenty to forty years, is
generally for the material cost and requires the owner to meet specific
criteria such as proof of purchase. The Company offers the original
manufacturer's warranty only as part of the original sale and at no additional
cost to the customer. In addition, for marketing considerations, the Company
makes elective settlements in response to customer complaints. The Company
records the liability for warranty claims and elective customer settlements
when it determines that a specific liability exists or a payment will be made.
2. INVENTORIES
The percentages of inventories valued on the LIFO method were 47% and 54% at
December 31, 1993 and 1992, respectively. It is not practical to separate LIFO
inventories by raw materials and finished goods components; however, the
following table presents these components on a current cost basis with the LIFO
reserve shown as a reduction.
December 31,
1993 1992
---- ----
Current costs:
Raw materials $ 3,541,000 $ 5,470,000
Finished goods 20,297,000 21,813,000
----------- -----------
23,838,000 27,283,000
Less LIFO reserve 1,681,000 581,000
----------- -----------
$22,157,000 $26,702,000
=========== ===========
Inventories, classified by business segment (see Note 13), were as follows:
December 31,
1993 1992
---- ----
Housing Group $21,788,000 $25,628,000
Environmental Systems 369,000 1,074,000
----------- -----------
$22,157,000 $26,702,000
=========== ===========
3. DEBT
At December 31, the Company's borrowings and debt obligations are summarized as
follows:
1993 1992
---- ----
Long Term Debt:
Revolving Credit Agreement $44,000,000 $27,500,000
Notes payable 56,000 91,000
Obligations under capital leases 2,471,000 3,824,000
----------- -----------
46,527,000 31,415,000
Less - portion due within one
year 3,400,000 1,041,000
----------- -----------
$43,127,000 $30,374,000
=========== ===========
On June 29, 1992 the Company and its lending banks entered into the Second
Amended Credit Agreement which provided the Company $50 million credit line
until June 1995.
F14
<PAGE> 52
The Second Amended Credit Agreement contains financial and operating covenants
which, among other things, require the Company to maintain prescribed levels of
pre-tax earnings, net worth, ratios of debt to net worth and ratios of current
assets to current liabilities. There are also restrictions on indebtedness,
liens, investments, acquisitions, dispositions, mergers, and the payment of
dividends. As of September 30, 1993, covenants regarding the ratio of adjusted
earnings before interest and taxes to total interest expense, maximum permitted
capital expenditures and investments by the Company in Kensington had been
breached. As a result of these defaults in the Second Amended Agreement, the
related debt was classified as current on the September 30, 1993 balance sheet.
The banks consented to payment of the dividend payable on November 15, 1993 to
holders of the Company's $1.85 cumulative convertible preference stock.
On February 14, 1994, the Company's lending banks agreed to forbear from
exercising their rights and remedies under the Second Amended Credit Agreement
and continue to extend credit through March 15, 1994. For this period of time
certain default criteria were specified and the Company agreed to collateralize
the loan with the accounts receivable of its roofing distribution companies.
During this forbearance period any loans by the Company bore interest of base
rate plus one and one half percent (1 1/2%) or a total of 7 1/2%.
On March 4, 1994 the banks and the Company amended the Second Amended Credit
Agreement by the execution of the Third Amended Credit Agreement to allow the
Company to borrow up to $65 million until January 31, 1996. The loan, which is
secured by substantially all of the Company's assets, is defined as a $40
million revolving credit line for working capital and letters of credit and a
$25 million term loan for general corporate purposes. The revolving credit
availability is determined with reference to a percentage, as defined by the
Third Amended Credit Agreement, of accounts receivable and inventory which are
pledged to the banks. The term loan must be reduced by $2.6 million on October
31, 1994, by $11.2 million on April 30, 1995 and by $11.2 million on January
31, 1996.
Repayment may also be required from excess proceeds from asset sales
(calculated as the amount remaining after net asset sale proceeds are used to
reduce revolving credit loans to less than borrowing base availability with
borrowing base availability being calculated after the effect of such an asset
sale). The difference of excess proceeds and the reductions as described in
the paragraph above shall be applied to the term loan in inverse order of
maturity. The term loan may also be required to be reduced on any other date
by the amount (if any) by which the term loan exceeds 70% of the fair market
value of all of the Company's fixed assets.
The Company believes these terms are adequate to allow for the ongoing
restructuring to be completed. Interest on the revolving credit portion of the
Third Amended Credit Agreement will be base rate (as specified on such
agreement) plus 1% on all borrowings plus 1/2% on any unused portion. The
interest on the term portion accrued at the base rate plus 2%. A restructuring
fee of $200,000 on the revolving portion of the loan and $250,000 on the term
loan is to be paid in eight equal quarterly installments. Additional fees
associated with the debt
F15
<PAGE> 53
refinancing paid at closing will be amortized pro rata over the period of the
loan agreement. In the event the revolving credit and term loan are repaid
prior to maturity, any remaining installments of the fee will be paid at that
time.
The Third Amended Credit Agreement allows for up to $5,000,000 in letters of
credit. Current outstanding letters of credit approximate $2,761,000 compared
to $3,792,000 in December 1992.
Average interest rates, the interest rate at December 31 and the average and
maximum borrowings in thousands of dollars for the three years ended December
31, 1993, 1992 and 1991 under the Company's Revolving Credit Agreements, are
shown below:
1993 1992 1991
---- ---- ----
Interest rates:
Average during period 4.92% 4.49% 6.67%
At December 31 $44,000 @ 10% $9,000 @ 4.06% $7,000 @ 5.56%
$2,500 @ 4.75% $2,000 @ 5.75%
$8,000 @ 4.09%
$8,000 @ 4.20%
Average borrowings $38,439 $22,966 $ 8,094
Maximum borrowings $44,000 $33,500 $16,200
The Company has indemnified an advanced payment bond of approximately $3.5
million for a business owned by a minority shareholder of the Company's fixed
site facility in San Leon, Texas.
The Company has capital lease obligations (see Note 13) with payments that
extend to 1998 at interest rates which vary between 3.9% and 9.8% per annum.
The principal balance of these obligations amounted to $2,471,000 and
$3,824,000 at December 31, 1993 and 1992, respectively.
Maturities of long-term debt for each of the five years subsequent to December
31, 1993 are as follows:
1994 - $3,383,000; 1995 - $11,858,000; 1996 - $30,604,000; 1997 - $403,000;
1998 - $260,000. The Company incurred net interest expense of $2,472,000 in
1993 (net of $345,000 capitalized interest), $1,506,000 in 1992, and $1,026,000
in 1991.
4. INCOME TAXES
Earnings (loss) from continuing operations before income taxes and the
provision (benefit) for income taxes are shown below:
Years Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
Earnings (loss) from continuing
operations before income
taxes:
Domestic $(5,278,000) $6,533,000 $5,926,000
Foreign 0 0 0
----------- ---------- ----------
$(5,278,000) $6,533,000 $5,926,000
=========== ========== ==========
F16
<PAGE> 54
Years Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
Provision (benefit) for
continuing operations:
Domestic:
Currently payable $ 765,000 $1,544,000 $ 489,000
Deferred (1,402,000) (675,000) 9,000
----------- ---------- ----------
$ (637,000) $ 869,000 $ 498,000
=========== ========== ==========
The total provision (benefit) for income taxes varied from the U.S. federal
statutory rate for the following reasons:
1993 1992 1991
---- ---- ----
Continuing operations:
U.S. federal statutory rate (34.0%) 34.0% 34.0%
State income taxes 0.6 3.0 2.3
Alternative minimum tax 0.0 0.0 1.4
Utilization of NOL
carryforward 0.0 (19.3) (28.9)
Valuation reserve 22.3 0.0 0.0
Other (1.0) (4.4) (.4)
----- ----- ----
(12.1%) 13.3% 8.4%
===== ===== ====
The provision (benefit) for income taxes related to discontinued operations
amounted to ($304,000), $621,000 and $77,000 for 1993, 1992 and 1991,
respectively.
The deferred income tax asset recorded in the consolidated balance sheet
results from differences between financial statement and tax reporting of
income and deductions. A summary of the composition of the deferred income
tax asset at December 31, 1993 is as follows:
Amount
------
(in thousands)
Deferred tax assets:
Bad debt reserves $ 1,150
Compensation/pension accruals 1,683
Inventory valuation accounts 675
Reserves for liquidation & restructuring 5,109
Net operating loss 5,349
Investment tax credit 1,233
Minimum tax credit 1,091
Other reserves & accruals 597
-------
Total deferred tax assets $16,887
-------
Deferred tax liabilities:
Depreciation (2,219)
Corporate owned life insurance (470)
-------
Total deferred tax liabilities (2,689)
-------
Net deferred tax asset before valuation reserve 14,198
Less: Valuation reserve (9,000)
-------
Net deferred tax asset $ 5,198
=======
F17
<PAGE> 55
The Company has available for federal income tax purposes unused net operating
loss and investment tax credit carryforwards, which may provide future tax
benefits, expiring as follows:
Year of Net Investment
Expiration Operating Loss Tax Credit
---------- -------------- ----------
1996 $ 0 $ 97,000
1997 0 317,000
1998 0 135,000
1999 0 212,000
2000 0 297,000
2001 0 175,000
2002 138,000 0
2008 15,140,000 0
----------- ----------
$15,278,000 $1,233,000
=========== ==========
Additionally, for federal income tax purposes, at December 31, 1993 the Company
had available for carryforward minimum tax credits aggregating $1,091,000. If
certain substantial changes in the Company's ownership should occur, there
would be an annual limitation on the amounts of the carryforward which can be
utilized.
The Company adopted FAS 109 in 1993 and has recorded the cumulative effect of
the change in accounting principle of approximately $2.7 million as a benefit
in the results of operations for the first quarter of 1993. This accounting
change also requires the booking of a valuation reserve if it is more likely
than not that the Company may not be able to realize the benefits of recorded
deferred tax assets. At December 31, 1993 the Company recorded a net deferred
tax asset of approximately $14.2 million and a valuation reserve of $9.0
million. As required under FAS 109, this valuation reserve was determined
based upon the Company's review of all available evidence including projections
of future taxable income. The Company expects the Housing Group to remain
profitable and to be a significant contributor of future taxable income. In
addition, the net deferred tax asset includes $1.1 million of minimum tax
credits which do not expire. The Company has announced the closing of the
majority of the environmental business. This segment of the Company was the
main cause of recent poor earnings performance. As the effects of this action
and other cost cutting measures produce favorable results, the deferred tax
asset and related valuation reserve will be reviewed.
5. STOCKHOLDERS' EQUITY
The $1.85 cumulative convertible preference stock is redeemable, in whole or in
part, at the option of the Company, at a redemption price of $20.00 per share
on and after May 15, 1993. The convertible preference stock has a liquidation
value of $20 per share and is convertible at the option of the holder into
common stock of the Company at a conversion price of $22.25 per share, subject
to adjustment in certain events. Dividends are cumulative from the date of
issue and are payable quarterly. Dividends have been paid through
F18
<PAGE> 56
the quarterly payment due on November 15, 1993. The Company's 5% cumulative
preferred stock ranks senior to the convertible preference stock as to
dividends and upon liquidation.
On June 18, 1992 the Company announced that its Board of Directors authorized
it to buy back, on the open market or in privately negotiated transactions, up
to 400,000 of its outstanding shares of common stock at prices available from
time to time that the Company deems attractive. Since this announcement the
Company has repurchased 92,007 shares in 1992 and 5,364 shares in 1993.
Under the 1992 stock option plan described in Note 6, 1,078,195 shares of
common stock are reserved for issuance upon exercise of options and stock
appreciation rights.
Under the terms of the Third Amended Agreement described in Note 3, annual cash
dividends on the Company's preference stock are limited to $1,550,000.
Redemptions of preference stock are prohibited without the banks' consent.
Cash dividends and redemptions with respect to the Company's 5% cumulative
preferred stock are limited to $350,000 annually in the aggregate. The Company
has suspended declaring dividends on all classes of stock. At December 31,
1993, dividends in arrears for the preferred and preference stock amounted to
$377,000.
6. EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS
The Company's "Bird Employees' Savings and Profit Sharing Plan" provides for a
defined base contribution and profit sharing and savings contributions.
DEFINED BASE CONTRIBUTION
The Company contributes annually 2-7% of plan participants' basic compensation
depending upon their age and employment status as of December 31, 1984.
Vesting accrues at 20% per year of service. Contributions for continuing
operations for the years ended December 31, 1993, 1992, and 1991 amounted to
$352,000, $329,000, and $314,000, respectively.
PROFIT SHARING CONTRIBUTION
Profit sharing contributions are made annually, if earned, based upon certain
defined levels of return on equity by the Company and its business units. The
distribution of the contribution to the plan's participants is based upon
annual basic compensation. Contributions for continuing operations for the
years ended December 31, 1993, 1992, and 1991 amounted to $145,000, $148,000,
and $151,000, respectively.
F19
<PAGE> 57
SAVINGS CONTRIBUTION
The Company's savings plan provides that eligible employees may contribute to
the plan any whole percentage of their basic compensation varying from 2 to
15%. The Company may make discretionary matching contributions not exceeding
6% of the participant's basic compensation during the plan year. Such matching
Company contributions are invested in shares of the Company's common stock.
The Company's contributions for continuing operations for the years ended
December 31, 1993, 1992, and 1991 amounted to $155,000, $141,000, and $121,000,
respectively.
POST RETIREMENT BENEFITS
Certain health care and life insurance benefits are provided for substantially
all of the Company's retired employees, except those covered under union plans.
Benefits are provided by the payment of premiums for life insurance benefits
and the reimbursement for eligible employees of a portion of their health care
premiums. The Company's cost for the years 1993, 1992, and 1991 amounted to
$71,000, $71,000, and $102,000, respectively.
In December 1990, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("FAS 106"). This statement
establishes accounting standards principally for employers' accounting for
postretirement health care and life insurance benefits. It requires the
accrual of the expected cost of providing those benefits during the period that
employee services are rendered. The Company adopted FAS 106 effective January
1, 1993. Adoption of the new statement did not materially effect the Company's
financial position or results of operations.
EMPLOYEE INCENTIVE PLANS
Under the 1982 Stock Option Plan, as amended, options to purchase shares of the
Company's common stock may be granted to officers, directors and key employees
upon terms and conditions determined by a committee of the Board of Directors
which administers the plan. The 1989 amendment increased from 700,000 to
900,000 the aggregate number of shares available for grant under the plan. In
1993 the Company adopted a new stock option plan which allows the issuance of
up to 450,000 stock options in addition to the unissued shares approved for
issuance under the 1982 plan. The new plan will expire in 2002 and no further
options will be granted under the former plan. A Non-Employee Directors' Stock
Option Plan was also adopted in 1993 which will automatically provide grants of
options to each non-employee director serving on the Board of Directors at the
time of such grant. Each annual grant will cover 2,500 shares of common stock
and any recipient may not receive option grants exceeding a total of 30,000
shares. An aggregate of 100,000 shares of common stock will be available for
grants under the Non-Employee Directors' Stock Option Plan.
Options granted by the committee may be designated as either incentive stock
options, as defined under the current tax laws, or non- qualified
F20
<PAGE> 58
options. The committee may also grant stock appreciation rights, either singly
or in tandem with stock options. A right entitles the holder to benefit from
market appreciation in the Company's common stock subject to the right between
the date of the grant and the date of exercise without any payment on the part
of the holder. Upon exercise of a right, the holder surrenders the option and
receives an amount of common stock (or, at the election of the committee, cash)
equal in value to the amount of such appreciation.
The exercise price of option specified by the committee must be at least 100%
of the fair market value of the Company's common stock as of the date of grant.
All options and rights granted become exercisable at the rate of 20 to 25% per
year, on a cumulative basis, beginning with the first anniversary of the date
of grant for options granted under the Stock Option Plan and in full one year
after grant for option granted under the Non-Employee Directors' Stock Option
Plan. In case of termination of employment, options and grants vested, but not
yet exercised, are subject to forfeiture under the Stock Option Plan and
exercisable up to 90 days after termination for the Non-Employee Directors'
Stock Option Plan.
Transactions involving the Stock Option Plan are summarized as follows for the
years ended December 31, 1991, 1992 and 1993:
STOCK OPTIONS
-------------
Outstanding January 1, 1991
($5.00 to $18.875 per share) 479,270
Granted ($12.25 to $15.00 per share) 70,500
Exercised ($5.00 to $13.00 per share) (135,340)
Canceled ($5.00 to $18.875 per share) (2,900)
--------
Outstanding December 31, 1991
($5.00 to $18.875 per share) 411,530
========
Outstanding January 1, 1992
($5.00 to $18.875 per share) 411,530
Granted ($12.50 to $17.50 per share) 20,500
Exercised ($5.50 to $11.50 per share) (24,250)
Canceled ($11.50 per share) (1,800)
--------
Outstanding December 31, 1992
($5.00 to $18.875 per share) 405,980
========
Outstanding January 1, 1993
($5.00 to $18.875 per share) 405,980
Granted ($8.375 to $12.625 per share) 419,500
Exercised ($6.50 to $11.125 per share) (5,080)
Canceled ($8.875 to $18.875 per share) (21,600)
--------
Outstanding December 31, 1993
($5.00 to $17.50 per share) 798,800
========
Exercisable December 31, 1993
($5.00 to $17.50 per share) 360,100
Shares available for granting options:
January 1, 1993 127,295
December 31, 1993 279,395
In tandem with the stock options there are 147,820 stock appreciation rights
at December 31, 1993.
F21
<PAGE> 59
LONG TERM INCENTIVE COMPENSATION
Under the terms of a Long Term Incentive Compensation Plan, certain officers
and key management employees shall receive common stock of the Company on a
restricted time lapse grant basis. At December 31, 1993, 219,375 shares of the
Company's common stock had been issued from treasury stock and are being held
in escrow by the Company. These shares are released from escrow and delivered
to the plan's participants when and if the market price of the Company's common
stock has achieved certain designated levels between $12 and $24 per share for
30 consecutive days prior to June 28, 1994 or in any event if the participant
has remained in the continuous employ of the Company through June 2003.
Certain market prices were achieved and maintained for the required 30-day
period during 1993, 1992, and 1991. Therefore, 45,630, 54,405, and 31,590
shares of the Company's common stock were released in June of 1993, 1992, and
1991, respectively, to the plan's participants.
Amortization of unearned compensation under this agreement for the years 1993,
1992, and 1991 amounted to $595,000, $396,000 and $253,000, respectively. The
unamortized value of the shares granted is shown in the accompanying balance
sheet as unearned compensation.
7. DISCONTINUED BUSINESS ACTIVITIES
The Company records income and expenses associated with former business
activities on the Consolidated Statement of Operations under the caption
"Discontinued Business Activities". The Company recorded expenses related to
discontinued business activities of $268,000, $178,000, and $189,000 for the
years 1993, 1992, and 1991, respectively. These charges against earnings
include warranty claims and other costs directly related to discontinued
business activities.
8. OTHER INCOME AND EXPENSE
Other expense was $3.3 million in 1993 compared to other income of $.2 million
in 1992. A series of non-recurring items developed at the end of 1993 that
required a number of charges to 1993 results of operations. The majority of
these are outlined in the following paragraphs:
Accounting requirements associated with the responsible parties on an
environmental cleanup require the Company to maintain a reserve sufficient
enough to absorb the full cost of the Company's portion of the cleanup. Based
on recent site assessments, the Company increased the cleanup reserve by
$500,000 based on the Company's estimated share of the proportionate costs.
The Company was previously considering the development of real property which,
as a result of the recent cash and bank situation, no further development is
possible. Based on the estimated net realizable value of the property, the
Company wrote-off its $1.3 million investment.
F22
<PAGE> 60
To satisfy the remaining portion of an outstanding receivable, the Company
previously accepted a $1.3 million note, collateralized by a secondary interest
in a mortgage portfolio. A recent assessment of the portfolio and the
bankruptcy of the debtor, indicated the note to be of no value, therefore it
was written off.
The recent termination of the former Chief Executive Officer of the Company
resulted in a $850,000 reserve to cover a cash settlement under the employment
agreement amounting to $776,190 and health insurance premiums until 1997 when
he will be 65 years of age.
The remainder of "Other (Income)/Expense" is comprised of other miscellaneous
adjustments of a more normal nature and income of approximately $1.3 million
from a settlement with an insurance provider relating to product liability
claims.
9. DISCONTINUED OPERATIONS
Environmental Businesses
On June 18, 1994, the Company agreed to sell its interest in BEGCI, the
"off-site" business, to the minority shareholders on or before February 28,
1995, subject to financing, resulting in a write-down of approximately $9
million to its estimated net realizable value. The accompanying consolidated
financial statements do not reflect any such adjustment to the recorded
investment in this facility. This agreement represented the complete
withdrawal from the environmental business by the Company. Accordingly, the
operating results, for all years presented, relating to the environmental
businesses have been recorded as discontinued operations. Net sales relating
to these environmental businesses amounted to $24,681,000, $31,334,000 and
$14,328,000 for 1993, 1992 and 1991, respectively.
Additionally, in 1993 the Company decided to close the "on-site" environmental
remediation business. This business involved environmental remediation
projects such as the processing of oily waste sites at a refinery, operations
and management of waste processing sites and the removal and remediation of
sludge. The contracts with customers are generally fixed price and usually for
periods less than one year. As a result of the decision to exit, the Company
recorded a provision totaling approximately $11 million. Included in this
provision is a $5.8 million write-down of certain assets to net realizable
value, $2.1 million for certain contracts including any additional amounts due
to stipulated buyouts, $635,000 for severance-related payments, $740,000 for
inventory and other assets, $1 million for the write-off of intangible assets
and $700,000 for other expenses due to lease buyouts, fees and other general
expenses. The Company is not accepting any new contracts and expects the
phase-out period to end by July 31, 1994.
Included in the 1993 environmental results is a restructuring reserve of $2
million relating primarily to the environmental business. Included in this
provision is $300,000 for severance and benefit payments, $700,000 for lease
buyouts, $650,000 for expected losses on exiting certain contracts, and
$350,000 of other costs. This charge was offset by a $858,000 gain on the sale
of the municipal sludge
F23
<PAGE> 61
business. These amounts, including the operating results, are recorded as
discontinued operations.
The $1,150,000 restructuring reserve established in 1992 included $400,000 for
severance payments, $150,000 for office closure, $100,000 for relocations, and
$500,000 for other expenses. This reserve is primarily related to the
consolidation of the environmental business. This amount, including the
operating results of the environmental businesses, is recorded as discontinued
operations. In addition, included in the 1991 loss from discontinued
operations is $315,000 (after-tax) relating to the operations of the
environmental businesses.
Bird Machine Company
In 1991, the Company was a co-defendant in an action brought by TRW, Inc.
seeking damages in connection with the alleged non-performance of ten
industrial centrifuges purchased from the former subsidiary, Bird Machine
Company, Inc. The cost associated with the defense of this case amounting to
$564,000 has been included in the consolidated statement of operations as a
loss from discontinued operations in 1991. On April 24, 1992, the court
dismissed the Company from the lawsuit by granting the Company's motion for a
directed verdict.
10. ACQUISITIONS
In January 1991, the Company acquired a minority interest in Mid-South Building
Supply, Inc., a distributor of building materials products, for cash. This
investment has been accounted for under the equity method and the Company's
share of its results of operations since the date of acquisition are included
in the Consolidated Financial Statements. In September 1991, the Company also
acquired the assets and operations of Barnstable County Supply Co., a
distributor of building materials products, for shares of Bird Corporation's
common stock. This acquisition has been accounted for as a purchase and the net
assets and results of operations since the date of acquisition are included in
the Consolidated Financial Statements. The cost of the acquired business in
the year acquired was not material to the financial condition of the Company
and had the acquisition occurred at the beginning of that year, the results of
operations would not have been materially affected.
In March of 1992, the Company acquired certain assets of a Connecticut
distributor of building materials products. The cost of this acquisition was
not material to the financial condition of the Company. This acquisition, with
Atlantic Building Products Corporation of Vermont and Massachusetts, provides
the Company with the capacity for captive distribution of its housing products
in certain markets throughout the Northeast.
On July 1, 1992 the Company entered into a 50% joint venture with Kensington
Manufacturing Company, to manufacturer vinyl replacement windows through
Kensington Partners ("Kensington"). The Company's portion of the joint venture
results have been reported using the equity method. In 1993, Kensington
accepted significant contracts which provided an immediate impact of new
orders. Additionally,
F24
<PAGE> 62
Kensington greatly improved the design of its windows by introducing a new
manufacturing process. The combination of the rapid increase of business and
manufacturing changes caused unusual delays in meeting customer needs and
therefore sales and profits were negatively impacted. As a result, Kensington
experienced serious cash needs which further hampered production requirements.
On January 25, 1994 the bank servicing the Kensington loan gave notice that
Kensington had breached certain financial covenants. Subsequently, the
financing bank agreed to forbear from exercising their rights and remedies
under the loan agreement until April 30, 1994. Primarily as a result of the
recent loss and this financing situation, Kensington's independent accountants
have issued a "going concern" opinion at December 31, 1993. After negotiating
with its partner, Bird Corporation agreed to invest additional cash in return
for temporarily increasing ownership in Kensington to 90%. The terms of the
new agreement (which expires on December 31, 2012) allow Kensington to return
to an equal partnership if, before the later of December 31, 1994 or six months
following the Company's last investment, its partner can match the additional
investment made by the Company. Under the terms of the Kensington Partnership
Agreement, a Management Committee was established to oversee the operations of
the partnership. The agreement required, among other things, unanimous
approval of the Management Committee for the following: (a) any distributions;
(b) the incurrence of any indebtedness; (c) the creation of any form of
encumbrance; (d) the adoption or modification of the partnership's annual plan
and operating budget; and (e) any transaction requiring expenditures in excess
of $15,000 and not contemplated in or provided for in the annual business plan
or operating budget. Each partner is entitled to name two of the five members
of the Management Committee with the fifth member being the President of
Kensington. Approval from both partners was required to hire the President of
Kensington. Significant operating decisions require unanimous approval as
noted above. Accordingly, the Company does not possess unilateral control and,
as a result, the partnership is accounted for on the equity method. The new
management committee formed by the partners has been established to oversee the
turnaround of the partnership's operations. Also, the partners hired a new
management team to run the partnership and report to the management committee.
The following table represents summarized financial information for Kensington
Partners. The 1992 numbers represent six months.
December December
1993 1992
---- ----
(000) omitted
Current assets $ 7,101 $ 5,035
Property and Equipment 2,870 2,453
Other Assets 1,377 321
------- -------
Total Assets $11,348 $ 7,809
======= =======
Current Liabilities $10,072 $ 3,209
Other Liabilities 1,471 146
------- -------
Total Liabilities $11,543 $ 3,355
======= =======
Years Ended December 31,
1993 1992
---- ----
Net Sales $21,255 $10,199
Gross Profit 1,469 2,252
Net Loss (5,249) (36)
F25
<PAGE> 63
The Company recorded fifty percent of the loss from operations under the equity
method which is shown separately on the consolidated statement of operations.
The Company's investment in Kensington is $666,000 at December 31, 1993 which
represents cost in excess of acquired assets and is being amortized over the
term of the current partnership agreement. In 1994, the Company increased its
investment by contributing capital of $750,000 and by collateralizing $750,000
through a deposit in Kensington's bank. In September 1993, the Company also
co-guaranteed a $2,500,000 line of credit and a $1.3 million capital lease.
Accordingly, any default by Kensington will cause a default on the Company's
Revolving Credit Agreement with its banks.
In September of 1992, the Company foreclosed on a security interest held by it
on collateral provided by a distributor of building material products serving
Long Island, New York. The Company now operates that business under the name
of New York Building Products, as part of its distribution business.
11. ADDITIONAL FINANCIAL INFORMATION
The following table sets forth additional financial information from continuing
operations:
Years Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
Maintenance and Repairs $5,530,000 $5,063,000 $4,401,000
Depreciation of Property,
Plant and Equipment $3,757,000 $3,600,000 $3,292,000
Advertising $1,230,000 $1,051,000 $1,037,000
Amortization of intangible assets, pre-operating costs and similar deferrals,
taxes other than payroll and income taxes, royalties and research and
development expenses were less than 1% of net sales.
The following items included in the consolidated balance sheet under the
caption "Accounts Payable and Accrued Expenses" amounted to 5% or more of the
total of current liabilities caption at December 31, 1993 and 1992.
1993 1992
---- ----
Accounts payable $11,186,000 $ 7,771,000
Remuneration and related items $ 1,095,000 $ 2,087,000
Accrued expenses $ 9,346,000 $ 6,595,000
Reserve for environmental contract
loss $ 4,750,000 $ 0
----------- -----------
$26,377,000 $16,453,000
=========== ===========
The Company warrants under certain circumstances that its Housing Group's
products meet certain manufacturing and material specifications. In addition,
for marketing considerations, the Company makes elective settlements in
response to customer complaints. The Company records the liability for
warranty claims and elective customer
F26
<PAGE> 64
settlements when it determines that a specific liability exists or a payment
will be made. During 1993, 1992 and 1991, the Company recorded (exclusive of
those claims included in discontinued business activities) approximately
$3,196,000, $2,585,000, and $1,829,000 respectively, in warranty expenses and
elective customer settlements. The warranty related expense included in
discontinued business activities for 1993, 1992 and 1991 amounted to
approximately $104,000, $93,000 and $62,000, respectively. Based upon analyses
performed by the Company's management together with an outside consulting
statistician, a reasonably possible range of potential liability from
unasserted warranty obligations for all products sold prior to December 31,
1993 is estimated to be between $3.3 million and $17.5 million. However, the
Company has not recorded any liability for these future unasserted claims or
complaints because management has concluded, based on such analyses, that no
particular estimate within this range is probable.
12. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases certain manufacturing, administrative, warehousing,
transportation equipment and other facilities. The leases generally provide
that the Company pay the taxes, insurance and maintenance expenses related to
the leased assets.
At December 31, 1993 minimum lease commitments under noncancelable operating
leases are as follows:
Year Real Estate Equipment Total
---- ----------- ---------- ----------
1994 $ 570,000 $2,490,000 $3,060,000
1995 462,000 978,000 1,440,000
1996 237,000 224,000 461,000
1997 116,000 35,000 151,000
1998 3,000 0 3,000
Later years 43,000 0 43,000
--------- --------- ---------
$1,431,000 $3,727,000 $5,158,000
========= ========= =========
Total rental expense for continuing operations, exclusive of taxes, insurance
and other expenses paid by the lessee related to all operating leases
(including those with terms of less than one year) was as follows:
Year Amount
---- ------
1993 $ 3,202,000
1992 $ 3,050,000
1991 $ 3,204,000
The following represents property under capital leases:
December 31,
1993 1992
---- ----
Machinery and equipment $5,090,000 $5,892,000
Less, accumulated depreciation 1,742,000 1,566,000
---------- ----------
$3,348,000 $4,326,000
========== ==========
F27
<PAGE> 65
At December 31, 1993 minimum lease commitments under capital leases are as
follows:
Year Amount
---- ------
1994 $ 916,000
1995 752,000
1996 465,000
1997 437,000
1998 235,000
----------
Total minimum lease payments 2,805,000
Imputed interest (334,000)
----------
Total future principal payments
of lease obligations $2,471,000
==========
LITIGATION
Since 1981, the Company has been named as a defendant in approximately 450
product liability cases throughout the United States by persons claiming to
have suffered asbestos-related diseases as a result of alleged exposure to
asbestos in products manufactured and sold by the Company. Approximately 140
of these cases are currently pending and costs of approximately $1.4 million in
the aggregate have been incurred in the defense of these claims since 1981.
The Company's insurance provider has accepted the defense of these cases under
an agreement for sharing of the costs of defense, settlements and judgements,
if any. The anticipated resolution of the pending claims will not, in the
opinion of management, have a material impact on the Company's consolidated
financial position and results of operations.
In 1986, the Company, along with numerous other companies, was named by the
United States Environmental Protection Agency ("EPA") as a Potentially
Responsible Party ("PRP") under the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, 42 U.S.C. Paragraph 9601, et seq.
("CERCLA"), in connection with the existence of hazardous substances at a site
known as the Fulton Terminal Superfund site located in Fulton, Oswego County,
New York. On September 28, 1990 the Company and a number of other PRPs reached
a negotiated settlement with the EPA pursuant to which the settling PRPs agreed
to pay the costs of certain expenses in connection with the proceedings, and to
pay certain other expenses including the costs and expenses of administering a
trust fund to be established by the settling PRPs. The settlement agreement is
embodied in a consent decree lodged with the United States District Court for
the Western District of New York. The ultimate cost of the remedial work and
other expenses covered by the settlement agreement can only be estimated. The
Company has provided a reserve amounting to $920,000 at December 31, 1993 for
its estimated share of the ultimate cost of cleanup.
The Company has been named as a PRP with respect to certain other sites which
are being investigated by federal or state agencies responsible for regulation
of the environment. Status as a PRP means that the Company may be jointly and
severally liable for all of the potential monetary sanctions and remediation
costs applicable to each site. In
F28
<PAGE> 66
assessing the potential liability of the Company at each site, management has
considered, among other things, the aggregate potential cleanup costs of each
site; the apparent involvement of the Company at each site and its prospective
share of the remediation costs attributable thereto; the number of the PRPs
identified with respect to each site and their financial ability to contribute
their proportionate shares of the remediation costs for such site; the
availability of insurance coverage for the Company's involvement at each site
and the likelihood that such coverage may be contested; and whether and to what
extent potential sources of contribution from other PRPs or indemnification by
insurance companies constitute reliable sources of recovery for the Company.
On the basis of such consideration, management has determined that such
environmental matters will not have a material affect on the Company's
financial position or results of operations. The Company has provided an
aggregate reserve amounting to $206,000 at December 31, 1993 for its estimated
share of the ultimate cost of cleanup for such claims excluding any potential
sources of indemnification or recovery from third parties.
In March 1994, the Company received a notice of violation from the Texas
Natural Resource Conservation Commission ("TNRCC"). The notice alleges that
the Company was not in compliance with regulations of the TNRCC relating to
labeling, permitting, storage and disposal of certain hazardous waste. The
notice proposes certain corrective action on the part of the Company as well as
payment of administrative penalties.
The Company is in the early stages of discussions with the TNRCC and,
accordingly, is unable to assess the nature and extent of any corrective action
which is likely to be required with respect thereto. Accordingly, such
administrative penalties can not be reasonably estimated at this point in time.
The Company is also exposed to a number of other asserted and unasserted
potential claims encountered in the normal course of business and unrelated to
environmental matters. In the opinion of management, the resolution of such
claims will not have a material adverse affect on the Company's financial
position or results of operations.
13. OPERATIONS IN DIFFERENT INDUSTRIES
The Company has had two business segments which it defined as the Housing Group
and the Environmental Group.
The Housing Group manufactures and markets residential and commercial roofing
products in the Northeastern United States, including a full line of fiberglass
based asphalt shingles and roll roofing. The Group also manufactures vinyl
siding, window profiles, trim and accessories which are distributed nationwide.
The Group operates distribution centers primarily in the Southeastern and
Southwestern markets for vinyl siding and in the Arizona and Northeastern
markets for roofing and other building materials products.
F29
<PAGE> 67
Until recently the Company's Environmental Group provided recycling,
remediation, and beneficial re-use services for applications as diverse as food
processing waste streams, oily waste recovery and the treatment of municipal
wastes. Generally, these on-site services recover valuable constituents, remove
wastes and reduce the volume of materials which must be disposed of by other
means. In December 1993, the Company decided to close this portion of the
environmental segment and dedicate this group to operating BEGCI, the fixed
site facility in Texas. As discussed in Note 9, the company agreed to sell its
interest in BEGCI to the minority shareholders. Accordingly, due to the
Company's exit from the environmental business in its entirety, the results of
operations have been recorded as discontinued operations.
Net sales represent sales to unaffiliated customers. Identifiable assets are
those that are used in the Company's operations in each industry segment.
Corporate assets are principally cash investments and equivalents, certain
notes receivable and property maintained for general corporate purposes. As
discussed in Note 9, the results of operations for the environmental group for
the three years ended December 31, 1993 have been recorded as discontinued
operations. Accordingly, net sales, cost of sales and SG&A relating to this
segment are not shown below.
F30
<PAGE> 68
13. OPERATIONS IN DIFFERENT INDUSTRIES (CONTINUED)
<TABLE>
<CAPTION>
Year ended December 31,
(000 omitted) 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Housing Group
- -------------
Net Sales $187,745 $164,202 $137,059
======== ======== ========
Cost of Sales $151,664 $128,371 $107,226
======== ======== ========
S.G.& A. $25,746 $22,493 $17,417
======== ======== ========
Earnings (loss) from continuing
operations before income taxes:
Housing group operating income $7,121 $13,338 $12,416
Other income 0 197 331
Other non-recurring income 877 0 0
-------- -------- --------
7,998 13,535 12,747
Interest exense (2,472) (1,506) (1,026)
Other write offs (3,834) 0 0
Corporate office expenses (6,970) (5,496) (5,795)
-------- -------- --------
($5,278) $6,533 $5,926
======== ======== ========
Identifiable assets:
Housing group $95,663 $79,568 $66,406
Environmental group 23,250 25,935 19,669
Corporate office 4,316 13,028 13,829
-------- -------- --------
$123,229 $118,531 $99,904
======== ======== ========
Depreciation:
Housing group $3,670 $3,488 $3,182
Environmental group 1,686 1,620 732
Corporate office 87 112 110
-------- -------- --------
$5,443 $5,220 $4,024
======== ======== ========
Capital expenditures:
Housing group $4,505 $3,683 $4,009
Environmental group 12,251 3,201 1,437
Corporate office 56 63 42
-------- -------- --------
$16,812 $6,947 $5,488
======== ======== ========
</TABLE>
F31
<PAGE> 69
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1993 and 1992 is shown below:
<TABLE>
<CAPTION>
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
--------- -------- --------- --------
(thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
1993
Net sales $34,943 $52,131 $53,438 $47,233
Gross profit $7,230 $10,922 $10,786 $7,143 (1)
Earnings(loss):
Continuing Operations $245 $1,296 $1,573 ($7,753)
Discontinued Operations ($1,407) ($1,114) ($2,857) ($21,038)
Cumulative effect of accounting change $2,733
-------- -------- ------- --------
Net earnings (loss) $1,571 $182 ($1,284) ($28,791)
======== ======== ======= ========
Earnings per share data:
Primary earnings (loss) per
common share:
Continuing operations ($0.04) $0.22 $0.29 ($1.97)
Discontinued operations ($0.34) ($0.27) ($0.70) ($5.10)
Cumulative effect
of accounting change $0.67 $0.00 $0.00 $0.00
-------- -------- ------- --------
Net earnings (loss) $0.29 ($0.05) ($0.41) ($7.07)
======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
--------- -------- --------- --------
(thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
1992
Net sales $30,916 $45,645 $47,930 $39,711
Gross profit $7,460 $9,934 $10,526 $7,911
Earnings(loss):
Continuing Operations $655 $2,089 $2,754 $165
Discontinued Operations ($645) $61 ($1,282) ($706)
------- ------- ------- -------
Net earnings (loss) $10 $2,150 $1,472 ($541)
======= ======= ======= =======
Earnings per share data:
Primary earnings (loss) per
common share:
Continuing operations $0.07 $0.42 $0.59 ($0.06)
Discontinued operations ($0.16) $0.01 ($0.32) ($0.17)
------- ------- ------- -------
Net earnings (loss) ($0.09) $0.43 $0.27 ($0.23)
======= ======= ======= =======
</TABLE>
(1) Decrease in gross profit in the fourth quarter compared to the previous
quarter is due primarily to increased raw material costs that could
not be passed on via price increases
F32
<PAGE> 70
SCHEDULE V
BIRD CORPORATION and Subsidiaries
PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
ADDITIONS AT COST
BALANCE ----------------- RETIREMENTS, BALANCE
DECEMBER 31, PURCHASED SALES AND DECEMBER 31,
DESCRIPTION 1992 FOR CASH OTHER(a) RECLASSIFICATIONS 1993
----------- -------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Land and land
improvements $ 3,718,000 $ 401,000 $ -0- $ 597,000 $ 4,716,000
Buildings 14,436,000 684,000 -0- (420,000) 14,700,000
Machinery and
equipment 45,470,000 7,073,000 -0- (11,857,000) 40,686,000
Construction
in progress 3,032,000 8,654,000 -0- 3,196,000 14,882,000
----------- ----------- -------- ------------ -----------
$66,656,000 $16,812,000 $ -0- $ (8,484,000) $74,984,000
=========== =========== ======== ============ ===========
</TABLE>
SCHEDULE VI
ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
ADDITIONS AT COST
BALANCE ----------------- RETIREMENTS, BALANCE
DECEMBER 31, PURCHASED SALES AND DECEMBER 31,
DESCRIPTION 1992 FOR CASH OTHER(a) RECLASSIFICATIONS 1993
----------- -------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Land and land
improvements $ 484,000 $ 47,000 $ -0- $ (23,000) $ 508,000
Buildings 5,173,000 727,000 -0- (87,000) 5,813,000
Machinery and
equipment 23,448,000 4,669,000 -0- (4,028,000) 24,089,000
----------- ---------- -------- ----------- -----------
$29,105,000 $5,443,000 $ -0- $(4,138,000) $30,410,000
=========== ========== ======== =========== ===========
</TABLE>
(a) Reflects property, plant and equipment of businesses acquired.
F33
<PAGE> 71
SCHEDULE V
BIRD CORPORATION and Subsidiaries
PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
ADDITIONS AT COST
BALANCE ----------------- RETIREMENTS, BALANCE
DECEMBER 31, PURCHASED SALES AND DECEMBER 31,
DESCRIPTION 1992 FOR CASH OTHER(a) RECLASSIFICATIONS 1992
----------- -------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Land and land
improvements $ 2,896,000 $ 911,000 $ -0- $ (89,000) $ 3,718,000
Buildings 13,696,000 563,000 75,000 102,000 14,436,000
Machinery and
equipment 41,939,000 4,735,000 236,000 (1,440,000) 45,470,000
Construction
in progress 1,443,000 427,000 -0- 1,162,000 3,032,000
----------- ---------- -------- ----------- -----------
$59,974,000 $6,636,000 $311,000 $ (265,000) $66,656,000
=========== ========== ======== =========== ===========
</TABLE>
SCHEDULE VI
ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
ADDITIONS AT COST
BALANCE ----------------- RETIREMENTS, BALANCE
DECEMBER 31, PURCHASED SALES AND DECEMBER 31,
DESCRIPTION 1992 FOR CASH OTHER(a) RECLASSIFICATIONS 1992
----------- -------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Land and land
improvements $ 416,000 $ 52,000 $ -0- $ 16,000 $ 484,000
Buildings 4,529,000 650,000 -0- (6,000) 5,173,000
Machinery and
equipment 19,052,000 4,518,000 -0- (122,000) 23,448,000
----------- ---------- -------- --------- -----------
$23,997,000 $5,220,000 $ -0- $(112,000) $29,105,000
=========== ========== ======== ========= ===========
</TABLE>
(a) Reflects property, plant and equipment of businesses acquired.
F34
<PAGE> 72
SCHEDULE V
BIRD CORPORATION and Subsidiaries
PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1991
<TABLE>
<CAPTION>
ADDITIONS AT COST
BALANCE ----------------- RETIREMENTS, OTHER BALANCE
DECEMBER 31, PURCHASED SALES AND CHARGES DECEMBER 31,
DESCRIPTION 1992 FOR CASH OTHER(a) RECLASSIFICATIONS DEDUCT (b) 1991
----------- -------- -------- ----------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Land and land
improvements $ 2,360,000 $ 238,000 $ 327,000 $(29,000) $ -0- $ 2,896,000
Buildings 11,400,000 710,000 1,607,000 (21,000) -0- 13,696,000
Machinery and
equipment 28,049,000 6,336,000 8,483,000 (34,000) (895,000) 41,939,000
Construction
in progress 3,239,000 (1,796,000) -0- -0- -0- 1,443,000
----------- ----------- ----------- -------- --------- -----------
$45,048,000 $ 5,488,000 $10,417,000 $(84,000) $(895,000) $59,974,000
=========== =========== =========== ======== ========= ===========
</TABLE>
SCHEDULE VI
ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1991
<TABLE>
<CAPTION>
ADDITIONS AT COST
BALANCE ----------------- RETIREMENTS, OTHER BALANCE
DECEMBER 31, PURCHASED SALES AND CHARGES DECEMBER 31,
DESCRIPTION 1992 FOR CASH OTHER(a) RECLASSIFICATIONS DEDUCT (b) 1991
----------- -------- -------- ----------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Land and land
improvements $ 301,000 $ 50,000 $ 94,000 $(29,000) $ -0- $ 416,000
Buildings 3,425,000 554,000 562,000 (12,000) -0- 4,529,000
Machinery and
equipment 11,888,000 3,420,000 4,631,000 8,000 (895,000) 19,052,000
----------- ---------- ---------- -------- --------- -----------
$15,614,000 $4,024,000 $5,287,000 $(33,000) $(895,000) $23,997,000
=========== ========== ========== ======== ========= ===========
</TABLE>
(a) Reflects property, plant and equipment of businesses acquired.
(b) Reflects elimination of fully depreciated assets.
F35
<PAGE> 73
SCHEDULE VIII
BIRD CORPORATION and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 1993
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
CHARGED OR CHARGED OR
BALANCE CREDITED TO CREDITED TO BALANCE
DECEMBER 31, COSTS AND OTHER DECEMBER 31,
1992 EXPENSES ACCOUNT DEDUCTIONS 1993
----------- -------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Deducted from assets:
Allowance for
doubtful accounts:
Current $2,978,000 $2,162,000 $47,000(a) $(914,000)(b) $4,273,000
========== ========== ======= ========= ==========
</TABLE>
(a) Represents recovery of balances previously written off.
(b) Uncollectible balances written off by a charge to reserve.
F36
<PAGE> 74
SCHEDULE VIII
BIRD CORPORATION and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 1992
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
CHARGED OR CHARGED OR
BALANCE CREDITED TO CREDITED TO BALANCE
DECEMBER 31, COSTS AND OTHER DECEMBER 31,
1991 EXPENSES ACCOUNT DEDUCTIONS 1992
----------- -------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Deducted from assets:
Allowance for
doubtful accounts:
Current $1,235,000 $1,365,000 $1,347,000(a) $(969,000)(b) $2,978,000
========== ========== ========== ========= ==========
</TABLE>
(a) Represents the allowance for doubtful accounts of businesses acquired
$1,290,000 and the recovery of balances previously written off $57,000.
(b) Uncollectible balances written off by a charge to reserve.
F37
<PAGE> 75
SCHEDULE VIII
BIRD CORPORATION and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 1991
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
CHARGED OR CHARGED OR
BALANCE CREDITED TO CREDITED TO BALANCE
DECEMBER 31, COSTS AND OTHER DECEMBER 31,
1990 EXPENSES ACCOUNT DEDUCTIONS 1991
------------ -------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Deducted from assets:
Allowance for
doubtful accounts:
Current $1,527,000 $1,015,000 $123,000(a) $(1,430,000)(b) $1,235,000
========== ========== ======== =========== ==========
</TABLE>
(a) Represents the allowance for doubtful accounts of businesses acquired
$72,000 and the recovery of balances previously written off $51,000.
(b) Uncollectible balances written off by a charge to reserve.
F38
<PAGE> 76
EXHIBIT 11
BIRD CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (1)
(Thousands of dollars, except share and per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Primary earnings per share
Earnings (loss) from continuing operations ($1,908) $5,664 $5,428
Deduct dividend requirements:
Preferred stock (30) (30) (30)
Convertible preference stock (1,506) (1,506) (1,506)
---------- ---------- ----------
Net earnings (loss) from continuing operations (3,444) 4,128 3,892
Net loss from discontinued operations (26,414) (2,573) (249)
---------- ---------- ----------
Net earnings (loss) applicable
to common stock ($29,858) $1,555 $3,643
---------- ---------- ----------
Weighted average number of common
shares outstanding (1) 4,097,999 4,009,832 3,759,242
Assuming exercise of options reduced by ---------- ---------- ----------
the number of shares which could have
been purchased with the proceeds from
exercise of such options (3) 0 131,613 91,568
---------- ---------- ----------
Weighted average number of common
shares outstanding as adjusted 4,097,999 4,141,445 3,850,810
---------- ---------- ----------
Primary earnings (loss) per common share:
Continuing operations ($1.51) $1.00 $1.01
Discontinued operations ($6.45) ($0.62) ($0.06)
Cumulative effect of accounting change $0.67 $0.00 $0.00
---------- ---------- ----------
Applicable to common stock ($7.29) $0.38 $0.95
---------- ---------- ----------
</TABLE>
F39
<PAGE> 77
EXHIBIT 11
BIRD CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (1)
(Thousands of dollars, except share and per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Fully diluted earnings per share (2)
Earnings from (loss) continuing operations ($1,908) $5,664 $5,428
Deduct dividend requirements of
preferred stock (30) (30) (30)
---------- ---------- ----------
Net earnings (loss) from continuing operations (1,938) 5,634 5,398
Net loss from discontinued operations (26,414) (2,573) (249)
---------- ---------- ----------
Net earnings (loss) applicable
to common stock ($28,352) $3,061 $5,149
---------- ---------- ----------
Weighted average number of common
shares outstanding (1) 4,097,999 4,010,751 3,763,078
Assuming exercise of options reduced by
the number of shares which could have
been purchased with the proceeds from
exercise of such options 0 99,828 94,387
Assuming conversion of convertible
preference stock 731,955 731,955 731,955
---------- ---------- ----------
Weighted average number of common
shares outstanding as adjusted 4,829,954 4,842,534 4,589,420
---------- ---------- ----------
Fully diluted earnings (loss) per common share:
Continuing operations ($0.97) $1.16 $1.17
Discontinued operations ($5.57) ($0.53) ($0.05)
Cumulative effect of accounting change $0.67 $0.00 $0.00
---------- ---------- ----------
Applicable to common stock ($5.87) $0.63 $1.12
---------- ---------- ----------
</TABLE>
(1) See Note 1 of Notes to Consolidated Financial Statements.
(2) These calculations are submitted in accordance with Securities Exchange
Act of 1934, Release No. 9083, although in certain instances, it is
contrary to paragraph 40 of APB Opinion No. 15 because it produces an
anti-dilutive result.
(3) APB 15 paragraph 30 indicates, computation of primary earnings per share
should should not give effect to common stock equivalents if their
inclusion has the effect of decreasing the loss per share amount otherwise
computed or is anti-dilutive
F40
<PAGE> 78
EXHIBIT 22
BIRD CORPORATION
Significant Subsidiaries:
All subsidiaries are majority owned and are included in the
Consolidated Financial Statements.
State in Which
Incorporated or Organized
-------------------------
Bird Incorporated Massachusetts
Bird Environmental Gulf Coast, Inc. Texas
Bird Environmental Technologies, Inc. (F/K/A Delaware
Bird Environmental Systems and Services, Inc.)
Southland Building Products, Inc. Texas
Southwest Roofing Supply, Inc. Delaware
Southwest Express, Inc. Massachusetts
Greater Louisville Aluminum, Inc. (d.b.a GLACO) Kentucky
Atlantic Building Products Corporation Vermont
Bird Vinyl Products, Inc. Delaware
New York Building Products, Inc. New York
F41
<PAGE> 79
EXHIBIT 23 (a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of these Registration Statements on Form S-3(No. 33-44475);
Form S-4(No. 33-44403) and Forms S-8(Nos. 33-36304, 33-67826, 33-67828 and
33-36305) of our report dated March 10, 1994 (except as to Note 9, which is as
of June 18, 1994) appearing on Page F2 of Bird Corporation's From 10-K/A-2 for
the year ended December 31, 1993.
/s/ Price Waterhouse LLP
Boston, Massachusetts
February 21, 1995
F42
<PAGE> 80
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of these Registration Statements on Form S-3 (No. 33-44475);
Form S-4 (No. 33-44403) and Forms S-8 (Nos. 33-36304, 33-36305, 33-67826
and 33-67828 of our report dated February 19, 1994 (except for the last three
paragraphs of Note 8, the second paragraph of Note 13B and Note 14, as to which
the date is September 14, 1994) appearing on page F3 of Bird Corporation's Form
10-K/A-2 for the year ended December 31, 1993.
/s/ Alpern, Rosenthal & Company
Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania
February 21, 1995
F43
<PAGE> 81
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Combined Financial Statements
and Supplemental Information
For the Year Ended December 31, 1993
and Period July 1, 1992 (Inception)
to December 31, 1992
F44
<PAGE> 82
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Combined Financial Statements
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1993 and the Period
July 1, 1992 (Inception) to December 31, 1992
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
Financial Statements
Independent Auditors' Report F46
Combined Balance Sheets F47
Combined Statements of Operations and Partners' Capital (Deficit) F49
Combined Statements of Cash Flows F50
Notes to the Combined Financial Statements F52
Supplemental Information
Independent Auditors' Report on Financial Statement Schedule F66
Financial Statement Schedule VIII F67
F45
<PAGE> 83
[ALPERN, ROSENTHAL & COMPANY LETTERHEAD]
Independent Auditor's Report
To the Partners
Kensington Partners and Affiliate
(Joint Venture Partnerships)
Leechburg, Pennsylvania
We have audited the accompanying combined balance sheets of Kensington
Partners and Affiliate as of December 31, 1993 and 1992 and the related
combined statements of operations, changes in partners' capital (deficit), and
cash flows for the year ended December 31, 1993 and the period from July 1,
1992 (Inception) to December 31, 1992. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements 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 combined financial statements referred to above
present fairly, in all material respects, the financial position of Kensington
Partners and Affiliate as of December 31, 1993 and 1992, and the results of
their operations and their cash flows for the year ended December 31, 1993 and
the period from July 1, 1992 (Inception) to December 31, 1992, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Kensington Partners and Affiliate will continue as going concerns. As
discussed in Note 3 to the financial statements, the Companies have incurred
significant operating losses, current liabilities exceed current assets and
their line of credit was under a forbearance agreement with their lender.
Those conditions raise substantial doubt about the Companies' ability to
continue as going concerns. Management's plans regarding those matters are
also described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Alpern, Rosenthal & Company
- -------------------------------
Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania
February 19, 1994 (Except for the last three paragraphs of
Note 8, the second paragraph of Note 13B, and Note 14, as
to which the date is September 14, 1994.)
A Professional Corporation
F46
<PAGE> 84
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Combined Balance Sheets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 15,518 $ 23,718
Accounts receivable
Trade - net of allowance for
doubtful accounts of $195,000 in
1994 and $66,000 in 1993 - Note 4 2,763,207 1,553,029
Related parties - Note 13B 1,231,094 1,217,433
Inventories - Note 5 2,956,397 2,082,834
Prepaid expenses 134,320 158,392
----------- ------------
Total Current Assets 7,100,536 5,035,406
----------- ------------
Property and Equipment - At cost - net of
accumulated depreciation of $642,433 and $199,850
as of December 31, 1993 and 1992 - Note 6 2,870,341 2,452,756
----------- ------------
Other Assets
Notes receivable - related party - Note 13E 100,000 -
Other assets - Note 7 1,277,233 320,552
----------- ------------
1,377,233 320,552
----------- ------------
Total Assets $11,348,110 $ 7,808,714
=========== ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F47
<PAGE> 85
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1993 1992
- ------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Demand notes payable - Note 8 $ 2,245,580 $ 910,580
Current maturities of capital lease
obligations and long-term debt - Note 9 415,500 229,723
Accounts Payable
Trade 3,927,881 1,150,455
Related parties - Note 13A 2,681,579 612,766
Accrued expenses - Note 10 801,751 305,624
----------- ----------
Total Current Liabilities 10,072,291 3,209,148
----------- ----------
Long-term Liabilities
Capital lease obligations and long-term debt -
net of current maturities - Note 9 1,096,480 145,665
Other long-term liabilities - related parties - Note 13 374,865 -
----------- ----------
Total Long-term Liabilities 1,471,345 145,665
----------- ----------
Total Liabilities 11,543,636 3,354,813
Partners' Capital (Deficit) ( 195,526) 4,453,901
Commitments and Contingencies (Notes 12 and 14) - -
----------- ----------
Total Liabilities and Partners' Capital $11,348,110 $7,808,714
=========== ==========
</TABLE>
F48
<PAGE> 86
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Combined Statements of Operations and Partners' Capital (Deficit)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
For the Year and Six Months Ended December 31 1993 1992
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales (approximately 34% in 1993 and
33% in 1992 sold to related parties) $21,254,549 $10,198,563
Cost of Goods Sold (approximately 29% in 1993 and
25% in 1992 purchased from related parties) 19,785,555 7,946,321
----------- -----------
Gross Profit 1,468,994 2,252,242
Operating Expenses (approximately 15% in 1993 and
17% in 1992 to related parties) 6,012,508 2,079,567
----------- -----------
Income (Loss) from Operations ( 4,543,514) 172,675
----------- -----------
Other Expense
Interest Expense ( 155,452) ( 31,371)
Loss from equity investment ( 69,578) ( -)
Bad debt expense ( 202,154) ( 45,842)
Other expense, net ( 278,729) ( 131,533)
----------- -----------
Total Other Expense ( 705,913) ( 208,746)
----------- -----------
Net Loss ( 5,249,427) ( 36,071)
Partners' Capital - Beginning of Year 4,453,901 4,489,972
Capital Contributions 600,000 -
----------- -----------
Partners' Capital (Deficit) - End of year ($ 195,526) $ 4,453,901
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F49
<PAGE> 87
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
For the Year and Six Months Ended December 31 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Provided by (Used for) Operating Activities
Net loss ($5,249,427) ($ 36,071)
Adjustments to reconcile net loss to net
cash provided by (used for) operating activities
Depreciation and amortization 540,921 224,726
Loss from equity investment 68,578 -
Changes in
Accounts receivable
Trade ( 1,210,178) 268,123
Related parties ( 13,661) ( 416,137)
Inventories ( 873,563) ( 189,952)
Other current assets and liabilities 520,199 108,386
Accounts payable
Trade 2,777,426 ( 1,263,416)
Related parties 2,068,813 612,766
---------- ----------
Net Cash Used for Operating Activities ( 1,370,892) ( 691,575)
---------- ----------
Cash Provided by (Used for) Investing Activities
Purchase of property and equipment ( 132,650) ( 37,527)
Cash value of life insurance 23,155 ( 18,513)
Other assets ( 303,663) ( 40,860)
Notes receivable - related parties ( 100,000) -
---------- ----------
Net Cash Used for Investing Activities ( 513,158) ( 96,900)
---------- ----------
Cash Provided by (Used for) Financing Activities
Cash contributed by the partners - Note 2 600,000 2,835,305
Reduction in payables to Jones & Brown - Note 2 - ( 2,800,000)
Demand notes payable 1,335,000 910,580
Proceeds from long-term debt 34,107 -
Payments on long-term debt ( 399,543) ( 133,692)
Other liabilities - related parties 306,286 -
---------- ----------
Net Cash Provided by Financing Activities 1,875,850 812,193
---------- ----------
Increase (Decrease) in Cash ( 8,200) 23,718
Cash - Beginning of year 23,718 -
---------- ----------
Cash - End of year $ 15,518 $ 23,718
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F50
<PAGE> 88
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Combined Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
For the Year and Six Months Ended December 31 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $ 152,341 $ 29,438
========== ==========
Noncash Investing and Financing Activities
Capital lease and debt obligations
incurred for acquisition of equipment $1,502,028 $ 34,379
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F51
<PAGE> 89
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Notes to the Combined Financial Statements
Note 1 - Summary of Significant Accounting Policies
A. Principles of Combination
The accompanying 1993 combined financial statements include the
accounts of Kensington Partners (KP) combined with the accounts of North
American Installations Company (NAICO). NAICO is owned 100% by common
owners of KP. All significant intercompany balances and transactions have
been eliminated in the preparation of the combined financial statements.
The combined group is herein referred to as "the Companies".
NAICO was formed in May, 1993 as a joint venture partnership to install
windows sold by KP to a significant customer. The 1992 financial
statements reflect only the accounts of KP.
B. Nature of Business
Kensington Partners operates in one principal industry segment: the
manufacture of vinyl replacement of windows for wholesalers and home
remodelers. The Partnership grants credit to its customers substantially
all of which are retail and wholesale resellers of windows located in the
eastern half of the United States.
NAICO is an exclusive installer of KP windows for a significant
customer of KP, a retail seller of windows to end users, which has sales
throughout the United States.
The Companies grant credit to the customer and note the end user of
the window.
C. Cash and Cash Equivalents
Interest-bearing deposits and other investments with original maturity
of three months or less are considered short-term cash investments. At
December 31, 1993 and 1992, the Company has an overdraft position of
approximately $345,000 and $99,700, respectively, at a bank, caused by
outstanding checks. The overdraft is included in accounts payable.
D. Accounts Receivable
The Company provides for estimated losses on uncollectible accounts
receivable based on historical data and management's evaluation of
individual accounts receivable balances at the end of the year.
E. Inventories
The Company values all of its inventories at the lower of cost or
market. Raw materials are determined on the last-in, first-out (LIFO)
method. Work-in-process and finished goods inventories are determined on
first-in, first-out (FIFO) method.
F52
<PAGE> 90
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Notes to the Combined Financial Statements (Continued)
Note 1 - Summary of Significant Accounting Policies (Continued)
F. Depreciation
Depreciation is computed by the straight-line method at rates intended
to distribute the cost of the assets over their estimated useful lives.
Property under capital lease is being amortized over the life of the lease
in accordance with generally accepted accounting principles. Rates used
by principal classification are as follows:
<TABLE>
<CAPTION>
Rate
(Years)
-------
<S> <C>
Warehouse and manufacturing equipment 3 - 10
Furniture and fixtures 5 - 10
Leasehold improvements 3 - 15
Transportation equipment 3 - 6
</TABLE>
Maintenance and repairs which are not considered to extend the useful
lives of assets are charged to operations as incurred. Upon sale or
retirement, the cost of assets and related allowances are removed from the
accounts and any resulting gains or losses are included in other income
(expense) for the year.
G. Investment in Affiliated Company
The Companies' investment in a joint venture partnership is carried on
the equity basis, which approximates the Companies' equity in the
underlying net book value. The Companies' share of losses exceed the
original cost of the investment. The investment has been reduced to
reflect the Companies' share of possible guaranteed obligations. (See Note
13E.)
H. Amortization
Software and system development and other programming costs have been
capitalized and are being amortized over their remaining useful lives.
Accumulated amortization at December 31, 1993 and 1992 is approximately
$75,000 and $25,000, respectively.
I. Income Taxes
The Companies are being treated as partnerships for Federal and state
income tax purposes. Under the Internal Revenue Code provisions for
partnerships, the partners reflect their proportionate share of the
Company's taxable income or loss on their respective income tax returns,
and the Companies are not liable for income taxes.
F53
<PAGE> 91
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Notes to the Combined Financial Statements (Continued)
Note 2 - Organization
Effective July 1, 1992, Kensington Manufacturing Company (KMC) entered
into an agreement with Bird Corporation (Bird) through one of its indirect
subsidiaries to form a joint venture partnership, Kensington Partners (KP), for
the purpose of manufacturing and selling custom windows, a business previously
conducted by KMC. KMC's capital contribution to KP consisted of all of its
assets subject to certain of its liabilities, including $2,800,000 owed to
Jones and Brown, Inc. (J&B), a related party. Bird's capital contribution
consisted of $2,800,000, in cash, which was used to pay off the amount owned by
KP to J&B, subsequent to the inception of the Partnership.
The Company has accounted for the contribution of capital using the
current value of the tangible assets and liabilities contributed by KMC and
Bird. The fair value of these assets and liabilities are summarized as
follows:
<TABLE>
<S> <C>
Cash - contributed by Bird $2,800,000
Assets and (Liabilities) contributed by KMC:
Cash 35,000
Accounts receivable 2,678,000
Inventories 1,893,000
Other current assets 51,000
Property and equipment 2,578,000
Other assets 286,000
Long-term debt ( 474,000
Accounts payable and accrued expenses ( 5,358,000)
----------
Net Assets Contributed $4,489,000
==========
</TABLE>
In accordance with the Partnership Agreement, KMC and Bird each owned
50% of the Partnership. KP had also entered into a management agreement with
J&B to manage the Partnership in exchange for a fee. As discussed in Note 3,
subsequent to December 31, 1993, the partners entered into an agreement to
restructure these arrangements.
KP and Bird have entered into a supply agreement which requires KP to
buy specified quantities of raw materials from Bird beginning in 1993 and
ending in the year 2002. Minimum purchases for the next five years are 1994,
$700,000; 1995, $900,000; 1996, $1,100,000; 1997, $1,300,000; and 1998 the
greater of $1,300,000 or actual amounts purchased in 1997. The agreement
includes penalties for shortfalls in purchases on a per year basis. Shortfalls
can be offset with credits from years when excess volume is purchased.
F54
<PAGE> 92
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Notes to the Combined Financial Statements (Continued)
Note 3 - Operations and Liquidity
The Companies' combined financial statements have been presented on the
basis that they are going concerns, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
The Companies incurred net losses of approximately $5,249,000 and negative cash
flows from operations of approximately $1,371,000 for 1993, and at December 31,
1993, the balance sheet reflects an excess of current liabilities over current
assets of approximately $2,972,000.
In addition, the Companies' line of credit (Note 8) was called and the
Companies are currently operating under a bank forbearance agreement which
expires April 30, 1994. Various debt and lease agreements are in default as a
result of late or no payments being made and certain payroll taxes are
delinquent.
Management believes the above mentioned losses and the associated balance
sheet deficiencies are a result of adding new products which required
different manufacturing processes and a significant increase in orders, which
put strain on the existing systems. The combination of the above resulted in
manufacturing inefficiencies, low asset performance, excessive delivery costs
and inadequate management information.
In December 1993, management embarked on a program to correct the problems
associated with operations, financing and managing the Companies by hiring a
consulting firm specializing in turnaround situations. The consulting firm
evaluated the Companies, analyzed the programs and developed a turnaround
program which has been adopted by the Companies. The major components of the
plan are as follows:
1. Employ a new management team including a president and chief
executive officer, vice president of production and a vice president
of operations (accomplished).
2. Implement a production plan to increase direct labor productivity and
reduce the labor force.
3. Restructure pricing on various products to improve contribution
margin.
4. Discontinue installation of windows currently performed by NAICO.
The operations of NAICO are to be transferred to the customer who
receives these services.
5. Reduce selling, general and administrative costs by reducing the work
force.
6. Correct production inefficiencies by restructuring plant layout,
improving production scheduling, modernizing equipment, reducing
scrap and improving information systems.
7. Pursue refinancing with an asset based lender with an aim to replace
the current line of credit and to increase credit availability by
$1,500,000.
F55
<PAGE> 93
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Notes to the Combined Financial Statements (Continued)
Note 3 - Operations and Liquidity (Continued)
8. Design and implement a payment plan for unsecured creditors. The
plan includes paying COD for current purchases and obtaining
deferred payment terms on existing balances.
9. Reduce in-house trucking operation and sub-contract delivery of
windows.
10. Improve information, production and financial reporting by
purchasing new computer software.
The plan includes a detailed operational plan for the immediate future,
a one year operational plan, and financial, operational and cash flow
projections.
In addition, subsequent to December 31, 1993, the partners entered into
an agreement to restructure the partnership agreement of KP and to make capital
contributions. Each partner's ownership percentage is to be adjusted plus or
minus 2% for each $50,000 of capital contributed or collateral provided on the
bank loan, but in no event should a partner be diluted below 10%. A diluted
partner is entitled to cure any shortfall between their capital account and the
other partner's capital account by contributing the capital necessary to
equalize each partner's capital account by the later of December 31, 1994 or
six months from the date of any capital contribution made on or before December
31, 1994.
Pursuant to the agreement, Bird contributed $750,000 in cash and
provided additional cash collateral of $750,000 to secure the line of credit
(Note 8). KMC has contributed $250,000 in cash. KMC is also required to
contribute $250,000 of inventory to KP within 45 days of the agreement. The
agreement also allows for additional inventory and cash contributions based on
KP's needs.
The agreement also terminated the management agreement (Note 2) with
J&B effective December 31, 1993, required J&B to enter into a five year
purchase agreement, deferred the payment of approximately $181,000 due Bird
(Note 13) until after December 31, 1994 and required KP to enter into a
purchase agreement with Domken (Note 13).
The Companies' continued existence is dependent on implementing the
items outlined in the turnaround plan along with the capital infusion that
occurred subsequent to December 31, 1993, by meeting the operational and
financial projections, and obtaining alternate financing.
The outcome of these uncertainties cannot be predicted at this time.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue
in existence.
F56
<PAGE> 94
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Notes to the Combined Financial Statements (Continued)
Note 4 - Accounts Receivable
At December 31, 1993, accounts receivable - trade from three customers
were approximately 73% of trade receivables. Sales to these unrelated
customers comprised 51% of total sales during December 31, 1993.
At December 31, 1992, receivables from one customer were approximately
20% of trade receivables. Sales to this unrelated customer comprised 30% of
total sales during December 31, 1992.
Note 5 - Inventories
Inventories at December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Raw materials, at LIFO which approximates FIFO $1,505,825 $1,406,763
Work-in process 1,030,514 503,416
Finished goods 420,058 172,655
---------- ----------
Total Inventories $2,956,397 $2,082,834
========== ==========
</TABLE>
The effect of using the LIFO method was to increase the net loss
approximately $30,000 for the year ended December 31, 1993. The effect of using
the LIFO method was not material for 1992.
NOTE 6 - Property and Equipment
Property and Equipment at December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Equipment under capital leases - Note 9 $1,790,203 $ 408,875
Warehouse and manufacturing equipment 857,144 1,477,724
Furniture and fixtures 290,258 203,326
Leasehold improvements 419,791 415,803
Transportation equipment 155,378 146,878
---------- ----------
3,512,774 2,652,606
Less: Accumulated depreciation 642,433 199,850
---------- ----------
Total Property and Equipment $2,870,341 $2,452,756
========== ==========
</TABLE>
F57
<PAGE> 95
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Notes to the Combined Financial Statements (Continued)
Note 7 - Other Assets
Other assets at December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Deferred software and programming costs -
net of accumulated amortization $ 12,886 $ 62,638
Cash value of life insurance 25,243 48,398
Notes receivable - 39,566
Sample windows 152,324 26,004
Deposits 816,638 16,242
Other assets 150,653 -
Marketing supplies inventory 119,489 127,704
---------- --------
$1,277,233 $320,552
========== ========
</TABLE>
Deposits at December 31, 1993 consist primarily of deposits on
equipment purchases.
The Company maintains split-dollar life insurance policies for certain
key employees of the Company. The Company's equity in the policies represents
its portion of the premium payments on the policies which it is to recover from
the proceeds of the policies. The cash value is net or policy loans and
accrued interest of $5,434 and $1,077 at December 31, 1993 and 1992,
respectively.
Note 8 - Demand Notes
The Companies have a line-of-credit, with maximum borrowings of
$2,500,000, with a bank that was due to expire June 30, 1994. Interest was
payable monthly at the bank's basic rate plus 1% (7% at December 31, 1993).
The borrowings on the line are collateralized by substantially all the assets
of the Companies. The line has been guaranteed by the partners of the
Companies.
The line contains various covenants which, among other things, require
the Company to maintain minimum financial ratios including minimum net worth,
debt to net worth and limit capital expenditures and amounts owing to certain
vendors.
Subsequent to December 31, 1993, the bank cited three defaults under
the line of credit agreement and made demand for payment. On February 9, 1994,
the Companies and the bank entered into a letter agreement that provided for
the bank to forebear collection and set a due date of April 30, 1994. In
addition, the interest rate was changed to the bank's basic rate plus 3%, the
Companies were required to pay a facility fee of $25,000, and Bird was required
to assign a $750,000 deposit account as additional collateral (Note 3).
F58
<PAGE> 96
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Notes to the Combined Financial Statements (Continued)
Note 8 - Demand Notes (Continued)
On April 30, 1994, the Company and the bank entered into an extended
forbearance agreement which was to expire on August 31, 1994. Under the
extended agreement, Bird was required to apply the $750,000 deposit used as
collateral (Note 3) to the line and was required to make weekly principal
payments of $50,000 through the end of June and $75,000 through the end of
August at which time the entire balance was to be liquidated. The payments by
Bird will be recorded as capital contributions to the partnership.
On June 15, 1994, the Company entered into a financing/factoring agreement
with another lending institution to sell, on an ongoing basis, up to 80% or
$2,500,000, whichever is less, of acceptable trade accounts receivable. All
accounts receivable that remain unpaid after 90 days of the purchase by the
lender are subject to recourse at the lender's discretion. The agreement, which
expires in six months, is subject to renewal. The loan was funded on August 26,
1994 with $1,000,000 at which time the original line of credit was paid in full.
Under the terms of the new agreement, fees ranging from 1% to 3 1/2% are
based on the number of days to collect the trade receivable, with a guaranteed
minimum monthly fee of $5,000. In addition, interest is charged on any amounts
advanced under the agreement, at the rate of prime plus 1 1/2%. Under the terms
of this agreement, Bird has guaranteed $1,250,000 of this debt.
Note 9 - Capital Lease Obligations and Long-term Debt
The following is a schedule by years of future minimum lease under capital
leases and installment notes together with the present value of the net minimum
lease payments and note payments as of December 31, 1993:
<TABLE>
<S> <C>
1994 $ 451,736
1995 356,334
1996 288,053
1997 277,906
1998 322,135
Thereafter 12,294
----------
Net Minimum Lease Payments 1,708,458
Less: Amount representing interest 257,590
----------
Present value of net minimum lease payments 1,450,868
Long-term debt principal payments - all due
within one year 61,112
----------
Net Obligations under Capital Leases and Notes Payable 1,511,980
Less: Current portion 415,500
----------
Long-term Obligations under Capital Leases and Notes Payable $1,096,480
==========
</TABLE>
F59
<PAGE> 97
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Notes to the Combined Financial Statements (Continued)
NOTE 9 - CAPITAL LEASE OBLIGATIONS AND LONG-TERM DEBT (CONTINUED)
Interest expense charged to operations on capital lease obligations,
notes payable and demand notes was approximately $155,000 and $31,000 for the
periods ended December 31, 1993 and 1992 respectively. The partners have
guaranteed a lease with a net present value of minimum lease payments of
approximately $1,200,000.
Assets under capital lease are capitalized using interest rates
appropriate at the inception of each lease. The following is an analysis of
the Companies' assets under capital lease obligations at December 31, 1993 and
1992:
<TABLE>
<CAPTION>
1993 1992
---------- --------
<S> <C> <C>
Warehouse and manufacturing equipment $1,605,062 $345,062
Transportation equipment 185,141 63,813
---------- --------
1,790,203 408,875
Less: Accumulated amortization 128,976 27,860
---------- --------
Total $1,661,227 $381,015
========== ========
</TABLE>
NOTE 10 - ACCRUED EXPENSES
Accrued expenses at December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Accrued payroll and payroll taxes $423,855 $ 77,641
Accrued vacation 143,717 113,416
Accrued promotion costs 4,270 11,450
Other accrued expenses 229,909 103,117
-------- --------
Total Accrued Expenses $801,751 $305,624
======== ========
</TABLE>
NOTE 11 - PENSION PLAN
The Company participates in a multi-employer defined benefit pension
plan for the electrician's union employees. Plan contributions are determined
by the union labor agreement.
The Company contributed approximately $163,000 to this plan during the
year ended December 31, 1993 and $60,000 during the period ended December 31,
1992.
F60
<PAGE> 98
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Notes to the Combined Financial Statements (Continued)
NOTE 12 - COMMITMENTS
A. Operating Leases
The Company leases various operating facilities from related
and unrelated parties and transportation equipment from unrelated
parties under various operating leases. Rent expense for the period
ended December 31, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Facilities lease - primarily related party $263,000 $128,000
Transportation equipment 67,000 48,000
-------- --------
$330,000 $176,000
======== ========
</TABLE>
The following are the approximate future minimum operating
lease payments at December 31, 1993, substantially all of which are
due to a related party:
<TABLE>
<CAPTION>
Year Ending
December 31 Amount
----------- --------
<S> <C>
1994 $ 245,000
1995 215,000
1996 215,000
1997 215,000
1998 215,000
Thereafter 1,495,000
----------
Total minimum lease payments $2,600,000
==========
</TABLE>
The Companies are currently in default on their lease for
their primary operating facilities as a result of not making the
required rent payments as they became due. Rent of approximately
$66,000, due a related party, is included in accounts payable in the
accompanying balance sheets at December 31, 1993 (Note 13).
B. PRODUCT WARRANTIES
The Companies provide limited warranties for parts and/or
labor based on the type of window sold. Prior to 1993, the Companies
did not provide labor as part of their warranties. The Companies have
not provided a liability for warranties as the Companies do not have
an adequate history for estimation. However, management believes that
any liability would not be material. The Companies' current policy is
to expense costs of warranty coverage in the period that the service
is provided.
F61
<PAGE> 99
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Notes to the Combined Financial Statements (Continued)
Note 13 - Related Party Transactions
The Companies have entered into various transactions with related parties
during the year ended December 31, 1993 and the six months ended December 31,
1992. The transactions are as follows:
A. Purchases and Payables
The Companies have purchases for raw materials, advertising services,
and commissions from the following related parties as of and for the
periods ended December 31, 1993 and 1992:
<TABLE>
<CAPTION>
Purchases
---------
1993 1992
---- ----
<S> <C> <C>
Vinyl Division of Bird, Inc. $2,052,514 $ 85,298
Design Matrix, Inc. (DMI) - Advertising $ 146,562 $ 52,116
Domken Plastics Limited (DPL) $2,964,398 $1,759,686
Quantum II Partners (see below) $ 440,074 $ -
</TABLE>
Accounts payable to related parties at December 31, 1993 and 1992 are
as follows:
<TABLE>
<CAPTION>
Accounts Payable
----------------
1993 1992
---- ----
<S> <C> <C>
Vinyl Division of Bird, Inc. $1,218,732 $ 30,162
Design Matrix, Inc. (DMI) - Advertising 17,483 2,443
Domken Plastics Limited (DPL) 1,209,519 580,161
Other related parties 72,703 -
Quantum II (Notes 13E and 14) 163,142 -
---------- --------
$2,681,579 $612,766
========== ========
</TABLE>
DMI and DPL are related through common ownership with KMC.
A stockholder of KMC was compensated approximately $143,000 and
$105,00 during the year ended December 31, 1993 and the six months ended
December 31, 1992, respectively, for services rendered in assisting with
the acquisition of raw materials at discounted amounts. At December 31,
1993, approximately $48,000 was due to the related party and is included in
other accrued liabilities. In addition, J&B was also compensated $86,000
during 1993 for similar services.
F62
<PAGE> 100
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Notes to the Combined Financial Statements (Continued)
Note 13 - Related Party Transactions (Contined)
B. Sales and Receivables
The Companies had sales to Jones & Brown, Inc. (J&B), a related party
through common ownership with KMC, of approximately $7,255,000 and
$3,327,000 for 1993 and 1992, respectively. Accounts receivable from
related parties are as follows as of December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
J&B $ 987,000 $1,203,000
Quantum II Partners (Note 13E) 225,000 -
Other 19,000 14,000
---------- ----------
Total $1,231,000 $1,217,000
========== ==========
</TABLE>
At December 31, 1993 and through June 1994, J&B's line of credit was
subject to a forbearance agreement with its bank. In June 1994, J&B
negotiated a new financing agreement with a different bank.
C. Rents
The Company rents facilities from related parties (Note 12).
D. Management Fees
Management fees of approximately $488,000 and $224,000 were paid to J&B
under a management contract for the year ended December 31, 1993 and the
six months ended December 31, 1992, respectively.
In addition, a management fee of approximately $181,000 is due to Bird
at December 31, 1993. The amount is included in the accompanying combined
balance sheets in other long-term liabilities (Note 3).
F63
<PAGE> 101
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
Notes to the Combined Financial Statements (Continued)
Note 13 - Related Party Transactions (Continued)
E. Other
Kensington Partners owns a 50% equity investment in Quantum II Partners
(Note 14). Quantum II was formed during 1993 to be the exclusive marketing
representative to sell Quantum II replacement windows manufactured by KP.
Quantum II Partners reported losses and a net partnership deficit of
approximately $138,000 for 1993. KP has reflected its share of Quantum's
excess of liabilities over assets in other long-term liabilities.
During the year ended December 31, 1993, KP advanced Quantum II
$377,000. At December 31, 1993, the remaining advance of approximately
$325,000 is due to KP, of which, $100,000 is included in other assets as a
note receivable. The remaining balance is included in accounts receivable
(Note 13B).
Included in other long-term liabilities is $125,000 due to a
stockholder of KMC. Subsequent to December 31, 1993, the amount was
transferred by the stockholder to KMC and then contributed by KMC to KP's
capital (Note 3).
Note 14 - Subsequent Events
On September 13, 1994, a complaint was filed in Massachusetts Superior
Court by the other 50% owner of Quantum II Partners (Note 13E) and others,
including Quantum II Partners (collectively, the plaintiffs), against
Kensington Partners, Bird Vinyl Products, Inc. and Quantum II Partners
(collectively, the defendants). The plaintiffs allege various breaches of
contract on the part of the several defendants including breach of a
partnership agreement, a supply agreement and an employment agreement along
with other complaints under the Massachusetts Unfair Trade Practices Act. The
plaintiffs are seeking relief of actual damages in an unspecified amount and a
doubling or trebling of such damages as provided in the Unfair Trade Practices
Act.
On September 14, 1994, the defendants filed a complaint in Federal
Court alleging various breaches of contract by the plaintiffs and seeking
collection of outstanding balances due to the Company from the plaintiffs of
approximately $570,000, all of which arose in 1994.
The Company believes that the claims filed by the plaintiffs have no
merit, the Company denies any liablility and will vigorously defend against the
litigation. With respect to the litigation filed by the Company for the
collection of the 1994 balances receivable, management estimates some loss may
occur but is unable to determine a range of amounts based on the current status
of the litigation. While the ultimate results of the various other actions
cannot be determined, management does not expect these matters will have a
material adverse effect on the financial position of the Company.
F64
<PAGE> 102
SUPPLEMENTAL INFORMATION
F65
<PAGE> 103
[ALPERN, ROSENTHAL & COMPANY LETTERHEAD]
Independent Auditors' Report on Financial Statement Schedule
To the Partners
Kensington Partners and Affiliate
We have audited the combined financial statements of Kensington
Partners and Affiliate as of December 31, 1993 and 1992, and for the year ended
December 31, 1993 and the period from July 1, 1992 (Inception) to December 31,
1992, and have issued our report thereon dated February 19, 1994. Our audits
also included the accompanying financial statement schedule VIII for the year
ended December 31, 1993 and the period July 1, 1992 (Inception) to December 31,
1992 of the Kensington Partners and Affiliate. This financial statement
schedule is the responsibility of the Partnerships' management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Alpern, Rosenthal & Company
- -------------------------------
Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania
February 19, 1994
A Professional Corporation
F66
<PAGE> 104
KENSINGTON PARTNERS AND AFFILIATE
SCHEDULE VII
VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 1993 and the
Period July 1, 1992 (Inception) to December 31, 1992
<TABLE>
<CAPTION>
Additions
-------------------------------
Balance Charged to Charged to Balance
beginning cost and other Deduc- at end
of year expenses accounts tions(1) of year
------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Allowance for doubtful accounts $ 66,000 $202,000 $ - $ 73,000 $195,000
-------- -------- -------- -------- --------
Period July 1, 1992 (Inception)
to December 31, 1992:
Allowance for doubtful accounts $ 59,000 $ 46,000 $ - $ 39,000 $ 66,000
-------- -------- -------- -------- --------
</TABLE>
(1) Uncollectible accounts written off.
F67
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1993 FINANCIAL STATEMENTS LOCATED IN THE FORM 10K/A-2 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10K/A-2
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-START> JAN-01-1993
<PERIOD-END> DEC-31-1993
<EXCHANGE-RATE> 1
<CASH> 7,518,000
<SECURITIES> 0
<RECEIVABLES> 36,969,000
<ALLOWANCES> 4,273,000
<INVENTORY> 22,157,000
<CURRENT-ASSETS> 66,587,000
<PP&E> 74,984,000
<DEPRECIATION> 30,410,000
<TOTAL-ASSETS> 123,229,000
<CURRENT-LIABILITIES> 36,497,000
<BONDS> 43,127,000
<COMMON> 4,291,000
0
1,396,000
<OTHER-SE> 38,007,000
<TOTAL-LIABILITY-AND-EQUITY> 123,229,000
<SALES> 187,745,000
<TOTAL-REVENUES> 187,745,000
<CGS> 151,664,000
<TOTAL-COSTS> 151,664,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,472,000
<INCOME-PRETAX> (5,278,000)
<INCOME-TAX> (637,000)
<INCOME-CONTINUING> (4,641,000)
<DISCONTINUED> (26,414,000)
<EXTRAORDINARY> 0
<CHANGES> 2,733,000
<NET-INCOME> (28,322,000)
<EPS-PRIMARY> (7.29)
<EPS-DILUTED> (5.87)
</TABLE>
