FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1995 Commission File Number 2-36877
IREX CORPORATION
Pennsylvania 23-1712949
120 North Lime Street, Lancaster 17603
Registrant's Telephone Number, Including Area Code, (717) 397-3633
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
Common Shares Outstanding (Single Class) 395,515
<PAGE>
IREX CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The condensed financial statements included herein have been
prepared by Irex Corporation (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclo-
sures normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regula-
tions.
The financial information presented herein reflects all adjust-
ments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presen-
tation of the results for the interim periods presented.
Certain prior period amounts have been reclassified to conform
with the current presentation. The results for interim periods
are not necessarily indicative of the results to be expected for
the full year.
- 1 -
<PAGE>
IREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Third Quarter Ended September 30
1995 1994 1995 1994
(Dollars in Thousands Except Per Common Share Amounts)
<S> <C> <C> <C> <C>
Contracting Revenues $ 31,546 $ 37,319 $ 98,661 $106,586
Distribution and Other Revenues 28,552 25,826 80,723 67,470
Total Revenues 60,098 63,145 179,384 174,056
Cost of Revenues 47,513 49,351 140,807 136,257
Gross Profit 12,585 13,794 38,577 37,799
Selling, General and
Administrative Expenses 12,301 11,852 37,375 34,644
Operating Income 284 1,942 1,202 3,155
Interest Expense, Net 436 664 1,355 1,826
Income (Loss)
Before Income Taxes (152) 1,278 (153) 1,329
Income Tax Provision (Benefit) (64) 556 (79) 578
Income (Loss) Before Cumulative Effect
of Accounting Change (88) 722 (74) 751
Cumulative Effect of Accounting Change,
Net of Income Taxes - - 1,377 -
Net Income (Loss) $ (88) $ 722 $ 1,303 $ 751
Less:Dividend Requirements
for Preferred Stock (245) (245) (735) (735)
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCK $ (333) $ 477 $ 568 $ 16
Avg. Common Shares Outstanding 396,400 400,506 397,645 401,718
Per Common Share Amounts
Income (Loss) Before Cumulative
Effect of Acctg. Change $ (0.84) $ 1.19 $ (2.03) $ 0.04
Cumulative Effect of Acctg. Chg. - - 3.46 -
Net Income (Loss) $ (0.84) $ 1.19 $ 1.43 $ 0.04
</TABLE>
- 2 -
<PAGE>
IREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
(In Thousands)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 628 $ 1,564
Receivables, Net 50,419 51,758
Inventories 12,503 10,887
Deferred Income Taxes 7,925 8,896
Prepaid Expenses 589 1,027
Excess of Cost and Estimated Contract
Revenue over Actual Billings 5,503 4,563
Total Current Assets 77,567 78,695
Property and Equipment, Net 3,224 3,481
Other Assets 161 384
TOTAL ASSETS $ 80,952 $ 82,560
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Notes Payable $ 7,029 $ 6,007
Current Portion of Long-Term Debt 1,454 1,580
Accounts Payable 8,994 8,268
Excess of Actual Billings Over Cost and
Estimated Contract Revenue 2,974 2,381
Accrued Liabilities 25,043 28,807
Total Current Liabilities 45,494 47,043
Long-Term Debt (Less Current Portion) 15,100 15,800
Redeemable Preferred Stock 10,496 10,496
Capital Stock 1,028 1,028
Paid-in Surplus 466 472
Retained Earnings 26,987 26,419
Cumulative Translation Adjustments (139) (190)
Treasury Stock at Cost (18,425) (18,347)
ESOP Shares Financed with Debt (55) (161)
Total Shareholders' Investment 9,862 9,221
TOTAL LIABILITIES AND
SHAREHOLDERS' INVESTMENT $ 80,952 $ 82,560
</TABLE>
- 3 -
<PAGE>
IREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended September 30
1995 1994
<S> <C> <C>
(In Thousands)
Cash Flows from Operating Activities
Net Income $ 1,303 $ 751
Non-cash items included in net income
Depreciation and Amortization 905 1,274
Deferred Income Taxes 971 5
Stock Contr. to Employee Benefit Plans (84) (86)
Provision for Bad Debts 291 243
(Increase) decrease in current assets
Receivables 1,048 (2,148)
Inventories (1,616) (1,790)
Prepaid expenses 438 (19)
Excess of Cost and Estimated Contract
Earnings Over Actual Billings (Net) (347) 141
(Decrease) increase in current liabilities
Accounts Payable 726 (373)
Other accrued liabilities (3,764) 1,684
Net cash used in operating activities (129) (318)
Cash Flows from Investing Activities
Net additions to property and equipment (648) (1,016)
Decrease in other assets 223 379
Exchange rate changes 51 (381)
Net cash used in investing activities (374) (1,018)
Cash Flows from Financing Activities
Increase in notes payable 1,022 3,734
Payment on debt (720) (728)
Dividend payments (735) (735)
Net cash (used in) provided by
financing activities (433) 2,271
Net (decr) incr in Cash and Cash Equivalents (936) 935
Cash and Cash Equivalents at Begin. of Period 1,564 1,068
Cash and Cash Equivalents at End of Period $ 628 $ 2,003
</TABLE>
- 4 -
<PAGE>
IREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The consolidated financial statements include the accounts of Irex
Corporation ( "the Company" ) and its subsidiaries, all of which are
wholly owned. All significant intercompany accounts and transactions
have been eliminated in consolidation.
The Company is primarily engaged in the business of thermal insulation
contracting throughout the United States and Canada. Allied activities
include the direct sale of insulation and acoustical materials, the
fabrication of insulation materials, and interior contracting.
(2) During 1992, the Company offered to exchange one share of preferred stock
with a par value of $1.00 per share for each share of the Company's
outstanding common stock up to a maximum of 350,000 common shares.
A total of 349,864 common shares were exchanged in December 1992 for the
redeemable preferred stock. The common shares exchanged were placed in
Treasury stock. Dividends on the preferred stock accrue at an annual
rate of $2.80 per share. Such dividends are cumulative and payable
quarterly in arrears.
The Company has authorization for 2,000,000 shares of its common stock
with a par value of $1.00 per share. At September 30, 1995, 1,028,633
shares were issued, 395,515 shares were outstanding and 633,118 shares
were held, at cost, in Treasury stock.
(3) All highly liquid investments with a maturity of three months or less at
the time of purchase are considered to be cash equivalents. Certain
funding of the Company's defined contribution savings incentive and
employee stock ownership plans are treated as non-cash financing
activities in the consolidated statements of cash flows. The Company's
income tax and interest payments for the first nine months of 1995 and
1994 were:
1995 1994
Income Taxes: $ 1,205,000 $ 349,000
Interest: $ 984,000 $ 1,249,000
(4) The Company is self-insured against a portion of its workers'
compensation and other insurance risks. The process of determining
reserve requirements for losses within its self-insured retention limits
utilizes historical trends, involves an evaluation of claim frequency,
severity and other factors and also includes the effect of future
inflation.
- 5 -
<PAGE>
Effective January 1, 1995, the Company changed its method of measuring the
astimated liability for workers' compensation claims. The new method employs
actuarial assumptions to discount to present value the estimated future
payments for these claims, using a risk-free interest rate. The Company
believes this method is preferable because it more accurately reflects the
current impact on it's financial condition of the future cash outflows. The
cumulative effect of this accounting change was $1,377,000 ($2,276,000 less
the related tax effect of $899,000) and was included in net income for the
nine months ended September 30, 1995. The impact of this change, exclusive
of the cumulative effect , on operating results in the first nine months of
1995 was not significant nor is it expected to have a significant impact on
future results of operations.
At January 1, 1995, the estimated undiscounted liability for workers'
compensation claims was $13,310,000. The present value of such claims was
$11,034,000, using a weighted average discount rate of 7.4%.
The expected future payments as of January 1, 1995, on an undiscounted basis,
were as follows:
1995 $3,597,000
1996 2,242,000
1997 1,676,000
1998 1,323,000
1999 994,000
2000 and Thereafter 3,478,000
$13,310,000
- 6 -
<PAGE>
IREX CORPORATION AND SUBSIDIARIES
September 30, 1995 and 1994
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Operating income for the third quarter of 1995 was $284,000. The similar
period for 1994 resulted in income of $1,942,000. For the nine months ended
September 30, 1995, operating income was $1,202,000 as compared to $3,155,000
for nine months ended September 30, 1994. Although profitable, the reduction
in operating income is mainly a result of continuing competitive pressures and
limited execution problems experienced by the Company's contracting operations.
After the preferred stock dividend requirement, net losses applicable to
common shareholders was ($333,000) or ($0.84) per share for the third quarter of
1995. The comparable period of 1994 indicated net income of $477,000 or $1.19
per share. For the nine-month period ending September 30, 1995, a loss after
the preferred stock dividend requirement of ($809,000) was incurred versus a
profit of $16,000 for the first nine months of 1994. The recognition of an
accounting change in the first quarter of 1995 of $1,377,000, net of income
taxes, produces net income for September year-to-date results of $568,000.
There were no accounting change effects for 1994 results. For the nine-month
period, earnings per common share were $1.43 for 1995 compared to $0.04
for 1994.
The following table presents, for the periods indicated, certain items in the
Company's consolidated statements of income as a percentage of total revenue:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Contracting Revenues 52.5% 59.1% 55.0% 61.2%
Distribution & Other Revenues 47.5% 40.9% 45.0% 38.8%
100.0% 100.0% 100.0% 100.0%
Gross Profit Margin 20.9% 21.8% 21.5% 21.7%
Income from Operations 0.5% 3.1% 0.7% 1.8%
Net Income (Loss) Before (0.1%) 1.1% (0.1%) 0.4%
Accounting Change
</TABLE>
- 7 -
<PAGE>
Revenues
Contracting revenues are down significantly (15.5%) from the third quarter of
last year . Year-to-date contracting revenues were $98,661,000, which are down
7.4% from prior-year revenues of the same period that amounted to $106,586,000.
Distribution revenues continue on a record pace at levels significantly
exceeding prior yesr periods for both the quarter and nine months ended
September 30. For the quarter ended September 30, 1995, distribution revenues
were $28,552,000 which is a 10.6% increase over revenues of $25,826,000 reported
for the same period of 1994. For the nine-month period ended September 30, 1995
distribution revenues were 19.6% over prior year levels. Distribution revenues
amounted to $80,723,000 for 1995 versus $67,470,000 for 1994 .
Gross Profit
For the third quarter ended September 30, 1995, gross profit was $12,585,000,
down 7.8% from the 13,794,000 reported for prior year third quarter. Gross
profit margins were 20.9% and 21.8% for the respective periods. In addition
to competitive conditions, the previously mentioned execution problems in the
contracting businesses had a negative impact on these results. For nine months
ended September 30 , gross profit margins are similar totaling 21.5% for 1995
and 21.7% for 1994. Through the aforementioned growth of the distribution
activities, gross profit dollars have increased 2.1% to $38,577,000 for the nine
months of 1995 versus $37,799,000 for the same period of 1994.
Selling, General and Administrative Expenses
Operating expenses amounted to $12,301,000 for the quarter ended
September 30, 1995, an increase of 3.8% for the period. Prior year expenses for
the similar period totaled $11,852,000. For the nine-month period , expenses
$37,375,000 for 1995 and $34,644,000 for 1994. This increase is reflective of
the additional distribution locations that have been added since the first
quarter of 1995. Distribution has added six additional branches which
resulted in an increase of 16 full-time salaried positions. Year-to-date
expenses as a percentage of sales has risen slightly to 20.8% in 1995 from 19.9%
in 1994.
Financial Condition and Liquidity
Significant improvements over prior year-end results continue. Accounts
receivable have declined over $1.0 million. The Company at September 30, 1995,
had working capital of $32.1 million and shareholders' equity (excluding
preferred stock) of $9.9 million. Working capital at December 31, 1994,
was $31.7 million and shareholders' equity was $9.2 million.
Total short-term lines of credit of $22.8 million at September 30, 1995,
remain adequate to provide sufficient liquidity for operations. Outstanding
balances under these unsecured lines of credit at September 30, 1995, were
$7.0 million, an increase of $1.0 million from December 31, 1994. Long-term
debt , excluding the current portion, is $15.1 million at September 30, 1995.
- 8 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company's principal subsidiary, ACandS, Inc., is one of a number of
defendants in pending lawsuits filed by approximately 86,000 individual
claimants seeking damages for injuries allegedly caused by exposure to asbestos
fibers in insulation products used at one time by ACandS in its business.
ACandS has defenses to these actions, including defenses based on the fact it is
primarily a contracting company in the business of installing products
manufactured by others. During the first three quarters of 1995, ACandS was
served with cases involving approximately 29,419 individual plaintiffs. There
wer 18,122 new plaintiffs in 1994; 20,542 new plaintiffs in 1993; 13,875 new
plaintiffs in 1992; 10,090 new plaintiffs in 1991; and 13,214 new plaintiffs
in 1990. Of the 1993 filings, over 4,000 were dismissed against ACandS
shortly after filing. Based on the information currently available to it,
ACandS beleives that the increased number of filings in 1995 is largely
attributable to temporary factors, including efforts by plaintiffs to file
claims before the effective date of tort reform statutes in Texas and other
jurisdictions.
It is the pattern in this litigation for suits to be filed as the result of mass
screenings of individuals employed at a particular facility, through a
particular union local, or by a particular employer. It is ACandS's experience
that such suits are often filed with little investigation as to whether the
claiment ever had any causative exposure to asbestos-containing products
associated with the various named defendants. As a result , historically,
about half of the cases filed against ACandS have been closed without payment.
Cases pending against ACandS are now being handled by the Aetna Casualty and
Surety Co. with the participation of other insurers that wrote coverage for
ACandS. Virtually all of ACandS's liability and defense costs for thes cases
are being paid by Aetna and other insurance carriers.
Since the beginning of 1981, approximately 84,000 individual claims against
ACandS have been settled, dismissed or otherwise resolved. Although payments in
individual cases have varied considerably, ACandS's percentage of the
aggregate liability payments for those cases has been small. As a result,
ACandS's average resolution cost for closed cases is very low. The resolution
cost per closed case in recent years has been consistent with long-term
averages. Historically, payments on behalf of ACandS to resolve consolidated
proceedings in jurisdictions which have been difficult for all defendants have
exceeded average costs. ACandS anticipates that it will continue to face such
proceedings in the future.
Beginning in the early 1980's, a number of companies who had been significant
defendants in asbestos cases have filed for bankruptcy. These companies are
principally among the manufacturing defendants that traditionally have been the
principal targets in the litigation. The large number of bankruptcy proceedings
involving former manufacturers of asbestos-containing products has significantly
reduced the number of viable defendants in many cases. The bankruptcy of
manufacturers whose products ACandS handled does pose increased risks to ACandS
in certain cases. However, the bankruptcies to date have not significantly
increased the cost of resolving cases, and ACandS does not expect that they
will do so.
- 9 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (Continued)
On July 29, 1991, the Judicial Panel on Multidistrict Litigation ordered that
all asbestos related bodily-injury cases pending in the Federal trial courts
and not then in trial should be transferred to Judge Charles R. Weiner in the
United States District Court for the Eastern District of Pennsylvania for
coordinated or consolidated pretrial proceedings. These proceedings involved
less than one-fourth of the cases then pending against ACandS. Judge Weiner
has expressed a desire to achieve a global, or comprehensive, resolution
of the asbestos-related bodily injury cases in these proceedings. To date,
however , the proceedings have achieved only the settlement of some
individual actions and a portion of cases brought by selected plaintiffs'
counsel. It is unclear how the Judicial Panel's order and the proceedings
before Judge Weiner will ultimately affect the litigation of asbestos-related
claims.
On January 15, 1993, certain plaintiffs' counsel and the members of the Center
for Claims Resolution (an organization of 20 asbestos litigation defendants)
filed a class action complaint, answer and settlement agreement involving all
previously unasserted claims by individuals who have been occupationally exposed
to asbestos fibers. The action was filed in the United States District Court
for the eastern district of Pennsylvania and was assigned to Judge Weiner as
related to the Multidistrict Litigation proceedings. Judge Weiner , in turn,
assigned certain aspects of the proceedings to Judge Lowell A. Reed. In an
order dated August 16, 1994, Judge Reed approved the settlement. Judge Reed's
approval remains subject to appeal. Due to the complexity of the action and the
issues involved, it currently is uncertain what, if any, effect it will have
on asbestos-related bodily injury litigation.
Although the large number of pending cases, the continued efforts of certain
courts to clear dockets through consolidated or class proceedings, the
bankruptcy filings by defendants, efforts toward national solutions, the
transfer of federal cases to the United States District Court for the Eastern
District of Pennsylvania, and the Center for Claims Resolution class action
render prediction uncertain, ACandS expects that its percentage of liability
payments will continue to be relatively small.
ACandS has secured the commitment through final settlement agreements of a large
percentage of the very substantial insurance coverage applicable to its
asbestos-related bodily injury claims. ACandS believes it will secure
significant additional coverage, if needed, from those insurers which have not
to date settled with ACandS .
Given the number of currently pending cases and the rate of new filings, it is
anticipated that the aggregate amount to be paid by all defendants for
asbestos-related bodily injury claims will be very large. Nevertheless, as
noted, ACandS's percentage of aggregate liability payments is expected to remain
small. Management, therefore, believes that ACandS's insurance coverage is
adequate to ensure that these actions will not have a material adverse effect
on the long-term business or financial position of the Company.
- 10 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (Continued)
ACandS is also one of a number of defendants in eight actions by the owners of
schools and other buildings seeking to recover costs associated with the
replacement or treatment of installed asbestos-containing products. These cases
involve school buildings, public buildings, and office buildings. One of the
cases is an alleged class action.
ACandS has substantial defenses to the actions, including defenses based upon
the character of its operations and the fact that ACandS did not manufacture
the asbestos-containing products involved. Moreover, ACandS potentially has
ACandS potentially has indemnification and/or contribution claims against the
product manufacturers. To date, ACandS has been dismissed from 101 cases,
largely on the basis it had no connection with the products at issue in the
claimants' buildings, and has agreed to settle 14 claims. The aggregate amount
paid has been very small in the context of this litigation. ACandS was not
served with any new building-related case in the first three quarters of 1995.
Since 1990, only three new building related cases have been served on
ACandS.
ACandS's primary insurance carriers, the Aetna Casualty and Surety Co. and the
Travelers Insurance Companies, are currently providing ACandS with a defense
in these building cases, as well as paying settlements when necessary .
Travelers is providing coverage pursuant to a settlement agreement, but Aetna
has asserted reservations of rights to later contest both the availability and
the amount of coverage. Aetna, nevertheless, continues to make its required
payments.
Decisions in litigation involving insurance coverage available for other
defendants in asbestos building cases have thus far varied widely. The
appellate rulings which have fully considered coverage issues for asbestos
building claims to date provide significant coverage for policyholders. The
decisions are consistant with ACandS's view that the trend in the courts is
to provide broad coverage for asbestos building cases.
Although the availability of coverage for existing and future suits is not
resolved, and the aggregate potential loss from these suits may be significant,
management believes that ACandS's defenses, potential indemnification and/or
contribution rights and insurance coverage are adequate to ensure that these
actions will not have a material adverse effect on the long-term business or
financial position of the Company.
From time to time, the Company and its subsidiaries are also parties as both
plaintiff and defendant to various claims and litigation arising in the
normal course of business, including claims concerning work performed under
various contracts. In the opinion of management, the outcome of such claims and
litigation will not materially affect the Company's long-term business,
financial position or results of operations.
- 11 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IREX CORPORATION
Date November 14, 1995 J. P. Farrell
J. P. Farrell
Controller
Duly Authorized Signer
- 12 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 628,000
<SECURITIES> 0
<RECEIVABLES> 50,128,000
<ALLOWANCES> 291,000
<INVENTORY> 12,503,000
<CURRENT-ASSETS> 77,567,000
<PP&E> 4,129,000
<DEPRECIATION> 905,000
<TOTAL-ASSETS> 80,952,000
<CURRENT-LIABILITIES> 45,494,000
<BONDS> 15,100,000
<COMMON> 1,028,000
10,496,000
0
<OTHER-SE> 8,834,000
<TOTAL-LIABILITY-AND-EQUITY> 80,952,000
<SALES> 179,384,000
<TOTAL-REVENUES> 179,384,000
<CGS> 140,807,000
<TOTAL-COSTS> 140,807,000
<OTHER-EXPENSES> 37,375,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,355,000
<INCOME-PRETAX> (153,000)
<INCOME-TAX> (79,000)
<INCOME-CONTINUING> (809,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,377,000
<NET-INCOME> 568,000
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.43
</TABLE>
