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 June 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) 396,812
<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 disclosures normally included in financial statements prepared
accordance with generally accepted accounting principles have been
or omitted pursuant to such rules and regulations.
The financial information presented herein reflects all adjustments
consisting only of normal recurring adjustments) which are, in the opinion
of management , necessary for a fair presentation 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.
<PAGE>
<TABLE>
IREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Six Months
Second Quarter Ended June 30
1995 1994 1995 1994
(Dollars in Thousands Except Per Common Share Amounts)
<S> <C> <C> <C> <C>
Contracting Revenues $ 36,052 $ 36,133 $ 67,115 $ 69,267
Dist. and Other Revenues 26,811 21,523 52,171 41,644
Total Revenues 62,863 57,656 119,286 110,911
Cost of Revenues 49,305 44,354 93,294 86,906
Gross Profit 13,558 13,302 25,922 24,005
Selling, General and
Administrative Expenses 12,444 11,111 25,074 22,792
Operating Income 1,114 2,191 918 1,213
Interest Expense, Net 480 664 919 1,162
Income (Loss)
Before Income Taxes 634 1,527 (1) 51
Income Tax Provision(Benefit) 271 640 (15) 22
Income Before Cumulative Effect
of Accounting Change 363 887 14 29
Cumulative Effect of Accounting Change,
Net of Income Taxes - - 1,377 -
Net Income $ 363 $ 887 $ 1,391 $ 29
Less:Dividend Requirements
for Preferred Stock (245) (245) (490) (490)
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCK $ 118 $ 642 $ 901 $ (461)
Average Common Shares O/S 398,055 402,113 398,238 402,379
Per Common Share Amounts
Income (Loss) Before Cumulative
Effect of Accounting Change$ 0.30 $ 1.60 $ (1.19) $ (1.15)
Cum. Effect of Acct Change - - 3.45 -
Net Income (Loss) $ 0.30 $ 1.60 $ 2.26 $ (1.15)
</TABLE>
<PAGE>
<TABLE>
IREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
June 30 December 31
1995 1994
(In Thousands)
ASSETS
<S> <C> <C>
Cash and Cash Equivalents $ 1,014 $ 1,564
Receivables, Net 48,250 51,758
Inventories 12,168 10,887
Deferred Income Taxes 7,997 8,896
Prepaid Expenses 620 1,027
Excess of Cost and Estimated Contract
Earnings over Actual Billings 5,346 4,563
Total Current Assets 75,395 78,695
Property and Equipment, Net 3,235 3,481
Other Assets 215 384
TOTAL ASSETS $ 78,845 $ 82,560
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Notes Payable $ 6,578 $ 6,007
Current Portion of Long-Term Debt 1,490 1,580
Accounts Payable 7,702 8,268
Excess of Actual Billings over Cost
and Estimated Contract Earnings 2,563 2,381
Accrued Liabilities 24,747 28,807
Total Current Liabilities 43,080 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 27,320 26,419
Cumulative Translation Adjustments (165) (190)
Treasury Stock at Cost (18,390) (18,347)
ESOP Shares Financed with Debt (90) (161)
Total Shareholders' Investment 10,169 9,221
TOTAL LIABILITIES AND
SHAREHOLDERS' INVESTMENT $ 78,845 $ 82,560
</TABLE>
<PAGE>
<TABLE>
IREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
<CAPTION>
Six Months Ended June 30
1995 1994
(In Thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 1,391 $ 29
Non-cash items included in net income
Cumulative Effect of Accounting Change (1,377) -
Depreciation and Amortization 645 859
Deferred Income Taxes - 5
Stock Con. to Employee Benefit Plans (49) (32)
Provision for Bad Debts 197 147
Decrease (increase) in current assets
Receivables 3,311 2,275
Inventories (1,281) (990)
Prepaid expenses 407 (279)
Excess of Cost and Estimated Contract Earnings
over Actual Billings (Net) (601) (1,490)
Decrease in current liabilities
Accounts Payable (566) (1,314)
Other accrued liabilities (1,784) (481)
Net cash provided by (used in)
operating activities 293 (1,271)
Cash Flows from Investing Activities
Net additions to property and equipment (399) (670)
Decrease in other assets 169 237
Exchange rate changes 25 (50)
Net cash used in investing activities (205) (483)
Cash Flows from Financing Activities
Increase in notes payable 571 3,598
Payment on debt (719) (718)
Dividend payments (490) (490)
Net cash (used in) provided by
financing activities (638) 2,390
Net (decrease) increase in Cash and Cash Equ (550) 636
Cash and Cash Equ at Beginning of Period 1,564 1,068
Cash and Cash Equivalents at End of Period $ 1,014 $ 1,704
</TABLE>
<PAGE>
IREX CORPORATION AND SUBSIDIARIES
June 30, 1995 and 1994
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) The Company has authorization for 2,000,000 shares of its common stock
with a par value of $1.00 per share. At June 30, 1995, 1,028,633 shares
were issued, 396,812 shares were outstanding and 631,821 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 six months of 1995
1994 were:
1995 1994
Income Taxes: $ 883,000 $ 310,000
Interest: $1,834,409 $1,063,000
(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.
Effective January 1, 1995, the Company changed its method of measuring the
estimated 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 its 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 six months ended June 30, 1995. The impact of this change,
exclusive of the cumulative effect, on operating results in the first six
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% .
<PAGE>
Notes to Consolidated Financial Statements (Unaudited) (continued)
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
<PAGE>
IREX CORPORATION AND SUBSIDIARIES
June 30, 1995 and 1994
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results from Operations
While the Company's results of operations showed a favorable improvement from
the results reported for the first quarter of this year, an extremely
competitive market for new business continues to have an adverse effect. The
Company's income from operations was $1,114,000 for the second quarter of 1995,
which is 49.2% below operating income of $2,191,000 reported for the second
quarter of 1994. For six months ended June 30, 1995, operating income amounted
to $918,000 versus $1,213,000 for six months ended June 30, 1994.
After the preferred stock dividend requirement, net income applicable to common
stockholders was $118,000, or $0.30 per share for the second quarter of 1995.
The comparable period of 1994 indicated net income of $642,000 or $1.60 per
share. For the six-month period ending June 30, 1995, a loss after the
preferred stock dividend requirement of ($476,000) was incurred versus
($461,000) for the first six 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 June year-to-date results of $901,000. There were no
accounting change effects for 1994 results. For the six-month period, earnings
per common share were $2.26 for 1995 compared to ($1.15) 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:
Three Months Six Months
Ended June 30 Ended June 30
1995 1994 1995 1994
Contracting Revenues 57.4% 62.7% 56.3% 62.5%
Distribution and Other Revenues 42.6% 37.3% 43.7% 37.5%
Total Revenues 100.0% 100.0% 100.0% 100.0%
Gross Profit Margin 21.6% 23.1% 21.8% 21.6%
Operating Income 1.8% 3.8% 0.8% 1.1%
Net Income (B/F Acctg Chg) .6% 1.5% 0.0% 0.0%
Revenues
Contracting revenues are down slightly from the second quarter of last year.
Year-to-date contracting revenues were $67,115,000, down 3.1% from prior year
revenues of the same period that amounted to $69,267,000 .
<PAGE>
Revenues (continued)
Distribution revenues continued to strengthen, reflecting increases over the
prior year periods for both the quarter and six months ended June 30. For the
quarter ended June 30, 1995, distribution revenues were $26,811,000,
representing an increase of 24.6% from the $21,523,000 reported for the second
quarter last year. For the six-month period ended June 30, 1995, distribution
was at a record level totaling $52,171,000, which is a 25.3% increase over 1994
reported revenues of $41,644,000.
Gross Profit
For the second quarter ended June 30, 1995, gross profit was $13,558,000, a
slight increase from the $13,302,000 reported for the second quarter of 1994.
Gross profit margins were 21.6% and 23.1% for the respective periods. Gross
profit margins continue to be squeezed as a result of competitive conditions.
For the six months ended June 30, 1995, gross profit margins remained similar as
noted in the above table. However, gross profit dollars increased nearly
$2.0 million or 8.3%. This increase is due mainly to the continued growth
of the distribution business in terms of volume.
Selling, General and Administrative Expenses
Operating expenses amounted to $12,444,000 for the quarter ended June 30, 1995.
Prior year expenses for the similar period totaled $11,111,000. For the
six-month period, expenses equal $25,074,000 for 1995 and $22,792,000 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. As a percentage of sales, year-to-date expenses have increased
slightly at 21.0% for 1995 and 20.5% for 1994.
Financial Condition and Liquidity
While earnings are basically flat, the financial position of the Company has
improved significantly . Accounts receivable have declined by $3.3 million since
year end. The Company at June 30, 1995, had working capital of $32.3 million
and stockholders' equity (excluding preferred stock) of $10.2 million.
Working capital at December 31, 1994, was $31.7 million and stockholders' equity
was $9.2 million.
Total short-term lines of credit of $22.8 million at June 30, 1995, remain
adequate to provide sufficient liquidity for operations. Outstanding balances
under these unsecured lines of credit at June 30, 1995, were $6.6 million , an
increase of $0.6 million from December 31, 1994. Long-term debt, excluding the
current portion, is $15.1 million at June 30, 1995.
<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 76,000 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 half of 1995, ACandS was
served with cases involving approximately 18,255 individual plaintiffs. There
were 18,122 new plaintiffs in 1994; 20,542 new plaintiffs in 1993; 13875 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.
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 Company with the participation of other insurers that wrote coverage for
ACandS. Virtually all of ACandS's liability and defense costs for these cases
are being paid by Aetna and other insurance carriers.
Since the beginning of 1981, approximately 83,000 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.
<PAGE>
PART 11. 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
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 effect on the long-term
business or financial position of the Company.
<PAGE>
PART 11. 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, hospitals, 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
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 half 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 aesbestos 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 consistent 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.
<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 August 11, 1995 J. P. Farrell
J. P. Farrell
Controller
Duly Authorized Signer
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,014,000
<SECURITIES> 0
<RECEIVABLES> 48,447,000
<ALLOWANCES> 197,000
<INVENTORY> 12,168,000
<CURRENT-ASSETS> 75,395,000
<PP&E> 3,880,000
<DEPRECIATION> 645,000
<TOTAL-ASSETS> 78,845,000
<CURRENT-LIABILITIES> 43,080,000
<BONDS> 15,100,000
<COMMON> 1,028,000
10,496,000
0
<OTHER-SE> 9,141,000
<TOTAL-LIABILITY-AND-EQUITY> 78,845,000
<SALES> 119,286,000
<TOTAL-REVENUES> 119,286,000
<CGS> 93,294,000
<TOTAL-COSTS> 93,294,000
<OTHER-EXPENSES> 25,074,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 919,000
<INCOME-PRETAX> (1,000)
<INCOME-TAX> (15,000)
<INCOME-CONTINUING> (476,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,377,000
<NET-INCOME> 901,000
<EPS-PRIMARY> 2.26
<EPS-DILUTED> 2.26
</TABLE>
