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, 1998 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) 431,945
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 in accordance with generally accepted accounting
principles have been condensed 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.
IREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months
Third Quarter Ended September 30
1998 1997 1998 1997
(In Thousands Except Per Common Share Amounts)
Contracting Revenues $ 32,516 $ 34,493 $ 98,570 $ 95,892
Distribution and Other Revenues 48,622 39,046 134,956 109,038
Total Revenues 81,138 73,539 233,526 204,930
Cost of Revenues 62,979 57,712 182,329 160,149
Gross Profit 18,159 15,827 51,197 44,781
Selling, General and
Administrative Expenses 16,310 13,891 43,932 40,604
Operating Income 1,849 1,936 7,265 4,177
Interest Expense, Net 524 502 1,534 1,406
Income Before Income Taxes 1,325 1,434 5,731 2,771
Income Tax Provision 669 640 2,486 1,255
Net Income $ 656 $ 794 $ 3,245 $ 1,516
Less: Dividend Requirements
for Preferred Stock (245) (245) (734) (735)
NET INCOME APPLICABLE
TO COMMON STOCK $ 411 $ 549 $ 2,511 $ 781
Average Common Shares
Outstanding - Basic 426,242 383,924 411,192 385,418
Stock Options Issued to
Employees and Directors - 5,947 3,481 4,552
Average Common Shares
Outstanding - Diluted 426,242 389,871 414,673 389,970
Income per Common
Share - Basic $ 0.96 $ 1.43 $ 6.11 $ 2.03
Income per Common
Share - Diluted $ 0.96 $ 1.41 $ 6.06 $ 2.00
IREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30 December 31
1998 1997
(In Thousands)
ASSETS:
Cash and Cash Equivalents $ 2,299 $ 374
Receivables, Net 65,207 54,835
Inventories 18,981 16,138
Actual Costs and Estimated Earnings on
Contracts in Process in Excess of Billings 4,942 4,421
Prepaid Income Taxes 1,151 225
Other Prepaid Expenses 463 733
Deferred Income Taxes 4,390 4,391
Total Current Assets 97,433 81,117
Property and Equipment, Net 3,458 3,240
Non-Current Deferred Income Taxes 3,170 3,170
Other Assets 1,805 1,018
TOTAL ASSETS $ 105,866 $ 88,545
LIABILITIES AND SHAREHOLDERS' INVESTMENT:
Notes Payable to Banks $ 27,816 $ 18,224
Current Portion of Long-Term Debt 1,871 1,876
Accounts Payable 13,783 10,502
Billings in Excess of Actual Costs and
Estimated Earnings on Contracts in Process 3,264 2,797
Accrued Workers' Compensation Insurance 2,873 2,604
Accrued Liabilities 13,073 12,831
Total Current Liabilities 62,680 48,834
Long-Term Debt (Less Current Portion) 5,632 7,504
Non-Current Liabilities 10,300 8,644
Redeemable Preferred Stock 10,490 10,490
Capital Stock 1,028 1,028
Paid-in Surplus 405 449
Retained Earnings 32,930 30,663
Cumulative Translation Adjustments (276) (213)
Treasury Stock at Cost (17,323) (18,854)
Total Shareholders' Investment 16,764 13,073
TOTAL LIABILITIES AND
SHAREHOLDERS' INVESTMENT: $ 105,866 $ 88,545
IREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30
1998 1997
(In Thousands)
Cash Flows from Operating Activities:
Net income $ 3,245 $ 1,516
Reconciliation of net income to net cash
provided by operating activities
Depreciation and amortization 1,011 675
Deferred income taxes 1 -
Provision for losses on accounts receivable 885 89
(Increase) decrease in current assets
Receivables (9,141) (4,607)
Inventories (113) (1,043)
Prepaid income taxes and other prepaid expenses 270 (97)
Actual costs and estimated earnings on contracts
in process in excess of billings, net (54) (512)
Increase (decrease) in current liabilities
Accounts payable 3,526 2,009
Accrued income taxes (926) (198)
Accrued liabilities and other liabilities 1,922 941
Net cash provided by (used for)
operating activities 626 (1,227)
Cash Flows from Investing Activities:
Net additions to property and equipment (292) (620)
Acquisitions of certain businesses,
net of cash acquired
Assets (5,640) -
Intangibles (930) -
(Increase) decrease in other assets (63) 4
Net cash used for investing activities (6,925) (616)
Cash Flows from Financing Activities:
Net borrowings from revolving lines of credit 9,592 6,104
Payments on long-term debt (1,877) (2,557)
Dividends paid (734) (735)
Exercise of stock options 1,331 -
Reissuance of common stock - 48
Repurchase of common stock (88) (222)
Net cash provided by financing activities 8,224 2,638
Net Increase in Cash and Cash Equivalents 1,925 795
Cash and Cash Equivalents at Beginning of Period 374 193
Cash and Cash Equivalents at End of Period $ 2,299 $ 988
IREX CORPORATION AND SUBSIDIARIES
September 30, 1998 and 1997
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 consists of two business units. The distribution unit is
primarily a distributor and fabricator of mechanical insulation,
architectural/acoustical products and specialty products. The companies
in the specialty contracting unit primarily engage in mechanical
insulation, abatement, fire protection and interior finish 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 September 30, 1998,
1,028,633 shares were issued, 431,945 shares were outstanding and
596,688 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. The
Company's income tax and interest payments for the first nine months of
1998 and 1997 were:
1998 1997
Income Taxes: $3,412,000 $1,846,000
Interest: $1,488,000 $1,233,000
(4) On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130). SFAS 130 establishes standards for reporting and displaying
comprehensive income and its components. Comprehensive income, as
defined by SFAS 130, is the total of net income and all other non-owner
changes in equity. Total comprehensive income for the quarters ended
September 30, 1998 and 1997 was $623,000 and $794,000, respectively.
Total comprehensive income for the nine months ended September 30, 1998
and 1997 was $3,182,000 and $1,508,000, respectively. The difference
between net income and comprehensive income for the above periods is due
to cumulative translation adjustments.
(5) On April 13, 1998, the Company announced that its wholly owned
distribution subsidiary, Specialty Products & Insulation Co. (SPI),
had filed a registration statement with the Securities and Exchange Commission
relating to the initial public offering ("IPO") of 2,000,000 shares of
SPI's common stock. The Company had previously announced the planned
spin-off of SPI through a pro rata distribution of all of the capital
stock of SPI to the shareholders of the Company. On June 17, 1998, the
Company announced the postponement of its planned spin-off of SPI due
primarily to adverse conditions in the market for IPOs. Approximately
$1.1 million in costs related to the IPO were incurred through September
30, 1998 and were expensed in the third quarter.
For the nine months ended September 30, 1998, SPI had net revenues of
$134,655,000 and gross profit of $31,413,000. For the year ended
December 31, 1997 and 1996, SPI had net revenues of $149,053,000 and
$129,417,000, respectively; gross profit was $34,096,000 in 1997 and
$31,110,000 in 1996. These revenues exclude sales to SPI's sister
companies. Total assets were $59,810,000 and $47,651,000 at September
30, 1998 and December 31, 1997, respectively.
On October 28, 1998, the Company announced that it has finalized its
plan to spin off SPI on a tax-free basis to Irex's shareholders. In
connection with this plan, the Company and SPI have entered into
agreements with Evercore Capital Partners L.P. and its affiliates
("Evercore") whereby Evercore will purchase, subsequent to the spin off,
$15.4 million of SPI common stock and $3.5 million of subordinated notes
from SPI. Evercore will own approximately 45% of SPI's issued and
outstanding common stock after the transaction.
Under the plan, the Company's shareholders will receive one share of SPI
stock for every 50 shares of Company stock owned. At this ratio, Evercore's
purchase price for SPI shares will translate into $2,158.46 per SPI
share or the equivalent of $43.17 per outstanding Company share.
Additionally, the Company's shareholders will maintain their ownership in
the Company and its contracting subsidiaries. Following a dividend from SPI
to Irex of $10.5 million, the pro forma book value of Company shares as of
September 30 will be approximately $36.60 per share.
The consummation of the transaction is subject to completion of
certain matters, including finalizing the senior financing, completing
regulatory filings, and executing certain ancillary agreements. Final
closing is expected before the end of 1998.
(6) The Company's Board of Directors ("Board") adopted a resolution,
effective May 1, 1998, which merged the Irex Corporation Employee Stock
Ownership Plan ("ESOP") into the Irex Corporation Savings Incentive Plan
("Savings Plan"). The resolution stipulates that (a) no future
contributions be made to the ESOP, (b) prior ESOP account balances
become 100 percent vested and (c) account balances be held as a
component of the Savings Plan but no longer be designed to invest
primarily in Company securities.
The Board adopted another resolution to amend the Irex Corporation
Employees' Retirement Plan ("Pension Plan") effective May 1, 1998. The
amendment suspends the Pension Plan, thereby freezing the accrued
benefits of all plan participants and discontinuing future benefit
accruals. For the quarter ended June 30, 1998, the Company recognized a
curtailment gain of approximately $800,000 based on an actuarial
calculation of the projected benefit obligation. The gain was reported
in the Company's income statement for the quarter ended June 30, 1998 as
a reduction to selling, general and administrative expenses.
(7) On October 26, 1998, the Company acquired the outstanding common
stock of a distributor and laminator of numerous mechanical insulation,
HVAC, metal building and specialty products. The purchase price was
approximately $3.7 million (including the assumption of $1.7 million of
debt) and the Company accounted for the acquisition using the purchase
method of accounting.
IREX CORPORATION AND SUBSIDIARIES
September 30, 1998 and 1997
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Company enjoyed another solid quarter of operating results for the
period ended September 30, 1998 despite the pretax charge of $1.1
million (as discussed in Note 5) for costs relating to the withdrawn
initial public offering (IPO) of its distribution subsidiary. Gross
profit margins remained steady in both the distribution and contracting
businesses. In terms of operating income, improved results are largely
due to the streamlined overhead structure of the contracting operations,
which has led to cost savings of approximately $1.8 million over last
year's nine-month performance. The contracting group achieved this
result on mostly comparable sales and gross margin performance.
Operating income for the three months ended September 30, 1998 decreased
slightly to $1,849,000 from $1,936,000 in last year's third quarter.
Operating income of $7,265,000 for the nine months ended September 30,
1998 represents a new milestone for the Company and is nearly $3.1
million ahead of the $4,177,000 reported in last year's comparable
period.
Net income applicable to common shareholders ("net income"), after the
dividend requirement for preferred stock, was $411,000, or $0.96 per
share for the third quarter of 1998. Exclusive of the costs related to
the withdrawn IPO, a portion of which are not deductible for tax
purposes, earnings per common share would have been approximately $2.76
for the three-month period. The third quarter of 1997 reflected net
income of 549,000, or $1.43 per share. For the nine-month period ended
September 30, 1998, net income was $2,511,000, or $6.11 per common share
(approximately $7.97 exclusive of the IPO costs). In comparison, the
Company's highest earnings per share for an entire fiscal year was $4.90
in 1990. The comparable nine months of 1997 showed net income of
$781,000, or $2.03 per common share.
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 Nine Months
Ended September 30 Ended September 30
1998 1997 1998 1997
Contracting Revenues 40.1% 46.9% 42.2% 46.8%
Distribution and Other Revenues 59.9% 53.1% 57.8% 53.2%
Total Revenues 100.0% 100.0% 100.0% 100.0%
Gross Profit Margin 22.4% 21.5% 21.9% 21.9%
Income from Operations 2.3% 2.6% 3.1% 2.0%
Net Income Before
Preferred Dividend 0.8% 1.1% 1.4% 0.7%
Revenues:
Total revenues for the quarter ended September 30, 1998 increased 10.3%
to $81,138,000 from $73,539,000 in last year's third quarter. Year-to-date
revenues of $233,526,000 established a new record start for the Company,
and reflect a 14.0% increase over the $204,930,000 reported for the first
nine months of 1997.
Contracting revenues were $32,516,000 for the three months ended
September 30, 1998, representing a 5.7% decrease from last year's
similar quarter. The decrease reflects competitive bid pressures in
regional markets where the Company's contracting operations typically
perform "traditional" installation and maintenance of mechanical
insulation. However, year-to-date revenues of $98,570,000 remain
slightly ahead of last year's $95,892,000 as the company continues to
pursue opportunities outside the core mechanical insulation business.
Examples of similar specialty contracting services would include lead
abatement work and fire protection.
Distribution revenues grew to $48,622,000 in the quarter ended September
30, 1998. This total is $9,576,000, or 24.5%, above the $39,046,000 for
1997's third quarter. Distribution revenues totaled $134,956,000 for
the nine months ended September 30, 1998 as the Company's distribution
subsidiary proceeds forward with its expansion strategy. Year-to-date
distribution revenues are $25.9 million, or 23.8%, ahead of 1997's
comparable nine-month revenues of $109,038,000. The growth was primarily
attributable to revenues related to acquisitions and new center openings
as well as increased sales at existing locations. During the third
quarter, revenue growth was offset by a concerted effort to reduce
credit exposure associated with specific accounts.
Gross Profit:
Gross profit for the three months ended September 30, 1998 increased
14.7% to $18,159,000 from $15,827,000 in last year's comparable quarter.
The higher revenue base accounted for approximately two thirds of this
increase. The remainder is due to slightly improved gross margins.
Gross profit margins were 22.4% and 21.5% for the respective quarters in
1998 and 1997. contracting margins were relatively unchanged.
Distribution margins improved nearly a full percentage point.
For the nine months ended September 30, 1998, margins of 21.9% were
unchanged from 1997's comparable period. Distribution margins improved
approximately 0.8 percentage points, primarily on the basis of margin
expansion in certain product categories as opposed to a change in
product mix. Margins for the contracting business decreased
approximately 0.7 percentage points as competitive bidding to secure
lump-sum contracts continues to squeeze pricing while placing a premium
on contract execution. The contracting operations are responding with
an intensified focus on quality of bid preparation, consistent pre-execution
planning and aggressive management of direct job costs. For the year-to-date
period ended September 30, 1998, the net result was that gross profit dollars
increased by 14.3% over the first nine months of 1997, or slightly above
the 14.0% improvement in revenues noted above.
Selling, General, and Administrative Expenses:
Selling, general and administrative expenses (SG&A) amounted to
$16,310,000, or 20.1% of total revenues, for the quarter ended September
30, 1998. SG&A for the comparable quarter in 1997 totaled $13,891,000,
or 18.9% of revenues. As described earlier in Note 5 to the
consolidated financial statements, the Company expensed approximately
$1.1 million in connection with the planned spin-off and initial public
offering of SPI, its wholly-owned distribution subsidiary. The IPO was
subsequently canceled in September of this year. For the nine-month
period ended September 30, SG&A increased by approximately $3.3 million
to $43,932,000 in 1998 and from $40,604,000 in 1997. As a percentage of
total revenues, SG&A decreased to 18.8% for the nine months ended
September 30, 1998 from 19.9% for the comparable period in 1997.
In comparing the year-to-date period ended September 30, 1998 to the
same nine months of 1997, SG&A increased by $3,028,000, or 7.5%,
exclusive of both the IPO expenses noted above and the approximate
$800,000 gain recognized upon curtailment of the Company's pension plan
in the second quarter of 1998. Higher SG&A attributable to expansion of
the distribution business was partially offset by a decrease in SG&A for
the contracting business as a result of its streamlined organization.
The contracting business reduced SG&A by approximately $1.8 million in
its effort to operate under area and regional overhead structures which
enable it to address customer needs with competitively-priced services.
This reduction was exclusive of the approximate $800,000 curtailment
gain previously noted. The distribution unit, on the other hand,
increased SG&A by approximately $4.9 million (exclusive of the IPO
costs) as a result of acquisitions and new center openings, expansion of
existing facilities and an increase in the provision for losses on
accounts receivable.
Financial Condition and Liquidity:
At September 30, 1998, the company has working capital of $34.8 million
and stockholders' equity (excluding preferred stock) of $16.8 million.
Working capital at December 31, 1997 was $32.2 million and stockholders'
equity was $13.1 million. The increase in accounts receivable and
inventories from the amounts reported at December 31, 1997 is primarily
attributable to the two acquisitions completed in 1998 and the overall
growth in revenues.
Total debt outstanding at September 30, 1998 was $35.3 million as
compared to $27.6 million at December 31, 1997. Long-term debt,
excluding current portion, was $5.6 million at September 30, 1998.
Available short-term lines of credit as of September 30, 1998 were $52.7
million and remain adequate to provide sufficient liquidity for
operations. Outstanding balances under these unsecured lines of credit
were $27.8 million, an increase of $9.6 million from December 31, 1997.
Cash outlays of $6.5 million for two acquisitions and $1.9 million for
long-term debt paydown contributed significantly to the outstanding
balance increase.
As indicated earlier in Note 5 to the consolidated financial statements,
plans have been finalized to spin off SPI on a tax-free basis to the
Company's shareholders. Immediately following the spin-off, Evercore
will purchase $15.4 million of SPI's common stock and $3.5 million of
subordinated notes from SPI, an investment which will represent
approximately 45% of SPI's equity ownership after the transaction.
After the spin-off, the Company expects that funds from operations and
available lines of credit will provide sufficient liquidity to meet its
working capital requirements.
Year 2000 Issue:
The Company's ability to conduct its day-to-day operations is dependent
in part on an integrated software program and data-based system
(collectively, the System). The System serves as a critical tool in
carrying out functions in several key areas of the business, including
inventory management, contract management, pricing, sales, financial
reporting and personnel administration.
The company has assessed the system and determined that modifications
are required to properly utilize dates beyond December 31, 1999.
The Company had already committed to upgrade the System in order to
renew the vendor maintenance agreement (under which the Company receives
technical support), and believes the upgrade will substantially resolve
Year 2000 issues in the System. The Company will utilize both internal
and external resources to replace, reprogram and test software for
Year 2000 ("Y2K") compliance and plans to complete the conversion
in November of this year. These costs arising through the normal course
of business will be expensed as incurred. In relation to hardware
within the System (primarily desktop computers networked to a central
location), management does not have an estimate of the cost to replace
these items. On July 17, 1998, the Company began an outsourcing
arrangement under which it contracted to lease AS400 and related data
communications services from an off-site provider. Thus, the Company is
now operating on mainframe hardware which has been certified as fully
Y2K compliant by the off-site provider.
The Company does not currently have any information concerning Y2K
compliance status of its suppliers and customers. Management is
currently developing a questionnaire for its significant suppliers and
customers in an effort to determine their state of readiness with regard
to Y2K issues. In the event that any of the Company's significant
suppliers or customers does not successfully and timely achieve Year
2000 compliance, the Company's business or operations could be adversely
affected.
The Company has not performed a comprehensive evaluation of its internal
systems that are unrelated to the information technology aspect of
business operations ("non-IT systems"). Management will utilize
external resources to provide guidance in determining which non-IT
systems need to be assessed.
The Company has not developed a contingency plan which addresses how the
most reasonably likely worst case scenarios would be handled.
Management will continue to discuss this subject during the next several
months.
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings:
The Company's ACandS, Inc. subsidiary is one of a number of defendants
in pending lawsuits filed by approximately 116,000 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 1998, ACandS was served with cases involving 25,852
individual plaintiffs. In 1997, ACandS was served with cases involving
approximately 31,489 individual plaintiffs. There were 37,777 new
plaintiffs in 1996; 44,904 new plaintiffs in 1995; and 18,122 new
plaintiffs in 1994.
The great majority of the filings in recent years are the direct result
of screenings and other mass solicitation efforts. The majority
of claims filed since 1994 have been filed in Texas or West
Virginia, or by the Maritime Legal Clinic. Almost all of the Maritime
Legal Clinic filings have been administratively dismissed.
Developments in Texas and West Virginia have somewhat reduced the
filings in those states, but 4,967 cases have been filed against ACandS
in Mississippi during 1998. ACandS has not had liability exposure in
Mississippi, and the 1998 filings in that state include a large number
of duplicate filings.
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 claimant ever had any causative exposure
to asbestos-containing products associated with the various named
defendants. Because of this pattern, historically, about half of the
cases filed against ACandS have been closed without payment. As the
scope of the mass screening programs has increased, the degree of
illness of the claimants has appeared to diminish.
The defense of the cases pending against ACandS is now being handled by
the Travelers Property Casualty Corp. 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 ACandS's
insurance carriers.
Since the beginning of 1981, approximately 171,000 individual claims
against ACandS have been settled, dismissed or otherwise resolved.
Payments in individual cases have varied considerably. Nevertheless,
ACandS's average cost for all cases has remained low, and the resolution
cost per closed case in recent years has been consistent with long-term
averages. Bankruptcy filings by a number of companies which had been
significant defendants in asbestos cases do not appear to have
significantly increased the cost of resolving cases.
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.
Subsequently, on January 15, 1993, certain plaintiffs' counsel and a
group of 20 asbestos litigation defendants filed a class action
complaint and settlement agreement involving all previously unasserted
claims by individuals who have been occupationally exposed to asbestos
fibers, which was assigned to Judge Weiner as related to the
Multidistrict Litigation proceedings. On June 25, 1997, the U.S.
Supreme court affirmed dismissal of the class action settlement, finding
that the case did not meet the requirements of the rules permitting
class actions.
Although the large number of pending cases, the continued efforts of
certain courts to clear dockets through consolidated proceedings, the
bankruptcy filings by defendants, efforts toward national solutions, and
the transfer of federal cases to the United States District Court for
the Eastern District of Pennsylvania 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
most of the very substantial insurance coverage applicable to its
asbestos-related bodily injury claims. ACandS believes it will secure
additional coverage, if needed, from those insurers which have not to
date settled with ACandS. Two insurers which wrote significant
applicable coverage for ACandS have encountered financial difficulties
in recent years, in part because of asbestos and environmental
liabilities, but ACandS does not believe these difficulties will affect
the adequacy of the coverage available to it.
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. ACandS's
percentage of aggregate liability payments, however, 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.
ACandS is also one of a number of defendants in four actions by the
owners of buildings seeking to recover costs associated with the
replacement or treatment of installed asbestos-containing products.
These cases involve 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 indemnification and/or contribution claims against the
product manufacturers. To date, ACandS has been dismissed from 103
cases, largely on the basis it had no connection with the products at
issue in the claimants' buildings, and has agreed to settle 16 claims.
The aggregate amount paid has been very small in the context of this
litigation. ACandS has not been served with any new building-related
cases since 1994 . Since 1990, only three new building-related cases
have been served on ACandS.
The Travelers Property Casualty Corp. is currently providing ACandS with
a defense in these building cases, as well as paying settlements when
necessary. Coverage based on policies of the Travelers Insurance
Companies is furnished pursuant to a settlement agreement, but coverage
based on policies of Aetna Casualty and Surety Co. (now part of
Travelers) is subject to asserted reservations of rights to later
contest both the availability and the amount of coverage. Required
payments, nevertheless, continue to be made on the Aetna policies.
Decisions in litigation involving insurance coverage available for other
defendants in asbestos building cases have varied widely. The appellate
rulings which have fully considered coverage issues for asbestos
building claims provide significant coverage for policyholders. The
decisions are consistent with ACandS's view that broad coverage is
available 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, claims
and litigation arising in the normal course of business will not
materially affect the Company's long-term business, financial position
or results of operations.
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: January 5, 1999
B. C. Werner
Controller
Duly Authorized Signer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,299,000
<SECURITIES> 0
<RECEIVABLES> 65,207,000
<ALLOWANCES> 0
<INVENTORY> 18,981,000
<CURRENT-ASSETS> 97,433,000
<PP&E> 3,458,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 105,866,000
<CURRENT-LIABILITIES> 62,680,000
<BONDS> 5,632,000
10,490,000
0
<COMMON> 1,028,000
<OTHER-SE> 15,736,000
<TOTAL-LIABILITY-AND-EQUITY> 105,866,000
<SALES> 233,526,000
<TOTAL-REVENUES> 233,526,000
<CGS> 182,329,000
<TOTAL-COSTS> 182,329,000
<OTHER-EXPENSES> 43,932,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,534,000
<INCOME-PRETAX> 5,731,000
<INCOME-TAX> 2,486,000
<INCOME-CONTINUING> 3,245,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,245,000
<EPS-PRIMARY> 6.11
<EPS-DILUTED> 6.06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 988,000
<SECURITIES> 0
<RECEIVABLES> 58,038,000
<ALLOWANCES> 0
<INVENTORY> 15,168,000
<CURRENT-ASSETS> 85,929,000
<PP&E> 3,027,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 92,440,000
<CURRENT-LIABILITIES> 50,999,000
<BONDS> 7,429,000
10,490,000
0
<COMMON> 1,028,000
<OTHER-SE> 11,359,000
<TOTAL-LIABILITY-AND-EQUITY> 92,440,000
<SALES> 204,930,000
<TOTAL-REVENUES> 204,930,000
<CGS> 160,149,000
<TOTAL-COSTS> 160,149,000
<OTHER-EXPENSES> 40,604,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,406,000
<INCOME-PRETAX> 2,771,000
<INCOME-TAX> 1,255,000
<INCOME-CONTINUING> 1,516,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,516,000
<EPS-PRIMARY> 2.03
<EPS-DILUTED> 2.00
</TABLE>
