IREX CORP, 10-K, 1999-04-01

IREX CORP
10-K, 1999-04-01
CONSTRUCTION - SPECIAL TRADE CONTRACTORS

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SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1998 Commission file number 2-36877

Irex Corporation
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Pennsylvania 23-1712949
(STATE OR OTHER JURISDICTION OF INC. OR ORG.) (I.R.S. EMPLOYER IDENT. NO.)

120 North Lime Street, Lancaster, Pennsylvania 17602
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

Registrant's telephone number, including area code (717) 397-3633

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

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 their Form 10-K or any
amendment to this form 10-K. [X]

As of March 15, 1999, 432,202 common shares were outstanding and the
aggregate market value of the voting stock (based upon the average bid and
asked prices on March 15, 1999) held by nonaffiliates was approximately
$5,422,002.

Documents Incorporated by Reference
NONE

PART 1

Item 1. Business

Irex Corporation ("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. Domestic operations are conducted through four
wholly owned subsidiaries: ACandS, Inc.; Specialty Products &
Insulation Co. ("SPI"); Centin, LLC; and Spacecon,LLC. Commercial
Interior Builders, Inc. has been inactive since December 31, 1992 and
was merged into ACandS, Inc., with ACandS surviving the merger,
effective as of the close of business on September 30, 1996. Through
ACandS Contracting Ltd., a wholly owned subsidiary of ACandS, Inc., the
Company is engaged in thermal insulation contracting in Canada. In
1998, 58% of total revenues were derived from the distribution unit and
42% were the result of specialty contracting operations. These
percentages are reflective of a trend over the past several years,
wherein distribution has been a growing part of the Company's business.
See Note 17 to the accompanying financial statements for supplemental
data on the Company's segments. On December 31, 1998, the spin-off of
SPI to the Irex shareholders was effective. (See Note 2 of the
accompanying financial statements.) In 1999, the Company and its wholly
owned subsidiaries will continue to operate within the specialty
contracting industry.

Substantially all of the Company's insulation contracts are made with
private contractors, subcontractors and other builders, and such
contracts are normally awarded on the basis of competitive bids.
Insulation contracting, as part of the general construction business,
has been and continues to be highly competitive. The Company is one of
the largest in its field, however, and over the years has maintained
good customer relationships, with a significant percentage of its sales
attributable to contracts with customers for whom the Company has
previously done work.

As of December 31, 1998, the Company had an unbilled contract backlog
of $37.0 million as compared to an unbilled contract backlog of $40.5
million on December 31, 1997. A substantial portion of this backlog can
reasonably be expected to be installed during 1999, since the average
life cycle of the Company's projects is less than a year. During the
past five years, beginning backlog ranged from 30% to 40% of contract
revenues during the ensuing year.

The Company purchases its materials from a number of sources and is
not dependent upon any one supplier for any substantial portion of its
requirements. Insulation materials are in plentiful supply and no
critical shortages are expected.

The Company owns or holds no significant patents, licenses,
franchises or other concessions. No significant expenditures are made
for new product development, since most materials are purchased directly
from manufacturers for installation by the Company on projects where the
owner or his representatives specify the products to be applied.

Federal, state and local regulations enacted to protect the
environment have not had any material effect upon capital expenditures,
earnings or competitive position.

Item 2. Properties

The Company owns three properties in Lancaster, Pennsylvania. One is
used as the Company's general offices, a two-story brick building
containing 21,000 square feet of space. A second is primarily used for
general office parking. The third consists mainly of a 29,000 square
foot warehouse and shop facility which is leased by Specialty Products &
Insulation Co.

All of the remaining offices and warehouses of the Company are leased
at various locations throughout the United States and Canada. Some
regional and area offices share facilities at the same location After
the spin-off of SPI, there are 37 leased regional, area and branch
offices in the United States and two offices in Canada.

The Company also owns construction tools, light trucks, and such
related equipment as required by its undertakings, all of which are
considered to be in good working order and none of which is subject to
any major encumbrances. Most of the automotive fleet has been converted
to an operating lease arrangement with cancelable lease terms of up to
five years.

Item 3. Legal Proceedings

The Company's ACandS, Inc. subsidiary is one of a number of
defendants in pending lawsuits filed by approximately 118,000 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 1998, ACandS was served with cases involving 33,154 individual
plaintiffs. In 1997, ACandS was served with cases involving 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 filing
of multiple asbestos-related bodily injury claims against ACandS began
in approximately 1978/1979, but new filings in any single year did not
exceed 16,000 until 1993.

The bulk of the litigation against ACandS is centered in a relatively
small number of jurisdictions. In 1998, over 60 percent of new claims
filed against ACandS came from Ohio, Texas and Mississippi. Over 80
percent were filed in these three states together with New York,
Maryland and West Virginia. These jurisdictions have consistently
produced heavy filings in recent years. It would appear that court
rules and rulings favorable to claimants in these states encourage the
filing of asbestos-related lawsuits.

The great majority of the filings are apparently the result of
screenings and other mass solicitation efforts. The lawsuits which
result from such efforts are often filed with little investigation as to
whether the claimants had any causative exposure to asbestos-containing
products associated with any particular defendant. As the scope of the
screening programs has increased, the degree of illness of the claimants
seems to have diminished.

Since the beginning of 1981, approximately 177,000 individual claims
against ACandS have been settled, dismissed or otherwise resolved.
ACandS's average cost for resolving those claims has been low. Over
half of the claims were closed without any liability payment by ACandS.
In recent years, however, the courts in many states have given priority
to the resolution of more serious cases, such as claims by individuals
diagnosed with mesothelioma, a cancer of the lining of the lung. This
has resulted in some large settlements of individual claims in states
such as New York and Maryland. In addition, the litigation risk in
jurisdictions which are difficult for defendants had lead ACandS to
block settle large numbers of claims in Texas, West Virginia and other
states.

Asbestos-related bodily injury cases filed against ACandS in federal
court have been transferred since July, 1991 to the United States
District Court for the Eastern District of Pennsylvania for coordinated
or consolidated pretrial handling. Efforts toward a national solution
of the asbestos litigation problem have been undertaken in this
multidistrict proceeding, but none has been successful. ACandS is not
aware of any serious current effort toward a national solution.

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.

ACandS through final settlement agreements has secured the commitment
of a substantial amount of the considerable insurance coverage it has
for 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.

It has been more than 25 years since ACandS adopted the policy that
it would not resell, use or install asbestos-containing insulation
products. Given the length of time since this policy was established,
the increased numbers of new claims in the last several years, together
with the recent high cost of settling certain individual claims in some
jurisdictions, are troubling developments. In addition, the complexity
of the asbestos-related disease litigation makes prediction difficult.
Nevertheless, ACandS continues to effectively defend asbestos-related
bodily injury cases, and anticipates that its average disposition costs
will remain low. 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 one of a number of defendants in three actions by the
owners of buildings to recover costs associated with the replacement or
treatment of installed asbestos-containing products, one of which is an
alleged class action. One hundred and three such cases against ACandS
have been dismissed and 17 have been settled. No new building-related
cases have been served on ACandS since 1994. ACandS believes that its
exposure in the three remaining cases is limited.

Insurance for the asbestos in building cases is being provided by
Travelers Property Casualty Corp. Although that part of the coverage
for these cases obtained from policies written by Aetna Casualty and
Surety Co. (now part of Travelers) has been provided under a reservation
of rights as to the availability and amount of its coverage, necessary
insurance payments have been and continue to be made. Based on the
rulings to date of courts which have considered the availability of
insurance coverage for asbestos in building claims, ACandS does not
anticipate significant problems concerning insurance for settled or
pending claims. Accordingly, ACandS believes that the asbestos in
building claims will not have a material adverse effect on the long-term
business or financial condition 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 resulting in the normal course of business, will not
materially affect the Company's long-term business, financial position
or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

PART II

Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters

The Company's Common Stock is traded in limited over-the-counter
transactions. The number of shares of Common Stock available for
trading has been small relative to the total number of shares
outstanding, and the trading is sporadic. Price quotations are only
binding for a limited number of shares.

The following table sets forth the high and low bid prices per share
and the dividends per share for the periods indicated. Price quotations
have been obtained from National Quotation Bureau, Inc.

High Bid Low Bid

1997 1st Quarter 22 - 1/4 20 - 3/4
2nd Quarter 25 - 1/4 22
3rd Quarter 26 - 3/4 25
4th Quarter 27 - 1/2 26 - 3/4

1998 1st Quarter 31 - 3/8 27 - 1/2
2nd Quarter 37 - 1/2 33
3rd Quarter 37 - 1/2 37 - 1/2
4th Quarter 46 37 - 1/2

On March 15, 1999, the stock price quotation according to National
Quotation Bureau, Inc. was 16.25 bid and 20.25 asked, and there were 320
record holders of the Company's Common Stock. The total number of
shares outstanding is 432,202. On December 31, 1998 the spin-off of
Specialty Products & Insulation Co., the Company's wholly owned
subsidiary, was effective. (See Note 2 of the accompanying financial
statements.) The Company has not paid a cash dividend on its Common
Stock during the two-year period ended December 31, 1998. In the
foreseeable future, the Company does not expect to pay cash dividends on
the outstanding common shares at December 31, 1998.

Item 6. Selected Financial Data

IREX CORPORATION AND SUBSIDIARIES:

Following is a consolidated summary of operations for the five years
ended December 31, 1998. This summary should be read in conjunction
with the consolidated financial statements and notes thereto, which are
included in Item 8 of this report.

CONSOLIDATED SUMMARY OF OPERATIONS

Year Ended December 31
1998 1997 1996 1995 1994
(Dollars in thousands, except per share data)

TOTAL REVENUES $315,119 $278,150 $271,131 $244,441 $240,636
NET INCOME (LOSS) $ 4,211(2) $ 2,533 $ 2,873 $ 1,778(1) $ 2,227
PREFERRED STOCK
DIVIDENDS (3) $ (979) $ (980) $ (980) $ (980) $
(980)
INCOME (LOSS)
APPLICABLE
TO COMMON SHARES $ 3,232 $ 1,553 $ 1,893 $ 798 $ 1,247
CASH FLOW FROM
OPERATIONS $ 7,531 $ 3,219 $ 1,933 $ 392 $ 2,770
TOTAL ASSETS $ 57,871 $ 88,545 $ 85,325 $ 81,635 $ 82,560
LONG TERM DEBT (4) $ --- $ 7,504 $ 9,286 $ 12,543 $ 15,800
REDEEMABLE PREFERRED
STOCK (3) $ 10,490 $ 10,490 $ 10,490 $ 10,496 $ 10,496
PER COMMON SHARE:
EARNINGS-BASIC (5) $ 7.75 $ 4.05 $ 4.80 $ 2.01 $ 3.11
EARNINGS-DILUTED(5) $ 7.70 $ 4.00 $ 4.76 $ 2.00 $ 3.11
CASH DIVIDENDS (3) $ --- $ --- $ --- $ --- $ ---
BOOK VALUE $35.96 $34.59 $30.58 $25.59 $23.14

(1) Includes cumulative effect of accounting change, net of income
taxes of $1,377,000 due to change in the method of estimating workers'
compensation claims liability.

(2) Includes extraordinary loss on extinguishment of debt, net of
income taxes of $311,000.

(3) See Note 13 to the accompanying consolidated financial statements.

(4) See Note 11 to the accompanying consolidated financial statements.

(5) See Note 10 to the accompanying consolidated financial statements.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

The Company reported record net income of $4,211,000 for the year
ended December 31, 1998, a 66.2% increase from the $2,533,000 reported
for the year ended December 31, 1997. Net income for the year ended
December 31, 1996 was $2,873,000. Included in the results for 1998 is
an extraordinary loss, net of income taxes, of $331,000 due to early
extinguishment of debt as a result of the spin-off of Specialty Products
& Insulation Co. (SPI), the Company's distribution subsidiary. (See Note
2 to the accompanying financial statements.) In the following
discussion, operating results for the contracting unit are
representative of the Company's business exclusive of SPI. Pro forma
unaudited statements of income, which give effect to the dividend
received from SPI and SPI's repayment of intercompany debt, are
presented for the years ended December 31, 1998 and 1997 in Note 2 to
the accompanying financial statements. The Company's consolidated
balance sheet as of December 31, 1998 does not include the balance sheet
of SPI.

Net income applicable to common shareholders after preferred
dividends was $3,232,000 for the year ended December 31, 1998 as
compared to $1,553,000 and $1,893,000 for the years ended December 31,
1997 and 1996, respectively. For the year ended December 31, 1998, net
income per common share (basic) was $8.54 before the extraordinary loss
and the effect of the extraordinary loss was $(0.79) per share. The
$8.54 per common share from continuing operations exceeded the Company's
previous highest per share amount by $3.64 per share from continuing
operations. Net income per common share (basic) was $4.05 and $4.80 for
the years ended December 31, 1997 and 1996, respectively.

Return on average common shareholders' equity, calculated on net
income applicable to common stock, was 21.4%, 12.8% and 18.1% for the
years ended December 31, 1998, 1997 and 1996, respectively. The
Company's return on average assets, calculated on net income, was 4.1%
for the year ended December 31, 1998, as compared to 2.9% and 3.4% for
years ended December 31, 1997 and 1996, respectively. The return on
average equity and return on average assets before the extraordinary
loss in 1998 were 23.6% and 4.5%, respectively.

The Company's former distribution subsidiary achieved double-digit
growth in revenues and operating income for the sixth consecutive year.
The five acquisitions completed in 1998 continued the momentum begun
with two acquisitions during the last quarter of 1997 (see Note 4 to the
accompanying financial statements) and reflect a plan of strategic
growth on which SPI has embarked. The Company's contracting operations
have focused primarily on the quality of services provided to regional
markets throughout the U.S. and Canada, with secondary emphasis placed
on revenue growth. The result is a streamlined overhead structure that,
while contributing significantly to improved operating performance,
still allows the contracting group to be attentive to customer needs.
Intensive focus on project management and safety initiatives has led to
improved margins and cost reductions due to favorable workers'
compensation/insurance claims experience. These efforts are in large
measure responsible for Contracting's substantially improved profit
performance in 1998.

The following discussion and analysis of results of operations
provides additional information on the Company's businesses and should
be read in conjunction with the consolidated financial statements and
accompanying notes.

Results of Operations:

The Company and its subsidiaries operate within the specialty
contracting industry (Contracting) and the distribution of products
related to that industry (Distribution). Total revenues of $315.1
million in 1998 represented a 13.3% increase from the prior year's total
revenue of $278.2 million and were 16.2% ahead of the 1996 revenues of
$271.1 million. Distribution revenues accounted for 58.2%, 53.8% and
48.3% of total revenues in 1998, 1997 and 1996, respectively.
Distribution revenues were $183.3 million, $149.7 million and $131.1
million in 1998, 1997 and 1996, respectively. The rate of growth for
distribution revenues rebounded to 22.4% in 1998 after sliding to 14.3%
in 1997 from 18.9% in 1996. The growth in 1998 was primarily the result
of acquisitions and startup distribution centers. Revenue increases at
previously existing centers were offset by reduced export revenues,
which primarily consist of sales to domestic exporters. Approximately
$5.0 million of the increase in 1997 was attributable to direct export
activity and the majority of the remaining increase was attributable to
six centers opened in 1997 and 1996, and six acquisitions completed
during the two-year period ended December 31, 1997.

For the year ended December 31, 1998, contracting revenues increased
a modest 2.6% after declining in 1997 to their lowest level since 1985.
Contracting revenues were $131.8 million, $128.4 million and $140.1
million in 1998, 1997 and 1996, respectively. The Company has seen a
recent trend of declining revenues generated by installing insulation in
industrial and commercial applications. Deregulation in the power
generation industry is one factor which has contributed to this decline.
The contracting operations have continued to pursue opportunities
outside this core business by providing specialty contracting services
for asbestos abatement, lead abatement, interior finish contracting and
fire protection.

Gross profit of $70.0 million in 1998 increased $9.6 million, or
16.0%, from the $60.4 million earned during 1997. The gross profit
generated in 1997 was virtually unchanged from the $60.3 million in
1996. Distribution gross profit was $41.6 million, representing a 27.4
% increase over the $32.6 million achieved in 1997 and a 41.2% increase
over the $29.4 million reported for 1996. Distribution margins, or
gross profit dollars expressed as a percentage of revenues, were 22.7%,
21.8% and 22.5% in 1998, 1997 and 1996, respectively. The margin
increase in 1998 is primarily attributable to margin expansion in
certain product categories as opposed to change in profit mix between
product categories. However, the relative percentage of revenues from
products shipped directly from the manufacturers to customers without
passing through a distribution center ("direct-ship business") declined.
Direct-ship business has historically generated lower margins for
Distribution since the associated administrative costs are also lower.

Gross profit from Contracting increased slightly to $28.4 million in
1998 from $27.7 million in 1997. However, the 1998 result fell 8.4%
short of the $30.8 million gross profit achieved in 1996. Contracting
margins were 21.6%, 21.6% and 22.0% in 1998, 1997 and 1996,
respectively. Competitive bidding to secure lump-sum contracts
continues to squeeze margins on new orders while placing a premium on
contract execution. The contracting operations have been able to
maintain margin levels by focusing on quality of bid preparation,
consistent pre-execution planning and aggressive management of direct
job costs. In addition, efforts placed on corporate and regional safety
initiatives have played a significant role in lowering the number of
workers' compensation/insurance claims and ultimately reducing these
costs.

Selling, general and administrative (SG&A) expenses increased 9.7% to
$59.2 million for the year ended December 31, 1998. Excluding the
pension curtailment gain of $869,000 recorded during the second quarter
(see Note 7 to the accompanying financial statements), SG&A expenses
were up 11.3% compared to 1997. SG&A expenses were $53.9 million and
$53.5 million in 1997 and 1996, respectively. During the third quarter
of 1998, the Company expensed $1.1 million related to a
previously-announced initial public offering ("IPO") of SPI. Excluding
the IPO costs, SG&A expenses within the distribution business grew by
$6.6 million in 1998 compared to 1997. The increase is mostly the
result of acquisitions, new center openings and expansion of existing
facilities. Distribution SG&A expenses increased $2.0 million in 1997
as higher personnel and facility lease expenses due to startup centers
were partially offset by a decrease in the provision for losses on
accounts receivable.

SG&A expenses within the contracting operations were $25.0 million,
$27.3 million and $29.5 million in 1998, 1997 and 1996, respectively.
Contracting has made steady progress in developing an overhead structure
that enables it to offer competitively-priced services while maintaining
responsiveness to customer needs. The $2.2 million reduction to SG&A
expenses in 1997 was mostly attributable to the restructuring undertaken
during 1996 by ACandS, Inc., the Company's principal contracting
subsidiary (further described in Note 15 to the accompanying financial
statements).

Operating income improved dramatically to $10.9 million in 1998, or
approximately 70% more than the $6.4 million earned in 1997 and $4.0
million above the $6.8 million earned in 1996. Operating income
expressed as a percentage of revenues was 3.4%, 2.3% and 2.5% for 1998,
1997 and 1996, respectively.

Finance and Liquidity:

The Company's working capital position remains strong after the
spin-of SPI, whose balance sheet is not included in the consolidated
balance sheet at December 31, 1998. With the spin-off, the Company will
no longer have significant working capital requirements to fund the
expansion of the distribution business. Working capital was $27.0
million at December 31, 1998 as compared to $32.3 million at December
31, 1997. Contract backlog was $37.0 million at December 31, 1998.
This level continues a trend of the past few years where secured
contract orders turn over more quickly. Generally, backlog for the
specialty contracting industry is lower than that of the overall
construction industry when measured in terms of the percentage of annual
revenues it represents. The Company's relative mix of both the type of
work (insulation, abatement, interior contracting, etc.) and the end
customer (industrial, commercial, etc.) contribute to this situation.
Contract backlog was $40.5 million and $47.6 million at December 31,
1997 and 1996, respectively,

Capital expenditures of $1.0 million in 1998 were comparable to the
$1.2 million in both 1997 and 1996. Capital expenditures for the
contracting business were $0.2 million, $0.4 million and $0.5 million in
1998, 1997 and 1996, respectively. Management does not foresee any
significant capital expenditures in the near term other than the normal
replacement of equipment.

Total debt outstanding at December 31, 1998 was $0.6 million compared
to $17.2 million at December 31, 1997. The Company was able to pay down
its outstanding lines of credit as a result of SPI's repayment of
intercompany debt at the time of spin off. Total credit facilities as
of December 31, 1998 were $22.5 million, of which $14.0 million was
available for additional short-term borrowings. Short-term debt was
used to provide funding of $3.2 million for the acquisitions made during
1997. Credit lines available continue and will continue to provide
adequate flexibility for operations. See Note 11 to the accompanying
financial statements for more information on the Company's borrowings.

Preferred Stock Issuance and Dividends:

During 1992, the Company exchanged 349,864 shares of redeemable
preferred stock for an equal number of the Company's outstanding common
shares. No shares were redeemed during 1998, and 349,673 preferred
shares remain outstanding at December 31, 1998. The common shares
exchanged were included in Treasury Stock at December 31, 1998. See
Note 13 to the accompanying financial statements for more information on
the Company's redeemable preferred stock.

Dividends on the preferred stock accrue at an annual rate of $2.80
per share. In the foreseeable future, the Company does not expect to
pay cash dividends on the outstanding common shares at December 31,
1998.

Income Taxes:

The effective tax rate was 46.8% in 1998 compared to 43.7% in 1997
and 41.6% in 1996. The Company's effective tax rate is primarily
dependent upon changes in the effective state income tax rate due to the
impact of state rate changes on deferred tax assets, as well as changes
in the sources of the Company's state taxable income.

Net deferred income tax assets were $5.7 million at December 31, 1998
compared to $7.6 million at December 31, 1997. The Company has
determined that no valuation allowance for the deferred income tax asset
is required as of December 31, 1998 and 1997, as the future realization
of such tax benefits is considered to be more likely than not through
the combination of carryback availability, certain tax-planning
strategies that would allow for acceleration of deductible temporary
differences to utilize remaining carryback availability and through
expected future taxable income. Future taxable income must be
approximately $6.3 million in order to realize the portion of deferred
tax assets not realizable through carryback availability or tax-planning
strategies.

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 contract management, sales, financial reporting and personnel
administration.

The Company has assessed the System with respect to the Year 2000
("Y2K") issue. The Company believes that all of the relevant System
applications are Y2K compliant following the installation of an upgrade
to the System software in November 1998. 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.

Additional Y2K work will focus on testing older PCs and on testing
for imbedded chip issues in equipment and property that are unrelated to
the information technology aspect of business operations ("non-IT
systems"). Management may utilize external resources to provide
guidance in determining which non-IT systems need to be assessed. Less
than $25,000 has been spent to date by the Company on Y2K compliance.
The Company projects that additional Y2K compliance costs will not
exceed $100,000. These costs will be expensed when incurred.

The Company's most likely worst case scenario for Y2K is widespread
failure of external systems on which the Company relies, such as
telephone and heat. Such failures could materially lower the volume of
the Company's revenues until these failures are corrected. The Company
has sent questionnaires to major suppliers requesting information on
their Y2K compliance. Responses received to date indicate no
interruption of service, but not all responses have been received.
Customers have not yet been surveyed concerning Y2K readiness. The
Company believes that any Y2K problems encountered with suppliers and
customers can be resolved through substitution of vendors, or through
reliance on manual systems. The Company has not developed a contingency
plan which addresses how the most reasonable likely worst case scenarios
would be handled.

(a) Quantitative and Qualitative Disclosures Regarding Market Risk:

The Company is subject to market risk associated with changes
in interest rates. The Company has not entered into any derivative
financial instruments to manage the above risks and the Company has not
entered into any market risk sensitive instruments for trading purposes.
The Company's debt consists of working capital lines of credit, with
various banks, having interest rates that float based on market rates.
Therefore, the outstanding balances recorded on the balance sheet at
December 31, 1998 approximate fair value. These lines of credit are
renegotiated annually.

Item 8. Financial Statements and Supplementary Data

1. Irex Corporation and Subsidiaries:

(a) Report of Independent Public Accountants

(b) Consolidated Balance Sheets -- December 31, 1998 and 1997

(c) Consolidated Statements of Income for the Three Years
Ended December 31, 1998, 1997 and 1996
(d) Consolidated Statements of Shareholders' Investment for
the Three Years Ended December 31, 1998, 1997 and 1996

(e) Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 1998, 1997 and 1996

(f) Notes to Consolidated Financial Statements -- December 31,
1998, 1997 and 1996

(g) Schedules:
II - Valuation and Qualifying Accounts for the Three
Years Ended December 31, 1998, 1997 and 1996

All other schedules are omitted as not applicable because
the required matter or conditions are not present.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of
Directors, Irex Corporation:

We have audited the accompanying consolidated balance sheets of Irex
Corporation (a Pennsylvania corporation) and subsidiaries as of December
31, 1998 and 1997, and the related consolidated statements of income,
shareholders' investment and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements and the
schedule referred to below are the responsibility of the Company'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 financial statements referred to above present
fairly, in all material respects, the financial position of Irex
Corporation and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index
of financial statements is for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.

Lancaster, Pennsylvania
February 24, 1999

IREX CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31
ASSETS 1998 1997

CURRENT ASSETS:
Cash and cash equivalents (Note 7) $10,485,000 $ 374,000
Receivables, less reserves of $399,000 in
1998 and $809,000 in 1997 29,719,000 54,835,000
Inventories of materials and supplies, at the
lower of cost (first-in, first-out) or market 512,000 6,138,000
Actual costs and estimated earnings
on contracts in process in excess of
billings (Notes 1 and 3) 3,750,000 4,421,000
Prepaid income taxes (Note 5) 2,398,000 225,000
Other prepaid expenses 194,000 733,000
Deferred income taxes (Notes 1 and 5) 2,543,000 4,391,000

Total current assets 49,601,000 81,117,000

PROPERTY AND EQUIPMENT,
at cost (Note 1):
Land 133,000 158,000
Buildings and improvements 1,931,000 3,487,000
Machinery and equipment 4,223,000 7,294,000
6,287,000 10,939,000

Less - Accumulated depreciation (5,288,000) (7,699,000)

999,000 3,240,000

NOTE RECEIVABLE (Note 2) 3,500,000 ---
DEFERRED INCOME TAXES (Notes 1 and 5) 3,147,000 3,170,000

OTHER ASSETS (Note 1) 624,000 1,018,000

$ 57,871,000 $ 88,545,000

LIABILITIES AND December 31
SHAREHOLDERS' INVESTMENT 1998 1997

CURRENT LIABILITIES:
Notes payable to banks (Note 11) $ 629,000 $ 17,163,000
Current portion of long-term debt
(Note 11) --- 1,876,000
Accounts payable 6,649,000 11,563,000
Billings in excess of actual costs
and estimated earnings on contracts
in process (Notes 1 and 3) 2,647,000 2,797,000
Accrued workers' compensation
insurance (Note 1) 2,342,000 2,604,000
Accrued liabilities (Note 14) 10,340,000 12,831,000
Total current liabilities 22,607,000 48,834,000

LONG-TERM DEBT, less current
portion (Note 11) --- 7,504,000

NON-CURRENT LIABILITIES
(Notes 1 and 16) 9,246,000 8,644,000

COMMITMENTS AND CONTINGENCIES
(Note 6)

REDEEMABLE PREFERRED STOCK, $1 par
value; authorized 2,000,000 shares;
issued and outstanding 349,673
shares in 1998 and 1997 (Note 13) 10,490,000 10,490,000

SHAREHOLDERS' INVESTMENT:
Common stock $1 par value;
authorized 2,000,000 shares;
issued 1,028,633shares in 1998
and 1997; outstanding 431,802
shares in 1998 and 377,934
shares in 1997 1,028,000 1,028,000
Paid-in surplus 537,000 449,000
Retained earnings 31,942,000 30,663,000
Cumulative translation adjustments
(Note 1) (292,000) (213,000)
Notes receivable (Note 9) (372,000) ---
32,843,000 31,927,000

Treasury stock, 596,831 shares in 1998
and 650,699 shares in 1997, at cost (17,315,000) (18,854,000)

Total shareholders' investment 15,528,000 13,073,000

$57,871,000 $88,545,000

The accompanying notes are an integral part of these statements.

IREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31

1998 1997 1996
REVENUES (Note 1):
Contracting $131,828,000 $128,401,000 $140,063,000
Distribution and other 183,291,000 149,749,000 131,068,000

Total revenues 315,119,000 278,150,000 271,131,000

COST OF REVENUES (Note 1) 245,101,000 217,786,000 210,851,000

Gross profit 70,018,000 60,364,000 60,280,000

SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 59,166,000 53,924,000 53,451,000

Operating income 10,852,000 6,440,000 6,829,000

INTEREST AND DIVIDEND
INCOME 139,000 18,000 101,000

INTEREST EXPENSE (2,447,000) 1,960,000) (2,007,000)

Income before
income taxes 8,544,000 4,498,000 4,923,000

INCOME TAX PROVISION
(Notes 1 and 5) 4,002,000 1,965,000 2,050,000

NET INCOME BEFORE
EXTRAORDINARY ITEM 4,542,000 2,533,000 2,873,000

EXTRAORDINARY ITEM - LOSS
ON DEBT EXTINGUISHMENT (Net
of Applicable Income Tax
Benefit of $211,000)
(Notes 5 and 11) (331,000) --- ---

NET INCOME $ 4,211,000 $ 2,533,000 $ 2,873,000

Dividend requirements
for Preferred Stock
(Note 13) (979,000) (980,000) (980,000)

NET INCOME APPLICABLE
TO COMMON STOCK $ 3,232,000 $ 1,553,000 $ 1,893,000

Income per common share -Basic
Before Extraordinary Item $ 8.54 $ 4.05 $ 4.80
Extraordinary Item (0.79) --- ---

Net Income $ 7.75 $ 4.05 $ 4.80

Income per common share - Diluted
Before Extraordinary Item $ 8.49 $ 4.00 $ 4.76
Extraordinary Item (0.79) --- ---

Net Income $ 7.70 $ 4.00 $ 4.76

The accompanying notes are an integral part of these statements.

<TABLE>
IREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
<CAPTION>

Cumulative
Common Paid-In Retained Translation Treasury Notes Comprehensive
Stock Surplus Earnings Adjustments Stock Receivable Income
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1996 $1,028,000 $465,000 $27,217,000 $(158,000) $(18,474,000) $ ---

Net income --- --- 2,873,000 --- --- --- $2,873,000
Cash dividends on
preferred stock --- --- (980,000) --- --- --- ---
Translation
adjustments --- --- --- (7,000) --- --- (7,000)
Exercise of
stock options --- (6,000) --- --- 15,000 --- ---
Repurchase of
common stock --- --- --- --- (187,000) --- ---

Comprehensive income $2,866,000

BALANCE,
DECEMBER 31, 1996 1,028,000 459,000 29,110,000 (165,000) (18,646,000) ---

Net income --- --- 2,533,000 --- --- --- $2,533,000
Cash dividends on
preferred stock --- --- (980,000) --- --- --- ---
Translation
adjustments --- --- --- (48,000) --- --- (48,000)
Issuance of
common stock --- (10,000) --- --- 57,000 --- ---
Repurchase of
common stock --- --- --- --- (265,000) --- ---
Comprehensive income $2,485,000

BALANCE,
DECEMBER 31, 1997 1,028,000 449,000 30,663,000 (213,000) (18,854,000) ---

Net income --- --- 4,211,000 --- --- --- $4,211,000
Cash dividends on
preferred stock --- --- (979,000) --- --- --- ---
Translation
adjustments --- --- --- (79,000) --- --- (79,000)
Exercise of
stock options --- (35,000) (249,000) --- 1,634,000 --- ---
Tax benefit on
stock options
exercised --- 123,000 --- --- --- --- ---
Repurchase of
common stock --- --- --- --- (95,000) --- ---
Notes receivable
for share sold --- --- --- --- --- (372,000) ---
Spin-off of
subsidiary
(Note 2) --- --- (1,704,000) --- --- --- ---

Comprehensive income $4,132,000
BALANCE,
DECEMBER 31, 1998 $1,028,000 $537,000 $31,942,000 $(292,000) $(17,315,000) $(372,000)

</TABLE>

The accompanying notes are an integral part of these statements.

IREX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31
1998 1997 1996
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 4,211,000 $ 2,533,000 $ 2,873,000
Reconciliation of net
income to net cash
provided by operating
activities-
Extraordinary loss on
extinguishment of debt,
net of tax benefit 331,000 --- ---
Depreciation and
amortization 1,524,000 1,236,000 1,195,000
Deferred income tax
provision (benefit) 809,000 623,000 114,000
Provision for losses on
accounts receivable 1,254,000 83,000 1,164,000
(Gain) loss on sale
of assets (79,000) 18,000 (26,000)
(Increase) decrease in assets-
Receivables (7,680,000) (133,000) (3,045,000)
Inventories (831,000) (667,000) (1,684,000)
Actual costs and estimated
earnings on contracts
in process in excess of
billings, net 521,000 720,000 (215,000)
Prepaid income taxes (680,000) (181,000) 303,000
Other prepaid expenses (409,000) 242,000 (338,000)
Increase (decrease) in
liabilities-
Accounts payable 6,057,000 (172,000) 2,453,000
Accrued income taxes --- (198,000) 198,000
Accrued liabilities and
other liabilities 2,503,000 (885,000) (1,059,000)
Net cash provided by
operating activities 7,531,000 3,219,000 1,933,000

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property
and equipment (964,000) (1,179,000) (1,201,000)
Proceeds from sales of
property and equipment 489,000 90,000 226,000
Acquisitions of certain
businesses, net of cash acquired
Assets, net of liabilities
assumed (7,167,000) (2,523,000) (120,000)
Intangibles (2,531,000) (930,000) (60,000)
(Increase) decrease in
other assets (69,000) (96,000) 12,000
Net cash used for
investing activities (10,242,000) (4,638,000) (1,143,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments on) borrowings from
revolving lines of credit (17,866,000) 6,055,000 3,413,000
Payments on long-term debt (9,572,000) (3,257,000) (3,257,000)
Dividends paid (979,000) (980,000) (980,000)
Reissuance of common stock 1,101,000 47,000 9,000
Repurchase of common stock (95,000) (265,000) (187,000)
Repurchase of preferred stock --- --- (6,000)
Dividend received in
spin-off transaction 7,000,000 --- ---
Repayment of
intercompany debt
in spin-off transaction 34,275,000 --- ---
Cash transferred in
spin-off transaction --- --- ---
Net cash provided by
(used for)financing
activities 12,822,000 1,600,000 (1,008,000)

NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 10,111,000 181,000 (218,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 374,000 193,000 411,000
CASH AND CASH EQUIVALENTS,
END OF YEAR $10,485,000 $ 374,000 $ 193,000

The accompanying notes are an integral part of these statements.

IREX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996

1. PRINCIPLES OF CONSOLIDATION AND ACCOUNTING POLICIES:

The following summarizes the significant accounting policies
employed by Irex Corporation (the Company) and subsidiaries.

Principles of Consolidation:

The consolidated financial statements include the accounts of Irex
Corporation and its subsidiaries, all of which are wholly owned. All
significant intercompany accounts and transactions have been eliminated
in consolidation. Certain 1997 items have been reclassified to conform
with 1998 presentation. As a result of the spin-off discussed in Note
2, the consolidated balance sheet at December 31, 1998 does not include
the balance sheet of Specialty Products & Insulation Co.

In accordance with Statement of Financial Accounting Standards No.
52, "Foreign Currency Translation," gains and losses resulting from
foreign currency transactions during the year are included in operating
results, while gains and losses resulting from translation of the
financial statements of the Company's Canadian subsidiary at the end of
the year are reflected as cumulative translation adjustments in
shareholders' investment. Foreign currency transaction gains and losses
in 1998, 1997 and 1996 were not material.

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. The cumulative translation adjustments shown on the
consolidated statements of shareholders' investment represent the total
difference between net income and comprehensive income.

Estimates and Assumptions:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

Methods of Accounting for Revenues:

Revenues from lump-sum basis construction contracts are recognized
on the percentage of completion method, measured by the percentage of
costs incurred to date to estimated total costs for each contract. This
method is used because management considers this to be the best
available measure of progress on these contracts. Revenues from time
and material contracts are recognized on the basis of costs incurred
during the period plus the fee earned.

Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs and depreciation costs. Selling, general and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in
which such losses are determined. Changes in job performance, job
conditions and estimated profitability, including those arising from
contract penalty provisions and contract settlements, result in
revisions to costs and income and are recognized in the period in which
the revisions are determined.

Distribution and other revenues consist primarily of outright sales
of purchased insulation and acoustical products.

Reserves for Certain Self-Insured Business Risks:

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.

The Company measures the estimated liability for workers'
compensation claims employing 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.

At December 31, 1998 and 1997, the estimated undiscounted liability
for workers' compensation claims was $7,352,000 and $9,346,000,
respectively. The present value of such claims was $5,795,000 and
$7,695,000, using a weighted average discount rate of 6.18% and 6.66%,
respectively.

The expected future payments as of December 31, 1998, on an
undiscounted basis, are as follows:

1999 1,643,000
2000 1,209,000
2001 857,000
2002 709,000
2003 537,000
2004 and thereafter 2,397,000

$ 7,352,000

Income Taxes:

Deferred income taxes are not provided on the undistributed earnings
of the Company's Canadian subsidiary since taxes payable upon
distribution, net of foreign tax credits, are not expected to be
significant. At December 31, 1998, the cumulative amount of such
undistributed earnings was $1,815,000.

Property and Equipment:

Property and equipment are depreciated using principally the
straight-line method over the estimated useful lives of the assets.
Expenditures for maintenance and repairs are expensed as incurred.

Classification: Estimated Useful Lives:

Buildings 15 to 30 years
Leasehold improvements 3 to 10 years
Machinery and equipment 3 to 7 years

Other Assets:

For the year ended December 31, 1998, other assets consist of
prepaid pension cost as a result of the curtailment discussed in Note 8.
For the year ended December 31, 1997, other assets primarily consist of
goodwill. Goodwill, which represents the excess of cost over fair value
of the net assets of acquired businesses, is amortized on a straight-line
basis principally over 15 years in the Company's consolidated statements
of income. Goodwill amortization was $247,000 for the year ended
December 31, 1998; it did not have a material effect on operating results
for the year ended December 31, 1997. As a result of the spin-off of the
Company's distribution subsidiary (see Note 2), the consolidated balance
sheet at December 31, 1998 does not include goodwill.

Non-Current Liabilities:

Other long-term liabilities consist of the non-current portions of
workers' compensation, insurance and postretirement benefit liabilities.

Concentration of Business:

The Company and its subsidiaries operate within the specialty
contracting industry and the distribution of products related to that
industry. Subsequent to the spin-off of its distribution subsidiary
(see Note 2), the Company continues to operate only within the specialty
contracting industry.

For the years ended December 31, 1998, 1997 and 1996, no one
customer accounted for more than 10% of revenues. The Company's
contracting and distribution businesses purchase materials for use in
contracts or resale from a limited number of major suppliers. Such
concentration is normal for the industry and does not present an
unreasonable risk or vulnerability to the Company. Based on completed
contracts, approximately 28% of contracting revenues were derived from
the power generation industry during the three-year period ended
December 31, 1998. Management believes this concentration does not
represent an unusual risk as contracts are widely dispersed by geography
and customer.

2. SPIN-OFF OF SUBSIDIARY:

On January 19, 1998, Company announced its intention to spin off one
of its subsidiaries, Specialty Products & Insulation Co. (SPI). The
Company's Board of Directors (the Board), at its February 26, 1998
meeting, approved in principle the proposed transaction in which
shareholders of Irex common stock would receive a dividend of SPI common
stock through a pro rata distribution of 100% of SPI's capital stock
(the Distribution). On December 16, 1998, the Board granted final
approval of the spin-off to the Irex shareholders of all the common
stock of SPI (the Spin-off).

The Spin-off was effected on December 31, 1998 (the Closing Date)
through the Distribution to the Company shareholders of record at the
close of business on December 28, 1998. SPI distributed these shares on
the basis of one share of SPI Stock for every fifty Irex shares held.
SPI did not issue certificates for fractional shares in the
distribution. Instead, it canceled such shares and issued cash in lieu
of fractional shares at a rate of $2,698.09 per SPI share. No
consideration was paid by the Irex shareholders for shares of SPI Stock.

The Company received an opinion of counsel to the effect that the
Distribution is not taxable to Irex and its shareholders for federal
income tax purposes. However, cash paid in lieu of fractional shares of
SPI Stock is taxable to the shareholders.

Immediately prior to the Spin-off, SPI declared a dividend of $10.5
million, which was paid to the Company as the sole shareholder of SPI.
The dividend was paid by means of $7.0 million in cash and $3.5 million
of junior subordinated notes of SPI. The pay-in-kind notes bear
interest at 10.5% and mature April 1, 2003. At the Closing Date,
immediately prior to the Distribution, total assets of SPI were $66.3
million and total liabilities were $64.6 million. The net investment of
the Company in SPI was $1.7 million at the Closing Date, immediately
prior to the Distribution. The transaction was treated as a non-cash
transaction in the accompanying consolidated financial statements.
Additionally, SPI repaid intercompany debt in the amount of $34.3
million immediately after the Spin-off.

On the Closing Date, immediately following the Distribution,
Evercore Capital Partners L.P., Evercore Capital Partners (NQ) L.P. and
Evercore Capital Offshore Partners L.P. (collectively, Evercore),
invested approximately $15.4 million in SPI in exchange for 7,113 shares
of newly-issued SPI Common Stock at the purchase price of $2,158.46 per
share. In addition, certain officers of SPI acquired 109 shares of
newly-issued Common Stock. As a result of the Distribution and
subsequent new investment, approximately 55% of SPI's Common Stock is
owned by Irex shareholders and by SPI's management, and approximately
45% is owned by Evercore.

As a result of the Spin-off, SPI is now a separate company,
primarily concentrating on specialty product distribution/fabrication in
the construction industry. The Company and its wholly owned subsidiaries
will continue to operate within the specialty contracting industry.

The following pro forma unaudited condensed consolidated statements
of income give effect to the Spin-off of SPI, and are presented as if
the Spin-off had occurred as of January 1, 1997.

The "Pro Forma" amounts represent the pro forma results of
operations of the Company after giving effect to the dividend received
from SPI and SPI's repayment of intercompany debt immediately after the
Spin-off and the elimination of operating results attributable to SPI
for the periods presented. The pro forma unaudited condensed
consolidated statements of income may not be indicative of the results
that would have been obtained had the Spin-off actually occurred on the
date assumed nor is it necessarily indicative of the future consolidated
results of operations. The Company's consolidated balance sheet at
December 31, 1998 does not include the balance sheet of SPI.

IREX CORPORATION AND SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998

UNAUDITED
PRO FORMA UNAUDITED
HISTORICAL ADJUSTMENTS PRO FORMA
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

REVENUES $ 315,119 ($ 182,924)(a) $ 132,195

COST OF REVENUES 245,101 (140,121)(a) 104,980

Gross Profit 70,018 (42,803) 27,215

SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 59,166 (34,660)(b) 24,506

Operating income 10,852 (8,143) 2,709

INTEREST EXPENSE - NET 2,308 (2,308) (c) ---

Income before income taxes 8,544 (5,835) 2,709

INCOME TAX PROVISION 4,002 (2,392) 1,610

NET INCOME BEFORE
EXTRAORDINARY ITEM $ 4,542 $ (3,443) $ 1,099

Dividend requirements
for preferred stock (979) --- (979)

NET INCOME BEFORE
EXTRAORDINARY ITEM
APPLICABLE TO COMMON
STOCK $ 3,563 $ (3,443) $ 120

Average common shares
outstanding - Basic 417,163 417,163

Effect of stock options
issued to employees
and directors 2,467 2,467
Average common shares
outstanding-Diluted 419,630 419,630
Income before
extraordinary item
per common share - Basic $ 8.54 $ 0.29

Income before
extraordinary item
per common share - Diluted $ 8.49 $ 0.29

IREX CORPORATION AND SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997

UNAUDITED
PRO FORMA UNAUDITED
HISTORICAL ADJUSTMENTS PRO FORMA
(IN THOUSANDS EXCEPT SHARE AND PER SHARE
AMOUNTS)

REVENUES $ 278,150 ($149,042)(a) $ 129,108

COST OF REVENUES 217,786 (114,946)(a) 102,840

Gross Profit 60,364 (34,096) 26,268

SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 53,924 (25,971)(b) 27,953

Operating income (loss) 6,440 (8,125) (1,685)

INTEREST EXPENSE - NET 1,942 (1,942)(c) ---

Income (loss)
before income taxes 4,498 (6,183) (1,685)

INCOME TAX PROVISION
(BENEFIT) 1,965 (2,529) (564)

NET INCOME (LOSS) $ 2,533 (3,654) $ (1,121)

Dividend requirements
for preferred stock (980) --- (980)

NET INCOME (LOSS)
APPLICABLE
TO COMMON STOCK $ 1,553 $ (3,654) $ (2,101)

Average common shares
outstanding - Basic 383,859 383,859

Effect of stock options
issued to employees
and directors 4,683

Average common shares
outstanding - Diluted 388,542

Income (loss) per common
share - Basic $ 4.05 $ (5.47)

Income (loss) per common
share - Diluted $ 4.00 $ (5.47)

(a) This adjustment includes only SPI's activity with respect to third
parties because intercompany sales and costs were eliminated in the
Company's consolidated financial statements. SPI's net sales to
affiliates were approximately $6.5 million and $9.3 million for the
twelve months ended December 31, 1998 and 1997, respectively.

(b) This adjustment includes the elimination of the estimated costs,
$206,000 in 1998 and approximately $830,000 in 1997, associated with
Irex corporate personnel who became employees of SPI during March and
April of 1998. The amount also reflects fee income from the computer
services agreement under which SPI will pay a fee, approximating
$610,000 in 1998 and 1997, to continue utilizing Irex's computer
hardware, software and systems personnel for a period of three years.
SPI has the option to terminate the computer services agreement after 18
months by notifying Irex six months prior to the date of termination.

(c) This adjustment reflects the repayment of the Company's long-term
debt and paydown of its borrowings under short-term credit facilities
with funds received from SPI immediately after the Spin-off.

3. CONTRACTS IN PROCESS:

Contracts in process as of December 31, 1998 and 1997 are comprised
of the following elements:

1998 1997

Costs and estimated earnings
on uncompleted contracts $ 73,683,000 $ 87,161,000

Less: Billings on
uncompleted contracts (72,580,000) (85,537,000)

Net $ 1,103,000 $ 1,624,000

Contracts in process as of December 31, 1998 and 1997 are reflected
in the accompanying balance sheets under the following captions:

1998 1997
Actual costs and estimated
earnings on contracts in
process in excess of billings $ 3,750,000 $ 4,421,000

Billings in excess of actual
costs and estimated earnings
on contracts in process (2,647,000) (2,797,000)

$ 1,103,000 $ 1,624,000

Actual costs incurred on contracts in process in excess of billings
includes contract costs attributable to claims in the amount of $75,000
at December 31, 1998 and 1997. Contract costs related to claims are
carried at the lower of actual costs incurred or estimated net
realizable value.

4. ACQUISITIONS

The Company completed five acquisitions during 1998 for cash
consideration and debt issued of approximately $9.7 million (plus the
assumption of $1.9 million of debt). The acquisitions included the
stock of two companies and certain assets of three additional companies,
all of which are primarily engaged in the distribution business.

The Company completed three acquisitions during 1997 for cash
consideration of approximately $3.5 million. The acquisitions included
the stock of one company and certain assets of two additional companies,
all of which are primarily engaged in the distribution business.

The acquisitions were accounted for using the purchase method of
accounting, and the financial statements reflect the results of
operations and cash flows of the operations from the dates of
acquisitions. Had the acquisitions occurred at the beginning of the
periods presented, revenues and operating income would not have been
materially different from reported results.

The Company's distribution subsidiary completed the above
acquisitions prior to the spin-off described in Note 2.

5. INCOME TAXES:

The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109). Deferred income taxes are computed based on the differences
between financial reporting and income tax reporting bases of assets and
liabilities using enacted tax rates. The impact of changes in tax rates
is reflected in income in the period in which the change is enacted. In
conformity with SFAS 109, deferred tax assets are classified based on
the financial reporting classification of the related liabilities and
assets which give rise to temporary book/tax differences. Deferred
taxes relate to the following temporary differences:

1998 1997

Insurance reserves $ 5,521,000 $ 6,470,000
Bad debt reserves 133,000 305,000
Uniform cost capitalization
on inventories 26,000 477,000
Pension and other benefits 7,000 352,000
Contracts 54,000 97,000
Other (51,000) (140,000)
$ 5,690,000 $ 7,561,000

The Company has determined that no valuation allowance for the
deferred tax asset is required as of December 31, 1998 and 1997, as the
future realization of such tax benefits is considered to be more likely
than not through the combination of carryback availability, certain tax
planning strategies that would allow for acceleration of deductible
temporary differences to utilize remaining carryback availability and
through expected future taxable income.

Income before income taxes is comprised of the following components:

1998 1997 1996

Domestic $ 7,444,000 $ 4,390,000 $ 4,809,000
Foreign 1,100,000 108,000 114,000
$ 8,544,000 $ 4,498,000 $ 4,923,000

Income tax provision consists of:

1998 1997 1996
Currently payable:
Federal $ 2,473,000 $ 1,028,000 $ 1,749,000
State 170,000 260,000 130,000
Foreign 550,000 54,000 57,000

Total currently
payable 3,193,000 1,342,000 1,936,000

Deferred:
Federal 99,000 602,000 (67,000)
State 710,000 21,000 181,000

Total deferred 809,000 623,000 114,000

Total $4,002,000(1) $ 1,965,000 $ 2,050,000

(1) Excludes benefit of $211,000 from the extraordinary loss
incurred as a result of the early extinguishment of long-term debt (see
Note 11).

The effective income tax rate is different from the statutory
Federal income tax rate as indicated below:

1998 1997 1996

Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes ($880,000,
$281,000 and $311,000), net
of federal benefit 6.8 4.1 4.2
Meals and entertainment
(50% disallowance) 2.4 4.5 3.1
Effects of foreign taxes 2.1 0.4 0.4
Other, net 1.5 0.7 (0.1)

Effective income tax rate 46.8% 43.7% 41.6%

The changes in the effective state income tax rate are due to the
impact of state rate changes on deferred tax assets, as well as changes
in the sources of the Company's state taxable income.

6. CLAIMS AND CONTINGENCIES:

7. CONSOLIDATED STATEMENTS OF CASH FLOWS:

The Company considers all highly liquid investments with a maturity
of three months or less at the time of purchase to be cash equivalents.
The effect of changes in foreign exchange rates on cash balances in
1998, 1997 and 1996 was not material.

The Company's income tax and interest payments are summarized below:

1998 1997 1996

Income taxes
(net of refunds) $ 3,560,000 $ 1,708,000 $ 1,548,000
Interest $ 3,013,000 $ 2,005,000 $ 2,054,000

8. EMPLOYEE BENEFIT PLANS:

Defined Benefit Pension Plan:

The Company and its subsidiaries have a defined benefit pension plan
covering substantially all of their salaried employees. The benefits
under the plan are based on years of service and salary levels. The
Company's policy is to fund pension costs in accordance with the
requirements of the Employee Retirement Income Security Act of 1974.

The Company's Board of Directors ("Board") adopted a resolution to
amend the defined benefit pension plan effective May 1, 1998. The
amendment suspends the plan, thereby freezing the accrued benefits of
all plan participants and discontinuing future benefit accruals. Under
the provisions of SFAS No. 88, "Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination
Benefits," freezing the benefits resulted in the recognition of a
curtailment gain of $869,000 in 1998 for the decrease in the Company's
benefit obligation. The gain was reported in the Company's consolidated
statement of income as a reduction to selling, general and
administrative expenses.

Actuarially computed net pension expense includes the following
components:

1998 1997 1996
Service cost-benefits earned
during the period $ 185,000 $ 517,000 $ 608,000

Interest cost on projected
benefit obligation 573,000 551,000 524,000

Expected return on plan assets (614,000) (631,000) (532,000)

Amortization of prior
service cost (3,000) (8,000) (8,000)

Recognized net actuarial
(gain) loss (20,000) (33,000) 18,000

Effect of curtailment gain (869,000) --- ---

Net pension expense $(748,000) $396,000 $ 610,000

The following table sets forth the plan's funded status and amounts
recognized in the consolidated balance sheets at December 31, 1998 and
1997:

1998 1997
Change in projected benefit obligation:
Projected benefit obligation
at beginning of year $ 8,760,000 $ 7,698,000
Service cost 185,000 517,000
Interest cost 573,000 551,000
Benefit payments (286,000) (244,000)
Actuarial loss 3,651,000 238,000
Projected benefit obligation
before special events 12,883,000 8,760,000
Curtailments (2,364,000) ---
Projected benefit obligation
at end of year $10,519,000 $ 8,760,000

Change in fair value of plan assets:
Fair value of plan assets
at beginning of year $ 8,759,000 $ 7,547,000
Employer contributions 775,000 ---
Benefit payments (428,000) (356,000)
Actual return on assets 1,765,000 1,568,000
Fair value of plan assets
at end of year $10,871,000 $ 8,759,000

Funded status 352,000 (1,000)
Unrecognized prior service cost --- (121,000)
Unrecognized net actuarial loss (gain) 330,000 (719,000)
Prepaid (accrued) benefit cost $ 682,000 $ (841,000)

Assumptions used were:
1998 1997
Weighted average discount rates 5.75% 7.25%
Rates of increase in future
compensation levels N/A 5.00%
Expected long-term rate of
return on assets 6.70% 8.50%

A substantial number of the hourly employees of the Company's
subsidiaries are covered by union-sponsored, collectively bargained,
multiemployer pension plans. The Company contributed approximately
$5,736,000 in 1998, $5,297,000 in 1997 and $6,146,000 in 1996 to such
plans. Information is not available from the plans' administrators to
permit the Company to determine its share of the unfunded vested
benefits of these plans.

Postretirement Benefits Other Than Pensions:

In addition to providing pension benefits, the Company and its
subsidiaries provide certain health care benefits under company-sponsored
plans for the majority of retired salaried employees. Active salaried
employees who were at least age 55 and had 10 years of consecutive
service at January 1, 1990 are eligible for these benefits upon
retirement. Also, active salaried employees of the Company whose
age plus years of service equaled at least 55 at January 1, 1990 are
eligible for these benefits upon retirement when they attain age 62 as
long as such employees have either 20 years of service or their age plus
years of service equals 90 upon retirement. Cash payments of up to
$60.00 per month are given to retirees over age 65 to purchase
supplemental Medicare coverage. Eligible retirees under age 65 are
fully covered by the Company's insurance plan. The number of retirees
under age 65 currently participating in the plan is not significant.

The expected cost of these benefits is charged to expense during the
years that the employees render service. The transition obligation is
being amortized over 20 years.

Actuarially computed net periodic postretirement benefit cost
included the following components:

1998 1997 1996

Service cost-benefits earned
during the period $ 5,000 $ 6,000 $ 8,000
Interest cost on accumulated
postretirement benefit
obligation 61,000 68,000 71,000
Expected return on plan assets --- --- (9,000)
Amortization of transition
obligation 48,000 48,000 48,000
Recognized net actuarial gain (26,000) (30,000) (28,000)

Net periodic postretirement
benefit cost $ 88,000 $ 92,000 $ 90,000

The following table sets forth the plan's funded status and amounts
recognized in the consolidated balance sheet at December 31, 1998 and
1997:

1998 1997
Change in projected benefit obligation:
Projected benefit obligation
at beginning of year $ 927,000 $ 956,000
Service cost 5,000 6,000
Interest cost 61,000 68,000
Benefit payments (100,000) (101,000)
Actuarial gain (10,000) (2,000)
Projected benefit obligation
at end of year $ 883,000 $ 927,000

Change in fair value of plan assets:

Fair value of plan assets
at beginning of year --- $ 51,000
Employer contributions 100,000 73,000
Benefit payments (100,000) (126,000)
Actual return on assets --- 2,000
Fair value of plan assets
at end of year $ --- $ ---

Funded status (883,000) (927,000)
Unrecognized transition obligation 673,000 721,000
Unrecognized net actuarial gain (272,000) (289,000)
Accrued benefit cost $ (482,000) $ (495,000)

For measurement purposes, a 13% annual rate of increase in the per
capita cost of covered health care benefits was assumed for calendar
1997; the rate was assumed to decrease to 10% for the years 1998 through
2000, decrease again to 7% in 2001 and remain level thereafter. Due to
the provisions of the plan, increasing the assumed health care cost
trend rates by one percentage point in each year would not have a
significant impact on the accumulated postretirement benefit obligation
or the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1998.

The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 6.75% and 7.25% at
December 31, 1998 and 1997, respectively.

Other:

The Company and its subsidiaries have incentive compensation plans
covering substantially all of their officers and key employees.
Incentive compensation for 1998 was primarily based on after-tax
earnings in excess of the cost of capital. For 1997, the Company and
each of its subsidiaries used a separate measurement basis to determine
incentive compensation. Rate of return on assets, earnings before
interest and taxes and after-tax earnings in excess of the cost of
capital each served as the basis in one of the various incentive plans.
Incentive compensation for 1996 was primarily dependent upon the rate of
return on assets of the Company's subsidiaries and their particular
district or branch offices and the net income of the Company. Total
incentive compensation expense was $3,831,000 for 1998, $2,337,000 for
1997 and $2,621,000 for 1996.

The Company and its contracting subsidiaries also maintain a defined
contribution savings incentive 401(k) plan covering substantially all U.
S. salaried employees. Effective June 1, 1998, the Company's
distribution subsidiary created a separate 401(k) plan for its salaried
employees. Contributions to the savings incentive plan are based on
specified percentages of employee contributions to the plan. Expense
for these plans was $835,000 in 1998, $616,000 in 1997 and $726,000 in
1996.

Prior to May 1, 1998, the Company also maintained an employee stock
ownership (ESOP) plan. On this date, however, the Board adopted a
resolution which merged the ESOP plan into the 401(k) plan. The
resolution stipulates that (a) no future contributions be made to the
ESOP, (b) prior ESOP balances become 100 percent vested and (c) account
balances be held as a component of the 401(k) plan but no longer be
designed to invest primarily in Company securities.

Contributions to the ESOP plan were discretionary and the Company
recorded no expense for the plan in 1998 and 1997. Expense for 1996 was
$104,000.

9. STOCK OPTION PLANS:

Prior to January 2, 1998, the Company maintained two non-qualified
stock option plans providing for the issuance to key employees and
outside directors of up to 80,000 options to purchase shares of the
Company's common stock. Generally, options outstanding under the
Company's stock options plans: (i) are granted at prices which equate to
the fair market value of the stock on the date of grant, (ii) vest over
periods of one to three years, and (iii) expire ten years subsequent to
date of grant.

On January 2, 1998 the plan applicable to outside directors
terminated under the provisions specifying that options be granted
January 1 of each year for a five-year period beginning January 1, 1994.

Following is a summary of the status of the number of stock options as
of December 31, 1998, 1997, and 1996, and the activity during the year
ended on those dates, along with the range of exercise prices for
options outstanding at year end:

1998 1997 1996
Weighted Avg. Weighted Avg. Weighted Avg.
Shares Exer. Shares Exer. Shares Exer.
Price Price Price

Options Outstanding at
Beginning of Year 51,850 $23.48 49,350 $23.83 51,350 $24.27
Options Granted 4,000 27.50 8,600 21.88 9,550 22.13
Options Exercised (55,850) 23.77 --- --- (500) 16.25
Options Expired
or Canceled --- --- (6,100) 24.02 (11,050) 24.77
Options Outstanding
at End of Year --- --- 51,850 $23.48 49,350 $23.83

Range of Exercise Prices of
Options Outstanding $16.125- $16.125-
$31.00 $31.00

Options Exercisable
End of Year None 41,350 28,100

Options Available
for Future Grant 23,150 27,150 29,650
Weighted Average Fair Value
of Options Granted
During the Year $ 2.63 $ 3.79 $ 2.88

During 1996, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation." As
provided for in the statement, the Company elected to continue the
intrinsic value method of expense recognition.

Had compensation cost for the stock option plans been determined
using the fair value method prescribed by SFAS 123, the Company's net
income applicable to common stock and net income per common share would
approximate the proforma amounts below:

1998 1997 1996

Net Income Applicable to Common Stock
As reported $3,232,000 $1,553,000 $1,893,000
Proforma $3,226,000 $1,534,000 $1,877,000

Net Income Per Common Share
As reported - Basic $ 7.75 $ 4.05 $ 4.80
As reported - Diluted $ 7.70 $ 4.00 $ 4.76
Proforma - Basic $ 7.73 $ 4.00 $ 4.76
Proforma - Diluted $ 7.69 $ 3.95 $ 4.72

The proforma effect of applying SFAS 123 in this disclosure for 1998,
1997 and 1996 is not necessarily representative of the proforma amounts
for future years.

The following tables summarize certain information about stock
options outstanding at December 31, 1998, 1997 and 1996:

----Options Outst.----- ---Options Exer.--
Wgtd. Wgtd. Wgtd.
Avg. Avg. Avg.
No. Remain. Exer. No. Exer.
Outst. Life Price Exer. Price

At December 31, 1998
None

At December 31, 1997
$16 to $23 31,750 7.4 $18.72 21,250 $17.13
$24 to $31 20,100 3.7 $31.00 20,100 $31.00
$16 to $31 51,850 6.0 $23.48 41,350 $23.87

At December 31, 1996
$16 to $23 27,250 8.0 $18.01 6,000 $16.19
$24 to $31 22,100 4.7 $31.00 22,100 $31.00
$16 to $31 49,350 6.5 $23.83 28,100 $27.84

The fair value of each option granted during 1998, 1997 and 1996 is
estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions: (i) expected volatility of 17.0%
for options granted in 1998, 17.0% and 23.0% for options granted in 1997
and 10.7% for options granted in 1996, (ii) risk-free interest rates of
5.5% for options granted in 1998, 5.6% and 6.1% for options granted in
1997; 5.2% and 5.3% for options granted in 1996; (iii) expected lives
of one year and three years, and (iv) no dividend yield.

During 1998, employees and directors of the Company exercised a total
of 37,850 stock options granted in the years 1990 through 1995. On
February 26, 1998, the Company's Board of Directors passed a resolution
that all employee stock options granted in 1996 and 1997 and director
options granted in 1998 became fully vested immediately. Subsequent to
the Board's action, employees and directors of the Company exercised an
additional 18,000 stock options which had been granted in 1996, 1997 and
1998. The Company received a note in lieu of cash for approximately 25%
of the options exercised during 1998. The table below sets forth the
year of grant for those options exercised during 1998:

Year Granted Number Exercised
1990 through 1994 34,850
1995 3,000
1996 6,200
1997 7,800
1998 4,000

10. INCOME PER COMMON SHARE

In 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128 "Earnings Per Share." SFAS No. 128 requires
dual presentation of basic and diluted earnings per share on the face of
the income statement for all entities with complex capital structures.
The Company's basic income per share is calculated as income available
to common shareholders divided by the weighted average number of shares
outstanding. For diluted income per share, income available to common
shareholders is divided by the weighted average number of shares
outstanding plus the incremental number of shares added as a result of
converting common stock equivalents, as calculated using the treasury
stock method. The Company's common stock equivalents consist solely of
outstanding stock options.

Income per share for 1996 was restated as a result of the Company's
adoption of SFAS No. 128.

Average Per-Share
Income Shares Amount
FOR THE YEAR ENDED 1998

Income per Common Share - Basic
Income before extraordinary items
available to common shareholders $ 3,563,000 417,163 $ 8.54
Extraordinary items (331,000) (0.79)
Income available to
common shareholders $ 3,232,000 $ 7.75
Options issued to
Directors (Note 9) 2,467
Income per Common Share - Diluted
Income before extraordinary
items available to common
shareholders $ 3,563,000 419,630 $ 8.49
Extraordinary items (331,000) (0.79)
Income available to common
shareholders $ 3,232,000 $ 7.70

FOR THE YEAR ENDED 1997

Income per Common Share - Basic
Income available to common
shareholders $ 1,553,000 383,859 $ 4.05
Options issued to Employees
and Directors (Note 9) --- 4,683
Income per Common Share - Diluted
Income available to common
shareholders $ 1,553,000 388,542 $ 4.00

FOR THE YEAR ENDED 1996

Income per Common Share - Basic
Income available to common
shareholders $ 1,893,000 394,653 $ 4.80
Options issued to Employees and
Directors (Note 9) --- 2,818
Income per Common Share - Diluted
Income available to common
shareholders $1,893,000 397,471 $ 4.76

Options to purchase approximately 20,100 shares of common stock at
$31 per share were outstanding during 1997 but were not included in the
computation of diluted EPS because the options' exercise price was
greater than the average market price of the common shares.

11. BORROWINGS:

Bank Borrowings:

At December 31, 1998, the Company had unsecured credit facilities
with several banks totaling $22,500,000. These facilities provide for
borrowings under lines of credit ($629,000 outstanding at December 31,
1998) and letters of credit. At December 31, 1997, there were
outstanding borrowings of $17,163,000 under the unsecured lines of
credit. At December 31, 1998, there was availability under these
unsecured credit facilities for additional borrowings of $13,963,000.
These unsecured credit facilities are renegotiated annually and bear
interest at not more than the prime rate. (The weighted average
interest rate was 6.7% at December 31, 1998 and 6.9% at December 31,
1997.) In addition, the Company is required to maintain certain
financial ratios, as defined in the respective agreements. The Company
maintains deposits at several banks, which serve various corporate
purposes including the support of its lines of credit available or in
use.

Long-Term Debt:

Long-term debt consists of the following at December 31, 1998 and 1997:

1998 1997

9% unsecured senior notes payable
in equal annual installments
from May 1, 1996 to 2002 $ --- $ 9,286,000

Other long-term debt --- 94,000

Total --- 9,380,000
Less current portion --- 1,876,000

$ --- $ 7,504,000

As a result of the spin-off of the Company's distribution subsidiary,
the Company was required to repay the 9% unsecured senior notes. The
Company incurred a prepayment penalty of $499,000. This amount, along
with the writeoff of the remaining deferred financing costs, is
reflected as an extraordinary loss on extinguishment of debt in the
Company's consolidated statement of income for the year ended December
31, 1998.

Based on the borrowing rates currently available to the Company for
bank loans with similar terms and average maturities, the estimated fair
market value of long-term debt was $9,543,000 as of December 31, 1997.

12. LEASE COMMITMENTS:

The Company leases warehouses, sales offices and computer equipment
under noncancelable lease agreements. Rental expense for all operating
leases was $7,082,000 in 1998, $5,877,000 in 1997, and $5,721,000 in
1996. As of December 31, 1998, the future minimum rental commitments
under noncancelable leases that have terms in excess of one year are as
follows:

1999 $ 617,000
2000 489,000
2001 160,000
2002 70,000
2003 14,000
Subsequent years ---
Total minimum rental
rental obligations $1,350,000

13. REDEEMABLE PREFERRED STOCK:

During 1992, the Company offered to exchange one share of preferred
stock with a par value of $1 per share for each share of the Company's
outstanding common stock up to a maximum of 350,000 common shares (the
Offer). A total of 349,864 common shares were exchanged in December
1992 in accordance with the Offer.

Dividends on the preferred stock accrue at an annual rate of $2.80
per share. Such dividends are cumulative and payable quarterly in
arrears commencing January 1, 1993. At December 31, 1998 and 1997, the
Company had accrued $137,000 and $245,000, respectively, for such
dividends. In the foreseeable future, the Company does not expect to
pay cash dividends on the outstanding common shares at December 31,
1998. The preferred stock is nonvoting except in certain circumstances.

On or after February 1, 1998, the Company may, at its option, redeem
the preferred stock, in whole or in part, initially at $31.50 per share
and declining to $30 per share on and after February 1, 2003, plus
accrued and unpaid dividends. Prior to February 1, 2013, the Company
will not have the right to redeem shares of preferred stock which have
been continuously owned beneficially by the holder thereof since the
issuance of the preferred stock in connection with the Offer, if such
holder elects to prohibit such redemption.

On December 1, 1998, and on each December 1 thereafter through and
including December 1, 2012, the Company will be obligated to redeem
shares of the preferred stock that any holders thereof have requested
the Company to redeem at $30 per share, plus accrued and unpaid
dividends, subject to an annual limitation on the number of shares that
the Company will be obligated to redeem.

The preferred stock has a liquidation value of $30 per share, plus
accrued and unpaid dividends thereon. The payment of dividends on, and
the redemption of, the preferred stock may be restricted by the terms of
Company loan agreements or by the terms of future financing
arrangements.

14. ACCRUED LIABILITIES:

The components of accrued liabilities as of December 31, 1998 and
1997 are as follows:

1998 1997

Salaries and wages $ 2,744,000 $ 2,590,000
General, auto and other
liability insurance 3,560,000 5,746,000
Other 4,036,000 4,495,000
$10,340,000 $12,831,000

15. RESTRUCTURING:

During 1996, the Company's principal contracting subsidiary, ACandS,
Inc., underwent an organizational restructuring. This restructuring
involved integrating numerous semi-autonomous branches into three highly
integrated regions in the interest of reducing administrative expenses
and providing more responsive services to customers. In conjunction
with this restructuring, ACandS, Inc. incurred expenses of approximately
$500,000, which primarily consisted of severance pay and lease
termination costs. Although the restructuring was essentially completed
during 1996, approximately $145,000 of expenses are included in 1997
results.

16. NON-CURRENT LIABILITIES:

The components of non-current liabilities as of December 31, 1998 and
1997 are as follows:

1998 1997
Workers compensation and
other insurance $ 8,735,000 $ 7,820,000
Retirement benefits 511,000 824,000

$ 9,246,000 $ 8,644,000

17. SEGMENT REPORTING

The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", during the fourth quarter of 1998.
SFAS No. 131 establishes standards for public companies to report
certain information about operating segments in annual financial
statements and also requires that selected information about operating
segments be included in interim financial reports to shareholders. It
also establishes standards for related disclosures about products and
services, including the geographic areas in which business is conducted.

Operating segments are defined as components of an enterprise about
which discrete financial information is available, and whose operating
results are regularly evaluated by the chief operating decision maker
(or group that functions in such capacity) in assessing performance and
deciding how to allocate resources. The Company's chief operating
decision-making group is the Management Council which, prior to the spin
off of its distribution subsidiary (see Note 2), consisted of the
Company's president (Chief Executive Officer), two senior vice
presidents (General Counsel/Secretary and Finance/Administration) and
the presidents of each of the Company's operating subsidiaries. The
Company consists of two distinct strategic business units: a specialty
contracting group and a distribution/fabrication group.

The Company's reportable operating segments include Distribution,
Contracting and Other. The Distribution segment consists of Specialty
Products & Insulation Co., which is primarily a distributor and
fabricator of mechanical insulation, architectural/acoustical products
and specialty products. The Contracting segment includes wholly owned
subsidiaries, which primarily engage in mechanical insulation,
abatement, fire protection and interior finish contracting. The Other
segment consists of the parent company which provides various
administrative and management services to the Distribution and
Contracting segments and a Delaware investment company.

The accounting policies of the operating segments are consistent with
those described in the summary of significant accounting policies except
that the separate financial results for the operating segments have been
prepared using a management approach, which is consistent with the basis
and manner in which management internally allocates costs associated
with the Company's central administration and support. Central
administrative costs are alllocated for the purpose of assisting in
making internal operating decisions. The Company evaluates performance
based on net income of the operating segments and generally accounts for
intersegment sales as if the sales were made to third parties at current
market prices.

(in thousands)
Distr. Contr. Other Elim. Total
1998
Net revenues from
external customers $182,924 $132,195 $ --- $ --- $315,119
Intersegment net
revenues 6,477 --- --- (6,477) ---
Total net revenues 189,401 132,195 --- (6,477) 315,119

Depreciation and
amortization 1,010 354 160 --- 1,524
Interest and
dividend income 81 27 1,805 (1,774)(b) 139
Interest expense 2,349 764 1,108 (1,774)(b) 2,447
Income tax expense 2,238 1,123 430 --- 3,791
Net income 3,103 378 730 --- 4,211
Segment assets --- (a) 43,252 35,351 (20,732)(c) 57,871
Capital expenditures 692 229 43 --- 964

1997
Net revenues from
external customers $149,042 $129,108 $ --- $ --- $ 278,150
Intersegment net
revenues 9,312 --- --- (9,312) ---
Total net revenues 158,354 129,108 --- (9,312) 278,150

Depreciation and
amortization 640 421 175 --- 1,236
Interest and
dividend income 4 6 1,942 (1,934)(b) 18
Interest expense 1,943 1,058 893 (1,934)(b) 1,960
Income tax expense
(credit) 1,918 (643) 690 --- 1,965
Net income (loss) 2,759 (1,474) 1,248 --- 2,533
Segment assets 48,760 47,819 22,963 (30,997)(c) 88,545
Capital expenditures 559 422 198 --- 1,179

1996
Net revenues from
external customers $129,038 $142,093 $ --- $ --- $271,131
Intersegment net
revenues 12,762 --- --- (12,762) ---
Total net revenues 141,800 142,093 --- _(12,762) 271,131

Depreciation and
amortization 558 388 249 --- 1,195
Interest and
dividend income 4 19 1,866 (1,788)(b) 101
Interest expense 1,858 730 1,207 (1,788)(b) 2,007
Income tax expense
(credit) 1,516 (228) 762 --- 2,050
Net income (loss) 2,221 (758) 1,410 --- 2,873
Segment assets 38,698 53,592 22,810 (29,775)(c)85,325
Capital expenditures 559 476 166 --- 1,201

(a) The Company's consolidated balance sheet at December 31, 1998 does
not include the Distribution segment as a result of the spin-off of SPI
at December 31, 1998. SPI's total assets at December 31, 1998 were
$66.3 million.

(b) The Distribution and Contracting segments, in addition to the
parent company, have indebtedness with IFC in the form of long-term
unsecured notes. SPI's note was repaid December 31, 1998 as a condition
of the spin-off discussed in Note 2. The parent company also provides a
borrowing facility for the Distribution and Contracting segments, which
receive credit for cash deposited or charges for working capital needed.
Based upon activity within the intercompany account, the Distribution
and Contracting segments are charged interest expense.

<TABLE>
IREX CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 31, 1998
<CAPTION>

Balance at Additions Deductions Balance
Beginning Charged to from Spin-off at End
of Period Income Reserve of Subsidiary of Period
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM BALANCE SHEET
CAPTION TO WHICH IT APPLIES:
Reserve for Doubtful Accounts -

Year Ended December 31, 1996 $1,440,000 $1,164,000 $(1,014,000) --- $1,590,000
Year Ended December 31, 1997 $1,590,000 $ 83,000 $ (864,000) --- $ 809,000
Year Ended December 31, 1998 $ 809,000 $1,254,000 $ (821,000) $(843,000) $ 399,000

</TABLE>

Item 9. Disagreements on Accounting and Financial Disclosure

Not Applicable

PART III

Item 10. Directors and Executive Officers:

(a) Identification of Directors

Positions and Offices Held Period Held
Name (Age) and Other Directorships From To

William W. Adams (64) Director, Irex Corporation 1996 1998
(2) Chairman and President, 1988 1993
Armstrong World Industries, Inc.
Director, High Industries, Inc.
(steel, real estate and
other service company)
Director, Specialty Products
& Insulation Co.
(distributor and fabricator
of mechanical insulation and
architectural products)

Carlton E. Hughes (67) Director, Irex Corporation 1980 2000
(1) (4) Chairman, Stewart-Amos Steel, Inc.
(steel fabricator)
Director, Arnold Industries, Inc.

Joanne M. Judge (46) Director, Irex Corporation 1993 1999
(2) (3) Attorney, Stevens & Lee 1996 Present
President and Chief
Executive Officer, 1987 1993
Community Hospital of Lancaster

David C. Kleinman (63) Director, Irex Corporation 1984 1999
(3) Adjunct Professor of
Strategic Management
University of Chicago
Graduate School of Business
Management Consultant
Director, Sonic Foundry, Inc.1997 Present
Director, Inter-Americas
Communication Corp. 1977 Present
Director, Acorn Funds 1972 Present
(Diversified Common
Stock Mutual Funds)
Director, Plymouth Tube Co. 1993 Present
Director, Wisconsin Paper 1994 Present
and Products Co.

Michael J. Lardner (55) Director, Irex Corporation 1989 1998
(2) Chairman, Wide World of Golf 1996 Present
President and Chief Operating Officer
High Construction, Inc. 1993 1996
(general contractor)
President, Chief Operating 1989 1992
Officer, Director, Horst Group

W. Kirk Liddell (49) Director, Irex Corporation 1980 2000
(1) (3) - Ex officio President and CEO,
w/o vote Irex Corporation
Director, High Industries, Inc.
(steel, real estate and
other service company)
Director, Specialty Products
& Insulation Co.
(distributor and fabricator
of mechanical insulation and
architectural products)

Wilson D. McElhinny (69) Director, Irex Corporation 1975 1999
(1) (3) (4) Director, Educators Mutual Life
Insurance Company
Director, Hunt Manufacturing Company
(office and art/craft product
manufacturer)

John O. Shirk (55) Director, Irex Corporation 1987 2000
(1) (4) Partner, Barley, Snyder, Senft
and Cohen (law firm)
Director, Fulton Financial Corporation
(bank holding company)
Director, Educators Mutual Life
Insurance Company
Director, The Horst Group
Director, Specialty Products
& Insulation Co.
(distributor and fabricator
of mechanical insulation and
architectural products)

N. Thompson Washburn (69)Director, Irex Corporation 1980 1998
(1) (2) (4) Administrative Consultant,
Getty Realty Corporation

(1) - Member of the Executive Committee
(2) - Member of the Finance and Audit Committee
(3) - Member of the Governance Committee
(4) - Member of the Compensation and Benefits Committee

Note: Unless otherwise indicated, principal
occupations listed were the same for the past five
years.

(b) Identification of Executive Officers
Positions and Offices Held
Name (Age) During Past Five Years

W. Kirk Liddell (49) President and Chief Executive Officer

James E. Hipolit (48) Senior Vice President, General Counsel
and Secretary since April 1997
Vice President, General Counsel
and Secretary from 1996 to April 1997
Vice President and General Counsel from
1986 to 1996

Jane E. Pinkerton (59) Senior Vice President Finance and
Administration since April 1997
Vice President, Finance and Administration
from 1996 to April 1997
Vice President, Administrative Services
and Secretary from 1992 to 1996;
Vice President and Director of Personnel
from 1988 to 1992

(d) Not Applicable.

(e) Business Experience. A brief account of the business experience
during the past five years of each director or executive officer and the
other directorships of registered companies held by each director has
been provided above.

(f) Involvement in Certain Legal Proceedings. None

(g) Not Applicable.

Item 11. Executive Compensation

Summary Compensation Table:

The following table sets forth information required concerning cash
and noncash compensation of the Chief Executive Officer and the four
other most highly compensated executive officers for each of the last
three fiscal years.

Long-Term All Other
Name and Principal Annual Compensation Compensation Compensation
Positions Year Salary($) Bonus($) Options(#) ($)
(1) (2)

W. K. Liddell 1998 300,000 225,000 - 8,800
President and Chief 1997 296,000 58,608 (3) 500 8,116
Executive Officer 1996 274,000 145,768 (3) 450 6,750

J. E. Hipolit 1998 128,200 78,330 8,800
Senior Vice President, 1997 124,400 31,548 200 8,011
General Counsel and 1996 119,400 50,435 150 5,974
Secretary

J. E. Pinkerton 1998 120,700 74,040 - 8,800
Senior Vice President, 1997 116,200 29,468 200 7,831
Finance and 1996 103,700 42,686 150 5,021
Administration

D. F. Andrew (3) 1998 117,500 75,001 - 8,053
President, ACandS, Inc. 1997 108,500 7,387 200 6,316
1996 - - 150 5,081

Dennis R. Gray (4) 1998 104,800 76,041 - 6,710
Vice President, 1997 - - 200 6,505
ACandS, Inc. 1996 - - 150 5,961

(1) Bonus amounts for the year represent bonuses accrued for the
calendar year listed but paid in the following calendar year.

(2) Includes amounts earned under the Company's Savings Incentive Plan.

Savings Incentive Plan: The Company offers a Savings Incentive Plan for
all salaried employees whereby they can elect to contribute up to 15% of
their salary and incentive compensation into accounts in their names
which are independently managed and invested. Pursuant to amendments
adopted by the Board of Directors which became effective January 1, 1985,
the employees' contributions to the Plan were made in accordance with the
provisions of Section 401(k) of the Internal Revenue Code. (The Company
match is 125% of the first 3% of employee contributions and 75% of the
next 3% of employee contributions. One-fourth of the Company's match is
subject to the Company achieving a specific financial performance
target.)

Employee Stock Ownership Plan: Prior to May 1, 1998, the Company also
maintained an employee stock ownership (ESOP) plan. On this date,
however, the Board adopted a resolution which merged the ESOP plan into
the 401(k) plan. The resolution stipulates that (a) no future
contributions be made to the ESOP, (b) prior ESOP balances become 100
percent vested and (c) account balances be held as a component of the
401(k) plan but no longer be designed to invest primarily in Company
securities. Effective May 1, 1998, this Plan was merged into the Savings
Incentive Plan.

On December 31, 1998, there were 150 employees of the Company and its
subsidiaries eligible to participate in the Savings Incentive Plan and a
total of 43,136 shares of common stock were held by such Plan.

(3) Mr. Andrew is included in his capacity as President of major wholly
owned subsidiary of the Company.

(4) Mr. Gray is included in his capacity as Vice President of a major
wholly owned subsidiary of the Company.

Stock Option Plans:

On February 28, 1990, the Board of Directors of the Company adopted
the Irex Corporation Non-Qualified Stock Option Plan under which options
to purchase not more than 200,000 shares of the Company's common stock
may be granted over the next ten years to employees of the Company and
its subsidiaries. The number of shares available for options was reduced
during 1995 from 200,000 shares to 55,000 shares. The recipients of
options and the number of options granted to them are determined by the
Compensation and Benefits Committee of the Board of Directors. Unless
otherwise determined by the Compensation and Benefits Committee, no
option may be exercised before three years nor more than ten years after
the date of grant. On February 26, 1998, the Board of Directors
eliminated the three-year vesting requirement with respect to options
granted during 1996 and 1997.

On July 20, 1994, the Board of Directors amended the plan to provide
that Fair Market Value on the date of the grant shall be defined as (i)
the mean between the highest and lowest prices of actual sales of Shares
on the principal national securities exchange on which the Shares are
listed on such date, or, (ii) if there are no such sales on such date,
the mean between the closing bid and asked prices of the Shares on such
exchange on such date, or, (iii) if the Shares are not listed on any
national securities exchange, the mean between the closing high bid and
low asked prices of the Shares in over-the-counter trading as identified
by the National Quotation Bureau or other comparable source selected by
the Committee, or (iv) if the Committee determines that the mean is not
an accurate reflection of the market value of the Shares, the fair market
value as determined for purposes of the Company's Employee Stock
Ownership Plan, less a discount reflecting the lack of liquidity of
Shares in the open market, or, (v) if the Company's Employee Stock
Ownership Plan has terminated, or has failed to provide a current
valuation of the Shares for any other reason, the fair market value as
determined by a disinterested third party selected by the Committee and
qualified to perform an evaluation of the Shares. Prior to this
amendment, the option price was established at the fair market value as
determined for purposes of the Company's Employee Stock Ownership Plan,
less a discount reflecting the lack of liquidity of shares in the open
market.

No options were granted under the terms of the Plan during 1998.

The table below sets forth information regarding the exercise of options
during 1998.
Value of
Shares Unexercised Unexercised
Acquired Value Options Options
on Exercise Realized at 12/31/98 at 12/31/98
# $
W. Kirk Liddell 16,450 10,438 - 0 - - 0 -
James E. Hipolit 3,100 17,644 - 0 - - 0 -
Jane E. Pinkerton 2,350 12,488 - 0 - - 0 -
David F. Andrew 2,350 17,736 - 0 - - 0 -
Dennis R. Gray 1,350 17,863 - 0 - - 0 -

Retirement Income Plan Table

The Company's Retirement Income Plan which became effective September
1, 1984, covers all salaried employees. All costs are paid by the
Company, and the amount of retirement income is determined by the career
average rate of compensation and length of credited service at
retirement. Effective January 1, 1989, the Plan provides for an annual
benefit based on 1% of annual compensation up to the Social Security
covered compensation level and 1.5% of compensation over that level.

The Retirement Income Plan in effect prior to the adoption of this
Plan provided for benefits based on the final five years average
compensation and length of service at retirement. Assets of the former
Plan sufficient to fund all accrued benefits under that Plan for
participants were used to purchase annuities for the participants or
transferred to the participants' accounts in the Savings Incentive Plan.

Effective May 1, 1988, the Retirement Income Plan was suspended,
thereby freezing the accrued benefits of all plan participants and
discontinuing future benefit accruals.

The following table sets forth required Pension Plan information for
the Chief Executive Officer and the four other most highly compensated
executive officers.

Estimated Annual
Name of Individual Amounts Transferred Benefits Upon
or Number of from Retirement Under
Persons in Group Former Plan New Plan

W. Kirk Liddell $ 3,025 $39,120
James E. Hipolit 1,176 21,360
Jane E. Pinkerton 7,500 14,568
David F. Andrew 9,695 20,028
Dennis R. Gray - 13,584

Compensation of Directors:

All Directors who are not officers of the Company receive an annual
fee of $9,500 and $750 per board meeting attended. The Board of
Directors has various committees as identified in Item 10 (a), above, and
the outside directors on those committees receive $750 per committee
meeting attended. Directors who are officers of the Company or its
subsidiaries receive no additional compensation for attendance at
meetings of the board or board committees. The Chairman of the Board of
the Company receives an additional annual fee of $20,500, of which $3,000
shall be paid in Irex common stock

On April 28, 1994, the shareholders approved a Non-Qualified Stock
Option Plan for Outside Directors of the Company. This plan authorized
the granting of options on 25,000 shares of Common Stock to directors who
are not employees of the Company. Each outside director automatically
receives an option to purchase 500 shares as of January 1, 1994 and each
January 1 thereafter through and including January 1, 1998. Options are
granted at Fair Market Value consistent with the pricing mechanism
established under the Non-Qualified Stock Option Plan for employees.
Options are exercisable at any time more than one year from the date of
grant, but no more than ten years from the date of the grant. On
February 26, 2998, the Board of Directors eliminated the one-year vesting
requirement with respect to options granted January 1, 1998.

Item 12. Security Ownership of Certain Beneficial Owners and
Management

(a) Security Ownership of Certain Beneficial Owners:

Following is a list of the persons known by the Company to be the
beneficial owners of more than five percent of the Company's Common
Stock, as of March 15, 1999.

Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class

W. Kirk Liddell 63,956 Shares (1) 14.80%
175 River Hill Road
Conestoga, PA 17516

Irex Employees Savings
Incentive Plan 43,136 shares (2) 9.98%
120 North Lime Street
Lancaster, PA 17603

Lynn Liddell 24,968 shares 5.78%
740 Curtiswood Drive
Key Biscayne, FL 33149

(1) Does not include 14,217 shares in wife's name to which Mr. Liddell
disclaims beneficial ownership. Includes 39,124 shares beneficially
owned by dependent children and 1,546 shares in the Irex Corporation
Employees' Savings Incentive Plan.

(2) Shares held under the Irex Corporation Employees' Savings Incentive
Plan Trust for which Vanguard Fiduciary Trust Company, David F. Andrew,
W. Kirk Liddell, and Jane E. Pinkerton act as co-trustees. See Footnote
8 on page 46 for information concerning the beneficial ownership of such
shares.

(b) Security Ownership of Management:

The amounts of the Company's Common and Preferred Stock held directly
or indirectly by the directors, and by the directors and executive
officers as a group, are shown below as of March 15, 1999. Unless
otherwise described in the footnotes following the listing, in each case
the beneficial ownership represents the sole voting and investment power.

Amount Held Percent of Class
Common Preferred Common Preferred

William Adams 2,309 - .53 -
David Andrew 46,502 (1)(5)(8) - 10.76 -
Dennis Gray 2,055 (1) .48 -
James Hipolit 4,510 (1)(4) - 1.04 -
Carlton Hughes 6,291 1.46 -
Joanne Judge 3,999 - .93 -
David Kleinman 2,826 - .65 -
Michael Lardner 2,759 - .64 -
W. Kirk Liddell 107,092 (2)(8) - 24.78 -
Wilson McElhinny 4,331 (7) - 1.00 -
Jane Pinkerton 45,509 (1)(8) - 10.53 -
John Shirk 4,737 (6) - 1.10 -
N. Thompson Washburn 3,670 (3) - .85 -

(1) Includes allocated shares in the Irex Corporation Savings Incentive
Plan as follows, respectively: Mr. Hipolit, 1,010; Ms. Pinkerton, 715;
Mr. Andrew, 916; and Mr. Gray, 705.

(2) Does not include 14,217 shares in spouse's name to which Mr. Liddell
disclaims beneficial ownership. Includes 39,124 shares beneficially
owned by dependent children, and 1,546 shares in the Irex Corporation
Employees' Savings Incentive Plan.

(3) Includes 2,500 shares beneficially owned by spouse and 200 shares
to which Mr. Washburn shares voting and investment power.

(4) Includes 3,500 shares to which Mr. Hipolit shares voting and
investment power.

(5) Includes 2,450 shares to which Mr. Andrew shares voting and
investment power.

(6) Includes 100 shares beneficially owned by a dependent child, 550
shares beneficially owned by spouse, and 2,500 shares to which Mr. Shirk
shares voting and investment power.

(7) Does not include 1,000 shares in spouse's name to which Mr.
McElhinny disclaims beneficial ownership.

(8) Includes 43,136 shares allocated to participant accounts under the
Irex Corporation Employees' Savings Incentive Plan Trust. Mr. Andrew,
Mr. Liddell and Ms. Pinkerton, along with Vanguard Fiduciary Trust
Company, are co-trustees of the Plan. Because the individual co-trustees
hold sole voting power with respect to the shares, Mr.. Andrew, Mr..
Liddell and Ms. Pinkerton may be deemed beneficial owners of the shares.

None

Item 13. Certain Relationships and Related Transactions:

(a) Transactions with Management and Others:

None

(b) Certain Business Relationships:

Mr.. Shirk is a partner in the law firm of Barley, Snyder, Senft &
Cohen. During 1998, Barley, Snyder, Senft & Cohen provided services to
the Company's Specialty Products & Insulation Co. subsidiary concerning
its separation from the Company and other matters.

On April 1, 1998, the Company entered into an agreement with David
F. Andrew, President of ACandS, Inc., to loan Mr. Andrew $61,639 for the
purpose of exercising vested stock options. The rate of interest on this
loan is 8% per annum.

(d) Transactions with Promoters:

None

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K

(a) Documents filed as part of this report:

1. See Item 8

2. See Item 8

3. Exhibits required to be filed by Item 601 of Regulation S-K
(Exhibit numbers correspond to those in the Exhibit Table, Item 601,
Regulation S-K)

(3) The Articles of Incorporation of the Company filed as an
exhibit to the Company's 1982 Annual Report on Form 10-K are hereby
incorporated by reference. An amendment to the Articles of Incorpo-
ration, changing the Company's name, filed as an exhibit to the Company's
1983 Annual Report on Form 10-K is hereby incorporated by reference. An
amendment to the Articles of Incorporation, which includes the authoriza-
tion of Preferred Stock, cumulative voting, term and number of directors
and limits to the number of employees on the Board of Directors, filed as
an exhibit to the Company's 1992 Annual Report on Form 10-K is hereby
incorporated by reference.

(4) The Form of Stock Certificate filed as an exhibit to the
Company's 1980 Annual Report on Form 10-K is hereby incorporated by
reference. A revised Form of Stock Certificate reflecting the Company's
name change filed as an exhibit to the Company's 1983 Annual Report on
Form 10-K is hereby incorporated by reference.

(9) None

(10) None

(11) Not Applicable

(12) Not Applicable

(13) Annual Report To Shareholders - See Supplemental Information
below.

(16) Not Applicable

(18) Not Applicable

(19) Not Applicable

(22) A chart showing the subsidiaries of the registrant is filed
as an exhibit to this report.

(23) Not Applicable

(24) Not Applicable

(25) Not Applicable

(27) Not Applicable

(28) Not Applicable

(29) Not Applicable

(b) Reports on Form 8-K

The Company filed a report on Form 8-K on January 15, 1999 for
purposes of disclosing a significant disposition of assets on December
31, 1998.

(d) See Item 8

Supplemental Information:

Copies of the Company's 1998 Annual Report to Security Holders, 1999
Proxy Statement, and 1999 Proxy are being furnished to the Commission for
its information under separate cover.

SUBSIDIARIES OF THE REGISTRANT

IREX CORPORATION
A Pennsylvania Corporation

ACandS, Inc.
A Delaware Corporation
Wholly Owned
Subsidiary
of Irex Corporation

Spacecon LLC
A Delaware
Corporation
Wholly Owned
Subsidiary
of Irex Corporation

Centin LLC
A Delaware
Corporation
Wholly Owned
Subsidiary
of Irex Corporation

Irex Financial
Corporation
A Delaware
Corporation
Wholly Owned
Subsidiary
of Irex Corporation

ACandS Contracting
Ltd.
Incorporated in
Dominion
of Canada
Wholly Owned
Subsidiary
of ACandS, Inc.

ALL OF THE ABOVE CORPORATIONS ARE INCLUDED IN THE CONSOLIDATED FINANCIAL
FINANCIAL STATEMENTS
March 1999

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.

IREX CORPORATION

By /S/J. E. Pinkerton 3/31/99
J. E. Pinkerton Date
Senior Vice President, Finance and Administration
(Principal Financial Officer)

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.

By /S/W. K. Liddell 3/31/99
W. K. Liddell Date
President and Director
(Principal Executive Officer)

By /S/J. E. Pinkerton 3/31/99
J. E. Pinkerton Date
Sr. Vice President, Finance and Administration
(Principal Financial Officer)

By /S/B. C. Werner 3/31/99
B. C. Werner Date
Controller
(Principal Accounting Officer)

By /S/W. W. Adams 3/31/99
W. W. Adams, Director Date

By /S/C. E. Hughes 3/31/99
C. E. Hughes, Director Date

By /S/J. M. Judge 3/31/99
J.M. Judge, Director Date

By /S/W. D. McElhinny 3/31/99
W. D. McElhinny, Director Date

By /S/J. O. Shirk 3/31/99
J. O. Shirk, Director Date

By /S/N. T. Washburn 3/31/99
N. T. Washburn, Director Date

<ARTICLE> 5

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 10,485,000 374,000
<SECURITIES> 0 0
<RECEIVABLES> 29,719,000 54,835,000
<ALLOWANCES> 0 0
<INVENTORY> 512,000 16,138,000
<CURRENT-ASSETS> 49,601,000 81,117,000
<PP&E> 999,000 3,240,000
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 57,871,000 88,545,000
<CURRENT-LIABILITIES> 22,607,000 48,834,000
<BONDS> 0 7,504,000
10,490,000 10,490,000
10,490,000 10,490,000
<COMMON> 1,028,000 1,028,000
<OTHER-SE> 14,500,000 12,045,000
<TOTAL-LIABILITY-AND-EQUITY> 57,871,000 88,545,000
<SALES> 315,119,000 278,150,000
<TOTAL-REVENUES> 315,119,000 278,150,000
<CGS> 245,101,000 217,786,000
<TOTAL-COSTS> 245,101,000 217,786,000
<OTHER-EXPENSES> 59,166,000 53,924,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,308,000 1,942,000
<INCOME-PRETAX> 8,544,000 4,498,000
<INCOME-TAX> 4,002,000 1,965,000
<INCOME-CONTINUING> 4,542,000 2,533,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> (331,000) 0
<CHANGES> 0 0
<NET-INCOME> 4,211,000 2,533,000
<EPS-PRIMARY> 7.75 4.05
<EPS-DILUTED> 7.70 4.00

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