SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report: December 31, 1998
(Date of earliest event reported)
IREX CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of incorporation)
2-36877 23-1712949
(Commission File Number) (IRS Employer Identification 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
Item 2. Acquisition or Disposition of Assets
(a) In January 1998, Irex Corporation (the "Company" or "Irex")
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"). On this same date, SPI declared a reverse stock split,
whereby each share of SPI's previously-issued common stock, par value
$0.01 per share ("SPI Stock"), was converted into 0.836 shares of SPI
Stock. The reverse stock split reduced SPI's outstanding stock from
10,000 to 8,636 shares, all of which were held by Irex.
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 will not issue certificates for fractional shares in
the Distribution. Instead, it will cancel such shares and issue cash in
lieu of fractional shares at a rate of $2,698.09 per SPI share. No
consideration will be 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. Additionally, SPI repaid
all intercompany debt in the amount of $31.6 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.
(b) Not Applicable.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Not Applicable.
(b) Unaudited pro forma condensed consolidated financial
information reflecting the Spin-off.
(c) Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IREX CORPORATION
B. C. Werner
Date: January 15, 1999 ------------------
B. C. Werner
Controller
(Principal Accounting Officer)
Irex Corporation and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Financial Information
For the Periods Ended September 30, 1998 and December 31, 1997
The following unaudited pro forma condensed consolidated
financial statements give effect to the Spin-off of Irex Corporation's
(the "Company") wholly owned subsidiary, Specialty Products & Insulation
Co. ("SPI"). The unaudited pro forma condensed consolidated balance sheet
is presented as if the Spin-off had occurred on September 30, 1998, and
the pro forma condensed consolidated statements of income for the nine
months ended September 30, 1998 and for the year ended December 31, 1997
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 and financial position of the Company after giving effect to
the dividend received from SPI and SPI's repayment of intercompany debt
immediately after the Spin-off, the elimination of SPI's historical
assets, liabilities and equity as of September 30, 1998 and the
elimination of operating results attributable to SPI for the periods
presented. The unaudited pro forma condensed consolidated financial
statements may not be indicative of the results that would have been
obtained had the Spin-off actually occurred on the dates assumed nor is it
necessarily indicative of the future consolidated results of operations.
The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements, and the related notes thereto, of the Company
included in its 1997 Annual Report or Form 10-K and its Quarterly Report
or Form 10-Q for the quarter ended September 30, 1998.
IREX CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
UNAUDITED
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
(IN THOUSANDS EXCEPT PER COMMON SHARE AMOUNTS)
REVENUES $233,526 ($134,653) <FA> $ 98,873
COST OF REVENUES 182,329 (103,240) <FA> 79,089
Gross Profit 51,197 (31,413) 19,784
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 43,932 (25,678) <FB> 18,254
Operating Income 7,265 (5,735) 1,530
INTEREST EXPENSE - NET 1,534 (1,534) <FC> -
Income Before Income Taxes 5,731 (4,201) 1,530
INCOME TAX PROVISION 2,486 (1,722) 764
NET INCOME $ 3,245 ($ 2,479) $ 766
LESS: DIVIDEND REQUIREMENTS
FOR PREFERRED STOCK (734) (734)
NET INCOME APPLICABLE TO
COMMON STOCK $ 2,511 ($ 2,479) $ 32
AVERAGE COMMON SHARES
OUTSTANDING - BASIC 411,192 411,192
EFFECT OF STOCK OPTIONS ISSUED
TO EMPLOYEES AND DIRECTORS 3,481 3,481
AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 414,673 414,673
INCOME PER COMMON SHARE
- BASIC $ 6.11 $ 0.08
INCOME PER COMMON SHARE
- DILUTED $ 6.06 $ 0.08
See Notes to Pro Forma Condensed Consolidated Financial Statements
IREX CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
UNAUDITED
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
(IN THOUSANDS EXCEPT PER COMMON SHARE AMOUNTS)
REVENUES $ 278,150 ($ 149,042) <FA> $ 129,108
COST OF REVENUES 217,786 (114,946) <FA> 102,840
Gross Profit 60,364 (34,096) 26,268
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 53,924 (25,971) <FB> 27,953
Operating Income (Loss) 6,440 (8,125) (1,685)
INTEREST EXPENSE - NET 1,942 (1,942) <FC> -
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)
LESS: 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 PER COMMON
SHARE - DILUTED $ 4.00
See Notes to Pro Forma Condensed Consolidated Financial Statements
IREX CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
UNAUDITED
PRO FORMA
HISTORICAL ADJUSTMENTS<FD> PRO FORMA
Cash and cash equivalents $ 2,299 $ 2,643 $ 4,942
Receivables, net 65,207 (35,273) 29,934
Note receivable 0 3,500 3,500
Inventories 18,981 (18,420) 561
Actual costs and estimated
earnings on contracts in
process in excess of billings 4,942 0 4,942
Prepaid income taxes 1,151 838 1,989
Other prepaid expenses 463 (221) 242
Deferred income taxes 4,390 (1,100) 3,290
Total current assets 97,433 (48,033) 49,400
Property and equipment, net 3,458 (2,376) 1,082
Non-current deferred income taxes 3,170 0 3,170
Other assets 1,805 (1,758) 47
TOTAL ASSETS 105,866 (52,167) 53,699
Notes payable to banks 27,816 (27,816) 0
Current portion of long-term debt 1,871 (1,871) 0
Accounts payable 13,783 (10,451) 3,332
Billings in excess of actual costs
and estimated earnings on contracts
in process 3,264 0 3,264
Accrued liabilities 15,946 (5,531) 10,415
Total current liabilities 62,680 (45,669) 17,011
Long-term debt 5,632 (5,632) 0
Non-current liabilities 10,300 (229) 10,071
Redeemable preferred stock 10,490 0 10,490
Shareholders' investment 16,764 (637) 16,127
TOTAL LIABILITIES AND
SHAREHOLDERS' INVESTMENT $105,866 $(52,167) $ 53,699
See Notes to Pro Forma Condensed Consolidated Financial Statements
Irex Corporation and Subsidiaries
Notes to the Pro Forma Condensed Consolidated Financial Statements
For the Periods Ended September 30, 1998 and December 31, 1997
Unaudited
[FN]
<FA> This adjustment includes only SPI's activity with respect to
third parties because inter-company sales and costs were eliminated in
the Company's consolidated financial statements. SPI's net sales to
affiliates were approximately $5.3 million and $9.3 million for the
nine months ended September 30, 1998 and the twelve months ended
December 31, 1997, respectively.
<FB> This adjustment includes the elimination of the estimated costs,
approximating $830,000 on an annualized basis, 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 on an annualized basis, 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.
<FC> 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.
<FD> This adjustment reflects the repayment of the Company's long-term
debt and paydown of its borrowings under short-term credit facilities
and the elimination of SPI's historical assets, liabilities and
equity as of September 30, 1998. SPI's repayment of intercompany
debt and the dividend received immediately after the Spin-off
provided the source of funds for the Company to repay all debt.
The $10.5 million dividend consisted of $7.0 million in cash and
$3.5 million of junior subordinated notes of SPI.
