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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________to _________________
Commission File Number 0-828
BIRD CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3082903
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
980 Washington Street, Dedham, MA 02026
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 461-1414
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1 per share
(Title of Class)
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 this Form 10-K or any amendment to
this Form 10-K.
---
The aggregate market value of common stock, par value $1 per share, held by
non-affiliates as of March 1, 1995 was $29,182,000. As of March 1, 1995 there
were 4,100,443 shares of Bird Corporation common stock, par value $1 per share,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1995 Annual Meeting of Stockholders to
be filed with the Commission by April 30, 1995 are incorporated by reference
into Parts I and III of this report.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
As a result of the sale of its vinyl building products business on March 8,
1995 (see "Recent Business Developments" below), Bird Corporation's current
manufacturing operation consists of one primary business unit (roofing
manufacturing and marketing) as well as a 90% interest in a vinyl window
assembly and marketing operation. In addition, Bird Corporation also has a
business segment known as the Environmental Group. Products currently
manufactured at Bird Corporation's roofing facility include asphalt shingles
and roll roofing for commercial and residential use. These products are
marketed directly and through independent wholesalers, including wholesalers
whose primary customers are roofing contractors. Vinyl windows assembled at
its vinyl window assembly facility are marketed directly through wholesalers
whose primary customers are window installers. All references herein to the
"Company" or "Bird" refer to Bird Corporation and its subsidiaries unless
otherwise indicated by the context.
The Environmental Group's business consists of an off-site environmental waste
treatment, recovery, and pre-treatment systems facility with a focus on the
petrochemical industry. The facility, located in San Leon, Texas (the "San Leon
Facility"), provides off-site processing capabilities for numerous
classifications of refinery waste that are not economically treatable at the
point of origin. The process at the San Leon Facility is designed to recover
commercial grade fuel oil and hazardous waste derived fuels for cement kiln
operations and to reduce the volume of residual waste material for
incineration. In June, 1994, the Company agreed to sell its 80% interest in
the San Leon Facility and withdraw from the environmental business and
therefore, recorded the operating results of such business as a discontinued
operation as of June 30, 1994.
RECENT BUSINESS DEVELOPMENTS
There have been a number of significant developments in the business of the
Company during 1994 and 1995, including the following:
- On March 4, 1994, the Company and its lending banks (the First
National Bank of Boston, Philadelphia National Bank,
incorporated as Corestates Bank, N.A. and the Bank of Tokyo)
executed the Third Amended Credit Agreement pursuant to which
the Company was permitted to borrow up to $65 million until
January 31, 1996. Loans, which were secured by substantially
all of the Company's assets, were made pursuant to a $40
million revolving credit line commitment for working capital
and letters of credit and a $25 million term loan for general
corporate purposes. The Third Amended Credit Agreement
represented a refinancing of loans under an earlier credit
agreement with the same banks.
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- On June 10, 1994, the Company's 40% interest in Mid-South
Building Supply, Inc. was redeemed for $1 million in cash
resulting in a loss of $1,261,000. This loss is reflected as
a discontinued business activity expense in the consolidated
statement of operations.
- On June 18, 1994, the Company entered into a Settlement
Agreement and Full and Final Release ("Settlement") with the
minority shareholders of the Company's Bird Environmental Gulf
Coast, Inc. ("BEGCI") subsidiary (which owns the San Leon
Facility), thus resolving a suit filed by the minority
shareholders of the subsidiary claiming breach of contract and
a countersuit filed by the Company in 1994. Pursuant to the
Settlement, the Company agreed to sell its 80% interest in
BEGCI to the minority shareholders for $7.5 million on or
before February 28, 1995, subject to financing. During that
period, the Company retained the right to sell all of its
interest in BEGCI to another buyer. Since the Company's
decision to sell its interest in BEGCI and withdraw from the
environmental business, established a measurement date, the
Company wrote down the recorded value of BEGCI to $7.5 million
as of June 30, 1994. This remaining net asset value is shown
as "Assets held for sale" on the December 31, 1994 balance
sheet. The minority shareholders failed to exercise their
option to purchase the Company's 80% interest on or before the
February 28, 1995 deadline. The Company is continuing its
efforts to locate a suitable acquirer for the San Leon
Facility.
- On August 22, 1994, the Company sold the assets of
substantially all of its distribution businesses to Wm.
Cameron & Co. for a purchase price consisting of cash in the
amount of $24,245,000, including $1.3 million held in escrow
to pay any indemnification claims arising under the purchase
and sale agreement, and the assumption of certain liabilities
of the sold companies. The sale resulted in a gain of
$2,677,000. The purchase price was subject to adjustments
based on an audit of the book value of the acquired assets and
assumed liabilities as of the closing date. Such audit
resulted in an increase in the purchase price of $1,897,000
which was paid to the Company on November 17, 1994. Sales in
the amount of $67,089,000 were recorded for these businesses
for the period ending August 22, 1994.
- On August 30, 1994, the Company and the lessor of the
Company's roofing machine located at its Norwood,
Massachusetts facility entered into an agreement pursuant to
which the Company agreed to purchase the leased equipment for
a purchase price of approximately $4 million. Concurrent
with the Company's refinancing with Shawmut Capital on
November 30, 1994 (discussed below), the Company satisfied all
outstanding obligations under the purchase agreement with the
lessor and acquired title to the roofing machine.
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- On September 26, 1994, the Company announced that it had
signed a definitive agreement to sell the assets of its vinyl
building products manufacturing operation located in
Bardstown, Kentucky to Jannock, Inc. ("Jannock") for $47.5
million subject to certain prescribed levels of working
capital. This transaction also included an option to purchase
the Company's interest in its Kensington window assembly
operation for a purchase price of up to $2.7 million. At a
special meeting of the shareholders held in Dedham,
Massachusetts on March 7, 1995, the shareholders of the
Company voted to sell the assets of the Company's vinyl
building products operation to Jannock essentially in
accordance with the terms and conditions as outlined in the
definitive agreement between the Company and Jannock dated
September 23, 1994. On March 8, 1995, the sale of the vinyl
building products operation to Jannock for a purchase price of
$47.5 million was closed subject to adjustments for final
working capital. Proceeds from the sale were used to reduce
bank debt. Jannock has 30 days from the closing date to
exercise an option to acquire the Kensington window assembly
operation.
- On November 28, 1994, the Company sold its last remaining
building materials distribution business, Southland Building
Products, Inc., to Ashley Aluminum, Inc. for a purchase price
of $2,134,000. The purchase price was subject to adjustment
based on an audit of the book value of the acquired assets and
assumed liabilities as of the closing date. On March 7, 1995,
the final adjusted purchase price was determined to be
$2,036,000.
- On November 30, 1994, Bird Incorporated entered into a $39
million three year Loan and Security Agreement (the "Loan
Agreement") with Barclays Business Credit, Inc. of
Glastonbury, Connecticut. The Loan Agreement provides a $24
million revolving credit commitment and two equal term loans
totaling $15 million. Up to $5 million of the revolving
credit facility can be used for letters of credit. Borrowings
under the Loan Agreement are guaranteed by the Company and are
secured by substantially all of the assets of the Company and
its subsidiaries. Initial borrowings under the Loan Agreement
were used to pay, in full, the outstanding loan balances under
the Third Amended Credit Agreement. On February 1, 1995,
Shawmut Bank, N.A. acquired Barclays Business Credit, Inc. and
changed the name from Barclays Business Credit, Inc. to
Shawmut Capital Corporation ("Shawmut Capital"). The terms
and conditions of the Loan Agreement remained unchanged. On
March 8, 1995, Shawmut Capital executed a First Amendment to
the Loan Agreement permitting the sale of the Company's vinyl
siding operation located in Bardstown, Kentucky to Jannock.
The First Amendment to the Loan Agreement reduced the amount
of the facility to $20 million consisting of a $15 million
revolving credit commitment and a $5 million term loan. Up to
$5 million of the revolving credit facility can be used for
letters of credit.
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HOUSING GROUP
Asphalt roofing products are manufactured at the Company's facilities in
Norwood, Massachusetts. Asphalt shingles and roll roofing are produced by
coating a fiberglass mat with a mixture of hot asphalt and crushed rock filler
and covering the coated mat with rhyolite granules. The Company's facilities
include a roofing manufacturing facility, a granule plant, a rhyolite quarry,
and a private landfill for the Company's use. In addition, the Company has
completed the construction of an asphalt oxidizer at its Norwood facility to
ensure a continuous supply of processed asphalt.
The Company's Housing Group produced vinyl siding products at its plant in
Bardstown, Kentucky prior to the sale of such facility in March 1995. The
Housing Group also carried on a distribution business through wholesale
building materials distributors based in New England, New York, Kentucky,
Texas, Louisiana, and Arizona until such businesses were sold in August and
November 1994.
Net sales of the components of the Housing Group as a percentage of
consolidated net sales of the Company was as follows: sales of asphalt roofing
products, 31% in 1994, 23% in 1993 and 24% in 1992; sales of vinyl products,
24% in 1994, 20% in 1993 and 23% in 1992; and sales through building materials
distribution centers (including roofing and vinyl products manufactured by the
Company), 45% in 1994, 57% in 1993 and 53% in 1992.
Vinyl window profiles are purchased and assembled into windows by Kensington,
Bird's joint venture company in the replacement window fabrication business.
Kensington is a major supplier of custom fabricated vinyl windows to installers
of replacement windows. Its principal geographic market is the eastern United
States (primarily within a six hundred mile radius of Pittsburgh,
Pennsylvania).
The principal geographic markets for the Company's manufactured roofing
products, due to limitations imposed by freight costs, are the Northeastern
States. The building materials business is seasonal to the extent that outside
repair and remodeling and new construction decline during the winter months.
To reduce the impact of this seasonal factor, the Company generally employs
what it believes to be an industry-wide practice of "winter dating", pursuant
to which extended or discounted payment terms are offered to credit-worthy
customers who order and accept delivery of roofing products during specified
periods of time in the slow season.
RAW MATERIALS
The principal raw materials used in the manufacture of asphalt roofing products
are fiberglass mat, asphalt saturants and coatings and crushed rhyolite
granules. The Company's requirements for fiberglass mat are met primarily
under a Glass Mat Supply Agreement with one vendor which expires on December
31, 1995. Fiberglass mat is also generally available in adequate quantities
from a number of outside suppliers. Asphalt saturants and coatings were, until
recently, purchased from a major oil refinery. These materials are also
available from other sources at a higher delivered cost. After the
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refinery's discontinuation of its production of asphalt in April 1994, the
Company relied on a number of alternative sources for this raw material. Since
completion of construction of its asphalt oxidizer in January, 1995, the
Company has been able to process asphalt at its roofing facility, thereby
reducing its costs and decreasing the potential for temporary interruptions in
its manufacturing operations. The Company believes that it can produce all of
its current granule requirements at its quarry in Massachusetts.
BACKLOG
Order backlog is not a meaningful measure of the Company's building materials
business because there are fewer sales during the last quarter of the fiscal
year and the order-to-shipment cycle is relatively short. Additionally, it is
very rare, at any time, to require more than 30 days from the receipt of a
product order to delivery of the product.
COMPETITION
The building materials business is, to a large degree, a commodities-type
business and is highly competitive with respect to price as well in other
aspects, such as delivery terms and consistent product quality. Many of the
Company's competitors are larger and financially stronger than the Company, but
none is dominant in any of its markets.
The strengths of the Company's asphalt roofing business arise, in part, from
the unique marketing programs the Company directs toward its indirect customer
base, professional roofing contractors, combined with an industry-wide
reputation for providing quality products with a high level of service. The
Company's comprehensive contractor marketing program is designed to support the
position of the Company's contractors in the industry. Such marketing programs
include a special system for in-home sales promotions. Pursuant to its
exclusive certification program, the Company also certifies contractors who
have recorded three (3) successful years in business, who provide the Company
with names of customers for quality checks, sign a letter of ethics, have a
good credit history, warrant their workmanship for two (2) years and attend
annual training meetings. Contractors must be recertified every two years.
Certified contractors are supplied with a wide array of marketing materials,
including customized sample cases, special mailers and custom job site signs.
INTELLECTUAL PROPERTY
The Company owns a number of trademarks, as well as significant technology and
know-how, which it utilizes in connection with its asphalt roofing business.
The Company believes that its trademarks are strong and well recognized in the
industry.
FINANCIAL AND RELATED INFORMATION ABOUT INDUSTRY SEGMENTS
While the Company formerly operated in two major business segments, its housing
segment and its environmental segment, the Company no longer operates its
environmental segment. For financial information
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regarding the industry segments in which the Company previously operated, see
the Company's consolidated financial statements for 1994 filed herewith.
COMPLIANCE WITH CERTAIN ENVIRONMENTAL LAWS
The Company has expended and expects to continue to expend funds to comply with
federal, state and local provisions and orders which relate to the environment.
Based on the information available to the Company at this time, the Company
believes that the effect of compliance with these provisions on the capital
expenditures, earnings and competitive position of the Company is not material.
Litigation and other proceedings involving environmental matters are described
under the heading "Environmental Matters" in Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
ENVIRONMENTAL GROUP
The business of the Environmental Group consists of the recycling of oily
sludges at its fixed site facility in San Leon, Texas. This new facility
provides off-site processing capabilities for numerous classifications of
refinery waste that are not economically treatable at the point of origin. The
process at the facility is designed to recover commercial grade fuel oil and
hazardous waste derived fuels for cement kiln operations and to reduce the
volume of residual waste material for incineration and is currently in its
testing and debugging stage. The San Leon Facility became operational in
January, 1994 operating under an interim Part A permit. A permanent Part B
permit was issued by the Texas Natural Resource Conservation Commission (TNRCC)
on April 1, 1994.
On June 18, 1994, the Company agreed to sell its 80% interest in the San Leon
Facility to the minority shareholders of BEGCI for $7.5 million on or before
February 28, 1995. Prior to that date the Company retained the right to sell
its 80% interest to another buyer provided that the shares of common stock of
BEGCI owned by the minority shareholders were also sold at no less than the
same price per share. As of February 28, 1995, the minority shareholders had
not exercised their option to purchase the San Leon Facility. The Company is
continuing its efforts to locate a suitable acquirer for the San Leon Facility.
RAW MATERIALS
The San Leon Facility is designed to recycle and dispose of a variety of
petrochemical hazardous wastes. In that capacity the plant receives wastes
from generators and processes them to allow for safe disposal. The process
relies primarily on public utilities and does not require raw materials.
MARKETS AND DISTRIBUTION
The Company markets the products and services of its environmental segment
primarily in the Gulf Coast of the United States and revised
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its marketing strategy to focus on petrochemical waste streams requiring
special processing.
BACKLOG
Environmental regulations require immediate processing of waste material, so a
large backlog would hardly ever exist.
COMPETITION
The desorber technology operated by the Company's San Leon Facility is patented
by and licensed from one of the Facility's minority partners. The Company
believes there is no direct equivalent to this process; however, there are
alternative treatment technologies which customers, for a variety of reasons,
may continue to consider for the disposal or recycling of their wastes.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information about the industrial segments in which the Company
operates, for the three years ended December 31, 1994, appear in Note 13 of the
Notes to Consolidated Financial Statements which is incorporated herein by
reference thereto.
EMPLOYEES
At December 31, 1994, the Company employed 474 people. As of March 8, 1995
following the sale of the Company's vinyl siding operation in Bardstown,
Kentucky, the Company employed 236 people.
ITEM 2. PROPERTIES
The Company's executive offices are located in Dedham, Massachusetts and are
leased. The Company believes that its plant and facilities, as described
below, are suitable and adequate for its current and anticipated business.
Operating capacity can be increased by additional man hours, changing product
mix, and/or minimal capital investment should the need arise. The Company's
facilities are well maintained, in sound operating condition, and in regular
use.
ROOFING MANUFACTURING FACILITY
The Company owns its asphalt roofing manufacturing facility in Norwood,
Massachusetts. The Norwood plant includes the manufacturing facility, a
granule plant, a rhyolite quarry and a private landfill for the Company's use.
The Company formerly leased its roofing machine and purchased such equipment
from the former lessor in November 1994. The Company also leases an industrial
laminator and certain other equipment which were fabricated for use in its
roofing plant. The laminator lease expires in 1998. As previously mentioned
the Company completed the construction of an asphalt oxidizer plant expansion
at the Norwood premises in January, 1995 to ensure a
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continuous supply of asphalt. The Company also leases storage and terminal
facilities in Providence, Rhode Island.
KENSINGTON WINDOW ASSEMBLY FACILITY
The Kensington window assembly facility is located in Leechburg, Pennsylvania
and is leased.
BEGCI'S ENVIRONMENTAL BUSINESS.
The San Leon Facility is owned by BEGCI.
ITEM 3. LEGAL PROCEEDINGS
The Company monitors its compliance with environmental regulations on an
ongoing basis. Periodically (about twice a year), the Company's general
counsel receives environmental site assessments from the operating managers
responsible for site environmental compliance. Appropriate action is
undertaken where needed. In addition, when environmental claims are asserted
against the Company, the claims are evaluated by the Company's general counsel
and operating management in conjunction with external legal counsel and
environmental engineers as necessary, and action is taken with respect to all
known sites, as appropriate. The Company is currently engaged in proceedings
relating to or has received notice of the following environmental matters:
In March 1994, the Company received a notice of violation from the Texas
Natural Resource Conservation Commission ("TNRCC"). The notice alleged that
the Company was not in compliance with regulations of the TNRCC relating to
labeling, permitting, storage and disposal of certain hazardous waste. The
notice proposed certain corrective action on the part of the Company as well as
payment of certain unqualified administrative penalties. The Company is aware
of former uses at the site which may have resulted in the release of oil and/or
hazardous substances and materials, and which may become the subject of
corrective actions required by law. The Company has met with the TNRCC to
assess the nature and extent of any corrective action which may be required
with respect thereto, and to ascertain whether any penalties would be asserted.
In late 1994, the TNRCC determined that no enforcement action would be taken on
any of the alleged violations as stated in the March 1994 notice.
On January 13, 1995, the Company received a letter from the TNRCC alleging
three violations of TNRCC rules and six "areas of concern". The TNRCC has
issued no order nor made any findings which would be expected to lead to the
entry of any administrative penalties. The Company intends to respond to the
TNRCC within the specified time frame and has addressed the alleged violations.
The Company believes that this matter will not have a material impact on the
Company.
On March 15, 1994 the Company received a draft of an Administrative Consent
Order and Notice of Noncompliance from the Massachusetts Department of
Environmental Protection ("DEP") concerning operations at its Norwood,
Massachusetts manufacturing facility and associated
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rock granule processing facility. The draft alleges that the Company was not
in compliance with regulations of the DEP relating to air emissions, granule
plant operation, and labeling, handling and storage of certain hazardous waste.
The draft proposes certain corrective action on the part of the Company as well
as payment of civil administrative penalties. On June 10, 1994, the Company's
roofing division entered into an administrative consent order and notice of
noncompliance with respect to the alleged violations. The consent order
requires the Company to undertake certain modifications and corrective actions
with respect to certain hazardous waste handling and storage facilities at the
Norwood facility, to conduct an environmental audit of its operations at such
facility and to undertake various modifications of air pollution control
equipment. On May 13, 1994, the Company paid an administrative penalty of
$30,000. The Company estimates that the cost of corrective action to be taken
by it in accordance with the consent order will be approximately $100,000.
On March 25, 1994, the Company received a notice from the United States
Environmental Protection Agency (the "EPA") regarding a site inspection
prioritization report prepared by the DEP. The notice alleges a potential
release of hazardous substances into the environment at the Company's former
mill site in East Walpole, Massachusetts. The EPA has reserved the right to
conduct further site tests on the location. In the opinion of management and
based on management's understanding that the alleged releases are in de minimis
quantities, this matter should not have a material adverse effect on the
Company's financial position or on the results of its operations.
Site assessments performed for the Company by its environmental consultants GZA
GeoEnvironmental, Inc. in connection with the construction of the new asphalt
oxidizer at the Norwood roofing facility indicated the presence of reportable
quantities of hazardous or toxic material, most of which has since been
removed. The Company must complete certain additional remedial activities
described in the new Massachusetts Contingency Plan ("MCP") on or before August
2, 1996. In the opinion of management, any costs associated with these
additional remedial activities will not have a material effect on the results
of operations or financial condition of the Company.
On June 21, 1994, the Arizona Department of Environmental Quality ("ADEQ")
issued a notice of violation ("NV") to Southwest Roofing Supply, a previously
owned division of the Company ("Southwest"), which directed Southwest to
conduct a site investigation of property formerly leased by Southwest. A
consent order between the ADEQ and the Company was issued on September 23,
1994. Pursuant to the consent order, the Company agreed to submit a work plan
with a view to remediating the soil and groundwater that may have been
contaminated by leaks from an underground storage tank previously removed by
the Company. The Company's management believes that the remediation cost to
the Company will be in the range from $200,000 to $700,000. As of December 31,
1994, the Company has provided a reserve of $440,000 for its proportionate
share of the estimated cleanup. The Company anticipates that $200,000 will be
reimbursed to the Company by the ADEQ in accordance with Arizona law and
regulation.
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In 1986, the Company, along with numerous other companies, was named by the EPA
and other governmental agencies responsible for regulation of the environment
as a Potentially Responsible Person ("PRP") pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
Paragraph 9601, et seq. ("CERCLA") in connection with hazardous substances at a
site known as the Fulton Terminal Superfund site located in Fulton, Oswego
County, New York. On September 28, 1990, the Company and a number of other
PRPs reached a negotiated settlement with the EPA pursuant to which the
settling PRPs agreed to pay the costs of certain expenses in connection with
the proceedings and to pay certain other expenses, including the costs and
expenses of administering a trust fund to be established by the settling PRPs.
The settlement agreement is embodied in a consent decree lodged with the United
States District Court for the Western District of New York and fixed the
Company's proportionate share of the total expenses. The ultimate cost to the
Company of the remedial work and other expenses covered by the settlement
agreement is estimated to be between $1 million to $2 million payable over a
period of 3 to 15 years (depending upon the duration of remediation efforts).
The Company has provided a reserve of $1 million at December 31, 1994 to offset
its estimate of the proportionate share (i.e., 16.5%) of the ultimate cost of
cleanup. Under a cost-sharing arrangement set forth in a consent decree with
the EPA, the other PRPs have agreed to incur 83.5% of the aggregate cost of
remediation of this site.
The Company has been named as a PRP with respect to certain other sites which
are being investigated by federal or state agencies responsible for regulation
of the environment. As a consequence of its status as a PRP, the Company may
be jointly and severally liable for all of the potential monetary sanctions and
remediation costs applicable to each site. In assessing the potential
liability of the Company at each site, management has considered, among other
things, the aggregate potential cleanup costs of each site; the apparent
involvement of the Company at each site and its prospective share of the
remediation costs attributable thereto; the number of PRPs identified with
respect to each site and their financial ability to contribute their
proportionate shares of the remediation costs for such site; the availability
of insurance coverage for the Company's involvement at each site and the
likelihood that such coverage may be contested; and whether and to what extent
potential sources of contribution from other PRPs or indemnification by
insurance companies constitute reliable sources of recovery for the Company.
Similar consideration has been given in determining the exposure and potential
liability of the Company in connection with other significant legal proceedings
to which the Company is a party. On the basis of such consideration,
management has determined that such environmental matters will not have a
material adverse effect on the Company's financial position or results of
operations. The Company has provided an aggregate reserve amounting to
$207,000 for its estimated share of the ultimate cost of clean-up for claims
(without taking into account any potential indemnification or recovery from
third parties).
The Company's roofing facility at Norwood, Massachusetts is one of 4,000 sites
on the DEP list. The site was inspected by the DEP in the early 1980s when
capital improvements were being made to the roofing
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plant. At that time, the DEP requested that the Company perform certain
remediation measures. The Company complied with such request. The
environmental condition of the site was studied in 1985 by an independent
engineering firm. The assessment was prompted by the request of a potential
lender which planned to take a mortgage on the property to collateralize a line
of credit to the Company. Upon review of the study, the lender extended credit
to the Company secured by a mortgage on the site. The DEP significantly
revised the regulations that govern the reporting, assessment and remediation
of hazardous waste sites in Massachusetts. The new MCP however, does not alter
the ultimate liability for any remediation that may be necessary at the Norwood
facility. Under the new MCP, the roofing facility is again listed on the
August 1993 "Transition List of Confirmed Disposal Sites and Locations to be
Investigated."
Since 1981 Bird has been named as a defendant in approximately 450 product
liability cases throughout the United States by persons claiming to have
suffered asbestos-related diseases as a result of alleged exposure to asbestos
in products manufactured and sold by Bird. Approximately 140 of these cases
are currently pending and costs of approximately $1.4 million in the aggregate
have been incurred in the defense of these claims since 1981. Employers
Insurance of Wausau ("Wausau") has accepted the defense of these cases under an
agreement for sharing of the costs of defense, settlements and judgments, if
any. In light of nature and merits of the claims alleged, in the opinion of
management, the resolution of these remaining claims will not have a material
effect on the results of operations or financial condition of the Company.
INSURANCE AND PRODUCT LIABILITY CLAIMS
In 1991, the Company commenced an action against Wausau, and Wausau and
Continental Casualty Company, in turn, independently commenced certain actions
against the Company seeking declarations as to the obligations of the insurers
under the terms of liability insurance policies issued by the insurers to Bird
or the Logan-Long Company (which latter company was acquired by and merged into
Bird in 1976) to defend and indemnify Bird with respect to certain claims and
liabilities arising out of environmental conditions at and adjacent to various
locations including property formerly owned by Bird in Fulton, New York and
Franklin, Ohio and property located in Kingston, New Hampshire. The suits
involving Wausau were brought in the Superior Court for Norfolk County,
Massachusetts, and the Continental Casualty actions were commenced in the
Supreme Court of New York, Count of New York. On June 1, 1993, Wausau
commenced another action in the Superior Court for Norfolk County,
Massachusetts, against Bird seeking a declaratory judgment that certain
built-up roofing and glass shingle claims made against Bird are not covered by
liability insurance policies issued by Wausau. Bird asserts that the claims
are covered and has answered the complaint. A trial is scheduled for 1996. In
the opinion of management, the pending litigation involving Wausau is too
preliminary to assess the impact on the results of operations and liquidity of
the Company.
The Company is also exposed to a number of other asserted and unasserted
potential claims encountered in the normal course of
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business. In the opinion of management, the resolution of such claims will not
have a material adverse effect on the Company's financial position or results
of operations.
The Company is a defendant in a number of suits alleging product defects, the
outcome of which management believes will not in the aggregate have a material
impact on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of the executive officers of the Company as of March 8,
1995, the date from which they have served as officers and their present
positions with the Company are as follows:
Joseph D. Vecchiolla 39 January 1994 President and Chief
Executive Officer
Frank S. Anthony 48 May 1984 Vice President,
General Counsel and
Corporate Secretary
Richard C. Maloof 49 January 1985 Vice President and
Chief Operating
Officer; President,
Roofing Group
Joseph M. Grigelevich 51 December 1988 Vice President
Finance and
Administration
Mr. Vecchiolla joined the Company in June 1993 as Vice President and Chief
Financial Officer. He was elected President, COO and CFO in November 1993 and
was given the additional responsibility of Acting CEO in December 1993 and was
elected to the Board of Directors. In January 1994, Mr. Vecchiolla was given
the full responsibility of CEO in addition to his other offices. Prior to his
association with Bird, Mr. Vecchiolla was Vice President and Chief Financial
Officer of Horizon Cellular Telephone Company (1991- 1993). Prior to that Mr.
Vecchiolla held the position of Executive Vice President of Educational
Publishing Corporation (1987- 1991). Mr. Anthony is an attorney and served in
the law department of Westinghouse Electric
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Corporation (1976-1983). Mr. Maloof and Mr. Grigelevich have served as
officers of the Company for more than five years.
These officers are appointed annually at an organizational meeting of the Board
of Directors immediately following the annual meeting of stockholders. There
are no family relationships among any of the officers of the Company nor are
any of the officers related to any member of the Board of Directors.
The Company had an employment agreement with Mr. Haufler, the former CEO. The
Employment Agreement was terminated on January 25, 1994. In December 1993, the
Company entered into an employment contract and a severance agreement with Mr.
Vecchiolla. The Company has also entered into agreements with several of its
other executive officers which become operative in the event of termination of
employment after a change in control of the Company or a change in the
individual's responsibilities following a change in control. These agreements
are described in the Company's definitive proxy statement for its 1995 Annual
Meeting which is to be filed with the Commission by April 30, 1995 and is
incorporated herein by reference.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
COMMON STOCK INFORMATION
The Company had 2,206 common shareholders of record at December 31, 1994.
The common stock is quoted in the National Market System under the NASDAQ
symbol BIRD. The range of high and low prices for the common stock as reported
by NASDAQ for the periods indicated is set forth below.
1994 1993
---- ----
QUARTER HIGH LOW HIGH LOW
------- ---- --- ---- ---
FIRST 12 1/4 8 4 1/4 11 3/4
SECOND 11 1/4 8 1/2 13 1/2 11 1/2
THIRD 10 1/2 7 13 1/4 11 1/2
FOURTH 10 8 13 1/2 6 1/2
The Company paid a cash dividend of 5 cents per common share in each quarter
during 1993. At the end of 1993 the Company suspended dividends on its common
stock.
Under the terms of the Loan Agreement between the company and Shawmut Capital,
the Company has agreed that it will refrain from paying cash
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dividends on its common stock or its $1.85 cumulative preference stock.
The Company is in arrears in the payment of dividends on its preference stock
and its 5% cumulative preferred stock. The Articles of Organization of the
Company provide that as long as any arrearage on the payment of dividends on
the Company's preferred stock exists, no dividends may be declared or paid on
any other class of stock of the Company and further provides that in the event
that full cumulative dividends on the preference stock have not been declared
and paid, the Company may not declare or pay any dividends or make any
distributions on, or purchase, redeem, or otherwise acquire, its common stock
until full cumulative dividends on the preference stock have been declared and
paid or set aside for payment.
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ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth certain financial data and are qualified in
their entirety by the more detailed Consolidated Financial Statements and
information included elsewhere herein:
Selected Consolidated Statement of Operations Data
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(Thousands of dollars, except per share amounts)
Net sales $167,886 $187,745 $164,202 $137,059 $128,997
-------- -------- -------- -------- --------
Costs and expenses:
Cost of sales 136,878 151,664 128,371 107,226 99,811
Selling, general and
administrative expenses 28,786 32,716 27,811 23,023 21,588
Interest expense 4,782 2,472 1,506 1,026 414
Discontinued business activities (income) (1,313) 268 178 189 (681)
Other (income) expense 4,680 5,903 (197) (331) (547)
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations
before income taxes (5,927) (5,278) 6,533 5,926 8,412
Provision (benefit) for income taxes (7,010) (637) 869 498 614
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations 1,083 (4,641) 5,664 5,428 7,798
-------- -------- -------- -------- --------
Discontinued operations:
Gain (loss) from operations of discontinued
businesses, net of taxes 1,245 (15,414) (2,573) (249) (1,073)
Loss on disposal of businesses, net of taxes (6,011) (11,000) 0 0 0
-------- -------- -------- -------- --------
Net loss from discontinued operations (4,766) (26,414) (2,573) (249) (1,073)
Cumulative effect of accounting change 0 2,733 0 0 0
-------- -------- -------- -------- --------
Net earnings (loss) ($3,683) ($28,322) $3,091 $5,179 $6,725
======== ======== ======== ======== ========
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Selected Consolidated Statement of Operations Data (continued)
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
(Thousands of dollars, except per share amounts)
Primary earnings (loss) per common share:
Continuing operations ($0.11) ($1.51) $1.00 $1.01 $1.73
Discontinued operations (1.20) (6.45) (0.62) (0.06) (0.30)
Cumulative effect of accounting change 0.00 0.67 0.00 0.00 0.00
------ ------ ------ ------ ------
Net earnings (loss) ($1.31) ($7.29) $0.38 $0.95 $1.43
====== ====== ====== ====== ======
Fully diluted earnings (loss) per common share:
Continuing operations ($0.11) ($1.51) $1.00 $1.01 $1.73
Discontinued operations (1.20) (6.45) (0.62) (0.06) (0.30)
Cumulative effect of accounting change 0.00 0.67 0.00 0.00 0.00
------ ------ ------ ------ ------
Net earnings (loss) ($1.31) ($7.29) $0.38 $0.95 $1.43
====== ====== ====== ====== ======
Cash dividend per common share $0.00 $0.15 $0.20 $0.20 $0.20
====== ====== ====== ====== ======
Book Value Per Common Share $5.07 $5.75 $12.83 $12.61 $11.59
====== ====== ====== ====== ======
Selected Consolidated Balance Sheet Data
DECEMBER 31,
---------------------------------------------------------
1994 1993 1992 1991 1990
------- -------- -------- ------- -------
(Thousands of dollars)
Total assets $85,705 $123,229 $119,075 $99,904 $80,835
Working capital $5,627 $30,090 $43,782 $34,179 $32,022
Long-term debt, excluding current portion $12,504 $43,127 $30,374 $12,150 $4,492
Stockholders' equity $37,718 $40,561 $69,101 $68,602 $60,323
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BIRD CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Prior to November 30, 1994, the Company's external financial needs were
satisfied by borrowing under the Second and Third Amended Credit Agreements
with The First National Bank of Boston, Philadelphia National Bank incorporated
as Corestates Bank, N.A. and The Bank of Tokyo Trust Company. Effective as of
November 30, 1994, such needs are satisfied primarily by borrowing under the
Loan and Security Agreement ("Loan Agreement") between the Company and Barclays
Business Credit, Inc. of Glastonbury, Connecticut. On February 1, 1995,
Shawmut Bank, N.A. acquired Barclays Business Credit, Inc. concurrently
renaming Barclays Business Credit, Inc. to Shawmut Capital ("Shawmut Capital").
The terms and conditions of the Loan Agreement remained unchanged.
The Second Amended Credit Agreement contained financial and operating covenants
which, among other things, required the Company to maintain prescribed levels
of pre-tax earnings, net worth, ratios of debt to net worth and ratios of
current assets to current liabilities. As of September 30, 1993, the Company
was in default in the performance of its obligations with respect to certain of
its covenants under the Second Amended Credit Agreement regarding the ratio of
adjusted earnings, permitted capital expenditures and investments by the
Company in Kensington Partners, its window manufacturing joint venture. The
banks were under no obligation to make revolving credit loans under the Second
Amended Credit Agreement following the occurrence and during the continuance of
a default or event of default. The Banks continued to lend notwithstanding the
foregoing defaults. The Company classified the related debt as current on its
September 30, 1993 balance sheet in light of the fact that the Second Amended
Credit Agreement provided for automatic acceleration of the indebtedness upon
the occurrence of a default or event of default. No such acceleration
occurred.
On February 14, 1994 the Company's bank group entered into an agreement to
forbear from exercising their rights and remedies under the Second Amended
Credit Agreement and to continue to extend credit under the Second Amended
Credit Agreement through March 15, 1994. During this period of time, certain
operating and financial covenants in the forbearance agreement were operative,
and the Company agreed to collateralize the loans with the accounts receivable
of two of its roofing distribution companies.
On March 4, 1994, the Company and its lending banks executed the Third Amended
Credit Agreement, pursuant to which the Company was permitted to borrow up to
$65 million until January 31, 1996. Loans under the Third Amended Credit
Agreement, which were secured by substantially all of the Company's assets,
were made pursuant to a $40 million revolving credit line commitment for
working capital, letters of credit and a $25 million term loan for general
corporate purposes. The revolving credit
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line availability was determined with reference to a percentage of accounts
receivable and inventory which were pledged to the banks.
On August 22, 1994, the Company sold substantially all of the assets of its
building materials distribution businesses to a subsidiary of Wm. Cameron & Co.
(a "Cameron Subsidiary") for a purchase price of $24,245,000 based on the July
31, 1994 net book value. Concurrently, the Company exercised its right under
the Third Amended Credit Agreement to reduce the revolving credit commitment by
$13 million to $25,825,000, thereby reducing fees charged on the unused portion
of the facility. The purchase price with respect to assets acquired by a
Cameron Subsidiary at the August 22, 1994 closing was subject to later
adjustment based on an audit of the net book value of the acquired assets and
assumed liabilities as of the closing date. Due to the increase in the net
book value for the period from July 31, 1994 through August 31, 1994, the
Company received an additional $1,897,000 in respect of such adjustment, which
amount was paid to the Company on November 17, 1994. This sale resulted in a
gain of $2,677,000. On November 28, 1994, Ashley Aluminum, Inc., a Cameron
Subsidiary, acquired the net assets of Southland Building Products, Inc., the
Company's sole remaining building materials distribution business, for a
purchase price of $2,134,000 (which does not take into account $193,000 paid
for a minority interest acquired by the Company in contemplation of the closing
of the sale). There was an insignificant gain on this sale.
The Company used proceeds from the sale of the assets of its building materials
distribution business to reduce the term loan under the Third Amended Credit
Agreement from $25 million to $11,999,000 as of November 29, 1994 and to reduce
the amount outstanding under the revolving credit line to $11,529,000 as of the
same date. Under the terms of the Third Amended Credit Agreement, the term
loan was to be further reduced by a principal payment of $11.2 million on April
30, 1995 with the balance of the term loan payable on January 31, 1996.
Under the Third Amended Credit Agreement and prior to the execution of the
Loan Agreement dated November 30, 1994 with Shawmut Capital, repayment of the
term loan was also required to be made from excess proceeds of future asset
sales (calculated as the amount remaining after net asset sale proceeds were
used to reduce revolving credit loans to less than borrowing base availability
with borrowing base availability being calculated after the effect of such an
asset sale). The term loan was also required to be reduced on any date other
than the payment due dates specified in the preceding paragraph by the amount
(if any) by which the term loan exceeded 70% of the fair market value of all of
the Company's fixed assets.
The Third Amended Credit Agreement contained financial and operating covenants
which, among other things, (i) required the Company to maintain prescribed
levels of tangible net worth, net cash flow, earnings before interest, taxes,
depreciation and amortization, and ratio of current assets to current
liabilities, and (ii) limited capital expenditures by the Company. The Third
Amended Credit Agreement also contained restrictions on indebtedness, liens,
investments, distributions (including payment of dividends), mergers,
acquisitions and disposition of assets.
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20
In a letter dated April 11, 1994, the Company was notified by the Agent under
the Third Amended Credit Agreement of certain alleged defaults with respect to
certain post closing undertakings (that were primarily administrative in
nature) including but not limited to, delivery of certain legal opinions and
the issuance of certain certificates of title and title policies. By letters
dated April 20, 1994, July 20, 1994, August 17, 1994, September 1, 1994 and
September 13, 1994, the Company was notified by the agent bank under the Third
Amended Credit Agreement of the continuation of the defaults under certain of
the above-mentioned administrative covenants, as well as certain alleged
defaults and events of default resulting from the fact that the Company did not
meet its minimum net worth covenant as of June 30, 1994. The Company's failure
to satisfy the minimum net worth covenant was due to the $8,477,000 write-down
in the recorded value of Bird Environmental Gulf Coast, Inc. ("BEGCI"). The
banks were under no obligation to extend credit under the Third Amended Credit
Agreement following the occurrence and during the continuance of a default or
event of default. Although not formalized in the form of a written amendment,
waiver or forbearance, the banks continued to lend, and the Company continued
to take action necessary to cure certain of the alleged defaults and events of
default. The Company requested the banks to waive or to forbear from asserting
the remainder of the alleged defaults and events of default. During the
existence of these alleged defaults and events of default, the Company
continued to meet its payment obligations as required. As a result of the
alleged defaults and events of default, all loans under the Third Amended
Credit Agreement were classified as current on the September 30, 1994 balance
sheet.
Interest on the revolving credit line under the Third Amended Credit Agreement
accrued at the base rate (as specified in such agreement) plus 1% on all
borrowings and 1/2% on any unused portion. The interest on the term loan
portion accrued at the base rate plus 2%. Due to the Company's defaults under
the Third Amended Credit Agreement, however, except for a short period
following the August 22, 1994 closing of the sale of assets to a Cameron
Subsidiary, from April 11, 1994 until November 30, 1994, the Banks charged
interest on the loans under the Third Amended Credit Agreement at a rate of
interest equal to 4% above the rate otherwise applicable to each such loan.
Therefore, the interest rate for outstanding loans under the revolving credit
line was 13.50% and 14.50% for the term loan just prior to the refinancing with
Shawmut Capital on November 30, 1994.
On November 30, 1994, Bird Incorporated entered into a $39 million, three year
Loan and Security Agreement (the "Loan Agreement") with Shawmut Capital. At
the end of the three year period, the Loan Agreement is automatically renewed
annually for a one year period unless terminated specifically in writing. The
Loan Agreement consists of a $24 million revolving credit commitment and two
equal term loans (Term Loan A and Term Loan B, as defined in the Loan
Agreement) totaling $15 million. Up to $5 million of the revolving credit
facility can be used for letters of credit. Letters of credit outstanding as
of December 31, 1994 totaled $2,927,000. Intercompany loans and advances to
non-borrowing affiliates including BEGCI and Kensington are permitted under the
Loan Agreement. On March 8, 1995, Shawmut Capital executed the First Amendment
to the Loan Agreement permitting the sale of the Company's vinyl siding
operation located in
20
21
Bardstown, Kentucky. The First Amendment to the Loan Agreement amended the
amount of the facility to $20 million consisting of a $15 million revolving
credit commitment and a $5 million term loan. Up to $5 million of the
revolving credit facility can be used for letters of credit. Borrowings by
Bird Incorporated under the Loan Agreement are guaranteed by the Company and
the Company's other subsidiaries and are secured by substantially all of the
assets of the Company and its subsidiaries. The revolving credit line
availability is determined with reference to a percentage of accounts
receivable and inventory which are pledged to the lender. During the period
January 1 through April 30, the Loan Agreement provides a $2 million over
advance on accounts receivable and inventories in order to assist the Company
in assuring adequate funding of any seasonal build up of accounts receivable
which may occur under sales programs which may be offered during the winter
months. Currently, the availability calculation does not allow borrowings to
the full extent of the revolving credit commitment, due to the seasonality of
the building materials manufacturing business. As of March 8, 1995, an
aggregate of $9,562,000 was available to the Company under the terms of the
revolving credit facility under the Loan Agreement. The Loan Agreement
contains financial and operating covenants which, among other things, (i)
require the Company to maintain prescribed levels of tangible net worth, net
cash flow and working capital and (ii) place limits on the Company's capital
expenditures. The Loan Agreement also contains restrictions on indebtedness,
liens, investments, distributions (including payment of common and preference
dividends), mergers, acquisitions and disposition of assets (except that the
Company is not precluded from consummating the sale of its interest in BEGCI).
The proceeds of the initial borrowings under the Loan Agreement were used to
pay in full the outstanding loan balances under the Third Amended Credit
Agreement. A commitment fee of $150,000 was due and paid to Shawmut Capital as
of the closing date of the Loan Agreement.
Interest on the revolving credit commitment under the Loan Agreement accrues at
the Shawmut Capital base rate (as specified in such Agreement) plus 1% on all
borrowings and the greater of $25,000 per annum or 1/4% on any unused portion
of the commitment payable monthly in arrears. Interest on Term Loan A and Term
Loan B accrues at the base rate plus 1 1/2%. The combined repayment of the
principal on Term Loan A and Term Loan B is $125,000 per month in year one and
$142,800 per month in years two and three with a final principal payment of
$10,072,800 due on November 30, 1997. Proceeds in excess of $100,000 from the
sale of fixed assets may, at Shawmut Capital's discretion, be applied to the
outstanding principal payments of the term loans.
In the event of a sale of the Company's 80% interest in BEGCI, proceeds would
be applied to the outstanding principal balance of Term Loan A. Proceeds from
the sale of the assets of the Vinyl division to Jannock on March 8, 1995 were
first applied to the repayment of Term Loan A, second to the repayment of Term
Loan B so that the outstanding principal amount of Term Loan B equals $5
million and third to the outstanding Revolving Credit Loan with the balance of
proceeds being retained by the Company. As of March 8, 1995, interest on the
loans outstanding under the Loan Agreement as amended by the First Amendment
thereto accrues at either the base rate or at the London Interbank
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Offering Rate ("LIBOR") plus 275 basis points at the borrower's election.
On January 25, 1994, the bank that was party to Kensington's Credit Agreement
dated October 25, 1993 gave notice that Kensington had breached certain
financial covenants including the ratio of Current Assets to Current
Liabilities, Tangible Net Worth and Total Liabilities to Tangible Net Worth in
each case as defined therein (although it continued to meet its payment
obligations throughout the term of the Credit Agreement). Subsequently, the
bank agreed to forbear from exercising its rights and remedies under such
agreement until August 31, 1994. In accordance with this forbearance
agreement, interest accrued at 3% above the bank's prime lending rate. On May
2, 1994, this bank applied the Company's $750,000 cash deposit, which was held
by the bank as collateral, against the total amount owed which was then
$2,158,000. A payment schedule was established to repay the remainder of the
loan. The loan availability calculation was amended to allow aggregate
borrowings equal to the lesser of the borrowing base calculation or a set
borrowing schedule over a prescribed time frame. The borrowing availability
schedule began April 29, 1994 at $1,550,000 and was periodically reduced to
$475,000 through August 31, 1994, at which time the outstanding balance was
paid in full.
This reduced borrowing availability schedule required Kensington to seek a new
lending arrangement. As of June 15, 1994, the Partnership entered into a
financing/factoring agreement with Bankers Capital of Chicago, Illinois. On
July 20, 1994, the Company's banks amended the Third Amended Credit Agreement
to permit the refinancing of Kensington with Bankers Capital. Under the terms
of the agreement, Bankers Capital agreed to provide up to $2.5 million in
financing based on the value of certain acceptable receivables. The amount
advanced at any one time cannot exceed 80% of the value of these receivables.
Interest on the amount advanced is at the prime lending rate plus 1 1/2%.
Additionally, Bankers Capital charges a fee ranging from 1.0% to 3.45% of the
total amount of the value of acceptable receivables used to extend financing
and based on the age of such receivables. As the receivables age, the
applicable fee percentage increases. In light of the interest and fees
described above, the average borrowing rate for 1994 under the Bankers Capital
Agreement was 22%. The financing by Bankers Capital is co-guaranteed by the
Company. Bankers Capital initially funded Kensington on August 25, 1994, which
funding included payment in full of the outstanding loan balance with
Kensington's previous lender.
On June 18, 1994, the Company entered into a Settlement Agreement and Full and
Final Release (the "Settlement Agreement") with the minority stockholders of
BEGCI, the owner of the San Leon Facility, thus resolving a suit filed by such
minority stockholders claiming a breach of contract and a countersuit filed by
the Company in January 1994. The claim was based on the minority stockholders'
allegations that the Company, without minority stockholder approval, caused
BEGCI to fund the construction of a solid waste treatment facility featuring
desorption technology owned by one of the minority stockholders rather than
funding a less costly liquid waste treatment facility featuring centrifuge
technology. Pursuant to the Settlement Agreement, the Company has agreed to
sell its 80% interest in BEGCI to the Minority
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Stockholders for approximately $7.5 million in cash on or before February 28,
1995. Such proposed sale was subject to financing, and also allowed the
Company to sell all of its interest in BEGCI to another buyer, provided that
the shares of common stock of BEGCI owned by the minority stockholders were
also sold at no less than the same price per share. The minority stockholders
continue to discuss financing with various interested parties. As the Board of
Directors decision to sell BEGCI and this Settlement Agreement established a
measurement date for financial accounting purposes, the Company has written
down the recorded value of BEGCI as of June 30, 1994 to $7.5 million. The
minority shareholders of BEGCI did not exercise their purchase option as of
February 28, 1995. The Company is continuing its efforts to locate a suitable
acquirer for the facility.
Until the Company's purchase of the roofing machine at the Company's Norwood,
Massachusetts facility on November 30, 1994, the operating lease on such
machine was collateralized by a mortgage on the Norwood property. The mortgage
required the consent of the lessor to allow a second mortgage on the real
property. The terms of the Third Amended Credit Agreement required security on
all of the Company's assets, and as a result, a second mortgage in favor of the
banks was placed on the Norwood property without obtaining the lessor's
consent. The Company was notified by a letter dated April 25, 1994 that the
lessor was declaring the Equipment Leasing Agreement dated as of December 28,
1984 (as amended) to be in default, and by a letter dated May 23, 1994, the
lessor declared the lease terminated. The Company and the lessor entered into
an agreement pursuant to which the Company agreed to purchase the leased
equipment for a purchase price of approximately $4 million payable in
installments between August 30, 1994 and January 15, 1995, by which date the
final payment of approximately $2.3 million had to be made. Concurrent with
the Company's refinancing with Shawmut Capital on November 30, 1994, the
Company satisfied all outstanding obligations with respect to the purchase
agreement it had entered into with the lessor and acquired title to the roofing
machine.
In order to control its cost and supply of asphalt, the Company constructed an
asphalt oxidizer plant at its roofing facility in Norwood, Massachusetts. Said
construction was completed as of January, 1995. The Company's decision to
build the oxidizer was triggered by the decision of Exxon (the only remaining
supplier of asphalt in New England) to exit the New England market. The cost
of this plant expansion was approximately $5 million.
Net cash and cash equivalents decreased during fiscal 1994 by $7,197,000 to
$321,000. The cash used by continuing operations for the fiscal period ended
December 31, 1994 increased $9,229,000, from $2,373,000 to $11,602,000. The
change was attributable primarily to the future tax benefit of approximately
$10.2 million recorded by the Company for fiscal 1994. In addition, there were
several significant changes in the balance sheet items such as a decrease of
approximately $3 million in trade accounts receivable, a decrease of
approximately $7 million in liabilities not relating to financing activities
and an decrease of $5 million relating to the liquidation reserve. In
addition, the Company recorded a charge of $9,747,000 relating to the disposal
of the environmental business for the period ended December 31, 1994. The
Company had approximately $19.4 million of net cash
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provided from investing activities for the period ended December 31, 1994 as
compared to a total of approximately $7 million of net cash used in investing
activities for the period ended December 31, 1993. The change is primarily the
result of $27 million of cash receipts from the proceeds of the sale of certain
of the Company's assets (including, primarily, the sale of the assets of the
distribution companies to a Cameron Subsidiary in August 1994), offset by cash
used for capital expenditures. The net cash resulting from financing
activities changed by $29 million for the period ended December 31, 1994 as
compared to the period ended December 31, 1993. The change is attributable to
the fact that during 1994 the Company repaid significant amounts of debt by
approximately $16 million in excess of borrowings, as compared to 1993 when the
Company borrowed approximately $16 million in excess of repayments.
There were several significant changes in the balance sheet accounts between
December 31, 1993 and December 31, 1994. The inventory balance decreased
$13,786,000 to $8,371,000 at December 31, 1994 from $22,157,000 at December 31,
1993. The decrease was due to management's deliberate decision to reduce
working capital and manage the level of inventories, coupled with the sale of
the Company's distribution businesses. Due to the seasonality of the business,
the winter months are historically the time when the Company builds its
inventory in anticipation of sales for the summer months. Other investments
balance at December 31, 1994 was $675,000 and $5,551,000 at December 31, 1993.
The decrease of approximately $4.9 million is due primarily to the sale of the
Company's 40% interest in Mid-South Building Supply, Inc. ("Mid-South") on June
10, 1994 and the decrease in cash value of corporate owned life insurance as a
result of take downs in cash surrender value to pay premiums and a $1.4 million
reduction as a result of funds returned to the Company under a cash surrender
value loan. The decrease in the Company's liquidation reserve reflects the
fact that, during the twelve months ended December 31, 1994, the Company was
able to either complete or terminate all of the contracts related to the
"on-site" environmental business, sell the related assets, close the facilities
and offices and terminate a significant number of employees.
ENVIRONMENTAL MATTERS
The Company monitors its compliance with environmental regulations on an
ongoing basis. Periodically (about twice a year), the Company's general
counsel receives environmental site assessments from the operating managers
responsible for site environmental compliance. Appropriate action is
undertaken where needed. In addition, when environmental claims are asserted
against the Company, the claims are evaluated by the Company's general counsel
and operating management in conjunction with external legal counsel and
environmental engineers as necessary, and action is taken with respect to all
known sites, as appropriate. The Company is currently engaged in proceedings
relating to or has received notice of the following environmental matters:
In March 1994, the Company received a notice of violation from the Texas
Natural Resource Conservation Commission ("TNRCC"). The notice alleged that
the Company was not in compliance with regulations of the TNRCC relating to
labeling, permitting, storage and disposal of certain
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25
hazardous waste. The notice proposed certain corrective action on the part of
the Company as well as payment of certain unqualified administrative penalties.
The Company is aware of former uses at the site which may have resulted in the
release of oil and/or hazardous substances and materials, and which may become
the subject of corrective actions required by law. The Company has met with
the TNRCC to assess the nature and extent of any corrective action which may be
required with respect thereto, and to ascertain whether any penalties would be
asserted. In late 1994, the TNRCC determined that no enforcement action would
be taken on any of the alleged violations as stated in the March 1994 notice.
On January 13, 1995, the Company received a letter from the TNRCC alleging
three violations of TNRCC rules and six "areas of concern". The TNRCC has
issued no order nor made any findings which would be expected to lead to the
entry of any administrative penalties. The Company intends to respond to the
TNRCC within the specified time frame and has addressed the alleged violations.
The Company believes that this matter will not have a material impact on the
Company.
On March 15, 1994 the Company received a draft of an Administrative Consent
Order and Notice of Noncompliance from the Massachusetts Department of
Environmental Protection ("DEP") concerning operations at its Norwood,
Massachusetts manufacturing facility and associated rock granule processing
facility. The draft alleges that the Company was not in compliance with
regulations of the DEP relating to air emissions, granule plant operation, and
labeling, handling and storage of certain hazardous waste. The draft proposes
certain corrective action on the part of the Company as well as payment of
civil administrative penalties. On June 10, 1994, the Company's roofing
division entered into an administrative consent order and notice of
noncompliance with respect to the alleged violations. The consent order
requires the Company to undertake certain modifications and corrective actions
with respect to certain hazardous waste handling and storage facilities at the
Norwood facility, to conduct an environmental audit of its operations at such
facility and to undertake various modifications of air pollution control
equipment. In addition, the Company is required to pay an administrative
penalty of $30,000. The Company estimates that the cost of corrective action
to be taken by it in accordance with the consent order will be approximately
$100,000.
On March 25, 1994, the Company received a notice from the United States
Environmental Protection Agency (the "EPA") regarding a site inspection
prioritization report prepared by the DEP. The notice alleges a potential
release of hazardous substances into the environment at the Company's former
mill site in East Walpole, Massachusetts. The EPA has reserved the right to
conduct further site tests on the location. In the opinion of management and
based on management's understanding that the alleged releases are in de minimis
quantities, this matter should not have a material adverse effect on the
Company's financial position or on the results of its operations.
Site assessments performed for the Company by its environmental consultants GZA
GeoEnvironmental, Inc. in connection with the construction of the new asphalt
oxidizer at the Norwood roofing facility indicated the presence of reportable
quantities of hazardous
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or toxic material, most of which has since been removed. The Company must
complete certain additional remedial activities described in the new
Massachusetts Contingency Plan ("MCP") on or before August 2, 1996. In the
opinion of management, any costs associated with these additional remedial
activities will not have a material effect on the results of operations or
financial condition of the Company.
On June 21, 1994, the Arizona Department of Environmental Quality ("ADEQ")
issued a notice of violation ("NV") to Southwest Roofing Supply, a previously
owned division of the Company ("Southwest"), which directed Southwest to
conduct a site investigation of property formerly leased by Southwest. A
consent order between the ADEQ and the Company was issued on September 23,
1994. Pursuant to the consent order, the Company agreed to submit a work plan
with a view to remediating the soil and groundwater that may have been
contaminated by leaks from an underground storage tank previously removed by
the Company. The Company's management believes that the remediation cost to
the Company will be in the range from $200,000 to $700,000. As of December 31,
1994, the Company has provided a reserve of $440,000 for its proportionate
share of the estimated cleanup. The Company anticipates that $200,000 will be
reimbursed to the Company by the ADEQ in accordance with Arizona law and
regulation.
In 1986, the Company, along with numerous other companies, was named by the EPA
and other governmental agencies responsible for regulation of the environment
as a Potentially Responsible Person ("PRP") pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
Paragraph 9601, et seq. ("CERCLA") in connection with hazardous substances at a
site known as the Fulton Terminal Superfund site located in Fulton, Oswego
County, New York. On September 28, 1990, the Company and a number of other
PRPs reached a negotiated settlement with the EPA pursuant to which the
settling PRPs agreed to pay the costs of certain expenses in connection with
the proceedings and to pay certain other expenses, including the costs and
expenses of administering a trust fund to be established by the settling PRPs.
The settlement agreement is embodied in a consent decree lodged with the United
States District Court for the Western District of New York and fixed the
Company's proportionate share of the total expenses. The ultimate cost to the
Company of the remedial work and other expenses covered by the settlement
agreement is estimated to be between $1 million to $2 million payable over a
period of 3 to 15 years (depending upon the duration of remediation efforts).
The Company has provided a reserve of $1 million at December 31, 1994 to offset
its estimate of the proportionate share (i.e., 16.5%) of the ultimate cost of
cleanup. Under a cost-sharing arrangement set forth in a consent decree with
the EPA, the other PRPs have agreed to incur 83.5% of the aggregate cost of
remediation of this site.
The Company has been named as a PRP with respect to certain other sites which
are being investigated by federal or state agencies responsible for regulation
of the environment. As a consequence of its status as a PRP, the Company may
be jointly and severally liable for all of the potential monetary sanctions and
remediation costs applicable to each site. In assessing the potential
liability of the Company at each site, management has considered, among other
things, the aggregate potential cleanup costs of each site; the apparent
involvement of the
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Company at each site and its prospective share of the remediation costs
attributable thereto; the number of PRPs identified with respect to each site
and their financial ability to contribute their proportionate shares of the
remediation costs for such site; the availability of insurance coverage for the
Company's involvement at each site and the likelihood that such coverage may be
contested; and whether and to what extent potential sources of contribution
from other PRPs or indemnification by insurance companies constitute reliable
sources of recovery for the Company. Similar consideration has been given in
determining the exposure and potential liability of the Company in connection
with other significant legal proceedings to which the Company is a party. On
the basis of such consideration, management has determined that such
environmental matters will not have a material adverse effect on the Company's
financial position or results of operations. The Company has provided an
aggregate reserve amounting to $207,000 for its estimated share of the ultimate
cost of clean-up for claims (without taking into account any potential
indemnification or recovery from third parties).
The Company's roofing facility at Norwood, Massachusetts is one of 4,000 sites
on the DEP list. The site was inspected by the DEP in the early 1980s when
capital improvements were being made to the roofing plant. At that time, the
DEP requested that the Company perform certain remediation measures. The
Company complied with such request. The environmental condition of the site
was studied in 1985 by an independent engineering firm. The assessment was
prompted by the request of a potential lender which planned to take a mortgage
on the property to collateralize a line of credit to the Company. Upon review
of the study, the lender extended credit to the Company secured by a mortgage
on the site. The DEP significantly revised the regulations that govern the
reporting, assessment and remediation of hazardous waste sites in
Massachusetts. The new Massachusetts Contingency Plan ("MCP") however, does
not alter the ultimate liability for any remediation that may be necessary at
the Norwood facility. Under the new MCP, the roofing facility is again listed
on the August 1993 "Transition List of Confirmed Disposal Sites and Locations
to be Investigated."
Since 1981 Bird has been named as a defendant in approximately 450 product
liability cases throughout the United States by persons claiming to have
suffered asbestos-related diseases as a result of alleged exposure to asbestos
in products manufactured and sold by Bird. Approximately 140 of these cases are
currently pending and costs of approximately $1.4 million in the aggregate have
been incurred in the defense of these claims since 1981. Employers Insurance
of Wausau ("Wausau") has accepted the defense of these cases under an agreement
for sharing of the costs of defense, settlements and judgments, if any. In
light of nature and merits of the claims alleged, in the opinion of management,
the resolution of these remaining claims will not have a material effect on the
results of operations or financial condition of the Company.
INSURANCE AND PRODUCT LIABILITY CLAIMS
In 1991, the Company commenced an action against Wausau, and Wausau and
Continental Casualty Company, in turn, independently commenced certain
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actions against the Company seeking declarations as to the obligations of the
insurers under the terms of liability insurance policies issued by the insurers
to Bird or the Logan-Long Company (which latter company was acquired by and
merged into Bird in 1976) to defend and indemnify Bird with respect to certain
claims and liabilities arising out of environmental conditions at and adjacent
to various locations including property formerly owned by Bird in Fulton, New
York and Franklin, Ohio and property located in Kingston, New Hampshire. The
suits involving Wausau were brought in the Superior Court for Norfolk County,
Massachusetts, and the Continental Casualty actions were commenced in the
Supreme Court of New York, Count of New York. On June 1, 1993, Wausau
commenced another action in the Superior Court for Norfolk County,
Massachusetts, against Bird seeking a declaratory judgment that certain
built-up roofing and glass shingle claims made against Bird are not covered by
liability insurance policies issued by Wausau. Bird asserts that the claims
are covered and has answered the complaint. A trial is scheduled for 1996. In
the opinion of management, the pending litigation involving Wausau is too
preliminary to assess the impact on the results of operations and liquidity of
the Company.
The Company is also exposed to a number of other asserted and unasserted
potential claims encountered in the normal course of business. In the opinion
of management, the resolution of such claims will not have a material adverse
effect on the Company's financial position or results of operations.
The Company is a defendant in a number of suits alleging product defects, the
outcome of which management believes will not in the aggregate have a material
impact on the Company's financial position or results of operations.
RESULTS OF OPERATIONS
The Company is focusing on its roofing manufacturing operations as its primary
business. The Company acknowledges that as a result of this decision, its
future prospects and sales will be tied solely to one line of business which
will, at least in the near future (and in the absence of any current plans of
the Company to expand significantly its operations and enter new markets), be
dependent upon the economy in the northeastern United States, the territory
which currently constitutes the Company's current market, and produce all of
its output at a single plant which currently relies on one major supplier for
critical raw materials (i.e., glass mat). Nevertheless, the Company believes
it has significant competitive advantages in this business. These advantages
stem from and are expected to continue in light of the Company's leading market
share, its low cost production abilities resulting from a state-of-the-art
plant, its internal supply of granules from its own quarry and granule plant,
future cost improvements which will result from the purchase of its roofing
machine from the former lessor and the completion of its construction of an
asphalt oxidizing plant. The Company's previous cash flow difficulties slowed
down the construction of the asphalt oxidizer, thus extending the period during
which the Company was required to purchase asphalt from more costly outside
vendors. In addition, due to the Company's limited working
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capital and to its difficulty in obtaining an adequate supply of asphalt for
"off-hours" and weekend production during peak- production times, the roofing
manufacturing facility was forced to operate at less than full capacity at
certain times during the year, resulting in limited inventory. Although the
Company was not always able to meet customers' demand for its roofing products
on a timely basis due to such circumstances, market share did not decrease
significantly. However, the Company's limited cash flow also hindered the
Company's ability to attract new customers.
1994 COMPARED WITH 1993
Losses from continuing operations before income taxes in 1994 were
approximately $5.9 million compared to losses of approximately $5.3 million in
1993. Net sales from continuing operations decreased 10.6% from $187,745,000
to $167,886,000 as compared to fiscal 1993. Sales from the Company's roofing
manufacturing business and its vinyl business increased 14.9% and 5.9%,
respectively. Improved weather conditions and renewed strength in the
remodeling market caused by low interest rates and a generally favorable
economy contributed to the improvement in these businesses. However, a
decrease in sales volume due to the sale of substantially all of the Company's
building materials distribution businesses in August and November of 1994
significantly offset the improvement attained by the roofing and vinyl
segments.
The Company's cost of sales from continuing operations in 1994 as compared to
1993 decreased 9.7% from $151,664,000 to $136,878,000. Cost of sales from
continuing operations in the roofing and vinyl manufacturing businesses
increased 15.4% and 7.9%, respectively, due to increased manufacturing costs
related to volume, higher raw materials costs related to the increase in resin
prices for the vinyl business and higher asphalt prices for the roofing
manufacturing business. The increase was more than offset by the decline in
cost of sales due to the August and November 1994 sales of the Company's
building materials distribution businesses.
Cost of sales stated as a percentage of net sales was 81.5% in 1994 as compared
to 80.8% in 1993. The roofing manufacturing business cost of sales as a
percentage of sales increased .3% from 85.9% to 86.2% in 1994. The vinyl
business cost of sales as a percentage of sales for fiscal 1994 increased from
76.0% to 77.5% or 1.5% over fiscal 1993. The major factor in such percentage
increase was the increased expense of raw materials.
Selling, general and administrative ("SG&A") expenses for fiscal 1994 decreased
12.0% from $32,716,000 to $28,786,000. The decrease was primarily attributable
to the sale of the Company's building materials distribution businesses. The
SG&A expenses of the Company's roofing and vinyl manufacturing businesses, on a
combined basis, decreased 7.2% from year-to-year. However, SG&A expenses
(expressed as a percentage of sales) remained relatively constant at
approximately 17%.
Interest expense was $4,782,000 in 1994 as compared to $2,472,000 in 1994,
constituting a 93% increase. The increased interest expense
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30
reflects the nearly $10 million increased debt level and higher overall
interest costs in 1994. Between April 11, 1994 and November 30, 1994 the
Company was required to pay a default interest rate of 4% above the rate
otherwise applicable to the revolving credit and term loans compared to an
approximate rate of 4.5% to 5% for 1993. Default interest expense totaled
$1,032,000 during fiscal 1994.
Discontinued business activities income in 1994 reflects primarily the gain of
$2,727,000 on the sale of all of the Company's building materials distribution
businesses reduced by the loss of $1,261,000 on the sale of the Company's 40%
interest in Mid-South Building Supply, Inc.
Other non-recurring expenses totalled $4,680,000 in 1994 as compared to
$5,903,000 in 1993. Kensington partnership continued to experience operations
problems and incurred losses of $4,680,000 and $2,625,000 in 1994 and 1993,
respectively.
A higher tax benefit from continuing operations was recorded in 1994 compared
to a the benefit booked in 1993. The Company's decision to record a $9 million
valuation reserve in 1993 and subsequent decision to reverse $4 million in 1994
is the primary reason the effective tax rates differ from the statutory rate.
In connection with the Board of Director's decision to withdraw from the
environmental business and the Company's agreement on June 18, 1994 to sell its
shares in BEGCI to the minority stockholders on or before February 28, 1995,
subject to financing, the Company reclassified BEGCI results as a discontinued
operation as of June 30, 1994 and adjusted its book value, resulting in an
aggregate charge for the twelve months ended December 31, 1994 of $11,586,000.
The Company intends to operate the San Leon Facility until the sale of its
interest in BEGCI is consummated. No assurance can be given that a sale will
be successfully completed or, if completed, that such sale will be on terms
which are advantageous to the Company. However, the Company expects the sale
or disposition of BEGCI to occur by the end of the second quarter of 1995.
Due to the Company's decision to exit the off-site environmental business by
selling its interest in the San Leon Facility as described above, the Company
has completely withdrawn from the environmental business. As a result,
historical results of operations for all of the environmental businesses have
been classified as discontinued operations. In 1993, in connection with its
decision to withdraw from the "on-site" environmental remediation business, the
Company charged the results of operations for the write-down of assets, the
expected loss from operations and general expenses related to closing of such
"on-site" remediation business (see notes to Consolidated Financial
Statements). Based upon the outcome of the sales of assets and results of
operations, excess costs of $3,861,000 charged in 1993 have been reversed and
are recorded as discontinued operations in the consolidated statement of
operations ending December 31, 1994.
1993 COMPARED WITH 1992
Losses from continuing operations before income taxes in 1993 were
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31
approximately $5.3 million compared to earnings of approximately $6.5 million
in 1992. The write-off of non-performing assets and other corporate charges
were significant contributing factors to the 1993 aggregate loss.
Net sales from continuing operations in fiscal year 1993 increased
approximately $23.5 million or 14.3% over fiscal year 1992. The increase in
net sales was mostly due to the building products distribution business. The
year-to-year comparison also reflects the sale of the municipal sludge business
in mid-1993. During fiscal year 1993, it was the Company's intention to focus
its future efforts on its roofing manufacturing business and its vinyl
business. However, the Company was required to devote a greater amount of
working capital to support its environmental remediation business due to prior
contractual commitments to provide remediation services. Cost of sales in 1993
was approximately $151.7 million as compared to approximately $128.4 million in
1992, constituting an increase of 18%. Cost of sales stated as a percentage of
net sales was 80.8% in 1993 as compared to 78.2% in 1992. The major
contributing factor in such percentage increase was the increased expense of
raw materials primarily related to the roofing manufacturing business and, to a
lesser degree, to the Vinyl Business. The significant increase in cost of
sales in the fourth quarter in comparison to the third quarter related to
losses on contracts in the on-site environmental remediation business.
Interest expense was approximately $2.5 million in 1993 as compared to
approximately $1.5 million in 1992, constituting a 64% increase. The increase
was a result of the Company requiring a consistently higher debt level
throughout 1993, mainly to support its environmental remediation business.
This segment of business used more working capital in 1993 than 1992 and also
needed funds to complete the San Leon Facility. The increased debt levels and
higher interest rates resulted in higher interest expense. Cash flow
projections indicated that with the closing of the on-site business, completion
of the San Leon Facility, the amendment of the Second Amended Credit Agreement
and other cash conservation measures, debt levels would be rendered manageable.
Other non-recurring expenses totalled $6 million (net of income of
approximately $1.3 million from a settlement with a former vendor and of
approximately $2,625,000 constituting that portion of expenses incurred by
Kensington which are allocable to the Company) in 1993 compared to other income
of $200,000 in 1992. A series of non-recurring items at the end of 1993
required the Company to record a number of special charges to 1993 results of
operations. The principal items relating to such charges are outlined in the
following paragraphs:
- The Company increased by $500,000 a reserve for its environmental
cleanup of the Fulton Terminal Superfund Site described under
"Environmental Matters" above, based on site assessments and on
Bird's estimated share of the proportionate costs, without regard
to anticipated insurance proceeds.
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- The Company wrote off approximately $1.3 million in real property
investments it deemed imprudent to pursue in light of current
financing considerations. This write-off was based on the
estimated net realizable value of the property.
- A promissory note in the principal amount of approximately $1.3
million previously accepted by the Company to satisfy the
remaining portion of an outstanding receivable, which note was
collateralized by a second interest in an unsecured portfolio of
home improvement loans, was deemed to be of no value, based on an
assessment of the portfolio and the bankruptcy of the debtor;
therefore, it was written off.
- In connection with its termination of George J. Haufler, the
former Chief Executive Office of Bird, the Company established an
$850,000 reserve to cover a settlement provided for under Mr.
Haufler's employment agreement (which settlement has been paid in
full) and the Company's agreement to pay health insurance
premiums until 1997. The Company's obligations in this respect
have terminated in light of Mr. Haufler's recent death.
Kensington experienced severe operational problems due to a rapid increase in
business and product line changes in the latter part of 1993. This resulted in
a loss of approximately $5.2 million, half of which was allocable to the
Company under the terms of the Kensington Partnership Agreement.
In the third quarter of 1993, the restructuring reserve initially established
in 1992 to cover expenses related to severance payments, office closure,
relocation and other contractual liabilities for the consolidation and
reorganization of the environmental business was increased by $2 million. (See
the Notes to the 1994 Consolidated Financial Statements). On July 22, 1993,
the Company sold its environmental municipal sludge disposal business
aggregating a net pretax gain of $858,000 which is included in the loss from
operations of discontinued businesses. Additionally, the Company recorded a
provision totalling approximately $11 million which represented the estimated
net costs associated with the closing of the "on-site" business. These costs
include the write-down of assets to net realizable value, the expected loss
from operations resulting from projects being closed and general expenses
associated with closing a business and are shown as a loss in connection with
the disposal of the "on-site" business in the 1993 results. (See the Notes to
the 1994 Consolidated Financial Statements). All other results of the
Company's environmental operations for the comparative periods were
reclassified as discontinued operations upon the Company's decision to exit the
off-site environmental remediation business as described above.
A 12.1% tax benefit from continuing operations was booked in 1993 as compared
to a 13.3% tax provision in 1992. The Company's decision to record an
approximately $9 million valuation reserve in 1993 in accordance with the
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes" ("FAS 109") issued by the Financial Accounting Standards Board in
February 1992 (as further described in Note 4 of the Notes to the 1993
Consolidated Financial Statements) was
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the primary reason the effective rate was lower than the statutory rate.
1992 COMPARED WITH 1991
Earnings from continuing operations before income taxes amounted to $6.5
million compared to $5.9 million in 1991. Net sales of approximately $164.2
million were approximately $27.1 million higher than in 1991, constituting an
increase of 19.8%. The increase in sales related to acquisitions by, and
increased business (primarily in the Southwest) of, the Company's roofing
manufacturing business and its vinyl business. Cost of sales in 1992 was
approximately $128.4 million compared with approximately $107.2 million for
1991. Gross profit (expressed as a percentage of sales for 1992) remained
constant at 21.8%.
SG&A expenses in 1992 were approximately $27.8 million as compared to
approximately $23 million for 1991. The 20.8% increase in SG&A expenses was a
result of acquisitions in the roofing manufacturing business and the vinyl
business. SG&A expenses (expressed as a percentage of net sales) were 16.9% in
1992 and 16.8% in 1991.
Interest expense of approximately $1.5 million in 1992 increased $480,000 over
that in 1991 as a result of increased bank debt to fund new acquisitions and
capital expenditures made to expand the Company's environmental remediation
business.
The Company's effective tax rate from continuing operations and related tax
provisions for the fiscal year ended December 31, 1992 increased from the
comparable 1991 period due primarily to an increase in the alternative minimum
tax (the "AMT") as a result of the full utilization of AMT net operating loss
carryforwards in 1992.
Due to the Company's decision to exit completely from the environmental
business in June 1994, results of operations from all environmental business in
1992 and 1991 have been reclassified as discontinued operations.
INFLATION
The Company is continually seeking ways to deal with cost increases by
productivity improvements and cost reduction programs. In the Housing Group,
in recent years, the Company has not always been able to pass increased raw
material costs on by increasing selling prices because of intense competitive
pressures. The Company has an ongoing program of updating productive capacity
to take advantage of improved technology, and although the cumulative impact of
inflation has resulted in higher costs for replacement of plant and equipment,
these costs have been offset by productivity savings. Since the Environmental
Group is primarily a service business and the need for this service is mostly a
result of government regulations, inflation is not a major factor.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and schedules of the Company are included
in a separate section of this report and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Items 10, 11, 12 and 13 (except the information on
executive officers) is included in the Company's definitive proxy statement for
its 1995 Annual Meeting of Stockholders which will be filed with the Commission
by April 30, 1995 and which is incorporated herein by reference. Information
on executive officers, required by Item 10, is included in PART I of this
report under the heading "Executive Officers of the Registrant".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) An Index of Financial Statements and Schedules is on page F1 of
this report. The Exhibit Index is on pages -- through -- of this
report.
1. On February 23, 1995, the Company filed a Form 8-K/A-2 to amend
the Form 8-K previously filed to disclose the sale of
substantially all of the assets of its building materials
distribution businesses to Wm. Cameron & Co. The Form 8- K/A-2
included pro forma financial information, restated to reflect the
results of operations of the Company's environmental business as
discontinued operations as of June 30, 1994, assuming the sale of
the distribution businesses had occurred on that date.
2. On March 22, 1995, the Company filed a Form 8-K disclosing the
sale of substantially all of the assets related to its vinyl
siding business as conducted at its Bardstown, Kentucky facility
to Jannock, Inc. The Form 8-K included pro forma financial
information as of September 30, 1994, assuming the sale of the
vinyl business had occurred on that date.
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Items 14 (a) (3) and (c)
Exhibits
Bird Corporation
Dedham, Massachusetts
EXHIBIT INDEX
Sequential
Exhibit No. Page No.
----------- ----------
3(a) Articles of Organization (Filed as Appendix B to the Company's Registration Statement on Form S-4,
Registration No 33-34440 and incorporated herein by reference.)
3(b) By-laws of the Company as amended to date. (Filed as Exhibit 3(b) to the Company's report on Form
10-K for the year ended December 31, 1990 and incorporated herein by reference.)
4(a)(1) Forbearance Agreement dated as of February 14, 1994 with regard to the Revolving Credit Agreement
dated as of December 17, 1990, as amended. (Filed as Exhibit 4 (a)(3) to the Company's Form 10-K
for the year ended December 31, 1993 and incorporated herein by reference.
4(a)(2) Third Amended and Restated Revolving Credit and Term Loan Agreement dated as of March 4, 1994
(Filed as Exhibit 4(a)(1) to the Company's Form 8-K dated March 14, 1994 and incorporated herein by
reference)
4(a)(3) Loan and Security Agreement dated as of November 30, 1994 (the "Loan Agreement") between Barclays
Business Credit, Inc. (now known as Shawmut Capital Corporation) and Bird Incorporated.
4(a)(4) First Amendment dated as of March 8, 1995 to the Loan Agreement between Shawmut Capital Corporation
and Bird Incorporated.
4(a)(5) Rights Agreement dated as of November 25, 1986 between the Company and the First National Bank of
Boston, as Rights Agent. (Filed as Exhibit 1 to Registration Statement on Form 8-A dated December 5,
1986 and incorporated herein by reference.)
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Sequential
Exhibit No. Page No.
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4(a)(6) First Amendment dated May 24, 1990 to Rights Agreement dated as of November 25, 1986. (Filed as
Exhibit 4(b)(2) to the Company's report on Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.)
10(a)* Plan for Assistance to Key Employees in Financing Purchases of Company Stock (Filed as Exhibit 10(b)
to the Company's report on Form 10-K for the year ended December 31, 1980 and incorporated herein
by reference.)
10(b)* Plan for Deferring Payment of Senior Officer's Compensation (Adopted December 22, 1975). (Filed as
Exhibit 10(c) to the Company's report on Form 10-K for the year ended December 31, 1980 and
incorporated herein by reference.)
10(c)* 1975 Plan for Deferring Payment of Director's Compensation (Adopted June 23, 1975). (Filed as
Exhibit 10(d) to the Company's report on Form 10-K for the year ended December 31, 1980 and
incorporated herein by reference.)
10(d)* Settlement Agreement dated as of July 7, 1994 between Bird Corporation and George J. Haufler.
10(e)* Management Incentive Compensation Program adopted January 25, 1983. (Filed as Exhibit 10(m) to the
Company's report on Form 10-K for the year ended December 31, 1982 and incorporated herein by
reference.)
10(f)* Bird Corporation 1982 Stock Option Plan as amended through January 29, 1992. (Filed as Exhibit 10(f)
to the Company's report on Form 10-K for the year ended December 31, 1991 and incorporated herein by
reference.)
10(g)* Bird Corporation 1992 Stock Option Plan. (Filed as Exhibit 10(g) to the Company's report on Form 10-K
for the year ended December 31, 1992 incorporated herein by reference.)
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Sequential
Exhibit No. Page No.
----------- ----------
10(h)* Bird Corporation Non-Employee Director Stock Option Plan. (Filed as Exhibit 10(h) to the Company's
report on Form 10-K for the year ended December 31, 1992 incorporated herein by reference.)
10(i)(1)* Form of severance agreement with eight key executive employees of the Company. (Filed as Exhibit
10(n) to the Company's report on Form 10-K for the year ended December 31, 1984 and incorporated
herein by reference.)
10(i)(2)* Form of Amendment dated May 24, 1990 to form of severance agreement. (Filed as Exhibit 10(g)(2)
to the Company's report on Form 10-K for the year ended December 31, 1990 and incorporated herein
by reference.)
10(k) Glass Mat Supply Agreement dated as of February 20, 1985 between the Company, The Flintkote Company
and Genstar Roofing Company, Inc. (Filed as Exhibit 10(s) to Amendment No. 1 to the Company's
report on Form 10-K for the year ended December 31, 1984 and incorporated herein by reference.)
10(l) Equipment Acquisition Agreement dated May 25, 1990 between BancBoston Leasing Inc. and Bird
Incorporated. (Filed as Exhibit 10(j) to the Company's report on Form 10-K for the year ended
December 31, 1990 and incorporated herein by reference.)
10(m) Equipment Acquisition Agreement dated July 23, 1986 between BancBoston Leasing Inc. and Bird
Incorporated. (Filed as Exhibit 10(s) to the Company's report on Form 10-K for the year ended
December 31, 1986 and incorporated herein by reference.)
10(n)(1)* Long Term Incentive Compensation Plan dated June 28, 1988. (Filed as Exhibit 10(v) to the Company's
report on Form 10-Q for the quarter ended September 30, 1988 and incorporated herein by reference.)
10(n)(2)* Amendment dated May 24, 1990 to Long Term Incentive Compensation Plan. (Filed as Exhibit 10(o)(2)
to the Company's report on Form 10-K for the year ended December 31, 1990 and incorporated herein
by reference.)
38
39
Sequential
Exhibit No. Page No.
----------- ----------
10(o) Amendment dated February 1, 1994 to the First Amended and Restated Partnership Agreement between
Bird Vinyl Products, Inc. and Kensington Manufacturing Company. (Filed as Exhibit 10(o)(2) to the
Company's report on Form 10-K for the year ended December 31, 1993 and incorporated herein by
reference.)
10(p)* Employment Agreement dated as of December 1, 1993 between the Company and Joseph D. Vecchiolla.
(Filed as Exhibit 10(p) to the Company's report on Form 10-K for the year ended December 31, 1993
and incorporated herein by reference.)
10(q)* Severance Agreement dated as of December 21, 1993 between the Company and Joseph D. Vecchiolla.
(Filed as Exhibit 10(q) to the Company's report on Form 10-K for the year ended December 31, 1993
and incorporated herein by reference.)
10(r)* Settlement Agreement dated as of November 25, 1994 between Bird Corporation and William A. Krivsky.
10(s) Asset Purchase Agreement dated as of August 19, 1994 between Bird Incorporated, Atlantic Building
Products Corporation, Greater Louisville Aluminum, Inc., Southwest Roofing Supply, Inc., Southwest
Express, Inc., New York Building Products, Inc., and Wm. Cameron & Co. (Filed as Exhibit (1) to the
Company's Form 8-K dated August 31, 1994 and incorporated herein by reference.)
10(t) Asset Purchase Agreement dated as of September 23, 1994 among Bird Corporation, Bird Incorporated,
and Jannock, Inc. (as amended by amendments dated as of January 27, 1995 and January 31, 1995).
(Filed as Exhibit B to the Company's proxy statement dated February 10, 1995 for the special meeting
of the stockholders to be held on March 7, 1995 and incorporated herein by reference.)
11 Statement regarding computation of per share earnings(loss).
22 Significant subsidiaries.
39
40
Sequential
Exhibit No. Page No.
----------- ----------
23(a) Consent of Price Waterhouse LLP to incorporation by reference of 1994 financial statements in the
Company's Registration Statements on Form S-3, Registration No. 33-44475; Form S-4, Registration No.
33-44403; and Form S-8, Registration Nos. 33-36304, 33-36305, 33-67826 and 33-67828.
23(b) Consent of Alpern, Rosenthal and Company, independent accountants for Kensington Partners to
incorporation by reference of the 1994 Kensington Partners independent auditors' report in the
Company's Registration Statements on Form S-3, Registration No. 33-44475; Form S-4, Registration No.
33-44403; and Form S-8, Registration No. 33-36304, 33-36305, 33-67826 and 33-67828.
28 Annual report on Form 11-K of the Bird Employees' Savings and Profit Sharing Plan for the fiscal year
ended December 31, 1994. (To be filed by amendment.)
* Indicates management contract or compensatory plan or arrangement
40
41
POWER OF ATTORNEY
We, the undersigned officers and Directors of Bird Corporation, hereby
severally constitute and appoint Joseph D. Vecchiolla and Frank S. Anthony, and
each of them severally, our true and lawful attorneys or attorney, with full
power to them and each of them to execute for us, and in our names in the
capacities indicated below, and to file with the Securities and Exchange
Commission the Annual Report on Form 10-K of Bird Corporation, for the fiscal
year ended December 31, 1994, and any and all amendments thereto.
IN WITNESS WHEREOF, we have signed this Power of Attorney in the
capacities indicated on March 24, 1994.
Principal Executive
Officer:
___________________________ President, Director and
Joseph D. Vecchiolla Chief Executive Officer
Principal Financial Officer:
___________________________ Vice President, Finance and
Joseph M. Grigelevich, Jr. Administration
Directors
___________________________ _______________________
Robert P. Bass, Jr. Francis J. Dunleavy
___________________________ _______________________
Charles S. Bird, Jr. John T. Dunlop
___________________________ _______________________
Robert L. Cooper Guy W. Fiske
___________________________ _______________________
Loren R. Watts Richard C. Maloof
41
42
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.
BIRD CORPORATION
(Registrant)
By
------------------
JOSEPH D. VECCHIOLLA
PRESIDENT, CEO
March 24, 1995
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.
SIGNATURE TITLE DATE
--------- ----- ----
__________________________ President, Director, March 24, 1995
JOSEPH D. VECCHIOLLA and CEO (Principal
Executive Officer)
__________________________ Vice President, March 24, 1995
JOSEPH M. GRIGELEVICH, JR. and CFO (Principal
Financial Officer)
___________________________ Corporate Controller March 24, 1995
DONALD L. SLOPER, JR. (Principal Accounting
Officer)
*
___________________________ Director March 24, 1995
ROBERT P. BASS, JR.
*
___________________________ Director March 24, 1995
CHARLES S. BIRD, JR.
42
43
SIGNATURES
(continued)
*
___________________________ Director March 24, 1995
ROBERT L. COOPER
*
___________________________ Director March 24, 1995
FRANCIS J. DUNLEAVY
*
___________________________ Director March 24, 1995
JOHN T. DUNLOP
*
___________________________ Director March 24, 1995
GUY W. FISKE
*
___________________________ Director March 24, 1995
RICHARD C. MALOOF
*
___________________________ Director March 24, 1995
LOREN R. WATTS
* By ___________________________
Frank S. Anthony as
Attorney-in-fact
43
44
ANNUAL REPORT ON FORM 10-K
ITEM 14 (a) (1) AND (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1994
BIRD CORPORATION
Dedham, Massachusetts
45
Bird Corporation and Subsidiaries
Form 10-K
Items 14(a)(1) and (2)
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements of the registrant and its
subsidiaries required to be included in Item 8 are listed below.
Consolidated Financial Statements: Page
----
Reports of independent accountants ____________________________ F2
Balance sheets at December 31, 1994 and 1993 __________________ F4
Statements of operations for each of the three years in
the period ended December 31, 1994 ___________________________ F6
Statements of stockholders' equity for each of the three
years in the period ended December 31, 1994 __________________ F7
Statements of cash flows for each of the
three years in the period ended December 31, 1994 ____________ F10
Notes to consolidated financial statements ____________________ F11
The following consolidated financial statement schedules of Bird Corporation
and its subsidiaries are included in Item 14(a)(2) and should be read in
conjunction with the financial statements included herein:
Schedule II -Valuation and qualifying accounts _______________ F39
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not applicable or the required information is shown in the financial
statements or the notes thereto.
F1
46
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Bird Corporation
We have audited the consolidated balance sheets of Bird Corporation and its
subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of operations, of stockholders' equity and of cash flows for the
three years in the period ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did
not audit the financial statements of Kensington Partners, a 90% owned joint
venture, which statements reflect total assets of $8.9 million and $11.3
million at December 31, 1994 and 1993, respectively, total revenues of $24.2
million and $21.3 million and net losses of $5.3 million and $5.2 million for
the years ended December 31, 1994 and 1993, respectively. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Kensington Partners,
is based solely on the report of the other auditors.
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 and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements listed in the index appearing under Item
14(a)(1) and (2) on Page F1 present fairly, in all material respects, the
financial position of Bird Corporation and its subsidiaries as of December 31,
1994 and 1993, and the results of their operations and their cash flows for the
three years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993 to comply with a new
pronouncement issued by the Financial Accounting Standards Board.
/s/Price Waterhouse LLP
Boston, Massachusetts
March 8, 1995
F2
47
INDEPENDENT AUDITORS' REPORT
To the Partners
Kensington Partners and Affiliate
Leechburg, Pennsylvania
We have audited the accompanying combined balance sheets of Kensingtion
Partners and Affiliated (Joint Venture Partnerships) as of December 31, 1994
and 1993 and the related combined statements of operations and changes in
partners' capital (deficit), and cash flows for the years ended December 31,
1994 and 1993 and the period from July 1, 1992 (Inception) to December 31,
1992. These financial statements are the responsibility of the Partnerships'
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 assuarance 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 combined financial statements referred to above
present fairly, in all material respects, the financial position of Kensingtion
Partners and Affiliate as of December 31, 1994 and 1993, and the results of
their operations and their cash flows for the years ended December 31, 1994 and
1993 and the period from July 1, 1992 (Inception) to December 31, 1992, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Kensington Partners and Affiliate will continue as going concerns. As discussed
in Note 2 to the financial statements, the Companies have incurred significant
operating losses and current liabilities exceed current assets. Those
conditions, among others, raise substantial doubt about the Companies' ability
to continue as going concerns. Management's plans regarding those matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Alpern, Rosenthal & Company
Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania
February 10, 1995
F-3
48
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1994 1993
----------- ------------
Assets
Current Assets:
Cash and equivalents $321,000 $7,518,000
Accounts and notes receivable, less
allowances - $3,137,000 in 1994
and $4,273,000 in 1993 19,644,000 32,696,000
Inventories 8,371,000 22,157,000
Prepaid expenses and other assets 3,095,000 4,046,000
Deferred income tax 6,836,000 170,000
----------- ------------
Total current assets 38,267,000 66,587,000
----------- ------------
Property, Plant and Equipment:
Land and land improvements 3,145,000 4,716,000
Buildings 11,742,000 14,700,000
Machinery and equipment 33,760,000 40,686,000
Construction in progress 5,705,000 14,882,000
54,352,000 74,984,000
Less - Depreciation and amortization 24,323,000 30,410,000
----------- ------------
30,029,000 44,574,000
----------- ------------
Other investments 675,000 5,551,000
Assets held for sale 7,500,000 0
Deferred tax asset 8,662,000 5,051,000
Other assets 572,000 1,466,000
$85,705,000 $123,229,000
=========== ============
See accompanying notes to consolidated financial statements.
F 4
49
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1994 1993
----------- ------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $13,671,000 $26,377,000
Long-term debt, portion due within one year 18,071,000 3,400,000
Retirement plan contributions payable 302,000 513,000
Income taxes payable 596,000 809,000
Liquidation reserve 0 5,398,000
----------- ------------
Total current liabilities 32,640,000 36,497,000
----------- ------------
Long-term debt, portion due after one year 12,504,000 43,127,000
----------- ------------
Other liabilities 2,715,000 3,021,000
----------- ------------
Deferred income taxes 128,000 23,000
----------- ------------
Total liabilities 47,987,000 82,668,000
----------- ------------
Stockholders' Equity
5% cumulative preferred stock, par
value $100. Authorized 15,000 shares;
issued 5,820 shares in 1994 and 1993
(liquidating preference $110 per share,
aggregating $640,000) 582,000 582,000
Preference stock, par value $1. Authorized
1,500,000 shares; issued 814,300 shares
of $1.85 cumulative convertible preference
stock in 1994 and 1993(liquidating value $20
per share, aggregating $16,286,000) 814,000 814,000
Common stock, par value $1. Authorized
15,000,000 shares; 4,375,179 shares issued
in 1994 and 4,291,565 shares issued in 1993 4,375,000 4,291,000
Other capital 27,235,000 26,456,000
Retained earnings 7,860,000 11,551,000
----------- ------------
40,866,000 43,694,000
Less -
Treasury stock, at cost, Common:
275,100 shares in 1994 and 163,791 in 1993 (2,991,000) (2,179,000)
Unearned compensation (157,000) (954,000)
----------- ------------
37,718,000 40,561,000
----------- ------------
Commitments and contingencies (Note 12)
$85,705,000 $123,229,000
=========== ============
See accompanying notes to consolidated financial statements.
F 5
50
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1994 1993 1992
------------ ------------ ------------
Net Sales $167,886,000 $187,745,000 $164,202,000
------------ ------------ ------------
Costs and expenses:
Cost of sales 136,878,000 151,664,000 128,371,000
Selling, general and administrative expense 28,786,000 32,716,000 27,811,000
Interest expense 4,782,000 2,472,000 1,506,000
Discontinued business activities expense (income) (1,313,000) 268,000 178,000
Equity losses from partnership 4,680,000 2,625,000 0
Other (income) expense 0 3,278,000 (197,000)
------------ ------------ ------------
Total costs and expenses 173,813,000 193,023,000 157,669,000
------------ ------------ ------------
Earnings (loss) from continuing
operations before income taxes (5,927,000) (5,278,000) 6,533,000
Provision (benefit) for income taxes (7,010,000) (637,000) 869,000
------------ ------------ ------------
Earnings (loss) from continuing operations
before cumulative effect of accounting change 1,083,000 (4,641,000) 5,664,000
------------ ------------ ------------
Discontinued operations (Note 9):
Income (loss) from operations of
discontinued businesses, net of taxes 1,245,000 (15,414,000) (2,573,000)
Loss on disposal of environmental business,
1993 includes a provision of $5,200,000
for operating losses during phase out
period, net of taxes (6,011,000) (11,000,000) 0
------------ ------------ ------------
Net loss from discontinued operations (4,766,000) (26,414,000) (2,573,000)
------------ ------------ ------------
Cumulative effect of accounting change 0 2,733,000 0
------------ ------------ ------------
Net earnings (loss) before dividends (3,683,000) (28,322,000) 3,091,000
Preferred and preference stock
cumulative dividends 1,536,000 1,536,000 1,536,000
------------ ------------ ------------
Net earnings (loss) applicable to common
stockholders ($5,219,000) ($29,858,000) $1,555,000
============ ============ ============
Primary earnings (loss) per common share:
Continuing operations ($0.11) ($1.51) $1.00
Discontinued operations ($1.20) ($6.45) ($0.62)
------------ ------------ ------------
Cumulative effect of accounting change $0.00 $0.67 $0.00
Net earnings (loss) after dividends ($1.31) ($7.29) $0.38
============ ============ ============
See accompanying notes to consolidated financial statements.
F6
51
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
$1.85
5% CUMULATIVE
CUMULATIVE CONVERTIBLE COMMON
PREFERRED PREFERENCE COMMON OTHER RETAINED STOCK IN
STOCK STOCK STOCK CAPITAL EARNINGS TREASURY
-------- -------- ---------- ----------- ----------- -----------
Balance January 1, 1994 $582,000 $814,000 $4,291,000 $26,456,000 $11,551,000 $(2,179,000)
Net (loss) (3,683,000)
Cash dividends declared:
5% cumulative preferred
stock - $1.25 per share (8,000)
Common stock issued as
compensation - 1,426 shares 1,000 14,000
Common stock issued for
contributions to employees'
saving plan - 12,439 shares 13,000 110,000
Common stock issued upon exercise
of stock options - 69,750 shares common
and 15,000 shares treasury 70,000 609,000 109,000
Purchase of 248 shares of
common stock (3,000)
L.T.Incentive forfeitures - 125,145 shares (910,000)
Common stock from distribution
business - 916 shares (6,000) (8,000)
Amortization of unearned
compensation
Cumulative foreign currency
translation 52,000
-------- -------- ---------- ----------- ----------- -----------
Balance December 31, 1994 $582,000 $814,000 $4,375,000 $27,235,000 $ 7,860,000 $(2,991,000)
======== ======== ========== =========== =========== ===========
TOTAL
UNEARNED STOCKHOLDERS
COMPENSATION EQUITY
------------ --------------
Balance January 1, 1994 $ (954,000) $ 40,561,000
Net (loss) (3,683,000)
Cash dividends declared:
5% cumulative preferred
stock - $5 per share (8,000)
Common stock issued as
compensation - 1,426 shares 15,000
Common stock issued for
contributions to employees'
saving plan - 12,439 shares 123,000
Common stock issued upon exercise
of stock options - 69,750 shares common
and 15,000 shares treasury 788,000
Purchase of 248 shares of
common stock (3,000)
L.T.Incentive forfeitures - 125,145 shares 910,000
Common stock from distribution
business - 916 shares (14,000)
Amortization of unearned
compensation (113,000) (113,000)
Cumulative foreign currency
translation 52,000
----------- ------------
Balance December 31, 1994 $ (157,000) $ 37,718,000
=========== ============
F7
52
BIRD CORPORATION SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
$1.85
5% CUMULATIVE
CUMULATIVE CONVERTIBLE COMMON
PREFERRED PREFERENCE COMMON OTHER RETAINED STOCK IN
STOCK STOCK STOCK CAPITAL EARNINGS TREASURY
-------- -------- ---------- ----------- ----------- -----------
Balance January 1, 1993 $582,000 $814,000 $4,267,000 $25,401,000 $41,645,000 $(2,059,000)
Net (loss) (28,322,000)
Cash dividends declared:
5% cumulative preferred
stock - $5 per share (29,000)
$1.85 cumulative
convertible preference stock
$1.85 per share (1,130,000)
Common stock $.15 per share (613,000)
Common stock issued as
compensation - 1,200 shares 1,000 13,000
Common stock issued for
contributions to employees'
saving plan - 19,119 shares 19,000 210,000
Common stock issued and note
repayment upon exercise of stock
options - 4,080 shares 4,000 210,000
Purchase of 10,119 shares of
common stock (120,000)
Amortization of unearned
compensation
Cumulative effect of
accounting change 323,000
Tax effect of stock options
exercised 303,000
Cumulative foreign currency
translation (4,000)
-------- -------- ---------- ----------- ----------- -----------
Balance December 31, 1993 $582,000 $814,000 $4,291,000 $26,456,000 $11,551,000 $(2,179,000)
======== ======== ========== =========== =========== ===========
TOTAL
UNEARNED STOCKHOLDERS
COMPENSATION EQUITY
------------ --------------
Balance January 1, 1993 $ (1,549,000) $ 69,101,000
Net (loss) (28,322,000)
Cash dividends declared:
5% cumulative preferred
stock - $5 per share (29,000)
$1.85 cumulative
convertible preference stock
$1.85 per share (1,130,000)
Common stock $.15 per share (613,000)
Common stock issued as
compensation - 1,200 shares 14,000
Common stock issued for
contributions to employees'
saving plan - 19,119 shares 229,000
Common stock issued and note
repayment upon exercise of stock
options - 4,080 shares 214,000
Purchase of 10,119 shares of
common stock (120,000)
Amortization of unearned
compensation 595,000 595,000
Cumulative effect of
accounting change 323,000
Tax effect of stock options
exercised 303,000
Cumulative foreign currency
translation (4,000)
----------- -----------
Balance December 31, 1993 $ (954,000) $40,561,000
=========== ===========
F8
53
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
$1.85
5% CUMULATIVE
CUMULATIVE CONVERTIBLE COMMON
PREFERRED PREFERENCE COMMON OTHER RETAINED STOCK IN
STOCK STOCK STOCK CAPITAL EARNINGS TREASURY
-------- -------- ---------- ----------- ----------- -----------
Balance January 1, 1992 $590,000 $814,000 $4,213,000 $24,900,000 $ 40,906,000 $ (876,000)
Net earnings 3,091,000
Cash dividends declared:
5% cumulative preferred
stock - $5 per share (29,000)
$1.85 cumulative
convertible preference
stock - $1.85 per share (1,506,000)
Common stock - $.20 per share (817,000)
Common stock issued principally
in connection with acquisitions
12,820 shares 13,000 153,000
Common stock issued as
compensation- 1,200 shares 1,000 19,000
Common stock issued for
contributions to employees'
saving plan - 14,355 shares 14,000 195,000
Common stock issued upon
exercise of stock options
26,250 shares 26,000 178,000
Purchase of 91,981 shares of
common stock (1,183,000)
Amortization of unearned
compensation
5% cumulative preferred stock
purchased and retired-86 shares (8,000) 4,000
Cumulative foreign currency
translation (48,000)
-------- -------- ---------- ----------- ----------- -----------
Balance December 31, 1992 $582,000 $814,000 $4,267,000 $25,401,000 $ 41,645,000 $(2,059,000)
======== ======== ========== =========== =========== ===========
TOTAL
UNEARNED STOCKHOLDERS
COMPENSATION EQUITY
------------ --------------
Balance January 1, 1992 $(1,945,000) $ 68,602,000
Net earnings 3,091,000
Cash dividends declared:
5% cumulative preferred
stock - $5 per share (29,000)
$1.85 cumulative
convertible preference
stock - $1.85 per share (1,506,000)
Common stock - $.20 per share (817,000)
Common stock issued principally
in connection with acquisitions
12,820 shares 166,000
Common stock issued as
compensation- 1,200 shares 20,000
Common stock issued for
contributions to employees'
saving plan - 14,355 shares 209,000
Common stock issued upon
exercise of stock options
26,250 shares 204,000
Purchase of 91,981 shares of
common stock (1,183,000)
Amortization of unearned
compensation 396,000 396,000
5% cumulative preferred stock
purchased and retired-86 shares (4,000)
Cumulative foreign currency 0
translation (48,000)
----------- ------------
Balance December 31, 1992 $(1,549,000) $ 69,101,000
=========== ============
F9
54
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31,
(Brackets denote cash outflows) 1994 1993 1992
---- ---- ----
Cash flow provided (used) by operations:
Earnings from operations ($3,683,000) ($28,322,000) $3,091,000
Adjustments to reconcile to net
cash provided by operations:
Writedown of assets to net realizable value 0 5,800,000 0
Depreciation and amortization 4,317,000 8,714,000 6,150,000
Provision for losses on accounts receivable 905,000 2,162,000 1,365,000
Deferred income taxes (10,172,000) (1,044,000) 196,000
Cumulative effect of accounting change 0 (2,733,000) 0
Gain on sale of distribution business (1,466,000) 0 0
Loss (gain) on disposal of environmental business 9,747,000 (858,000) 0
Changes in balance sheet items:
Accounts receivable (2,841,000) (8,199,000) (4,031,000)
Inventories 1,423,000 4,538,000 (6,373,000)
Prepaid expenses 203,000 (2,039,000) (324,000)
Liabilities not related to financing activities (6,867,000) 11,646,000 (1,390,000)
Liquidation reserve (5,398,000) 5,398,000 0
Other assets 2,230,000 2,564,000 526,000
------------ -------------- ------------
Cash flow provided (used) by operations: (11,602,000) (2,373,000) (790,000)
------------ -------------- ------------
Cash flows from investing activities:
Acquisition of property, plant and equipment,net (10,614,000) (16,251,000) (6,482,000)
Acquisition of businesses, less cash acquired 0 0 (2,800,000)
Proceeds from disposal of assets 31,296,000 9,141,000 0
Other investments (1,277,000) 159,000 (4,715,000)
------------ -------------- ------------
Net cash provided (used) in investing activities 19,405,000 (6,951,000) (13,997,000)
------------ -------------- ------------
Cash flows from financing activities:
Debt proceeds 159,139,000 1,286,500,000 723,489,000
Debt repayments (175,091,000) (1,270,987,000) (705,938,000)
Dividends paid (8,000) (2,351,000) (2,353,000)
Purchase of treasury stock (11,000) (120,000) (1,183,000)
Other equity changes 971,000 577,000 381,000
------------ -------------- ------------
Net cash provided (used) by financing activities (15,000,000) 13,619,000 14,396,000
------------ -------------- ------------
Net increase (decrease) in cash and equivalents (7,197,000) 4,295,000 (391,000)
Cash and cash equivalents at beginning of year 7,518,000 3,223,000 3,614,000
------------ -------------- ------------
Cash and cash equivalents at end of year $321,000 $7,518,000 $3,223,000
============ ============== ============
Supplemental Disclosures:
Cash paid during the year for:
Interest $4,811,000 $2,160,000 $1,521,000
Income taxes 363,000 291,000 1,762,000
Non-cash investing and financing activities:
Acquisition of businesses:
Fair value of assets 0 0 5,281,000
Stock issued for acquisitions 0 0 166,000
Cash paid 0 0 2,800,000
------------ -------------- ------------
Liabilities assumed $0 $0 $2,315,000
============ ============== ============
See accompanying notes to consolidated financial statements.
F10
55
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of Bird
Corporation and its majority-owned subsidiaries (the "Company"). All material
intercompany activity has been eliminated from the financial statements.
Investments in less than majority-owned companies are accounted for by the
equity method. Certain prior year amounts have been reclassified to conform
with the 1994 presentation.
REVENUE RECOGNITION
The Company recognizes revenue when products are shipped or services are
performed.
STATEMENT OF CASH FLOWS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined for
a large portion of the inventories by the last-in, first-out (LIFO) method
computed using the dollar value method for natural business unit pools. The
cost of the remaining inventories is determined generally on a first-in,
first-out (FIFO) basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation has been
provided in the financial statements primarily on the straight-line method at
rates, based on reasonable estimates of useful lives, which fall within the
following ranges for major asset classifications:
-------------------------------------------------------------------------------
Land improvements 10 to 20 years
Buildings 20 to 40 years
Machinery and equipment 5 to 20 years
-------------------------------------------------------------------------------
Maintenance, repairs and minor renewals are charged to earnings in the year in
which the expense is incurred. Additions, improvements and major renewals are
capitalized. The cost of assets retired or sold,
F11
56
together with the related accumulated depreciation, are removed from the
accounts, and any gain or loss on disposition is credited or charged to
earnings. The Company capitalizes interest cost on construction projects while
in progress. The capitalized interest is recorded as part of the asset to
which it is related and is amortized over the asset's estimated useful life.
RETIREMENT PLANS
The Company has a defined contribution plan covering substantially all eligible
non-union salaried and non-union hourly employees. Annual contributions are
made to the plan based on rates identified in the plan agreement.
INCOME TAXES
The Company changed its method of accounting for income taxes from the
liability method under Statement of Financial Accounting Standards No. 96 to
the asset and liability method required by Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", ("FAS 109"), effective
January 1, 1993. As permitted under the new rules, prior years' financial
statements have not been restated. FAS 109 requires the recognition of
deferred taxes for the difference between financial statement and tax basis of
assets and liabilities utilizing current tax rates. Additionally, FAS 109
allows the recognition of a deferred tax asset for the estimated future tax
effect attributable to carryforwards.
EARNINGS(LOSS) PER COMMON SHARE
Primary earnings(loss) per common share are determined after deducting the
dividend requirements of the preferred and preference shares and are based on
the weighted average number of common shares outstanding during each period
increased by the effect of dilutive stock options. Fully diluted
earnings(loss) per common share also give effect to the reduction in earnings
per share, if any, which would result from the conversion of the $1.85
cumulative convertible preference stock at the beginning of each period if the
effect is dilutive.
ENVIRONMENTAL MATTERS
The Company records a liability for environmental matters when it is probable
that a liability has been incurred and the amount of the liability can be
reasonably estimated based on the available evidence and site assessments. If
an amount is likely to fall within a range and no single amount within that
range can be determined to be a better estimate, the minimum amount of the
range is recorded. In addition, the liability excludes claims for recoveries
from insurance companies and other third parties until such claims for
recoveries are probable of realization at which point they would be classified
separately as a receivable.
F12
57
WARRANTY COSTS
The Company warrants under certain circumstances that its building material
products meet certain manufacturing and material specifications. The warranty
policy is unique to each product, ranges from twenty to forty years, is
generally for the material cost and requires the owner to meet specific
criteria such as proof of purchase. The Company offers the original
manufacturer's warranty only as part of the original sale and at no additional
cost to the customer. In addition, for marketing considerations, the Company
makes elective settlements in response to customer complaints. The Company
records the liability for warranty claims and elective customer settlements
when it determines that a specific liability exists or a payment will be made.
2. INVENTORIES
The percentages of inventories valued on the LIFO method were 86% and 47% at
December 31, 1994 and 1993, respectively. It is not practical to separate LIFO
inventories by raw materials and finished goods components; however, the
following table presents these components on a current cost basis with the LIFO
reserve shown as a reduction.
December 31,
1994 1993
---- ----
Current costs:
Raw materials $ 3,554,000 $ 3,541,000
Finished goods 6,924,000 20,297,000
------------ ------------
10,478,000 23,838,000
Less LIFO reserve 2,107,000 1,681,000
------------ ------------
$ 8,371,000 $ 22,157,000
============ ============
Inventories, classified by business segment (see Note 13), were as follows:
December 31,
1994 1993
---- ----
Housing Group $ 8,371,000 $ 21,788,000
Environmental Systems 0 369,000
------------ ------------
$ 8,371,000 $ 22,157,000
============ ============
3. DEBT
At December 31, the Company's borrowings and debt obligations are summarized as
follows:
1994 1993
---- ----
Long Term Debt:
Revolving Credit Agreement $ 13,937,000 $ 44,000,000
Term Loans 15,000,000 0
Notes Payable 0 56,000
Obligations under capital leases 1,638,000 2,471,000
------------ ------------
30,575,000 46,527,000
Less - portion due within 18,071,000 3,400,000
------------ ------------
one year $ 12,504,000 $ 43,127,000
============= ============
F13
58
Prior to November 30, 1994, the Company's external financial needs were
satisfied by borrowing under the Second and Third Amended Credit Agreements
with The First National Bank of Boston, Philadelphia National Bank incorporated
as Corestates Bank, N.A. and The Bank of Tokyo Trust Company. Effective as of
November 30, 1994, such needs are satisfied primarily by borrowing under the
Loan and Security Agreement ("Loan Agreement") between the Company and Barclays
Business Credit, Inc. of Glastonbury, Connecticut. On February 1, 1995,
Shawmut Bank, N.A. acquired Barclays Business Credit, Inc. concurrently
renaming Barclays Business Credit, Inc. to Shawmut Capital Corporation
("Shawmut Capital"). The terms and conditions of the Loan Agreement remained
unchanged.
The Second Amended Credit Agreement contained financial and operating covenants
which, among other things, required the Company to maintain prescribed levels
of pre-tax earnings, net worth, ratios of debt to net worth and ratios of
current assets to current liabilities. As of September 30, 1993, the Company
was in default in the performance of its obligations with respect to certain of
its covenants under the Second Amended Credit Agreement regarding the ratio of
adjusted earnings, permitted capital expenditures and investments by the
Company in Kensington Partners, its window manufacturing joint venture. The
banks were under no obligation to make revolving credit loans under the Second
Amended Credit Agreement following the occurrence and during the continuance of
a default or event of default. The Banks continued to lend notwithstanding the
foregoing defaults. The Company classified the related debt as current on its
September 30, 1993 balance sheet in light of the fact that the Second Amended
Credit Agreement provided for automatic acceleration of the indebtedness upon
the occurrence of a default or event of default. However, no such acceleration
occurred.
On February 14, 1994 the Company's bank group entered into an agreement to
forbear from exercising their rights and remedies under the Second Amended
Credit Agreement and to continue to extend credit under the Second Amended
Credit Agreement through March 15, 1994. During this period of time, certain
operating and financial covenants in the forbearance agreement were operative,
and the Company agreed to collateralize the loans with the accounts receivable
of two of its roofing distribution companies.
On March 4, 1994, the Company and its lending banks executed the Third Amended
Credit Agreement, pursuant to which the Company was permitted to borrow up to
$65 million until January 31, 1996. Loans under the Third Amended Credit
Agreement, which were secured by substantially all of the Company's assets,
were made pursuant to a $40 million revolving credit line commitment for
working capital, letters of credit and a $25 million term loan for general
corporate purposes. The revolving credit line availability was determined with
reference to a percentage of accounts receivable and inventory which were
pledged to the banks. The term loan had to be paid by January 31, 1996.
On August 22, 1994, the Company sold substantially all of the assets of its
building materials distribution businesses to a subsidiary of Wm. Cameron & Co.
(a "Cameron Subsidiary") for a purchase price of $24,245,000 based on the July
31, 1994 net book value.
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59
Concurrently, the Company exercised its right under the Third Amended Credit
Agreement to reduce the revolving credit commitment by $13 million to
$25,825,000, thereby reducing fees charged on the unused portion of the
facility. The purchase price with respect to assets acquired by a Cameron
Subsidiary at the August 22, 1994 closing was subject to a later adjustment
based on an audit of the net book value of the acquired assets and assumed
liabilities as of the closing date. Due to the increase in the net book value
for the period from July 31, 1994 through August 31, 1994, the Company received
an additional $1,897,000 in respect of such adjustment, which amount was paid
to the Company on November 17, 1994. On November 28, 1994, Ashley Aluminum,
Inc., a Cameron Subsidiary, acquired the net assets of Southland, the Company's
sole remaining building materials distribution business, for a purchase price
of $2,134,000 (which does not take into account $193,000 paid for a minority
interest acquired by the Company in contemplation of the closing of the sale).
There was an insignificant gain on this sale.
The Company used proceeds from the sale of the assets of its building materials
distribution business to reduce the term loan under the Third Amended Credit
Agreement from $25 million to $11,999,000 as of November 29, 1994 and to reduce
the amount outstanding under the revolving credit line to $11,529,000 as of the
same date. Under the terms of the Third Amended Credit Agreement, the term
loan was to be further reduced by a principal payment of $11.2 million on April
30, 1995 with the balance of the term loan payable on January 31, 1996.
Under the Third Amended Credit Agreement and prior to the execution of the
Shawmut Capital Loan Agreement dated November 30, 1994, repayment of the term
loan was also required to be made from excess proceeds of future asset sales
(calculated as the amount remaining after net asset sale proceeds were used to
reduce revolving credit loans to less than borrowing base availability with
borrowing base availability being calculated after the effect of such an asset
sale). The term loan was also required to be reduced on any date other than
the payment due dates specified in the preceding paragraph by the amount (if
any) by which the term loan exceeded 70% of the fair market value of all of the
Company's fixed assets.
The Third Amended Credit Agreement contained financial and operating covenants
which, among other things, (i) required the Company to maintain prescribed
levels of tangible net worth, net cash flow, earnings before interest, taxes,
depreciation and amortization, and ratio of current assets to current
liabilities, and (ii) limited capital expenditures by the Company. The Third
Amended Credit Agreement also contained restrictions on indebtedness, liens,
investments, distributions (including payment of dividends), mergers,
acquisitions and disposition of assets.
In a letter dated April 11, 1994, the Company was notified by the Agent under
the Third Amended Credit Agreement of certain alleged defaults with respect to
certain post closing undertakings (that were primarily administrative in
nature) including but not limited to, delivery of certain legal opinions and
the issuance of certain certificates of title and title policies. By letters
dated April 20, 1994, July 20, 1994, August 17, 1994, September 1, 1994 and
September 13, 1994, the Company was notified by the agent bank under the Third
F15
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Amended Credit Agreement of the continuation of the defaults under certain of
the above-mentioned administrative covenants, as well as certain alleged
defaults and events of default resulting from the fact that the Company did not
meet its minimum net worth covenant as of June 30, 1994. The Company's failure
to satisfy the minimum net worth covenant was due to the $8,477,000 write-down
in the recorded value of Bird Environmental Gulf Coast, Inc. ("BEGCI"). The
banks were under no obligation to extend credit under the Third Amended Credit
Agreement following the occurrence and during the continuance of a default or
event of default. Although not formalized in the form of a written amendment,
waiver or forbearance, the banks continued to lend, and the Company continued
to take action necessary to cure certain of the alleged defaults and events of
default. The Company requested the banks to waive or to forbear from asserting
the remainder of the alleged defaults and events of default. During the
existence of these alleged defaults and events of default, the Company
continued to meet its payment obligations as required. As a result of the
alleged defaults and events of default, all loans under the Third Amended
Credit Agreement were classified as current on the September 30, 1994 balance
sheet.
Interest on the revolving credit line under the Third Amended Credit Agreement
accrued at the base rate (as specified in such agreement) plus 1% on all
borrowings and 1/2% on any unused portion. The interest on the term loan
portion accrued at the base rate plus 2%. Due to the Company's defaults under
the Third Amended Credit Agreement, however, except for a short period
following the August 22, 1994 closing of the sale of assets to a Cameron
Subsidiary, from April 11, 1994 until November 30, 1994, the Banks charged
interest on the loans under the Third Amended Credit Agreement at a rate of
interest equal to 4% above the rate otherwise applicable to each such loan.
Therefore, the interest rate for outstanding loans under the revolving credit
line was 13.50% and was 14.50% for the term loan just prior to the refinancing
with Shawmut Capital on November 30, 1994.
On November 30, 1994, Bird Incorporated entered into a three year $39 million,
Loan Agreement with Shawmut Capital. At the end of the three year period, the
Loan Agreement is automatically renewed for an additional one year period
unless terminated specifically in writing. The Loan Agreement consists of a
$24 million revolving credit commitment and two equal term loans (Term Loan A
and Term Loan B, as defined in the Loan Agreement) totaling $15 million. Up to
$5 million of the revolving credit facility can be used for letters of credit.
Letters of credit outstanding as of December 31, 1994 totaled $2,927,000.
Intercompany loans and advances to non-borrowing affiliates including BEGCI and
Kensington are permitted under the Loan Agreement. On March 8, 1995, the
Company sold the assets of its vinyl siding operation to Jannock, Inc. for
$47.5 million. Proceeds from the sale were used to reduce bank debt.
Concurrent with the sale of the assets of the vinyl siding operation, Shawmut
Capital executed the First Amendment to the Loan Agreement allowing for the
sale of the Company's vinyl siding operation located in Bardstown, Kentucky.
The First Amendment to the Loan Agreement amended the amount of the facility to
$20 million consisting of a $15 million revolving credit commitment and a $5
million term loan. Up to $5 million of the revolving credit facility can be
used for letters of credit.
F16
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Borrowings by Bird Incorporated under the Loan Agreement are guaranteed by the
Company and the Company's other subsidiaries and are secured by substantially
all of the assets of the Company and its subsidiaries. The revolving credit
line availability is determined with reference to a percentage of accounts
receivable and inventory which are pledged to the lender. During the period
January 1 through April 30, the Loan Agreement provides a $2 million over
advance on accounts receivable and inventories in order to assist the Company
in assuring adequate funding of any seasonal build up of accounts receivable
which may occur under sales programs offered during the winter months.
Currently, the availability calculation does not allow borrowings to the full
extent of the revolving credit commitment, due to the seasonality of the
building materials manufacturing business. As of March 8, 1995, an aggregate
of $9,562,000 was available to the Company under the terms of the revolving
credit facility under the Loan Agreement. The Loan Agreement contains
financial and operating covenants which, among other things, (i) require the
Company to maintain prescribed levels of tangible net worth, net cash flow and
working capital and (ii) place limits on the Company's capital expenditures.
The Loan Agreement also contains restrictions on indebtedness, liens,
investments, distributions (including payment of common and preference
dividends), mergers, acquisitions and disposition of assets (except that the
Company is not precluded from consummating the sale of its interest in BEGCI).
The proceeds of the initial borrowings under the Loan Agreement were used to
pay in full the outstanding loan balances under the Third Amended Credit
Agreement. A commitment fee of $150,000 was due and paid to Shawmut Capital as
of the closing date of the Loan Agreement.
Interest on the revolving credit commitment under the Loan Agreement accrues at
the Shawmut Capital base rate (as specified in such Agreement) plus 1% on all
borrowings and the greater of $25,000 per annum or 1/4% on any unused portion
of the commitment payable monthly in arrears. Interest on Term Loan A and Term
Loan B accrues at the base rate plus 1 1/2%. The combined repayment of the
principal on Term Loan A and Term Loan B is $125,000 per month in year one and
$142,800 per month in years two and three with a final principal payment of
$10,072,800 due on November 30, 1997. Proceeds in excess of $100,000 from the
sale of fixed assets may, at Shawmut Capital's discretion, be applied to the
outstanding principal payments of the term loans.
In the event of a sale of the Company's 80% interest in BEGCI, proceeds would
be applied to the outstanding principal balance of Term Loan A. Proceeds from
the sale of the assets of the Vinyl division to Jannock, Inc. on March 8, 1995
were first applied to the repayment of Term Loan A, second to the repayment of
Term Loan B so that the outstanding principal amount of Term Loan B equals $5
million and third to the outstanding Revolving Credit Loans with the balance of
proceeds to be retained by the Company. As of March 8, 1995, interest on the
loans outstanding under the First Amended Loan Agreement would accrue at either
the base rate or at the London Interbank Offering Rate ("LIBOR") plus 275 basis
points at the borrower's election.
F17
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On January 25, 1994, the bank that was party to Kensington's Credit Agreement
dated October 25, 1993 gave notice that Kensington had breached certain
financial covenants including the ratio of Current Assets to Current
Liabilities, Tangible Net Worth and Total Liabilities to Tangible Net Worth in
each case as defined therein (although it continued to meet its payment
obligations throughout the term of the Credit Agreement). Subsequently, the
bank agreed to forbear from exercising its rights and remedies under such
agreement until August 31, 1994. In accordance with this forbearance
agreement, interest accrued at 3% above the bank's prime lending rate. On May
2, 1994, this bank applied the Company's $750,000 cash deposit, which was held
by the bank as collateral, against the total amount owed which was then
$2,158,000. A payment schedule was established to repay the remainder of the
loan. The loan availability calculation was amended to allow aggregate
borrowings equal to the lesser of the borrowing base calculation or a set
borrowing schedule over a prescribed time frame. The borrowing availability
schedule began April 29, 1994 at $1,550,000 and was periodically reduced to
$475,000 through August 31, 1994, at which time the outstanding balance was
paid in full.
This reduced borrowing availability schedule required Kensington to seek a new
lending arrangement. As of June 15, 1994, the Partnership entered into a
financing/factoring agreement with Bankers Capital of Chicago, Illinois. On
July 20, 1994, the Company's Banks amended the Third Amended Credit Agreement
to permit the refinancing of Kensington with Bankers Capital. Under the terms
of the agreement, Bankers Capital agreed to provide up to $2.5 million in
financing based on the value of certain acceptable receivables. The amount
advanced at any one time cannot exceed 80% of the value of these receivables.
Interest on the amount advanced is at the prime lending rate plus 1 1/2%.
Additionally, Bankers Capital charges a fee ranging from 1.0% to 3.45% of the
total amount of the value of acceptable receivables used to extend financing
and based on the age of such receivables. As the receivables age, the
applicable fee percentage increases. In light of the interest and fees
described above, the average borrowing rate for 1994 under the Bankers Capital
Agreement was 22%. The financing by Bankers Capital is co-guaranteed by the
Company. Bankers Capital initially funded Kensington on August 25, 1994, which
funding included payment in full of the outstanding loan balance with
Kensington's previous lender.
On June 18, 1994, the Company entered into a Settlement Agreement and Full and
Final Release (the "Settlement Agreement") with the minority stockholders of
BEGCI, the owner of the San Leon Facility, thus resolving a suit filed by such
minority stockholders claiming a breach of contract and a countersuit filed by
the Company in January 1994. The claim was based on the minority stockholders'
allegations that the Company, without minority stockholder approval, caused
BEGCI to fund the construction of a solid waste treatment facility featuring
desorption technology owned by one of the minority stockholders rather than
funding a less costly liquid waste treatment facility featuring centrifuge
technology. Pursuant to the Settlement Agreement, the Company agreed to sell
its 80% interest in BEGCI to the Minority Stockholders for approximately $7.5
million in cash on or before February 28, 1995. Such proposed sale was subject
to financing, and also allowed the Company to sell all of its interest in BEGCI
to
F18
63
another buyer, provided that the shares of common stock of BEGCI owned by the
minority stockholders were also sold at no less than the same price per share.
As the Board of Directors decision to sell BEGCI and this Settlement Agreement
established a measurement date for financial accounting purposes, the Company
wrote down the recorded value of BEGCI as of June 30, 1994 to $7.5 million.
The minority shareholders of BEGCI did not exercise their purchase option as of
February 28, 1995. The Company is continuing its efforts to locate a suitable
acquirer for the Facility.
Until the Company's purchase of the roofing machine at the Company's Norwood,
Massachusetts facility on November 30, 1994, the operating lease on such
machine was collateralized by a mortgage on the Norwood property. The mortgage
required the consent of the lessor to allow a second mortgage on the real
property. The terms of the Third Amended Credit Agreement required security on
all of the Company's assets, and as a result, a second mortgage in favor of the
banks was placed on the Norwood property without obtaining the lessor's
consent. The Company was notified by letter dated April 25, 1994 that the
lessor was declaring the Equipment Leasing Agreement dated as of December 28,
1984 (as amended) to be in default, and by letter dated May 23, 1994, the
lessor declared the lease terminated. The Company and the lessor entered into
an agreement pursuant to which the Company agreed to purchase the leased
equipment for a purchase price of approximately $4 million payable in
installments between August 30, 1994 and January 15, 1995, by which date the
final payment of approximately $2.3 million had to be made. Concurrent with
the Company's refinancing with Shawmut Capital on November 30, 1994, the
Company satisfied all outstanding obligations with respect to the purchase
agreement it had entered into with the lessor and acquired title to the roofing
machine.
The Shawmut Capital Loan Agreement allows for up to $5 million in letters of
credit. Outstanding letters of credit as of December 31, 1994 approximate
$2,927,000 compared to $2,761,000 as of December 31, 1993.
The weighted average interest rate on short term borrowings at December 31,
1994 and December 31, 1993 were 9.53% and 9.24%, respectively. Average
interest rates, the interest rate at December 31 and the average and maximum
borrowings in thousands of dollars for the three years ended December 31, 1994,
1993 and 1992 under the Company's applicable loan agreements, are shown below:
1994 1993 1992
---- ---- ----
Interest rates:
Average during period 11.47% 4.92% 4.49%
At December 31 $13,937 @ 9.50% $44,000 @ 10% $9,000 @ 4.06%
$ 7,500 @ 9.75% $2,500 @ 4.75%
$ 7,500 @ 9.75% $8,000 @ 4.09%
$8,000 @ 4.20%
Average borrowings $41,100 $38,439 $ 22,966
Maximum borrowings $53,200 $44,000 $ 33,500
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The Company has capital lease obligations (see Note 12) with payments that
extend to 1998 at interest rates which vary between 3.4% and 7.4% per annum.
The principal balance of these obligations amounted to $1,638,000 and
$2,471,000 at December 31, 1994 and 1993, respectively.
Maturities of long-term debt for each of the five years subsequent to December
31, 1994 are as follows:
1995 - $18,071,000; 1996 - $1,134,000; 1997 - $11,110,000; 1998 - $260,000;
1999 - $0. The Company incurred net interest expense of $4,782,000 in 1994
(net of $257,000 capitalized interest), $2,472,000 in 1993 (net of $345,000
capitalized interest), and $1,506,000 in 1992.
4. INCOME TAXES
Earnings(loss) from continuing operations before income taxes and the
provision(benefit) for income taxes are shown below:
Year Ended December 31,
-----------------------
1994 1993 1992
---- ---- ----
Earnings(loss) from
continuing operations
before income taxes: $ (5,927,000) $ (5,278,000) $ 6,533,000
============ ============ ===========
Year Ended December 31,
-----------------------
1994 1993 1992
---- ---- ----
Provision(benefit) for
continuing operations:
Domestic:
Currently payable $ 200,000 $ 765,000 $ 1,544,000
Deferred (7,210,000) (1,402,000) (675,000)
---------- ----------- -----------
$(7,010,000) $ (637,000) $ 869,000
========== ============ ===========
The total provision(benefit) for income taxes varied from the U.S. federal
statutory rate for the following reasons:
1994 1993 1992
---- ---- ----
Continuing operations:
U.S. federal statutory rate (34.0%) (34.0%) 34.0%
State income taxes (6.5) 0.6 3.0
Corporate Owned Life Insurance (9.9) 0.0 0.0
Utilization of NOL
carryforward 0.0 0.0 (19.3)
Valuation reserve (67.5) 22.3 0.0
Other (0.4) (1.0) (4.4)
------ ---- -----
(118.3%) (12.1%) 13.3%
====== ====== =====
The net provision (benefit) for income taxes related to discontinued operations
amounted in total to $(2,962,000), $(304,000) and $621,000 for 1994, 1993 and
1992, respectively.
F20
65
The deferred income tax asset recorded in the consolidated balance sheet
results from differences between financial statement and tax reporting of
income and deductions. A summary of the composition of the deferred income
tax asset at December 31, 1994 and 1993 is as follows:
1994 1993
---- ----
(000) Omitted
Deferred tax assets:
Bad debt reserves $ 1,314 $ 1,150
Compensation/pension accruals 882 1,683
Reserves for liquidation
and restructuring 0 5,109
Investment in
non-consolidated subsidiary 4,284 0
Net operating loss carryover 9,129 5,349
Capital loss carryover 451 0
Investment tax credit carryover 1,233 1,233
Minimum tax credit carryover 1,091 1,091
Other reserves & accruals 3,389 1,272
------- -------
Total deferred tax assets 21,773 16,887
------- -------
Deferred tax liabilities:
Depreciation (1,403) (2,219)
Corporate owned life insurance 0 (470)
------- -------
Total deferred tax liabilities (1,403) 2,689
------- -------
Net deferred tax asset before
valuation reserve 20,370 14,198
Less: Valuation reserve (5,000) (9,000)
------- -------
Net deferred tax asset $15,370 $ 5,198
======= =======
The Company has available for federal income tax purposes unused net operating
loss and investment tax credit carryforwards, which may provide future tax
benefits, expiring as follows:
Year of Net Investment
Expiration Operating Loss Tax Credit
---------- -------------- ----------
1996 $ 0 $ 97,000
1997 0 317,000
1998 0 135,000
1999 0 212,000
2000 0 297,000
2001 0 175,000
2002 138,000 0
2008 9,862,000 0
2009 15,607,000 0
------------- -----------
$ 25,607,000 $ 1,233,000
============= ===========
Additionally, for federal income tax purposes, at December 31, 1994 the Company
had available for carryforward minimum tax credits with no expiration date and
capital losses that expire in the year 2000 aggregating $1,091,000 and
$1,326,000, respectively. If certain
F21
66
substantial changes in the Company's ownership should occur, there would be an
annual limitation on the amounts of the carryforwards, including certain
unrealized built-in losses which can be utilized for regular and alternative
minimum tax purposes.
The Company adopted FAS 109 in 1993 and has recorded the cumulative effect of
the change in accounting principle of approximately $2.7 million as a benefit
in the results of operations for the first quarter of 1993. This accounting
change also requires the booking of a valuation reserve if it is more likely
than not that the Company may not be able to realize the benefits of recorded
deferred tax assets. At December 31, 1994 the Company's net deferred tax asset
is approximately $20.4 million less a valuation reserve of $5 million. As
required under FAS 109, this valuation reserve was determined based upon the
Company's review of all available evidence including projections of future
taxable income. In the first quarter of 1995, the Company will record a gain
in excess of $20 million on the sale (as described in Note 15) of substantially
all of the assets related to the Company's vinyl business as conducted at the
Bardstown, Kentucky facility. As noted in Note 9, management expects to
dispose of its investment in BEGCI by the end of the second quarter of 1995 and
to offset the tax loss on such disposition against the gain on the sale of the
vinyl business. The Company also expects the Roofing operations to remain
profitable and to be a significant contributor of future taxable income. Based
on the above factors, the Company reduced the valuation reserve by $4 million.
5. STOCKHOLDERS' EQUITY
The $1.85 cumulative convertible preference stock is redeemable, in whole or in
part, at the option of the Company, at a redemption price of $20.00 per share
on and after May 15, 1993. The convertible preference stock has a liquidation
value of $20.00 per share and is convertible at the option of the holder into
common stock of the Company at a conversion price of $22.25 per share, subject
to adjustment in certain events. Dividends are cumulative from the date of
issue and are payable quarterly. Dividends have been paid through the
quarterly payment due on November 15, 1993 but have not been paid since that
date. The Company has the option to redeem the convertible preference stock.
The Company's 5% cumulative preferred stock ranks senior to the convertible
preference stock as to dividends and upon liquidation.
On June 18, 1992 the Company announced that its Board of Directors authorized
it to buy back, on the open market or in privately negotiated transactions, up
to 400,000 of its outstanding shares of common stock at prices available from
time to time that the Company deems attractive. Since this announcement the
Company has repurchased 248 shares in 1994, 5,364 shares in 1993 and 92,007
shares in 1992.
The Company is prohibited from purchasing its common stock as long as dividends
on the convertible preference stock are in arrears. Under the 1992 stock
option plan described in Note 6, 933,325 shares of common stock are reserved
for issuance upon exercise of options and stock appreciation rights.
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Restrictions on the payment of dividends were imposed by the terms of the Third
Amended Credit Agreement. As a result of the defaults under the Third Amended
Credit Agreement, the Company suspended dividends on all classes of its stock
after the third quarter of 1993. As of December 31, 1994, dividends would have
had to have been paid (or declared and set apart for payment) in the amount of
$22,000 on the Preferred Stock and $1,883,000 on the Preference Stock before
any dividends could have been paid or declared on the Common Stock. On October
31, 1994, the Banks consented to payment of the fourth quarter, 1994 dividend
on the Preferred Stock. The quarterly dividend on the Preferred Stock due
December 1, 1994 was declared and paid in full as of that date. Restriction on
the payment of dividends on Common and Preference Stock are imposed by the
terms of the Loan Agreement dated November 30, 1994. Payment of dividends on
Preferred Stock are permitted under the Loan Agreement.
6. EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS
The Company's "Bird Employees' Savings and Profit Sharing Plan" provides for a
defined base contribution and profit sharing and savings contributions.
DEFINED BASE CONTRIBUTION
The Company contributes annually 2-7% of plan participants' basic compensation
depending upon their age and employment status as of December 31, 1984.
Vesting accrues at 20% per year of service. Contributions for continuing
operations for the years ended December 31, 1994, 1993, and 1992 amounted to
$203,000, $352,000, and $329,000, respectively.
PROFIT SHARING CONTRIBUTION
Profit sharing contributions are made annually, if earned, based upon certain
defined levels of return on equity by the Company and its business units. The
distribution of the contribution to the plan's participants is based upon
annual basic compensation. Contributions for continuing operations for the
years ended December 31, 1993 and 1992 amounted to $145,000, and $148,000,
respectively. No profit sharing contribution was earned for 1994.
SAVINGS CONTRIBUTION
The Company's savings plan provides that eligible employees may contribute to
the plan any whole percentage of their basic compensation varying from 2 to
15%. The Company may make discretionary matching contributions not exceeding
6% of the participant's basic compensation during the plan year. Such matching
Company contributions are invested in shares of the Company's common stock.
The Company's contributions for continuing operations for the years ended
December 31, 1994, 1993, and 1992 amounted to $142,000, $155,000, and $141,000,
respectively.
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POST RETIREMENT BENEFITS
Certain health care and life insurance benefits are provided for substantially
all of the Company's retired employees, except those covered under union plans.
Benefits are provided by the payment of premiums for life insurance benefits
and the reimbursement for eligible employees of a portion of their health care
premiums. The Company's cost for the years 1994, 1993, and 1992 amounted to
$79,000, $71,000, and $71,000, respectively.
In December 1990, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("FAS 106"). This statement
establishes accounting standards principally for employers' accounting for
postretirement health care and life insurance benefits. It requires the
accrual of the expected cost of providing those benefits during the period that
employee services are rendered. The Company adopted FAS 106 effective January
1, 1993. Adoption of the new statement did not materially effect the Company's
financial position or results of operations.
EMPLOYEE INCENTIVE PLANS
Under the 1982 Stock Option Plan, as amended, options to purchase shares of the
Company's common stock may be granted to officers, directors and key employees
upon terms and conditions determined by a committee of the Board of Directors
which administers the plan. The 1989 amendment increased from 700,000 to
900,000 the aggregate number of shares available for grant under the plan. In
1993 the Company adopted a new stock option plan which allows the issuance of
up to 450,000 stock options in addition to the unissued shares approved for
issuance under the 1982 plan. The new plan will expire in 2002 and no further
options will be granted under the former plan. A Non-Employee Directors' Stock
Option Plan was also adopted in 1993 which will automatically provide grants of
options to each non-employee director serving on the Board of Directors at the
time of such grant. Each annual grant will cover 2,500 shares of common stock
and any recipient may not receive option grants exceeding a total of 30,000
shares. An aggregate of 100,000 shares of common stock will be available for
grants under the Non-Employee Directors' Stock Option Plan.
Options granted by the committee may be designated as either incentive stock
options, as defined under the current tax laws, or non-qualified options. The
committee may also grant stock appreciation rights, either singly or in tandem
with stock options. A right entitles the holder to benefit from market
appreciation in the Company's common stock subject to the right between the
date of the grant and the date of exercise without any payment on the part of
the holder. Upon exercise of a right, the holder surrenders the option and
receives an amount of common stock (or, at the election of the committee, cash)
equal in value to the amount of such appreciation.
The exercise price of options specified by the committee must be at least 100%
of the fair market value of the Company's common stock as of the date of grant.
All options and rights granted become exercisable at the rate of 20 to 25% per
year, on a cumulative basis,
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beginning with the first anniversary of the date of grant for options granted
under the Stock Option Plan and in full one year after grant for option granted
under the Non-Employee Directors' Stock Option Plan. In case of termination of
employment, options and grants vested, but not yet exercised, are subject to
forfeiture under the Stock Option Plan and exercisable up to 90 days after
termination for the Non-Employee Directors' Stock Option Plan.
Transactions involving the Stock Option Plan are summarized as follows for the
years ended December 31, 1992, 1993 and 1994:
STOCK OPTIONS
-------------
Outstanding January 1, 1992
($5.00 to $18.875 per share) 411,530
Granted ($12.50 to $17.50 per share) 20,500
Exercised ($5.50 to $11.50 per share) (24,250)
Canceled ($11.50 per share) (1,800)
---------
Outstanding December 31, 1992
($5.00 to $18.875 per share) 405,980
========
Outstanding January 1, 1993
($5.00 to $18.875 per share) 405,980
Granted ($8.375 to $12.625 per share) 419,500
Exercised ($6.50 to $11.125 per share) (5,080)
Canceled ($8.875 to $18.875 per share) (21,600)
--------
Outstanding December 31, 1993
($5.00 to $17.50 per share) 798,800
========
Outstanding January 1, 1994
($5.00 to $17.50 per share) 798,800
Granted ($10.00 to $10.75 per share) 116,550
Exercised ($5.00 to $9.50 per share) (144,870)
Canceled ($6.375 to $15.00) per share) (269,830)
---------
Outstanding December 31, 1994
($5.00 to $17.50 per share) 500,650
========
Exercisable December 31, 1994
($5.00 to $17.50 per share) 205,450
Shares available for granting options:
January 1, 1994 279,395
December 31, 1994 432,675
In tandem with the stock options there are 27,200 stock appreciation rights at
December 31, 1994.
LONG TERM INCENTIVE COMPENSATION
Under the terms of a Long Term Incentive Compensation Plan, certain officers
and key management employees shall receive common stock of the Company on a
restricted time lapse grant basis. At December 31, 1994, 23,560 shares of the
Company's common stock had been issued from treasury stock and are being held
in escrow by the Company. These shares are released from escrow and delivered
to the plan's
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participants when the market price of the Company's common stock achieved
certain designated levels between $12 and $24 per share for 30 consecutive days
prior to June 28, 1994 or in any event if the participant has remained in the
continuous employ of the Company through June 2003. Certain market prices were
achieved and maintained for the required 30-day period during 1994, 1993, and
1992. Therefore, 40,670, 45,630, and 54,405 shares of the Company's common
stock were released in June of 1994, 1993, and 1992, respectively, to the
plan's participants. Additionally, 30,000 shares were released to the former
Chief Executive Officer as part of his Termination Agreement. As a result of
his termination and the termination of certain other officer and key management
personnel, 125,145 shares of restricted stock valued at $910,000 were forfeited
and returned to treasury stock.
Amortization of unearned compensation under this agreement for the years 1993
and 1992 amounted to $595,000 and $396,000, respectively. In 1994 amortization
was reduced by $113,000 associated with the forfeiture of shares. The
unamortized value of the shares granted is shown in the accompanying balance
sheet as unearned compensation.
7. DISCONTINUED BUSINESS ACTIVITIES
The Company records income and expenses associated with former business
activities on the Consolidated Statement of Operations under the caption
"Discontinued Business Activities".
On June 10, 1994, the Company's 40% interest in Mid-South Building Supply, Inc.
was redeemed for $1 million in cash resulting in a loss of $1,261,000.
On August 22, 1994, the Company sold the assets of substantially all of its
distribution businesses to Wm. Cameron & Co. for a purchase price consisting of
cash in the amount of $26,142,000 including $1 million held in escrow to pay
any indemnification claims arising under the purchase and sale agreement. The
sale resulted in a gain of $2,677,000. Sales of $67,089,000 were recorded for
these businesses for the period ending August, 22, 1994.
On November 28, 1994, the Company sold its last remaining building materials
distribution business, Southland Building Products, Inc. to Ashley Aluminum,
Inc. for a purchase price of $2,134,000. The sale resulted in a modest gain.
The purchase price is subject to adjustment based on an audit of the book value
of the acquired assets and assumed liabilities as of the closing date. Sales
for the current calendar year of $9,092,000 were recorded for this business for
the period ending November 27, 1994.
The Company recorded expenses related to discontinued business activities of
$153,000, $268,000, and $178,000, for the years 1994, 1993, and 1992,
respectively. These charges against earnings include warranty claims and
other costs directly related to discontinued business activities.
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8. OTHER INCOME AND EXPENSE
Other expense was $3.3 million in 1993 compared to other income of $.2 million
in 1992. A series of non-recurring items developed at the end of 1993 that
required a number of charges to 1993 results of operations. The majority of
these are outlined in the following paragraphs:
Accounting requirements associated with the responsible parties on an
environmental cleanup require the Company to maintain a reserve sufficient
enough to absorb the full cost of the Company's portion of the cleanup. Based
on recent site assessments, the Company increased the cleanup reserve by
$500,000 based on the Company's estimated share of the proportionate costs.
The Company was previously considering the development of real property which,
as a result of the cash and bank situation, no further development was
possible. Based on the estimated net realizable value of the property, the
Company wrote-off its $1.3 million investment.
To satisfy the remaining portion of an outstanding receivable, the Company
previously accepted a $1.3 million note, collateralized by a secondary interest
in a mortgage portfolio. An assessment of the portfolio and the bankruptcy of
the debtor, indicated the note to be of no value, therefore it was written off.
The termination of the former Chief Executive Officer of the Company resulted
in a $850,000 reserve to cover a settlement under the employment agreement of
which $776,190 was paid on February 4, 1994.
The remainder of "Other (Income)/Expense" is comprised of other miscellaneous
adjustments of a more normal nature and income of approximately $1.3 million
from a settlement with an insurance provider relating to product liability
claims.
9. DISCONTINUED OPERATIONS
ENVIRONMENTAL BUSINESSES
On June 18, 1994, the Company agreed to sell its 80% interest in BEGCI to the
minority shareholders thereof, subject to financing, resulting in the complete
withdrawal from the environmental business. Accordingly, the Company, as of
June 30, 1994, recorded the operating results of BEGCI as a discontinued
operation. In conjunction with this decision, the Company recorded an
aggregate charge of approximately $9 million, to adjust its book value to
approximate the net realizable value of $7.5 million at June 30, 1994. In June
1994, the Company estimated that the results of operations from the "off-site"
environmental business would be breakeven through the disposal date and,
accordingly, no liability for anticipated losses from the measurement date to
the disposal date was recorded. Currently, the expected disposal date is by
the end of the second quarter of 1995. The Company continues to believe that
by the disposal date, the
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results of operations will be breakeven. However, at December 31, 1994, the
Company had invested an additional $1,270,000 in BEGCI which, based on the
Company's assessment, would not be recoverable and was accordingly written-off,
thus maintaining the Company's investment at $7.5 million. Accordingly, the
operating results, for all years presented, relating to the environmental
businesses have been recorded as discontinued operations. Net sales relating
to these environmental businesses amounted to $3,715,000, $24,681,000 and
$31,334,000 for 1994, 1993 and 1992, respectively.
Additionally, in 1993 the Company decided to close the "on-site" environmental
remediation business. This business involved environmental remediation
projects such as the processing of oily waste sites at a refinery, operations
and management of waste processing sites and the removal and remediation of
sludge. The contracts with customers are generally fixed price and usually for
periods less than one year. As a result of the decision to exit this business,
the Company recorded a provision totaling approximately $11 million. Included
in this provision is a $5.8 million write-down of certain assets to net
realizable value, $2.1 million for certain contracts including any additional
amounts due to stipulated buyouts, $635,000 for severance-related payments,
$740,000 for inventory and other assets, $1 million for the write-off of
intangible assets and $700,000 for other expenses due to lease buyouts, fees
and other general expenses.
Included in the 1993 environmental results is a restructuring reserve of $2
million relating primarily to the environmental business. Included in this
provision is $300,000 for severance and benefit payments, $700,000 for lease
buyouts, $650,000 for expected losses on exiting certain contracts, and
$350,000 of other costs. This charge was offset by a $858,000 gain on the sale
of the municipal sludge business. These amounts, including the operating
results, are recorded as discontinued operations. Based upon the actual
results of the environmental "on-site" remediation operations and the sale of
its assets, excess costs of $3,861,000 charged in 1993 have been reversed and
are recorded as discontinued operations in the consolidated statement of
operations for the twelve months ended December 31, 1994.
As of December 31, 1994, the remaining assets and liabilities relating to the
"on-site" environmental remediation business approximated $374,000 and $1.1
million, respectively. The assets relate primarily to accounts receivable due
to holdbacks on asset sales and the liabilities relate primarily to severance
payments, a disputed trade payable and certain other obligations such as for
taxes and workers compensation. The estimated net realizable value of its
investment in the "off-site" environmental remediation business totaled $7.5
million and is shown as "Assets held for sale" on the consolidated balance
sheet.
The $1,150,000 restructuring reserve established in 1992 included $400,000 for
severance payments, $150,000 for office closure, $100,000 for relocations, and
$500,000 for other expenses. This reserve is primarily related to the
consolidation of the environmental business. This amount, including the
operating results of the environmental businesses, is recorded as discontinued
operations.
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10. ACQUISITIONS
In March of 1992, the Company acquired certain assets of a Connecticut
distributor of building materials products. The cost of this acquisition was
not material to the financial condition of the Company. This acquisition, with
Atlantic Building Products Corporation of Vermont and Massachusetts, provided
the Company with the capacity for captive distribution of its housing products
in certain markets throughout the Northeast.
On July 1, 1992 the Company entered into a 50% joint venture with Kensington
Manufacturing Company, to manufacture vinyl replacement windows through
Kensington Partners ("Kensington"). The Company's portion of the joint venture
results have been reported using the equity method. In 1993, Kensington
accepted significant contracts which provided an immediate impact of new
orders. Additionally, Kensington greatly improved the design of its windows by
introducing a new manufacturing process. The combination of the rapid increase
of business and manufacturing changes caused unusual delays in meeting customer
needs and therefore sales and profits were negatively impacted. As a result,
Kensington experienced serious cash needs which further hampered production
requirements. On January 25, 1994 the bank servicing the Kensington loan gave
notice that Kensington had breached certain financial covenants. Subsequently,
the financing bank agreed to forbear from exercising their rights and remedies
under the loan agreement until April 30, 1994. Primarily as a result of
continuing losses and this financing situation, Kensington's independent
accountants have issued "going concern" opinions at December 31, 1994 and
December 31, 1993. After negotiating with its partner, Bird Corporation agreed
to invest additional cash in return for temporarily increasing ownership in
Kensington to 90%. The terms of the new agreement (which expires on December
31, 2012) allow Kensington to return to an equal partnership if, before the
later of December 31, 1994 or six months following the Company's last
investment (made in August 1994), its partner can match the additional
investment made by the Company. Under the terms of the Kensington Partnership
Agreement, a Management Committee was established to oversee the operations of
the partnership. The agreement required, among other things, unanimous
approval of the Management Committee for the following: (a) any distributions;
(b) the incurrence of any indebtedness; (c) the creation of any form of
encumbrance; (d) the adoption or modification of the partnership's annual plan
and operating budget; and (e) any transaction requiring expenditures in excess
of $15,000 and not contemplated in or provided for in the annual business plan
or operating budget. Each partner is entitled to name two of the five members
of the Management Committee with the fifth member being the President of
Kensington. Approval from both partners was required to hire the President of
Kensington. Significant operating decisions require unanimous approval as
noted above. Accordingly, the Company does not possess unilateral control and,
as a result, the partnership is accounted for on the equity method. The new
Management Committee formed by the partners has been established to oversee the
turnaround of the partnership's operations. Also, the partners hired a new
management team to run the partnership and report to the Management Committee.
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The following table represents summarized financial information for Kensington
Partners.
DECEMBER DECEMBER
1994 1993
---- ----
(000) omitted
Current assets $ 5,040 $ 7,101
Property and Equipment 3,137 2,870
Other Assets 677 1,377
-------- -------
Total Assets $ 8,854 $11,348
======== ======
Current Liabilities $ 9,722 $10,072
Other Liabilities 1,288 1,471
-------- -------
Total Liabilities $ 11,010 $11,543
======== =======
YEAR ENDED DECEMBER 31,
1994 1993
---- ----
(000) omitted
Net Sales $ 24,180 $21,169
Gross Profit 1,317 1,384
Net Loss (5,310) (5,249)
The Company recorded fifty percent of the loss from operations under the equity
method since inception through January, 1994 and ninety percent for the period
February through December 1994 which is shown separately on the consolidated
statement of operations. The Company's investment in Kensington is a
$1,164,000 deficit at December 31, 1994 which represents excess losses over
cost in acquired net assets. In 1994, the Company increased its investment by
contributing capital of $750,000 and by collateralizing $750,000 through a
deposit in Kensington's bank. In September 1993, the Company also
co-guaranteed a $2.5 million line of credit and a $1.3 million capital lease.
Accordingly, any default by Kensington would have caused a default on the
Company's Loan Agreement with its banks.
In September of 1992, the Company foreclosed on a security interest held by it
on collateral provided by a distributor of building material products serving
Long Island, New York. The Company operated the business under the name of
New York Building Products, as part of its former distribution business.
11. ADDITIONAL FINANCIAL INFORMATION
The following table sets forth additional financial information from continuing
operations:
YEARS ENDED DECEMBER 31,
------------------------
1994 1993 1992
---- ---- ----
Maintenance and Repairs $ 4,870,000 $ 5,530,000 $ 5,063,000
Depreciation of Property,
Plant and Equipment $ 3,644,000 $ 3,757,000 $ 3,600,000
Advertising $ 1,023,000 $ 1,230,000 $ 1,051,000
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Amortization of intangible assets, pre-operating costs and similar deferrals,
taxes other than payroll and income taxes, royalties and research and
development expenses were less than 1% of net sales.
The following items included in the consolidated balance sheet under the
caption "Accounts Payable and Accrued Expenses" amounted to 5% or more of the
total of current liabilities caption at December 31, 1994 and 1993.
1994 1993
---- ----
Accounts payable $ 6,632,000 $ 11,186,000
Remuneration and related items 940,000 1,095,000
Accrued expenses 6,099,000 9,346,000
Reserve for environmental contract
loss 0 4,750,000
------------ ------------
$ 13,671,000 $ 26,377,000
============ ============
The Company warrants under certain circumstances that its Housing Group's
products meet certain manufacturing and material specifications. In addition,
for marketing considerations, the Company makes elective settlements in
response to customer complaints. The Company records the liability for
warranty claims and elective customer settlements when it determines that a
specific liability exists or a payment will be made. During 1994, 1993 and
1992, the Company recorded (exclusive of those claims included in discontinued
business activities) approximately $2,687,000, $3,196,000, and $2,585,000,
respectively, in warranty expenses and elective customer settlements. The
warranty related expense included in discontinued business activities for 1994,
1993 and 1992 amounted to approximately $100,000, $104,000 and $93,000,
respectively. Based upon analyses performed by the Company's management
together with an outside consulting statistician, a reasonably possible range
of potential liability from unasserted warranty obligations for all products
sold prior to December 31, 1994 is estimated to be between $3.5 million and
$17.8 million. However, the Company has not recorded any liability for these
future unasserted claims or complaints because management has concluded, based
on such analyses, that no particular estimate within this range is probable.
12. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases certain manufacturing, administrative, warehousing,
transportation equipment and other facilities. The leases generally provide
that the Company pay the taxes, insurance and maintenance expenses related to
the leased assets.
At December 31, 1994 minimum lease commitments under noncancelable
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operating leases are as follows:
YEAR REAL ESTATE EEUIPMENT TOTAL
---- ----------- --------- -----
1995 $ 119,000 $ 513,000 $ 632,000
1996 119,000 155,000 274,000
1997 119,000 56,000 175,000
1998 2,000 2,000 4,000
1999 2,000 0 2,000
Later years 41,000 0 41,000
---------- ---------- ----------
$ 402,000 $ 726,000 $1,128,000
========== ========== ==========
Total rental expense for continuing operations, exclusive of taxes, insurance
and other expenses paid by the lessee related to all operating leases
(including those with terms of less than one year) was as follows:
YEAR AMOUNT
---- ------
1994 $ 2,883,000
1993 $ 3,202,000
1992 $ 3,050,000
The following represents property under capital leases:
DECEMBER 31,
1994 1993
---- ----
Machinery and equipment $3,790,000 $5,090,000
Less, accumulated depreciation 1,495,000 1,742,000
---------- ----------
$2,295,000 $3,348,000
========== ==========
At December 31, 1994 minimum lease commitments under capital leases are as
follows:
YEAR AMOUNT
---- ------
1995 $ 721,000
1996 434,000
1997 406,000
1998 267,000
1999 0
----------
Total minimum lease payments 1,828,000
Imputed interest (190,000)
----------
Total future principal payments
of lease obligations $1,638,000
==========
LITIGATION
Since 1981, the Company has been named as a defendant in approximately 450
product liability cases throughout the United States by persons claiming to
have suffered asbestos-related diseases as a result of alleged exposure to
asbestos in products manufactured and sold by the Company. Approximately 140
of these cases are currently pending and
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costs of approximately $1.4 million in the aggregate have been incurred in the
defense of these claims since 1981. The Company's insurance provider has
accepted the defense of these cases under an agreement for sharing of the costs
of defense, settlements and judgements, if any. The anticipated resolution of
the pending claims will not, in the opinion of management, have a material
impact on the Company's consolidated financial position and results of
operations.
In 1986, the Company, along with numerous other companies, was named by the
United States Environmental Protection Agency ("EPA") as a Potentially
Responsible Party ("PRP") under the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, 42 U.S.C. Paragraph 9601, et seq.
("CERCLA"), in connection with the existence of hazardous substances at a site
known as the Fulton Terminal Superfund site located in Fulton, Oswego County,
New York. On September 28, 1990 the Company and a number of other PRPs reached
a negotiated settlement with the EPA pursuant to which the settling PRPs agreed
to pay the costs of certain expenses in connection with the proceedings, and to
pay certain other expenses including the costs and expenses of administering a
trust fund to be established by the settling PRPs. The settlement agreement is
embodied in a consent decree lodged with the United States District Court for
the Western District of New York. The ultimate cost of the remedial work and
their expenses covered by the settlement agreement can only be estimated. The
Company has provided a reserve amounting to $1 million at December 31, 1994 for
its estimated share of the ultimate cost of cleanup most of which will be paid
in 1995.
The Company has been named as a PRP with respect to certain other sites which
are being investigated by federal or state agencies responsible for regulation
of the environment. Status as a PRP means that the Company may be jointly and
severally liable for all of the potential monetary sanctions and remediation
costs applicable to each site. In assessing the potential liability of the
Company at each site, management has considered, among other things, the
aggregate potential cleanup costs of each site; the apparent involvement of the
Company at each site and its prospective share of the remediation costs
attributable thereto; the number of the PRPs identified with respect to each
site and their financial ability to contribute their proportionate shares of
the remediation costs for such site; the availability of insurance coverage for
the Company's involvement at each site and the likelihood that such coverage
may be contested; and whether and to what extent potential sources of
contribution from other PRPs or indemnification by insurance companies
constitute reliable sources of recovery for the Company. On the basis of such
consideration, management has determined that such environmental matters will
not have a material affect on the Company's financial position or results of
operations. The Company has provided an aggregate reserve amounting to
$207,000 at December 31, 1994 for its estimated share of the ultimate cost of
cleanup for such claims excluding any potential sources of indemnification or
recovery from third parties.
In March 1994, the Company received a notice of violation from the Texas
Natural Resource Conservation Commission ("TNRCC"). The notice alleged that
the Company was not in compliance with regulations of the
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TNRCC relating to labeling, permitting, storage and disposal of certain
hazardous waste. The notice proposed certain corrective action on the part of
the Company as well as payment of administrative penalties. In late 1994, the
TNRCC determined that no enforcement action would be taken on any of the
alleged violations as stated in the March 1994 notice.
On January 13, 1995, the Company received a letter from the TNRCC alleging
three violations of TNRCC rules and six "areas of concern". The TNRCC has
issued no orders nor made any findings which would be expected to lead to the
entry of any administrative penalties. The Company intends to respond to the
TNRCC within the specified time frame and has addressed the alleged violations.
The Company believes that this matter will not have a material impact to the
Company.
The Company is also exposed to a number of other asserted and unasserted
potential claims encountered in the normal course of business and unrelated to
environmental matters. In the opinion of management, the resolution of such
claims will not have a material adverse effect on the Company's financial
position or results of operations.
13. OPERATIONS IN DIFFERENT INDUSTRIES
The Company has had two business segments which it defined as the Housing Group
and the Environmental Group.
The Housing Group manufactures and markets residential and commercial roofing
products in the Northeastern United States, including a full line of fiberglass
based asphalt shingles and roll roofing. The Group also manufactured vinyl
siding, window profiles, trim and accessories which are distributed nationwide.
The Group operated distribution centers primarily in the Southeastern and
Southwestern markets for vinyl siding and in the Arizona and Northeastern
markets for roofing and other building materials products.
The Company's Environmental Group provided recycling, remediation, and
beneficial re-use services for applications as diverse as food processing waste
streams, oily waste recovery and the treatment of municipal wastes. Generally,
these on-site services recovered valuable constituents, removed wastes and
reduced the volume of materials which must be disposed of by other means. In
December 1993, the Company decided to close this portion of the environmental
segment and dedicate this group to operating BEGCI, the fixed site facility in
Texas. As discussed in Note 9, the Company agreed to sell its interest in
BEGCI to the minority shareholders. Accordingly, due to the Company's exit
from the environmental business in its entirety, the results of operations have
been recorded as discontinued operations.
Net sales represent sales to unaffiliated customers. Identifiable assets are
those that are used in the Company's operations in each industry segment.
Corporate assets are principally cash investments and equivalents, certain
notes receivable and property maintained for
F34
79
general corporate purposes. As discussed in Note 9, the results of operations
for the environmental group for the three years ended December 31, 1994 have
been recorded as discontinued operations. Accordingly, net sales, cost of
sales and SG&A relating to this segment are not shown below.
F35
80
13. OPERATIONS IN DIFFERENT INDUSTRIES (CONTINUED)
YEAR ENDED DECEMBER 31,
1994 1993 1992
-------- -------- --------
(000 omitted)
Housing Group
Net Sales $167,886 $187,745 $164,202
======== ======== ========
Cost of Sales $136,878 $151,664 $128,371
======== ======== ========
S.G.& A. $20,142 $25,746 $22,493
======== ======== ========
Earnings (loss) from continuing
operations before income taxes:
Housing group operating income $6,126 $7,121 $13,338
Other income 0 0 197
Other non-recurring income 1,466 877 0
-------- -------- --------
7,592 7,998 13,535
Interest exense (4,782) (2,472) (1,506)
Other write offs 0 (3,834) 0
Corporate office expenses (8,737) (6,970) (5,496)
-------- -------- --------
($5,927) ($5,278) $6,533
======== ======== ========
Identifiable assets:
Housing group $57,282 $95,663 $79,568
Environmental group 7,874 23,250 25,935
Corporate office 20,549 4,316 13,028
-------- -------- --------
$85,705 $123,229 $118,531
======== ======== ========
Depreciation:
Housing group $3,573 $3,670 $3,488
Environmental group 500 1,686 1,620
Corporate office 71 87 112
-------- -------- --------
$4,144 $5,443 $5,220
======== ======== ========
Capital expenditures:
Housing group $9,446 $4,505 $3,683
Environmental group 1,283 12,251 3,201
Corporate office 37 56 63
-------- -------- --------
$10,766 $16,812 $6,947
======== ======== ========
F36
81
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1994 and 1993 is shown below:
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
----------- ----------- ----------- ----------
(thousands of dollars, except per share amounts)
1994
Net sales $36,863 $58,486 $46,246 $26,291
Gross profit $6,670 $10,943 $9,169 $4,226 (1)
Earnings(loss):
Continuing Operations ($3,398) ($1,480) $3,304 $2,657
Discontinued Operations ($750) ($5,708) ($907) $2,599
----------- ----------- ----------- ----------
Net earnings (loss) ($4,148) ($7,188) $2,397 $5,256
=========== =========== =========== ==========
Earnings per share data:
Primary earnings (loss) per
common share:
Continuing operations ($0.92) ($0.45) $0.76 $0.56
Discontinued operations ($0.18) ($1.37) ($0.24) $0.64
----------- ----------- ----------- ----------
Net earnings (loss) ($1.10) ($1.82) $0.52 $1.20
=========== =========== =========== ==========
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
----------- ----------- ----------- ----------
(thousands of dollars, except per share amounts)
1993
Net sales $34,943 $52,131 $53,438 $47,233
Gross profit $7,230 $10,922 $10,786 $7,143 (1)
Earnings(loss):
Continuing Operations $245 $1,296 $1,573 ($7,753)
Discontinued Operations ($1,407) ($1,114) ($2,857) ($21,038)
Cumulative effect of accounting
change $2,733 0 0 0
----------- ----------- ----------- ----------
Net earnings (loss) $1,571 $182 ($1,284) ($28,791)
=========== =========== =========== ==========
Earnings per share data:
Primary earnings (loss) per
common share:
Continuing operations ($0.04) $0.22 $0.29 ($1.97)
Discontinued operations ($0.34) ($0.27) ($0.70) ($5.10)
Cumulative effect
of accounting change $0.67 $0.00 $0.00 $0.00
----------- ----------- ----------- ----------
Net earnings (loss) $0.29 ($0.05) ($0.41) ($7.07)
=========== =========== =========== ==========
(1) Decrease in gross profit in the fourth quarter compared to the previous
quarter is due primarily to increased raw material costs that could
not be passed on via price increases.
F37
82
15. SALE OF VINYL BUSINESS
At a special meeting held March 7, 1995, the stockholders of Bird Corporation
approved the sale by the Company and its wholly-owned subsidiary, Bird
Incorporated, of substantially all of the assets that are related to Bird's
vinyl business as conducted at its Bardstown, Kentucky facility to Jannock,
Inc. for $47.5 million in cash (subject to certain adjustments downward) and
the assumption of specified liabilities of the vinyl business. This
transaction also includes an option to purchase the Company's interest in
Kensington Partners for a purchase price of $2,780,000 which will net the
Company up to an additional $1,390,000. Kensington Partners operates a vinyl
window fabrication business in Leechburg, Pennsylvania.
The unaudited pro forma consolidated condensed balance sheet of the Company as
of December 31, 1994 after giving effect to the exclusion of the vinyl
business assets and liabilities and the use of proceeds from the sale of the
vinyl business to reduce bank debt is as follows:
(000 Omitted, except per share data)
ASSETS LIABILITIES & STOCKHOLDERS EQUITY
------ ---------------------------------
Current assets $ 32,988 Current liabilities $ 13,901
Property and equipment 24,933 Other liabilities 8,825
Other assets 16,053 Stockholders' equity 51,248
-------- --------
$ 73,974 $ 73,974
======== ========
The unaudited pro forma results from continuing operations of the Company for
the year ended December 31, 1994 after giving effect to the exclusion of the
vinyl business operating results are as follows:
Revenue $ 127,167,000
=============
Net loss $ (8,574,000)
=============
Net loss per common share $ (2.15)
=============
F38
83
SCHEDULE II
BIRD CORPORATION and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 1994
ADDITIONS
-------------------------
CHARGED OR CHARGED OR
BALANCE CREDITED TO CREDITED TO BALANCE
DECEMBER 31, COSTS AND OTHER DECEMBER 31,
1993 EXPENSES ACCOUNT DEDUCTIONS 1994
------------ ----------- ----------- ---------- ------------
Deducted from assets:
Allowance for
doubtful accounts:
Current $4,273,000 $ 905,000 $100,000(a) $(2,141,000)(b) $3,137,000
========== ========== ======== =========== ==========
(a) Represents the recovery of balances previously written off.
(b) Represents the allowance for doubtful accounts of businesses sold $540,000
and the uncollectible balances written off by a charge to reserve of
$1,601,000.
F39
84
SCHEDULE II
BIRD CORPORATION and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 1993
ADDITIONS
-------------------------
CHARGED OR CHARGED OR
BALANCE CREDITED TO CREDITED TO BALANCE
DECEMBER 31, COSTS AND OTHER DECEMBER 31,
1992 EXPENSES ACCOUNT DEDUCTIONS 1993
----------- ----------- ----------- ---------- ------------
Deducted from assets:
Allowance for
doubtful accounts:
Current $ 2,978,000 $ 2,162,000 $ 47,000(a) $ (914,000)(b) $ 4,273,000
=========== =========== =========== ========== ===========
(a) Represents recovery of balances previously written off.
(b) Uncollectible balances written off by a charge to reserve.
F40
85
SCHEDULE II
BIRD CORPORATION and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 1992
ADDITIONS
-------------------------
CHARGED OR CHARGED OR
BALANCE CREDITED TO CREDITED TO BALANCE
DECEMBER 31, COSTS AND OTHER DECEMBER 31,
1991 EXPENSES ACCOUNT DEDUCTIONS 1992
----------- ----------- ----------- ---------- ------------
Deducted from assets:
Allowance for
doubtful accounts:
Current $ 1,235,000 $ 1,365,000 $ 1,347,000(a) $ (969,000)(b) $ 2,978,000
=========== =========== =========== ========== ===========
(a) Represents the allowance for doubtful accounts of businesses
acquired $1,290,000 and the recovery of balances previously written
off $57,000.
(b) Uncollectible balances written off by a charge to reserve.
F41
86
EXHIBIT 11
BIRD CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (1)
(Thousands of dollars, except share and per share amounts)
YEAR ENDED DECEMBER 31,
1994 1993 1992
Primary earnings per share --------- --------- ---------
Earnings (loss) from continuing operations $1,083 ($1,908) $5,664
Deduct dividend requirements:
Preferred stock (30) (30) (30)
Convertible preference stock (1,506) (1,506) (1,506)
--------- --------- ---------
Net earnings (loss) from continuing operations (453) (3,444) 4,128
Net loss from discontinued operations (4,766) (26,414) (2,573)
--------- --------- ---------
Net earnings (loss) applicable
to common stock ($5,219) ($29,858) $1,555
--------- --------- ---------
Weighted average number of common
shares outstanding (1) 3,992,251 4,097,999 4,009,832
Assuming exercise of options reduced by
the number of shares which could have
been purchased with the proceeds from
exercise of such options (3) 0 0 131,613
--------- --------- ---------
Weighted average number of common
shares outstanding as adjusted 3,992,251 4,097,999 4,141,445
--------- --------- ---------
Primary earnings (loss) per common share:
Continuing operations ($0.11) ($1.51) $1.00
Discontinued operations ($1.20) ($6.45) ($0.62)
Cumulative effect of accounting change $0.00 $0.67 $0.00
--------- --------- ---------
Applicable to common stock ($1.31) ($7.29) $0.38
--------- --------- ---------
F42
87
EXHIBIT 11
BIRD CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (1)
(Thousands of dollars, except share and per share amounts)
YEAR ENDED DECEMBER 31,
1994 1993 1992
--------- --------- ---------
Fully diluted earnings per share (2)
Earnings from (loss) continuing operations $1,083 ($1,908) $5,664
Deduct dividend requirements of
preferred stock (30) (30) (30)
--------- --------- ---------
Net earnings (loss) from continuing operations 1,053 (1,938) 5,634
Net loss from discontinued operations (4,766) (26,414) (2,573)
--------- --------- ---------
Net earnings (loss) applicable
to common stock ($3,713) ($28,352) $3,061
--------- --------- ---------
Weighted average number of common
shares outstanding (1) 3,992,251 4,097,999 4,010,751
Assuming exercise of options reduced by
the number of shares which could have
been purchased with the proceeds from
exercise of such options 0 0 99,828
Assuming conversion of convertible
preference stock 731,955 731,955 731,955
--------- --------- ---------
Weighted average number of common
shares outstanding as adjusted 4,724,206 4,829,954 4,842,534
--------- --------- ---------
Fully diluted earnings (loss) per common share:
Continuing operations $0.22 ($0.97) $1.16
Discontinued operations ($1.01) ($5.57) ($0.53)
Cumulative effect of accounting change $0.00 $0.67 $0.00
--------- --------- ---------
Applicable to common stock ($0.79) ($5.87) $0.63
--------- --------- ---------
(1) See Note 1 of Notes to Consolidated Financial Statements.
(2) These calculations are submitted in accordance with Securities Exchange
Act of 1934, Release No. 9083, although in certain instances, it is
contrary to paragraph 40 of APB Opinion No. 15 because it produces an
anti-dilutive result.
(3) APB 15 paragraph 30 indicates computation of primary earnings per share
should not give effect to common stock equivalents if their inclusion
has the effect of decreasing the loss per share amount otherwise computed
or is anti-dilutive
F43
88
EXHIBIT 22
BIRD CORPORATION
Significant Subsidiaries:
All subsidiaries are majority owned and are included in the
Consolidated Financial Statements.
STATE IN WHICH
INCORPORATED OR ORGANIZED
-------------------------
Bird Incorporated Massachusetts
Bird Environmental Gulf Coast, Inc. Texas
Bird Environmental Technologies, Inc. (F/K/A Delaware
Bird Environmental Systems and Services, Inc.)
Bird-Kensington Holding Corporation Delaware
F44
89
EXHIBIT 23 (a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of these Registration Statements on Form S-3 (No. 33-44475);
Form S-4 (No. 33-44403) and Forms S-8 (Nos. 33-36304, 33-67826, 33-67828 and
33-36305) of our report dated March 8, 1995; appearing on Page F2 of Bird
Corporation's Form 10-K for the year ended December 31, 1994.
/s/ Price Waterhouse LLP
Boston, Massachusetts
March 24, 1995
F45
90
EXHIBIT 23(B)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of these Registration Statements on Form S-3 (No. 33-44475);
Form S-4 (No. 33-44403) and Forms S-8 (Nos. 33-36304, 33-67826, 33-67828 and
33-36305) of our report dated February 10, 1995; appearing on Page F3 of Bird
Corporation's Form 10-K for the year ended December 31, 1994.
/s/ Alpern, Rosenthal & Company
Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania
March 24, 1995
F46
91
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
COMBINED FINANCIAL STATEMENTS
AND SUPPLEMENTAL INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1994
AND 1993 AND THE PERIOD JULY 1, 1992
(INCEPTION) TO DECEMBER 31, 1992
92
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
COMBINED FINANCIAL STATEMENTS
________________________________________________________
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993 AND
THE PERIOD JULY 1, 1992 (INCEPTION) TO DECEMBER 31, 1992
________________________________________________________
TABLE OF CONTENTS
PAGE
----
FINANCIAL STATEMENTS
Independent Auditors' Report 2
Combined Balance Sheets 3
Combined Statements of Operations and Partners' Capital (Deficit) 4
Combined Statements of Cash Flows 5 - 6
Notes to the Combined Financial Statements 7 - 19
SUPPLEMENTAL INFORMATION
Independent Auditors' Report on Financial Statement Schedule 20
Financial Statement Schedule II 21
93
INDEPENDENT AUDITORS' REPORT
TO THE PARTNERS
KENSINGTON PARTNERS AND AFFILIATE
Leechburg, Pennsylvania
We have audited the accompanying combined balance sheets of Kensington
Partners and Affiliate (Joint Venture Partnerships) as of December 31, 1994 and
1993 and the related combined statements of operations and changes in partners'
capital (deficit), and cash flows for the years ended December 31, 1994 and
1993 and the period from July 1, 1992 (Inception) to December 31, 1992. These
financial statements are the responsibility of the Partnerships' 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 combined financial statements referred to above
present fairly, in all material respects, the financial position of Kensington
Partners and Affiliate as of December 31, 1994 and 1993, and the results of
their operations and their cash flows for the years ended December 31, 1994 and
1993 and the period from July 1, 1992 (Inception) to December 31, 1992, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Kensington Partners and Affiliate will continue as going concerns. As
discussed in Note 2 to the financial statements, the Companies have incurred
significant operating losses and current liabilities exceed current assets.
Those conditions, among others, raise substantial doubt about the Companies'
ability to continue as going concerns. Management's plans regarding those
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania
February 10, 1995
94
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
COMBINED BALANCE SHEETS
--------------------------------------------------------------------------------------------------------------------
DECEMBER 31 1994 1993
--------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 55,655 $ 15,518
Accounts receivable
Trade - net of allowance for doubtful
accounts of $323,000 in 1994
and $195,000 in 1993 - Note 3 1,742,715 2,763,207
Related parties - Note 13B 1,286,189 1,231,094
Inventories - Note 4 1,875,584 2,956,397
Prepaid expenses 79,862 134,320
----------- -----------
TOTAL CURRENT ASSETS 5,040,005 7,100,536
----------- -----------
PROPERTY AND EQUIPMENT - At cost - net of
accumulated depreciation of $1,139,398 and $642,433
as of December 31, 1994 and 1993 - Note 5 3,136,639 2,870,341
----------- -----------
OTHER ASSETS
Other receivables - related party - net of
allowance - Note 13E 306,386 100,000
Other assets - Note 6 371,249 1,277,233
----------- -----------
677,635 1,377,233
----------- -----------
TOTAL ASSETS $ 8,854,279 $11,348,110
=========== ===========
The accompanying notes are an integral part of these combined financial
statements.
95
--------------------------------------------------------------------------------------------------------------------
1994 1993
--------------------------------------------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
Demand notes payable - Note 7 $ 1,628,302 $ 2,245,580
Current maturities of capital lease
obligations and long-term debt - Note 8 312,023 415,500
Accounts payable
Trade 2,485,977 3,927,881
Related parties - Note 13A 3,654,990 2,729,235
Accrued expenses - Note 9 1,640,238 754,095
----------- -----------
TOTAL CURRENT LIABILITIES 9,721,530 10,072,291
----------- -----------
LONG-TERM LIABILITIES
Capital lease obligations and long-term debt -
net of current maturities - Note 8 807,012 1,096,480
Accounts payable - trade - long-term 354,636 -
Other long-term liabilities - related parties -
Notes 13D and 13E 126,314 374,865
----------- -----------
TOTAL LONG-TERM LIABILITIES 1,287,962 1,471,345
----------- -----------
TOTAL LIABILITIES 11,009,492 11,543,636
PARTNERS' DEFICIT (2,155,213) (195,526)
COMMITMENTS AND CONTINGENCIES - Note 12 - -
----------- -----------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $ 8,854,279 $11,348,110
=========== ===========
Page 3
96
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
COMBINED STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL (DEFICIT)
------------------------------------------------------------------------------------------------------------------
FROM INCEPTION -
YEAR JULY 1, 1992
---------------------------------- ----------------
FOR THE PERIODS ENDED DECEMBER 31 1994 1993 1992
------------------------------------------------------------------------------------------------------------------
NET SALES (related parties - 1994 - 26%,
1993 - 34%, 1992 - 33%) $24,180,093 $21,169,467 $10,091,187
COST OF GOODS SOLD (purchased
from related parties - 1994 - 28%,
1993 - 27%, 1992 - 25%) 22,863,159 19,785,555 7,946,321
----------- ----------- -----------
GROSS PROFIT 1,316,934 1,383,912 2,144,866
OPERATING EXPENSES (related parties -
1994 - 11%, 1993 - 23%, 1992 - 17%) 5,346,966 6,012,508 2,079,567
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (4,030,032) (4,628,596) 65,299
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (289,638) (155,452) (31,371)
Income (loss) from equity investment 3,468 (69,578) -
Provision for doubtful accounts (595,417) (202,154) (45,842)
Tax penalties (199,872) - -
Other expense - net (198,186) (193,647) (24,157)
----------- ------- -----------
TOTAL OTHER EXPENSE (1,279,645) (620,831) (101,370)
----------- ------- -----------
NET LOSS (5,309,677) (5,249,427) (36,071)
PARTNERS' CAPITAL (DEFICIT) - Beginning
of year (195,526) 4,453,901 -
Capital Contributions 3,349,990 600,000 4,489,972
----------- -------- -----------
PARTNERS' CAPITAL (DEFICIT) - End of year ($ 2,155,213) ($195,526) $ 4,453,901
=========== ======== ===========
The accompanying notes are an integral part of these combined financial
statements.
Page 4
97
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
COMBINED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------
FROM INCEPTION -
YEAR JULY 1, 1992
------------------------------------ ----------------
FOR THE PERIODS ENDED DECEMBER 31 1994 1993 1992
------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
Net loss
($ 5,309,677) ($ 5,249,427) ($ 36,071)
Adjustments for noncash items
included in net loss:
Depreciation and amortization 763,183 540,921 224,726
(Income) loss from equity investment (3,468) 68,578 -
Working capital changes (below) 2,818,892 3,269,036 (880,230)
----------- ----------- -----------
NET CASH USED FOR
OPERATING ACTIVITIES (1,731,070) (1,370,892) (691,575)
----------- ----------- -----------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Purchase of property and equipment (38,222) (132,650) (37,527)
Proceeds from sale of equipment 81,430 - -
Other assets (98,273) (280,508) (59,373)
Other receivables - related parties 18,723 (100,000) -
----------- ----------- -----------
NET CASH USED FOR
INVESTING ACTIVITIES (36,342) (513,158) (96,900)
----------- ----------- -----------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Cash contributed by the
partners - Note 10 2,825,000 600,000 2,835,305
Reduction in payables to
Jones & Brown - Note 10 - - (2,800,000)
Demand notes payable (617,278) 1,335,000 910,580
Proceeds from long-term debt 169,706 34,107 -
Payments on long-term debt (631,082) (399,543) (133,692)
Other long-term liabilities -
related parties 61,203 306,286 -
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,807,549 1,875,850 812,193
----------- ----------- -----------
INCREASE (DECREASE) IN CASH 40,137 (8,200) 23,718
CASH - Beginning of year 15,518 23,718 -
----------- ----------- -----------
CASH - End of year $ 55,655 $ 15,518 $ 23,718
=========== =========== ===========
The accompanying notes are an integral part of these combined financial
statements.
Page 5
98
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
------------------------------------------------------------------------------------------------------------------
FROM INCEPTION -
YEAR JULY 1, 1992
---------------------------------- ----------------
FOR THE PERIODS ENDED DECEMBER 31 1994 1993 1992
------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 255,304 $ 152,341 $ 29,438
=========== =========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease and debt obligations
incurred for acquisition of equipment $ 68,431 $ 1,502,028 $ 34,379
=========== =========== ===========
Partners' capital contribution of inventory $ 399,990 $ - $ -
=========== =========== ===========
Liability to related party
contributed to capital $ 125,000 $ - $ -
=========== =========== ===========
WORKING CAPITAL (INCREASES) DECREASES
Accounts receivable
Trade
$ 1,020,492 ($ 1,210,178) $ 268,123
Related parties (280,204) (13,661) (416,137)
Inventories
1,480,803 (921,219) (189,952)
Other current assets and
liabilities 940,601 520,199 108,386
Accounts payable
Trade
(1,087,268) 2,825,082 (1,263,416)
Related parties 744,468 2,068,813 612,766
----------- ----------- -----------
INCREASE (DECREASE) IN
WORKING CAPITAL $ 2,818,892 $ 3,269,036 ($880,230)
=========== =========== ===========
The accompanying notes are an integral part of these combined financial
statements.
Page 6
99
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts
of Kensington Partners (KP), combined with the accounts of North
American Installations Company (NAICO). NAICO is owned 100% by common
owners of KP. All significant intercompany balances and transactions
have been eliminated in the preparation of the combined financial
statements. The combined group is herein referred to as "the
Companies".
KP is a joint venture partnership formed by ZES, Inc. (formerly
Kensington Manufacturing Company) (ZES) and Bird-Kensington Holding
Corp., an indirect subsidiary of Bird Corporation (Bird). NAICO was
formed in May 1993, as a joint venture partnership, and ceased
operations in 1994.
B. NATURE OF BUSINESS
Kensington Partners operates in one principal industry segment:
the manufacture of vinyl replacement windows for wholesalers and home
remodelers. The Partnership grants credit to its customers,
substantially all of which are retail and wholesale resellers of windows
located in the eastern half of the United States.
NAICO was an exclusive installer of KP windows for a significant
customer of KP, a retail seller of windows to end users, which has sales
throughout the United States. The installation of the windows has been
transferred to the customer that purchases the windows.
C. CASH AND CASH EQUIVALENTS
Interest-bearing deposits and other investments with original
maturities of three months or less are considered cash equivalents. At
December 31, 1993, the Companies had an overdraft position of
approximately $345,000, at a bank, caused by outstanding checks. The
overdraft was included in accounts payable.
D. ACCOUNTS RECEIVABLE
The Companies provide for estimated losses on uncollectible
accounts receivable based on historical data and management's evaluation
of individual accounts receivable balances at the end of the year.
Page 7
100
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. INVENTORIES
The Companies value all of its inventories at the lower of cost or
market. Raw materials are determined on the last-in, first-out (LIFO)
method. Work-in-process and finished goods inventories are determined
on a first-in, first-out (FIFO) method.
F. DEPRECIATION
Depreciation is computed by the straight-line method at rates
intended to distribute the cost of the assets over their estimated
useful lives. Property under capital lease is being amortized over the
life of the lease in accordance with generally accepted accounting
principles. Rates used by principal classifications are as follows:
RATE
(YEARS)
-------
Warehouse and manufacturing equipment 3 - 10
Furniture and fixtures 5 - 10
Leasehold improvements 3 - 15
Transportation equipment 3 - 6
Maintenance and repairs which are not considered to extend the
useful lives of assets are charged to operations as incurred. Upon sale
or retirement, the cost of assets and related allowances are removed
from the accounts and any resulting gains or losses are included in
other income (expense) for the year.
G. INVESTMENT IN AFFILIATED COMPANY
The Companies' investment in a joint venture partnership is carried
on the equity basis, which approximates the Companies' equity in the
underlying net book value.
H. PRODUCT WARRANTIES
The Companies provide an accrual for future warranty costs based
upon actual claims experience. The warranties are limited and provide
for parts and/or labor based upon the type of window sold.
I. INCOME TAXES
The Companies are being treated as partnerships for Federal and
state income tax purposes. Under the Internal Revenue Code provisions
for partnerships, the partners reflect their proportionate share of the
Companies' taxable income or loss on their respective income tax
returns, and the Companies are not liable for income taxes.
Page 8
101
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
J. RECLASSIFICATION
Certain reclassifications were made to the amounts previously
reported for December 31, 1993 and 1992 to conform with the 1994
classifications.
NOTE 2 - OPERATIONS AND LIQUIDITY
The Companies' combined financial statements have been presented on the
basis that they are going concerns, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
The Companies incurred net losses of approximately $5,310,000 and negative cash
flows from operations of $1,731,000 for 1994. At December 31, 1994, the
balance sheet reflects an excess of current liabilities over current assets of
$4,682,000, and a net capital deficiency of $2,155,000.
In addition, a lease agreement (Note 12A) is in default as a result of
late payments being made and certain payroll and sales taxes are delinquent.
(Note 9.)
Management believes the above mentioned losses and the associated
balance sheet deficiencies are a result of adding new products in 1993 which
required different manufacturing processes and a significant increase in
orders, which put strain on the existing systems. The combination of the above
resulted in manufacturing inefficiencies, low asset performance, excessive
delivery costs and inadequate management information.
During 1993, the Companies embarked on a program to correct the problems
associated with operations. Management believes that the major components of
the plan have been achieved in 1994 and that the effect of addressing and
correcting these problems during 1994 will have a positive impact on 1995
operating results.
During the first quarter of 1995, KP has secured price increases from a
majority of its customers and negotiated a price reduction from a major vendor.
In addition, KP continues on a program to increase productivity, which
includes: simplifying product lines, improving plant layout, management
training and investing in labor saving equipment. KP has also begun a sales
program to broaden its customer base.
The outcome of the uncertainties discussed above cannot be predicted at
this time. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should the Companies be
unable to continue in existence.
Page 9
102
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - ACCOUNTS RECEIVABLE
At December 31, 1994 and 1993, accounts receivable - trade from three
customers were approximately 67% and 73% of trade receivables, respectively.
Sales to these unrelated customers comprised 67% and 51% of total sales for the
years ended December 31, 1994 and 1993, respectively.
Sales to one unrelated customer comprised 30% of total sales for the
period ended December 31, 1992.
NOTE 4 - INVENTORIES
Inventories at December 31, 1994 and 1993 are as follows:
1994 1993
---- ----
Raw materials $ 950,893 $1,536,349
Allowance to state raw materials at LIFO cost (39,005) (30,524)
---------- ----------
Raw materials at LIFO cost 911,888 1,505,825
Work-in-process 648,987 1,030,514
Finished goods 314,709 420,058
---------- ----------
Total Inventories $1,875,584 $2,956,397
========== ==========
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 and 1993 are as follows:
1994 1993
---- ----
Equipment under capital leases - Note 8 $1,785,817 $1,025,563
Warehouse and manufacturing equipment 1,715,676 1,621,784
Furniture and fixtures 290,258 290,258
Leasehold improvements 419,791 419,791
Transportation equipment 64,495 155,378
---------- ----------
4,276,037 3,512,774
Less: Accumulated depreciation 1,139,398 642,433
---------- ----------
Total Property and Equipment $3,136,639 $2,870,341
========== ==========
Page 10
103
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - OTHER ASSETS
Other assets at December 31, 1994 and 1993 are as follows:
1994 1993
---- ----
Deposits $ 199,838 $ 816,638
Sample windows 89,965 152,324
Marketing supplies inventory -
119,489
Other assets 81,446 188,782
---------- ----------
$ 371,249 $1,277,233
========== ==========
Deposits at December 31, 1993 consist primarily of deposits on equipment
purchases.
NOTE 7 - DEMAND NOTES
On June 15, 1994, KP entered into a financing/factoring agreement with a
lending institution to sell, on an ongoing basis, up to 80% or $2,500,000,
whichever is less, of acceptable trade accounts receivable. All accounts
receivable that remain unpaid after 90 days of the purchase by the lender are
subject to recourse at the lender's discretion. KP may, at any time,
repurchase the accounts receivable sold. The agreement, which expires on June
15, 1995, is subject to automatic renewal for a six month period, unless notice
of nonrenewal is given by either party. The loan was funded with $1,000,000,
at which time the Companies' line of credit was paid in full (see below).
Under the terms of this agreement, fees ranging from 1% to 3 1/2% are
based on the number of days to collect the trade receivable, with a guaranteed
minimum monthly fee of $5,000. In addition, interest is charged on any amounts
advanced under the agreement, at the rate of prime (8 1/2% at December 31,
1994) plus 1 1/2%. Under the terms of this agreement, Bird has guaranteed
$1,250,000 of this debt.
The amount outstanding under this agreement, included in the
accompanying balance sheet at December 31, 1994, is net of a $150,000 cash
reserve held by the lending institution.
Prior to June 15, 1994, the Companies had a line-of-credit, with maximum
borrowings of $2,500,000. Interest was payable monthly at the bank's basic
rate plus 1% (see below). The borrowings on the line were collateralized by
substantially all the assets of the Companies. The line was guaranteed by the
partners of the Companies.
Page 11
104
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - DEMAND NOTES (CONTINUED)
In early 1994, the bank cited defaults under the line of credit
agreement and made demand for payment. Based on agreements between the
Companies and the bank in February and April, 1994, the bank agreed to forebear
collection and set a final due date of August 31, 1994. In addition, the
interest rate was changed to the bank's basic rate plus 3%. Bird was required
to put up $750,000 as additional collateral, which was later applied to the
line. Bird was also required to make additional payments totaling $1,200,000.
The payments by Bird were recorded as capital contributions to the partnership.
NOTE 8 - CAPITAL LEASE OBLIGATIONS AND LONG-TERM DEBT
The following is a schedule by years of future minimum lease payments
under capital leases and installment notes together with the present value of
the net minimum lease payments and note payments as of December 31, 1994:
1995 $ 332,000
1996 287,000
1997 278,000
1998 334,000
----------
Net minimum lease payments 1,231,000
Less: Amount representing interest 158,000
----------
Present value of net minimum lease payments 1,073,000
Long-term debt principal payments - all due
within one year 46,000
----------
Net obligations under capital leases and notes payable 1,119,000
Less: Current portion 312,000
----------
Long-term obligations under capital leases and notes payable $ 807,000
==========
The partners have guaranteed substantially all of the above lease
obligations.
Assets under capital lease are capitalized using interest rates
appropriate at the inception of each lease. The following is an analysis of
the Companies' assets under capital lease obligations, included in property and
equipment (Note 5), at December 31, 1994 and 1993:
Page 12
105
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - CAPITAL LEASE OBLIGATIONS AND LONG-TERM DEBT (CONTINUED)
1994 1993
---- ----
Warehouse and manufacturing equipment $1,624,677 $ 840,422
Transportation equipment 161,140 185,141
---------- ----------
1,785,817 1,025,563
Manufacturing equipment under capital lease,
not yet placed in service - included
in deposits (Note 6) - 764,640
---------- ----------
1,785,817 1,790,203
Less: Accumulated amortization 290,729 128,976
---------- ----------
Total $1,495,088 $1,661,227
========== ==========
NOTE 9 - ACCRUED EXPENSES
Accrued expenses at December 31, 1994 and 1993 are as follows:
1994 1993
---- ----
Accrued and withheld payroll and payroll taxes (Note 2) $ 575,500 $ 423,855
Accrued and collected sales taxes (Note 2) 502,415 42,478
Accrued tax penalties and interest 239,219 -
Accrued vacation 155,510 143,717
Accrued real estate taxes 105,932 -
Other accrued expenses 61,662 144,045
---------- ----------
Total Accrued Expenses $1,640,238 $ 754,095
========== ==========
NOTE 10 - PARTNERS' CAPITAL
Effective July 1, 1992, ZES entered into an agreement with Bird through
one of Bird's indirect subsidiaries to form a joint venture partnership,
Kensington Partners (KP), for the purpose of manufacturing and selling custom
windows, a business previously conducted by ZES. ZES' capital contribution to
KP consisted of all of its assets subject to certain of its liabilities,
including $2,800,000 owed to Jones and Brown, Inc. (J&B), a related party.
Bird's capital contribution consisted of $2,800,000, in cash, which was used to
pay off the amount owed by KP to J&B, subsequent to the inception of the
Partnership. The net assets contributed by ZES were $1,689,000.
Page 13
106
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - PARTNERS' CAPITAL (CONTINUED)
During 1994, the partners entered into an agreement to restructure the
partnership agreement of KP and to make capital contributions. Each partner's
ownership percentage is to be adjusted plus or minus 2% for each $50,000 of
capital contributed or collateral provided on the bank loan, but in no event
should a partner be diluted below 10%. A diluted partner is entitled to cure
any shortfall between its capital account and the other partner's capital
account by contributing the capital necessary to equalize each partner's
capital account by the later of December 31, 1994 or six months from the date
of the last capital contribution (August 1994) made on or before December 31,
1994.
Pursuant to the agreement, Bird contributed $2,700,000 in cash,
including payments on debt (Note 7), and $150,000 of inventory. ZES has
contributed $250,000 in cash and $250,000 of inventory. Accordingly, the
ownership percentages for Bird and ZES at December 31, 1994 are 90% and 10%,
respectively.
In addition to the capital contributed, the partners have advanced
various amounts of working capital during 1994 (Note 13).
In September 1994, Bird entered into an sales agreement with Jannock,
Inc. to sell all of the assets of a wholly owned subsidiary, Bird Incorporated.
The sales agreement contains an option for Jannock to purchase Bird's interest
in Kensington Partners for $2,780,000. In addition to the purchase price,
Jannock would assume all of Bird's obligations under various security
agreements. The option, which expires on April 7, 1995, is subject to Bird
fulfilling its obligations under the partnership agreement.
Subsequent to December 31, 1994, Bird advanced KP approximately $524,000.
NOTE 11 - RETIREMENT PLANS
KP participates in a multi-employer defined benefit pension plan for the
electrician's union employees. Plan contributions are determined by the union
labor agreement. Management has not expressed any intent to terminate its
participation in this plan. KP contributed approximately $191,000, $163,000
and $60,000 to this plan during the periods ended December 31, 1994, 1993 and
1992, respectively.
The Companies also sponsors an executive retirement plan. Under the
provisions of the plan certain key employees may elect, at their discretion, to
contribute to the plan. The Companies provide a matching contribution of one
half of all employee contributions up to a maximum of 3% of gross compensation.
Contributions are used to purchase variable rate annuities.
Page 14
107
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - RETIREMENT PLANS (CONTINUED)
Additional benefits under this plan include proceeds from life insurance
policies owned by KP or the cash value upon termination of employment. The
Companies' contributions to this plan were not material for the years ended
December 31, 1994 and 1993. The plan was not in effect during 1992.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
A. OPERATING LEASES
The Companies lease various operating facilities from related and
unrelated parties and transportation equipment from unrelated parties
under various operating leases. Rent expense for the period ended
December 31, 1994, 1993 and 1992 is as follows:
1994 1993 1992
---- ---- ----
Facilities leases - primarily
related party $ 285,000 $ 263,000 $ 128,000
Transportation equipment 133,000 67,000 48,000
---------- ---------- ----------
$ 418,000 $ 330,000 $ 176,000
========== ========== ==========
The following are the approximate future minimum operating lease
payments at December 31, 1994, substantially all of which are due to a
related party:
YEAR ENDING
DECEMBER 31 AMOUNT
----------- ------
1995 $ 239,000
1996 227,000
1997 215,000
1998 215,000
1999 215,000
Thereafter 1,280,000
----------
Total minimum lease payments $2,391,000
==========
KP is currently in default on its lease for its primary operating
facility as a result of not making the required rent payments as they
became due. Rent of approximately $237,000 and $66,000, due a related
party, has been accrued in the accompanying balance sheets at December
31, 1994 and 1993, respectively. Based upon the current payment plan,
approximately $61,000 of the accrued rent at December 31, 1994 is
included in other long-term liabilities - related parties.
Page 15
108
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
B. PURCHASE COMMITMENTS (CONTINUED)
KP and Bird have entered into a supply agreement which requires KP
to purchase specified quantities of raw materials from Bird beginning in
1993 and ending in the year 2002. Minimum purchases for the next five
years are 1995, $900,000; 1996, $1,100,000; 1997, $1,300,000; and 1998
and 1999, the greater of $1,300,000 or actual amounts purchased in 1997.
The agreement includes penalties for shortfalls in purchases on a per
year basis. Shortfalls can be offset with credits from years when
excess volume is purchased.
KP and Domken Plastics (Note 13A) have entered into a supply
agreement which requires KP to purchase $2,500,000 of raw materials,
annually, through 1999. The agreement includes penalties for shortfalls
in total purchases over the term of the agreement.
C. SUPPLY AGREEMENTS
KP has entered into a supply agreement with a customer that
primarily purchases through Quantum II Partners (Notes 12D and 13E).
The agreement requires KP to provide not less than 90% of the customer's
total requirement of Quantum II vinyl replacement windows (Note 12D).
D. LITIGATION
On September 13, 1994, a complaint was filed in Middlesex Superior
Court by the other 50% owner of Quantum II Partners (Note 13E) and
others, including Quantum II Partners (collectively, the plaintiffs),
against Kensington Partners and Quantum II Partners (collectively, the
defendants). The plaintiffs allege various breaches of contract on the
part of the defendants including breach of a partnership agreement, a
supply agreement (Note 12C) and an employment agreement along with other
complaints under the Massachusetts Unfair Trade Practices Act. The
plaintiffs are seeking relief of actual damages in an unspecified amount
and a doubling or trebling of such damages as provided in the Unfair
Trade Practices Act. KP believes that the claims filed by the
plaintiffs have no merit and denies any liability.
On October 4, 1994, the defendants filed a complaint in Federal
Court alleging various breaches of contract by the plaintiffs and
seeking collection of outstanding balances due to the Company from the
plaintiffs of approximately $560,000, included in accounts receivable -
trade.
No answers have been filed in these actions because the parties are
involved in settlement negotiations. With respect to the litigation
filed by KP for the collection of the 1994 balances receivable,
management estimates that some loss may occur and has recorded its
estimate of possible loss as an allowance for doubtful accounts.
Page 16
109
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
D. LITIGATION (CONTINUED)
The Company anticipates that a settlement agreement will be
achieved, as currently contemplated. If the matter is not settled, and
goes to trial, management believes that the ultimate loss, if any, will
not exceed the amounts recorded.
NOTE 13 - RELATED PARTY TRANSACTIONS
The Companies have entered into various transactions with related
parties during the years ended December 31, 1994, 1993 and the period July 1,
1992 (Inception) to December 31, 1992. The transactions are as follows:
A. PURCHASES AND PAYABLES
The Companies have purchases for raw materials, advertising
services, and commissions from the following related parties as of and
for the periods ended December 31, 1994, 1993 and 1992:
PURCHASES
---------
1994 1993 1992
---- ---- ----
Vinyl Division of Bird, Inc. $2,862,000 $2,053,000 $ 85,000
Domken Plastics Limited (DPL) $3,616,000 $2,964,000 $9,760,000
Quantum II Partners (see below) $ 200,000 $ 440,000 $ -
Design Matrix, Inc. (DMI) -
Advertising $ - $ 147,000 $ 53,000
Accounts payable to related parties at December 31,1994 and 1993
are as follows:
ACCOUNTS PAYABLE
----------------
1994 1993
---- ----
Bird, Inc. $1,947,000 $1,219,000
Domken Plastics Limited (DPL) 1,436,000 1,210,000
Quantum II (Notes 12D and 13E) 16,000 163,000
Other related parties 256,000 138,000
---------- ----------
$3,655,000 $2,730,000
========== ==========
Page 17
110
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - RELATED PARTY TRANSACTIONS (CONTINUED)
A. PURCHASES AND PAYABLES (CONTINUED)
DMI and DPL are related through common ownership with ZES.
A stockholder of ZES was compensated approximately $143,000 and
$105,000 during the year ended December 31, 1993 and the six months
ended December 31, 1992, respectively, for services rendered in
assisting with the acquisition of raw materials from DPL. At December
31, 1993, approximately $48,000 was due to the stockholder. In
addition, J&B was also compensated $86,000 during 1993 for similar
services.
Any compensation for services discussed above was reimbursed
directly by DPL to ZES for the year ended December 31, 1994.
Fees from J&B for computer software support of approximately
$144,000 were charged to operations for the year ended December 31,
1994.
B. SALES AND RECEIVABLES
The Companies had sales to Jones & Brown, Inc. (J&B), a related
party through common ownership with ZES, of approximately $5,890,000,
$7,255,000 and $3,327,000 for 1994, 1993 and 1992, respectively. In
addition, the Companies had sales to other related parties of
approximately $471,000 for 1994. Accounts receivable from related
parties are as follows as of December 31, 1994 and 1993:
1994 1993
---- ----
J&B $1,174,000 $ 987,000
Quantum II Partners (Note 13E) -
225,000
Other 112,000 19,000
---------- ----------
Total $1,286,000 $1,231,000
========== ==========
C. RENTS
KP rents facilities from related parties (Note 12).
D. MANAGEMENT FEES
Management fees of approximately $488,000 and $224,000 were paid to
J&B under a management contract for the year ended December 31, 1993 and
the six months ended December 31, 1992, respectively. The management
agreement was terminated effective December 31, 1993.
Page 18
111
KENSINGTON PARTNERS AND AFFILIATE
(Joint Venture Partnerships)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - RELATED PARTY TRANSACTIONS (CONTINUED)
D. MANAGEMENT FEES (CONTINUED)
In addition, a management fee of approximately $181,000 for 1993
was due to Bird at December 31, 1993. The amount is included in the
accompanying combined balance sheets in other long-term liabilities.
E. OTHER
Kensington Partners owns a 50% equity investment in Quantum II
Partners (Note 12D). Quantum II was formed during 1993 to be the
exclusive marketing representative to sell Quantum II replacement
windows manufactured by KP. Quantum II Partners reported a net
partnership deficit of approximately $130,000 and $138,000 for 1994 and
1993, respectively. KP has reflected its share of Quantum's excess of
liabilities over assets in other long-term liabilities.
At December 31, 1994, approximately $306,000 due from Quantum II is
included in other receivables - related parties. This amount is net of
an allowance for doubtful accounts of $65,000.
During the year ended December 31, 1993, KP advanced Quantum II
$377,000. At December 31, 1993, the remaining advance due to KP was
approximately $325,000, of which $100,000 was included in other assets
as a note receivable. The remaining balance was included in accounts
receivable (Note 13B).
Included in other long-term liabilities as of December 31, 1993 is
$125,000 due to a stockholder of ZES. Subsequent to December 31, 1993,
the amount was transferred by the stockholder to ZES and then
contributed by ZES to KP's capital (Note 10).
Page 19
112
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
TO THE PARTNERS
KENSINGTON PARTNERS AND AFFILIATE
Leechburg, Pennsylvania
We have audited the combined financial statements of Kensington Partners
and Affiliate as of December 31, 1994 and 1993 and for the years ended December
31, 1994 and 1993 and the period from July 1, 1992 (Inception) to December 31,
1992, and have issued our report thereon dated February 10, 1995. In
connection with our audits of these financial statements, we audited financial
statement schedule II. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
/s/ Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania
February 10, 1995
Page 20
113
KENSINGTON PARTNERS AND AFFILIATE
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1994 and 1993 and the
Period July 1, 1992 (Inception) to December 31, 1992
Additions
Balance Charged to Charged to Balance
beginning cost and other Deduc- at end
of year expenses accounts tions(1) of year
--------- ---------- ---------- -------- -------
YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts $195,000 $595,000 $ - $402,000 $388,000
======== ======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1993:
Allowance for doubtful accounts $ 66,000 $202,000 $ - $ 73,000 $195,000
======== ======== ======== ======== ========
PERIOD JULY 1, 1992 (INCEPTION)
TO DECEMBER 31, 1992:
Allowance for doubtful accounts $ 59,000 $ 46,000 $ - $ 39,000 $ 66,000
======== ======== ======== ======== ========
(1) Uncollectible accounts written off.
Page 21