1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
------------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-828
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BIRD CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3082903
- -------------------------------------------------------------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1077 Pleasant Street Norwood, MA 02062
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 551-0656
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed, since last
report.)
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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 1,1995. 4,117,555 shares.
2
BIRD CORPORATION
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INDEX
PAGE NO.
--------
Part I. Financial Information:
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994................. 2
Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1995 and 1994... 4
Consolidated Statements of Cash Flows For the
Nine Months Ended September 30, 1995 and 1994............. 5
Notes to Consolidated Financial Statements.................. 6
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .............................................. 13
Part II. Other Information ................................ 19
1
3
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
$(000 omitted except share data) September 30, December 31,
1995 1994
------------- ------------
Assets
Current Assets:
Cash and equivalents $ 2,137 $ 321
Accounts and notes receivable 11,109 22,781
Allowance for doubtful accounts (2,064) (3,137)
Inventories 6,398 8,371
Prepaid expenses and other assets 1,465 3,095
Deferred income tax 680 6,836
------- -------
Total current assets 19,725 38,267
------- -------
Property, Plant and Equipment:
Land and land improvements 2,853 3,145
Buildings 6,960 11,742
Machinery and equipment 28,729 33,760
Construction in progress 1,205 5,705
------- -------
39,747 54,352
Less - Depreciation and amortization 15,714 24,323
------- -------
24,033 30,029
------- -------
Assets held for sale 0 7,500
Other assets 548 1,247
Deferred tax asset 7,514 8,662
------- -------
$51,820 $85,705
======= =======
See accompanying notes to consolidated financial statements.
2
4
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
($000 omitted except share data) 1995 1994
------------- ------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $12,233 $13,671
Long-term debt, portion due within one year 922 18,071
Retirement plan contributions payable 192 302
Income taxes payable 317 596
------- -------
Total current liabilities 13,664 32,640
------- -------
Long-term debt, portion due after one year 5,196 12,504
------- -------
Other liabilities 3,622 2,715
------- -------
Deferred income taxes 128 128
------- -------
Stockholders' Equity
5% cumulative preferred stock, par value
$100. Authorized 15,000 shares;issued 5,820
shares (liquidating preference $110 per share,
aggregating $640 before dividends) 582 582
Preference stock, par value $1. Authorized
1,500,000 shares; issued 814,300 shares
of $1.85 cumulative convertible preference
stock (liquidating preference $20 per share,
aggregating $16,286 before dividends) 814 814
Common stock, par value $1. Authorized
15,000,000 shares; issued 4,390,991 shares
in 1995, 4,375,179 shares in 1994 4,391 4,375
Other capital 27,341 27,235
Retained earnings (927) 7,860
------- -------
32,201 40,866
Less -
Treasury stock, at cost:
Common - 275,100 shares in 1995 and 1994 (2,991) (2,991)
Unearned compensation 0 (157)
------- -------
29,210 37,718
------- -------
$51,820 $85,705
======= =======
See accompanying notes to consolidated financial statements.
3
5
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
($000 omitted except share data) ---- ---- ---- ----
Net Sales $12,170 $46,246 $ 43,931 $141,595
------- ------- -------- --------
Costs and expenses:
Cost of sales 10,353 37,077 37,961 114,813
Selling, general and
administrative expense 2,308 6,724 9,221 23,990
Interest expense 105 1,612 891 4,138
Net discontinued business
activities expense (income) 0 (2,677) (17,120) (1,416)
Equity losses from partnership 0 206 372 1,644
------- ------- -------- --------
Total costs and expenses 12,766 42,942 31,325 143,169
------- ------- -------- --------
Earnings (loss) from continuing operations
before income taxes (596) 3,304 12,606 (1,574)
Provision for income taxes 0 0 8,232 0
------- ------- -------- --------
Earnings (loss) from continuing operations (596) 3,304 4,374 (1,574)
------- ------- -------- --------
Discontinued operations:
Earnings from operations of discontinued
businesses, net of taxes 0 0 0 2,019
Loss on disposal of environmental business 0 (907) (11,604) (9,384)
------- ------- -------- --------
Net loss from discontinued operations 0 (907) (11,604) (7,365)
------- ------- -------- --------
Net earnings (loss) before dividends $ (596) $ 2,397 $ (7,230) $ (8,939)
Preferred and preference stock
cumulative dividends 384 384 1,152 1,152
------- ------- -------- --------
Net earnings (loss) applicable to common
stockholders $ (980) $ 2,013 $ (8,382) $(10,091)
======= ======= ======== ========
Primary earnings (loss) per common share:
Continuing operations $ (0.24) $ 0.76 $ 0.79 $ (0.67)
Discontinued operations $ 0.00 $ (0.24) $ (2.83) $ (1.82)
------- ------- -------- --------
Net earnings (loss) after dividends $ (0.24) $ 0.52 $ (2.04) $ (2.49)
======= ======= ======== ========
See accompanying notes to consolidated financial statements.
4
6
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
($000 omitted) September 30,
1995 1994
---- ----
Cash flow provided (used)
by operations:
Net loss $ (7,230) $ (8,939)
Adjustments to reconcile to net
cash used by operations:
Depreciation and amortization 2,193 4,070
Provision for losses on accounts receivable 32 1,044
Deferred income taxes 7,304 0
Gain on sale of distribution business 0 (1,416)
Loss on disposal of environmental business 7,500 9,384
Gain on sale of vinyl business (20,579) 0
Loss on sale of window business 1,959 0
Changes in balance sheet items:
Accounts receivable (470) (5,566)
Inventories (4,361) 603
Prepaid expenses 1,425 (2,727)
Liquidation reserve 0 (4,461)
Liabilities not related to
financing activities (10,300) (4,722)
Other assets 100 660
-------- ---------
Cash flow used by operations (22,427) (12,070)
-------- ---------
Cash flows from investing activities:
Acquisition of property, plant and equipment (1,437) (5,055)
Proceeds from sale of businesses 50,680 27,195
Other investments 230 (1,313)
-------- ---------
Net cash provided by investing activities 49,473 20,827
-------- ---------
Cash flows from financing activities:
Debt proceeds 17,034 119,451
Debt repayments (41,213) (136,014)
Dividends paid (1,173) 0
Other equity changes 122 488
-------- ---------
Net cash used in financing activities (25,230) (16,075)
-------- ---------
Net increase (decrease) in cash and equivalents 1,816 (7,318)
Cash and cash equivalents at beginning of year 321 7,518
-------- ---------
Cash and cash equivalents at end of period $ 2,137 $ 200
======== =========
See accompanying notes to consolidated financial statements.
5
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BIRD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. In the opinion of the Company, the accompanying unaudited Consolidated
Financial Statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly its financial position as
of September 30, 1995 and December 31, 1994 and the results of its
operations and cash flows for the three and nine month periods ended
September 30, 1995 and 1994.
2. The Company's business is seasonal to the extent that activity in the
outside repair and remodeling business and in new construction declines in
certain areas of the country during the winter months.
3. 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 which would result from the conversion of the $1.85
cumulative convertible preference stock at the beginning of each period.
Fully diluted loss per share amounted to $1.50 for the nine month period
ended September 30, 1995 compared to a loss per share of $1.87 for the same
period in the prior year.
4. 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.
(Unaudited)
September 30, December 31,
1995 1994
------------- ------------
(Thousands of dollars)
Current Costs:
Raw Materials $ 1,278 $ 3,554
Finished goods 5,654 6,924
-------- ---------
6,932 10,478
Less: LIFO reserve 534 2,107
-------- ---------
$ 6,398 $ 8,371
======== =========
6
8
BIRD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
5. The Company's borrowing and debt obligations are summarized as follows:
(Unaudited)
September 30, December 31,
1995 1994
------------- ------------
(Thousands of dollars)
Long-Term Debt:
Revolving Credit
Agreement $ 0 $ 13,937
Term Loans 5,039 15,000
Obligations under
capital leases 1,079 1,638
-------- --------
6,118 30,575
Less - portion due
within one year 922 18,071
-------- --------
Long term debt $ 5,196 $ 12,504
======== ========
As of September 30, 1995, the Company had cash and cash equivalents on
hand totaling $2,137,000. Additionally, the Company's external financial
needs are augmented by its ability to borrow under a loan and security
agreement dated November 30, 1994, as amended (the "Loan Agreement")
between Bird Incorporated and Shawmut Capital (the "Bank"). The
Loan Agreement contains financial and operating covenants, which among
other things, (i) require the Company to maintain prescribed levels of
tangible net worth, cash flow, earnings before interest, taxes,
depreciation and amortization and (ii) place limits on capital
expenditures. There are also restrictions on indebtedness, liens,
investments, acquisitions, dispositions, mergers, and the payment of
dividends.
As of September 30, 1995 the Company was in default under Section 8.3.3 of
the Loan Agreement as a result of failing to achieve a stated level of cash
flow for the third quarter. As a result of the weak remodeling market
during 1995, sales volume and earnings were less than anticipated,
negatively impacting cash flow. At the request of the Company, the Bank
waived the cash flow requirements for this period without penalty. The
Company expects to be able to meet more lenient covenant requirements at
measurement dates within the next twelve months.
The loan, which is guaranteed by the Company and secured by substantially
all of the assets of the Company and its subsidiaries, is defined as a $15
million revolving credit line and a $5 million term loan for working
capital, letters of credit and general corporate purposes. The revolving
credit
7
9
BIRD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
availability is determined with reference to a percentage of accounts
receivable and inventory which are pledged to the Bank. Currently the
availability calculation does not allow borrowing to the full extent of the
loan due to the seasonality of the housing business. As of October 31,
1995, an aggregate amount of $11,805,000 was available to the Company under
the terms of the revolving credit facility under the Loan Agreement. As of
September 30, 1995 there were no loans outstanding under the revolving
credit line portion of the Loan Agreement. Principal payments of $62,500
on the $5 million term loan are due and payable monthly commencing on
January 1, 1996 and continuing on the first day of each month thereafter to
and including the first day of November, 1996 after which beginning on
December 1, 1996 the monthly principal payment will increase to $71,417
continuing monthly through and including November 1, 1997. The entire
remaining principal amount then outstanding will be due and payable on
November 30, 1997. Proceeds in excess of $100,000 from the sale of any
fixed asset may, at the Bank's discretion, be applied against the
outstanding principal balance of the term loan at the time of any such
sale. Interest on the loans is either the Bank's base rate which was 8.75%
on September 30, 1995, or at the London Interbank Offering Rate ("LIBOR")
plus 275 basis points, at the Company's election. The Company also pays an
annual fee equal to the greater of $25,000 or 1/4% on the average of the
unused portion of the facility.
6. 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"). Prior to March 1, 1995, the
Company's portion of the joint venture results were reported using the
equity method. Beginning March 1, 1995, results have been included in the
Company's consolidated results as discussed below.
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.
Primarily as a result of continuing losses and the inability of Kensington
to properly finance its operation, Kensington's independent accountants
issued "going concern" opinions at December 31, 1994 and December 31, 1993.
After negotiating with its partner, the Company agreed to invest additional
cash in return for temporarily increasing its
8
10
BIRD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
ownership in Kensington to 90%. The terms of the new agreement allowed
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 matched the additional investment made
by the Company.
As of February 28, 1995, the minority partner did not match the additional
investment made by the Company. As a result, the Company's ownership in
the joint venture was permanently fixed at 90%, resulting in a change in
financial reporting from the equity method to consolidation beginning March
1, 1995.
On June 2, 1995, the Company sold all of the outstanding capital stock of
Bird-Kensington Holding Corp. ("Bird-Kensington"), which owned the
Company's interest in Kensington, to Jannock, Inc. ("Jannock"). The sale
was consummated pursuant to the exercise by Jannock of an option granted
under the Asset Purchase Agreement dated as of September 23, 1994 (as
amended by amendments dated as of January 24, 1995, January 31, 1995, and
April 27, 1995) (the "Asset Purchase Agreement"). The purchase price
consisted of cash in the amount of $2,780,000 and the assumption of certain
liabilities related to the Kensington business.
One million dollars of the cash proceeds were used to acquire the minority
partner's interest in Kensington. In addition, $3,692,000 was invested by
the Company in Bird-Kensington, as a condition of the sale, to enable
Kensington to pay certain liabilities and to assure that the equity of
Kensington was not less than $1,150,000 at the time of closing as
stipulated in the Asset Purchase Agreement. Certain adjustments, subject
to increase or decrease upon final determination at the closing date,
affecting equity were required to be made to the Kensington financial
statements as of March 31, 1995. These adjustments were primarily asset
write-downs and the exclusion of certain assets related to affiliated
companies to be assumed by the Company of approximately $700,000 and
$500,000, respectively.
Within 30 days following the closing date, Jannock presented to the Company
Kensington's financial statements as of June 2, 1995, in accordance with
the Asset Purchase Agreement, as amended, indicating that the Company make
an additional investment of up to $471,000 as a condition of the sale to
assure that the equity of Bird-Kensington was not less than $1,050,000, as
stipulated in the Asset Purchase Agreement. The Company established a
reserve for the full amount at June 30,
9
11
BIRD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
1995 and subsequently paid to Jannock $398,000 in full settlement of the
terms of the Asset Purchase Agreement.
7. In 1986, the Company, along with numerous other companies, was named by
the 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 and fixed the Company's proportionate share of
the total expenses. The ultimate cost of the remedial work and other
expenses covered by the settlement agreement can only be estimated. The
Company has provided a reserve amounting to $1 million at September 30,
1995 for its estimated share of the ultimate cost of cleanup, most of which
will be paid in 1996.
In 1994, the Arizona Department of Environmental Quality (the "ADEQ")
issued a notice of violation ("NV") to Southwest Roofing Supply, a former
division of the Company ("Southwest"), which directed Southwest to conduct
a site investigation of property formerly leased by Southwest. Receipt of
the NV prompted negotiations between the ADEQ, Southwest and the Company.
The negotiation resulted in a consent order between the ADEQ and the
Company 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 ground
water that may have been contaminated by leaks from an underground storage
tank previously removed by the Company. In accordance with the work plan,
the Company expects to remediate the soil and ground water where and if
necessary. The Company's management believes that the cost to the Company
of such remediation will be in the range from $200,000 to $700,000. The
Company has provided a reserve totaling $454,000 at September 30, 1995 for
its proportionate share of the estimated ultimate cost of cleanup based on
management's best estimate of the cost to be incurred. The Company
anticipates that $200,000 will be reimbursed to the Company by the ADEQ in
accordance with Arizona law and regulation. This potential recovery has
not been recorded as of September 30, 1995.
10
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BIRD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
8. For the nine months ended September 30, 1995, the Company recorded income
from discontinued business activities of $17,120,000 comprised of a first
quarter gain of $20,579,000 on the sale of the vinyl business to Jannock
offset by $1.5 million in provisions relating to pension plans and product
liability claims associated with former roofing operations and a second
quarter loss of $1,959,000 on the sale of the Kensington business to
Jannock.
Sales of $6,365,000 and $8,859,000 were recorded for the now-discontinued
vinyl business for the periods ending March 7, 1995 and March 31, 1994,
respectively. As a percentage of sales, gross margins for these periods
were 6.5% and 22.7%, respectively.
9. During the second quarter of 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.
10. Restrictions 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. The quarterly dividends on the Preferred Stock due March 1,
June 1, and September 1, 1995 in the aggregate amount of $21,825 were
declared and paid in full when due. The quarterly dividend on the
Preferred Stock due December 1, 1995 in the amount of $7,275 was declared
on September 29, 1995 and is expected to be paid when due. Quarterly
dividends in arrears on the Preferred Stock due March 1, June 1, and
September 1, 1994 amounting to $21,825 were declared and paid in full on
June 15, 1995.
Dividends are in arrears on the Preference Stock in the aggregate amount of
$1,506,000 for the four quarterly periods ended February 15, 1995. The
quarterly dividend on the Preference Stock due May 15, 1995 was declared
and paid in full when due. The quarterly dividend on the Preferred Stock
due August 15, 1995 and one quarterly dividend in arrears were declared and
paid in full on August 15, 1995. The quarterly dividend on the Preference
Stock due November 15, 1995 in the amount of $376,000 was, with the consent
of the Bank, declared on September 29, 1995 and is expected to be paid when
due.
11. During 1993, the Company decided to close its "on-site" environmental
remediation business. This business involved environmental remediation
projects such as the processing of oily waste sites at refineries,
operation and management of waste processing sites and the removal and
remediation of sludge.
11
13
BIRD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
As of September 30, 1995, the remaining assets and liabilities relating to
the "on site" environmental remediation business approximated $291,000 and
$440,000, 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.
During the second quarter of 1994, the Company agreed to sell its 80%
interest in Bird Environmental Gulf Coast, Inc. ("BEGCI"), which owns and
operates the "on-site" environmental business, to the minority shareholders
thereof, subject to financing, resulting in the complete withdrawal from
the environmental business. Due to the fact the minority partner was
unable to finance the purchase of the facility, the Company actively sought
another purchaser. However, efforts to attract a buyer have been
unsuccessful even at severely discounted prices. The continuing losses of
the facility combined with equipment related problems and the limited
apparent prospects for near term improvement precipitated a vote by the
Company's Board of Directors in July 1995 to suspend further funding of the
facility. As a result of this action, during the second quarter of 1995,
the Company's remaining investment of $7.5 million was written off and a $3
million reserve was established for the potential costs, such as the
potential buy-out of minority shareholders and cleanup expenses associated
with the closure of the facility. In addition, for the nine month period
ending September 30, 1995, the Company made additional investments in BEGCI
of $1,104,000 which were not considered recoverable and as a result were
written-off.
12. 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 five to forty
years, is generally for some portion of the labor and 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.
12
14
BIRD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FINANCIAL CONDITION
- -------------------
As of September 30, 1995, the Company had cash and cash equivalents on hand
totaling $2.1 million and total debt of $6.1 million. The Company's external
financial needs are augmented by its ability to borrow under the amended Loan
and Security Agreement (the "Loan Agreement") dated November 30, 1994 between
Bird Incorporated and Shawmut Capital (the "Bank") of Glastonbury, Connecticut.
The Loan Agreement consists of a $15.0 million revolving credit commitment and
a $5.0 million term loan. Up to $5.0 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 during the winter months. Currently,
the availability calculation does not allow borrowings to the full extent of
the revolving credit commitment. As of October 31, 1995, an aggregate amount
of $11,805,000 was available to the Company under the terms of the revolving
credit facility under the Loan Agreement. As of September 30, 1995, there were
no amounts outstanding under the revolving credit facility. Letters
of credit outstanding as of September 30, 1995 totaled $2,233,000. Intercompany
loans and advances to non- borrowing affiliates including BEGCI are permitted
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, earnings before interest, taxes, depreciation and
amortization, and ratio of current assets to current liabilities and (ii) place
limits on capital expenditures. The Loan Agreement also contains restrictions
on indebtedness, liens, investments, distributions (including payment of
dividends), mergers, acquisitions, and disposition of assets.
As of September 30, 1995 the Company was in default under Section 8.3.3 of the
Loan Agreement as a result of failing to achieve a stated level of cash flow for
the third quarter. As a result of the weak remodeling market during 1995,
sales volume and earnings were less than anticipated, negatively impacting cash
flow. At the request of the Company, the Bank waived the cash flow requirements
for this period without penalty. The Company expects to meet more lenient
covenant requirements at measurement dates within the next twelve months.
13
15
BIRD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
----------------------------------------------
(continued)
Interest on both the revolving credit portion and term loan portion of the Loan
Agreement accrues at either the base rate which was 8.75% on September 30, 1995,
or at the London Interbank Offering Rate ("LIBOR") plus 275 basis points, at the
borrower's election. The Company also pays an annual fee equal to the greater
of $25,000 or 1/4% on the average of the unused portion of the facility.
Principal payments of $62,500 on the $5 million term loan are due and payable
monthly commencing on January 1, 1996 and continuing on the first day of each
month thereafter to and including November 1, 1996 after which beginning on
December 1, 1996 the monthly principal payment will increase to $71,417
continuing monthly through and including November 1, 1997. The entire remaining
principal amount then outstanding will be due and payable on November 30, 1997.
Proceeds in excess of $100,000 from the sale of any fixed asset may, at the
bank's discretion, be applied against the outstanding principal balance of the
term loan at the time of any such sale.
On March 8, 1995, the Company sold substantially all of the assets of its vinyl
business to Jannock, Inc. ("Jannock") for $47.5 million in cash subject to
certain downward adjustments which totaled $4,962,000. Net of adjustments, the
gain on the sale of the vinyl business totaled $20.6 million. The sale included
the assumption by the purchaser of certain specified liabilities of the vinyl
business. The transaction also included an option to purchase the Company's
interest in Kensington.
On June 2, 1995, the Company sold all of the outstanding capital stock of Bird-
Kensington Holding Corp. ("Bird-Kensington"), which owned the Company's interest
in Kensington, to Jannock. The sale was consummated pursuant to the exercise by
Jannock of the option granted under the Asset Purchase Agreement. The purchase
price consisted of cash in the gross amount of $2,780,000 and the assumption of
certain liabilities related to the Kensington business.
One million dollars of the cash proceeds were used to acquire the minority
partner's interest in Kensington. In addition, $3,692,000 was invested by the
Company in Bird-Kensington, as a condition of the sale, to enable Kensington to
pay certain liabilities including the repayment of all loans outstanding with
Bankers Capital and to assure that the equity of Kensington was not less than
$1,150,000 at the time of closing. Certain adjustments, subject to increase or
decrease upon final determination at the closing date, affecting equity were
required to be made to the Kensington financial statements as of March 31,
1995. These adjustments were primarily asset write-downs and the exclusion of
certain assets related to affiliated companies to be assumed by the Company of
approximately $700,000 and $500,000, respectively.
14
16
BIRD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
Within 30 days following the closing date, Jannock presented to the Company,
Kensington's financial statements as of June 2, 1995, in accordance with the
Asset Purchase Agreement as amended, indicating that the Company make an
additional investment as a condition of the sale to assure that the equity of
Bird-Kensington was not less than $1,050,000. In August 1995, the Company paid
to Jannock $398,000 in full settlement of the terms of the Asset Purchase
Agreement.
Net cash and cash equivalents increased during the nine month period ending
September 30, 1995 by $1,816,000 to $2,137,000 due to cash received from the
sale of the vinyl business. The cash used by operations for the nine month
period ended September 30, 1995 increased $10,357,000, from $12,070,000 to
$22,427,000. The change was attributable primarily to the fact that at
September 30, 1995 the Company reported a gain of $20,579,000 on the sale of its
vinyl business, a loss of $1,959,000 on the sale of its window fabrication
business and a $7,304,000 reduction to deferred taxes. There were also changes
in balance sheet items such as liabilities not related to financing activities
and inventories. Liabilities not related to financing activities increased
approximately $6 million primarily the result of the $4 million build-up of
finished goods inventory related to sluggish demand for roofing products during
the third quarter of 1995 and the establishment of a $3 million reserve for the
closure of the San Leon facility.
The Company had approximately $49.5 million of net cash provided from investing
activities for the period ended September 30, 1995 as compared to a total of
approximately $20.8 million for the period ended September 30, 1994. The
change is primarily the result of $50.3 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 vinyl and window fabrication businesses to
Jannock, Inc. in March and June 1995), offset by cash used for capital
expenditures of the roofing business. In the prior comparable period, net cash
provided by investing activities amounted to $27 million primarily from the
proceeds of the sale of the Company's distribution business to Wm. Cameron &
Co., offset by cash used for capital expenditures. The net cash resulting from
financing activities changed by $9 million for the period ended September 30,
1995 as compared to the same period in the prior year. The change is
attributable to the fact that during 1995 the Company repaid $24 million of
debt in excess of borrowings and paid dividends of approximately $1 million, as
compared to 1994 when the Company repaid approximately $17 million in excess of
borrowings and made no dividend payments.
There were several significant changes in the balance sheet accounts between
December 31, 1994 and September 30, 1995 which related
15
17
BIRD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
primarily to the sale of the Company's vinyl business in March, 1995. Cash
increased $1.8 million, accounts and notes receivable decreased $11.7 million,
deferred income taxes was reduced by $6 million, current liabilities decreased
$19 million and long term debt decreased $7.3 million. Assets held for sale
decreased $7.5 million due to the write-off of the Company's interest in Bird
Environmental Gulf Coast, Inc. ("BEGCI").
RESULTS OF OPERATIONS
- ---------------------
Net sales from continuing operations decreased 69% from $141,595,000 to
$43,931,000 for the first nine months of 1995 as compared to the same period in
the prior year primarily due to the sale of the Company's distribution and
vinyl products business units. Sales from the roofing manufacturing business
decreased $5,999,000 or 15.2% compared to the same nine month period in
the prior year due to the erosion of volume. The decreased volume was
attributable to a weak remodeling market in the Northeast. The Company plans
to expand its sales territories to include areas bordering the Northeastern
states in order to replace lost volume. Net sales from continuing operations
decreased $34,076,000 or 73.7% for the third quarter of 1995 compared to the
same quarter in the prior year primarily as a result of the sale of the
Company's distribution and vinyl products business units. Net sales for the
roofing manufacturing business decreased $4,276,000 or 26% compared to the same
quarter in the prior year due to a decrease in volume primarily due to the
aforementioned weak remodeling market.
The Company's cost of sales from continuing operations compared to the same
period in the prior year decreased 66.9% from $114,813,000 to $37,961,000 for
the nine months of 1995. The decline was primarily a result of the sale of the
Company's distribution and vinyl products business units. Cost of sales for the
roofing business decreased 16.5% or $5,564,000 due primarily to decreased
manufacturing costs related to a decrease in sales volume. Although the Company
experienced raw material price increases in glass mat and dry felt, the cost of
asphalt, along with related freight was reduced significantly as a result of
the newly constructed asphalt oxidizer which produces asphalt saturant and
coatings. The oxidizer became operational in the first quarter of 1995. The
Company's cost of sales from continuing operations for the third quarter of 1995
compared to the same period in the prior year decreased 72.1% from $37,077,000
to $10,353,000. Cost of sales for the roofing business decreased 23.8% due
primarily to the reasons previously stated.
For the nine months ended September 30, 1995, the roofing
16
18
BIRD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
manufacturing business cost of sales as a percentage of sales decreased 1.3% as
compared to the same period in the prior year. For the three months ended
September 30, 1995 the percentage of cost of sales to sales as compared to the
same period in the prior year increased 2.5%.
Selling, general and administrative ("SG&A") expenses for the three months ended
September 30, 1995 decreased 65.7% from $6,724,000 to $2,308,000 and decreased
61.6% for the nine month comparative period from $23,990,000 to $9,221,000. The
decrease was primarily attributable to the sale of the Company's distribution
and vinyl products business units. However, SG&A expenses (expressed as a
percentage of sales) increased approximately 4% for the three month and the
nine month comparative periods. The increase was due primarily to the amortized
refinancing costs associated with the 1994 refinancing of an earlier credit
agreement, additional charges related to environmental remediation and estimated
costs associated with closing the corporate office recorded during the first
quarter of 1995.
Interest expense decreased approximately 93.5% from $1,612,000 to $105,000 for
the third quarter of 1995 compared to the third quarter of 1994. For the nine
months ended September 30, 1995, interest expense decreased approximately 78.5%
or $3,247,000 as compared to the same period in the prior year. The decreased
interest expense reflects a reduction of debt by the use of proceeds from the
sale of the vinyl products and distribution business units.
On March 8, 1995, the Company sold its vinyl manufacturing business to Jannock,
Inc. for $47.5 million subject to adjustment. The resulting gain of $20,579,000
has been recorded as discontinued business activities. This gain was reduced by
a charge of $1,500,000 for the estimated cost to terminate the qualified and
unqualified unfunded employee benefit plans and future product liability claims
related to former roofing operations.
On June 2, 1995, the Company sold its window fabrication business to Jannock for
$2,780,000 resulting in a loss of $1,959,000 which was recorded as discontinued
business activities. Effective February 28, 1995, the Company's ownership in
Kensington was permanently fixed at 90% resulting in a change in financial
reporting from the equity method to consolidation. Therefore, the equity losses
for 1995 reflect the results of two months versus three months in 1994.
In connection with the Board of Director's 1994 decision to sell BEGCI and the
Company's agreement on June 18, 1994 to sell its shares
17
19
BIRD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
in BEGCI to the minority stockholders, 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 nine months
ended September 30, 1994 of $11,226,000. In addition, excess costs of
$3,861,000 related to the "on-site" environmental remediation business and
charged to results of operations in 1993 had been reversed and were recorded as
discontinued operations in the consolidated statement of operations for the nine
months ending September 30, 1994. The Company had intended to operate the San
Leon Facility owned by BEGCI until the sale of its interest in BEGCI was
consummated. Efforts to sell the facility had been unsuccessful through the
second quarter of 1995 and the facility continued to incur losses. Consequently,
on July 18, 1995 the Company's Board of Directors voted to suspend further
funding of the facility. As a result of this action, the Company
wrote-off its $7.5 million investment and established a $3 million reserve for
potential costs such as the potential buy-out of minority shareholders and
cleanup expenses associated with the closure of the facility. For the nine
month period ended September 30, 1995, the Company invested $1,104,000 which was
deemed non-recoverable and charged to discontinued operations.
The Company's effective income tax rate from continuing operations was 65.3% for
the nine month period ended September 30, 1995 and zero for the same period in
the prior year. No tax benefit was recorded for the period ending September 30,
1994 as there was no reasonable assurance that related deferred tax assets would
be realized in future taxable years. For the same period during the current
year, the estimated annual effective tax rate reflects an increase of
approximately $2,951,000 in the valuation allowance to $7,951,000 due primarily
to the loss on the window fabrication business and charges to discontinued
business activities related to former roofing operations where there is no
assurance that any tax benefit would be realized from these losses in the
future. However, the Company expects the roofing business to be a contributor
to future taxable income.
18
20
PART II - OTHER INFORMATION
---------------------------
Item 2. Changes in Securities
- -------------------------------
The Loan and Security Agreement dated as of November 30, 1994 ("Loan
Agreement") by and among Bird Incorporated and Shawmut Capital imposes
restrictions on the Company with respect to the purchase, redemption, or
other retirement of, or any other distribution on or in respect of any
shares of any class of capital stock of the Company with the exception of
payments of dividends on the Company's 5% cumulative preferred stock
("Preferred Stock"). Dividends on the Preferred Stock may not exceed
$35,000 in any fiscal year.
The Company is in arrears in the payment of dividends on its $1.85
cumulative preference stock ("Preference Stock"). (See Item 3 (b), below).
The Articles of Organization of the Company provide 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 make payment on its Common Stock, until full
cumulative dividends on the Preference Stock are declared and paid or set
aside for payment.
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
(b) Dividends are in arrears on the Preference Stock in the aggregate
amount of $1,506,000 for the four quarterly periods ended February 15,
1995. The quarterly dividend on the Preference Stock due August 15,
1995 and one dividend in arrears have been paid in full. The
quarterly dividend on the Preference Stock due November 15, 1995 was,
with the consent of Bank, declared on September 29, 1995 and is
expected to be paid when due.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibit 10(u) - Employment Agreement dated as of July 31, 1995
between the Company and Frank S. Anthony.
Exhibit 10(v) - Amended Employment Agreement dated August 21,
1995 between the Company and Richard C. Maloof.
Exhibit 11 - Statement Regarding Computation of per Share
Earnings
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter for which this report is filed.
19
21
BIRD CORPORATION
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIRD CORPORATION
----------------------------------
Date: November 9, 1995
----------------------------------
Richard C. Maloof
President and COO
----------------------------------
Donald L. Sloper, Jr.
Corporate Controller and
Principal Accounting Officer
22
BIRD CORPORATION
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Page No.
- ----------- ----------
10(u) Employment Agreement dated as of July 31, 1995
between the Company and Frank S. Anthony.
10(v) Amended Employment Agreement dated August 21,
1995 between the Company and Richard C. Maloof.
11 Statement Regarding Computation of per Share
Earnings