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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, 1995
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)
1077 Pleasant Street, Norwood, MA 02062
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 551-0656
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, 1996 was $23,150,000. As of March 1, 1996 there
were 4,123,178 shares of Bird Corporation common stock, par value $1 per share,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1996 Annual Meeting of Stockholders to
be filed with the Commission by April 30, 1996 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, window
fabrication business and San Leon hydrocarbon waste recycling center (see
"Recent Business Developments" below), Bird Corporation's current manufacturing
operation consists of one primary business unit - roofing manufacturing and
sales and marketing. Products currently manufactured at Bird Corporation's
roofing facility include asphalt shingles and roll roofing for commercial and
residential use. These products are marketed through independent wholesalers,
including wholesalers whose primary customers are roofing contractors. All
references herein to the "Company" or "Bird" refer to Bird Corporation and its
subsidiaries unless otherwise indicated by the context.
RECENT BUSINESS DEVELOPMENTS
There have been a number of significant developments in the business of the
Company since December 31, 1994, including the following:
_ On March 14, 1996, the Company signed a definitive agreement
with CertainTeed Corporation, a subsidiary of Saint-Gobain
Corporation, providing for CertainTeed to acquire in a merger
transaction all of the Company's outstanding common, preferred
and preference shares.
CertainTeed will pay $7.50 per share for the common stock. As
of March 1, 1996 there were approximately 4.1 million shares
of Bird common stock outstanding.
The Bird/CertainTeed merger provides for the acquisition or
redemption of all outstanding 5% cumulative preferred stock at
their liquidation preference of $110.00 per share and all
outstanding $1.85 cumulative convertible preference stock for
$20.00 per share. Payment for preferred and preference stock
will include any previously accrued but unpaid dividends. The
total consideration for the transaction exceeds $50 million,
including common and preferred equity plus debt.
Completion of the transaction is subject to approval by Bird's
shareholders, appropriate governmental approvals and other
customary conditions.
_ On November 29, 1995, the Company sold all of the outstanding
capital stock of Bird Environmental Gulf Coast, Inc. ("BEGCI")
which owned the Company's interest in the San Leon, Texas
based hydrocarbon waste recycling center, to GTS Duratek, Inc.
("Purchaser") for a purchase price of $1.00. In addition, BETI
agreed to pay the Purchaser the amount by
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which BEGCI's current liabilities exceeded its current assets
at August 31, 1995, which was approximately $1.3 million. The
sale of the recycling center completes the Company's
withdrawal from the environmental remediation and recycling
industry. The resulting loss of $11,252,000 is reflected as
discontinued operations in the Company's consolidated
statements of operations.
_ 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"). This
transaction also included an option to purchase the Company's
interest in Kensington Partners ("Kensington"), a window
fabrication business. 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
was closed for a gross purchase price of $47.5 million which
was reduced to approximately $42.5 million by post-closing
working capital adjustments. The sale included the assumption
by the purchaser of certain specified liabilities of the vinyl
business. Proceeds from the sale were used to reduce bank
debt. Net of adjustments, the Company's gain on this sale
totaled $20,579,000 million and is reflected as discontinued
business activity income in the consolidated statements of
operations.
_ 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. 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 purchase price consisted of
cash in the amount of $2,780,000 and the assumption of certain
liabilities related to the Kensington business. Cash proceeds
of $1 million were used to acquire the minority partner's
interest in Kensington. In addition, $4,090,000 was invested
by the Company in Bird-Kensington, as a condition of the sale,
to enable Kensington to pay certain liabilities and to meet
equity requirements as stipulated in the Asset Purchase
Agreement. The sale resulted in a loss of $1,959,000 and is
reflected as discontinued business activity expense in the
Company's consolidated statements of operations.
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HOUSING GROUP
Asphalt roofing products are manufactured and sold 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 Company-manufactured roofing granules. The
Company's facilities include a roofing manufacturing facility, a granule plant,
a quarry, an asphalt plant and a private landfill for the Company's use.
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.
Additionally, the Company sold its interest in Kensington, its joint venture in
the replacement window fabrication business in June 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 were as follows: sales of asphalt roofing products, 80%
in 1995, 31% in 1994 and 23% in 1993; sales of vinyl products, 20% in 1995, 24%
in 1994 and 20% in 1993; and sales through building materials distribution
centers (including roofing and vinyl products manufactured by the Company), 45%
in 1994 and 57% in 1993.
The principal geographic markets for the Company's manufactured roofing
products, due to limitations imposed by freight costs, are the northeastern
United 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 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, 1996. 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 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 an asphalt plant in
January 1995, the Company has been able to process asphalt at its
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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 granule plant
and quarry.
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, 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.
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
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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" and in Item 3, "Legal Proceedings".
FINANCIAL 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. Financial information about the industrial segments in
which the Company operates, for the three years ended December 31, 1995, appear
in Note 12 of the Notes to Consolidated Financial Statements which are included
herein.
EMPLOYEES
At December 31, 1995, the Company employed 174 people.
ITEM 2. PROPERTIES
The Company's executive offices are located at its plant in Norwood,
Massachusetts. 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 roofing manufacturing facility, a
granule plant and an asphalt plant. The Company's quarry is located in Wrentham,
Massachusetts, and its private landfill is located in Walpole, Massachusetts.
The Company leases an industrial laminator and certain other equipment which
were fabricated for use in its roofing plant. The laminator lease expires in
1998. The Company completed the construction of an asphalt oxidizer plant at the
Norwood premises in January 1995 to ensure a continuous supply of asphalt. The
Company also leases an asphalt storage tank and terminal facilities in
Providence, Rhode Island.
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ITEM 3. LEGAL PROCEEDINGS
The Company monitors its compliance with environmental regulations on an ongoing
basis. The Company's general counsel receives environmental site assessments
from the operating managers responsible for site environmental compliance.
Appropriate action is undertaken where needed. 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:
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. On May 13,
1994, the Company paid an administrative penalty of $30,000. The Company
estimated that the cost of corrective action to be taken by it in accordance
with the consent order would be approximately $100,000. The majority of the
corrective actions were completed in 1995.
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. A site assessment performed on the
mill site for the Company by its environmental consultants, GZA GeoEnvironmental
Inc. ("GZA"), showed no environmental cleanup was necessary. This report was
submitted to the DEP in July 1995. In the opinion of management and based on
management's and GZA'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.
On June 21, 1994, the Arizona Department of Environmental Quality ("ADEQ")
issued a notice of violation ("NV") to Southwest Roofing
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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 of $200,000 to $700,000. As of December 31,
1995, the Company has provided a reserve of $450,000 for the estimated cost of
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). At
December 31, 1995, the Company has provided a reserve of approximately $1
million to cover the estimated cost of the Company's remaining proportionate
share (i.e., 17%) of the ultimate total 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% 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
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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 approximately $300,000 for its estimated share of the ultimate cost of
clean-up for claims arising from other such sites (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 of Confirmed Disposal Sites. 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 was
listed on the August 1993 "Transition List of Confirmed Disposal Sites and
Locations to be Investigated."
A site assessment of the Norwood facility was performed for the Company by its
environmental consultants GZA GeoEnvironmental, Inc. because the Company was on
the DEP List of Confirmed Disposal Sites. The Company was required to complete
certain additional remedial activities described in the new MCP on or before
August 2, 1996. The Phase I and Phase II plan was completed in 1995 and
submitted to the DEP in January 1996. In the opinion of management, no
additional material costs will be incurred.
Since 1981 Bird has been named as a defendant in approximately 550 product
liability cases throughout the United States by persons claiming to have
suffered asbestos-related diseases as a result of alleged exposure to asbestos
used in products manufactured and sold by Bird. Approximately 140 of these cases
are currently pending and costs of approximately $2 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. At December 31, 1995, the Company has recorded a reserve of $950,000 to
cover the estimated cost of these claims. In light of the nature and merits of
the claims alleged, in the opinion of management, the resolution of these
remaining claims will not have a material adverse effect on the results of
operations or financial condition of the Company.
In 1992, a subsidiary of the Company, Bird Atlantic Corporation, formerly
Atlantic Building Products Corporation ("ABPCO"), commenced an action against a
former vendor, alleging violation of an exclusive distributorship without
adequate and fair compensation to ABPCO. A jury trial was held in November 1995
in the Superior Court of Plymouth
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County, Massachusetts. The jury found in favor of ABPCO and judgement was
entered on January 26, 1996 in the principal amount of approximately $1.8
million. The award, with interest accruing at 12% per annum, is expected to be
in excess of $3 million and will not be reported as income until collected. The
defendant has appealed the judgement.
INSURANCE AND PRODUCT LIABILITY CLAIMS
On June 1, 1993, Wausau commenced 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 were 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 1997. In the
opinion of management, the above matter will not have a material adverse effect
on the Company's financial position or results of operations.
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.
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, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of the executive officers of the Company as of
March 8, 1996, the date from which they have served as officers and their
present positions with the Company are as follows:
Richard C. Maloof 50 January 1985 President and
Chief Operating
Officer
Frank S. Anthony 49 May 1984 Vice President,
General Counsel and
Corporate Secretary
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Mr. Maloof joined the Company in October 1971. He has held various positions
such as Senior Roofing Engineer, Manufacturing Manager - Pacific Division, Vice
President of Manufacturing and President of the Roofing Division. Mr. Maloof
holds an engineering degree. He was elected President and COO in May 1995 and
was also elected to the Board of Directors in 1995. Mr. Anthony is an attorney
and prior to joining Bird served in the law department of Westinghouse Electric
Corporation from 1976 to 1983.
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 George Haufler, the former CEO,
which was terminated on January 25, 1994. In December 1993, the Company entered
into an employment contract and a severance agreement with Joseph Vecchiolla,
successor to Mr. Haufler. The Company has also entered into agreements with its
two executive officers. Mr. Anthony's agreement superseded his earlier severance
agreement and provides that severance benefits are payable to him on March 31,
1996. The agreement automatically converts to an oral agreement on the same
terms and conditions terminable by either party on 60 days notice. Mr. Maloof's
agreement provides severance benefits to him after a change in control of the
Company. These agreements are described in the Company's definitive proxy
statement for its 1996 Annual Meeting which is to be filed with the Commission
by April 30, 1996 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 2,123 common shareholders of record at December 31, 1995.
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.
1995 1994
---- ----
QUARTER HIGH LOW HIGH LOW
------- ---- --- ---- ---
FIRST 9 7 3/4 12 1/4 8
SECOND 8 5/8 6 1/4 11 1/4 8 1/2
THIRD 8 1/2 5 7/8 10 1/2 7
FOURTH 6 5/8 4 1/2 10 8
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The Company paid no cash dividends on its common stock during 1995 or 1994.
Under the terms of the Loan Agreement between the Company and Fleet Capital, the
Company has agreed that it will refrain from paying cash dividends on its common
stock or its $1.85 cumulative preference stock, without prior approval from the
Bank.
The Company is in arrears in the payment of four dividends on its preference
stock. The Articles of Organization of the Company provide that as long as any
arrearage on the payment of dividends on the Company's 5% 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,
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(In thousands, except per share amounts)
Net sales $ 54,180 $ 167,886 $ 187,745 $ 164,202 $ 137,059
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of sales 48,007 136,878 151,664 128,371 107,226
Selling, general and
administrative expenses 11,817 28,786 32,716 27,811 23,023
Interest expense 927 4,782 2,472 1,506 1,026
Discontinued business activities (income) (17,570) (1,313) 268 178 189
Other (income) expense 372 4,680 5,903 (197) (331)
--------- --------- --------- --------- ---------
Earnings (loss) from continuing operations
before income taxes 10,627 (5,927) (5,278) 6,533 5,926
Provision (benefit) for income taxes 11,424 (7,010) (637) 869 498
--------- --------- --------- --------- ---------
Earnings (loss) from continuing operations
before cumulative effect of accounting change (797) 1,083 (4,641) 5,664 5,428
--------- --------- --------- --------- ---------
Discontinued operations:
Gain (loss) from operations of discontinued
businesses, net of taxes 0 1,245 (15,414) (2,573) (249)
Loss on disposal of businesses, net of taxes (11,252) (6,011) (11,000) 0 0
--------- --------- --------- --------- ---------
Net loss from discontinued operations (11,252) (4,766) (26,414) (2,573) (249)
--------- --------- --------- --------- ---------
Cumulative effect of accounting change 0 0 2,733 0 0
--------- --------- --------- --------- ---------
Net earnings (loss) $ (12,049) $ (3,683) $ (28,322) $ 3,091 $ 5,179
========= ========= ========= ========= =========
Primary earnings (loss) per common share:
Continuing operations $ (0.57) $ (0.11) $ (1.51) $ 1.00 $ 1.01
Discontinued operations (2.74) (1.20) (6.45) (0.62) (0.06)
Cumulative effect of accounting change 0.00 0.00 0.67 0.00 0.00
--------- --------- --------- --------- ---------
Net earnings (loss) per common share $ (3.31) $ (1.31) $ (7.29) $ 0.38 $ 0.95
========= ========= ========= ========= =========
Cash dividend per common share $ 0.00 $ 0.00 $ 0.15 $ 0.20 $ 0.20
========= ========= ========= ========= =========
Book value per common share $ 1.45 $ 5.07 $ 5.75 $ 12.83 $ 12.61
========= ========= ========= ========= =========
SELECTED CONSOLIDATED BALANCE SHEET DATA
DECEMBER 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(In thousands)
Total assets $ 43,703 $ 85,705 $123,229 $119,075 $ 99,904
Working capital $ 5,978 $ 5,627 $ 30,090 $ 43,782 $ 34,179
Long-term debt, excluding current portion $ 4,869 $ 12,504 $ 43,127 $ 30,374 $ 12,150
Stockholders' equity $ 24,416 $ 37,718 $ 40,561 $ 69,101 $ 68,602
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PROPOSED MERGER
On March 14, 1996, the Company signed a definitive agreement with CertainTeed
Corporation, a subsidiary of Saint-Gobain Corporation, providing for CertainTeed
to acquire in a merger transaction all of the Company's outstanding common,
preferred and preference shares.
Upon the effective date of the merger, each share of the Company's outstanding
common stock, par value $1 per share, will be converted into the right to
receive an amount in cash equal to $7.50. The Company's outstanding 5%
cumulative preferred stock, par value $100 per share, will remain issued and
outstanding upon the effective date of the merger and will be called for
redemption and retirement as soon as practicable thereafter at a price equal to
$110, plus all accrued and unpaid dividends thereon as of the date of redemption
and retirement. Each share of the Company's outstanding $1.85 cumulative
convertible preference stock, par value $1 per share, will be converted into the
right to receive $20 plus all accrued and unpaid dividends thereon as of the
effective date of the merger.
Completion of the merger is subject to approval by the Company's shareholders
and appropriate governmental authorities. The merger is not subject to a
financing contingency. The Company's Board of Directors has received a fairness
opinion from its investment bankers regarding the merger. The closing of the
merger is anticipated at the end of the second quarter, following distribution
of proxy materials to the Company's shareholders and approval at a special
meeting.
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.
On November 30, 1994, Bird Incorporated entered into a three year $39 million
Loan Agreement with Fleet Capital Corporation ("Fleet Capital"), previously
Barclays Business Credit, Inc. and Shawmut Capital Corporation. At the end of
the three year period, the Loan Agreement will be automatically renewed for
successive one year periods unless terminated specifically in writing. The Loan
Agreement consisted 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. On March 8, 1995 the Company sold the assets of its vinyl
siding operation to Jannock, Inc. for $47.5 million
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which was reduced to approximately $42.5 million by post-closing working capital
adjustments. The proceeds from the sale were used to reduce bank debt.
Concurrent with the sale, Fleet Capital executed the First Amendment to the Loan
Agreement amending the amount of the facility to $20 million consisting of a $15
million revolving credit commitment and a $5 million term loan. At December 31,
1995, $5 million of debt was outstanding. On January 10, 1996, the Company paid
down the term loan so that the outstanding principal balance equaled $2.5
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, 1995 totaled
$2,233,000 compared to $2,927,000 as of December 31, 1994.
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 15, 1996, an aggregate of $7,683,000 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. 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 of 1995. 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, Fleet Capital waived the cash flow
requirements for the third quarter without penalty and amended this and other
financial covenants for subsequent periods based on a review of the Company's
financial condition and future projections. As of December 31, 1995, the Company
was in compliance with all covenants.
Interest on the revolving credit commitment under the First Amended Loan
Agreement accrues at the Fleet Capital base rate (as specified in such
Agreement) or the London Interbank Offering Rate ("LIBOR") plus 2 3/4% at the
Company's election on all borrowings plus the greater of $25,000 per annum or
1/4% on any unused portion of the commitment payable monthly in arrears. The
interest on the term loan accrues at the base rate or the LIBOR rate plus 2 3/4%
at the Company's election. The interest rate on outstanding borrowings at
December 31, 1995 was
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8.69%. The repayment of the principal on the term loan is at the rate of $62,500
per month through November 1996 and $71,417 per month thereafter with a final
principal payment of $3,455,800 due on November 30, 1997. Proceeds in excess of
$100,000 from the sale of fixed assets may, at Fleet Capital's discretion, be
applied to the outstanding principal payments of the term loan.
In order to control its cost and supply of asphalt, the Company constructed an
asphalt oxidizer plant at its roofing facility in Norwood, Massachusetts.
Construction was completed during 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 $5.5 million.
On March 8, 1995, the Company sold substantially all of the assets of its vinyl
siding operation to Jannock, Inc. 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 $20,579,000.
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 Partners ("Kensington"), to Jannock, Inc. ("Jannock").
The sale was consummated pursuant to the exercise by Jannock of an option
granted under an Asset Purchase Agreement related to the sale of the Company's
vinyl business 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.
Cash proceeds of $1 million 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.
Following the closing date, Jannock presented to the Company financial
statements of Kensington as of June 2, 1995, indicating that net equity was
$471,000 less than the amount required by the Asset Purchase Agreement. The
Company had established a reserve for the full amount of the shortfall at June
30, 1995 and subsequently paid to Jannock $398,000 in full settlement of the
terms of the Asset Purchase Agreement. Net of certain purchase price
adjustments, the loss on the sale of Kensington was $1,959,000.
One June 18, 1994, the Company agreed to cause the sale of its 80% interest in
Bird Environmental Gulf Coast, Inc. ("BEGCI") to the minority shareholders
thereof, subject to financing, resulting in the complete withdrawal from the
environmental business. During 1995, the minority partner became unable to
finance the purchase of the facility and efforts to attract another purchaser
were unsuccessful. In July 1995, the Company's Board of Directors suspended
further funding of the facility. As a result of this action, during the second
quarter of
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1995, the Company's remaining investment of $8.6 million was written-off and a
$3 million reserve was established for the costs associated with the closure of
the facility. On November 29, 1995, the Company caused the sale all of the
outstanding capital stock of BEGCI to GTS Duratek, Inc. for a purchase price of
$1.00. In addition, the Company agreed to pay the purchaser the amount by which
BEGCI's current liabilities exceeded its current assets at August 31, 1995 which
was approximately $1.3 million. Of the $3 million reserve established in the
second quarter of 1995, $2,050,000 was utilized, while $650,000 remains at
December 31, 1995 for future claims against discontinued operations.
Net cash and cash equivalents increased during fiscal 1995 by $3.4 million
primarily due to cash received from the sale of the vinyl business. The cash
used by continuing operations for the fiscal period ended December 31, 1995
increased $6.7 million, from $11.6 million to $18.3 million. In 1995, the
Company recorded a gain of $20.6 million on the sale of its vinyl business. This
gain was offset by charges of $11.3 million and $2 million related to the
disposal of the environmental and window fabrication businesses, respectively.
Cash used by operations in 1995 was also attributable to several significant
changes in the balance sheet such as a reversal of future tax benefits of $11.3
million, a decrease of $3.1 million in trade accounts receivable, a decrease of
$14.3 million in liabilities not relating to financing activities and an
increase of $2.7 million relating to inventories.
Additionally, the vinyl and window fabrication business activities which were
discontinued in 1995 had a significant impact on the changes in the balance
sheet accounts between December 31, 1994 and December 31, 1995. As a result of
these sales, inventory decreased $6.3 million, accounts and notes receivable
decreased $11 million, and current liabilities decreased $9 million. In
addition, 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").
The Company had approximately $47.3 million of net cash provided from investing
activities for the period ended December 31, 1995 as compared to a total of
approximately $19.4 million for the period ended December 31, 1994. The change
is primarily the result of $50.7 million of cash receipts from the proceeds of
the sale of certain of the Company's assets (primarily, the sale of the assets
of the vinyl and window fabrication businesses to Jannock, Inc. in March and
June 1995, respectively), offset by cash used for capital expenditures of the
roofing business and additional investments in discontinued operations. In the
prior comparable period, net cash provided by investing activities resulted
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 $11 million from the
prior year. Cash used in financing activities during 1995 resulted from the net
repayment of debt of $24 million and $1.6 million of dividend payments, as
compared to 1994 when the Company had net
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repayments of debt of approximately $16 million and made minimal dividend
payments.
ENVIRONMENTAL MATTERS
The Company monitors its compliance with environmental regulations on an ongoing
basis. The Company's general counsel receives environmental site assessments
from the operating managers responsible for site environmental compliance.
Appropriate action is undertaken where needed. 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:
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. On May 13,
1994, the Company paid an administrative penalty of $30,000. The Company
estimated that the cost of corrective action to be taken by it in accordance
with the consent order would be approximately $100,000. The majority of the
corrective actions were completed in 1995.
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. A site assessment performed on the
mill site in East Walpole for the Company by its environmental consultants, GZA,
showed no environmental cleanup was necessary. This report was submitted to the
DEP in July 1995. In the opinion of management and based on management's and
GZA'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.
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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 of $200,000 to $700,000. As of December 31, 1995, the Company has
provided a reserve of $450,000 for the estimated cost of 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). At
December 31, 1995, the Company has provided a reserve of approximately $1
million to cover the estimated cost of the Company's remaining proportionate
share (i.e., 17%) of the ultimate total 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% 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
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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 approximately $300,000 for its
estimated share of the ultimate cost of clean-up for claims arising from other
such sites (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 of Confirmed Disposal Sites. 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 was
listed on the August 1993 "Transition List of Confirmed Disposal Sites and
Locations to be Investigated."
A site assessment of the Norwood facility was performed for the Company by its
environmental consultants GZA GeoEnvironmental, Inc. because the Company was on
the DEP List of Confirmed Disposal Sites. The Company must complete certain
additional remedial activities described in the new MCP on or before August 2,
1996. The Phase I and Phase II plan was completed and submitted to the DEP in
January 1996. In the opinion of management, no additional material costs will be
incurred.
Since 1981 Bird has been named as a defendant in approximately 550 product
liability cases throughout the United States by persons claiming to have
suffered asbestos-related diseases as a result of alleged exposure to asbestos
used in products manufactured and sold by Bird. Approximately 140 of these cases
are currently pending and costs of approximately $2 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. At December 31, 1995, the Company has recorded a reserve of $950,000 to
cover the estimated cost of these claims. In light of the nature and merits of
the claims alleged, in the opinion of management, the resolution of these
remaining claims will not have a material adverse effect on the results of
operations or financial condition of the Company.
INSURANCE AND PRODUCT LIABILITY CLAIMS
On June 1, 1993, Wausau commenced 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
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against Bird were 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 1997. In the opinion of management, the above matter will not
have a material adverse effect on the Company's financial position or results of
operations.
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.
LEGAL MATTERS
In 1992, a subsidiary of the company, Bird Atlantic Corporation, formerly
Atlantic Building Products Corporation ("ABPCO"), commenced an action against a
former vendor, alleging violation of an exclusive distributorship without
adequate and fair compensation to ABPCO. A jury trial was held in November 1995
in the Superior Court of Plymouth County, Massachusetts. The jury found in favor
of ABPCO and judgement was entered on January 26, 1996 in the principal amount
of approximately $1.8 million. The award, with interest accruing at 12% per
annum, is expected to be in excess of $3 million and will not be reported as
income until collected. The defendant has appealed the judgement.
RESULTS OF OPERATIONS
The Company's future prospects and sales are tied solely to one line of business
(roofing manufacturing) which is dependent upon the economy in the northeastern
United States. The Company produces all of its output at a single plant which
relies on one major supplier for glass mat, a critical raw material.
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 and its asphalt oxidizing plant.
1995 COMPARED WITH 1994
Earnings from continuing operations before income taxes in fiscal 1995 were
$10,627,000 compared to losses of $5,927,000 in fiscal 1994. Net sales from
continuing operations decreased 67.7% from $167,886,000 to $54,180,000 as
compared to 1994, primarily due to the sale of the Company's distribution and
vinyl products business units. Sales from the roofing manufacturing business
decreased $10,857,000 or 19.9% due
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to price weakness and a decline in volume. The decreased volume was attributable
to a weak re-roofing market in the northeast caused by a mild 1994/1995 winter
followed by a hot, dry summer. The Company is expanding its sales territories to
include areas bordering the northeastern United States in an effort to replace
lost volume.
Cost of sales in 1995 was $48,007,000 as compared to $136,878,000 in 1994,
constituting a decrease of 64.9%. 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 18.4% or $8,662,000 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 February 1995. From
November 1995 through mid-February 1996, the oxidizer was temporarily shut down
for repairs as a result of a fire within the tank farm area of the plant.
Cost of sales, stated as a percentage of net sales, was 88.6% in fiscal 1995 as
compared to 81.5% in fiscal 1994. Roofing manufacturing cost of sales, as a
percentage of sales, increased 1.6% from 86.2% to 87.8% in 1995. Increases in
raw material costs and decreases in sales prices contributed to the percentage
increase.
Selling, general and administrative ("SG&A") expenses for fiscal 1995 decreased
59% from $28,786,000 to $11,817,000. The decrease was primarily attributable to
the sale of the Company's distribution and vinyl products business units.
However, SG&A expenses, as a percentage of sales, increased approximately 5%
from year-to-year. 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 costs associated
with closing the Company's corporate office. The decrease in sales in the
roofing business without a corresponding decline in certain fixed costs also
contributed to the increase as a percentage of sales.
Interest expense was $927,000 in 1995 as compared to $4,782,000 in 1994, an
80.6% decrease. The decrease resulted from the reduction of debt which occurred
through the use of proceeds from the sale of the vinyl products and distribution
business units.
Discontinued business activities income in 1995 reflects primarily the gain of
$20,579,000 on the sale of the vinyl manufacturing business, the loss of
$1,959,000 on the sale of the window fabrication business and a charge of
$1,500,000 for costs associated with the Company's employee benefit plans and
future product liability claims, both related to former roofing operations.
Fiscal 1994 discontinued business activities income 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.
Equity losses from the Company's partnership in the Kensington window
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fabrication business amounted to $372,000 for the period January 1, through
February 28, 1995 as compared to $4,680,000 for the twelve month period ended
December 31, 1994.
A provision for income taxes from continuing operations amounting to $11,424,000
was recorded in 1995 compared to a benefit of $7,010,000 in 1994. The Company's
decision to reverse $4 million of the valuation reserve in 1994 and subsequent
decision to increase the reserve to $15.1 million in 1995 is the primary reason
the effective tax rates differ from the statutory rate. At December 31, 1995 the
Company's net deferred tax asset is approximately $19.1 million less a valuation
reserve of $15.1 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. During 1995, the Company disposed of
Bird-Kensington Holding Corporation and Bird Environmental Gulf Coast, Inc.
resulting in losses not anticipated at the end of the previous year. In
addition, the lower overall demand and price weakness in the northeast caused by
a mild 1994/1995 winter followed by a hot, dry summer negatively impacted
profits of the roofing operations.
During the second quarter of 1995, the Company's remaining investment in BEGCI
of $8.6 million was written-off to discontinued operations and a $3 million
reserve was established for additional costs associated with the closure and
disposition of the facility (see Note 9 to Consolidated Financial Statements).
In November 1995, the Company caused the sale of all the outstanding capital
stock of BEGCI to GTS Duratek, Inc.. for a purchase price of $1.00. Of the $3
million reserve established in the second quarter of 1995, $2,050,000 was
utilized, while $650,000 remains at December 31, 1995 for future claims against
discontinued operations.
In connection with the Board of Director's 1994 decision to withdraw from the
off-site environmental business and the Company's agreement on June 18, 1994 to
cause the sale of its shares in BEGCI to the minority stockholders on or before
February 28, 1995, subject to financing, the Company reclassified the
environmental business results as discontinued operations as of June 30, 1994
and adjusted the book value associated with BEGCI, resulting in an aggregate
charge for the twelve months ended December 31, 1994 of $11,586,000.
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 actual outcome of
the sale of assets and results of operations, excess costs of $3,861,000 charged
in 1993 were reversed and recorded as discontinued operations in the
consolidated statement of operations for the year ending December 31, 1994.
1994 COMPARED WITH 1993
Losses from continuing operations before income taxes in 1994 were
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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 in
1993 to $167,886,000 in 1994. 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 businesses.
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 material 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 cost of raw materials.
Selling, general and administrative ("SG&A") expenses for fiscal 1994 decreased
12.0% from $32,716,000 in 1993 to $28,786,000 in 1994. 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, 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 1993,
constituting a 93% increase. The increased interest expense 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.
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Other non-recurring expenses totalled $4,680,000 in 1994 as compared to
$5,903,000 in 1993. Kensington 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
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 cause the
sale of 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 intended to operate the San Leon Facility until the
sale of its interest in BEGCI was consummated.
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
completely withdrew 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
recorded a charge for the write-down of assets, the expected loss from
operations and general expenses related to the 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 were reversed and recorded as discontinued
operations in the consolidated statement of operations for the year ending
December 31, 1994.
INFLATION
The Company is continually seeking ways to deal with raw material cost increases
by productivity improvements and cost reduction programs. In recent years, the
Company has not always been able to pass on increased raw material costs to
customers 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, in part, by productivity savings.
NEW ACCOUNTING PRONOUNCEMENTS
During 1995, the Financial Accounting Standards Board issued "Statement of
Financial Accounting Standards No. 123 Accounting For Stock Based
25
26
Compensation" ("FAS 123"). The Company intends to adopt FAS 123 through
disclosure only in 1996.
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.
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 1996 Annual Meeting of Stockholders which will be filed with the Commission
by April 30, 1996 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".
26
27
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 28 through 33 of this report.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the last
quarter of the year ended December 31, 1995.
(d) Financial Statements of Kensington Partners are on Page F32 through F55
of this report.
27
28
Items 14 (a) (3) and (c)
Exhibits
Bird Corporation
Norwood, 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 Fleet Capital
Corporation) and Bird Incorporated. (Filed as
Exhibit 4(a)(3) to the Company's Form 10-K for the
year ended December 31, 1994 and incorporated
herein by reference.)
4(a)(4) First Amendment dated as of March 8, 1995 to the
Loan Agreement between Shawmut Capital Corporation
(now known as Fleet Capital Corporation) and Bird
Incorporated. (Filed as Exhibit 4(a)(4) to the
Company's Form 10-K for the year ended December 31,
1994 and incorporated herein by reference.)
28
29
Sequential
Exhibit No. Page No.
- ----------- ----------
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.)
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.
(Filed as Exhibit 10(d) to the Company's Form 10-K
for the year ended December 31, 1994 and
incorporated herein by reference.)
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.)
29
30
Sequential
Exhibit No. Page No.
- ----------- ----------
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.)
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.)
30
31
Sequential
Exhibit No. Page No.
- ----------- ----------
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.)
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.
(Filed as Exhibit 10(r) to the Company's Form 10-K
for the year ended December 31, 1994 and
incorporated herein by reference.)
31
32
Sequential
Exhibit No. Page No.
- ----------- ----------
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.)
10(u)* Employment Agreement dated as of July 31, 1995
between the Company and Frank S. Anthony. (Filed as
Exhibit 10(u) to the Company's Form 10-Q for the
quarter ended September 30, 1995 and incorporated
herein by reference).
10(v)* Amended Employment Agreement dated August 21, 1995
between the Company and Richard C. Maloof. (Filed
as Exhibit 10(v) to the Company's Form 10-Q for the
quarter ended September 30, 1995 and incorporated
herein by reference).
10(w) Stock Purchase Agreement dated as of November 29,
1995 by and among Bird Environmental Gulf Coast,
Inc., Bird Environmental Technologies, Inc., Bird
Corporation, GTS Duratek,Inc. and GTSD Sub II, Inc.
10(x) Amended Glass Mat Supply Agreement dated as of
December 1, 1995 between the Company, Flintkote
Company and Genstar Roofing Company, Inc.
10(y) Agreement and Plan of Merger by and among
CertainTeed Corporation, BI Expansion Corporation
and Bird Corporation dated as of March 14, 1996.
32
33
Sequential
Exhibit No. Page No.
- ----------- ----------
11 Statement regarding computation of per share
earnings(loss).
22 Significant subsidiaries.
23(a) Consent of Price Waterhouse LLP.
23(b) Consent of Alpern, Rosenthal and Company,
independent accountants for Kensington Partners.
24 Power of Attorney. (Immediately preceding the
signature page hereof.)
28 Annual report on Form 11-K of the Bird Employees'
Savings and Profit Sharing Plan for the fiscal year
ended December 31, 1995. (To be filed by
amendment.)
* Indicates management contract or compensatory
plan or arrangement
33
34
POWER OF ATTORNEY
We, the undersigned officers and Directors of Bird Corporation, hereby
severally constitute and appoint Richard C. Maloof 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, 1995, and any and all amendments thereto.
IN WITNESS WHEREOF, we have signed this Power of Attorney in the
capacities indicated on March 21, 1996.
Principal Executive Officer:
____________________________ President, Director and
Richard C. Maloof Chief Operating Officer
Principal Accounting Officer:
____________________________ Corporate Controller
Donald L. Sloper, Jr.
Directors
____________________________ ____________________________
Robert P. Bass, Jr. Francis J. Dunleavy
____________________________ ____________________________
Charles S. Bird, Jr. John T. Dunlop
____________________________ ____________________________
Guy W. Fiske Joseph D. Vecchiolla
____________________________
Loren R. Watts
35
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_____________________
Richard C. Maloof
President, COO
March 27, 1996
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 27, 1996
RICHARD C. MALOOF and COO (Principal
Executive Officer)
________________________ Corporate Controller March 27, 1996
DONALD L. SLOPER, JR. (Principal Accounting
Officer)
*
________________________ Director March 27, 1996
JOSEPH D. VECCHIOLLA
36
SIGNATURES
(continued)
*
________________________ Director March 27, 1996
ROBERT P. BASS, JR.
*
________________________ Director March 27, 1996
CHARLES S. BIRD, JR.
*
________________________ Director March 27, 1996
FRANCIS J. DUNLEAVY
*
________________________ Director March 27, 1996
JOHN T. DUNLOP
*
________________________ Director March 27, 1996
GUY W. FISKE
*
________________________ Director March 27, 1996
LOREN R. WATTS
* By _________________________________________
Frank S. Anthony as
Attorney-in-fact
37
ANNUAL REPORT ON FORM 10-K
ITEM 14 (A) (1) AND (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1995
BIRD CORPORATION
NORWOOD, MASSACHUSETTS
38
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, 1995 and 1994 F4
Statements of operations for each of the three years in
the period ended December 31, 1995 F6
Statements of stockholders' equity for each of the three
years in the period ended December 31, 1995 F7
Statements of cash flows for each of the
three years in the period ended December 31, 1995 F8
Notes to consolidated financial statements F9
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 F31
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
39
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, 1995 and 1994, and the related consolidated
statements of operations, of stockholders' equity and of cash flows for each of
the three years in the period ended December 31, 1995. 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,
which statements reflect total assets of $8.9 million at December 31, 1994, and
total net sales of $24.2 million and $21.2 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,
1995 and 1994, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note 4 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.
Price Waterhouse LLP
Boston, Massachusetts
March 15, 1996
F2
40
INDEPENDENT AUDITORS' REPORT
TO THE PARTNERS
KENSINGTON PARTNERS AND AFFILIATE
Leechburg, Pennsylvania
We have audited the accompanying combined balance sheet of Kensington
Partners and Affiliate (Joint Venture Partnerships) as of December 31, 1994 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. 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 the results of their
operations and their cash flows for the years ended December 31, 1994 and 1993,
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.
Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania
February 10, 1995
F3
41
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE, PAR VALUE, AND LIQUIDATION VALUE DATA)
DECEMBER 31,
1995 1994
------- -------
ASSETS
Current Assets:
Cash and equivalents $ 3,679 $ 321
Accounts and notes receivable, less
allowances - $153 in 1995
and $3,137 in 1994 5,461 19,644
Inventories 4,701 8,371
Refundable income taxes 1,021 0
Prepaid expenses and other assets 1,157 3,095
Deferred income taxes 435 6,836
------- -------
Total current assets 16,454 38,267
------- -------
Property, Plant and Equipment:
Land and land improvements 2,810 3,145
Buildings 7,184 11,742
Machinery and equipment 28,980 33,760
Construction in progress 672 5,705
------- -------
39,646 54,352
Less - Depreciation and amortization 16,127 24,323
------- -------
23,519 30,029
------- -------
Assets held for sale 0 7,500
Deferred income taxes 3,631 8,662
Other assets 99 1,247
------- -------
$43,703 $85,705
======= =======
See accompanying notes to consolidated financial statements.
F4
42
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE, PAR VALUE, AND LIQUIDATION VALUE DATA)
DECEMBER 31,
1995 1994
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,394 $ 6,632
Accrued expenses 5,881 7,039
Long-term debt, portion due within one year 1,113 18,071
Retirement plan contributions payable 88 302
Income taxes payable 0 596
-------- --------
Total current liabilities 10,476 32,640
-------- --------
Long-term debt, portion due after one year 4,869 12,504
-------- --------
Other liabilities 3,942 2,715
-------- --------
Deferred income taxes 0 128
-------- --------
Total liabilities 19,287 47,987
-------- --------
STOCKHOLDERS' EQUITY
5% cumulative preferred stock, par
value $100. Authorized 15,000 shares;
issued 5,820 shares in 1995 and 1994
(liquidating preference $110 per share,
aggregating $640,000) 582 582
Preference stock, par value $1. Authorized 1,500,000 shares; issued 814,300
shares of $1.85 cumulative convertible preference stock in 1995 and
1994(liquidating value $20
per share, aggregating $16,286,000) 814 814
Common stock, par value $1. Authorized
15,000,000 shares; 4,395,162 shares issued
in 1995 and 4,375,179 shares issued in 1994 4,395 4,375
Other capital 27,362 27,235
Retained earnings (deficit) (5,746) 7,860
-------- --------
27,407 40,866
Less -
Treasury stock, at cost, Common stock:
275,100 shares in 1995 and 1994 (2,991) (2,991)
Unearned compensation 0 (157)
-------- --------
24,416 37,718
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
$ 43,703 $ 85,705
======== ========
See accompanying notes to consolidated financial statements.
F5
43
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Year Ended December 31,
1995 1994 1993
----------- ----------- -----------
Net sales $ 54,180 $ 167,886 $ 187,745
----------- ----------- -----------
Costs and expenses:
Cost of sales 48,007 136,878 151,664
Selling, general and administrative expense 11,817 28,786 32,716
Interest expense 927 4,782 2,472
Discontinued business activities (income) expense (17,570) (1,313) 268
Equity losses from partnership 372 4,680 2,625
Other expense 0 0 3,278
----------- ----------- -----------
Total costs and expenses 43,553 173,813 193,023
----------- ----------- -----------
Earnings (loss) from continuing
operations before income taxes 10,627 (5,927) (5,278)
Provision (benefit) for income taxes 11,424 (7,010) (637)
----------- ----------- -----------
Earnings (loss) from continuing operations
before cumulative effect of accounting change (797) 1,083 (4,641)
----------- ----------- -----------
Discontinued operations (Note 9):
Income (loss) from operations of
discontinued businesses, net of taxes 0 1,245 (15,414)
Loss on disposal of environmental business,
1993 includes a provision of $5,200,000
for operating losses during phase out
period, net of taxes (11,252) (6,011) (11,000)
----------- ----------- -----------
Net loss from discontinued operations (11,252) (4,766) (26,414)
----------- ----------- -----------
Cumulative effect of accounting change 0 0 2,733
----------- ----------- -----------
Net loss before dividends (12,049) (3,683) (28,322)
Preferred and preference stock
cumulative dividends 1,536 1,536 1,536
----------- ----------- -----------
Net loss applicable to common
stockholders $ (13,585) $ (5,219) $ (29,858)
=========== =========== ===========
Primary earnings (loss) per common share:
Continuing operations $ (0.57) $ (0.11) $ (1.51)
Discontinued operations (2.74) (1.20) (6.45)
Cumulative effect of accounting change 0.00 0.00 0.67
----------- ----------- -----------
Net loss after dividends $ (3.31) $ (1.31) $ (7.29)
=========== =========== ===========
Fully diluted earnings (loss) per common share:
Continuing operations $ (0.57) $ (0.11) $ (1.51)
Discontinued operations (2.74) (1.20) (6.45)
Cumulative effect of accounting change 0.00 0.00 0.67
----------- ----------- -----------
Net loss after dividends $ (3.31) $ (1.31) $ (7.29)
=========== =========== ===========
Average number of shares used in earnings
per share computations 4,104,965 3,992,251 4,097,999
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F6
44
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
$1.85
5% CUMULATIVE
CUMULATIVE CONVERTIBLE RETAINED COMMON TOTAL
PREFERRED PREFERENCE COMMON OTHER EARNINGS STOCK IN UNEARNED STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL (DEFICIT) TREASURY COMPENSATION EQUITY
Balance December 31, 1992 $582 $814 $4,267 $25,401 $41,645 ($2,059) ($1,549) $69,101
Net loss (28,322) (28,322)
Cash dividends declared:
5% cumulative preferred
stock - $5 per share (29) (29)
$1.85 cumulative
convertible preference stock
$1.85 per share (1,130) (1,130)
Common stock $.15 per share (613) (613)
Common stock issued as
compensation - 1,200 shares 1 13 14
Common stock issued for contributions to
employees' saving plan - 19,119 shares 19 210 229
Common stock issued and note
repayment upon exercise of stock
options - 4,080 shares 4 210 214
Purchase of 10,119 shares of
common stock (120) (120)
Amortization of unearned compensation 595 595
Cumulative effect of accounting change 323 323
Tax effect of stock options exercised 303 303
Cumulative foreign currency translation (4) (4)
---- ---- ------ ------- ------- ------- ------- -------
Balance December 31, 1993 582 814 4,291 26,456 11,551 (2,179) (954) 40,561
Net loss (3,683) (3,683)
Cash dividends declared:
5% cumulative preferred
stock - $1.25 per share (8) (8)
Common stock issued as
compensation - 1,426 shares 1 14 15
Common stock issued for contributions to
employees' saving plan - 12,439 shares 13 110 123
Common stock issued upon exercise
of stock options - 69,750 shares common
and 15,000 shares treasury 70 609 109 788
Purchase of 248 shares of common stock (3) (3)
L.T.Incentive forfeitures - 125,145 shares (910) 910 0
Common stock from distribution
business - 916 shares (6) (8) (14)
Amortization of unearned compensation (113) (113)
Cumulative foreign currency translation 52 52
---- ---- ------ ------- ------- ------- ------- -------
Balance December 31, 1994 582 814 4,375 27,235 7,860 (2,991) (157) 37,718
Net loss (12,049) (12,049)
Cash dividends declared:
5% cumulative preferred
stock - $1.25 per share (51) (51)
$1.85 cumulative
convertible preference stock -
$1.85 per share (1,506) (1,506)
Common stock issued as
compensation - 200 shares 1 1
Common stock issued for contributions to
employees' saving plan - 17,783 shares 18 112 130
Common stock issued upon exercise
of stock options - 2,000 shares common 2 14 16
Amortization of unearned compensation 157 157
---- ---- ------ ------- ------- ------- ------- -------
Balance December 31, 1995 $582 $814 $4,395 $27,362 ($5,746) ($2,991) $0 $24,416
==== ==== ====== ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements.
F7
45
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year Ended December 31,
(Brackets denote cash outflows) 1995 1994 1993
----------- ----------- -----------
Cash flow provided (used) by operations:
Net loss $ (12,049) $ (3,683) $ (28,322)
Adjustments to reconcile to net
cash provided by operations:
Writedown of assets to net realizable value 0 0 5,800
Depreciation and amortization 2,861 4,317 8,714
Provision for losses on accounts receivable 26 905 2,162
Deferred income taxes 11,304 (10,172) (1,044)
Cumulative effect of accounting change 0 0 (2,733)
Gain on sale of vinyl business (20,579) 0 0
Loss on sale of window business 1,959 0 0
Gain on sale of distribution business 0 (1,466) 0
Loss (gain) on disposal of environmental business 11,252 9,747 (858)
Changes in balance sheet items:
Accounts receivable 3,120 (2,841) (8,199)
Inventories (2,664) 1,423 4,538
Prepaid expenses 712 203 (2,039)
Liabilities not related to financing activities (14,325) (6,867) 11,646
Liquidation reserve 0 (5,398) 5,398
Other assets 128 2,230 2,564
----------- ----------- -----------
Cash flow used by operations: (18,255) (11,602) (2,373)
----------- ----------- -----------
Cash flows from investing activities:
Acquisition of property, plant and equipment,net (1,590) (10,614) (16,251)
Proceeds from disposal of assets 50,680 31,296 9,141
Additional investments in discontinued operations (2,402) 0 0
Other investments 651 (1,277) 159
----------- ----------- -----------
Net cash provided (used) in investing activities 47,339 19,405 (6,951)
----------- ----------- -----------
Cash flows from financing activities:
Debt proceeds 16,627 159,139 1,286,500
Debt repayments (40,942) (175,091) (1,270,987)
Dividends paid (1,558) (8) (2,351)
Purchase of treasury stock 0 (11) (120)
Other equity changes 147 971 577
----------- ----------- -----------
Net cash provided (used) by financing activities (25,726) (15,000) 13,619
----------- ----------- -----------
Net increase (decrease) in cash and equivalents 3,358 (7,197) 4,295
Cash and cash equivalents at beginning of year 321 7,518 3,223
----------- ----------- -----------
Cash and cash equivalents at end of year $ 3,679 $ 321 $ 7,518
=========== =========== ===========
Supplemental Disclosures:
Cash paid during the year for:
Interest $ 1,501 $ 4,811 $ 2,160
Income taxes $ 1,170 $ 363 $ 291
See accompanying notes to consolidated financial statements.
F8
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BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
NATURE OF OPERATIONS
Bird Corporation is a manufacturer of asphalt roofing products. Currently,
asphalt shingles and roll roofing are produced at the Company's plant in
Norwood, Massachusetts for commercial and residential use. These products are
marketed in the northeastern United States through independent wholesalers and
building material retailers whose primary customers are roofing contractors.
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 1995 presentation.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CONCENTRATION OF RISK AND MAJOR CUSTOMERS
The Company is dependent upon the economy in the northeastern United States and
sells its products primarily to independent wholesalers and building material
retailers for resale primarily to roofing contractors. One customer accounted
for slightly more than 10% of the Company's sales during 1995 and accounts
receivable at December 31, 1995.
The principal raw materials used in the manufacture of asphalt roofing products
are fiberglass mat, asphalt saturants and coatings and crushed 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, 1996. Fiberglass
mat is also generally available in adequate quantities from a number of outside
suppliers.
F9
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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
Deprecation expense for continuing operations for 1995, 1994 and 1993 amounted
to $2,831,000, $3,644,000 and $3,757,000, respectively. 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, 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.
F10
48
ADVERTISING
Advertising costs are charged to operations when incurred. The Company did not
incur any costs associated with direct response advertising in 1995, 1994 and
1993, and there were no capitalized advertising costs at December 31, 1995 and
1994. Advertising expense for 1995, 1994 and 1993 was $503,000, $1,023,000 and
$1,230,000, respectively.
EARNINGS(LOSS) PER COMMON SHARE
Primary earnings(loss) per common share is determined after deducting the
dividend requirements of the preferred and preference shares and is 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. If there are other participants and the liability is joint and
several, the financial stability of the other participants is considered in
determining the Company's accrual. 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.
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.
F11
49
2. INVENTORIES
The percentages of inventories valued on the LIFO method were 100% and 86% at
December 31, 1995 and 1994, respectively. It is not practical to separate LIFO
inventories by raw materials and finished goods components; however, the
following table (in thousands) presents these components on a current cost basis
with the LIFO reserve shown as a reduction.
December 31,
1995 1994
---- ----
Current Costs:
Raw materials $ 1,202 $ 3,554
Finished goods 4,217 6,924
------- -------
5,419 10,478
Less LIFO reserve 718 2,107
------- -------
$ 4,701 $ 8,371
======= =======
3. DEBT
At December 31, the Company's borrowings and debt obligations are summarized as
follows (in thousands):
1995 1994
---- ----
Long Term Debt:
Revolving Credit Agreement $ 0 $13,937
Term Loans 5,000 15,000
Obligations under capital leases 982 1,638
------- -------
5,982 30,575
Less - portion due within 1,113 18,071
------- -------
one year $ 4,869 $12,504
======= =======
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.
On November 30, 1994, Bird Incorporated entered into a three year $39 million
Loan Agreement with Fleet Capital Corporation ("Fleet Capital"), previously
Barclays Business Credit, Inc. and Shawmut Capital Corporation. At the end of
the three year period, the Loan Agreement will be automatically renewed for
successive one year periods unless terminated specifically in writing. The Loan
Agreement consisted 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. On March 8, 1995 the Company sold the assets of its vinyl
siding operation to Jannock, Inc. for $47.5 million which was reduced to
approximately $42.5 million by post-closing working capital adjustments (see
Note 7). The proceeds from the sale were used to reduce bank debt. Concurrent
with the sale, Fleet Capital executed the First Amendment to the Loan Agreement
amending the amount of the facility to $20 million consisting of a $15
F12
50
million revolving credit commitment and a $5 million term loan. On January 10,
1996, the Company paid down the term loan so that the outstanding principal
balance equaled $2.5 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, 1995 totaled $2,233,000 compared to $2,927,000 as of December 31, 1994.
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 15, 1996, an aggregate of $7,683,000 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. 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 of 1995. 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, Fleet Capital waived the cash flow
requirements for the third quarter without penalty and amended this and other
financial covenants for subsequent periods based on a review of the Company's
financial condition and future projections. As of December 31, 1995, the Company
was in compliance with all covenants.
Interest on the revolving credit commitment under the First Amended Loan
Agreement accrues at the Fleet Capital base rate (as specified in such
Agreement) or the London Interbank Offering Rate ("LIBOR") plus 2 3/4% at the
Company's election on all borrowings plus the greater of $25,000 per annum or
1/4% on any unused portion of the commitment payable monthly in arrears. The
interest on the term loan accrues at the base rate or the LIBOR rate plus 2 3/4%
at the Company's election. The interest rate on outstanding borrowings at
December 31, 1995 was 8.69%. The repayment of the principal on the term loan is
at the rate of $62,500 per month through November 1996 and $71,417 per month
thereafter with a final principal payment of $3,455,800 due on November 30,
1997. Proceeds in excess of $100,000 from the sale of fixed assets may, at Fleet
Capital's discretion, be applied to the outstanding principal payments of the
term loan.
F13
51
The weighted average interest rates on short term borrowings at December 31,
1995 and December 31, 1994 were 9.74% and 9.53%, respectively. The fair value of
the Company's total debt approximated the carrying value at December 31, 1995
and 1994, respectively. The fair value is based on management's estimate of
current rates available to the Company for similar debt with the same remaining
maturity.
Maturities of long-term debt for each of the five years subsequent to December
31, 1995 are as follows:
1996 - $1,113,000; 1997 - $4,614,000; 1998 - $255,000; 1999 - $0; 2000 - $0. The
Company incurred net interest expense of $927,000 in 1995, $4,782,000 in 1994
(net of $257,000 capitalized interest), and $2,472,000 in 1993 (net of $345,000
capitalized interest).
4. INCOME TAXES
Earnings (loss) from continuing operations before income taxes and the
provision(benefit) for income taxes are shown below (in thousands):
Year Ended December 31,
1995 1994 1993
---- ---- ----
Earnings (loss) from
continuing operations
before income taxes: $ 10,627 $ (5,927) $ (5,278)
======== ======== ========
Provision (benefit) for continuing operations:
Currently payable $ 120 $ 200 $ 765
Deferred 11,304 (7,210) (1,402)
-------- -------- --------
$ 11,424 $ (7,010) $ (637)
======== ======== ========
The provision (benefit) for income taxes on continuing operations varied from
the U.S. federal statutory rate for the following reasons:
1995 1994 1993
---- ---- ----
Continuing operations:
U.S. federal statutory rate 34.0% (34.0%) (34.0%)
State income taxes 7.3 (6.5) 0.6
Corporate owned life insurance 2.5 (9.9) 0.0
Effect of valuation allowance 63.7 (67.5) 22.3
Other 0.0 (0.4) (1.0)
----- ----- -----
107.5% (118.3%) (12.1%)
===== ====== =====
The net provision (benefit) for income taxes related to discontinued operations
amounted to $(2,962,000) and $304,000 for 1994 and 1993, respectively.
The deferred income tax asset recorded in the consolidated balance sheet results
from differences between financial statement and tax
F14
52
reporting of income and deductions. A summary of the composition of the deferred
income tax asset at December 31, 1995 and 1994 is as follows (in thousands):
1995 1994
---- ----
Deferred tax assets:
Bad debt reserves $ 66 $ 1,314
Compensation/pension accruals 648 882
Investment in
non-consolidated subsidiary 0 4,284
Net operating loss carryover 14,810 9,129
Capital loss carryover 0 451
Investment tax credit carryover 1,233 1,233
Minimum tax credit carryover 1,091 1,091
Other reserves & accruals 3,222 3,389
-------- --------
Total deferred tax assets 21,070 21,773
Deferred tax liabilities:
Depreciation (1,942) (1,403)
-------- --------
Net deferred tax asset before
valuation reserve 19,128 20,370
Less: Valuation reserve (15,062) (5,000)
-------- --------
Net deferred tax asset $ 4,066 $ 15,370
======== ========
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 (in thousands):
Year of Net Investment
Expiration Operating Loss Tax Credit
1996 $ 0 $ 97
1997 0 317
1998 0 135
1999 0 212
2000 0 297
2001 0 175
2002 138 0
2008 9,898 0
2009 16,711 0
2010 16,229 0
------- -------
$42,976 $ 1,233
======= =======
Additionally, for federal income tax purposes, at December 31, 1995 the Company
had available for carryforward minimum tax credits with no expiration
aggregating $1,091,000. If certain substantial changes in the Company's
ownership should occur, there would be an annual limitation on the amount of the
carryforwards, including certain unrealized built-in losses, which can be
utilized for regular and alternative minimum tax purposes. (See Note 14
regarding proposed merger with CertainTeed Corporation.)
F15
53
The Company adopted FAS 109 in 1993 and 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 recognition 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, 1995 the Company's net deferred tax asset is
approximately $19.1 million less a valuation reserve of $15.1 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. During 1995, the company disposed of Bird-Kensington Holding
Corporation and Bird Environmental Gulf Coast, Inc. (as disclosed in Notes 7 and
9, respectively) resulting in losses not anticipated at the end of the previous
year. In addition, the lower overall demand and price weakness in the northeast
caused by a mild 1994/1995 winter followed by a hot, dry summer negatively
impacted profits of the roofing operations. Based on the above factors, the
Company increased the valuation reserve by $10.1 million.
The Company expects to be profitable and with other tax planning strategies
expects to generate future taxable income. Realization of the $4,066,000 net
deferred tax asset is dependent on generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not assured,
management believes that it is more likely than not that the net deferred tax
asset will be realized. The amount of the net deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
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. There are four preference dividends in arrears. 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, 931,325 shares of
F16
54
common stock are reserved for issuance upon exercise of options and stock
appreciation rights at December 31, 1995.
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 the preferred stock are permitted under the Loan Agreement. As of
December 31, 1995, all dividends current and in arrears on the preferred stock
in the amount of $29,000 and $22,000 respectively, have been declared and paid
in full. 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 and
must be paid in full before any dividends could be declared and paid on the
common stock. The quarterly dividends on the preference stock due May 15, August
15, and November 15, 1995 in the aggregate amount of $1,130,000, along with one
dividend in arrears in the amount of $377,000, have with the consent of Fleet
Capital, been declared and paid in full.
The Company has a Rights Agreement which, as amended, entitles certain common
stockholders to purchase shares of common stock of the Company or securities of
an acquiring entity in the event of certain efforts to acquire control of the
Company. The proposed merger with CertainTeed Corporation (Note 14) will not
trigger the exercisability of these rights.
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, 1995, 1994, and 1993 amounted to $72,000, $203,000,
and $352,000, 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 year ended
December 31, 1993 amounted to $145,000. No profit sharing contributions were
earned for 1995 or 1994.
SAVINGS CONTRIBUTION
The Company's savings plan provides that eligible employees may contribute to
the plan any whole percentage of their basic
F17
55
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, 1995, 1994, and 1993 amounted to $124,000,
$142,000, and $155,000, respectively.
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 1995, 1994, and 1993 amounted to
$66,000, $79,000, and $71,000, respectively.
EMPLOYEE INCENTIVE PLANS
Under the 1982 Stock Option Plan, as amended, options to purchase up to 900,000
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. 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 are 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, 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
F18
56
vested, but not yet exercised, are subject to forfeiture under the Stock Option
Plan and are 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
year ended December 31, 1995:
STOCK OPTIONS
-------------
Outstanding January 1, 1995
($5.00 to $17.50 per share) 500,650
Granted ($6.625 to $8.125 per share) 65,000
Exercised ($5.00 per share) (2,000)
Canceled ($5.50 to $17.50 per share) (125,550)
--------
Outstanding December 31, 1995
($5.00 to $17.50 per share) 438,100
========
Exercisable December 31, 1995
($5.00 to $17.50 per share) 186,300
Shares available for granting options:
January 1, 1995 432,675
December 31, 1995 493,225
In tandem with the stock options there are 9,500 stock appreciation rights at
December 31, 1995.
During 1995, the Financial Accounting Standards Board issued "Statement of
Financial Accounting Standards No. 123 Accounting for Stock Based Compensation"
("FAS 123"). The Company intends to adopt FAS 123 through disclosure only in
1996.
LONG TERM INCENTIVE COMPENSATION
Under the terms of a Long Term Incentive Compensation Plan, certain officers and
key management employees received common stock of the Company on a restricted
time lapse grant basis. These shares were to be released from escrow and
delivered to the plan's 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 and 1993. Therefore, 40,670 and 45,630 shares of the
Company's common stock were released in June of 1994 and 1993, respectively, to
the plan's participants. Additionally, 30,000 shares were released to the former
Chief Executive Officer in 1994 as part of his Termination Agreement. As a
result of his termination and the termination of certain other officer and key
management personnel during 1994, 125,145 shares of restricted stock valued at
$910,000 were forfeited and returned to treasury stock. Upon consummation of the
vinyl sale, all restrictions on the remaining 23,560 shares of common stock held
under the plan automatically lapsed and such shares were distributed to the
intended recipients.
F19
57
Amortization of unearned compensation under this agreement for the years 1995
and 1993 amounted to $157,000 and $595,000, respectively. In 1994 amortization
was reduced by $113,000 associated with the forfeiture of shares.
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 March 8, 1995, the Company sold substantially all of the assets of its vinyl
business to Jannock, Inc. 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 $20,579,000. Sales of $6,365,000 were recorded for
the now discontinued vinyl business for the period ending March 7, 1995.
On June 2, 1995 the Company sold all of the outstanding capital stock of
Bird-Kensington Holding Corp., which owned the Company's interest in Kensington
Partners, to Jannock, Inc. The purchase price consisted of cash in the gross
amount of $2,780,000 and the assumption of certain liabilities related to the
Kensington window business. The sale resulted in a loss of $1,959,000. Sales of
$4,265,000 were recorded for this business for the period March 1, 1995 through
June 2, 1995.
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.
Sales of $9,092,000 were recorded for this business for the period ending
November 27, 1994.
The Company recorded other expenses related to discontinued business activities
of $1,050,000, $153,000, and $268,000, for the years 1995, 1994, and 1993,
respectively. These charges against earnings include warranty claims and other
costs directly related to discontinued business activities. Expenses incurred in
1995 also included $1.5 million in provisions relating to employee benefit plans
and product liability claims associated with former roofing operations which
were offset by a $602,000 crude oil refund from the Department of Energy.
F20
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8. OTHER EXPENSE
Other expense was $3.3 million in 1993. A series of non-recurring items
developed at the end of 1993 that required a number of charges to 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 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 had been considering the development of certain real property. As a
result of cash flow and bank covenant constraints, 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. Because assessment of the portfolio and the bankruptcy
of the debtor indicated the note to be of no value 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 an employment agreement which was
paid in 1994.
The remainder of "Other Expense" is comprised of other miscellaneous adjustments
of a more typical 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 cause the sale of its 80% interest in
its "off-site" environmental business, Bird Environmental Gulf Coast,Inc.
("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 for all years presented. 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. However, at December 31,
1994, the Company had invested an additional $1,270,000 in BEGCI
F21
59
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.
During 1995, the minority partner became unable to finance the purchase of the
facility and efforts to attract another purchaser were unsuccessful. In July
1995, the Company's Board of Directors suspended further funding of the
facility. As a result of this action, during the second quarter of 1995, the
Company's remaining investment of $8.6 million was written off and a $3 million
reserve was established for additional expenses associated with the closure of
the facility. On November 29, 1995, the Company caused the sale of all of the
outstanding capital stock of BEGCI to GTS Duratek, Inc. for a purchase price of
$1.00. Of the $3 million reserve established in the second quarter of 1995,
$2,050,000 was utilized, while $650,000 remains at December 31, 1995 for future
claims against discontinued operations.
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 were 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 was 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 were reversed and recorded as
discontinued operations in the consolidated statement of operations for the
twelve months ended December 31, 1994.
Net sales relating to these environmental businesses amounted to $2,848,000,
$3,715,000 and $24,681,000 for 1995, 1994 and 1993, respectively.
10. ACQUISITIONS
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"). In 1993,
F22
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Kensington experienced serious cash needs which hampered production
requirements. 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, Bird Corporation agreed to invest additional cash
in return for temporarily increasing its 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 through June 2, 1995 when the operation was sold (see
Note 7).
The Company recorded 50% of the joint venture's loss from operations under the
equity method from inception through January 31, 1994 and 90% for the period
February 1, 1994 through February 28, 1995. Equity losses from Kensington are
shown separately on the consolidated statements of operations.
The following table represents summarized financial information for Kensington
Partners for the year ended December 31, 1994 (in thousands):
Current Assets $ 5,040
Property and Equipment 3,137
Other Assets 677
-------
Total Assets $ 8,854
=======
Current Liabilities $ 9,722
Other Liabilities 1,288
-------
Total Liabilities $11,010
=======
The following table represents summarized financial information for the years
ended December 31, 1994 and December 31, 1993 and the two month period ended
February 28, 1995 (in thousands):
1995 1994 1993
---- ---- ----
Net Sales $ 1,774 $ 24,180 $ 21,169
Gross Profit (Loss) $ (18) $ 1,317 $ 1,384
Net Loss $ (413) $ (5,310) $ (5,249)
11. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases certain manufacturing, administrative, warehousing,
F23
61
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, 1995 minimum lease commitments under noncancelable operating
leases are as follows (in thousands):
Year
----
1996 $ 986
1997 899
1998 740
1999 740
2000 740
Later years 10,353
--------
$ 14,458
========
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 (in thousands):
Year Amount
---- ------
1995 $ 1,059
1994 $ 2,883
1993 $ 3,202
The following represents property under capital leases (in thousands):
December 31,
1995 1994
---- ----
Machinery and equipment $2,456 $3,790
Less, accumulated depreciation 903 1,495
------ ------
$1,553 $2,295
====== ======
At December 31, 1995 minimum lease commitments under capital leases are as
follows (in thousands):
Year Amount
---- ------
1996 $ 412
1997 406
1998 262
1999 0
2000 0
-------
Total minimum lease payments 1,080
Imputed interest (@ rates ranging from
3.4% to 7.2%) (98)
Total future principal payments
-------
of lease obligations $ 982
=======
LITIGATION
Since 1981, the Company has been named as a defendant in approximately
F24
62
550 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 costs of approximately $2 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 Company has provided a reserve amounting to $950,000 at December 31,
1995 for its estimated share of losses related to these claims. In light of the
nature and merits of the claims alleged, in the opinion of management, the
resolution of these remaining claims will not have a material adverse effect on
the results of operations or financial condition of the Company.
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 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. This range is based, in part,
on an allocation of certain sites' costs which, due to the joint and several
nature of the liability, could increase if the other PRP's are unable to bear
their allocated share. The Company has provided a reserve of approximately $1
million at December 31, 1995 to cover the remaining proportionate share of the
estimated total remaining cost of cleanup, most of which will be paid in 1996.
Based on information currently available to the Company, management believes
that it is probable that the major responsible parties will fully pay the cost
apportioned to them. Management believes that, based on its financial position
and the estimated accrual recorded, its remediation expense with respect to this
site is not likely to have a material adverse effect on its consolidated
financial position or results of operations of the Company.
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
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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
approximately $300,000 at December 31, 1995 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 1992, a subsidiary of the Company, Bird Atlantic Corporation, formerly
Atlantic Building Products Corporation ("ABPCO"), commenced an action against a
former vendor, alleging violation of an exclusive distributorship without
adequate and fair compensation to ABPCO. A jury trial was held in November 1995
in the Superior Court of Plymouth County, Massachusetts. The jury found in favor
of ABPCO and judgement was entered on January 26, 1996 in the principal amount
of approximately $1.8 million. The award, with interest accruing at 12% per
annum, is expected to be in excess of $3 million and will not be reported as
income until collected. The defendant has appealed the judgement.
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.
WARRANTY OBLIGATIONS
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 1995, 1994 and 1993, the Company
recorded (exclusive of those claims included in discontinued business
activities) approximately $2,262,000, $2,687,000, and $3,196,000, respectively,
in warranty expenses and elective customer settlements. The warranty related
expense included in discontinued business activities for 1995, 1994 and 1993
amounted to approximately $94,000, $100,000 and $104,000, respectively. Based
upon analyses performed by the Company's management, a reasonably possible range
of potential liability from unasserted warranty obligations for all products
sold prior to December 31, 1995 is estimated to be between $3.5 million and
$16.5 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.
F26
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12. 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 were distributed nationwide.
In prior years, 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 sold its interest in BEGCI in
November 1995 to GTS Duratek, Inc.
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 and property
maintained for general corporate purposes. As discussed in Note 9, the results
of operations for the environmental group for the three years ended December 31,
1995 have been recorded as discontinued operations. Accordingly, net sales, cost
of sales and SG&A relating to this segment are not shown below.
F27
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12. OPERATIONS IN DIFFERENT INDUSTRIES (CONTINUED)
Year ended December 31,
1995 1994 1993
---- ---- ----
Housing Group
Net Sales $ 54,180 $ 167,886 $ 187,745
========= ========= =========
Earnings (loss) from continuing operations before income taxes:
Housing group operating income $ 189 $ 6,126 $ 7,121
Other non-recurring income 17,722 1,466 877
Interest expense (927) (4,782) (2,472)
Corporate office expenses (6,357) (8,737) (6,970)
Other write offs 0 0 (3,834)
--------- --------- ---------
$ 10,627 $ (5,927) $ (5,278)
========= ========= =========
Identifiable assets:
Housing group $ 34,111 $ 57,282 $ 95,663
Environmental group 75 7,874 23,250
Corporate office 9,517 20,549 4,316
--------- --------- ---------
$ 43,703 $ 85,705 $ 123,229
========= ========= =========
Depreciation:
Housing group $ 2,759 $ 3,573 $ 3,670
Environmental group 0 500 1,686
Corporate office 72 71 87
--------- --------- ---------
$ 2,831 $ 4,144 $ 5,443
========= ========= =========
Capital expenditures:
Housing group $ 1,924 $ 9,446 $ 4,505
Environmental group 0 1,283 12,251
Corporate office 0 37 56
--------- --------- ---------
$ 1,924 $ 10,766 $ 16,812
========= ========= =========
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13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1995 and 1994 is shown below:
THREE MONTHS ENDED MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(thousands of dollars, except per share amounts)
1995
Net sales $ 16,623 $ 15,138 $ 12,170 $ 10,249
Gross profit $ 1,532 $ 2,621 $ 1,817 $ 203(1)
Earnings(loss):
Continuing operations $ 9,036 ($ 4,066) ($ 596) ($ 5,171)
Discontinued operations (236) (11,368) 0 352
-------- -------- -------- --------
Net earnings (loss) $ 8,800 ($15,434) ($ 596) ($ 4,819)
======== ======== ======== ========
Earnings per share data:
Primary earnings (loss) per
common share:
Continuing operations $ 2.11 ($ 1.08) ($ 0.24) ($ 1.35)
Discontinued operations (0.06) (2.77) 0.00 0.09
-------- -------- -------- --------
Net earnings (loss) $ 2.05 ($ 3.85) ($ 0.24) ($ 1.26)
======== ======== ======== ========
1994
1994
Net sales $ 36,863 $ 58,486 $ 46,246 $ 26,291
Gross profit $ 6,670 $ 10,943 $ 9,169 $ 4,226(2)
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
======== ======== ======== ========
(1) Decrease in gross profit in the fourth quarter compared to the previous
quarter is due to sales price weakness and the decline in sales volume
attributable to a weak re-roofing market caused by a dry, hot summer.
(2) 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.
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14. MERGER WITH CERTAINTEED CORPORATION
On March 14, 1996, the Company signed a definitive agreement with CertainTeed
Corporation, a subsidiary of Saint-Gobain Corporation, providing for CertainTeed
to acquire in a merger transaction all of the Company's outstanding common,
preferred and preference shares.
Upon the effective date of the merger, each share of the Company's outstanding
common stock, par value $1 per share, will be converted into the right to
receive an amount in cash equal to $7.50. The Company's outstanding 5%
cumulative preferred stock, par value $100 per share, will remain issued and
outstanding upon the effective date of the merger and will be called for
redemption and retirement as soon as practicable thereafter at a price equal to
$110, plus all accrued and unpaid dividends thereon as of the date of redemption
and retirement. Each share of the Company's outstanding $1.85 cumulative
convertible preference stock, par value $1 per share, will be converted into the
right to receive $20 plus all accrued and unpaid dividends thereon as of the
effective date of the merger. All outstanding options to purchase common stock
under the 1982 Stock Option Plan, the 1992 Stock Option Plan, and the 1992
Non-Employee Directors' Stock Option Plan will be converted into the right to
receive an amount in cash equal to $7.50 per share less the exercise price per
share. Any option with an exercise price equal to or greater than $7.50 will be
cancelled on the effective date of the merger without any payment to the option
holder.
Completion of the merger is subject to approval by the Company's shareholders
and appropriate governmental authorities. The merger is not subject to a
financing contingency. The Company's Board of Directors has received a fairness
opinion from its investment bankers regarding the merger. The closing of the
merger is anticipated at the end of the second quarter, following distribution
of proxy materials to the Company's shareholders and approval at a special
meeting.
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BIRD CORPORATION and Subsidiaries
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1995, 1994 and 1993
(In thousands)
Additions
-------------------------
Balance Charged to Charged to Balance
beginning cost and other Deduc- at end
of year expenses accounts(a) tions of year
--------- ---------- ----------- ------ -------
Year Ended December 31, 1995:
Allowance for doubtful accounts $ 3,137 $ 26 $ 56 $(3,066)(c) $ 153
Valuation allowance for
deferred tax assets $ 5,000 $10,789 $ 0 $ (727) $15,062
Year Ended December 31, 1994:
Allowance for doubtful accounts $ 4,273 $ 905 $ 100 $(2,141)(b) $ 3,137
Valuation allowance for
deferred tax assets $ 9,000 $ 0 $ 0 $(4,000) $ 5,000
Year Ended December 31, 1993:
Allowance for doubtful accounts $ 2,978 $ 2,162 $ 47 $ (914)(b) $ 4,273
Valuation allowance for
deferred tax assets $ 0 $ 9,000 $ 0 $ 0 $ 9,000
(a) Represents recovery of balances previously written off.
(b) Uncollectible accounts written off by a charge to reserve.
(c) Represents the allowance for doubtful accounts of vinyl business sold
of $517 and the uncollectible accounts written off by a charge to
reserve of $2,549.
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KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
COMBINED FINANCIAL STATEMENTS
AND SUPPLEMENTAL INFORMATION
ITEM 14(d)
DECEMBER 31, 1994
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KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
FINANCIAL STATEMENTS
Independent Auditors' Report F34
Combined Balance Sheet F35
Combined Statements of Operations and Partners' Capital (Deficit) F37
Combined Statements of Cash Flows F38
Notes to the Combined Financial Statements F40
SUPPLEMENTAL INFORMATION
Independent Auditors' Report on Financial Statement Schedule F54
Financial Statement Schedule II F55
F33
71
INDEPENDENT AUDITORS' REPORT
TO THE PARTNERS
KENSINGTON PARTNERS AND AFFILIATE
Leechburg, Pennsylvania
We have audited the accompanying combined balance sheet of Kensington
Partners and Affiliate (Joint Venture Partnerships) as of December 31, 1994 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. 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 the results of their
operations and their cash flows for the years ended December 31, 1994 and 1993,
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
F34
72
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
COMBINED BALANCE SHEET
- ------------------------------------------------------------------
DECEMBER 31 1994
- ------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 55,655
Accounts receivable
Trade - net of allowance for doubtful
accounts of $323,000 - Note 3 1,742,715
Related parties-Note 13B 1,286,189
Inventories-Note 4 1,875,584
Prepaid expenses 79,862
----------
TOTAL CURRENT ASSETS 5,040,005
PROPERTY AND EQUIPMENT-At cost - net of
accumulated depreciation of $1,139,398 - Note 5 3,136,639
----------
OTHER ASSETS
Other receivables - related party - net of
allowance-Note 13E 306,386
Other assets-Note 6 371,249
----------
677,635
----------
TOTAL ASSETS $8,854,279
==========
The accompanying notes are an integral part of these combined financial
statements.
F35
73
- ------------------------------------------------------------------------
1994
- ------------------------------------------------------------------------
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
Demand notes payable-Note 7 $ 1,628,302
Current maturities of capital lease
obligations and long-term debt-Note 8 312,023
Accounts payable
Trade 2,485,977
Related parties-Note 13A 3,654,990
Accrued expenses-Note 9 1,640,238
------------
TOTAL CURRENT LIABILITIES 9,721,530
------------
LONG-TERM LIABILITIES
Capital lease obligations and long-term debt-
net of current maturities-Note 8 807,012
Accounts payable - trade - long-term 354,636
Other long-term liabilities-related parties-
Notes 13D and 13E 126,314
------------
TOTAL LONG-TERM LIABILITIES 1,287,962
------------
TOTAL LIABILITIES 11,009,492
PARTNERS' DEFICIT (2,155,213)
COMMITMENTS AND CONTINGENCIES - Note 12 --
------------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $ 8,854,279
============
F36
74
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
COMBINED STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL (DEFICIT)
- -------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31 1994 1993
- -------------------------------------------------------------------------------
NET SALES (related parties - 1994 - 26%,
1993 - 34%) $ 24,180,093 $ 21,169,467
COST OF GOODS SOLD (purchased
from related parties - 1994 - 28%,
1993 - 27%) 22,863,159 19,785,555
------------ ------------
GROSS PROFIT 1,316,934 1,383,912
OPERATING EXPENSES (related parties -
1994 - 11%, 1993 - 23%) 5,346,966 6,012,508
------------ ------------
LOSS FROM OPERATIONS (4,030,032) (4,628,596)
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (289,638) (155,452)
Income (loss) from equity investment 3,468 (69,578)
Provision for doubtful accounts (595,417) (202,154)
Tax penalties (199,872) --
Other expense - net (198,186) (193,647)
------------ ------------
TOTAL OTHER EXPENSE (1,279,645) (620,831)
NET LOSS (5,309,677) (5,249,427)
PARTNERS' CAPITAL (DEFICIT) - Beginning
of year (195,526) 4,453,901
Capital Contributions 3,349,990 600,000
------------ ------------
PARTNERS' DEFICIT - End of year $ (2,155,213) $ (195,526)
============ ============
The accompanying notes are an integral part of these combined financial
statements.
F37
75
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
COMBINED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31 1994 1993
- --------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
Net loss $(5,309,677) $(5,249,427)
Adjustments for noncash items
included in net loss
Depreciation and amortization 763,183 540,921
(Income) loss from equity investment (3,468) 68,578
Working capital changes (below) 2,818,892 3,269,036
----------- -----------
NET CASH USED FOR OPERATING ACTIVITIES (1,731,070) (1,370,892)
----------- -----------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Purchase of property and equipment (38,222) (132,650)
Proceeds from sale of equipment 81,430 --
Other assets (98,273) (280,508)
Other receivables-related parties 18,723 (100,000)
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES (36,342) (513,158)
----------- -----------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Cash contributed by the
partners - Note 10 2,825,000 600,000
Demand notes payable (617,278) 1,335,000
Proceeds from long-term debt 169,706 34,107
Payments on long-term debt (631,082) (399,543)
Other long-term liabilities -
related parties 61,203 306,286
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,807,549 1,875,850
----------- -----------
INCREASE (DECREASE) IN CASH 40,137 (8,200)
CASH - Beginning of year 15,518 23,718
----------- -----------
CASH - End of year $ 55,655 $ 15,518
=========== ===========
The accompanying notes are an integral part of these combined financial
statements.
F38
76
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 255,304 $ 152,341
=========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease and debt obligations
incurred for acquisition of equipment $ 68,431 $ 1,502,028
=========== ===========
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)
Related parties (280,204) (13,661)
Inventories 1,480,803 (921,219)
Other current assets and
liabilities 940,601 520,199
Accounts payable
Trade (1,087,268) 2,825,082
Related parties 744,468 2,068,813
----------- -----------
INCREASE IN WORKING CAPITAL $ 2,818,892 $ 3,269,036
=========== ===========
The accompanying notes are an integral part of these combined financial
statements.
F39
77
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.
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.
F40
78
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.
F41
79
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 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.
F42
80
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - ACCOUNTS RECEIVABLE
At December 31, 1994, accounts receivable - trade from three customers
were approximately 67% of trade receivables. Sales to these unrelated customers
comprised 67% of total sales for the years ended December 31, 1994. Sales to
these customers comprised 51% of total sales for the year ended December 31,
1993.
NOTE 4-INVENTORIES
Inventories at December 31, 1994 are as follows:
Raw materials $ 950,893
Allowance to state raw materials at LIFO cost (39,005)
-----------
Raw materials at LIFO cost 911,888
Work-in-process 648,987
Finished goods 314,709
-----------
Total Inventories $ 1,875,584
NOTE 5-PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 is as follows:
Equipment under capital leases - Note 8 $ 1,785,817
Warehouse and manufacturing equipment 1,715,676
Furniture and fixtures 290,258
Leasehold improvements 419,791
Transportation equipment 64,495
-----------
4,276,037
Less:Accumulated depreciation 1,139,398
Total Property and Equipment $ 3,136,639
===========
F43
81
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - OTHER ASSETS
Other assets at December 31, 1994 is as follows:
Deposits $199,838
Sample windows 89,965
Other assets 81,446
--------
$371,249
========
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 June15, 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.
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.
F44
82
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
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:
Warehouse and manufacturing equipment $ 1,624,677
Transportation equipment 161,140
-----------
1,785,817
Less: Accumulated amortization 290,729
-----------
Total $ 1,495,088
===========
F45
83
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - ACCRUED EXPENSES
Accrued expenses at December 31, 1994 are as follows:
Accrued and withheld payroll and payroll taxes (Note 2) $ 575,500
Accrued and collected sales taxes (Note 2) 502,415
Accrued tax penalties and interest 239,219
Accrued vacation 155,510
Accrued real estate taxes 105,932
Other accrued expenses 61,662
----------
Total Accrued Expenses $1,640,238
==========
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.
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).
F46
84
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - PARTNERS' CAPITAL (CONTINUED)
In September 1994, Bird entered into a 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 and $163,000
to this plan during the years ended December 31, 1994 and 1993, 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.
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.
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 years ended December
31, 1994 and 1993 are as follows:
1994 1993
---- ----
Facilities leases - primarily
related party $285,000 $263,000
Transportation equipment 133,000 67,000
-------- --------
$418,000 $330,000
======== ========
F47
85
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The following are the approximate future minimum operating lease
payments at December31, 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, due a related party, has been
accrued in the accompanying balance sheets at December 31, 1994. Based
upon the current payment plan, approximately $61,000 of the accrued rent
at December31, 1994 is included in other long-term liabilities - related
parties.
B. PURCHASE COMMITMENTS
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).
F48
86
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
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.
F49
87
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - RELATED PARTY TRANSACTIONS
The Companies have entered into various transactions with related parties
during the years ended December 31, 1994 and 1993. 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 years ended December 31, 1994 and 1993:
1994 1993
---- ----
Vinyl Division of Bird, Inc. $2,862,000 $2,053,000
Domken Plastics Limited (DPL) $3,616,000 $2,964,000
Quantum II Partners (see below) $ 200,000 $ 440,000
Design Matrix, Inc. (DMI) -
Advertising $ -- $ 147,000
Accounts payable to related parties at December 31,1994 is as follows:
Bird, Inc. $1,947,000
Domken Plastics Limited (DPL) 1,436,000
Quantum II (Notes 12D and 13E) 16,000
Other related parties 256,000
----------
$3,655,000
==========
DMI and DPL are related through common ownership with ZES.
A stockholder of ZES was compensated approximately $143,000 during
the year ended December 31, 1993 for services rendered in assisting with
the acquisition of raw materials from DPL. 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.
F50
88
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13-RELATED PARTY TRANSACTIONS (CONTINUED)
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 and
$7,255,000 for 1994 and 1993, 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 December31,
1994:
J&B $1,174,000
Other 112,000
----------
Total $1,286,000
==========
C. RENTS
KP rents facilities from related parties (Note 12).
D. MANAGEMENT FEES
Management fees of approximately $488,000 were paid to J&B under a
management contract for the year ended December 31, 1993. The management
agreement was terminated effective December 31, 1993.
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.
F51
89
KENSINGTON PARTNERS AND AFFILIATE
(JOINT VENTURE PARTNERSHIPS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITORS' REPORT
In 1995, Jannock, Inc. exercised its option to purchase Bird's interest,
owned by its wholly-owned subsidiary Bird-Kensington Holding Corporation, in KP.
Immediately preceding the sale, Bird purchased ZES' interest in KP for
$1,000,000. In addition, Bird invested in KP $4,090,000 prior to the sale to
fulfill provisions in the asset purchase agreement.
On June 2, 1995, the stock of Bird-Kensington Holding Corporation, which
owned the assets and liabilties of KP was sold by Bird to Jannock, Inc. in
exchange for cash of $2,780,000 and assumption of certain liabilities.
F52
90
SUPPLEMENTAL INFORMATION
F53
91
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 for each of the two years in the
period then ended, 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 a 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
F54
92
KENSINGTON PARTNERS AND AFFILIATE
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1994
Additions
--------------------------
Balance Charged to Charged to Balance
beginning costs 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
======== ======== == ======== ========
(1) Uncollectible accounts written off.
F55