Irex Contracting Group

views updated

Irex Contracting Group

120 North Lime Street
Lancaster, Pennsylvania 17608
U.S.A.
Telephone: (717) 397-3633
Toll Free: (800) 487-7255
Fax: (717) 399-5193
Web site: http://www.irexcontracting.com

Public Company
Incorporated: 1969 as North Lime Corporation
Employees: 350
Sales: $214 million (2005 est.)
Stock Exchanges: Over the Counter
Ticker Symbol: IREX
NAIC: 238910 Other Specialty Trade Contractors; 423330 Roofing, Siding, and Insulation Material Merchant Wholesalers

Irex Contracting Group is a Lancaster, Pennsylvania-based company that includes ten subsidiaries involved in the specialty contracting business in both the United States and Canada, as well as an insurance company and a finance company. Island Insulation is a Bohemia, New York, commercial and industrial insulation contractor operating in Westchester County, Long Island, and the five boroughs of New York City. Atlantic Contracting & Specialties operates throughout New England, offering insulation contracting, asbestos and lead abatement, hazardous waste remediation, fire protection, and noise control services. Providing similar services are Advanced Specialty Contractors with ten offices in Pennsylvania, West Virginia, Ohio, Indiana, and Michigan; New States Contracting LLC, based in Wappingers Falls, New York, and Sayreville, New Jersey; Cornerstone Services Group LLC, operating out of Omaha, Nebraska, and Kansas City, Missouri; Argus Contracting LLC, with offices in Denver and Phoenix; Argus Contracting, Inc., based in the Los Angeles area; Summit Contracting, operating in Colorado and Utah; and Altair Contracting, Ltd., serving Canada with locations in Edmonton, Alberta, and Saint John, New Brunswick. The Pyro-Stop LLC subsidiary, based in Aston, Pennsylvania, provides building insulation and firestopping services, while Spacecon LLC operates throughout the United States, offering insulation and firestopping services as well as metal stud framing, drywall installation, ceiling installation services, plastering, and general carpentry. Although Irex is a public company, its stock is thinly traded via Pink Sheets.

ORIGINS

Irex grew out of the insulation contracting business of Armstrong World Industries, which was established in Pittsburgh, Pennsylvania, by 24-year-old Thomas Morton Armstrong in 1860 when he bought a cork-cutting shop. Although the business originally produced cork stoppers, it became involved in the cork insulation business in the 1890s. Early in the 20th century, Armstrong manufactured and installed low temperature insulation and pipe covering and soon added high temperature insulation products, some of which contained asbestos and would become a matter of contention decades later. The contracting business expanded across the United States in the 1920s and 1930s as Armstrong bought up local insulation companies and began serving commercial and industrial customers. In the meantime, Armstrong also diversified into building materials for new homes, flooring and ceiling products, and cabinets, as well as consumer products such as floor waxes and furniture polish.

By the 1950s insulation contracting was but a small part of a very large enterprise. When the insulation business fell off during this period, Armstrong decided to carve out the unit as a separate subsidiary, forming Armstrong Contracting and Supply Corporation in 1958. The move paid off, as the new unit performed better as an independent contracting business. A decade later a new president, longtime flooring executive James H. Binns, was installed at the parent company, and Armstrong changed its focus to the then-thriving interior furnishings market, creating what management called an "interior world" concept. Noncore units were shed, including Armstrong's line of waxes, polishes, and cleansers, sold to Chemway Corporation; and packaging assets, sold to Kerr Glass Manufacturing.

Clearly, Armstrong Contracting and Supply Corporation did not fit into the new vision, and so the subsidiary's president, James W. Liddell, and his management team approached Armstrong with a proposal to buy the contracting business in a leveraged buyout, the financial backing to be provided by Armstrong itself. The two parties reached an agreement, Armstrong Contracting and Supply Corporation was renamed ACandS, Inc., and in July 1969 the employees formed a Pennsylvania corporation called North Lime Corp., referring to the street in Lancaster where the business maintained its headquarters. A stock sale was then conducted, resulting in 31 investors, almost all of whom were existing or retired executives of the company, paying $1.19 per share. A year later, salaried employees were able to invest as well, given a chance to buy shares at $2.50. The purchase was not without risk, however, in light of poor economic conditions that prevailed at the time.

North Lime changed its name to ACandS Corporation in 1972. Its business in the early years was limited to the operations of ACandS, Inc., in the United States and its Canadian sister company, ACandS Contracting, Ltd., which 20 years later took the Altar Contracting name. Because of the buyout, the company was heavily in debt. Despite a poor economy, the contracting units performed well and became so profitable that within ten years ACandS was able to pay off its debt completely, and by the early 1980s it was one of the leading commercial and industrial insulation and specialty contractors in the country.

ACandS began to diversify in the early 1980s. The insulation field was undergoing a pair of significant changes. A number of smaller contractors were entering the market, while at the same time manufacturers were paying less attention to distribution in order to focus on production. As a result, a niche opened up for an independent distribution company to service the mechanical, HVAC, industrial, and commercial insulation industries. Thus, in 1982, ACandS, Alexander V. Stoycos, and W. Kirk Liddell cofounded Specialty Products & Insulation Co. (SPI). Liddell was the son of James Liddell. Born and raised in Lancaster, the younger Liddell had originally planned on a career in government administration. After earning an economics degree from Princeton University and an MBA and law degree from the University of Chicago, Liddell took a job with the Washington, D.C., law firm of Covington and Burling. Then, in 1980, he decided to return to Lancaster to become general counsel for ACandS. While Stoycos headed the SPI subsidiary, Liddell took a new position in 1984, becoming chief executive officer of the parent company.

COMPANY PERSPECTIVES

Each Irex contracting company is dedicated to being the preeminent specialty contracting organization in the markets it serves. This will be achieved through teamwork at all levels of the organization and performance based on continuous improvement of all business processes, including estimating, sales, safety, and contract execution. The employees of Irex and its subsidiaries are committed to building long-term relationships, and they bring exceptional value to their customers through creativity and innovation.

Liddell's promotion was part of a general restructuring of the company. In 1983 ACandS Corporation changed its name to Irex Corporation. The company wanted a name that did not limit it to any particular industry, and was also easy to pronounce and spell. It was James Liddell who suggested Irex. During World War II he had served on the USS Irex submarine, which was in the Panama Canal on its way to the Pacific when the war came to an end in August 1945. Irex became the parent service corporation for ACandS, Inc., ACandS Contracting, Ltd., and SPI. Other new subsidiaries also joined the fold, including specialized contractors and Spacecon, which started out as an interior finish contractor serving northern Delaware.

Although Irex was involved in a cyclical business, subject to the vagaries of the construction industry, it enjoyed an average return on equity of more than 15 percent over the next 15 years. Leading the way was SPI, which from 1992 to 1997 doubled its annual revenues to $158 million while operating profits tripled. As a result, SPI supplied the lion's share of Irex's 1997 revenues of $278.1 million. Stoycos and Liddell had always intended that SPI would one day become a stand-alone company. Unfortunately for Stoycos, his health failed and he died in May 1997. According to the Lancaster New Era, "Liddell drew some comfort from the fact that, in one of his last conversations with Stoycos, he informed Stoycos that plans to spin off SPI were being developed. 'He was very, very pleased to know,' Liddell said."

Aside from fulfilling the founders' original vision, there were also very practical reasons for the spinoff. According to Liddell, "Contracting and distribution are very different. SPI requires a lot of growth capital. By putting SPI out on its own, it (can) raise money to acquire additional distribution businesses." In addition, many of SPI's customers were contractors that competed against Irex subsidiaries, and the contracting and distribution segments of Irex often had conflicting needs on capital improvements, forcing management to make difficult choices.

SPI SPUN OFF: 1998

The SPI spinoff was announced in January 1998, the plan calling for an initial public offering (IPO) of stock and the $18.9 million purchase of stock and subordinated notes by Evercore Capital Partners L.P., a New York City-based investment banking boutique and its affiliates. When the market for IPOs deteriorated for small-cap companies later in the year, however, Irex decided against the stock offering. As a result, the completion of the spinoff in late 1998 left Irex shareholders with a 55 percent stake in the company, while Evercore controlled 45 percent. Irex shareholders received one share of SPI for every 50 shares of Irex stock they owned.

In 1998, the final year in which SPI contributed to the balance sheet, Irex posted total revenues of $315.1 million. Following the spinoff, that number dropped to $136.3 million, but in actuality Irex enjoyed a very successful year, as evidenced by net income only decreasing from $4.2 million in 1998 to $2.6 million in 1999 despite the drop in total revenues. In fact, every contracting unit showed improved sales over the course of the year.

With the SPI deal completed, Irex began building up its remaining core competency. The company acquired Island Insulation to become involved in the large metropolitan New York market, and in January 2000 Irex formed Pyro-Stop LLC in Philadelphia to provide passive fire protection and expansion joint services, organized to work independently or in conjunction with other Irex subsidiaries. Six months later another company took shape, Atlantic Contracting & Specialties LLC, which then built up its business by acquiring certain assets of ACandS, Inc., and Eastern Refractories Co., Inc., in order to serve New York and New England states with insulation contracting and abatement services.

Irex picked up the pace even more in 2001, forming five new contracting companies. They included Long Beach, California-based Argus Contracting LLC; Kansas City, Missouri-based Cornerstone Services Group LLC; Linden, New Jersey-based New States Contracting LLC; Aston, Pennsylvania-based Advanced Specialty Contractors LLC; and Salt Lake City-based Summit Contracting LLC. All of the new companies drew on the assets of ACandS, Inc., to start their operations, buying equipment and warehouse inventories, and assuming contracts and leases.

KEY DATES

1958:: Armstrong Contracting and Supply Corporation is formed.
1969:: North Lime Corporation is formed to acquire an Armstrong unit, ACandS Inc.
1982:: Specialty Products & Insulation Company (SPI) is formed.
1983:: Company is renamed Irex Corporation.
1998:: SPI is spun off as a separate company.
2001:: ACandS sells assets to sister companies.
2002:: Due to asbestos litigation, ACandS files for Chapter 11 bankruptcy protection.
2007:: ACandS reaches settlement with asbestos insurer.

The divesting of ACandS assets was also a strategic move to limit the potential damage that might be caused by personal-injury lawsuits related to asbestos, with people alleging that their health had been harmed or at least imperiled many years earlier because of asbestos insulation installed at an ACandS work site. Because the company had only installed asbestos materials manufactured by others, in particular Armstrong, it had not been a target defendant, but as many makers of asbestos products filed bankruptcy, resulting in frozen claims and generally smaller payments once the companies were reorganized under the auspices of bankruptcy court, attorneys began to focus on companies like ACandS that had not yet filed. The company had nearly 140,000 pending lawsuits in 2000, but that number increased by another 55,000 in 2001. After ACandS transferred its operations to other Irex companies all that remained was a skeleton crew of employees to deal with the asbestos matter.

By September 2002, when it filed for Chapter 11 bankruptcy protection, ACandS faced more than 250,000 claims seeking in excess of $1 billion in damages. With a tentative settlement on the claims in hand, the company hoped to emerge from the process in a year's time, but its plans were held up because of a dispute over insurance policies issued between 1976 and 1979 by Aetna Casualty & Surety Company, now part of The Traveler's Companies. The insurer maintained that the policy called for a $1 million cap because it viewed the asbestos claims as a collective single occurrence, while ACandS insisted there was a $1 million cap for each claim. The matter began to wend its way through the courts, and before the company could emerge from bankruptcy it had to be settled. Simply put, the more money ACandS had to offer claimants, the greater its chance of finally escaping legal purgatory by reaching a bankruptcy agreement. Finally in July 2007, ACandS and Travelers reached a $449 million settlement agreement.

While ACandS endured its travails in the early 2000s, the other Irex companies carried on, completing acquisitions and opening new offices. Spacecon West was established by Summit, for example, and this unit later added a Phoenix office. Advanced Specialty opened new offices and added others through the acquisition of Choice Insulations, Inc. Atlantic Contracting also opened an office in Hartford, Connecticut; Spacecon LLC, opened a Georgetown, Delaware, office. In 2006 Irex formed a new subsidiary, Spacecon Specialty Contractors LLC, the foundation of which came from the acquisition of assets from Sprehe Interior Construction, Inc., leading to the opening of offices in Denver and Colorado Springs. A year later this unit formed Spacecon Specialty Contractors Northwest, based in Portland, Oregon. As a result of aggressive expansion, Irex rebuilt its annual revenues beyond the $200 million mark.

Ed Dinger

PRINCIPAL SUBSIDIARIES

Island Insulation; Atlantic Contracting & Specialties Advanced Specialty Contractors; New States Contracting; Cornerstone Services Group LLC; Argus Contracting LLC; Argus Contracting, Inc; Altair Contracting ltd.; Pyro-Stop LLC; Spacecon LLC.