UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-8120
BAIRNCO CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-3057520
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2251 Lucien Way, Maitland, Florida 32751
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407) 875-2222
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange on
Title of each class which registered
Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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. [ ]
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 [ ]
On March 10, 1997, the aggregate market value of the Registrant's voting
stock held by non-affiliates was $64,066,267.
On March 10, 1997, there were 9,346,934 shares of Common Stock outstanding,
exclusive of treasury shares or shares held by subsidiaries of the Registrant.
Parts I, II and IV incorporate information by reference from the Annual Report
to Stockholders for the fiscal year ended December 31, 1996. Part III
incorporates information by reference from the Proxy Statement dated March
21, 1997 in connection with the Registrant's Annual Meeting of Stockholders
to be held on April 18, 1997.
PART I
Item 1. BUSINESS
a. Recent Developments and Description
Bairnco Corporation was incorporated under the laws of the State of New York
on April 9, 1981. Effective September 24, 1991, Bairnco Corporation changed
its state of incorporation from New York to Delaware. Unless otherwise
indicated herein, the terms "Bairnco" and the "Corporation" refer to Bairnco
Corporation and its subsidiaries.
Bairnco's two core businesses are Arlon's Engineered Materials and Components,
and Kasco's Replacement Products and Services.
At December 31, 1996, Bairnco employed 820 persons including 11 Headquarters
personnel. Bairnco's operations occupy approximately 685,500 square feet of
factory and office space at its principal locations.
b. & c. Financial Information About Industry Segments
and Narrative Description of Business
Bairnco Corporation is a diversified multinational company that operates two
business sectors. Engineered materials and components are designed,
manufactured and sold under the Arlon brand identity to electronic, industrial
and commercial markets. Replacement products and services are manufactured
and distributed under the Kasco name principally to retail food stores and
meat, poultry and fish processing plants throughout the United States, Canada
and Europe. Kasco also distributes equipment to the food industry in Canada
and France.
Financial data and other information about the Corporation's segments is set
forth in Note 9 to the Consolidated Financial Statements on pages 23 and 24
and on pages 4 through 7 of Bairnco's 1996 Annual Report to Stockholders
which is incorporated herein by reference. This information should be read
in conjunction with the "Financial History" set forth on page 9 of Bairnco's
1996 Annual Report to Stockholders, and "Management's Discussion and Analysis"
set forth on pages 10 and 11 of Bairnco's 1996 Annual Report to Stockholders,
which is incorporated herein by reference.
The principal facilities utilized by each segment are detailed on page 9
under "Item 2. PROPERTIES" of this filing.
ENGINEERED MATERIALS AND COMPONENTS (ARLON)
Description of Business
Engineered materials and components are designed, manufactured and sold under
the Arlon brand identity to electronic, industrial and commercial markets.
These products are based on a common technology in coating, laminating, resin
technology and dispersion chemistry. Arlon's principal products include high
performance materials for the printed circuit board industry, cast and
calendered vinyl film systems, custom engineered laminates and pressure
sensitive adhesive systems, and calendered and extruded silicone rubber
insulation products used in a broad range of industrial, consumer and
commercial products.
Arlon circuit board materials (also referred to as substrates) are grouped as
follows: (1) High performance and high temperature materials used in
circuit boards for military electronics and sophisticated commercial
applications. Product applications include next-generation commercial and
military avionics systems combining demands for surface mount technology with
high temperature fabrication and use temperatures, and high performance test
fixturing for next-generation integrated circuits. Intermediate temperature
laminates which provide both improved product reliability in the field and
ease of manufacture are also key to the line. Specialty products have been
developed for the surface mounting of computer chips on circuit boards and
for multi-chip modules which are growing segments of the printed circuit
board market; and, (2) Frequency dependent and low signal loss materials used
for circuit boards and antennas used in microwave applications such as
digital cordless telephones, local and global cellular phone systems, direct
broadcast satellite TV systems, global positioning satellite systems and other
personal communications systems. Additional wireless opportunities for Arlon
circuit board materials include local area networks for computers and public
business exchange systems or PBX's where telephones operate as microcellular
phones within the confines of a facility or complex. A major emerging market
for wireless communications is the new phone systems which are being planned
for a number of developing countries in Asia and South America. These systems
will bypass the high cost of installing and maintaining a hardwire
infrastructure and will permit regional installation based on population
density. This should be a large and growing market over the next decade as
numerous countries become involved.
Arlon specialty graphic films include cast and calendered vinyl films that
are manufactured and marketed under the Calon brand name. These films are
offered in a wide variety of colors and with varying face stocks and adhesive
systems to the specialty graphics market which includes commercial sign
manufacturers and graphic printing houses, and to customers involved in
numerous commercial and governmental specification applications. During 1996,
Arlon entered into a strategic alliance with a United Kingdom based graphics
and distribution company to further develop the European market. This new
venture is expected to provide better and more cost effective services to
Arlon's European distributors. Arlon N.V., Arlon's Belgium subsidiary which
has served Europe, continued to under perform and was closed in 1996.
Custom engineered laminates and adhesive systems are also manufactured and
marketed under the Arlon brand name and include insulating foam tapes for
thermopane windows, electrical insulation, thermal insulation panels for
appliances and cars, security tags and labels, durable printing stock for
high speed laser printing systems and custom engineered laminates for
specific industrial applications. Arlon is also now focusing on developing
additional engineered laminates, coatings and pressure sensitive systems for
specific industrial applications.
A line of silicone rubber based materials, used in a broad range of consumer,
industrial and commercial products, is also manufactured and marketed under
the Arlon brand name. Typical applications of these materials include
silicone rubber for molding composites, silicone rubber insulating tape for
electric traction motor windings, industrial flexible heaters and power
utility insulating tapes, as well as many thermal and electrical conductivity
applications. During 1996, further progress was made in both the development
and applications of Thermabond(tm), a range of thermally conductive silicone
products designed for the dissipation of heat from electronic circuit boards.
During 1996, Arlon acquired a silicone rubber tape product line which provided
additional capacity and a broader range of capability including the ability to
calender ultra-thin silicone rubber materials both with a supporting backbone
as well as unsupported.
Competition
Arlon has numerous competitors ranging in size from small, sole
proprietorships to units of very large, multinational corporations that in
certain instances have far greater market positions and financial resources
than the Corporation's.
The principal method of competition for Arlon's products varies by product
line and type of customer. While competition for established lines is
usually based on one or more of lead time, price, product performance,
technical support and customer service, it may also be based on the ability
to service emerging technologies through the custom design of new or redesign
of existing products and materials for the new applications. For high
performance materials sold to the printed circuit board industry, the
consistent technical performance of the materials supplied in excess of
minimum specified standards can be the critical competitive element. In
addition, Arlon sells a significant portion of its circuit board materials
into the Japanese and European markets where local producers of similar
materials have a competitive advantage related to their geographic location.
Distribution
Arlon products are marketed by company sales personnel, outside sales
representatives and distributors in the United States, Canada, Europe, the
Far East and several other international markets.
Raw Materials and Purchased Parts
The essential raw materials used in Arlon engineered materials and components
are silicone rubber, fiberglass cloth, pigments, steel and aluminum parts,
copper foil, aluminum foil, polyethylene foam and various plastic films,
special papers and release liners, vinyl resins, various adhesives and
solvents, Teflon(tm) or polytetrafluoroethelene (PTFE) resin, polyimide resin,
epoxy resins, and various chemicals. Generally, these materials are each
available from several qualified suppliers. There are, however, several raw
materials used in Arlon's products that are purchased from chemical companies
and are proprietary in nature. Other raw materials are purchased from a
single approved vendor on a "sole source" basis although alternative sources
could be developed in the future if necessary. However, the qualification
procedure can take up to several months and could therefore interrupt
production if the primary raw material source was lost unexpectedly.
Due to the number and diversity of Arlon's products it is unlikely that
availability problems with any one raw material would have a material adverse
effect on Arlon. There are no known limitations to the continued availability
of Arlon's raw materials. Current suppliers are located in the United States,
Japan and France.
Employees
As of December 31, 1996, approximately 476 employees were employed by the
operations comprising Arlon's engineered materials and components.
Patents and Trademarks
The Corporation owns several registered trademarks under which certain Arlon
products are sold. The Corporation does not believe that the loss of any or
all of these trademarks would have a material adverse effect on this segment.
REPLACEMENT PRODUCTS AND SERVICES (KASCO)
Description of Business
Replacement products and services are manufactured and distributed under the
Kasco name principally to retail food stores and meat, poultry and fish
processing plants throughout the United States, Canada and Europe.
Replacement band saw blades are also sold for use in wood and metal
industries. Kasco's French and Canadian operations also distribute equipment
to the supermarket and food processing industries in their respective markets.
Kasco manufactures band saw blades for cutting, and chopper plates and knives
for grinding meat in supermarkets and packing plants, band saw blades used in
frozen fish factories, small band saw blades for cutting metal and wood, and
large band saw blades for lumber mills. Kasco formulates, manufactures and
markets seasoning products for the meat and deli departments of supermarkets
which are primarily used in the preparation of in-store products. Kasco
distributes related supply products to supermarkets and other customers.
Kasco, through its continent-wide network of service professionals, also
provides preventive maintenance and repair parts and service for a broad
range of supermarket equipment primarily in the meat and deli areas in
selected markets.
Replacement products and services are sold under a number of brand names
including Kasco in the United States and Canada, Atlantic Service in the
United Kingdom, and Bertram & Graf and Biro in Continental Europe.
Competition and Marketing
Kasco competes with several large and medium-sized national and regional
companies, as well as numerous small local companies. The principal methods
of competition are service, price and product performance. The performance
of meat band saw blades used in cutting meat or other food items is balanced
between minimizing waste and maximizing the efficiency and productivity of
the band saw machine and operator or other cutting/processing equipment being
used. During 1996, Kasco's management continued the process to improve the
efficiencies in manufacturing and distribution. These actions, together with
significant capital and process investments resulted in superior quality
bands, improved on-time deliveries and improved productivity.
In North America, Kasco supplies its products and services directly to the
supermarket and meat cutting industries through its continent-wide network of
service professionals. These service professionals make regularly scheduled
calls on the accounts in their region. They supply the Company's products
and provide related equipment maintenance services. Kasco's service
professionals are continuously trained in the service and maintenance of
equipment used in the meat preparation areas of retail food outlets. The
field computerization program permits the service professionals to more
efficiently service their customer base.
In order to improve the cost effectiveness and provide improved timely
equipment maintenance, Kasco integrated its service centers with its van
service network during the fourth quarter 1996. The repair service
operations provide preventive maintenance programs and emergency repair
programs for a broad range of equipment primarily in the meat preparation and
deli areas of supermarkets and other retail food outlets.
Seasoning represents an emerging opportunity for Kasco to provide new value
added programs to the meat and deli departments of its supermarket customers.
As supermarkets increasingly compete with the restaurant trade for the
consumers food dollars, they are turning to prepared foods. Kasco is well
positioned to support its customers with its comprehensive "Mealtime
Solutions" seasoning program. "Mealtime Solutions" offers a package of
seasoning blends, recipes and instruction which allows a supermarket to
present value added products in their meat and deli departments.
Raw Materials and Purchased Supplies
High quality carbon steel is the principal raw material used in the
manufacture of band saw blades and is purchased from multiple domestic and
international suppliers. Tool steel is utilized in manufacturing meat
chopper plates and knives and is purchased from qualified suppliers located
in the United States, Europe and Japan. Equipment, replacement parts and
supplies are purchased from a number of manufacturers and distributors,
mostly in the United States and Europe. In the Canadian and French
operations, certain specialty equipment and other items are purchased and
resold under exclusive distributorship agreements with the equipment
manufacturers. All of the raw materials and purchased products utilized by
this sector have been readily available throughout this last year and it is
anticipated that adequate supplies will continue to be available throughout
the coming year.
Employees
As of December 31, 1996, approximately 333 persons were employed in the
replacement products and services segment.
Patents and Trademarks
The Corporation has a number of United States and foreign mechanical patents
related to several of the products manufactured and sold by Kasco, as well as
a number of design patents and registered trademarks. The Corporation does
not believe, however, that the loss of any or all of those patents would have
a material adverse effect on this segment.
d. Foreign Operations
The Corporation has foreign operations located in Canada, the United Kingdom,
France, and Germany. Information on the Corporation's operations by
geographical area for the last three fiscal years is set forth in Note 9 to
the Consolidated Financial Statements on page 24 of Bairnco's 1996 Annual
Report to Stockholders which is incorporated herein by reference.
In addition, export sales from the Corporation's US based operations for the
years ended December 31, 1996, 1995 and 1994 were $28,692,000, $27,115,000
and $21,093,000, respectively. Export sales to any particular country or
geographic area did not exceed 10% of consolidated sales during any of these
years.
Item 2. PROPERTIES
The following chart lists for the Corporation as a whole, and by each of its
segments, the principal locations of the Corporation's facilities and
indicates whether the property is owned or leased and if leased, the lease
expiration date.
LEASED OR OWNED
LOCATION SQUARE FEET (LEASE EXPIRATION)
CORPORATION TOTAL 685,500
Headquarters
Maitland, FL 7,700 Leased(Expires 2000)
Replacement Products and Services
(KASCO)
City of Industry, CA 15,000 Leased(Expires 1997)
Gwent, Wales, UK 25,000 Owned
Lyon, France 11,000 Leased(Expires 1999)
Montreal, Quebec, Canada 7,000 Leased(Expires 1998)
Pansdorf, Germany 22,000 Owned
Paris, France 12,000 Leased(Expires 1997)
Rennes, France 4,800 Leased(Expires 1997)
Scarborough, Ontario, Canada 33,000 Owned
St. Louis, MO 75,000 Owned
St. Louis, MO 20,000 Leased(Expires 2000)
Field Warehouses
(Approximately 70 locations
in North America) 36,000 Leased
Engineered Materials and Components
(Arlon)
Bear, DE 145,000 Owned
East Providence, RI 68,000 Owned
Rancho Cucamonga, CA 80,000 Owned
Santa Ana, CA 124,000 Leased(Expires 2003)
Item 3. LEGAL PROCEEDINGS
Since its announcement in January 1990 of its intention to spin off Keene,
Bairnco has been named as a defendant in a number of individual personal
injury and wrongful death cases in which it is alleged that Bairnco is
derivatively liable for the asbestos-related claims against Keene. On
December 6, 1993, Keene filed for protection under Chapter 11 of the
Bankruptcy Code. On June 8, 1995, the Creditors' Committee commenced an
adversary proceeding in the Bankruptcy Court against Bairnco, certain of its
present and former officers and directors, and others alleging that the
transfer of assets for value by Keene to other subsidiaries of Bairnco and
the spin-offs of certain subsidiaries by Bairnco, were fraudulent and
otherwise violative of law and seeking compensatory damages of $700 million,
plus interest and punitive damages (the "Transactions Lawsuit"). The
complaint in the Transactions Lawsuit includes a count under the civil RICO
statute, 18 U.S.C. Section 1964, pursuant to which compensatory damages are
trebled.
Management believes that Bairnco has meritorious defenses to all claims or
liability purportedly derived from Keene and that it is not liable, as an
alter ego, successor, fraudulent transferee or otherwise, for the
asbestos-related claims against Keene or with respect to Keene products.
Bairnco is party to a separate action brought by Keene in the United States
Bankruptcy Court for the Southern District of New York in which Keene seeks
the exclusive benefit of tax refunds attributable to the carryback by Keene
of certain net operating losses ("NOL Refunds"), notwithstanding certain
provisions of tax sharing agreements between Keene and Bairnco (the "NOL
Lawsuit"). (After filing the NOL Lawsuit, Keene ceded control of the action
to the Creditors' Committee.) Pending resolution of the NOL Lawsuit, any
refunds actually received are to be placed in escrow. Through December 31,
1996, approximately $28.5 million of NOL Refunds had been received and placed
in escrow. There can be no assurance whatsoever that resolution of the NOL
Lawsuit will result in the release of any portion of the NOL Refunds to
Bairnco.
Keene's plan of reorganization was approved and became effective on July 31,
1996. The plan, as approved, creates a Creditors Trust that has succeeded to
all of Keene's asbestos liabilities, and also has succeeded to the right to
prosecute both the Transactions Lawsuit and the NOL Lawsuit. The plan also
includes a permanent injunction under which only the Creditors Trust, and no
other entity, can sue Bairnco in connection with the claims asserted in the
Transactions Lawsuit. Prior to confirmation, Bairnco and other defendants in
the Transactions Lawsuit had entered into a stipulation (the "Transactions
Stipulation") that calls for the Transactions Lawsuit to be litigated in
the District Court. The anticipated effect of these various provisions is
that all claims and claimants against Bairnco that relate to Keene's asbestos
liabilities should be consolidated for a single, binding resolution in the
Transactions Lawsuit in the District Court.
In keeping with the Transactions Stipulation, the parties have moved to
withdraw the reference - that is, they have requested that the District Court
assume from the Bankruptcy Court all responsibility for overseeing the
Transactions Lawsuit. Pending action on this request, proceedings in the
Transactions Lawsuit are stayed.
Bairnco Corporation and its subsidiaries are defendants in a number of other
actions. Management of Bairnco believes that the disposition of these other
actions, as well as the actions and proceedings described above, will not
have a material adverse effect on the consolidated results of operations or
the financial position of Bairnco Corporation and its subsidiaries as of
December 31, 1996.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The information required with respect to executive officers of the
Corporation is as follows:
Name and Age of Data Pertaining to
Executive Officers Executive Officers
Luke E. Fichthorn III (55) Mr. Fichthorn has served as Chairman of
Bairnco since May 1990, and on December
18, 1991, became Chief Executive Officer of
Bairnco. For over twenty-four years, Mr.
Fichthorn has been a private investment
banker and partner of Twain Associates, a
private investment banking and consulting
firm. Mr. Fichthorn served as a director
of Keene Corporation, a former subsidiary
of Bairnco Corporation from August, 1969
until May, 1981, and became a director of
Bairnco in January, 1981. Mr. Fichthorn is
also a director of Florida Rock Industries,
Inc. and FRP Properties, Inc., neither of
which is affiliated with Bairnco.
J. Robert Wilkinson (62) Mr. Wilkinson was elected Vice President -
Finance and Treasurer in March 1990. From
September 1986 to September 1989, Mr.
Wilkinson was Bairnco's Vice President -
Controller. From October 1989 to March
1990 he was Executive Vice President of
Shielding Systems Corporation, a wholly-
owned subsidiary of Bairnco. Prior to
joining Bairnco, Mr. Wilkinson served as
Vice President and Controller of Transway
International Corporation from November
1981 to June 1986.
Linda Metcalf (51) Mrs. Metcalf was appointed Vice President
Administration & Secretary of Bairnco on
October 21, 1996. Mrs. Metcalf was
previously Managing director of Human
Resources at CBIS.
PART II
Item 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
a. & c. Data regarding market prices of Bairnco's common stock is included
in the "Quarterly Results of Operations" on page 12 of Bairnco's 1996 Annual
Report to Stockholders which is incorporated herein by reference. Bairnco's
common stock is traded on the New York Stock Exchange under the symbol BZ.
Data on dividends paid is included in the Consolidated Statements of Income
on page 14 of Bairnco's 1996 Annual Report to Stockholders which is
incorporated herein by reference. The quarterly cash dividend remained
constant at $0.05 per share during 1996. The Board continues to review the
dividend on a quarterly basis.
b. The approximate number of common equity security holders is as follows:
Approximate Number
of Holders of Record
Title of Stock as of December 31, 1996
Common Stock, Par Value $.01 per share 1,773
Item 6. SELECTED FINANCIAL DATA
Reference is made to "Financial History" on page 9 of Bairnco's 1996 Annual
Report to Stockholders, which is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Reference is made to the "Management's Discussion and Analysis" on pages 10
and 11 of Bairnco's 1996 Annual Report to Stockholders which is incorporated
herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Consolidated Financial Statements and accompanying
Notes included on pages 14 through 24 and the "Quarterly Results of
Operations" on page 12 of Bairnco's 1996 Annual Report to Stockholders which
is incorporated herein by reference. Financial Statement Schedules are
included in Part IV of this filing.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required with respect to directors of Bairnco is included in
the Proxy Statement for the 1997 Annual Meeting of Stockholders of Bairnco,
which will be filed with the Securities and Exchange Commission and is
incorporated herein by reference.
See the information regarding executive officers of the Corporation on page
12 of this Annual Report on Form 10-K.
Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 is included in the Proxy Statement for
the 1997 Annual Meeting of Stockholders of Bairnco, which will be filed with
the Securities and Exchange Commission and is incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 is included in the Proxy Statement for
the 1997 Annual Meeting of Stockholders of Bairnco, which will be filed with
the Securities and Exchange Commission and is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is included in the Proxy Statement for
the 1997 Annual Meeting of Stockholders of Bairnco, which will be filed with
the Securities and Exchange Commission and is incorporated herein by
reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a) 1. Financial Statements
Included in the 1996 Annual Report to Stockholders which is included as
Exhibit 13 to this Annual Report on Form 10-K:
Report of Independent Certified Public Accountants;
Consolidated Statements of Income for the years ended December 31,
1996, 1995 and 1994;
Consolidated Balance Sheets as of December 31, 1996 and 1995;
Consolidated Statements of Cash Flows for the years ended December
31, 1996, 1995 and 1994;
Consolidated Statements of Stockholders' Investment for the years
ended December 31, 1996, 1995 and 1994;
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
Included in Part IV of this Annual Report on Form 10-K:
Report of Independent Certified Public Accountants on Financial
Statement Schedules on page 19 of this Annual Report on Form 10-K;
Financial Statement Schedules for the years ended December 31, 1996,
1995 and 1994:
Schedule II - Valuation and Qualifying Accounts on page 20 of
this Annual Report on Form 10-K;
All other schedules and notes are omitted because they are either not
applicable, not required or the information called for therein appears in
the Consolidated Financial Statements or Notes thereto.
3. See Index to Exhibits on pages 22 through 24 of this Annual Report on
Form 10-K.
b) Reports on Form 8-K - None for fiscal year 1996.
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.
BAIRNCO CORPORATION
(Registrant)
Date: March 21, 1997
By: /s/ J. Robert Wilkinson
J. Robert Wilkinson
Vice President-Finance and
Treasurer
(Principal Financial Officer)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been executed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated above.
/s/ Luke E. Fichthorn III
Luke E. Fichthorn III - Chairman and CEO
/s/ Richard A. Shantz
Richard A. Shantz - Director
/s/ Charles T. Foley
Charles T. Foley - Director
/s/ William F. Yelverton
William F. Yelverton - Director
/s/ J. Robert Wilkinson
J. Robert Wilkinson - Vice President-Finance
and Treasurer
(Principal Financial Officer)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
TO BAIRNCO CORPORATION:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Bairnco Corporation's Annual
Report to Stockholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 23, 1997. Our audits were made for
the purpose of forming an opinion on those statements taken as a whole. The
schedule listed in Item 14(a) 2 is the responsibility of the company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Orlando, Florida
January 23, 1997
Arthur Andersen LLP
<TABLE>
BAIRNCO CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Balance Balance
Year Ended Beginning Deductions End
December 31, of Year Expenses (a) of Year
<S> <C> <C> <C> <C>
1996 - Reserve
for Doubtful
Accounts $ 763,000 $300,000 $(241,000) $ 822,000
1995 - Reserve
for Doubtful
Accounts $1,097,000 $202,000 $(536,000) $ 763,000
1994 - Reserve
for Doubtful
Accounts $ 844,000 $430,000 $(177,000) $1,097,000
(a) Actual charges incurred in connection with the purpose for which the
reserves were established.
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File No.: 1-8120
BAIRNCO CORPORATION
(Exact name of registrant as specified in the charter)
INDEX TO EXHIBITS
Certificate of Incorporation, as amended through September 24, 1991.
Incorporated herein by reference to Exhibit 3 to Bairnco's Annual Report on
Form 10-K for fiscal year ended December 31, 1991.
By Laws, as amended through December 18, 1991.
Incorporated herein by reference to Exhibit 3 to Bairnco's Annual Report on
Form 10-K for fiscal year ended December 31, 1991.
Amended and Restated Credit Agreement, dated as of December 17, 1992, among
Bairnco Corporation and certain of its subsidiaries, as guarantors, and
certain Commercial Lending Institutions and Continental Bank NA (now Bank
of America, Illinois), as the Agent for Lenders.
Incorporated herein by reference to Exhibit 3.1 to Bairnco's Annual Report on
Form 10-K for fiscal year ended December 31, 1992.
Promissory note, dated December 17, 1992, between Bairnco Corporation and
Continental Bank NA (now Bank of America, Illinois).
Incorporated herein by reference to Exhibit 3.2 to Bairnco's Annual Report on
Form 10-K for fiscal year ended December 31, 1992.
Amendment dated as of March 16, 1994 to Amended and Restated Credit Agreement
dated as of December 17, 1992, by and among Bairnco Corporation and certain
of its subsidiaries and certain Commercial Lending Institutions and
Continental Bank NA (now Bank of America, Illinois), as the Agent for Lenders.
Incorporated herein by reference to Exhibit 3 to Bairnco's Annual Report on
Form 10-K for fiscal year ended December 31, 1993.
Promissory note, dated as of September 1, 1989, between Arlon, Inc. and the
Delaware Economic Development Authority.
Incorporated herein by reference to Exhibit 4 to Bairnco's Annual Report on
Form 10-K for fiscal year ended December 31, 1989.
Indenture of Trust, series 1989, dated as of September 1, 1989, between the
Delaware Economic Development Authority and Manufacturers and Traders Trust
Company, securing variable rate demand Industrial Development Refunding
Revenue Bonds (Arlon, Inc. Project), series 1989 of the Delaware Economic
Development Authority.
Incorporated herein by reference to Exhibit 4 to Bairnco's Annual Report on
Form 10-K for fiscal year ended December 31, 1989.
Loan Agreement, dated as of September 1, 1989, between the Delaware Economic
Development Authority and Arlon, Inc.
Incorporated herein by reference to Exhibit 4 to Bairnco's Annual Report on
Form 10-K for fiscal year ended December 31, 1989.
Reimbursement Agreement dated as of September 1, 1989 by and among Arlon,
Inc., Bairnco Corporation and Continental Bank NA (now Bank of America,
Illinois).
Incorporated herein by reference to Exhibit 4 to Bairnco's Annual Report on
Form 10-K for fiscal year ended December 31, 1989.
Agreement of the Company, dated March 30, 1987, to furnish a copy of any
instrument with respect to certain other long-term debt to the Securities and
Exchange Commission upon its request.
Incorporated herein by reference to Exhibit 4(e) to Bairnco's Annual Report
on Form 10-K for fiscal year ended December 31, 1986.
Lease dated December 10, 1991 between Mattei Corporation and Bairnco
Corporation.
Incorporated herein by reference to Exhibit 10 to Bairnco's Annual Report on
Form 10-K for fiscal year ended December 31, 1991.
Lease, dated May 1, 1985, between John B. Merrill, Joseph S. Weedon and
Richard A. Westberg and KASCO Corporation as successor to Atlantic Service,
Inc.
Incorporated herein by reference to Exhibit 10 to Bairnco's Annual Report on
Form 10-K for fiscal year ended December 31, 1986.
Standard Industrial Lease dated June 30, 1983 between James E. and Nancy S.
Welsh, trustees under Welsh Family Trust, dated April 20, 1979 and Arlon, Inc.
as successor to Keene Corporation.
Incorporated herein by reference to Exhibit 10 to Bairnco's Annual Report on
Form 10-K for fiscal year ended December 31, 1983.
Bairnco Corporation 401(k) Savings Plan and Trust.
Incorporated herein by reference to Exhibit 4.3 to Bairnco's Registration
Statement on Form S-8, No. 33-41313.
Bairnco Corporation 1990 Stock Incentive Plan.
Incorporated herein by reference to Exhibit 4.3 to Bairnco's Registration
Statement on Form S-8, No. 33-36330.
Bairnco Corporation Management Incentive Compensation Plan.
Incorporated herein by reference to Exhibit 10 to Bairnco's Annual Report on
Form 10-K for fiscal year ended December 31, 1981.
Employment Agreement dated January 22, 1990, between Bairnco Corporation and
Luke E. Fichthorn III.
Incorporated herein by reference to Exhibit 10 to Bairnco's Annual Report on
Form 10-K for fiscal year ended December 31, 1989.
Amendment dated as of April 18, 1995, to Amended and Restated Credit
Agreement dated as of December 17, 1992, by and among Bairnco Corporation and
certain of its subsidiaries and certain Commercial Lending Institutions and
Continental Bank NA (now Bank of America, Illinois), as the Agent for Lenders.
Incorporated herein by reference to Exhibit 4 to Bairnco's Quarterly Report
on Form 10-Q for the quarterly period ended April 1, 1995.
Amendment dated as of February 14, 1997, to Amended and Restated Credit
Agreement dated as of December 17, 1992, by and among Bairnco Corporation and
certain of its subsidiaries and certain Commercial Lending Institutions and
Bank of America, Illinois, as the Agent for Lenders.
Exhibit 4 filed herewith.
Calculation of Primary and Fully Diluted Earnings per Share for the years
ended December 31, 1996, 1995 and 1994.
Exhibit 11 filed herewith.
1996 Annual Report to Stockholders.
Exhibit 13 filed herewith.
Subsidiaries of the Registrant.
Exhibit 21 filed herewith.
Consent of Independent Certified Public Accountants.
Exhibit 23 filed herewith.
Financial Data Schedules.
Exhibit 27 filed herewith (electronic filing only).
Form 11-K Re: Bairnco Corporation 401(k) Savings Plan and Trust for the
fiscal year ended December 31, 1996.
Exhibit 99 filed herewith.
FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This Agreement, dated as of February 14, 1997 (this
"Amendment") is entered into by and among BAIRNCO CORPORATION, a
Delaware corporation ("Bairnco"), certain of its Subsidiaries party
to the Credit Agreement referred to below (together with Bairnco,
hereinafter referred to collectively as the "Borrowers" and
individually as a "Borrower"), the several financial institutions
parties to this Amendment (collectively, the "Lenders";
individually, a "Lender"), and BANK OF AMERICA ILLINOIS (formerly
known as Continental Bank N.A.), as agent for the Lenders (in such
capacity, the "Agent").
RECITALS
The Borrowers, the Lenders and the Agent are parties to an
Amended and Restated Credit Agreement dated as of December 17, 1992
(as heretofore amended, supplemented or otherwise modified, the
"Credit Agreement"). Capitalized terms used and not otherwise
defined or amended in this Amendment shall have the meanings
respectively assigned to them in the Credit Agreement.
The Borrowers have requested that the Lenders and the Agent
amend the Credit Agreement in certain respects, and the Lenders and
the Agent have agreed to do so, all upon the terms and provisions
and subject to the conditions hereinafter set forth, including,
without limitation, payment of the amendment fee referred to in
Section C below.
AGREEMENT
In consideration of the foregoing and the mutual covenants and
agreement hereinafter set forth, the parties hereto mutually agree
as follows:
A. AMENDMENTS
1. Amendments of Section 1.1 (Defined Terms). Section 1.1
of the Credit Agreement is hereby amended by:
(a) deleting therefrom the definition of "Applicable
Euro Rate Margin" in its entirety and substituting therefor
the following:
"'Applicable Euro Rate Margin' shall mean:
(a) 0.375% for each period (i) commencing on
the fifth day following delivery by Bairnco to the Agent
of the Compliance Certificate for any Fiscal Quarter
required under Section 7.1.1(c) showing that the Debt to
Capital Ratio for such Fiscal Quarter was less than 35%,
and (ii) ending on the earlier of (A) the fifth day
following delivery by Bairnco to the Agent of the
Compliance Certificate for the next Fiscal Quarter, or
(B) the date on which Bairnco fails to deliver to the
Agent such Compliance Certificate for the next Fiscal
Quarter as required under Section 7.1.1(c);
(b) .50% for each period (i) commencing on the
fifth day following delivery by Bairnco to the Agent of
the Compliance Certificate for any Fiscal Quarter
required under Section 7.1.1(c) showing that the Debt to
Capital Ratio for such Fiscal Quarter was 35% or greater
but less than 45%, and (ii) ending on the earlier of (A)
the fifth day following delivery by Bairnco to the Agent
of the Compliance Certificate for the next Fiscal
Quarter, or (B) the date on which Bairnco fails to
deliver to the Agent such Compliance Certificate for the
next Fiscal Quarter as required under Section 7.1.1(c);
(c) .75% for each period (i) commencing on the
fifth day following delivery by Bairnco to the Agent of
the Compliance Certificate for any Fiscal Quarter
required under Section 7.1.1(c) showing that the Debt to
Capital Ratio for such Fiscal Quarter was 45% or greater
but less than 55%, and (ii) ending on the earlier of (A)
the fifth day following delivery by Bairnco to the Agent
of the Compliance Certificate for the next Fiscal
Quarter, or (B) the date on which Bairnco fails to
deliver to the Agent such Compliance Certificate for the
next Fiscal Quarter as required under Section 7.1.1(c);
and
(d) 1.00% for each period (i) commencing on the
fifth day following delivery by Bairnco to the Agent of
the Compliance Certificate for any Fiscal Quarter
required under Section 7.1.1(c) showing that the Debt to
Capital Ratio for such Fiscal Quarter was 55% or greater,
and (ii) ending on the earlier of (A) the fifth day
following delivery by Bairnco to the Agent of the
Compliance Certificate for the next Fiscal Quarter, or
(B) the date on which Bairnco fails to deliver to the
Agent such Compliance Certificate for the next Fiscal
Quarter as required under Section 7.1.1(c).
(b) deleting therefrom the definition of "Applicable
Reference Rate Margin" in its entirety and substituting
therefor the following:
"'Applicable Reference Rate Margin' shall mean:
(a) 0.25% for each period (i) commencing on
the fifth day following delivery by Bairnco to the Agent
of the Compliance Certificate for any Fiscal Quarter
required under Section 7.1.1(c) showing that the Debt to
Capital Ratio for such Fiscal Quarter was 55% or greater,
and (ii) ending on the earlier of (A) the fifth day
following delivery by Bairnco to the Agent of the
Compliance Certificate for the next Fiscal Quarter, or
(B) the date on which Bairnco fails to deliver to the
Agent such Compliance Certificate for the next Fiscal
Quarter as required under Section 7.1.1(c); and
(b) zero at all other times."
(c) deleting therefrom the definition of "Arlon Loan
Commitment Amount" in its entirety and substituting therefor
the following:
"'Arlon Loan Commitment Amount' shall mean, at any
date $26,000,000 as such amount may be reduced from time
to time pursuant to Section 2.2.";
(d) deleting therefrom the definition of "Kasco Dollar
Loan Commitment Amount" in its entirety and substituting
therefor the following:
"'Kasco Dollar Loan Commitment Loan' shall mean, on
any date, $3,000,000, as such amount may be reduced from
time to time pursuant to Section 2.2."
(e) deleting therefrom the definition of "Bairnco Loan
Commitment Amount" in its entirety and substituting therefor
the following:
"'Bairnco Loan Commitment Amount' shall mean, at any
date, $13,000,000, as such amount may be reduced from
time to time pursuant to Section 2.2.";
(f) deleting from the definition of "Commitment
Termination Date" the date "August 31, 1999" and substituting
therefor the date "December 31, 2001";
(g) deleting from the definition of "Cumulative Net
Income" in its entirety and substituting therefor the
following:
"'Cumulative Net Income' shall mean, at any date of
calculation an amount (not less than zero) equal to the
sum of the amounts of the net quarterly income and losses
of Bairnco and its Subsidiaries on a consolidated basis
for the period beginning after December 31, 1996 and
ending on the last day of the Fiscal Quarter in which
such date of calculation occurs.
(h) deleting from the definition of "Maximum Loan
Commitment Amount" the amount "$42,000,000" and substituting
therefor the amount "$45,000,000";
(i) deleting the definition of "Net Worth" in its
entirety and substituting therefor the following:
"'Net Worth' shall mean with respect to Bairnco and
its Subsidiaries at a particular date, an amount equal to
the aggregate par value of the outstanding shares of all
classes of stock of Bairnco plus paid-in capital in
excess of the par value of any shares of stock (excluding
the amounts which relate to the cumulative translation
adjustment beginning after December 31, 1996) plus
retained earnings, less all amounts carried on the books
of Bairnco for treasury stock, plus, solely for purposes
of Section 7.2.3, Subordinated Debt with no put options
in favor of the holder of such Subordinated Debt, on the
consolidated balance sheet of Bairnco.
(j) deleting the definition of "Obligations" in its
entirety and substituting the following therefor:
"'Obligations" shall mean (a) all obligations
(monetary or otherwise) of the Borrowers and each other
Obligor arising under or in connection with this
Agreement, the Notes and each other Loan Document and all
Hedging Obligations owed by any Obligor to any Lender,
and (b) all Indebtedness owing to a Lender or an
Affiliate of a Lender (not to exceed $8,000,000 in the
aggregate) in respect of the lines of credit cross
collateralized with the Loans as permitted by Subsection
7.2.1(i) hereof.
(k) deleting from the definition of "Stated Maturity
Date" the date "August 31, 1999" and substituting therefor the
date "December 31, 2001";
(l) adding the following definition:
"'Debt to Capital Ratio' is defined in Section
7.2.3."
(m) adding the following definition:
"'Consolidated Funded Debt' shall mean the sum
of the amounts indicated for the items 'Short-Term
Debt', 'Current Maturities of Long-Term Debt' and
'Long-Term Debt' in the Quarterly Report on Form
10Q for the first three quarterly periods or in the
Annual Report on Form 10K of BAIRNCO and its
Subsidiaries for the fourth quarterly period."
(n) adding the following definition:
"'Stockholders' Investment' shall mean the sum of
the amounts indicated for the item 'Stockholders'
Investment' in the Quarterly Report on Form 10Q for
the first three quarterly periods or in the Annual
Report on Form 10K of BAIRNCO and its Subsidiaries
for the fourth quarterly period.
2. Amendment of Section 2.2.2 (Reduction of Commitment
Amounts; Mandatory--All Loans and Specific Loans). Section 2.2.2
of the Credit Agreement is hereby amended by deleting such Section
in its entirety and substituting therefor the following:
"SECTION 2.2.2 Mandatory--All Loans and Specific Loans.
(a) As of the end of business on each date set
forth below, the Maximum Loan Commitment Amount shall, without
any further action, automatically and permanently be reduced
by the amount set forth opposite such date:
Date Amount
December 31, 1997 $ 5,000,000
December 31, 1998 $ 5,000,000
December 31, 1999 $ 5,000,000
December 31, 2000 $10,000,000
provided, however, that on the Commitment Termination Date,
the Maximum Loan Commitment Amount shall be zero.
(b) In order to implement the reductions in the
Maximum Loan Commitment Amount contemplated by (a) above,
automatic and permanent reductions shall, without any further
action, be made to the Bairnco Loan Commitment Amount, the
Arlon Loan Commitment Amount and the Kasco Dollar Loan
Commitment Amount, as follows:
(i) As of the end of business on each date set
forth below, the Bairnco Loan Commitment Amount shall,
without any further action, automatically and permanently
be reduced by the amount set forth opposite such date:
Date Amount
December 31, 1997 $3,000,000
December 31, 1999 $2,000,000
December 31, 2000 $3,000,000
(ii) As of the end of business on each date set
forth below, the Arlon Loan Commitment Amount shall,
without any further action, automatically and permanently
be reduced by the amount set forth opposite such date:
Date Amount
December 31, 1997 $2,000,000
December 31, 1998 $5,000,000
December 31, 1999 $2,000,000
December 31, 2000 $6,000,000
(iii) As of the end of business on each date set
forth below, the Kasco Dollar Loan Commitment Amount
shall, without any further action, automatically and
permanently be reduced by the amount set forth opposite
such date:
Date Amount
December 31, 1999 $1,000,000
December 31, 2000 $1,000,000"
4. Amendment of Section 3.3.1 (Commitment Fee). Section
3.3.1 of the Credit Agreement is hereby amended by deleting such
Section in its entirety and substituting therefor the following:
The Borrowers jointly and severally agree to pay to the
Agent for the account of the Lenders for the period (including
any portion thereof when any of its Commitments are suspended
by reason of the Borrowers' inability to satisfy any condition
of Article V) commencing on the Effective Date and continuing
through the final Commitment Termination Date, a commitment
fee on each Lender's share of the sum of the average daily
unused portion of (x) the Maximum Loan Commitment Amount and
(y) the Bairnco LC Commitment Amount at a rate equal to:
(a) 0.125% for each period (i) commencing on
the fifth day following delivery by Bairnco to the Agent
of the Compliance Certificate for any Fiscal Quarter
required under Section 7.1.1(c) showing that the Debt to
Capital Ratio for such Fiscal Quarter was less than 35%,
and (ii) ending on the earlier of (A) the fifth day
following delivery by Bairnco to the Agent of the
Compliance Certificate for the next Fiscal Quarter, or
(B) the date on which Bairnco fails to deliver to the
Agent such Compliance Certificate for the next Fiscal
Quarter as required under Section 7.1.1(c);
(b) .15% for each period (i) commencing on the
fifth day following delivery by Bairnco to the Agent of
the Compliance Certificate for any Fiscal Quarter
required under Section 7.1.1(c) showing that the Debt to
Capital Ratio for such Fiscal Quarter was 35% or greater
but less than 45%, and (ii) ending on the earlier of (A)
the fifth day following delivery by Bairnco to the Agent
of the Compliance Certificate for the next Fiscal
Quarter, or (B) the date on which Bairnco fails to
deliver to the Agent such Compliance Certificate for the
next Fiscal Quarter as required under Section 7.1.1(c);
(c) .20% for each period (i) commencing on the
fifth day following delivery by Bairnco to the Agent of
the Compliance Certificate for any Fiscal Quarter
required under Section 7.1.1(c) showing that the Debt to
Capital Ratio for such Fiscal Quarter was 45% or greater
but less than 55%, and (ii) ending on the earlier of (A)
the fifth day following delivery by Bairnco to the Agent
of the Compliance Certificate for the next Fiscal
Quarter, or (B) the date on which Bairnco fails to
deliver to the Agent such Compliance Certificate for the
next Fiscal Quarter as required under Section 7.1.1(c);
and
(d) .25% for each period (i) commencing on the
fifth day following delivery by Bairnco to the Agent of
the Compliance Certificate for any Fiscal Quarter
required under Section 7.1.1(c) showing that the Debt to
Capital Ratio for such Fiscal Quarter was 55% or greater,
and (ii) ending on the earlier of (A) the fifth day
following delivery by Bairnco to the Agent of the
Compliance Certificate for the next Fiscal Quarter, or
(B) the date on which Bairnco fails to deliver to the
Agent such Compliance Certificate for the next Fiscal
Quarter as required under Section 7.1.1(c).
Such commitment fees shall be payable by such Borrowers
in arrears on each Quarterly Payment Date, commencing with the
first such day following the Effective Date, and on each
Commitment Termination Date. As among the Lenders, the
allocable amount of the commitment fee payable to each Lender
shall be computed giving effect to the fact that only Bank of
America (and no other Lender) is obligated to provide Loans in
respect of the Foreign Loan Commitment and the Foreign Dollar
Loan Commitment.
5. Amendment of Section 3.3.2 (Letter of Credit Fees).
Section 3.3.2 is hereby amended by deleting therefrom clauses (a)
through (d) of the second sentence thereof and substituting
therefor the following:
(a) 0.375% for each period (i) commencing on the
fifth day following delivery by Bairnco to the Agent of the
Compliance Certificate for any Fiscal Quarter required under
Section 7.1.1(c) showing that the Debt to Capital Ratio for
such Fiscal Quarter was less than 35%, and (ii) ending on the
earlier of (A) the fifth day following delivery by Bairnco to
the Agent of the Compliance Certificate for the next Fiscal
Quarter, or (B) the date on which Bairnco fails to deliver to
the Agent such Compliance Certificate for the next Fiscal
Quarter as required under Section 7.1.1(c);
(b) .50% for each period (i) commencing on the
fifth day following delivery by Bairnco to the Agent of the
Compliance Certificate for any Fiscal Quarter required under
Section 7.1.1(c) showing that the Debt to Capital Ratio for
such Fiscal Quarter was 35% or greater but less than 45%, and
(ii) ending on the earlier of (A) the fifth day following
delivery by Bairnco to the Agent of the Compliance Certificate
for the next Fiscal Quarter, or (B) the date on which Bairnco
fails to deliver to the Agent such Compliance Certificate for
the next Fiscal Quarter as required under Section 7.1.1(c);
(c) .75% for each period (i) commencing on the fifth
day following delivery by Bairnco to the Agent of the
Compliance Certificate for any Fiscal Quarter required under
Section 7.1.1(c) showing that the Debt to Capital Ratio for
such Fiscal Quarter was 45% or greater but less than 55%, and
(ii) ending on the earlier of (A) the fifth day following
delivery by Bairnco to the Agent of the Compliance Certificate
for the next Fiscal Quarter, or (B) the date on which Bairnco
fails to deliver to the Agent such Compliance Certificate for
the next Fiscal Quarter as required under Section 7.1.1(c);
and
(d) 1.00% for each period (i) commencing on the
fifth day following delivery by Bairnco to the Agent of the
Compliance Certificate for any Fiscal Quarter required under
Section 7.1.1(c) showing that the Debt to Capital Ratio for
such Fiscal Quarter was 55% or greater, and (ii) ending on the
earlier of (A) the fifth day following delivery by Bairnco to
the Agent of the Compliance Certificate for the next Fiscal
Quarter, or (B) the date on which Bairnco fails to deliver to
the Agent such Compliance Certificate for the next Fiscal
Quarter as required under Section 7.1.1(c).
6. Amendment of Section 7.2.1(i). Section 7.2.1(i) is
hereby amended by deleting such Section in its entirety and
substituting the following therefor:
"(i) Indebtedness owing to a Lender or an Affiliate
of a Lender in respect of other lines of credit cross-
collateralized with the Loans and Obligations contemplated
hereby as long as (i) the aggregate amount available to be
drawn under such lines of credit does not exceed $10,000,000,
and (ii) the aggregate amount at any time outstanding under
such lines of credit does not exceed $8,000,000; and"
7. Amendment of Section 7.2.3 (Financial Condition).
Section 7.2.3 of the Credit Agreement is hereby amended by deleting
such Section in its entirety and substituting therefor the
following:
"SECTION 7.2.3 Financial Condition. The Borrowers will
not permit:
(a) Net Worth. Their Net Worth to be less than the
sum of (i) $40,000,000, plus (ii) 60% of Cumulative Net Income
plus (iii) 60% of the net cash proceeds of stock sold by
Bairnco after December 31, 1996.
(b) Debt/Capital Test. The ratio for Bairnco and
its Subsidiaries of (i) all Consolidated Funded Debt to (ii)
the sum of (A) Consolidated Funded Debt, plus (B)
Stockholders' Investment (the 'Debt to Capital Ratio') to
exceed 65%.
(c) Interest Coverage Ratio. The ratio for Bairnco
and its Subsidiaries of (i) consolidated earnings before
deducting interest and taxes (excluding non-recurring gains
and charges) to (ii) consolidated interest expense for
Indebtedness (including, without limitation, Subordinated Debt
and Capitalized Lease Liabilities) (the 'Interest Coverage
Ratio') to be less than 2.00:1 for any Fiscal Quarter."
8. Amendment of Section 7.2.5 (Bairnco Restricted Payments,
etc.). Section 7.2.5 of the Credit Agreement is hereby amended by
deleting the text in its entirety and substituting therefor the
text, "Intentionally Omitted".
9. Amendment of Section 7.2.6 (Rental Obligations). Section
7.2.6. of the Credit Agreement by deleting the amount"$20,000,000"
and substituting the amount "$10,000,000" therefor.
10. Amendments of Section 7.2.9 (Asset Dispositions, etc.).
Section 7.2.9 of the Credit Agreement is hereby amended by deleting
therefrom clause (b) thereof in its entirety and substituting
therefor the following:
"(b) the net book value of such assets, together with the
net book value of all other assets sold, transferred, leased,
contributed or conveyed otherwise than in the ordinary course
of business by all Borrowers or any of their Subsidiaries
pursuant to this clause after December 31, 1996, does not
exceed $5,000,000 in the aggregate for all Borrowers and their
Subsidiaries;"
11. Amendment of Exhibit G (Form of Compliance Certificate).
Exhibit G to the Credit Agreement is hereby amended by deleting
such Exhibit in its entirety and substituting therefor a new
Exhibit G in the form of Annex I hereto.
B. REPRESENTATIONS AND WARRANTIES
The Borrowers hereby represent and warrant to the Agent and
the Lenders that:
1. No Default has occurred and is continuing; and
2. The representations and warranties of the Borrowers
contained in Article VI of the Credit Agreement are true on and as
of the date hereof as if made on and as of said date; provided,
however, that each reference to "this Agreement" contained in such
Article VI shall be deemed to be a reference to the Credit
Agreement as amended hereby.
C. CONDITIONS PRECEDENT
This Amendment will become effective as of the date first
written above upon receipt by the Agent of counterparts hereof duly
executed by each Borrower, each of the Lenders party to the Credit
Agreement and the Agent, provided that contemporaneously with such
execution and delivery, the Agent shall have received for the
account of the Lenders, an amendment fee in an amount equal to
$55,000 to be distributed to the Lenders as set forth below:
Lender Amount
Bank of America Illinois $28,558
First Union National
Bank of Florida $8,814
NBD Bank $8,814
Sun Bank, National Association $8,814
D. MISCELLANEOUS
1. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with same effect
as if the signatures thereto and hereto were upon the same
instrument.
2. Except as herein specifically amended, all terms,
covenants and provisions of the Credit Agreement shall remain in
full force and effect and shall be performed by the parties hereto
in accordance therewith. All references to the "Agreement" or the
"Credit Agreement" contained in the Credit Agreement or in the
Schedules or Exhibits shall henceforth refer to the Credit
Agreement as amended by this Amendment.
3. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD
TO CONFLICT OF LAWS PRINCIPLES.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment as of the date first written.
BAIRNCO CORPORATION
By:/s/ J. Robert Wilkinson
Name: J. Robert Wilkinson
Title: Vice President
ARLON, INC.
By:/s/ J. Robert Wilkinson
Name: J. Robert Wilkinson
Title: Vice President
KASCO CORPORATION
By:/s/ J. Robert Wilkinson
Name: J. Robert Wilkinson
Title: Vice President
ATLANTIC SERVICE CO. (UK), LTD.
By:/s/ J. Robert Wilkinson
Name: J. Robert Wilkinson
Title: Director
BERTRAM & GRAF GMBH
By:/s/ J. Robert Wilkinson
Name: J. Robert Wilkinson
Title: Director
EUROKASCO S.A.
By:/s/ J. Robert Wilkinson
Name: J. Robert Wilkinson
Title: Director
BANK OF AMERICA ILLINOIS, as Agent
By:/s/ Steve A. Aronowitz
Name: Steve A. Aronowitz
Title: Managing Director
BANK OF AMERICA ILLINOIS, as a Lender
By:/s/ Steve A. Aronowitz
Name: Steve A. Aronowitz
Title: Managing Director
FIRST UNION NATIONAL BANK OF FLORIDA
By:/s/ Billy A. Green
Name: Billy A. Green
Title: Senior Vice President
NBD BANK
By:/s/ J. Philip Lowman
Name: J. Philip Lowman
Title: First Vice President
SUNTRUST BANK
By:/s/ J. Brian Lewis
Name: J. Brian Lewis
Title: Vice President
ANNEX I to Amendment
EXHIBIT G
BAIRNCO CORPORATION
Compliance Certificate
Quarter Ended
Reference is made to that
certain Amended and Restated Credit Agreement dated as of December
17, 1992, among Bairnco Corporation, certain of its subsidiaries as
Borrowers, certain financial institutions as Lenders, and Bank of
America Illinois (formerly known as Continental Bank N.A.), as
Agent, as amended, supplemented or otherwise modified from time to
time (the "Credit Agreement"). Capitalized terms used herein
without definition shall have the same respective meanings ascribed
thereto in the Credit Agreement.
Pursuant to Section 7.1.1(c) of
the Credit Agreement, the Borrowers HEREBY CERTIFY THAT:
1. No Default. As of the date
hereof, no Default under the
Credit Agreement has occurred
and is continuing, except as
set forth below (If no
exceptions, state "None"):
2. Net Worth (Section 7.2.3(a))
A. Net Worth
(a) Aggregate Par Value of Outstanding Shares $
(b) Paid-in Capital (excluding cumulative
translation adjustment since 12/31/96) $
(c) Retained Earnings $
(d) Treasury Stock $
(e) Subordinated Debt with No Put Option $
Sum of (a)+(b)+(c)+(e) less (d) $
B. Cumulative Net Income from 12/31/96 $
C. Proceeds of Bairnco Stock since 12/31/96 $
D. Credit Agreement Requirements:
Net Worth (A) not to be less than:
(1) $40,000,000 plus
(2) 60% of Cumulative Net Income (B) plus
(3) 60% of net cash proceeds of Bairnco
stock sold since 12/31/96
Compliance Indicated . . . . . . . . . . . . . . . . .
3. Debt to Capital Ratio (Section 7.2.3(b))
A. Consolidated Funded Debt $
B. Stockholders' Investment $
C. Sum of A + B $
D. Ratio of A to A + B
E. Credit Agreement Requires Not Greater Than: 65%
F. Compliance Indicated . . . . . . . . . . . . .
4. Interest Coverage Ratio (Section 7.2.3(c))
A. Consolidated Earnings Before Interest
Expenses and Taxes for the fiscal quarter
ended, excluding non-recurring
gains and charges $
B. Consolidated Interest Expense for
Indebtedness for the fiscal quarter
ended $
C. Ratio of A to B
D. Credit Agreement Requires Not Less Than: 2.00:1
Compliance Indicated . . . . . . . . . . . . . . . .
IN WITNESS WHEREOF, the undersigned has executed this certificate on behalf
of the Borrowers as of the day of , .
BAIRNCO CORPORATION
By:
Chief Financial Officer
<TABLE>
EXHIBIT 11
BAIRNCO CORPORATION AND SUBSIDIARIES
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net Income $ 8,335,000 $ 7,781,000 $ 7,255,000
Average common shares
outstanding 9,753,000 10,433,000 10,500,000
Common shares issuable in
respect to common stock
equivalents, with a
dilutive effect 98,000 3,000 --
Total common and common
equivalent shares 9,851,000 10,436,000 10,500,000
Primary Earnings Per
Common Share $ 0.85 $ 0.75 $ 0.69
FULLY DILUTED EARNINGS
PER SHARE:
Net Income $ 8,335,000 $ 7,781,000 $ 7,255,000
Total common and common
equivalent shares 9,851,000 10,436,000 10,500,000
Additional common shares
assuming full dilution -- 4,000 --
Total common shares assuming
full dilution 9,851,000 10,440,000 10,500,000
Fully Diluted Earnings Per
Common Share $ 0.85 $ 0.75 $ 0.69
Earnings per share is based on the average number of shares outstanding
during each period. Primary earnings per share includes all common stock
equivalents. Fully diluted earnings per share includes all common stock
equivalents plus the additional common shares issuable assuming full
dilution.
</TABLE>
THE COMPANY
Bairnco Corporation is a diversified multinational company that operates two
business sectors.
Engineered materials and components are designed, manufactured and sold under
the Arlon brand identity to electronic, industrial and commercial markets.
These products are based on a common technology in coating, laminating, resin
technology and dispersion chemistry. Arlon's principal products include high
performance materials for the printed circuit board industry, cast and
calendered vinyl film systems, custom engineered laminates and pressure
sensitive adhesive systems, and calendered and extruded silicone rubber
insulation products used in a broad range of industrial, consumer and
commercial products.
Replacement products and services are manufactured and distributed under the
Kasco name principally to retail food stores and meat, poultry and fish
processing plants throughout the United States, Canada and Europe. The
principal products include replacement band saw blades for cutting meat,
fish, wood and metal, and on-site maintenance services for the retail food
industry primarily in the meat and deli departments. Kasco also distributes
equipment to the food industry in Canada and France. These products are sold
under a number of brand names including Kasco in the United States and
Canada, Atlantic Service in the United Kingdom, and Bertram & Graf and Biro
in Continental Europe.
STRATEGY
Bairnco's strategy is to serve a broad range of niche markets with quality
products and services, while providing extra value to its customers through
focused and cost effective organizations and facilities. Bairnco strives to
develop true partnership relationships with its customers in these selected
markets through close cooperation in developing value added solutions to
their needs. Bairnco seeks to identify and participate in those markets that
will provide growth opportunities due to either technical developments or the
changing needs of the customers.
OBJECTIVES
Bairnco believes that concentrating its resources in selected market niches
can provide the basis to achieve both superior profitability and growth.
Management's long term objectives are to achieve a 15% compound rate of
earnings growth, a 20% return on stockholders' investment, and a 15% return
on total capital employed.
CONTENTS
Financial Highlights 1
Letter to our Stockholders 2
Engineered Materials & Components (Arlon) 4
Replacement Products & Services (Kasco) 6
Directors and Management 8
Financial History 9
Management's Discussion and Analysis 10
Quarterly Results of Operations 12
Report of Independent Certified Public Accountants 13
Consolidated Financial Statements 14
Notes to Consolidated Financial Statements 18
<TABLE>
FINANCIAL HIGHLIGHTS
(In thousands except per share data)
<CAPTION>
Percent Change
1996 1995 1994 96/95 95/94
<S> <C> <C> <C> <C> <C>
Net Sales $ 150,234 $ 150,507 $ 145,522 0% 3%
Operating Profit $ 14,956 $ 14,633 $ 13,654 2% 7%
Net Income $ 8,335 $ 7,781 $ 7,255 7% 7%
Earnings per Share $ 0.85 $ 0.75 $ 0.69 13% 9%
Cash Dividends
per Share $ 0.20 $ 0.20 $ 0.20 0% 0%
Stockholders'
Investment per
Share $ 5.02 $ 4.60 $ 4.19 9% 10%
Total Assets $ 102,600 $ 98,196 $ 102,772 4% (4%)
Stockholders'
Investment $ 49,464 $ 48,024 $ 43,997 3% 9%
Average Shares
Outstanding 9,851 10,440 10,500 (6%) (1%)
</TABLE>
Graphic - Bar Chart depicting Sales (y-axis) for six years - 1991 to
1996 (x-axis):
Year Sales
(in thousands)
1991 $128,566
1992 $135,581
1993 $134,958
1994 $145,522
1995 $150,507
1996 $150,234
Graphic - Bar Chart depicting Income from Continuing Operations (y-axis) for
six years - 1991 to 1996 (x-axis):
Year Income from Continuing Operations
(in thousands)
1991 $6,643
1992 $7,755
1993 $ 817
1994 $7,255
1995 $7,781
1996 $8,355
Graphic - Bar Chart depicting Earnings per Share from Continuing Operations
(y-axis) for six years - 1991 to 1996 (x-axis):
Year Earnings per Share from Continuing Operations
1991 $0.61
1992 $0.72
1993 $0.08
1994 $0.69
1995 $0.75
1996 $0.85
LETTER TO OUR STOCKHOLDERS
1996 was a year of solid progress for Bairnco. Earnings increased despite
level sales. Debt increased modestly as the result of the stock repurchase
program and a small product line acquisition. Our strong financial condition
improved. Significant personnel additions and promotions added to the
management strength of our operations and headquarters.
FINANCIAL RESULTS
Sales of $150,234,000 in 1996 were level with $150,507,000 in 1995. Arlon's
sales increased 4.1%. Sales to the graphics and electric insulation markets
continued to grow which more than offset lower sales to the electronics
industry caused by the industry inventory correction primarily during the
second and third quarters. Kasco's sales decreased 8.5%, part of which was
consistent with the program to refocus Kasco North America on its core
business and part of which was totally unexpected due to the severe impact
of BSE ("mad cow" disease) on meat consumption in Europe and its attendant
impact on Kasco's replacement, and equipment business in Europe.
In 1996, gross profit decreased 1.5% to $52,536,000 from $53,317,000 in the
prior year. Gross profit margins declined to 35.0% from 35.4% last year.
Arlon's gross profit increased 3.7% as a result of sales growth and a mix
change, which was partially offset by lower yields in two plants caused by the
gyrations in the electronics market during the year resulting in lower gross
profit margins as a percent of sales. Kasco's gross profit declined 8.6% as a
result of the sales decrease. The program to refocus Kasco's North America
operations was substantially completed and gross profit margin increased 1.5%
on lower sales. However these improvements were more than offset by the $1.1
million reduced gross profit in Europe most of which occurred in the second
and third quarters from the BSE panic. Meat consumption and the confidence
of the European meat processing and distribution markets began to recover in
the fourth quarter.
Selling and administrative expenses decreased $1,104,000 or 2.9% to
$37,580,000 from $38,684,000 in 1995. As a percent of sales, these expenses
decreased to 25.0% in 1996 from 25.7% in 1995. Selling expense decreased
slightly. Kasco's expenses were reduced consistent with its plan. Arlon's
sales and marketing expenses increased in accord with its continued
investment in sales and marketing. Administrative expenses continued to be
reduced both absolutely and as a percentage of sales. Research and
development expenses increased 1.5% as Bairnco continued to invest in the
development of new products and improved quality. New and improved products
introduced in the last 5 years accounted for approximately 30% of our sales
in 1996.
Net interest expense decreased $301,000 or 14.9% from $2,026,000 to
$1,725,000. The decrease was due primarily to lower interest rates.
Income before income taxes increased 4.9% to $13,231,000 in 1996 as compared
to $12,607,000 in 1995. The effective tax rate decreased to 37.0% from
38.3% in 1995.
Net income increased 7.1% to $8,335,000 in 1996 as compared to $7,781,000 in
1995. Earnings per share increased 13.3% to $.85 from $.75 last year. As a
result of the stock repurchase program, the average number of shares
outstanding in 1996 was 9,851,000, a 5.6% decrease from the 10,440,000
average outstanding in 1995.
FINANCIAL MANAGEMENT
Return on capital employed increased to 12.3% from 11.9% last year. Return
on stockholders' investment increased to 17.2% compared to 16.7% last year.
Management continues to make progress towards our long term objectives of a
20% return on stockholders' investment and a 15% return on total capital
employed.
In 1996, Bairnco's Board of Directors authorized the repurchase of up to
$5,000,000 of its common stock. This authorization was in addition to the
$2,420,000 still unused from the prior year $5,000,000 authorization.
During the year the Company repurchased 803,900 shares for $5,412,000. The
Board has authorized management to continue its stock repurchase program in
1997 subject to market conditions and the capital requirements of the
business.
Working capital as a percent of sales increased from 18.8% to 20.2%. The
increase in other current assets is due to a tax refund expected to be
received during the first quarter 1997.
Net cash flows provided by operating activities were $13,612,000. These cash
flows were more than sufficient to cover operating requirements, fund
Bairnco's capital expenditure program, pay dividends and generate some excess
cash. However, the acquisition, attendant capital expenditures and the stock
repurchase program required $7.9 million in additional funds. Consequently,
1996 total debt increased to $28,179,000 from $24,578,000 at the end of 1995.
Debt as a percent of equity increased to 57.0% from 51.2% in 1995.
Subsequent to year end, the reducing revolving credit agreement was amended
to increase the maximum available borrowings to $45 million from $35 million
and to extend the final maturity to December 31, 2001. At year end 1996,
Bairnco had $23.3 million available under its revolving credit agreement, and
$5.6 million available under short term lines of credit.
1996 capital expenditures were $10,131,000 as compared to a plan of
$12,300,000. The reduction in capital expenditures from plan was due
primarily to the deferment of a capacity addition from 1996 into future
years. Again substantial improvements in operating efficiencies in 1996 and
planned for 1997 permitted the postponement of this major capital expenditure.
Depreciation and amortization were $6,305,000. The focus of the capital
expenditure program during 1996 was primarily on required replacements,
efficiency and quality improvements, and capacity additions.
The capital expenditure plan for 1997 is approximately $13.3 million.
Depreciation and amortization is estimated to be approximately $7.0 million.
The planned capital expenditures include cost reduction projects,
replacements, quality improvements, new product developments, new processing
equipment, capacity additions and equipment to meet new environmental
regulatory requirements primarily in California. Approximately $4 million of
the planned expenditures are contingent upon the realization of the
anticipated growth in several markets.
DIVIDEND
The quarterly $.05 per share cash dividend was maintained during the year.
MANAGEMENT
Effective October 1, 1996, Jeff Berresford was appointed President of Kasco
Corporation. Mr. Berresford was previously Vice President of Marketing for
the Food and Beverage Division of Ecolab, Inc.
Effective October 14, 1996, Elmer Pruim was appointed President of Arlon's
Adhesives & Films Division. Mr. Pruim was Acting President of Kasco North
America from September 1995 to September 1996 and served as Bairnco's
Controller since August 1994.
Effective October 21, 1996, Linda Metcalf was appointed Vice President
Administration and Secretary of Bairnco. Mrs. Metcalf was previously
Managing Director of Human Resources at CBIS.
During 1996 the management development program, which is one of the keys to
our success, continued to make progress in all operations. Many key
positions were filled or upgraded through a combination of internal
promotions and external additions. The ongoing improvement and development
of all employees remains a critical and never ending element for Bairnco's
success.
SUMMARY AND OUTLOOK
1996 was another year of progress for Bairnco. Arlon's results continued to
manifest the benefits of investing in the development of new products, new
markets, and expanded sales, marketing and research efforts. The depressing
impact of the electronics industry inventory correction during 1996 is not
expected to recur in 1997.
The program of refocusing Kasco North America to become the preeminent
supplier of cutting products and routine instore equipment services was
substantially completed during the year. There were again expenses incurred
in the continuing re-engineering and cost reduction programs. Throughout the
year, in the North American operations, the benefits of these actions
appeared in the improving financial results as compared to last year. We
expect to see continuing benefits in 1997 and beyond from the actions taken.
The positive impact of these programs was substantially offset by the impact
of BSE on the European operations. BSE's negative impact appears to be
behind us but the recovery will be gradual over the next several years.
Kasco's entire organization is now focused on growing through providing
superior products and services to its customers and core markets.
The outlook for 1997 is for improved sales and earnings. The US economy is
again expected to experience slow growth during 1997 with inflation remaining
under control and the Federal Reserve Board maintaining interest rates within
recent historical bands. It is expected that the combination of growth in
new products and in certain niche markets will result in sales increases more
than offsetting the low margin sales that have been eliminated. Improved
earnings are expected both from increased sales and the continuing cost
reduction and efficiency and yield improvement programs. Due to the
relatively strong first quarter in 1996, the timing of product line pruning
during 1996 and the anticipated implementation of programs in 1997, the first
part of 1997 is expected to be level with last year with the improvements
beginning during the second quarter.
The continuing dedication and excellent performance of all our employees
remains the key to our past and future success. Bairnco is dedicated to
making 1997 a year of continuing improvement.
Respectfully yours,
Luke E. Fichthorn III
Chairman and CEO
ENGINEERED MATERIALS AND COMPONENTS
BUSINESS
Bairnco designs, manufactures, and sells engineered materials and components
for the electronic, industrial and commercial markets under the Arlon brand
name. These products are based on a common technology in coating, laminating,
resin technology and dispersion chemistry.
PRODUCTS AND APPLICATIONS
CIRCUIT BOARD MATERIALS:
Arlon Materials for Electronics has an international reputation as the
premier supplier of high technology materials for the printed circuit board
industry. The products include the high performance and high temperature
materials of the Electronic Substrates product line, and the frequency
dependent and low signal loss materials of the Microwave Materials product
line. These products are marketed principally to printed circuit board
manufacturers and OEM's by a direct sales force in concert with strong
technical support teams. These materials are used in products for the
commercial, military, industrial, computer and telecommunications markets.
The economic factors affecting demand for these products include the level
of economic activity in North America, Europe and Asia for high performance
electronics, sophisticated defense electronics procurement, and
telecommunication systems.
The core of the Electronic Substrates line includes premium high temperature
capable laminate products used in circuit boards for military electronics and
sophisticated commercial applications. Product applications included
next-generation commercial and military avionics systems combining demands
for surface mount technology with high temperature fabrication and use
temperatures, and high performance test fixturing for next-generation
integrated circuits. Intermediate temperature laminates which provide both
improved product reliability in the field and ease of manufacture are also
key to the line. Specialty products have been developed for the surface
mounting of computer chips on circuit boards and multi-chip modules which are
growing segments of the printed circuit board market. Efforts at the Rancho
Cucamonga, California facility continue to stress improved customer
responsiveness both in product design as well as shortened delivery time.
This facility is ISO 9002 (International Quality Standard) certified.
The Microwave Materials product line produces the world's leading substrates
for microwave applications. The business mix has moved from a predominantly
military base to technology and cost driven commercial applications. The
existing and emerging consumer products operating at microwave frequencies
include digital cordless telephones, local and global cellular phone systems,
direct broadcast satellite TV systems, global positioning satellite systems,
and other personal communications equipment. Additional wireless
opportunities for Arlon circuit board materials include local area networks
for computers and public business exchange systems or PBX's where telephones
operate as microcellular phones within the confines of a facility or complex.
A major emerging market for wireless communications is the new phone systems
which are being planned for a number of developing countries in Asia and
South America. These systems will bypass the high cost of installing and
maintaining a hard-wire infrastructure and will permit regional installation
based on population density. This should be a large and growing market over
the next decade as numerous countries become involved.
The frequency dependent market area continues to drive toward lower cost to
allow greater commercial and consumer penetration by new electronics
applications. Increased activity in high speed digital applications and low
cost, low signal loss materials has resulted in the development of a
multi-layerable low loss product at Rancho Cucamonga. New product
development continues with emphasis on low cost , low signal loss materials.
The Arlon Microwave facility in Bear, Delaware continues to invest in
equipment to convert from low volume military to high volume commercial
materials. It is expected this facility will be ISO 9002 certified in 1997.
SPECIALTY GRAPHIC FILMS:
Bairnco manufactures and markets, under the Calon brand name, cast and
calendered vinyl films in a wide variety of colors and with varying face
stocks and adhesive systems for specialty graphics which are used by
commercial sign manufacturers and graphic printing houses, and in numerous
commercial and governmental specification applications.
The economic factors affecting this business are the general level of
economic activity in the United States, Canada, Europe, South America and
the Asian Basin.
Arlon has entered into a strategic alliance with a United Kingdom based
graphics and distribution company to further develop the European market.
This new venture is expected to provide better and more cost effective
services to Arlon's European distributors. Arlon N.V., Arlon's Belgium
subsidiary which had served Europe, continued to under perform and was
closed in 1996.
The graphic film products are produced primarily at the Santa Ana facility
which is ISO 9001 certified. Products are also produced and distributed
from the East Providence facility.
Continued investments in equipment and R&D resources yielded further
improvements in quality and productivity. Additional quality and
productivity gains are expected in 1997.
Several new graphics products and colors were introduced in 1996. This
market is expected to continue to grow modestly in excess of the economy.
Price competition in the lower performance calendered vinyl films continued
in 1996.
Additional new products and colors are planned for introduction in 1997. It
is also expected that the additional sales and marketing resources put in
place during 1996 will result in better market penetration and that the new
European market strategy will contribute positively to sales and earnings.
Graphic - Arlon Adhesives & Films Division's new line of inkjet vinyl offers
new application opportunities to the graphics industry.
CUSTOM ENGINEERED LAMINATES AND ADHESIVE SYSTEMS:
Bairnco manufactures and markets custom engineered laminates and adhesives
systems under the Arlon brand name.
The economic factors impacting this business are primarily the general level
of industrial economic activity in the United States.
Typical applications include insulating foam tapes for thermopane windows,
electrical insulation, thermal insulation panels for appliances and cars,
security tags and labels, durable printing stock for high speed laser printing
systems, and custom engineered laminates for specific industrial applications.
The combination of the Santa Ana, California and East Providence, Rhode
Island operations provides a unique ability to meet the needs of new custom
laminate applications. The East Providence facility was certified ISO 9001
during 1996.
Arlon is now focusing on developing additional engineered laminates, coatings
and pressure sensitive systems for specific industrial applications. In
addition to focused sales efforts, certain engineered laminates and coated
products are now being marketed through the electronic and silicone products
sales teams.
SILICONE RUBBER TECHNOLOGIES:
Bairnco manufactures a line of silicone rubber materials used in a broad
range of consumer, industrial and commercial products. This business is
sensitive to the level of general industrial and consumer spending in the
United States.
Typical applications of these materials include silicone rubber for molding
composites, silicone rubber insulating tape for electric traction motor
windings, industrial flexible heaters, power utility insulating tapes, as
wall as, many thermal and electrical conductivity applications.
The silicone rubber product line provides significant opportunity for Arlon
in a number of areas. During 1996 further progress was made in both the
development and applications of Thermabond(tm), a range of thermally conductive
silicone products designed for the dissipation of heat from electronic
circuit boards. Further progress was also made during the year in
identifying new channels of distribution to serve international markets.
The distributor agreement with Airtech, a leading supplier of vacuum bagging
materials to the composite industry, continues to develop opportunities in
industrial as well as defense and aerospace composite applications.
In January of 1996, Arlon acquired the silicone rubber tape product line of
Permacel, Inc.. During the year the Permacel line was integrated into the
Bear, Delaware facility and now provides additional capacity and a broader
range of capability including the ability to calender ultra-thin silicone
rubber materials both with a supporting backbone as well as unsupported.
1997 is expected to be a year of continued growth for existing and new
engineered products.
Graphic - Arlon's Thermabond(tm), a conductive silicone-sheet adhesive, is
laser-cut to conform to PCB and heat-sink configurations and forms a
flexible bond to transfer energy away from a densely populated board.
REPLACEMENT PRODUCTS AND SERVICES
BUSINESS
Bairnco, through its multinational Kasco operations, manufactures and
supplies replacement products and services principally to retail food stores
and meat, poultry and fish processing plants throughout the United States,
Canada and Europe. Replacement band saw blades are also sold for use in wood
and metal industries. The French and Canadian operations also distribute
equipment to the supermarket and food processing industries in their
respective markets.
PRODUCTS AND APPLICATIONS
Kasco manufactures band saw blades for cutting, and chopper plates and knives
for grinding meat in supermarkets and packing plants, band saw blades used
in frozen fish factories, small band saw blades for cutting metal and wood,
and large band saw blades for lumber mills. Kasco formulates, manufactures
and markets seasoning products for the meat and deli departments of
supermarkets which are primarily used in the preparation of instore products.
Kasco distributes related supply products to supermarkets and other customers.
Kasco also provides preventive maintenance and repair parts and service for a
broad range of supermarket equipment primarily in the meat and deli areas in
selected markets.
VAN SERVICE:
In North America, Kasco supplies its products and services directly to the
supermarket and meat cutting industries through a continent-wide network of
service professionals. These service professionals make regularly scheduled
calls on the accounts in their region. They supply the Company's products
and provide related equipment maintenance services. Kasco's service
professionals are continuously trained in the service and maintenance of
equipment used in the meat preparation areas of retail food outlets.
The field computerization program permits the service professionals to more
efficiently service their customer base.
Graphic - Kasco's continent-wide network of service professionals provides
quick, efficient and practical solutions to its customers.
REPAIR SERVICE:
Kasco integrated its service centers with its van service network in North
America during the fourth quarter of 1996. This integration was designed to
both improve the cost effectiveness and provide improved timely equipment
maintenance. The integration will result in lower revenues in 1997 but
improved profit contribution.
The repair service operations provide preventive maintenance programs and
emergency repair programs for a broad range of equipment primarily in the
meat preparation and deli areas of supermarkets and other retail food outlets
in their geographical areas.
SEASONING:
Seasoning represents an emerging opportunity for Kasco to provide new value
added programs to the meat and deli departments of its supermarket customers.
As supermarkets increasingly compete with the restaurant trade for the
consumers food dollars, they are turning to prepared foods. Kasco is well
positioned to support its customers with its comprehensive "Mealtime
Solutions" seasoning program. "Mealtime Solutions" offers a package of
seasoning blends, recipes and instruction which allows a supermarket to
present value added products in their meat and deli departments.
Graphic - Kasco offers its customers "Mealtime Solutions", a value added
seasoning program.
SPECIAL PRODUCTS:
Through its special products group, Kasco supplies band saw blades to OEMs
in the meat cutting industry and band saw blades for cutting wood and metal
to the OEMs supplying machines to those industries. Special products also
sells through general distribution and is responsible for export sales
throughout the world with the exception of Europe where such sales are the
responsibility of the three operations in Europe.
EQUIPMENT DISTRIBUTION:
In France, in addition to providing its standard products, Kasco distributes
equipment used in the supermarket industry and in the food processing
industry. In Canada Kasco has reduced its equipment distribution activity
during 1996 to those select markets where it provides superior value and
service to its customers.
MANUFACTURING
Kasco and its subsidiaries have manufacturing operations in St. Louis,
Missouri; City of Industry, California; Toronto, Canada; Gwent, Wales,
United Kingdom; and Pansdorf, Germany. During 1996, Kasco's continuous
improvement programs combined with significant capital and process
investments resulted in superior quality bands, improved on time deliveries
and improved productivity. Continuing improvements are expected in 1997.
DIRECTORS (individual photographs)
1. Luke E. Fichthorn III
Chairman and CEO
Bairnco Corporation
2. Charles T. Foley
President
Estabrook Capital Management, Inc.
3. Richard A. Shantz
Private Investor
4. William F. Yelverton
CEO - Individual Insurance Group
Prudential Insurance Company of America
MANAGEMENT (individual photographs)
1. Jeffrey M. Berresford
President
Kasco Corporation
2. Robert M. Carini
President
Arlon Materials for Electronics
3. Linda M. Metcalf
Vice President Administration & Secretary
Bairnco Corporation
4. Elmer G. Pruim
President
Arlon Adhesives & Films
5. J. Robert Wilkinson
Vice President Finance & Treasurer
Bairnco Corporation
<TABLE>
FINANCIAL HISTORY
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Summary of Operations
($ in thousands)
Net sales $ 150,234 150,507 145,522 134,958 135,581
Gross profit $ 52,536 53,317 53,177 52,645 54,714
Earnings before interest,
charges & taxes (a) $ 14,956 14,633 13,654 13,617 15,846
Operating profit $ 14,956 14,633 13,654 4,874 15,846
Interest expense, net $ 1,725 2,026 2,144 2,248 2,911
Income before income
taxes $ 13,231 12,607 11,510 2,626 12,935
Provision for income
taxes $ 4,896 4,826 4,255 1,809 5,180
Income from continuing
operations $ 8,335 7,781 7,255 817 7,755
Return from continuing
operations on:
Net sales % 5.5 5.2 5.0 0.6 5.7
Stockholders'
investment % 17.2 16.7 17.4 1.4 12.1
Capital employed % 12.3 11.9 10.6 2.0 8.6
Year-End Position
($ in thousands)
Working capital $ 30,341 28,350 26,277 20,098 18,983
Plant and equipment, net $ 38,276 34,449 36,289 38,654 39,232
Total assets excluding
discontinued operations $ 102,600 98,196 99,243 95,547 98,916
Net assets of
discontinued operations $ -- -- 3,529 12,434 34,337
Total assets $ 102,600 98,196 102,772 107,981 133,253
Total debt $ 28,179 24,578 31,775 43,718 45,733
Stockholders' investment $ 49,464 48,024 43,997 38,515 62,055
Capital employed - total $ 77,643 72,602 75,772 82,233 107,788
Capital employed -
proforma (b) $ 77,643 72,602 75,772 82,233 85,895
Per Share Data
Primary and fully diluted
income from continuing
operations $ 0.85 0.75 0.69 0.08 0.72
Cash dividend $ 0.20 0.20 0.20 0.20 0.20
Stockholders' investment $ 5.02 4.60 4.19 3.67 5.91
Market price:
High $ 8-1/2 6 5-1/2 8-1/2 8-1/4
Low $ 5-1/2 3-7/8 3 3-3/8 5-5/8
Other Data (in thousands)
Depreciation and
amortization $ 6,305 6,314 6,502 6,700 5,808
Capital expenditures $ 10,131 4,831 5,176 6,318 13,195
Average shares
outstanding (c) 9,851 10,440 10,500 10,500 10,749
Current ratio 2.4 2.2 2.0 1.8 1.7
Number of common
stockholders 1,773 1,967 2,198 2,326 2,440
Average number of
employees 825 874 915 920 935
Sales per employee $ 182,100 172,200 159,040 146,700 145,000
(a) Excludes impact of non-recurring litigation and restructuring costs of
$8,743 (pre-tax) in 1993.
(b) Stockholders' investment and capital employed adjusted on a proforma
basis for discontinued operations NRV writedown and loss on
discontinuance recorded in 1993.
(c) Assuming full dilution.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes which begin on page 14.
Results of Operations: 1996 Compared to 1995
Net sales for 1996 of $150,234,000 were level with net sales for 1995 of
$150,507,000. Arlon's sales increased 4.1%. Sales to the graphics and
electrical insulation markets continued to grow which more than offset lower
sales to the electronics industry caused by the industry inventory correction
primarily in the second and third quarters. Kasco's sales decreased 8.5%,
part of which was consistent with the program to refocus Kasco North America
on its core business and part of which was due to the severe impact of BSE
("mad cow" disease) on meat consumption in Europe and its attendant impact
on Kasco's replacement and equipment business in Europe.
In 1996, gross profit decreased 1.5% to $52,536,000 from $53,317,000 in the
prior year. Gross profit margins declined to 35.0% from 35.4% last year.
Arlon's gross profit increased 3.7% as a result of sales growth and a mix
change, which was partially offset by lower yields in two plants caused by
the gyrations in the electronics market during the year resulting in lower
gross profit margins as a percent of sales. Kasco's gross profit declined
8.6% as a result of the sales decrease. The program to refocus Kasco's North
America operations was substantially completed and gross profit margin
increased 1.5% on lower sales. However these improvements were more than
offset by the $1.1 million reduced gross margin in Europe most of which
occurred in the second and third quarters from the BSE panic. Meat
consumption and the confidence of the European meat processing and
distribution markets began to recover in the fourth quarter.
Selling and administrative expenses decreased $1,104,000 or 2.9% to
$37,580,000 from $38,684,000 in 1995. As a percent of sales, these expenses
decreased to 25.0% in 1996 from 25.7% in 1995. Selling expense decreased
slightly. Kasco's expenses were reduced consistent with its plan. Arlon's
sales and marketing expenses increased in accord with its continued
investment in sales and marketing. Administrative expenses continued to be
reduced both absolutely and as a percentage of sales. Research and
development expenses increased 1.5% as Bairnco continued to invest in the
development of new products and improved quality.
Operating profit in 1996 was $14,956,000, or 10.0% of net sales, compared
to operating profit in 1995 of $14,633,000, or 9.7% of net sales.
Net interest expense decreased $301,000 or 14.9% from $2,026,000 to
$1,725,000. The decrease was due primarily to lower interest rates.
Income before income taxes increased 4.9% to $13,231,000 in 1996 as compared
to $12,607,000 in 1995. The effective tax rate decreased to 37.0% from
38.3% in 1995 due primarily to the tax benefits attendant with the
establishment of Bairnco's foreign sales corporation. The provision for
income taxes in both years includes all applicable federal, state, local
and foreign income taxes. Audits of the Corporation's consolidated US
federal income tax returns have been completed for all years through 1992.
Net income increased 7.1% to $8,335,000 in 1996 as compared to $7,781,000 in
1995. Earnings per share increased 13.3% to $.85 from $.75 last year. As a
result of the stock repurchase program, the average number of shares
outstanding in 1996 was 9,851,000, a 5.6% decrease from the 10,440,000
average outstanding in 1995.
Results of Operations: 1995 Compared to 1994
Net sales increased 3.4% to $150,507,000 in 1995 from $145,522,000 in 1994.
Sales of Arlon engineered materials and components increased 7.8% due to
growing sales to the high end and microwave printed circuit board markets.
Sales of Kasco replacement products and services declined 4.1% due to the
planned reduction in Kasco's North American service center revenues as part
of the program to focus Kasco on its core business.
In 1995, gross profit increased nominally to $53,317,000 from $53,177,000
in the prior year. The favorable impact from increased sales was offset by
the decline in gross profit margins to 35.4% from 36.5% last year. Arlon's
gross profit increased only 3.1% as a result of the growth in lower margin
commercial products and margin erosion in certain market segments due to
competitive pressures. Kasco's gross profit declined 3.5% as a result of the
4.1% sales decrease, whereas its gross profit margin increased slightly due
to an improved sales mix and reduced manufacturing costs.
Selling and administrative expenses decreased $839,000 or 2.1% to $38,684,000
from $39,523,000 in 1994. As a percent of sales, these expenses decreased to
25.7% in 1995 from 27.2% in 1994. Selling expenses decreased slightly as the
reductions in Kasco from focusing on the core business were partially offset
by the continued investment in sales and marketing expense to grow selected
Arlon segments. Administrative expenses continued to be reduced both
absolutely and as a percentage of sales. Research and development expenses
increased 3.0% as Bairnco continued to invest in the development of new
products and improved quality.
Operating profit in 1995 was $14,633,000, or 9.7% of net sales, compared to
operating profit in 1994 of $13,654,000, or 9.4% of net sales.
Net interest expense decreased to $2,026,000 in 1995 from $2,144,000 in 1994
due primarily to a $7.2 million reduction in debt of which approximately $3.5
million occurred during the fourth quarter of 1995.
Income before income taxes increased 9.5% to $12,607,000 in 1995 as compared
to $11,510,000 in 1994. The effective tax rate increased to 38.3% in 1995
from 37.0% in 1994. The lower effective tax rate in 1994 resulted from the
benefit of foreign losses which were booked at a higher tax rate. The
provision for income taxes in both years includes all applicable federal,
state, local and foreign income taxes.
Net income increased 7.3% to $7,781,000 in 1995 as compared to $7,255,000 in
1994. Earnings per share increased 8.7% to $.75 from $.69 last year. The
average number of shares outstanding in 1995 was 10,440,000, a 0.6% decrease
from the 10,500,000 average outstanding in 1994 due to the stock repurchase
program.
Liquidity and Capital Resources
At December 31, 1996, Bairnco had working capital of $30.3 million compared
to $28.4 million at December 31, 1995. The increase in other current assets
is primarily due to a tax refund expected to be received during the first
quarter 1997.
The decrease in other assets primarily reflects payments on the long term
portion of the notes receivable on the discontinued operations disposed of
during 1995 (refer to Note 2 to the Consolidated Financial Statements).
Subsequent to year end, the reducing revolving credit agreement was amended
to increase the maximum available borrowings to $45 million from $35 million
and to extend the final maturity to December 31, 2001.
At December 31, 1996, $28.2 million of total debt was outstanding compared to
$24.6 million at the end of 1995. As of December 31, 1996, approximately
$23.3 million was available for borrowing under the Corporation's secured
reducing revolving credit agreement, as amended. In addition, approximately
$5.6 million was available under various short term domestic and foreign
uncommitted credit facilities. Debt as a percent of equity increased to
57.0% at the end of 1996 from 51.2% at the end of 1995.
Bairnco made $10,131,000 of capital expenditures in 1996 as compared to its
plan of approximately $12.3 million. The reduction in capital expenditures
from plan was due primarily to the deferment of a capacity addition from 1996
into future years. Again, substantial improvements in operating efficiencies
in 1996 and planned for 1997 permitted the postponement of this major capital
expenditure. Total capital expenditures in 1997 are expected to be
approximately $13.3 million. Approximately $4.0 million of the planned
expenditures are contingent upon realization of the anticipated growth in
several markets.
In 1996, Bairnco's Board of Directors authorized the repurchase of up to
$5,000,000 of its common stock. The authorization was in addition to the
$2,420,000 still unused from the prior year $5,000,000 authorization. During
the year the Company repurchased 803,900 shares for $5,412,000. The Board
has authorized management to continue its stock repurchase program in 1997
subject to market conditions and the capital requirements of the business.
Cash provided by operating activities plus the amounts available under the
existing credit facilities are expected to be sufficient to fulfill Bairnco's
anticipated cash requirements in 1997.
Other Matters
Bairnco Corporation and its subsidiaries are defendants in a number of legal
actions and proceedings which are discussed in more detail in Note 10 to the
Consolidated Financial Statements. Management of Bairnco believes that the
disposition of these actions and proceedings will not have a material adverse
effect on the consolidated results of operations or the financial position of
Bairnco Corporation and its subsidiaries as of December 31, 1996.
Outlook
Management is not aware of any adverse trends that would materially affect
the Company's strong financial position. The outlook for 1997 is for
improved sales and earnings. It is expected that the combination of growth
from new products and in certain niche markets will result in sales increases
more than offsetting the low margin sales that have been eliminated.
Improved earnings are expected both from increased sales and the continuing
cost reduction and efficiency and yield improvement programs. Due to the
relatively strong first quarter in 1996, the timing of product line pruning
during 1996 and the anticipated implementation of programs in 1997, the first
part of 1997 is expected to be level with last year with the improvements
beginning during the second quarter.
<TABLE>
Quarterly Results of Operations (Unaudited)
(In thousands except per share data)
<CAPTION>
1st 1st 2nd 2nd 3rd 3rd 4th 4th Total Total
1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $38,094 $38,523 $37,323 $38,309 $36,152 $37,386 $38,665 $36,289 $150,234 $150,507
Cost of sales 24,656 24,794 24,067 24,462 23,645 24,511 25,330 23,423 97,698 97,190
Gross Profit 13,438 13,729 13,256 13,847 12,507 12,875 13,335 12,866 52,536 53,317
Selling and
administrative
expenses 9,621 10,132 9,276 9,980 8,965 9,292 9,718 9,280 37,580 38,684
Operating Profit 3,817 3,597 3,980 3,867 3,542 3,583 3,617 3,586 14,956 14,633
Interest expense, net 415 547 433 527 417 479 460 473 1,725 2,026
Income before income
taxes 3,402 3,050 3,547 3,340 3,125 3,104 3,157 3,113 13,231 12,607
Provision for income
taxes 1,293 1,159 1,348 1,269 1,187 1,211 1,068 1,187 4,896 4,826
Net Income $ 2,109 $ 1,891 $ 2,199 $ 2,071 $ 1,938 $ 1,893 $ 2,089 $ 1,926 $ 8,335 $ 7,781
Earnings per Share $ 0.21 $ 0.18 $ 0.22 $ 0.20 $ 0.20 $ 0.18 $ 0.22 $ 0.19 $ 0.85 $ 0.75
Market Price:
High $ 8-1/2 $ 4-7/8 $ 7-5/8 $ 4-7/8 $ 7-3/8 $ 5-1/2 $ 6-7/8 $ 6 $ 8-1/2 $ 6
Low 5-7/8 3-7/8 6-5/8 3-7/8 5-1/2 4-3/8 5-3/4 4-3/8 5-1/2 3-7/8
</TABLE>
"Safe Harbor" Statement under the Private Securities Reform Act of 1995
Certain of the statements contained in this annual report (other than the
financial statements and statements of historical fact), including, without
limitation, statements as to management expectations and belief presented
under the captions "Letter to Our Stockholders" and "Management's Discussion
and Analysis", are forward-looking statements. Forward-looking statements
are made based upon management's expectations and belief concerning future
developments and their potential effect upon the Corporation. There can be
no assurance that future developments will be in accordance with management's
expectations or that the effect of future developments on the Corporation
will be those anticipated by management.
The Corporation wishes to caution readers that the assumptions which form the
basis for forward-looking statements with respect to or that may impact
earnings for the year ended December 31, 1997 and thereafter include many
factors that are beyond the Corporation's ability to control or estimate
precisely. These risks and uncertainties include, but are not limited to,
the market demand and acceptance of the Corporation's existing and new
products, the impact of competitive products, changes in the market for raw
or packaging materials, which could impact the Corporation's manufacturing
costs, changes in product mix, changes in the pricing of the products of the
Corporation or its competitors, the loss of a significant customer or
supplier, production delays or inefficiencies, the costs and other effects of
complying with environmental regulatory requirements, the costs and other
effects of legal and administrative cases and proceedings, settlements and
investigations, and changes in US or international economic or political
conditions, such as inflation or fluctuations in interest or foreign exchange
rates.
While the Corporation periodically reassesses material trends and
uncertainties affecting the Corporation's results of operations and financial
condition in connection with its preparation of the stockholders' letter and
management's discussion and analysis contained in its annual reports, the
Corporation does not intend to review or revise any particular forward-looking
statement referenced herein in light of future events.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of Bairnco Corporation:
We have audited the accompanying consolidated balance sheets of Bairnco
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, stockholders'
investment and cash flows for each of the three years in the period ended
December 31, 1996. 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bairnco
Corporation and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Orlando, Florida
January 23, 1997
Arthur Andersen LLP
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1996, 1995 and 1994
Bairnco Corporation and Subsidiaries
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net Sales $ 150,234,000 $ 150,507,000 $ 145,522,000
Cost of sales 97,698,000 97,190,000 92,345,000
Gross Profit 52,536,000 53,317,000 53,177,000
Selling and administrative
expenses 37,580,000 38,684,000 39,523,000
Operating Profit 14,956,000 14,633,000 13,654,000
Interest expense, net 1,725,000 2,026,000 2,144,000
Income before Income Taxes 13,231,000 12,607,000 11,510,000
Provision for income taxes
(Note 4) 4,896,000 4,826,000 4,255,000
Net Income $ 8,335,000 $ 7,781,000 $ 7,255,000
Earnings per Share of Common
Stock (Note 3) $ 0.85 $ 0.75 $ 0.69
Dividends per Share of Common
Stock $ 0.20 $ 0.20 $ 0.20
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
Bairnco Corporation and Subsidiaries
<CAPTION>
1996 1995
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 855,000 $ 608,000
Accounts receivable, less allowances
of $822,000 and $763,000,
respectively 21,476,000 21,472,000
Inventories:
Raw materials and supplies 4,733,000 4,651,000
Work in process 5,999,000 5,451,000
Finished goods 12,767,000 13,634,000
23,499,000 23,736,000
Deferred income taxes (Note 4) 2,922,000 3,396,000
Other current assets (Note 2) 3,748,000 2,130,000
Total current assets 52,500,000 51,342,000
Plant and Equipment, at cost:
Land 1,560,000 1,534,000
Buildings and leasehold interests
and improvements 16,451,000 16,332,000
Machinery and equipment 66,520,000 59,926,000
84,531,000 77,792,000
Less - Accumulated depreciation
and amortization (46,255,000) (43,343,000)
38,276,000 34,449,000
Cost in Excess of Net Assets of
Purchased Businesses (Note 1) 7,922,000 8,152,000
Other Assets (Notes 1 and 2) 3,902,000 4,253,000
$102,600,000 $ 98,196,000
Liabilities and Stockholders' Investment
Current Liabilities:
Short-term debt (Note 6) $ 3,337,000 $ 3,156,000
Current maturities of long-term
debt (Note 6) 125,000 186,000
Accounts payable 7,383,000 7,885,000
Accrued expenses (Note 5) 11,314,000 11,765,000
Total current liabilities 22,159,000 22,992,000
Long-Term Debt (Note 6) 24,717,000 21,236,000
Deferred Income Taxes (Note 4) 3,114,000 3,215,000
Other Liabilities 3,146,000 2,729,000
Stockholders' Investment
(Notes 3, 6 and 7):
Preferred stock, par value $.01,
5,000,000 shares authorized,
none issued -- --
Common stock, par value $.01,
30,000,000 shares authorized,
11,155,499 and 11,062,499 issued,
respectively 112,000 111,000
Paid-in capital 49,004,000 48,533,000
Retained earnings 15,858,000 9,460,000
Currency translation adjustment
(Note 1) 2,282,000 2,300,000
Treasury stock, at cost, 1,741,965
and 938,065 shares, respectively (17,792,000) (12,380,000)
Total stockholders' investment 49,464,000 48,024,000
$102,600,000 $ 98,196,000
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
Bairnco Corporation and Subsidiaries
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Income from continuing operations $ 8,335,000 $ 7,781,000 $ 7,255,000
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 6,305,000 6,314,000 6,502,000
Loss on disposal of plant and
equipment 203,000 294,000 18,000
Deferred income taxes 373,000 1,561,000 242,000
Change in operating assets and
liabilities:
(Increase) in accounts
receivable, net (4,000) (587,000) (1,953,000)
Decrease (increase) in
inventories 237,000 (3,694,000) (549,000)
(Increase) decrease in other
current assets (1,618,000) 3,205,000 (2,629,000)
(Decrease) increase in accounts
payable (502,000) (1,877,000) 2,399,000
(Decrease) in accrued expenses (451,000) (1,019,000) (1,498,000)
Cash provided by discontinued
operations -- 1,988,000 4,863,000
Other 734,000 699,000 (115,000)
Net cash provided by operating
activities 13,612,000 14,665,000 14,535,000
Cash Flows from Investing Activities:
Capital expenditures (10,131,000) (4,831,000) (5,176,000)
Proceeds from sale of plant and
equipment 138,000 328,000 1,728,000
Proceeds from sale of discontinued
operations -- 100,000 2,865,000
Net cash (used in) investing
activities (9,993,000) (4,403,000) (583,000)
Cash Flows from Financing Activities:
Net borrowings (repayment) of
external debt 3,968,000 (7,427,000) (12,107,000)
Payment of dividends (1,937,000) (2,087,000) (2,100,000)
Purchase of treasury stock (5,412,000) (2,580,000) --
Exercise of stock options 472,000 560,000 --
Net cash (used in) financing
activities (2,909,000) (11,534,000) (14,207,000)
Effect of foreign currency exchange
rate changes on cash and cash
equivalents (463,000) 402,000 350,000
Net increase (decrease) in cash and
cash equivalents 247,000 (870,000) 95,000
Cash and cash equivalents, beginning
of year 608,000 1,478,000 1,383,000
Cash and cash equivalents, end
of year $ 855,000 $ 608,000 $ 1,478,000
Supplemental Disclosures of
Cash Flow Information:
Cash paid (received) during the
year for:
Interest $ 1,696,000 $ 1,992,000 $ 2,242,000
Income Taxes $ 5,378,000 $ (310,000) $ (533,000)
Noncash investing activities:
Notes Received from Sale of
Discontinued Operations $ -- $ 2,500,000 $ --
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
For the years ended December 31, 1996, 1995 and 1994
Bairnco Corporation and Subsidiaries
<CAPTION>
Retained Currency
Common Paid-In Earnings Translation Treasury
Stock Capital (Deficit) Adjustment Stock
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $109,000 $47,975,000 $(1,389,000) $1,620,000 $ (9,800,000)
Net income -- -- 7,255,000 -- --
Cash dividends ($.20 per share) -- -- (2,100,000) -- --
Currency translation adjustment
(Note 1) -- -- -- 327,000 --
Balance, December 31, 1994 109,000 47,975,000 3,766,000 1,947,000 (9,800,000)
Net income -- -- 7,781,000 -- --
Cash dividends ($.20 per share) -- -- (2,087,000) -- --
Issuance of 110,375 shares
pursuant to exercise of
stock options 2,000 558,000 -- -- --
Acquisition of treasury stock
(486,200 shares at cost) -- -- -- -- (2,580,000)
Currency translation adjustment
(Note 1) -- -- -- 353,000 --
Balance, December 31, 1995 111,000 48,533,000 9,460,000 2,300,000 (12,380,000)
Net income -- -- 8,335,000 -- --
Cash dividends ($.20 per share) -- -- (1,937,000) -- --
Issuance of 93,000 shares
pursuant to exercise of
stock options 1,000 471,000 -- -- --
Acquisition of treasury stock
(803,900 shares at cost) -- -- -- -- (5,412,000)
Currency translation adjustment
(Note 1) -- -- -- (18,000) --
Balance, December 31, 1996 $112,000 $49,004,000 $15,858,000 $ 2,282,000 $(17,792,000)
The accompanying notes are integral part of these financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Nature of Operations and Summary of Significant Accounting Policies
Nature of operations:
Bairnco Corporation is a diversified multinational company that operates two
business sectors: Engineered Materials and Components which are designed,
manufactured and sold under the Arlon brand identity to electronic,
industrial and commercial markets worldwide; and, Replacement Products and
Services which are manufactured and distributed under the Kasco name
principally to retail food stores and meat, poultry and fish processing
plants throughout the United States, Canada and Europe.
Arlon's products are based on a common technology in coating, laminating,
resin technology and dispersion chemistry. Arlon's principal products
include high performance materials for the printed circuit board industry,
cast and calendered vinyl film systems, custom engineered laminates and
pressure sensitive adhesive systems, and calendered and extruded silicone
rubber insulation products used in a broad range of industrial, consumer and
commercial products.
Kasco's principal products include replacement band saw blades for cutting
meat, fish, wood and metal, and on-site maintenance services for the retail
food industry primarily in the meat and deli departments. Kasco also
distributes equipment to the food industry in Canada and France.
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
Bairnco Corporation and its subsidiaries (Bairnco or the Corporation) after
the elimination of all material intercompany accounts and transactions.
The preparation of consolidated 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 consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Consolidated statements of cash flows:
The Corporation considers cash in banks, commercial paper, demand notes and
similar investments with a maturity of less than three months as cash and
cash equivalents for the purposes of the consolidated statements of cash
flows.
Inventories:
Inventories are stated at cost, which is not in excess of market. Inventory
costs include material, labor and overhead. Inventories are stated
principally on a first-in, first-out (FIFO) basis.
Plant and equipment:
The Corporation provides for depreciation of plant and equipment principally
on a straight-line basis by charges to income in amounts estimated to
allocate the cost of these assets over their useful lives. Rates of
depreciation vary among the several classifications as well as among the
constituent items in each classification, but generally fall within the
following ranges:
Years
Buildings and leasehold interests
and improvements 5 - 40
Machinery and equipment 3 - 20
When property is sold or otherwise disposed of, the asset cost and
accumulated depreciation are removed from the accounts and any resulting gain
or loss is included in the statement of income.
Leasehold interests and improvements are amortized over the terms of the
respective leases, or over their estimated useful lives, whichever is
shorter.
Maintenance and repairs are charged to operations. Renewals and betterments
are capitalized.
Accelerated methods of depreciation are used for income tax purposes, and
appropriate provisions are made for the related deferred income taxes.
Depreciation expense of $6,123,000, $6,131,000 and $6,197,000 was recognized
during 1996, 1995 and 1994, respectively.
Cost in excess of net assets of purchased businesses:
Cost in excess of net assets of purchased businesses acquired prior to 1971
of approximately $3.5 million is not being amortized since, in the opinion of
management, there has been no diminution in value. For businesses acquired
subsequent to 1970, the cost in excess of net assets of purchased businesses,
aggregating $5,833,000 and $5,931,000 at December 31, 1996 and 1995,
respectively, is being amortized over 40 years. Accumulated amortization at
December 31, 1996 and 1995, was $1,396,000 and $1,265,000, respectively.
Amortization expense of $149,000, $150,000 and $146,000 was recognized during
1996, 1995 and 1994, respectively.
At each balance sheet date, the Corporation evaluates the realizability of
its cost in excess of net assets of purchased businesses based upon
expectations of nondiscounted cash flows and operating income for each
division having a material cost in excess of net assets of purchased
businesses balance. Based upon its most recent analysis, the Corporation
believes that no material impairment of its cost in excess of net assets of
purchased businesses exists at December 31, 1996.
Intangibles:
Intangible assets of purchased businesses, net of amortization, are included
in other assets and totaled $136,000 and $94,000 at December 31, 1996 and
1995, respectively. These items are amortized over their estimated lives,
which generally range from three to twenty years. Amortization expense
recognized was $33,000 during 1996 and 1995, and $159,000 during 1994.
Long-lived assets:
Effective January 1, 1996, the Corporation adopted Statement of Financial
Accounting Standards No. 121, Accounting for Impairment of Long-Lived Assets
("SFAS 121"). SFAS 121 requires the Corporation to review the recoverability
of long-lived assets, including certain identifiable intangibles to be held
and used, for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The
implementation of SFAS 121 had no impact on the accompanying consolidated
financial statements.
Revenue recognition:
Revenues are recognized when products are shipped or when services are
rendered.
Income taxes:
The Corporation accounts for income taxes using an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized
in the Corporation's financial statements or tax returns. In estimating
future tax consequences, the Corporation generally considers all expected
future events other than enactment of changes in the tax law or changes in
tax rates. Changes in tax laws or rates will be recognized in the future
years in which they occur. Temporary differences between income for financial
reporting and income tax purposes arise primarily from the timing of the
deduction of certain accruals and from the use of accelerated methods of
depreciation for income tax reporting purposes compared to the method of
depreciation used for financial reporting purposes.
Accrued expenses:
Accrued expenses-insurance represents the estimated costs of known and
anticipated claims under the Corporation's general liability, automobile
liability, property and workers compensation insurance policies for all of
its US operations. The Corporation provides reserves on reported claims
and claims incurred but not reported at each balance sheet date based upon
the estimated amount of the probable claim or the amount of the deductible,
whichever is lower. Such estimates are reviewed and evaluated in light of
emerging claim experience and existing circumstances. Any changes in
estimates from this review process are reflected in operations currently.
Stock options:
The Corporation accounts for stock options under Accounting Principles Board
Opinion No. 25 ("APB 25"), under which no compensation expense has been
recognized. In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), which is effective for years
beginning after December 15, 1995. SFAS 123 established financial accounting
and reporting standards for stock-based employee compensation plans. The
statement defines a fair value based method of accounting for an employee
stock option or similar equity instrument and encourages all entities to
adopt that method of accounting for all of their stock compensation plans.
However, it also allows an entity to continue to measure compensation costs
for those plans using the intrinsic value based method of accounting
prescribed by APB 25, but requires pro-forma disclosure of net income and
earnings per share for the effects on compensation expense had the accounting
guidance for SFAS 123 been adopted. Compensation costs determined consistent
with SFAS 123 did not have a material impact on the accompanying consolidated
net earnings and earnings per share.
Translation of foreign currencies:
Balance sheet accounts of foreign subsidiaries are translated at the rates
of exchange in effect at the balance sheet date while income and expenses are
translated at the monthly average rates of exchange in effect during the
year.
Fair value of financial instruments:
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities, approximate fair value due to the
short-term maturities of these assets and liabilities.
The interest rates on the notes receivable (see Note 2 to the Consolidated
Financial Statements) are reset at least quarterly to reflect current market
rates. Consequently, the carrying values of the notes receivable approximate
fair value.
The carrying amount of the Corporation's short-term and long-term debt
approximates fair value, since the debt is at floating rates or rates
approximating rates currently offered to the Corporation for debt of the
same remaining maturities.
Reclassifications:
Certain reclassifications were made to prior year balances in order to
conform to the current year presentation
(2) Discontinued Operations
Bairnco adopted a restructuring plan effective December 31, 1993, which
included a formal plan of divestiture relating to the businesses that
comprised Bairnco's Specialty Construction Products segment and secure
communications electronics operations. During 1994, the majority of the
Specialty Construction businesses were sold. The smallest and last remaining
operation of the Specialty Construction business was sold on December 29,
1995. The secure communications business was sold on November 30, 1995. The
net sales price of the discontinued operations sold in 1995 was $2.6 million
and consisted of $100,000 in cash and two promissory notes. The current
portion of the promissory notes is $550,000 and is included in Other Current
Assets in the Consolidated Balance Sheet as of December 31, 1996 and 1995.
The remaining $1,017,000 at December 31, 1996 and $1,950,000 at December 31,
1995 represents the net long term portion of the promissory notes and is
included in Other Assets in the Consolidated Balance Sheet as of December
31, 1996 and 1995, respectively. No gain or loss was recognized on the sale
of these operations in 1994, 1995 nor 1996.
As part of the asset purchase agreements for the two discontinued operations
disposed of in 1995, the Corporation has guaranteed certain lease payments of
one facility and remains the lessee/guarantor of a second facility even
though such obligations have been transferred to the respective buyers. The
total lease payments guaranteed as of December 31, 1996 amounted to
approximately $821,000. In the event the Corporation is called upon to
satisfy these guarantees, such payments would be offset by certain buyout
provisions which could reduce the total lease payments by as much as
$335,000, in addition to any recoveries from sub-leasing the property of
which the Corporation remains the lessee/guarantor.
Net sales from the discontinued operations for the years ended December 31,
1995 and 1994 were $10.6 million and $20.2 million, respectively. The 1995
and 1994 losses of the discontinued operations approximated the prior
estimates.
(3) Earnings per Share
Primary and fully-diluted earnings per share are equal within each of the
years ended December 31, 1996, 1995 and 1994. Earnings per share are based
on the weighted average number of common shares outstanding during the year
as follows:
1996 1995 1994
Primary 9,851,000 10,436,000 10,500,000
Fully-Diluted 9,851,000 10,440,000 10,500,000
Primary and fully-diluted shares outstanding reflect all common stock
equivalents (primarily outstanding stock options as described in Note 7 to
the Consolidated Financial Statements) to the extent they are not
antidilutive.
(4) Income Taxes
The components of income from continuing operations before income taxes and
the provisions for domestic and foreign income taxes on continuing operations
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Income before Income Taxes:
Domestic $13,176,000 $11,360,000 $11,096,000
Foreign 55,000 1,247,000 414,000
Total Income before Income Taxes $13,231,000 $12,607,000 $11,510,000
Provision for Income Taxes:
Domestic:
Currently payable $ 4,096,000 $ 1,671,000 $ 3,731,000
Deferred 594,000 2,413,000 751,000
Foreign:
Currently payable 452,000 943,000 (135,000)
Deferred (246,000) (201,000) (92,000)
Total Provision for Income Taxes $ 4,896,000 $ 4,826,000 $ 4,255,000
</TABLE>
Bairnco's restated net current and non-current deferred tax assets
(liabilities) are comprised of the following at December 31:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current Deferred Tax Items:
Accrued Expenses $ 1,887,000 $ 2,211,000 $ 2,528,000
Inventories 872,000 961,000 980,000
Other 163,000 224,000 256,000
Tax Credit Carryforwards -- -- 1,177,000
Net Current Deferred Tax Asset 2,922,000 3,396,000 4,941,000
Non-Current Deferred Tax Items:
Fixed Assets (2,889,000) (2,650,000) (2,749,000)
Pensions (1,149,000) (938,000) (781,000)
Intangible Assets 15,000 (107,000) (102,000)
Other 909,000 480,000 (111,000)
Net Non-Current Deferred Tax
Liability (3,114,000) (3,215,000) (3,743,000)
Net Deferred Tax (Liability)
Asset $ (192,000) $ 181,000 $ 1,198,000
</TABLE>
Management expects that future operations will generate sufficient taxable
income to realize the existing net temporary differences. As a result, the
Corporation has not recorded any valuation allowances against its deferred
tax assets.
As a result of tax benefits of approximately $1.1 and $7.7 million to be
realized from the discontinued operations sold in 1995 and 1994,
respectively, certain reclassifications were made between current and
deferred income taxes and net assets of discontinued operations.
Other current assets on the balance sheet include current income taxes
receivable of approximately $1.1 million at December 31, 1996.
In 1996, 1995 and 1994 the Corporation's effective tax rates were 37.0%,
38.3% and 37.0%, respectively, of income before income taxes. An analysis of
the differences between these rates and the US federal statutory income tax
rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Computed income taxes at
statutory rate $ 4,499,000 $ 4,287,000 $ 3,910,000
State and local taxes, net of
federal tax benefit 321,000 205,000 310,000
Dividend income 198,000 193,000 185,000
Amortization of goodwill 9,000 9,000 43,000
Foreign income taxed at
different rates 187,000 318,000 (368,000)
Tax credits (271,000) (281,000) (242,000)
Benefit of Foreign Sales
Corporation (413,000) -- --
Other, net 366,000 95,000 417,000
Provision for income taxes $ 4,896,000 $ 4,826,000 $ 4,255,000
</TABLE>
Audits of the federal income tax returns of the Corporation and its
subsidiaries have been completed through 1992.
Provision has not been made for US income taxes on approximately $3.3 million
of undistributed earnings of international subsidiaries. These earnings
could become subject to additional tax if they were remitted as dividends or
if the Corporation should sell its stock in the subsidiaries. It is not
practicable to estimate the amount of additional tax that might be payable
on the foreign earnings; however, the Corporation believes that US foreign
tax credits would largely eliminate any US income tax incurred.
(5) Accrued Expenses
Accrued expenses consisted of the following as of December 31, 1996 and
1995, respectively:
1996 1995
Salaries and wages $ 2,708,000 $ 2,312,000
Income taxes 245,000 360,000
Insurance 2,648,000 2,026,000
Litigation 1,654,000 1,942,000
Other accrued expenses 4,059,000 5,125,000
Total accrued expenses $ 11,314,000 $ 11,765,000
(6) Debt
Long-term debt consisted of the following as of December 31, 1996 and 1995,
respectively:
1996 1995
Revolving Credit Notes $21,707,000 $18,099,000
Equipment Loans 115,000 290,000
Industrial Revenue Bonds 3,000,000 3,000,000
Other 20,000 33,000
24,842,000 21,422,000
Less Current Maturities 125,000 186,000
Total $24,717,000 $21,236,000
Subsequent to year end, the Corporation's secured, reducing revolving credit
agreement ("Credit Agreement") with a consortium of four banks led by Bank of
America, Illinois, and including SunTrust Bank, NBD Bank and First Union Bank
of Florida, was amended. The amendment effectively extended the expiration
date of the Credit Agreement from August 31, 1999 to December 31, 2001 and
increased the revolving credit facility's maximum loan commitment of $35
million at December 31, 1996 to $45 million. The Credit Agreement also
includes a letter of credit facility of at least $10 million, although the
letter of credit facility may be increased up to $20 million with a
corresponding decrease in the revolving credit facility. At December 31,
1996, $21.7 million of revolving credit was outstanding and payable in 2001.
In addition, approximately $8.3 million of irrevocable standby letters of
credit were outstanding under the Credit Agreement, which are not reflected
in the accompanying consolidated financial statements. $5.0 million of the
letters of credit guarantee various trade and insurance activities. An
outstanding $3.3 million letter of credit supports the Industrial Revenue
Bonds. Interest rates vary on the revolving credit and are set at the time
of borrowing in relationship to one of several reference rates, as selected
by the Corporation at the time of the borrowing. Interest rates on the
revolving credit outstanding at December 31, 1996, were 6.4% on US borrowings
and 4.1% on European borrowings. A commitment fee is paid on the unused
portion of the total credit. The interest rate on the Industrial Revenue
Bonds was 4.6% at December 31, 1996.
Substantially all of the assets of the Corporation and its US subsidiaries
are pledged as collateral under the Credit Agreement, which expires on
December 31, 2001.
The Credit Agreement, as amended, contains covenants which require the
Corporation to meet minimum interest coverage ratios and which limit the
ratio of total debt to capital employed as defined in the Credit Agreement.
In addition, minimum levels of stockholders' investment must be maintained.
At December 31, 1996 the Corporation was in compliance with all covenants
contained in the Credit Agreement.
The Corporation has equipment loans, mortgages and other debt outstanding at
rates of 5.8% to 8.5% due in 1997 and 1998.
The annual maturity requirements for long-term debt due after December 31,
1996, are summarized as follows:
Year Ended December 31,
1997 $ 125,000
1998 10,000
1999 --
2000 --
2001 21,707,000
Due after December 31, 2001 3,000,000
Total Long-Term Debt $24,842,000
(7) Stock Options
The Corporation has a stock incentive plan which was established in 1990
("1990 Plan"). The 1990 Plan permits the grant of options to purchase not
more than 2,500,000 shares of common stock. The 1990 Plan provides for the
grant of non-qualified options and options qualifying as incentive stock
options under the Internal Revenue Code to key employees and each outside
Director of the Corporation at an option price equal to the fair market value
on the date of grant. Non-qualified stock options may also be granted at
book value. The term of each option may not exceed 10 years from the date
the option becomes exercisable (or, in the case of an incentive stock option,
10 years from the date of grant).
A senior executive of the Corporation presently holds performance based,
non-qualified stock options granted under the 1990 Plan to purchase a total
of 250,000 shares of common stock at option prices equal to the fair market
value on the date of grant. Two-thirds of these performance options became
exercisable as a result of the Corporations earnings performance in 1992 and
1995 with the remaining one-third becoming fully exercisable on the tenth
anniversary of the date of grant if the executive is still employed by the
Corporation. These options remain exercisable for ten years from the date
they first become exercisable.
Changes in the stock options granted under the 1990 Plan during 1996, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1996 1995 1995 1994 1994
Wtd Avg Wtd Avg Wtd Avg
Exercise Exercise Exercise
Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 716,950 $5.56 982,150 $5.44 1,086,287 $5.44
Granted 78,000 $6.32 21,600 $4.70 32,500 $4.55
Exercised (93,200) $5.09 (110,375) $5.06 -- $ --
Canceled (17,725) $5.28 (176,425) $5.13 (136,637) $5.22
Outstanding at
end of year 684,225 $5.71 716,950 $5.56 982,150 $5.44
Exercisable at
end of year 501,513 $5.62 506,917 $5.48 666,397 $5.36
</TABLE>
At December 31, 1996, 1995 and 1994, 1,495,925, 1,556,200 and 1,401,375
shares, respectively, were available for option grants under the 1990 Plan.
The weighted average contractual life of the 684,225 options outstanding at
December 31, 1996 was 4.46 years. There were no charges to income in
connection with stock option activity during the years presented.
(8) Pension Plans
The Corporation has several pension plans which cover substantially all of
its employees. The benefits paid under these plans generally are based on
employees' years of service and compensation during the last years of
employment. Annual contributions made to the US plans are determined in
compliance with the minimum funding requirements of ERISA using a different
actuarial cost method and actuarial assumptions than are used for determining
pension expense for financial reporting purposes. Plan assets consist
primarily of publicly traded equity and debt securities. The Corporation
maintains unfunded supplemental plans in the United States to provide
retirement benefits in excess of levels provided under the Corporation's
other plans. The Corporation's foreign subsidiaries provide retirement
benefits for employees consistent with local practices. The foreign plans
are not significant in the aggregate and therefore are not included in the
following disclosures.
The following table describes the funded status of US pension plans.
Overfunded plans are those in which the amount provided for future benefits
(fair value of plan assets) exceeds the accumulated benefit obligation
(actuarial present value of benefits earned to date based on present pay
levels).
<TABLE>
<CAPTION>
1996 1996 1995 1995
Overfunded Underfunded Overfunded Underfunded
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligation:
Vested $(19,242,000) $(2,476,000) $(18,137,000) $(2,409,000)
Non-vested (225,000) (24,000) (427,000) (66,000)
Accumulated benefit
obligation (19,467,000) (2,500,000) (18,564,000) (2,475,000)
Additional amounts
related to projected
pay increases (2,209,000) (65,000) (2,670,000) (69,000)
Projected benefit
obligation (21,676,000) (2,565,000) (21,234,000) (2,544,000)
Plan assets at fair value 22,531,000 1,841,000 20,172,000 1,587,000
Plan assets in excess of
(less than) projected
benefit obligation 855,000 (724,000) (1,062,000) (957,000)
Unrecognized net
transition obligation 255,000 291,000 334,000 330,000
Unrecognized prior
service costs (83,000) 94,000 (61,000) 116,000
Unrecognized net loss 1,171,000 207,000 2,514,000 307,000
Adjustment to recognize
minimum liability -- (527,000) -- (685,000)
Prepaid (accrued) pension
costs recognized in
balance sheet at
September 30 2,198,000 (659,000) 1,725,000 (889,000)
Fourth quarter accruals (91,000) (64,000) (225,000) (48,000)
Fourth quarter
contributions -- 65,000 169,000 44,000
Effect of curtailment -- -- (36,000) --
Prepaid (accrued) pension
costs at December 31 $ 2,107,000 $ (658,000) $ 1,633,000 $ (893,000)
</TABLE>
The discount rate used in determining the actuarial present value of the
projected benefit obligations in the table above was 7.5% at both September
30, 1996 and 1995. The rate of projected pay increases, where applicable,
was 5% at both September 30, 1996 and 1995. The expected long-term rate of
return on retirement plan assets was 9% at both September 30, 1996 and 1995.
Net periodic pension cost for the US plans included the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 716,000 $ 858,000 $ 915,000
Interest cost on projected
benefit obligation 1,695,000 1,646,000 1,493,000
Return on plan assets:
Expected return-(gain) (2,018,000) (1,666,000) (1,803,000)
Asset gain (loss) 434,000 2,879,000 (2,774,000)
Actual return-(gain) loss (2,452,000) (4,545,000) 971,000
Net amortization and deferral 566,000 3,135,000 (2,584,000)
Net periodic pension cost $ 525,000 $ 1,094,000 $ 795,000
</TABLE>
(9) Business Segment Data
The Corporation operates two distinct businesses: Arlon - Engineered
Materials and Components' segment; and, Kasco - Replacement Products and
Services' segment. Information about the Corporation's major lines of
business for the years ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Segment Depreciation
Operating Capital and
Net Sales Profit(Loss) Assets (a) Expenditures Amortization
<S> <C> <C> <C> <C> <C>
1996
Arlon $103,449,000 $16,159,000 $ 61,118,000 $ 7,255,000 $3,312,000
Kasco 46,785,000 2,649,000 35,161,000 2,830,000 2,933,000
Corporate -- (3,852,000) 6,321,000 46,000 60,000
Total $150,234,000 $14,956,000 $102,600,000 $10,131,000 $6,305,000
1995
Arlon $ 99,391,000 $15,389,000 $ 55,108,000 $ 1,999,000 $3,274,000
Kasco 51,116,000 2,889,000 38,690,000 2,805,000 2,975,000
Corporate -- (3,645,000) 4,398,000 27,000 65,000
Total $150,507,000 $14,633,000 $ 98,196,000 $ 4,831,000 $6,314,000
1994
Arlon $ 92,214,000 $15,712,000 $ 50,234,000 $ 2,084,000 $3,562,000
Kasco 53,308,000 2,197,000 39,317,000 3,083,000 2,874,000
Corporate -- (4,255,000) 9,692,000 9,000 66,000
Total $145,522,000 $13,654,000 $ 99,243,000 $ 5,176,000 $6,502,000
</TABLE>
The Corporation has operations in Canada and several European countries.
Information about the Corporation's operations by geographical area for the
years ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Segment
Operating
Net Sales Profit Assets (a)
<S> <C> <C> <C>
1996
United States $124,154,000 $ 14,564,000 $ 84,269,000
Foreign 26,080,000 392,000 18,331,000
Total $150,234,000 $ 14,956,000 $102,600,000
1995
United States $122,510,000 $ 12,797,000 $ 77,917,000
Foreign 27,997,000 1,836,000 20,279,000
Total $150,507,000 $ 14,633,000 $ 98,196,000
1994
United States $119,045,000 $ 12,754,000 $ 80,579,000
Foreign 26,477,000 900,000 18,664,000
Total $145,522,000 $ 13,654,000 $ 99,243,000
(a) Excludes net assets of discontinued operations of $3,529,000 for 1994.
</TABLE>
(10) Contingencies
Since its announcement in January 1990 of its intention to spin off Keene,
Bairnco has been named as a defendant in a number of personal injury,
property damage and wrongful death cases in which it is alleged that Bairnco
is derivatively liable for the asbestos-related claims against Keene. On
December 6, 1993, Keene filed for protection under Chapter 11 of the
Bankruptcy Code. On June 8, 1995, the Creditors' Committee commenced an
adversary proceeding in the Bankruptcy Court against Bairnco, certain of its
present and former officers and directors, and others alleging that the
transfer of assets for value by Keene to other subsidiaries of Bairnco and
the spin-offs of certain subsidiaries by Bairnco, were fraudulent and
otherwise violative of law and seeking compensatory damages of $700 million,
plus interest and punitive damages (the "Transactions Lawsuit"). The
complaint in the Transactions Lawsuit includes a count under the civil RICO
statute, 18 U.S.C. Section 1964, pursuant to which compensatory damages are
trebled.
Management believes that Bairnco has meritorious defenses to all claims or
liability purportedly derived from Keene and that it is not liable, as an
alter ego, successor, fraudulent transferee or otherwise, for the
asbestos-related claims against Keene or with respect to Keene products.
Bairnco is party to a separate action brought by Keene in the United States
Bankruptcy Court for the Southern District of New York in which Keene seeks
the exclusive benefit of tax refunds attributable to the carryback by Keene
of certain net operating losses ("NOL Refunds"), notwithstanding certain
provisions of tax sharing agreements between Keene and Bairnco (the "NOL
Lawsuit"). (After filing the NOL Lawsuit, Keene ceded control of the action
to the Creditors' Committee.) Pending resolution of the NOL Lawsuit, any
refunds actually received are to be placed in escrow. Through December 31,
1996, approximately $28.5 million of NOL Refunds had been received and placed
in escrow. There can be no assurance whatsoever that resolution of the NOL
Lawsuit will result in the release of any portion of the NOL Refunds to
Bairnco.
Keene's plan of reorganization was approved and became effective on July 31,
1996. The plan, as approved, creates a Creditors Trust that has succeeded to
all of Keene's asbestos liabilities, and also has succeeded to the right to
prosecute both the Transactions Lawsuit and the NOL Lawsuit. The plan also
includes a permanent injunction under which only the Creditors Trust, and no
other entity, can sue Bairnco in connection with the claims asserted in the
Transactions Lawsuit. Prior to confirmation, Bairnco and other defendants in
the Transactions Lawsuit had entered into a stipulation (the "Transactions
Stipulation") that calls for the Transactions Lawsuit to be litigated in
the District Court. The anticipated effect of these various provisions is
that all claims and claimants against Bairnco that relate to Keene's asbestos
liabilities should be consolidated for a single, binding resolution in the
Transactions Lawsuit in the District Court.
In keeping with the Transactions Stipulation, the parties have moved to
withdraw the reference - that is, they have requested that the District Court
assume from the Bankruptcy Court all responsibility for overseeing the
Transactions Lawsuit. Pending action on this request, proceedings in the
Transactions Lawsuit are stayed.
Bairnco Corporation and its subsidiaries are defendants in a number of other
actions. Management of Bairnco believes that the disposition of these other
actions, as well as the actions and proceedings described above, will not
have a material adverse effect on the consolidated results of operations or
the financial position of Bairnco Corporation and its subsidiaries as of
December 31, 1996.
CORPORATE INFORMATION
Corporate Office
Suite 300, 2251 Lucien Way
Maitland, Florida 32751
(407) 875-2222
Principal Facilities
Bear, Delaware
City of Industry, California
East Providence, Rhode Island
Rancho Cucamonga, California
St. Louis, Missouri
Santa Ana, California
Toronto, Ontario, Canada
Gwent, Wales, United Kingdom
Paris, France
Pansdorf, Germany
Transfer Agent and Registrar
Trust Company Bank
P.O. Box 4625
Atlanta, Georgia 30302
(404) 588-7815
Independent Certified Public Accountants
Arthur Andersen LLP
200 South Orange Avenue, Suite 2100
Orlando, Florida 32801
(407) 841-4601
Stock Listing
Bairnco common stock is listed on the New York Stock Exchange.
Symbol - BZ.
Annual Meeting
The annual stockholders meeting will be held at the Sheraton Orlando North,
600 North Lake Destiny Road,
Maitland, Florida 32751,
on April 18, 1997 at 10:00 a.m.
Form 10-K
Stockholders may obtain without charge a copy of Bairnco's Form 10-K filed
with the Securities and Exchange Commission by writing to Investor Relations
at the Corporate Office address.
Investor Relations Information
Contact Investor Relations at Bairnco's Corporate Office.
BAIRNCO CORPORATION
Suite 300, 2251 Lucien Way
Maitland, Florida 32751
(407) 875-2222
FAX (407) 875-3398
EXHIBIT 21
BAIRNCO CORPORATION AND SUBSIDIARIES
Subsidiaries of Registrant
as of March 21, 1997
Percentage State/Country of
Ownership Incorporation
Arlon, Inc. 100% Delaware
Kasco Corporation 100% Delaware
Bairnco Foreign Sales Corporation 100% Barbados
Bertram & Graf Gmbh (1) 100% Germany
Invabond Ltd. (1) 100% Ireland
Atlantic Service Co. Ltd. (1) 100% Canada
Atlantic Service Co. (UK) Ltd. (1) 98.9% United Kingdom
EuroKasco S.A. (1) 100% France
(1) Indirect wholly-owned subsidiary of Bairnco Corporation.
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO BAIRNCO CORPORATION:
As independent certified public accountants, we hereby consent to the
incorporation of our reports included and incorporated by reference in this
Form 10-K, into the Company's previously filed Registration Statements on
Form S-8 (Files 33-36330 and 33-41313).
Orlando, Florida
March 21, 1997
Arthur Andersen LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM BAIRNCO'S 1996 ANNUAL
REPORT TO STOCKHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> DEC-31-1996 DEC-31-1996
<CASH> 855,000 855,000
<SECURITIES> 0 0
<RECEIVABLES> 22,298,000 22,298,000
<ALLOWANCES> 822,000 822,000
<INVENTORY> 23,499,000 23,499,000
<CURRENT-ASSETS> 52,500,000 52,500,000
<PP&E> 84,531,000 84,531,000
<DEPRECIATION> 46,255,000 46,255,000
<TOTAL-ASSETS> 102,600,000 102,600,000
<CURRENT-LIABILITIES> 22,159,000 22,159,000
<BONDS> 24,717,000 24,717,000
0 0
0 0
<COMMON> 112,000 112,000
<OTHER-SE> 49,352,000 49,352,000
<TOTAL-LIABILITY-AND-EQUITY> 102,600,000 102,600,000
<SALES> 38,665,000 150,234,000
<TOTAL-REVENUES> 38,665,000 150,234,000
<CGS> 25,330,000 97,698,000
<TOTAL-COSTS> 25,330,000 97,698,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 460,000 1,725,000
<INCOME-PRETAX> 3,157,000 13,231,000
<INCOME-TAX> 1,068,000 4,896,000
<INCOME-CONTINUING> 2,089,000 8,335,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,089,000 8,335,000
<EPS-PRIMARY> 0.22 0.85
<EPS-DILUTED> 0.22 0.85
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
FOR ANNUAL REPORT OF EMPLOYEE STOCK PURCHASE, SAVINGS
AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 33-41313
A. Full title of the plan and the address of the plan,
if different from that of the issuer named below:
Bairnco Corporation 401(K)
Savings Plan and Trust
B. Name of issuer of the securities held pursuant to
the plan and the address of its principal executive office:
Bairnco Corporation
2251 Lucien Way
Maitland, Florida 32751
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Advisory Committee of
Bairnco Corporation 401(k) Savings Plan and Trust:
We have audited the accompanying statements of net assets available for
benefits of Bairnco Corporation 401(k) Savings Plan and Trust as of December
31, 1996 and 1995, and the related statement of changes in net assets
available for benefits for the year ended December 31, 1996. These financial
statements and the schedules referred to below are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements and schedules 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 financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Bairnco
Corporation 401(k) Savings Plan and Trust as of December 31, 1996 and 1995,
and the changes in net assets available for benefits for the year ended
December 31, 1996 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of
reportable transactions, assets held for investment and transactions with
parties in interest are presented for purposes of complying with the
Department of Labor Rules and Regulations for reporting and Disclosure under
the Employee Retirement Income Security Act of 1974 and are not a required
part of the basic financial statements. Such schedules have been subjected
to the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, are fairly stated, in all material respects,
in relation to the basic financial statements taken as a whole.
Orlando, Florida
February 13, 1997
Arthur Andersen LLP
<TABLE>
BAIRNCO CORPORATION
401(k) SAVINGS PLAN AND TRUST
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
INVESTMENTS, at fair market value (Notes 2 & 3)
Bairnco common stock fund $ 181,378 $ 154,559
Mutual funds 2,805,520 2,161,181
Participant notes receivable 42,633 12,744
TOTAL INVESTMENTS 3,029,531 2,328,484
RECEIVABLES
Participants' contributions 67,678 46,494
Accrued investment income 1,289 6,865
TOTAL RECEIVABLES 68,967 53,359
TOTAL ASSETS 3,098,498 2,381,843
NET ASSETS AVAILABLE FOR BENEFITS $ 3,098,498 $ 2,381,843
The accompanying notes are an integral part of these financial statements.
</TABLE>
BAIRNCO CORPORATION
401(k) SAVINGS PLAN AND TRUST
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1996
(Note 6)
1996
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of year $ 2,381,843
ADDITIONS:
Participants' contributions 797,786
Interest and dividends 116,976
Net realized and unrealized appreciation
on investments (Note 2) 226,560
1,141,322
DEDUCTIONS:
Distributions 424,267
Administrative expenses 400
424,667
NET INCREASE 716,655
NET ASSETS AVAILABLE FOR BENEFITS,
end of year $ 3,098,498
The accompanying notes are an integral part of these financial statements.
BAIRNCO CORPORATION
401(k) SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
1. PLAN DESCRIPTION:
The following description of the Bairnco Corporation 401(k) Savings Plan and
Trust (the "Plan") provides only general information. Participants of the
Plan should refer to the Plan document for a complete description of the
Plan's provisions. The Plan document is available from Bairnco Corporation
("Bairnco" or the "Corporation") at its offices in Maitland, Florida.
General
Bairnco established the Plan effective July 1, 1991. The Plan is a defined
contribution plan under which all full-time employees become eligible for
participation on the first day of the month following completion of thirty
days of service. Once an employee becomes eligible for participation, salary
deferrals (contributions) may commence on any subsequent date. The Plan
excludes non-resident aliens, leased employees and independent contractors
from participating in the Plan. Union employees of the Corporation are
permitted to participate in the Plan. The Plan is subject to the Department
of Labor's Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1974 (ERISA).
Contributions
Under the terms of the Plan, allowable contributions are outlined as follows:
Employee Contributions - The participants may elect to defer a minimum of 1%
and a maximum of 20% of compensation, as defined in the Plan, not to exceed
$9,500 and $9,240 for 1996 and 1995, respectively. The maximum dollar amount
that may be deferred is adjusted annually by the Internal Revenue Service.
The amount of the compensation which is deferred, plus any earnings or losses
on that amount, is not subject to federal income tax until the funds are
actually distributed to the participant by the Plan. However, contributions
are subject to FICA (Social Security and Medicare Taxes).
Employer Contributions - The Corporation does not match elective deferrals
pursuant to the Plan.
Participant Accounts
Each participant's account is credited with the participant's contribution
and allocations of Plan earnings, and charged with an allocation of
administrative expenses. Allocations are based on participant earnings or
account balances, as defined. The benefit to which a participant is entitled
is the amount that can be provided from the participant's vested account.
Vesting
A participant shall at all times have a 100 percent nonforfeitable interest
in the value of his/her account attributable to all contributions made plus
or minus investment earnings and losses thereon and related administrative
costs.
Transfers From Other Qualified Plans
Participants who have an interest in any other qualified employee benefit
plan (as described in Section 401(a) of the Internal Revenue Code) may
transfer the distributions from these plans directly into the Plan at the
discretion of the Administrative Committee (see Note 4).
Distributions
A participant who has attained age 59-1/2 may elect, by filing a written
application with the Administrative Committee, to withdraw any amount up to
100 percent of the vested portion of his/her account, for any reason. For
participants who have not attained age 59-1/2, the reasons for such
withdrawals are restricted to those defined in the Plan.
Upon termination of employment, a participant can elect to have the balance
in the participant's account distributed to the participant in a single lump
sum cash distribution or a partial distribution if requested in writing by
the participant. As an alternative, the participant may also elect to leave
the related funds in the Plan or transfer the related funds into another
qualified plan.
Participant Notes Receivable
An active participant may borrow from his/her account a minimum of $1,000 up
to a maximum equal to the lesser of (1) a total of $50,000 of borrowings
within one year or (2) 50% of the participant's account balance.
Loan transactions are treated as transfers between the investment fund and
the participant notes receivable account. Loan terms range from 1-5 years
or up to 15 years for the purchase of a primary residence. The loans are
secured by the balance in the participant's account and bear interest at the
prime rate at the time of borrowing plus 2%. During 1996, interest rates
ranged from 9.5% to 10.5%. Principal and interest are paid quarterly through
payroll deductions. As of December 31, 1996, there were 14 loans
outstanding.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Reclassifications-
Certain reclassifications were made to prior year balances in order to
conform to the current year presentation.
Use 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 additions and deductions from the net assets
available for plan benefits during the reporting period. Actual results
could differ from those estimates.
Basis Of Accounting-
Through June 30, 1996, the accounting records of the Plan and the Plan's
assets were maintained by SunTrust Banks of Florida, Inc. ("SunTrust").
Effective July 1, 1996, the accounting records of the Plan and the Plan's
assets were transferred from SunTrust to Schwab Retirement Plan Services, Inc.
("Schwab") a subsidiary of the Charles Schwab Corporation. The participants'
account balances are determined on the cash basis; however, the Plan's
financial statements contained herein are presented on an accrual basis.
Investment Valuation and Income Recognition-
Investments are stated at fair market value. Securities which are traded on
a national securities exchange are valued at the last reported sales price on
the last business day of the year. Any unlisted securities are valued at the
bid price next preceding the close of business on the valuation date.
Participant notes receivable are valued at cost which approximates fair
value.
Any unrealized appreciation/depreciation on investments represents the
difference between fair value of investments at the beginning of the Plan
year or when acquired, whichever is later, and the fair value of investments
at the end of the Plan year.
Interest income is recognized on the accrual basis.
Administrative Expenses-
Administrative expenses of the Plan are paid directly by Bairnco on behalf of
the Plan. During the year ended December 31, 1996, Bairnco paid
administrative expenses of approximately $11,500.
Benefit Payments-
Benefits are recorded when paid.
3. INVESTMENTS:
There are currently six investment options into which participants may direct
the investment of their accounts. These are the Invesco Strategic Technology
Fund, Founders Growth Funds, Schwab 1000 Equity Fund, Strong Government
Securities Fund and the Schwab Retirement Money Fund (collectively the
"mutual funds"), and the Bairnco Corporation Common Stock Fund ("Bairnco
common stock fund"). Participants invest in units of participation of the
fund which represents an undivided interest in the underlying assets of the
fund. Participants may separately direct the investment of future deferrals
and existing account balances into these six investment options in increments
of 5%. Participants are permitted to modify their elections for future
deferrals and existing account balances between investment funds on a daily
basis.
Except for the Invesco Strategic Technology Fund, all the investments
represent 5% or more of the net assets available for benefits (see Note 6).
4. TRUST AGREEMENT:
From the Plan's inception through June 30, 1996, SunTrust acted as the Plan
Trustee. Effective July 1, 1996, Schwab became the Plan's Trustee pursuant
to the Plan document which is signed by the Corporation and Plan Trustee.
Schwab manages the Plan assets and makes distributions to participants as
directed by the Plan Administrator. The Administrative Committee of the
Corporation is the Plan Administrator. Expenses incurred by the Plan Trustee
or the Plan Administrator in the performance of their duties may be paid by
the Plan or the Corporation at the Corporation's discretion. During 1996 and
1995, all investment managers' fees were paid directly by the Plan.
5. PLAN TERMINATION:
Although it has not expressed any intent to do so, the Corporation reserves
the right under the Plan to terminate the Plan, in whole or in part, at any
time. In the event of the Plan's termination, the Plan assets will be
distributed to the participants in lump sum distributions or transferred to
another qualified plan at the direction of the participant.
6. CHANGES IN NET ASSETS BY INVESTMENT FUND:
The following schedule presents changes in the net assets of the investment
funds for the year ended December 31, 1996:
<TABLE>
<CAPTION>
STI Classic STI Classic STI Classic Bairnco
Capital Investment Prime Common Participants
Growth Grade Bond Quality Stock Notes Other
Fund Fund MM Fund Fund Receivable Receivables Total
<S> <C> <C> <C> <C> <C> <C> <C>
Net Assets available for
Plan Benefits, 01-01-96 $ 1,120,700 $ 409,483 $ 630,998 $154,559 $12,744 $ 53,359 $ 2,381,843
Additions:
Participants'
contributions 160,825 60,903 102,512 20,453 -- (46,494) 298,199
Interest and dividends 5,257 11,789 15,626 2,506 -- (6,865) 28,313
Net realized and
unrealized appreciation
(depreciation)on
investments 113,089 (24,339) -- 39,867 -- -- 128,617
Loan repayments 955 594 236 75 (1,860) -- --
Transfers from other
funds 17,158 5,097 662 -- -- 2,388,301 2,411,218
297,284 54,044 119,036 62,901 (1,860) 2,334,942 2,866,347
Deductions:
Distributions (108,765) (46,029) (78,412) (16,148) (3,135) -- (252,489)
Loans (1,051) (477) (472) -- 2,000 -- --
Transfers to other funds (1,308,168) (417,021) (671,150) (14,879) -- -- (2,411,218)
(1,417,984) (463,527) (750,034) (31,027) (1,135) -- (2,663,707)
Net Assets available for
Plan Benefits, 06-20-96 $ -- $ -- $ -- $186,433 $ 9,749 $2,388,301 $ 2,584,483
</TABLE>
<TABLE>
<CAPTION>
Invesco Strong Schwab Bairnco
Strategic Founders Schwab Government Retirement Common Participants
Technology Growth 1000 Securities Money Stock Notes Other
Fund Fund Fund Fund Fund Fund Receivable Receivable Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Transfers (from)
to other funds $ -- $ -- $1,308,168 $415,615 $ 664,518 $ -- $ -- $(2,388,301) $ --
Net Assets
available for
Plan Benefits,
06-21-96 -- -- 1,308,168 415,615 664,518 186,433 9,749 -- 2,584,483
Additions:
Participants
contributions 78,359 119,235 107,664 60,671 45,670 20,310 -- 67,678 499,587
Interest and
dividends 18,850 13,445 18,271 15,815 18,369 2,624 -- 1,289 88,663
Net realized
and unrealized
apprec (deprec)
on investments (13,525) (7,295) 124,716 13,686 -- (19,639) -- -- 97,943
Loan repayments 712 504 462 78 416 168 (2,340) -- --
Transfers from
other funds 58,827 48,420 -- -- -- 1,050 -- -- 108,297
143,223 174,309 251,113 90,250 64,455 4,513 (2,340) 68,967 794,490
Deductions:
Distributions (583) (1,487) (97,003) (17,722) (47,894) (7,089) -- -- (171,778)
Loans (555) (534) (24,190) (3,142) (5,722) (1,081) 35,224 -- --
Admin expenses (8) (17) (280) (18) (66) (11) -- -- (400)
Transfers to
other funds -- -- (46,098) (10,194) (50,618) (1,387) -- -- (108,297)
(1,146) (2,038) (167,571) (31,076) (104,300) (9,568) 35,224 -- (280,475)
Net Assets
available for
Plan Benefits,
12-31-96 $142,077 $172,271 $1,391,710 $474,789 $ 624,673 $181,378 $42,633 $ 68,967 $3,098,498
</TABLE>
7. TRANSACTIONS WITH PARTIES IN INTEREST:
Under Department of Labor Rules and Regulations for Reporting and Disclosure,
the Plan is required to report investment transactions with and compensation
paid to a "party in interest". The term "party in interest" is broadly
defined but includes Bairnco Corporation as the Plan's sponsor, SunTrust and
Schwab, as Plan Trustees, and any person or corporation which renders
services to the Plan. Certain 1996 and 1995 fees for legal and accounting
services provided in connection with the Plan were paid by the Plan sponsor
on behalf of the Plan during these years. Additional fees paid by the Plan
during 1996 and 1995 for services rendered by parties in interest were based
on rates which the Plan's Administrator believes were customary and
reasonable.
8. INCOME TAX STATUS:
The Plan obtained its latest determination letter on March 5, 1996, in which
the Internal Revenue Service stated that the Plan, as then designed, was in
compliance with the applicable requirements of the Internal Revenue Code.
Effective July 1, 1996, as a result of the transfer from SunTrust to Schwab,
a revised Plan document was filed with the Internal Revenue Serivce. The
plan administrator and legal counsel believe that the Plan is designed and
currently being operated in compliance with the applicable requirements of
the Internal Revenue Code.
9. SUPPLEMENTAL SCHEDULES:
Supplemental Schedule I lists the reportable transactions of the Plan for the
year ended December 31, 1996. Purchases and sales are made at market value
on the date of transaction.
Supplemental Schedule II lists the Plan assets held for investment at December
31, 1996.
Supplemental Schedule III lists transactions with parties in interest of the
Plan for the year ended December 31, 1996.
SCHEDULE I
<TABLE>
BAIRNCO CORPORATION
401(k) SAVINGS PLAN AND TRUST
SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<CAPTION>
Sales Sales Sales
Description of Transaction Purchases Cost Proceeds Net Gain
<S> <C> <C> <C> <C>
Purchases:
STI Classic Prime Quality
Money Market Fund, Class A
Trust Shares $ 128,652
STI Classic Capital Growth
Fund 199,773
STI Classic Investment Grade
Bond Fund 84,799
Founders Growth Fund 190,992
Invesco Strategic Technology
Fund 162,410
Schwab Money Market Fund 2,436,833
Schwab Retirement Money Fund 743,117
Schwab 1000 Equity Fund 1,474,332
Strong Government Securities 515,755
Sales:
STI Classic Prime Quality
Money Market Fund, Class A
Trust Shares $ 759,650 $ 759,650 $ --
STI Classic Capital Growth
Fund 1,212,280 1,433,562 221,282
STI Classic Investment Grade
Bond Fund 465,535 469,943 4,408
Founders Growth Fund 11,092 11,426 334
Invesco Strategic Technology
Fund 6,600 6,809 209
Schwab Money Market Fund 2,435,821 2,435,821 --
Schwab Retirement Money Fund 118,442 118,442 --
Schwab 1000 Equity Fund 199,956 207,338 7,382
Strong Government Securities 53,541 54,652 1,111
Total All Funds $5,936,663 $5,262,917 $5,497,643 $234,726
The accompanying notes are an integral part of this schedule.
</TABLE>
SCHEDULE II
BAIRNCO CORPORATION
401(k) SAVINGS PLAN AND TRUST
SCHEDULE OF ASSETS HELD FOR INVESTMENT
AS OF DECEMBER 31, 1996
Fair Value
Description (Note 2) Cost
Cash Equivalents
Schwab Money Market Fund $ 1,012 $ 1,012
Common Stocks
Bairnco Corporation 180,366 196,459
Total Bairnco Common Stock Fund $ 181,378 $ 197,471
Mutual Funds
Invesco Strategic Technology Fund $ 142,077 $ 155,275
Founders Growth Fund 172,271 179,725
Schwab 1000 Equity Fund 1,391,710 1,264,701
Strong Government Securities Fund 474,789 462,014
Schwab Retirement Money Fund 624,673 624,673
Total Mutual Funds $2,805,520 $2,686,388
Other Investments
Participant Notes Receivable $ 42,633 $ 42,633
Total $3,029,531 $2,926,492
The accompanying notes are an integral part of this schedule.
SCHEDULE III
BAIRNCO CORPORATION
401(k) SAVINGS PLAN AND TRUST
SCHEDULE OF TRANSACTIONS WITH PARTIES IN INTEREST
FOR THE YEAR ENDED DECEMBER 31, 1996
Description Amount
Sold 6,411 shares of Bairnco Corporation Common
Stock between $6.125 and $7.625 per share $42,279
Purchased 7,910 shares of Bairnco Corporation Common
Stock between $6.125 and $7.375 per share $52,614
The accompanying notes are an integral part of this schedule.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Administrative Committee has duly caused this annual report to be signed on
its behalf by the undersigned hereunto duly authorized.
BAIRNCO CORPORATION 401(K)
SAVINGS PLAN AND TRUST
(Name of Plan)
Date: February 13, 1997 By: /s/ J. ROBERT WILKINSON
J. ROBERT WILKINSON
Administrative Committee Member
