12
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY EXCHANGE REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 3, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 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, Suite 300, Maitland, FL 32751
(Address of principal executive offices) (Zip Code)
(407) 875-2222
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS)
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes No
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each issuer's
classes of common stock, as of the latest practicable date.
8,439,359 shares of Common Stock Outstanding as of October 26,
1998.
"Safe Harbor" Statement under the Private Securities Reform Act
of 1995
Certain of the statements contained in this Quarterly Report
(other than the financial statements and statements of historical
fact), including, without limitation, statements as to management
expectations and beliefs presented under the caption
"Management's Discussion and Analysis of Financial Condition and
Results of Operations", 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,
1998 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; disruptions in operations
due to labor disputes; the unanticipated costs and disruption in
operations due to Year 2000 non-compliance; the costs and other
effects of complying with environmental regulatory requirements;
losses due to natural disasters where the Corporation is self-
insured; 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
management's discussion and analysis contained in its quarterly
reports, the Corporation does not intend to review or revise any
particular forward-looking statement referenced herein in light
of future events.
PART I - FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(Unaudited)
1998 1997
Net sales $ 37,747,000 $ 39,814,000
Cost of sales 25,922,000 26,228,000
Gross profit 11,825,000 13,586,000
Selling and administrative expenses 9,461,000 9,717,000
Operating profit 2,364,000 3,869,000
Interest expense, net 502,000 486,000
Income before income taxes 1,862,000 3,383,000
Provision for income taxes 689,000 1,218,000
Net income $ 1,173,000 $ 2,165,000
Basic earnings per share of common stock
(Note 2) $ 0.14 $ 0.24
Diluted earnings per share of common stock
(Note 2) $ 0.14 $ 0.23
Dividends per share of common stock $ 0.05 $ 0.05
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(Unaudited)
1998 1997
Net sales $117,523,000 $118,387,000
Cost of sales 79,269,000 77,713,000
Gross profit 38,254,000 40,674,000
Selling and administrative expenses 28,894,000 28,814,000
Operating profit 9,360,000 11,860,000
Interest expense, net 1,491,000 1,361,000
Income before income taxes 7,869,000 10,499,000
Provision for income taxes 2,912,000 3,814,000
Net income $ 4,957,000 $ 6,685,000
Basic earnings per share of common stock
(Note 2) $ 0.57 $ 0.73
Diluted earnings per share of common stock
(Note 2) $ 0.56 $ 0.71
Dividends per share of common stock $ 0.15 $ 0.15
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE QUARTERS ENDED OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(Unaudited)
Note 3
1998 1997
Net income $ 1,173,000 $ 2,165,000
Other comprehensive income, net of tax:
Foreign currency translation adjustment 319,000 (94,000)
Comprehensive income $ 1,492,000 $ 2,071,000
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(Unaudited)
Note 3
1998 1997
Net income $ 4,957,000 $ 6,685,000
Other comprehensive income, net of tax:
Foreign currency translation adjustment 241,000 (657,000)
Comprehensive income $ 5,198,000 $ 6,028,000
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF OCTOBER 3, 1998 AND DECEMBER 31, 1997
(Unaudited)
1998 1997
ASSETS
Current assets:
Cash and cash equivalents $ 621,000 $ 1,217,000
Accounts receivable, less allowances of
$1,013,000 and $943,000, respectively 26,374,000 24,939,000
Inventories (Note 4) 26,762,000 26,398,000
Deferred income taxes 2,641,000 2,641,000
Other current assets 2,057,000 2,748,000
Total current assets 58,455,000 57,943,000
Plant and equipment, at cost 93,138,000 89,870,000
Less - Accumulated depreciation and amortization (53,486,000) (49,957,000)
Plant and equipment, net 39,652,000 39,913,000
Cost in excess of net assets of purchased
businesses 7,791,000 7,607,000
Other assets 4,308,000 3,823,000
$110,206,000 $109,286,000
LIABILITIES & STOCKHOLDERS' INVESTMENT
Current Liabilities:
Short-term debt $ 5,847,000 $ 3,018,000
Current maturities of long-term debt -- 9,000
Accounts payable 8,984,000 8,661,000
Accrued expenses (Note 5) 9,437,000 10,543,000
Total current liabilities 24,268,000 22,231,000
Long-term debt 27,255,000 27,291,000
Deferred income taxes 4,066,000 4,098,000
Other liabilities 3,192,000 3,197,000
Stockholders' Investment:
Preferred stock, par value $.01, 5,000,000
shares authorized, none issued -- --
Common stock, par value $.01, 30,000,000
shares authorized, 11,175,224 and
11,160,774 shares issued, respectively 112,000 112,000
Paid-in capital 49,105,000 49,030,000
Retained earnings 26,445,000 22,802,000
Accumulated other comprehensive income
(Note 3) 1,813,000 1,572,000
Treasury stock, at cost, 2,722,865 and
2,166,765 shares, respectively (26,050,000) (21,047,000)
Total stockholders' investment 51,425,000 52,469,000
$110,206,000 $109,286,000
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(Unaudited)
1998 1997
Cash Flows from Operating
Activities:
Net income $ 4,957,000 $ 6,685,000
Adjustments to reconcile to net cash provided
by operating activities:
Depreciation and amortization 5,073,000 5,025,000
(Gain) on disposal of plant and equipment (13,000) (15,000)
Deferred income taxes (32,000) (14,000)
Change in operating assets and liabilities:
(Increase) in accounts receivable (1,208,000) (4,690,000)
(Increase) in inventories (169,000) (3,376,000)
Decrease in other current assets 819,000 827,000
Increase in accounts payable 224,000 2,247,000
(Decrease) in accrued expenses (1,240,000) (363,000)
Other (730,000) (855,000)
Net cash provided by operating activities 7,681,000 5,471,000
Cash Flows from Investing Activities:
Capital expenditures (4,777,000) (7,050,000)
Proceeds from collection on notes receivable -- 2,011,000
Proceeds from sale of plant and equipment 83,000 141,000
Net cash (used in) investing activities (4,694,000) (4,898,000)
Cash Flows from Financing Activities:
Net borrowings of external debt 2,680,000 4,161,000
Payment of dividends (1,307,000) (1,379,000)
Purchase of treasury stock (5,003,000) (3,061,000)
Exercise of stock options 75,000 3,000
Net cash (used in) financing activities (3,555,000) (276,000)
Effect of foreign currency exchange rate changes
on cash and cash equivalents (28,000) (31,000)
Net (decrease) increase in cash and cash
equivalents (596,000) 266,000
Cash and cash equivalents, beginning of period 1,217,000 855,000
Cash and cash equivalents, end of period $ 621,000 $ 1,121,000
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
OCTOBER 3, 1998
(Unaudited)
(1) Basis of Presentation
The accompanying consolidated condensed 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 unaudited consolidated condensed financial statements
included herein have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and note disclosures which are normally included in
annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to those rules and regulations, although the Corporation
believes that the disclosures made are adequate to make the
information presented not misleading.
The consolidated results of operations for the quarter and nine-
month period ended October 3, 1998 are not necessarily indicative
of the results of operations for the full year.
Certain reclassifications were made to prior year balances in
order to conform to the current year presentation.
(2) Earnings per Common Share
The Corporation adopted Statement of Financial Accounting
Standards ("SFAS") No. 128 effective December 15, 1997, and as a
result, the Corporation's previously reported quarterly earnings
per common share for 1997 have been restated. Earnings per share
data is based on net income and not comprehensive income.
Statements regarding the computation of earnings per share for
the quarters and nine-month periods ended October 3, 1998 and
September 27, 1997 are included as Exhibit 11.1 and Exhibit 11.2,
respectively, to this Quarterly Report on Form 10-Q.
(3) Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), which is effective for years
beginning after December 15, 1997. SFAS 130 established
standards for reporting and displaying comprehensive income and
its components in a full set of general-purpose financial
statements. This statement requires that all items of
comprehensive income are classified by their nature in a
financial statement and that the accumulated balance of other
comprehensive income be displayed separately from retained
earnings and additional paid-in capital in the equity section of
a statement of financial position. The comparative prior period
financial statements have been reclassified to conform to the
current period presentation.
Comprehensive income includes net income as well as certain other
transactions shown as changes in stockholders' investment. For
Bairnco, comprehensive income includes net income plus the change
in net asset values of foreign divisions as a result of
translating the local currency values of net assets to US dollars
at varying exchange rates. Accumulated other comprehensive
income consists solely of foreign currency translation
adjustments. There are currently no tax expenses or benefits
associated with the foreign currency translation adjustments.
(4) Inventories
Inventories consisted of the following as of October 3, 1998 and
December 31, 1997:
1998 1997
Raw materials and supplies $ 5,450,000 $ 5,646,000
Work in process 6,623,000 6,402,000
Finished goods 14,689,000 14,350,000
Total inventories $26,762,000 $26,398,000
(5) Accrued Expenses
Accrued expenses consisted of the following as of October 3, 1998
and December 31, 1997:
1998 1997
Salaries and wages $ 1,804,000 $ 2,353,000
Income taxes 633,000 139,000
Insurance 1,940,000 2,216,000
Litigation 984,000 1,461,000
Other accrued expenses 4,076,000 4,374,000
Total accrued expenses $ 9,437,000 $10,543,000
(6) Contingencies
Bairnco Corporation and its subsidiaries are defendants in
certain legal actions which are discussed more fully in Part II,
Item 1 ("Legal Proceedings") of this filing.
Item 2:MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying Consolidated Condensed Financial Statements and
related notes and with Bairnco's Audited Consolidated Financial
Statements and related notes for the year ended December 31,
1997.
Bairnco Corporation is a diversified multinational company that
operates two distinct businesses under the names Arlon and Kasco.
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 common
technologies in coating, laminating, polymers 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, on site maintenance services and seasonings for ready-
to-cook foods 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.
Comparison of Third Quarter 1998 to Third Quarter 1997
The results for the third quarter 1998 were generally in line
with expectations given the adverse economic events that began in
the second quarter. The downturn in the Asian and emerging
markets and the strong U.S. dollar continue to depress a number
of the Corporation's domestic and international markets. The
decline seems to be over but there is little evidence of a
recovery in the markets affected.
Sales in the third quarter 1998 were $37,747,000, a decrease of
5.2% from $39,814,000 in 1997. Arlon third quarter sales
decreased 8.5% over prior year. The decrease in the electronics
and electrical markets and the impact of the General Motors
strike more than offset the modest gains in the graphics and
general industrial markets. The soft industrial markets combined
with the strong U.S. dollar and the Asian economic problems all
served to intensify pricing pressures in both domestic and
industrial markets. Kasco sales increased 2.9% reflecting
improved sales at Kasco's European divisions.
Gross profit decreased 13.0% to $11,825,000 from $13,586,000 as a
result of the decreased sales and the continuing price pressures
in the electronics and electrical industries and in export
markets. The gross profit margin as a percent of sales decreased
from 34.1% in 1997 to 31.3% in 1998.
Selling and administrative expenses decreased 2.6% to $9,461,000
from $9,717,000. As a percent of sales, selling and
administrative expenses increased from 24.4% to 25.1%. Interest
expense increased to $502,000 in 1998 as compared to $486,000 in
1997 due primarily to higher average borrowings.
The effective tax rate for the third quarter of 1998 was 37%
versus 36% for 1997. The provision for income taxes in both
periods includes all applicable federal, state, local and foreign
income taxes.
Net income decreased 45.8% to $1,173,000 as compared to
$2,165,000 in the third quarter of 1997. Diluted earnings per
common share decreased 39.1% to $.14 from $.23 as a result of the
reduced net income.
Comparison of First Nine Months 1998 to First Nine Months 1997
Due to the weak second and third quarter results, sales for the
first nine months of 1998 were down 0.7% to $117,523,000 from
$118,387,000 in 1997.
Gross profit decreased $2,420,000 or 5.9% from $40,674,000 in the
first nine months of 1997. The gross profit margin as a percent
of sales decreased from 34.4% to 32.6%. The profit margin
declines are primarily attributable to the reduced sales and
price pressures resulting from the impact of the Asian economic
crisis during the second and third quarters.
Selling and administrative expenses increased $80,000 to
$28,894,000. As a percent of sales, selling and administrative
expenses increased to 24.6% from 24.3%.
Interest expense increased $130,000 as compared to the first nine
months of 1997. This increase was primarily the result of higher
average borrowings.
The effective tax rate for the first nine months of 1998 was 37%
versus 36.3% in 1997. The provision for income taxes in both
periods includes all applicable federal, state, local and foreign
income taxes.
Net income decreased 25.8% to $4,957,000 from $6,685,000 and
diluted earnings per common share decreased 21.1% to $.56 from
$.71.
Liquidity and Capital Resources
At October 3, 1998, Bairnco had working capital of $34.2 million
compared to $35.7 million at December 31, 1997. The increase in
accounts receivable relates primarily to the increase in export
business which has longer payment terms. Inventories are down
approximately $1.3 million from the end of the second quarter
consistent with programs initiated in the second quarter to
reduce these inventories during the remainder of 1998. Accrued
expenses are down from December 31, 1997 primarily due to 1997
accrued bonuses that were paid out during the first quarter 1998
and payments to our attorneys for defending the asbestos
litigation.
During the first quarter 1998, the Board of Directors authorized
an additional $5,000,000 to be available for the ongoing
repurchase of Bairnco's common stock. The Board has authorized
management to continue its stock repurchase program subject to
market conditions and capital requirements of the business.
During the third quarter Bairnco repurchased 199,500 shares of
its common stock at a total cost of $1.3 million. Total shares
repurchased during the first nine months of 1998 were 559,100.
At October 3, 1998, Bairnco's total debt outstanding was
$33,102,000 compared to $30,318,000 at the end of 1997. This
increase was primarily due to the stock repurchases. At October
3, 1998 approximately $15.8 million was available for borrowing
under the Corporation's secured reducing revolving credit
agreement, as amended. In addition, approximately $2.6 million
was available under various short-term domestic and foreign
uncommitted credit facilities.
Bairnco made approximately $1.5 million of capital expenditures
during the third quarter of 1998 bringing the total capital
expenditures for 1998 to $4,777,000. Total capital expenditures
for 1998 are expected to approximate $7 million.
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
1998.
Year 2000 Compliance
As stated in Bairnco's 1997 Annual Report on Form 10-K, the
Corporation has evaluated and identified its internal risks of
software failure due to processing errors arising from
calculations using the Year 2000 date. The plan that was
established to maintain the integrity of its financial systems
and ensure the reliability of its operating systems is proceeding
on schedule. The estimated cost of achieving Year 2000
compliance remains at approximately $250,000 and includes
software and installation costs to be incurred during 1998 and
1999.
In January of 1998 Bairnco adopted a formal plan to address the
Year 2000 issue. This plan has defined roles, identified staff
members to execute the plan, set target dates, and provided a
detailed budget. The plan also incorporates the use of outside
consultants.
Bairnco has compiled a checklist for all areas that may be
affected by this issue. The Corporation has formed task forces
at each of its operating divisions and charged them with doing
thorough and complete audits of their facilities using the
checklist as a guide. The Corporation is aware of some hardware
issues and has assembled a plan to have the outmoded equipment
replaced by next year.
Bairnco has assessed the software in use at all of its operations
and identified applications that do not currently process using a
four-digit field to record the date. The Corporation is in the
process of adapting or replacing any such programs and expects to
have the work completed on schedule.
Bairnco has contacted the majority of its suppliers and customers
with whom the Corporation has a material business relationship
regarding their Year 2000 state of readiness. The responses to
date have indicated they are, or expect to be, Year 2000
compliant.
Based on the results of our efforts to date as discussed above,
the Corporation believes it will not experience any material
disruption in its operations due to Year 2000 issues with its
computer software programs and operating systems or its interface
with key suppliers and vendors. However, the implementation and
validation of Bairnco's information technology ("IT") and non-IT
systems, and the evaluation of the state of readiness of
Bairnco's material business partners are ongoing. The disruption
in service of any critical suppliers or the failure of the
Corporation's operating systems to comply, could result in a
shutdown of the operations affected for the duration of the
disruption. The Corporation has not developed a contingency plan
but intends to determine whether to develop such a plan during
1999.
Other Matters
Bairnco Corporation and its subsidiaries are defendants in a
number of legal actions and proceedings which are discussed in
more detail in Part II, Item 1 ("Legal Proceedings") of this
filing. 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
October 3, 1998.
Outlook
We believe the decline in the electronics and electrical markets
has abated but there is no evidence of a meaningful recovery.
Other general industrial markets have shown some softness. New
products and penetration of new markets have partially mitigated
the negative impact. We continue to reduce costs while
maintaining the engineering, research, and sales resources to
develop new products and markets and to focus on continuous cost
improvements. These actions will partially offset the ongoing
negative impact of weak markets. New products and the
penetration of new markets will continue at Arlon. However, the
operating results for the fourth quarter of 1998 are expected to
be below 1997 results.
Management is not aware of any adverse trends that would
materially affect the Corporation's strong financial position.
PART II - OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
Bairnco has been named as a defendant in a number of personal
injury and wrongful death cases in which it is alleged that
Bairnco is derivatively liable for the asbestos-related claims
against its former subsidiary, Keene Corporation ("Keene"). On
December 6, 1993, Keene filed for protection under Chapter 11 of
the Bankruptcy Code. On June 8, 1995, the Keene Creditors'
Committee commenced an adversary proceeding in the Bankruptcy
Court against Bairnco, its subsidiaries, 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 other subsidiaries by
Bairnco, were fraudulent and otherwise violative of state law (the
"Transactions Lawsuit") and seeking compensatory damages of $700
million, plus interest and punitive damages. The complaint in
the Transactions Lawsuit also includes a count under the civil RICO
statute, 18 U.S.C. Section 1964, pursuant to which compensatory
damages are trebled.
Bairnco also is the defendant in a separate action originally
brought by Keene in the United States Bankruptcy Court for the
Southern District of New York in which Keene sought 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 April 4, 1998,
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 these lawsuits.
By order entered April 10, 1997, the Transactions Lawsuit was
transferred from the Bankruptcy Court to the United States
District Court for the Southern District of New York, where it
will be litigated. Bairnco and other
defendants filed motions to dismiss the complaint for failure to
state a claim as well as motions for summary judgment on the
grounds that the complaint is time-barred.
On February 6, 1998, the court issued an
opinion granting the motions to dismiss of four of the defendants
in the Transactions Lawsuit. On October 13, 1998, the court issued
an opinion denying the summary judgment motions brought by Bairnco
and certain other defendants on statute of limitations grounds.
In the same opinion, the court granted the motions to dismiss brought
by Bairnco and certain other defendants, to the extent of dismissing
plaintiffs' claims under the RICO statute, and denied the motions to the
extent of permitting plaintiffs' claims under state law to go forward.
Defendant Kaydon Corporation has made a motion, in which Bairnco will
join, for reconsideration by the district court, or certification of an
interlocutory appeal, of the portion of the opinion denying the statute of
limitations motion. The court has reserved decision on the remaining
motions to dismiss or for summary judgment, which were brought by individual
defendants. There can be no assurance that the remaining motions will
result in dismissal of any part of the Transactions Lawsuit.
On January 6, 1998, the Creditors Trust filed a motion, to which
Bairnco consented, to have the NOL Lawsuit transferred from the
Bankruptcy Court to the District Court. That motion is pending.
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 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
October 3, 1998.
Item 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
Item 3: DEFAULTS UPON SENIOR SECURITIES
None.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5: OTHER INFORMATION
None.
Item 6(a): EXHIBITS
Exhibit 4 - Amendment dated as of October 13, 1998 to
Amended and Restated Credit Agreement dated as of December 17,
1992, by and among Bairnco Corporation and certain of
subsidiaries and certain Commercial Lending Institutions
and Bank of America, Illinois (formerly Continental Bank
N.A.), as the Agent for Lenders, which is incorporated
herein by reference to Exhibit 3.1 to Bairnco's Annual
Report on Form 10-K for fiscal year ended December 31,
1992.
Exhibit 11.1 - Calculation of Basic and Diluted Earnings per
Share for the Quarters ended October 3, 1998 and September 27,
1997.
Exhibit 11.2 - Calculation of Basic and Diluted Earnings per
Share for the Nine Months ended October 3, 1998 and September 27,
1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Bairnco has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
BAIRNCO CORPORATION
(Registrant)
/s/ J. Robert Wilkinson
J. Robert Wilkinson
Vice President Finance and Treasurer
(Chief Financial Officer)
DATE: October 30, 1998
EXHIBITS
TO FORM 10-Q
FOR QUARTER ENDED
October 3, 1998
5
FIFTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Fifth Amendment to Amended and Restated Credit
Agreement, dated as of October 13, 1998 (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 NT&SA, 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
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 to delete from the definition
of "Obligations" the phrase "lines of credit" and to substitute
therefor "Indebtedness".
2. Amendment of Section 7.1.1(c). Section 7.1.1(c) of the Credit
Agreement is hereby amended and restated in its entirety as
follows:
(c) as soon as available and in any event within 45 days
after the end of each of the first three Fiscal
Quarters, and within 90 days after the end of the Fiscal
Year, a certificate (a "Compliance Certificate")
substantially in the form of Exhibit G, executed by the
chief financial Authorized Officer of Bairnco, showing
(in reasonable detail and with appropriate calculations
and computations in all respects satisfactory to the
Agent) the Interest Coverage Ratio and compliance with
the financial covenants set forth in Section 7.2.3;
3. Amendment of Section 7.2.1 (i). Section 7.2.1 (i) is hereby
amended and restated in its entirety as follows:"Indebtedness
owing to (i) a Lender or an Affiliate of a Lender in respect of
Indebtedness other than a Loan, which Indebtedness is
cross-collateralized with the Loan contemplated hereby as long as
(A) the aggregate amount of such Indebtedness available to be
borrowed does not exceed $8,000,000, and (B) the aggregate amount
of such Indebtedness outstanding at any time does not exceed
$8,000,000; and (ii) Indebtedness owing to First Union National
Bank ("FUNB") in respect of the letter of credit issued by FUNB
for the benefit of Toronto Dominion Bank on the account of Bairnco
in the amount of CAN$3,000,000 which indebtedness is
cross-collateralized with the Loan contemplated hereby "FUNB
Letter of Credit"); provided, however, that the caps on
Indebtedness identified in subsection (i), clauses (A) and (B),
shall automatically increase (x) to $10,000,000, upon the
expiration or termination of the FUNB Letter of Credit, and (y)
dollar for dollar with each payment made by Bairnco to FUNB in
respect of the FUNB Letter of Credit (taking into account the
current rate of exchange for conversion of Canadian dollars to
U.S. dollars).
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.
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: VP Finance
_____________________________
ARLON, INC.
By: /s/ J. Robert Wilkinson
_____________________________
Name: J. Robert Wilkinson
_____________________________
Title: VP Finance
_____________________________
KASCO CORPORATION
By: /S/ J. Robert Wilkinson
_____________________________
Name: J. Robert Wilkinson
_____________________________
Title: VP Finance
_____________________________
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 NT&SA, as Agent
By: /s/ Steve Aronowitz
_____________________________
Name: Steve Aronowitz
_____________________________
Title: Managing Director
_____________________________
BANK OF AMERICA NT&SA as a Lender
By: /s/ Steve Aronowitz
_____________________________
Name: Steve Aronowitz
_____________________________
Title: Managing Director
_____________________________
FIRST UNION NATIONAL BANK, N.A.,
Formerly Known as FIRST UNION
NATIONAL
BANK OF FLORIDA
By:/s/ Mary H. Doonan
_____________________________
Name: Mary H. Doonan
_____________________________
Title: Vice President
_____________________________
FIRST NATIONAL BANK OF MARYLAND
By: /s/ Jerome A. Ratliff
_____________________________
Name: Jerome A. Ratliff
_____________________________
Title: Vice President
_____________________________
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By: /s/ William C. Barr III
_____________________________
Name: William C. Barr III
_____________________________
Title: First Vice President
_____________________________
EXHIBIT 11.1
BAIRNCO CORPORATION
CALCULATION OF BASIC AND DILUTED EARNINGS PER SHARE
FOR THE QUARTERS ENDED OCTOBER 3, 1998 AND SEPTEMBER 27,
1997
(Unaudited)
1998 1997
BASIC EARNINGS PER COMMON SHARE:
Net income $ 1,173,000 $ 2,165,000
Average common shares outstanding 8,567,000 9,014,000
Basic Earnings Per Common Share $ 0.14 $ 0.24
DILUTED EARNINGS PER COMMON SHARE:
Net income $ 1,173,000 $ 2,165,000
Average common shares outstanding 8,567,000 9,014,000
Common shares issuable in respect to
options issued to employees with a
dilutive effect 42,000 240,000
Total diluted common shares outstanding 8,609,000 9,254,000
Diluted Earnings Per Common Share $ 0.14 $ 0.23
Basic earnings per common share were computed by dividing
net income by the weighted average number of common shares
outstanding during the quarter. Diluted earnings per
common share include the effect of all dilutive stock
options.
EXHIBIT 11.2
BAIRNCO CORPORATION
CALCULATION OF BASIC AND DILUTED EARNINGS PER SHARE
FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(Unaudited)
1998 1997
BASIC EARNINGS PER COMMON SHARE:
Net income $ 4,957,000 $ 6,685,000
Average common shares outstanding 8,739,000 9,201,000
Basic Earnings Per Common Share $ 0.57 $ 0.73
DILUTED EARNINGS PER COMMON SHARE:
Net income $ 4,957,000 $ 6,685,000
Average common shares outstanding 8,739,000 9,201,000
Common shares issuable in respect to
options issued to employees with a
dilutive effect 67,000 173,000
Total diluted common shares outstanding 8,806,000 9,374,000
Diluted Earnings Per Common Share $ 0.56 $ 0.71
Basic earnings per common share were computed by dividing net
income by the weighted average number of common shares
outstanding during the quarter. Diluted earnings per common
share include the effect of all dilutive stock options.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM BAIRNCO'S THIRD
QUARTER 1998 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1998 DEC-31-1997
<PERIOD-END> OCT-03-1998 SEP-27-1997 OCT-03-1998 SEP-27-1997
<CASH> 621,000 1,121,000 621,000 1,121,000
<SECURITIES> 0 0 0 0
<RECEIVABLES> 27,387,000 26,819,000 27,387,000 26,819,000
<ALLOWANCES> 1,013,000 989,000 1,013,000 989,000
<INVENTORY> 26,762,000 26,449,000 26,762,000 26,449,000
<CURRENT-ASSETS> 58,455,000 58,660,000 58,455,000 58,660,000
<PP&E> 93,138,000 89,050,000 93,138,000 89,050,000
<DEPRECIATION> 53,486,000 49,294,000 53,486,000 49,294,000
<TOTAL-ASSETS> 110,206,000 110,068,000 110,206,000 110,068,000
<CURRENT-LIABILITIES> 24,268,000 23,956,000 24,268,000 23,956,000
<BONDS> 27,255,000 28,867,000 27,255,000 28,867,000
0 0 0 0
0 0 0 0
<COMMON> 112,000 112,000 112,000 112,000
<OTHER-SE> 51,313,000 50,939,000 51,313,000 50,939,000
<TOTAL-LIABILITY-AND-EQUITY> 110,206,000 110,068,000 110,206,000 110,068,000
<SALES> 37,747,000 39,814,000 117,523,000 118,387,000
<TOTAL-REVENUES> 37,747,000 39,814,000 117,523,000 118,387,000
<CGS> 25,922,000 26,228,000 79,269,000 77,713,000
<TOTAL-COSTS> 25,922,000 26,228,000 79,269,000 77,713,000
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 502,000 486,000 1,491,000 1,361,000
<INCOME-PRETAX> 1,862,000 3,383,000 7,869,000 10,499,000
<INCOME-TAX> 689,000 1,218,000 2,912,000 3,814,000
<INCOME-CONTINUING> 1,173,000 2,165,000 4,957,000 6,685,000
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,173,000 2,165,000 4,957,000 6,685,000
<EPS-PRIMARY> 0.14 0.24 0.57 0.73
<EPS-DILUTED> 0.14 0.23 0.56 0.71
</TABLE>
