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 July 3, 1999
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.
7,888,259 shares of Common Stock Outstanding as of July 30, 1999.
"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,
1999 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 JULY 3, 1999 AND JULY 4, 1998
(Unaudited)
1999 1998
Net sales $ 42,653,000 $ 37,651,000
Cost of sales 28,171,000 24,905,000
Gross profit 14,482,000 12,746,000
Selling and administrative expenses 10,461,000 9,717,000
Operating profit 4,021,000 3,029,000
Interest expense, net 515,000 508,000
Income before income taxes 3,506,000 2,521,000
Provision for income taxes 1,192,000 933,000
Net income $ 2,314,000 $ 1,588,000
Basic earnings per share of
common stock (Note 2) $ 0.29 $ 0.18
Diluted earnings per share of
common stock (Note 2) $ 0.29 $ 0.18
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 SIX MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998
(Unaudited)
1999 1998
Net sales $ 85,315,000 $ 79,776,000
Cost of sales 56,581,000 53,347,000
Gross profit 28,734,000 26,429,000
Selling and administrative expenses 20,706,000 19,433,000
Operating profit 8,028,000 6,996,000
Interest expense, net 1,082,000 989,000
Income before income taxes 6,946,000 6,007,000
Provision for income taxes 2,362,000 2,223,000
Net income $ 4,584,000 $ 3,784,000
Basic earnings per share of
common stock (Note 2) $ 0.57 $ 0.43
Diluted earnings per share of
common stock (Note 2) $ 0.57 $ 0.42
Dividends per share of common stock $ 0.10 $ 0.10
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE QUARTERS ENDED JULY 3, 1999 AND JULY 4, 1998
(Unaudited)
Note 3
1999 1998
Net income $ 2,314,000 $ 1,588,000
Other comprehensive income, net of tax:
Foreign currency translation adjustment (181,000) (4,000)
Comprehensive income $ 2,133,000 $ 1,584,000
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998
(Unaudited)
Note 3
1999 1998
Net income $ 4,584,000 $ 3,784,000
Other comprehensive income, net of tax:
Foreign currency translation adjustment (516,000) (78,000)
Comprehensive income $ 4,068,000 $ 3,706,000
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF JULY 3, 1999 AND DECEMBER 31, 1998
(Unaudited)
1999 1998
ASSETS
Current assets:
Cash and cash equivalents $ 696,000 $ 822,000
Accounts receivable, less allowances of
$1,320,000 and $1,224,000, respectively 28,967,000 27,999,000
Inventories (Note 4) 25,387,000 26,179,000
Deferred income taxes 4,137,000 4,137,000
Other current assets 1,987,000 1,709,000
Total current assets 61,174,000 60,846,000
Plant and equipment, at cost 99,370,000 97,291,000
Less - Accumulated depreciation and
amortization (58,979,000) (55,889,000)
Plant and equipment, net 40,391,000 41,402,000
Cost in excess of net assets of purchased
businesses 12,000,000 11,840,000
Other assets 4,392,000 4,467,000
$117,957,000 $118,555,000
LIABILITIES & STOCKHOLDERS' INVESTMENT
Current Liabilities:
Short-term debt $ 3,245,000 $ 4,373,000
Accounts payable 10,613,000 9,022,000
Accrued expenses (Note 5) 13,367,000 14,192,000
Total current liabilities 27,225,000 27,587,000
Long-term debt 31,934,000 33,471,000
Deferred income taxes 3,138,000 2,912,000
Other liabilities 8,125,000 8,147,000
Stockholders' Investment:
Preferred stock, par value $.01,
5,000,000 shares authorized,
none issued -- --
Common stock, par value $.01, 30,000,000
shares authorized, 11,187,224 shares
issued 112,000 112,000
Paid-in capital 49,165,000 49,165,000
Retained earnings 26,446,000 22,670,000
Accumulated other comprehensive income
(Note 3) 1,229,000 1,745,000
Treasury stock, at cost, 3,298,965 and
2,904,165 shares, respectively (29,417,000) (27,254,000)
Total stockholders' investment 47,535,000 46,438,000
$117,957,000 $118,555,000
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998
(Unaudited)
1999 1998
Cash Flows from Operating Activities:
Net income $ 4,584,000 $ 3,784,000
Adjustments to reconcile to net
cash provided by operating activities:
Depreciation and amortization 3,688,000 3,423,000
Loss (gain) on disposal of plant and
equipment 25,000 (27,000)
Deferred income taxes 226,000 (12,000)
Change in operating assets and
liabilities:
(Increase) decrease in accounts
receivable (1,396,000) 359,000
Decrease (increase) in inventories 392,000 (1,772,000)
(Increase) in other current assets (305,000) (441,000)
Increase in accounts payable 1,755,000 275,000
(Decrease) in accrued expenses (583,000) (1,686,000)
Other (384,000) (184,000)
Net cash provided by operating activities 8,002,000 3,719,000
Cash Flows from Investing Activities:
Capital expenditures (2,641,000) (3,301,000)
Proceeds from sale of plant and equipment 2,000 66,000
Net cash (used in) investing activities (2,639,000) (3,235,000)
Cash Flows from Financing Activities:
Net (repayments) borrowings of external
debt (2,472,000) 3,826,000
Payment of dividends (806,000) (880,000)
Purchase of treasury stock (2,163,000) (3,664,000)
Exercise of stock options -- 66,000
Net cash (used in) financing activities (5,441,000) (652,000)
Effect of foreign currency exchange rate
changes on cash and cash equivalents (48,000) 29,000
Net (decrease) in cash and cash
equivalents (126,000) (139,000)
Cash and cash equivalents, beginning of
period 822,000 1,217,000
Cash and cash equivalents, end of period $ 696,000 $ 1,078,000
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JULY 3, 1999
(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 six-
month period ended July 3, 1999 are not necessarily indicative of
the results of operations for the full year.
(2) Earnings per Common Share
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 six-month periods ended
July 3, 1999 and July 4, 1998 are included as Exhibit 11.1 and
Exhibit 11.2, respectively, to this Quarterly Report on Form 10-
Q.
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.
(3) Comprehensive Income
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 July 3, 1999 and
December 31, 1998:
1999 1998
Raw materials and supplies $ 5,466,000 $ 5,701,000
Work in process 6,787,000 6,604,000
Finished goods 13,134,000 13,874,000
Total inventories $25,387,000 $26,179,000
(5) Accrued Expenses
Accrued expenses consisted of the following as of July 3, 1999
and December 31, 1998:
1999 1998
Salaries and wages $ 2,912,000 $ 2,669,000
Income taxes 246,000 633,000
Insurance 2,649,000 2,462,000
Litigation 2,891,000 3,580,000
Other accrued expenses 4,669,000 4,848,000
Total accrued expenses $13,367,000 $14,192,000
Accrued expenses-litigation: The Corporation accrues for the
estimated costs to defend existing lawsuits, claims and
proceedings where it is probable that it will incur such costs in
the future. These non-discounted accruals are management's best
estimate of the most likely cost to defend the litigation based
on discussions with counsel. Such estimates are reviewed and
evaluated in light of ongoing experiences and expectations. Any
changes in estimates from this review process are reflected in
operations currently.
In the fourth quarter of 1998, Bairnco recorded a $7,500,000 pre-
tax provision for litigation costs. The litigation provision
added to the existing reserves for asbestos-related litigation
expenditures due to a change in the estimate to defend the
Transaction Lawsuit (refer to Part II, Item 1. "Legal
Proceedings" of this filing). During the first half of 1999,
approximately $610,000 had been spent. The remaining litigation
reserves included in accrued expenses and other long-term
liabilities in the Corporation's consolidated condensed balance
sheet are expected to be spent by the end of 2001. These
litigation reserves and related time frame for spending assume a
vigorous defense of the case through discovery, summary judgment
motions and trial.
(6) Reportable Segment Data
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS
131"), which is effective for fiscal years beginning after
December 15, 1997. SFAS 131 introduces a new model for segment
reporting called the management approach. The management
approach is based on the way the chief operating decision-maker
organizes segments within a company for making operating
decisions and assessing performance.
SFAS 131 requires disclosures for each segment that are similar
to those required under previous standards with the addition of
limited quarterly disclosure requirements. Bairnco adopted SFAS
131 effective January 1, 1998.
There are no differences to the 1998 annual report in the basis
of segmentation or in the basis of measurement of segment profit
or loss included herein. In addition, there has been no material
change in total assets of the segments from the amounts disclosed
in the 1998 annual report. Financial information about the
Corporation's operating segments for the second quarter of 1999
and 1998 as required under SFAS 131 is as follows:
1999 Net Sales Operating Profit (Loss)
Arlon $30,372,000 $ 3,976,000
Kasco 12,281,000 1,129,000
Headquarters -- (1,084,000)
$42,653,000 $ 4,021,000
1998 Net Sales Operating Profit (Loss)
Arlon $25,606,000 $ 3,020,000
Kasco 12,045,000 956,000
Headquarters -- (947,000)
$37,651,000 $3,029,000
Financial information about the Corporation's operating segments
for the six-month periods ended July 3, 1999 and July 4, 1998 as
required under SFAS 131 is as follows:
1999 Net Sales Operating Profit (Loss)
Arlon $60,315,000 $ 7,986,000
Kasco 25,000,000 2,095,000
Headquarters -- (2,053,000)
$85,315,000 $ 8,028,000
1998 Net Sales Operating Profit (Loss)
Arlon $55,669,000 $ 7,192,000
Kasco 24,107,000 1,617,000
Headquarters -- (1,813,000)
$79,776,000 $ 6,996,000
(7) 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,
1998.
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 Second Quarter 1999 to Second Quarter 1998
The results for the second quarter of 1999 were significantly
improved over last year's second quarter which was negatively
impacted by the "Asian flu" and the down turn in the electronic
market. The improved results reflect the substantial
improvements in operating efficiencies at three of the plants and
the results of the acquisition made during the fourth quarter of
last year.
Sales in the second quarter 1999 were $42,653,000 an increase of
13.3% from $37,651,000 in 1998. Arlon's sales increased 18.6%
from last year due to the inclusion of the acquisition and
significant recoveries from the depressed markets of the last
three quarters of 1998. Kasco's sales increased only 2.0% due to
the soft European markets.
Gross profit increased 13.6% to $14,482,000 from $12,746,000 due
to increased sales, improved manufacturing efficiencies and the
contribution from the acquisition. The gross profit margin as a
percent of sales increased to 34.0% from 33.9%.
Selling and administrative expenses increased 7.7% to $10,461,000
from $9,717,000. As a percent of sales, selling and
administrative expenses decreased to 24.5% from 25.8%.
Productivity as measured by sales per employee improved 13.6% to
$207,800 in the second quarter of 1999 from $183,000 in 1998.
Interest expense increased slightly to $515,000 in 1999 as
compared to $508,000 in 1998. The effective tax rate for the
second quarter of 1999 was 34% versus 37% for 1998. The
provision for income taxes in both periods includes all
applicable federal, state, local and foreign income taxes.
Net income increased 45.7% to $2,314,000 as compared to
$1,588,000 in the second quarter of 1998. Diluted earnings per
common share increased 61.1% to $.29 from $.18 as a result of
improved earnings and the reduced number of shares outstanding.
Comparison of First Six Months 1999 to First Six Months 1998
Sales for the first half of 1999 were up 6.9% to $85,315,000 from
$79,776,000 in 1998 due to the recovery in 1999 from the
depressed markets of the second quarter of 1998 and the inclusion
of the acquisition made in the fourth quarter of last year.
Gross profit increased $2,305,000, or 8.7% from $26,429,000 in
the first half of 1998. The gross profit margin as a percent of
sales increased from 33.1% to 33.7%. The profit margin
improvement is due to increased sales, improved manufacturing
efficiencies and the contribution from the acquisition.
Selling and administrative expenses increased 6.6% to $20,706,000
from $19,433,000. This increase was primarily due to expenses
associated with the acquisition. As a percent of sales, selling
and administrative expenses decreased to 24.3% from 24.4%.
Interest expense increased $93,000 as compared to the first half
of 1998. The effective tax rate for the first half of 1999 was
34% versus 37% in 1998. The provision for income taxes in both
periods includes all applicable federal, state, local and foreign
income taxes.
Net income increased 21.1% to $4,584,000 from $3,784,000 and
diluted earnings per common share increased 35.7% to $.57 from
$.42 in 1998.
Dividend
The second quarter cash dividend of $.05 per share was paid on
July 1, 1999 to stockholders of record on June 7, 1999.
Liquidity and Capital Resources
At July 3, 1999, Bairnco had working capital of $33.9 million
compared to $33.3 million at December 31, 1998. The increase in
accounts receivable relates primarily to the increased sales in
the second quarter of 1999 versus the fourth quarter of 1998.
The increase in accounts payable reflects the timing of purchases
and subsequent payments to vendors. Accrued expenses have
decreased due primarily to payments for litigation expenses.
During the second quarter of 1999 Bairnco repurchased 19,700
shares of its common stock at a total cost of $147,000. Total
shares repurchased during the first half of 1999 were 394,800.
The Board has authorized management to continue its stock
repurchase program subject to market conditions and capital
requirements of the business.
At July 3, 1999, Bairnco's total debt outstanding was $35,179,000
compared to $37,844,000 at the end of 1998. At July 3, 1999
approximately $12.1 million was available for borrowing under the
Corporation's secured reducing revolving credit agreement, as
amended. In addition, approximately $5.4 million was available
under various short-term domestic and foreign uncommitted credit
facilities.
Bairnco made approximately $1.2 million of capital expenditures
during the second quarter of 1999 bringing the total capital
expenditures for the first half of 1999 to $2.6 million. Total
capital expenditures for 1999 are expected to approximate $8.1
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
1999.
Year 2000 Compliance
As stated in Bairnco's 1998 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 total estimated cost of achieving Year 2000
compliance remains at approximately $250,000 and includes
software and installation costs. The majority of the $250,000
has been spent with the remainder to be incurred during the
second half of 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. The plan is periodically updated and modified, and
progress is monitored against it to ensure that target dates are
being met and that the Corporation designates whatever resources
are necessary to meet the plan's requirements.
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. This process is ongoing and will be completed during
the third quarter of 1999.
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. Through July 3, 1999, six of
the seven North American locations' operating information
technology ("IT") systems plus all of the European locations' IT
systems had been upgraded to be Year 2000 compliant with the
remaining North American location scheduled for completion in
October 1999. This location is in various stages of validation
and implementation of the upgraded systems.
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.
The Corporation currently believes its "most reasonably likely
worst case scenario" to be potential disruptions in its
operations due to reliance on third parties whose systems may
fail. There can be no guarantees such failures will not occur.
The disruption in service of any critical suppliers, including
utilities, or the failure of the Corporation's operating systems
to comply, could have a material adverse impact on the
Corporation. The possible consequences include, but are not
limited to, a temporary slowdown or cessation in manufacturing
product, delays in the delivery or distribution of product, and
delays in processing transactions. The Corporation cannot at the
present time estimate the potential cost of any such failures.
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 IT and non-IT systems, and the evaluation
of the state of readiness of Bairnco's material business partners
are ongoing.
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 July
3, 1999.
Outlook
The outlook for 1999 is for resumed growth and progress towards
our objectives. We continue to see modest improvements in served
markets as compared to the run rates of the last nine months of
last year. Both foreign and domestic competition remains intense
in most markets.
Last year's earnings per share were $.72 excluding the legal
charge in the fourth quarter. Based on the operating results for
the first half of 1999 and the trend of the business continuing
into the third quarter, we expect the results for 1999 to show a
substantial improvement over last year.
Management is not aware of any adverse trends that would
materially affect the Corporation's strong financial position.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The interest on the Corporation's bank debt is floating and based
on prevailing market interest rates. For market rate based debt,
interest rate changes generally do not affect the market value of
the debt but do impact future interest expense and hence earnings
and cash flows, assuming other factors remain unchanged. A
theoretical one-percentage point change in market rates in effect
on July 3, 1999 would increase interest expense and hence reduce
the net income of the Corporation by approximately $250,000 per
year.
The Corporation's fiscal second quarter 1999 sales denominated in
a currency other than U.S. dollars were approximately 13.8% of
total sales and net assets maintained in a functional currency
other than U.S. dollars at July 3, 1999 were approximately 15.0%
of total net assets. The effects of changes in foreign currency
exchange rates has not historically been significant to the
Corporation's operations or net assets.
PART II - OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
Bairnco and its subsidiaries are among the defendants in a
lawsuit pending in the U.S. District Court for the Southern
District of New York (the "Transactions Lawsuit") in which it is
alleged that Bairnco and others are derivatively liable for the
asbestos-related claims against its former subsidiary, Keene
Corporation ("Keene"). The plaintiffs in the Transactions
Lawsuit are the trustees of Keene Creditors Trust ("KCT"), a
successor in interest to Keene. In the Transactions Lawsuit
complaint, the KCT alleges that certain sales of assets by Keene
to other subsidiaries of Bairnco were fraudulent conveyances and
otherwise violative of state law, as well as being violative of
the civil RICO statute, 18 U.S.C. Section 1964. The complaint
seeks compensatory damages of $700 million, interest, punitive
damages, and trebling of the compensatory damages pursuant to
civil RICO. In a series of decisions that remain subject to
appeal, the court has dismissed plaintiff's civil RICO claims;
dismissed 14 of the 21 defendants named in the complaint; and
partially granted defendants' motions for summary judgment on
statute of limitations grounds. Discovery is now underway as to
the remaining claims and defendants.
Keene was spun off in 1990, filed for relief under Chapter 11 of
the Bankruptcy Code in 1993, and emerged from Chapter 11 pursuant
to a plan of reorganization approved in 1996 (the "Keene Plan").
The Keene Plan provided for the creation of the KCT, and
transferred the authority to prosecute the Transactions Lawsuit
from the Official Committee of Unsecured Creditors of Keene
(which initiated the lawsuit in the Bankruptcy Court in 1995) to
the KCT. The Keene Plan further provided that only the KCT, and
no other entity, can sue Bairnco in connection with the claims in
the Transactions Lawsuit complaint. Therefore, although a number
of other asbestos-related personal injury and property damage
cases against Bairnco nominally remain pending in courts around
the country, it is expected that the resolution of the
Transactions Lawsuit in substance will resolve all such claims.
Bairnco also is the defendant in a separate action by the KCT
(the "NOL Lawsuit"), also pending in the United States District
Court for the Southern District of New York, in which the KCT
seeks the exclusive benefit of tax refunds attributable to the
carryback by Keene of certain net operating losses ("NOL
Refunds"), notwithstanding certain provisions of applicable tax
sharing agreements between Keene and Bairnco. (As with the
Transactions Lawsuit, the NOL Lawsuit was commenced during
Keene's Chapter 11 case and, pursuant to the Keene Plan, the KCT
became the plaintiff in the lawsuit and the lawsuit was moved
from the Bankruptcy Court to the District Court.) Pending
resolution of the NOL Lawsuit, any refunds actually received are
to be placed in escrow. Through July 3, 1999, 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.
Bairnco and its Arlon subsidiary ("Arlon") also are among the
defendants in a third action by the KCT (the "Properties
Lawsuit"), commenced December 8, 1998 and pending in the United
States District Court for the Southern District of New York. In
the Properties Lawsuit complaint, the KCT seeks a declaratory
judgment that it owns certain patents and real property purchased
by Arlon from Keene in 1989, based on the allegations that
technical title to these assets was not conveyed at the time of
the sale and that no proof of claim specifically referencing
these assets was filed during Keene's Chapter 11 case. In an
answer and counterclaims, Bairnco and Arlon have denied the KCT's
claims and have requested a declaratory judgment that full title
to the patents and real property in question in fact was
transferred to Arlon at the time of the 1989 asset sale.
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 July
3, 1999.
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
There were no matters submitted to a vote of security holders
during the second quarter of 1999.
Item 5: OTHER INFORMATION
None.
Item 6(a): EXHIBITS
Exhibit 11.1 - Calculation of Basic and Diluted Earnings
per Share for the Quarters ended July 3, 1999
and July 4, 1998.
Exhibit 11.2 - Calculation of Basic and Diluted Earnings
per Share for the Six Months ended July 3, 1999
and July 4, 1998.
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: August 5, 1999
EXHIBITS
TO FORM 10-Q
FOR QUARTER ENDED
July 3, 1999
EXHIBIT 11.1
BAIRNCO CORPORATION
CALCULATION OF BASIC AND DILUTED EARNINGS PER SHARE
FOR THE QUARTERS ENDED JULY 3, 1999 AND JULY 4, 1998
(Unaudited)
1999 1998
BASIC EARNINGS PER COMMON SHARE:
Net income $ 2,314,000 $ 1,588,000
Average common shares outstanding 7,903,000 8,746,000
Basic Earnings Per Common Share $ 0.29 $ 0.18
DILUTED EARNINGS PER COMMON SHARE:
Net income $ 2,314,000 $ 1,588,000
Average common shares outstanding 7,903,000 8,746,000
Common shares issuable in respect to
options issued to employees with a
dilutive effect 50,000 252,000
Total diluted common shares outstanding 7,953,000 8,998,000
Diluted Earnings Per Common Share $ 0.29 $ 0.18
EXHIBIT 11.2
BAIRNCO CORPORATION
CALCULATION OF BASIC AND DILUTED EARNINGS PER SHARE
FOR THE SIX MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998
(Unaudited)
1999 1998
BASIC EARNINGS PER COMMON SHARE:
Net income $ 4,584,000 $ 3,784,000
Average common shares outstanding 8,052,000 8,825,000
Basic Earnings Per Common Share $ 0.57 $ 0.43
DILUTED EARNINGS PER COMMON SHARE:
Net income $ 4,584,000 $ 3,784,000
Average common shares outstanding 8,052,000 8,825,000
Common shares issuable in respect to
options issued to employees with a
dilutive effect 37,000 260,000
Total diluted common shares outstanding 8,089,000 9,085,000
Diluted Earnings Per Common Share $ 0.57 $ 0.42
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM BAIRNCO'S SECOND
QUARTER 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 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1999 DEC-31-1998
<PERIOD-END> JUL-03-1999 JUL-04-1998 JUL-03-1999 JUL-04-1998
<CASH> 696,000 1,078,000 696,000 1,078,000
<SECURITIES> 0 0 0 0
<RECEIVABLES> 30,287,000 25,522,000 30,287,000 25,522,000
<ALLOWANCES> 1,320,000 1,005,000 1,320,000 1,005,000
<INVENTORY> 25,387,000 28,095,000 25,387,000 28,095,000
<CURRENT-ASSETS> 61,174,000 59,514,000 61,174,000 59,514,000
<PP&E> 99,370,000 92,428,000 99,370,000 94,428,000
<DEPRECIATION> 58,979,000 52,653,000 58,979,000 52,653,000
<TOTAL-ASSETS> 117,957,000 110,818,000 117,957,000 110,818,000
<CURRENT-LIABILITIES> 27,225,000 22,264,000 27,225,000 22,264,000
<BONDS> 31,934,000 29,582,000 31,934,000 29,582,000
0 0 0 0
0 0 0 0
<COMMON> 112,000 112,000 112,000 112,000
<OTHER-SE> 47,423,000 51,586,000 47,423,000 51,586,000
<TOTAL-LIABILITY-AND-EQUITY> 117,957,000 110,818,000 117,957,000 110,818,000
<SALES> 42,653,000 37,651,000 85,315,000 79,776,000
<TOTAL-REVENUES> 42,653,000 37,651,000 85,315,000 79,776,000
<CGS> 28,171,000 24,905,000 56,581,000 53,347,000
<TOTAL-COSTS> 28,171,000 24,905,000 56,581,000 53,347,000
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 515,000 508,000 1,082,000 989,000
<INCOME-PRETAX> 3,506,000 2,521,000 6,946,000 6,007,000
<INCOME-TAX> 1,192,000 933,000 2,362,000 2,223,000
<INCOME-CONTINUING> 2,314,000 1,588,000 4,584,000 3,784,000
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 2,314,000 1,588,000 4,584,000 3,784,000
<EPS-BASIC> 0.29 0.18 0.57 0.43
<EPS-DILUTED> 0.29 0.18 0.57 0.42
</TABLE>
