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, 1998
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 8, 1999, the aggregate market value of the Registrant's
voting stock held by non-affiliates was $38,993,888.
On March 8, 1999, there were 8,209,659 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,
1998. Part III incorporates information by reference from the Proxy
Statement dated March 17, 1999 in connection with the Registrant's
Annual Meeting of Stockholders to be held on April 22, 1999.
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, 1998, Bairnco employed 816 persons including 13
Headquarters personnel. Bairnco's operations occupy approximately
634,700 square feet of factory and office space at its principal
locations. There is an additional 54,000 square feet of leased space
used as field warehouses throughout North America.
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. These products are
based on common technologies in coating, laminating, polymers and
dispersion chemistry. Replacement products and services are
manufactured and distributed under the Kasco brand identity
principally to supermarkets, meat and deli operations, and meat,
poultry and fish processing plants throughout the United States,
Canada and Europe. Kasco also manufactures small band saw blades for
cutting metal and wood, and large band saw blades for use at lumber
mills. In Canada and France, in addition to providing its replacement
products, Kasco also distributes equipment to the supermarket and food
processing industries.
Financial data and other information about the Corporation's
segments is set forth in Note 10 to the Consolidated Financial
Statements on pages 29 through 31 and on pages 4 through 7 of
Bairnco's 1998 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 1998
Annual Report to Stockholders, and "Management's Discussion and
Analysis" set forth on pages 10 and 13 of Bairnco's 1998 Annual Report
to Stockholders, which is incorporated herein by reference.
The principal facilities utilized by each segment are detailed on
page 10 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 common technologies
in coating, laminating, polymers and dispersion chemistry. Arlon's
principal products include high technology materials for the printed
circuit board industry, pressure sensitive and adhesive coated cast
and calendered vinyl films, custom-engineered laminates and coated
products, and special silicone rubber compounds and components.
Arlon Materials for Electronics has an international reputation
as the premier supplier of high technology materials for the printed
circuit board industry. 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 in the US and through
distributors and manufacturers representatives in Europe, the Far
East, and South America. Our Electronic Substrates product line
includes high temperature, high performance thermoset laminates and
prepreg bonding plies used in circuit boards for sophisticated
commercial applications and military electronics. These applications
require materials that withstand continuous high or widely varying
operating temperatures, provide ease of field reparability, are highly
reliable, and improve board fabrication yields. Intermediate
temperature laminates, which provide improved product reliability and
ease of manufacture at a lower cost, are also key to the line. The
Microwave Materials product line offers application matched,
reinforced PTFE and other resin based laminates providing high yields
and high performance for low signal-loss and frequency-dependent
microwave applications. The applications for this product line
include digital cordless telephones, cellular phone systems, direct
broadcast satellite TV systems, personal communications networks,
global positioning satellites, local area networks, collision
avoidance systems, and radar detection systems.
Arlon specialty graphic films are marketed under the Calon brand
name and include cast and calendered vinyl films that are manufactured
in a wide variety of colors, face stocks and adhesive systems. These
vinyl films are used in commercial and electrical signage, point of
purchase displays, highway signage, fleet markings, and other
commercial advertising applications. In November of 1998, Bairnco
announced the purchase of MII International, Inc., a manufacturer of
adhesive coated films for use in the graphics and industrial markets.
MII's product lines complement Arlon's current vinyl product lines,
and will provide product line extensions, additional brand
recognition, product development synergies, and penetration into new
customer segments and markets. The acquisition also expanded Arlon's
coating and converting capacity.
Custom engineered laminates and coated products are also
manufactured and marketed under the Arlon brand identity. Typical
applications include insulating foam tapes for thermopane windows,
specialty flexible circuit materials, electrical insulation materials
for motors and transformers, thermal insulation panels for appliances
and cars, identification cards and labels, durable printing stock, and
other custom engineered laminates for specific industrial
applications.
A line of silicone rubber materials, used in a broad range of
consumer, industrial and commercial products, is also manufactured and
marketed under the Arlon brand identity. Typical applications and
products include silicone rubber for molding composites, silicone
rubber insulating tapes for traction motor coil windings, insulation
for industrial flexible heaters, silicone materials for high
temperature hose and duct markets, insulating tapes for electrical
splices, as well as compliant thermally and electrically conductive
silicone sheet adhesives known as ThermabondT.
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 products, 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 North and South America,
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, TeflonT or
polytetrafluoroethylene (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. The Corporation is aware
that a raw material supplier will discontinue the sale of a resin
system currently used in certain Arlon products. An alternative resin
system has been qualified and is expected to completely replace the
existing resin system during 1999. There are no other known
limitations to the continued availability of Arlon's raw materials.
Current suppliers are located in the United States, Japan, Europe and
Brazil.
Employees
As of December 31, 1998, approximately 486 employees were
employed by the operations, which constitute 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 brand identity principally to
supermarkets, meat and deli operations, and meat, poultry and fish
processing plants throughout the United States, Canada and Europe.
These products and services include band saw blades for cutting meat
and fish, chopper plates and knives for grinding meat, seasoning
products, preventive maintenance for equipment in meat and deli
operations, and other related butcher supply products. Kasco also
manufactures small band saw blades for cutting metal and wood, and
large band saw blades for use at lumber mills. Kasco's Canadian and
French operations also distribute equipment to the supermarket and
food processing industries.
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 1998, Kasco made several product design improvements to
its band saw blades and its chopper plates and knives. Kasco has
introduced a line of premium wood cutting band saw blades for use by
professional cabinetry and furniture makers and serious hobbyists.
The Mealtime Solutions seasoning program continues to be a success as
sales for home meal replacement items within supermarkets increase.
Mealtime Solutions offers a package of seasoning blends, recipes and
instructions which allows a supermarket to present value-added
products in their meat and deli departments. During 1998, Kasco
developed several new product lines which expand their Mealtime
Solutions program into deli and seafood departments.
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 and exclusive
distributors. During 1998, Kasco increased its emphasis on preventive
maintenance, increasing the value-added service its network of
professionals provides to customers.
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 grinder 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 France, certain specialty equipment and other items used
in the supermarket industry and in the food processing industry are
purchased and resold under exclusive distributorship agreements with
the equipment manufacturers. All of the raw materials and purchased
products utilized by this segment have been readily available
throughout this last year and, despite some tightness in several
seasoning raw materials forecasted for 1999, Kasco's long-term supply
contracts assume adequate availability of raw materials to sustain the
current growth rate in this segment.
Employees
As of December 31, 1998, approximately 317 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 10 to the Consolidated Financial Statements on pages 29
through 31 of Bairnco's 1998 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, 1998, 1997 and 1996 were
$30,554,000, $28,770,000 and $28,692,000, 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 688,700
Headquarters
Maitland, FL 7,700 Leased (Expires 2000)
Engineered Materials and Components (Arlon)
Bear, DE 135,000 Owned
East Providence, RI 60,000 Owned
Northbrook, IL 30,000 Owned
Rancho Cucamonga, CA 80,000 Owned
Santa Ana, CA 124,000 Leased (Expires 2003)
Replacement Products and Services (Kasco)
Gwent, Wales, UK 25,000 Owned
Pansdorf, Germany 22,000 Owned
Paris, France 20,000 Leased (Expires 2000)
St. Louis, MO 78,000 Owned
St. Louis, MO 20,000 Leased (Expires 2000)
Toronto, Ontario, Canada 33,000 Owned
Field Warehouses
(Approximately 70 locations
in North America) 54,000 Leased
Item 3. 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 December 31, 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.
Bairnco and its Arlon subsidiary 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.
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
December 31, 1998.
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 1998.
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 (57) Mr. Fichthorn has
served as Chairman of
Bairnco since May 23, 1990,
and on December 18, 1991,
became Chief Executive
Officer of Bairnco. For
over twenty-five 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 (64) 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.
James W. Lambert (45) Mr. Lambert was
appointed Corporate
Controller of Bairnco on
August 11, 1997. Prior to
joining Bairnco, Mr. Lambert
was employed for over 15
years by Air Products and
Chemicals Inc., in a variety
of financial, marketing and
product management
capacities.
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 14 of Bairnco's 1998 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 16
of Bairnco's 1998 Annual Report to Stockholders, which is
incorporated herein by reference. The quarterly cash
dividend remained constant at $0.05 per share during 1998.
The Board continues to review the dividend on a quarterly
basis.
b. The approximate number of holders of record of
Bairnco common stock (par value $.01 per share) as of
December 31, 1998 was 1,436.
Item 6. SELECTED FINANCIAL DATA
Reference is made to "Financial History" on page 9 of
Bairnco's 1998 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 through 13 of Bairnco's 1998 Annual
Report to Stockholders which is incorporated herein by
reference.
Item 7A. 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
December 31, 1998 would increase interest expense and hence
reduce the net income of the Corporation by approximately
$250,000 per year.
The Corporation's fiscal 1998 sales denominated in a
currency other than U.S. dollars were less than 15% of total
sales and net assets maintained in a functional currency
other than U.S. dollars at December 31, 1998 were less than
15% 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.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Consolidated Financial
Statements and accompanying Notes included on pages 16
through 32 and the "Quarterly Results of Operations" on page
14 of Bairnco's 1998 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 1999
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 13 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 1999 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 1999 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 1999 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 1998 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, 1998, 1997 and 1996;
- Consolidated Statements of Comprehensive Income
for the years ended December 31, 1998, 1997 and
1996;
- Consolidated Balance Sheets as of December 31,
1998 and 1997;
- Consolidated Statements of Cash Flows for the
years ended December 31, 1998, 1997 and 1996;
- Consolidated Statements of Stockholders'
Investment for the years ended December 31,
1998, 1997 and 1996;
- 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 20 of this Annual Report on Form 10-K;
- Financial Statement Schedules for the years
ended December 31, 1998, 1997 and 1996:
Schedule II - Valuation and Qualifying
Accounts on page 21 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 23 through 25 of
this Annual Report on Form 10-K.
b) Reports on Form 8-K - None in fiscal year 1998.
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 19, 1999 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)
/s/ James W. Lambert
James W. Lambert - Controller
(Principal Accounting 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 21, 1999.
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 21, 1999
Arthur Andersen LLP
<TABLE>
BAIRNCO CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
Balance Balance
Year Ended Beginning Deductions End
December 31, of Year Expenses (a) Other (b) of Year
<S> <C> <C> <C> <C> <C>
1998 - Reserve
for Doubtful
Accounts $943,000 $372,000 $(241,000) $150,000 $1,224,000
1997 - Reserve
for Doubtful
Accounts $822,000 $365,000 $(244,000) $ -- $ 943,000
1996 - Reserve
for Doubtful
Accounts $763,000 $300,000 $(241,000) $ -- $ 822,000
(a) Actual charges incurred in connection with the purpose for
which the reserves were established.
(b) Additions to the reserve from acquisition.
</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, 1998
Commission File No.: 1-8120
BAIRNCO CORPORATION
(Exact name of registrant as specified in the charter)
INDEX TO EXHIBITS
Description Incorporated Herein By
Reference To
Certificate of Incorporation, as Exhibit 3 to Bairnco's Annual
amended through September 24, 1991. Report on Form 10-K for fiscal
year ended December 31, 1991.
By Laws, as amended through December Exhibit 3 to Bairnco's Annual
18, 1991. Report on Form 10-K for fiscal
year ended December 31, 1991.
Amended and Restated Credit Exhibit 3.1 to Bairnco's Annual
Agreement, dated as of December 17, Report on Form 10-K for fiscal
1992, among Bairnco Corporation and year ended December 31, 1992.
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.
Amendment dated as of March 16, 1994 Exhibit 3 to Bairnco's Annual
to Amended and Restated Credit Report on Form 10-K for fiscal
Agreement dated as of December 17, year ended December 31, 1993.
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.
Promissory note dated as of Exhibit 4 to Bairnco's Annual
September 1, 1989, between Arlon, Report on Form 10-K for fiscal
Inc. And the Delaware Economic year ended December 31, 1989.
Development Authority.
Indenture of Trust, series 1989, Exhibit 4 to Bairnco's Annual
dated as of September 1, 1989, Report on Form 10-K for fiscal
between the Delaware Economic year ended December 31, 1989.
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.
Loan Agreement, dated as of Exhibit 4 to Bairnco's Annual
September 1, 1989, between the Report on Form 10-K for fiscal
Delaware Economic Development year ended December 31, 1989.
Authority and Arlon, Inc.
Reimbursement Agreement dated as of Exhibit 4 to Bairnco's Annual
September 1, 1989 by and among Report on Form 10-K for fiscal
Arlon, Inc., Bairnco Corporation and year ended December 31, 1989.
Continental Bank NA (now Bank of
America, Illinois).
Agreement of the Company, dated Exhibit 4(e) to Bairnco's
March 30, 1987, to furnish a copy of Annual Report on Form 10-K for
any instrument with respect to fiscal year ended December 31,
certain other long-term debt to the 1986.
Securities and Exchange Commission
upon its request.
Lease dated December 10, 1991 Exhibit 10 to Bairnco's Annual
between Mattei Corporation and Report on Form 10-K for fiscal
Bairnco Corporation. year ended December 31, 1991.
Lease, dated May 1, 1985, between Exhibit 10 to Bairnco's
John B. Merrill, Joseph S. Weedon Annual Report on Form 10-K
and Richard A. Westberg and KASCO for fiscal year ended
Corporation as successor to Atlantic December 31, 1986.
Service, Inc.
Standard Industrial Lease dated June Exhibit 10 to Bairnco's
30, 1983 between James E. and Nancy Annual Report on Form 10-K
S. Welsh, trustees under Welsh for fiscal year ended
Family Trust, dated April 20, 1979 December 31, 1983.
and Arlon, Inc. as successor to
Keene Corporation.
Bairnco Corporation 401(k) Savings Exhibit 4.3 to Bairnco's
Plan and Trust. Registration Statement on
Form S-8, No. 33-41313.
Bairnco Corporation 1990 Stock Exhibit 4.3 to Bairnco's
Incentive Plan. Registration Statement on
Form S-8, No. 33-36330.
Bairnco Corporation Management Exhibit 10 to Bairnco's
Incentive Compensation Plan. Annual Report on Form 10-K
for fiscal year ended
December 31, 1981.
Employment Agreement dated January Exhibit 10 to Bairnco's
22, 1990, between Bairnco Annual Report on Form 10-K
Corporation and Luke E. Fichthorn for fiscal year ended
III. December 31, 1989.
Amendment dated as of April 18, Exhibit 4 to Bairnco's
1995, to Amended and Restated Credit Quarterly Report on Form 10-Q
Agreement dated as of December 17, for the quarterly period
1992, by and among Bairnco ended April 1, 1995.
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.
Amendment dated as of February 14, Exhibit 4 to Bairnco's
1997, to Amended and Restated Credit Annual Report on Form 10-K
Agreement dated as of December 17, for fiscal year ended
1992, by and among Bairnco December 31, 1996.
Corporation and certain of its
subsidiaries and certain Commercial
Lending Institutions and Bank of
America, Illinois, as the Agent for
Lenders.
Promissory Note dated January 31, Exhibit 4 to Bairnco's
1998, between Bairnco Corporation Annual Report on Form 10-K
and Bank of America NT&SA. for fiscal year ended
December 31, 1997.
Amendment dated as of October 13, Exhibit 4 to Bairnco's
1998, to Amended and Restated Credit Quarterly Report on Form 10-
Agreement dated as of December 17, Q for the quarterly period
1992, by and among Bairnco ended October 3, 1998.
Corporation and certain of its
subsidiaries and certain Commercial
Lending Institutions and Bank of
America, Illinois, as the Agent for
Lenders.
Amendment dated as of December 31, Exhibit 4 filed herewith.
1998, 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.
Calculation of Basic and Diluted Exhibit 11 filed herewith.
Earnings per Share for the years
ended December 31, 1998, 1997 and
1996.
1998 Annual Report to Stockholders. Exhibit 13 filed herewith.
Subsidiaries of the Registrant. Exhibit 21 filed herewith.
Consent of Independent Certified Exhibit 23 filed herewith.
Public Accountants.
Financial Data Schedules. Exhibit 27 filed herewith
(electronic filing only).
Form 11-K Re: Bairnco Corporation Exhibit 99 filed herewith.
401(k) Savings Plan and Trust for
the fiscal year ended December 31,
1998.
SIXTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This Agreement, dated as of December 31, 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
NATIONAL TRUST AND SAVINGS ASSOCIATION, 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 III below.
AGREEMENT
In consideration of the foregoing and the mutual covenants
and agreement hereinafter set forth, the parties hereto mutually
agree as follows:
I. AMENDMENTS
A. Amendments of Section 1.1 (Defined Terms). Section 1.1
of the Credit Agreement is hereby amended by:
1. Deleting therefrom the definition of "Applicable
Euro Rate Margin" in its entirety and substituting therefor
the following:
"'Applicable Euro Rate Margin' shall mean:
(a) 0.750% 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) .875% 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) 1.125% 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 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) 1.250% 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).
2. Deleting therefrom the definition of "Applicable
Reference Rate Margin" in its entirety and substituting
therefor the following:
"'Applicable Reference Rate Margin' shall
mean:
(a) 0.000% 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) .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 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) .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 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);
(c) 0.50% 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 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);
3. 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 $24,000,000 as such amount may be reduced
from time to time pursuant to Section 2.2.";
4. Deleting therefrom the definition of "Bairnco LC
Commitment Amount" in its entirety and substituting therefor
the following:
"'Bairnco LC Commitment Amount' shall mean,
at any date $7,000,000 as such amount may be reduced
from time to time pursuant to Section 2.2.";
5. 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.";
4. Deleting from the definition of "Commitment
Termination Date" the date "December 31, 2001" and
substituting therefor the date "December 31, 2003";
B. 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, 2000 $ 5,000,000
December 31, 2001 $ 5,000,000
December 31, 2002 $ 5,000,000
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, 2001 $2,000,000
December 31, 2002 $2,000,000
(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, 2000 $5,000,000
December 31, 2001 $2,000,000
December 31, 2002 $2,000,000
(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, 2001 $1,000,000
December 31, 2002 $1,000,000
C. Amendment of Section 2.2.4 (Transfer of Commitment
Amounts). Section 2.2.4(b) is hereby amended by deleting the
amount "$10,000,000" and substituting the amount "$7,000,000"
therefor.
D. 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) 0.200% 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) .225% 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) .250% 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) .325% 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.
E. 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) 0.750% 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) .875% 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) 1.125% 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 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) 1.250% 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).
F. 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 after December 31, 1998 plus (iii) 60% of the net
cash proceeds of stock sold by Bairnco after December 31,
1998.
(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% for any fiscal quarter ending prior to and
including December 31, 2000 and 60% thereafter.
(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."
II. 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.
III. 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 $50,000 to be distributed to the Lenders as set forth
below:
Lender Amount
Bank of America NT&SA $23,222.00
First Union National Bank, N.A. $ 7,966.00
First National Bank of Maryland $ 7,966.00
Suntrust Bank, Central Florida, $10,846.00
National Association
IV. MISCELLANEOUS
A. 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.
B. 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.
C. 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 Finance
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 NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By: /s/ Steve A. Aronowitz
Name: Steve A. Aronowitz
Title: Managing Director
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a
Lender
By: /s/ Steve A. Aronowitz
Name: Steve A. Aronowitz
Title: Managing Director
FIRST UNION NATIONAL BANK, N.A.
By: /s/ Mary H. Doonan
Name: Mary H. Doonan
Title: Vice President
FIRST NATIONAL BANK OF MARYLAND
By: /s/ Robert M. Beaver
Name: Robert M. Beaver
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
<TABLE>
BAIRNCO CORPORATION AND SUBSIDIARIES
CALCULATION OF BASIC AND DILUTED EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
BASIC EARNINGS PER COMMON SHARE:
Net Income $1,594,000 $8,771,000 $8,335,000
Average common shares outstanding 8,655,000 9,151,000 9,753,000
Basic Earnings Per Common Share $ 0.18 $ 0.96 $ 0.85
DILUTED EARNINGS PER COMMON SHARE:
Net Income $1,594,000 $8,771,000 $8,335,000
Average common shares outstanding 8,655,000 9,151,000 9,753,000
Common shares issuable in respect
to options issued to employees
with a dilutive effect 163,000 199,000 98,000
Total common shares assuming
full dilution 8,818,000 9,350,000 9,851,000
Diluted Earnings Per Common Share $ 0.18 $ 0.94 $ 0.85
Basic earnings per common share were computed by dividing net
income by the weighted average number of shares of common
stock outstanding during each year. Diluted earnings per common
share include the effect of all dilutive stock options.
</TABLE>
Our mission
Bairnco is an organization of people committed to providing value-added
industrial and commercial products and services to niche markets which meet
or exceed our customers' requirements leading to the creation of
stockholder and employee value.
Our strategy
Bairnco strives to develop true partnership relationships with its
customers in 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 customers.
Bairnco implements this mission and strategy through two business segments:
Engineered materials and components are designed, manufactured and sold
under the Arlon brand identity.
Replacement products and services are manufactured and distributed under
the Kasco brand identity.
Our 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:
15% compound rate of earnings growth
20% return on stockholders' investment
15% return on total capital employed.
Our values
Values are the core of Bairnco's corporate culture. They are the basis for
the decisions made regarding the development and deployment of people, the
improvement and investment in processes, and the manufacture and
distribution of products.
Bairnco's values are:
Personal and corporate integrity
The inevitability and opportunity of change
Continuous improvement and development
Total customer satisfaction
Decentralized organization and empowered employees
Superior rewards for superior performance
Have fun - enjoy your work and your life.
CONTENTS
Financial Highlights 1
Letter to Our Stockholders 2
Engineered Materials & Components (Arlon) 4
Replacement Products & Services (Kasco) 7
Directors and Management 8
Financial History 9
Management's Discussion and Analysis 10
Quarterly Results of Operations 14
Report of Independent Certified Public Accountants 15
Consolidated Financial Statements 16
Notes to Consolidated Financial Statements 20
<TABLE>
FINANCIAL HIGHLIGHTS
(In thousands except per share data)
<CAPTION>
Percent Change
1998 1997 1996 98/97 97/96
<S> <C> <C> <C> <C> <C>
Net Sales $156,456 $158,708 $150,234 (1%) 6%
Earnings before Interest, Provision
for Litigation Costs and Taxes (a) $ 12,029 $ 15,592 $ 14,956 (23%) 4%
Operating Profit $ 4,529 $ 15,592 $ 14,956 (71%) 4%
Net Income $ 1,594 $ 8,771 $ 8,335 (82%) 5%
Diluted Earnings per Share $ 0.18 $ 0.94 $ 0.85 (81%) 11%
Cash Dividends per Share $ 0.20 $ 0.20 $ 0.20 0% 0%
Stockholders' Investment per Average
Diluted Common Share Outstanding $ 5.27 $ 5.61 $ 5.02 (6%) 12%
Total Assets $118,555 $109,286 $102,600 8% 7%
Stockholders' Investment $ 46,438 $ 52,469 $ 49,464 (11%) 6%
Average Diluted Common Shares
Outstanding 8,818 9,350 9,851 (6%) (5%)
(a) Excludes impact of provision for litigation costs of $7.5 million (pre-
tax) in 1998.
</TABLE>
Graphic - Bar Chart depicting Sales (y-axis) for five years - 1994 to
1998 (x-axis):
Year Sales (in thousands)
1994 $145,522
1995 $150,507
1996 $150,234
1997 $158,708
1998 $156,456
Graphic - Bar Chart depicting Operating Profit (y-axis) for five years - 1994
to 1998 (x-axis):
Year Operating Profit (in thousands)
1994 $13,654
1995 $14,633
1996 $14,956
1997 $15,592
1998 $ 4,529
1998(b) $12,029
(b) Excludes impact on operating profit of $7.5 million (pre-tax) provision
for litigation costs in the fourth quarter of 1998.
Graphic - Bar Chart depicting Net Income (y-axis) for five years - 1994
to 1998 (x-axis):
Year Net Income (in thousands)
1994 $7,255
1995 $7,781
1996 $8,335
1997 $8,771
1998 $1,594
1998(b) $6,320
(b) Excludes impact on net income of $7.5 million (pre-tax) provision for
litigation costs in the fourth quarter of 1998.
Graphic - Bar Chart depicting Diluted Earnings per Share (y-axis) for five
years - 1994 to 1998 (x-axis):
Year Diluted Earnings per Share (in thousands)
1994 $0.69
1995 $0.75
1996 $0.85
1997 $0.94
1998 $0.18
1998(b) $0.72
(b) Excludes impact on diluted earnings per share of $7.5 million (pre-tax)
provision for litigation costs in the fourth quarter of 1998.
LETTER TO OUR STOCKHOLDERS
1998 was a challenging year for Bairnco. Weak markets and price pressures
resulted in lower sales and earnings. While costs were reduced, the
decision was made, based on the future outlook, to both preserve and
continue to improve the core management competencies. We continue to
repurchase our stock. An acquisition that fits Arlon was completed.
Bairnco's financial condition remains strong.
In 1998 the court in the Transactions Lawsuit issued a series of opinions
that eliminated certain claims and parties from the case and set the stage
for discovery and trial as to the claims and parties that remain. In
particular, the court dismissed the RICO claims; all claims against third-
party professionals, including lawyers, accountants and investment bankers;
and all claims against individuals with the exception of Bairnco's former
chairman and president. The court also narrowed the scope of certain
claims against Bairnco and the other corporate defendants. With the
initial motions phase of the case now complete, Bairnco is prepared to
mount a vigorous defense on the merits. Toward that end, a $7,500,000
provision for litigation costs was taken in the fourth quarter.
FINANCIAL RESULTS
1998 consolidated sales of $156,456,000 decreased 1.4% from $158,708,000 in
1997. Arlon's sales decreased 3.8%. All markets served declined during
the year after a strong first quarter. The electrical and electronic
markets were the most depressed. The drop in the electronic market due to
the Asian crisis adversely affected many of the end users of our products.
Others of our OEM final customers were hurt by low priced competition from
Asian competitors. Further penetration in new market segments offset some
of the decline. Kasco's sales increased 4.4% through growth in the U.S.
base business, seasoning programs for in-store meal preparation, and in the
European operations.
In 1998, gross profit decreased 6.3% to $50,583,000 from $53,996,000 in the
prior year with gross profit margins declining to 32.3% from 34% last year.
Gross profit decreased at Arlon as the combined result of lower sales,
lower prices, and a continuing change in mix to lower margin commercial
products to serve the electronics and communications markets. Kasco's
gross profit decreased slightly due to the costs from discontinued products
and services.
Selling and administrative expenses, excluding the provision for litigation
costs, increased 0.4% to $38,554,000 from $38,404,000 in 1997. As a
percent of sales, these expenses increased to 24.6% in 1998 from 24.2% in
1997. Research and development expenses increased 4.8% as Bairnco
continued to invest in the development of new products and improved
quality. The average number of employees was reduced by 3.3% from last
year. Productivity as measured by sales per employee increased 1.9%.
Earnings before interest, the provision for litigation costs and taxes were
$12,029,000 down 22.9% from $15,592,000 in 1997. The decline is primarily
attributable to reduced gross profit.
In the fourth quarter of 1998 Bairnco recorded the $7,500,000 pre tax
provision for anticipated litigation costs.
Net interest expense increased from $1,834,000 to $1,998,000. The increase
was due to increased average debt outstanding primarily resulting from the
acquisition in the fourth quarter.
Income before income taxes decreased to $2,531,000 in 1998 as compared to
$13,758,000 in 1997. The effective tax rate was 37% as compared to 36.2% in
1997.
Net income decreased to $1,594,000 from $8,771,000. Diluted earnings per
common share fell to $.18 from $.94 in 1997 as a result of the decreased
operating income and the provision for litigation costs. The provision for
litigation costs reduced net income in 1998 by $4,726,000 or $.54 per
share. During 1998, Bairnco repurchased 737,400 shares of its common
stock. The diluted average number of shares outstanding in 1998 was
8,818,000 a 5.7% decrease from the 9,350,000 diluted average shares
outstanding in 1997.
MII ACQUISITION
Effective October 31,1998 Bairnco purchased MII International, Inc. ("MII"
- - formerly the Marking Films and Engineered Coated Products unit of The
Meyercord Co.) for approximately $8.3 million including the repayment of
its debt. Sales of MII for the six months ended September 30, 1998 were
approximately $6 million.
MII's adhesive coated graphic films are used in a variety of fleet, rail
car, and shipping container marking applications; OEM and screen print
applications; and other corporate specified programs. MII's engineered-
coated products include transfer adhesives, single and double-faced tapes,
specialty-coated foils, and other custom coated products. MII has a strong
presence in international markets.
The acquisition complemented Arlon's graphic films and industrial products
with product line extensions, additional brand recognition, product
development synergies, and penetration into new customer segments and
markets. The acquisition also expanded Arlon's coating and converting
capacity.
FINANCIAL MANAGEMENT
Excluding the provision for litigation costs, return on capital employed
decreased to 8.9% from 12.2% last year and return on stockholders'
investment in 1998 decreased to 12.2% compared to 17.4% last year.
In 1998, 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
$3.7 million still unused from the prior year authorization. During the
year the company repurchased 737,400 shares for $6.2 million. The Board
has authorized management to continue its stock repurchase program in 1999
subject to market conditions and capital requirements of the business. At
year-end $2.5 million was available for additional stock repurchases. The
Board may consider additional authorizations if appropriate during the
year.
In the fourth quarter Bairnco amended its $50,000,000 reducing revolving
credit agreement to extend the first commitment reduction date to December
31, 2000 and the final maturity to December 31, 2003. At year-end 1998
Bairnco had $10.5 million available under its revolving credit agreement,
and $4.3 million available under short-term lines of credit.
Working capital as a percent of sales decreased from 22.5% to 21.3%.
Accounts receivable increased due to higher foreign sales. However higher
current liabilities as a result of the provision for litigation costs
resulted in lower working capital.
Net cash flows provided by operating activities were $14,116,000. These
cash flows were more than sufficient to cover operating requirements, fund
Bairnco's capital expenditure program, pay dividends, purchase treasury
stock and generate some excess cash. However, the acquisition required
$8.3 million in additional funds. Consequently 1998 total debt increased to
$37,844,000 from $30,318,000 at the end of 1997. Debt as a percent of
equity increased to 81.5% from 57.8% in 1997.
1998 capital expenditures were $5,976,000 as compared to a plan of
$12,000,000. Depreciation and amortization was $6,688,000. Capital
expenditures were cut back in light of changing market conditions.
Expenditures were focused on cost reduction projects, replacements and new
MIS systems and hardware that were installed during the year.
The capital expenditure plan for 1999 is approximately $8.2 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, MIS hardware and software, and limited capacity
additions.
DIVIDEND
The quarterly $.05 per share cash dividend was maintained during the year.
MANAGEMENT
During 1998 the management development program, which is one of the keys
to our future success, continued to make progress in all operations.
Significant additions and changes were made to strengthen operations
management which has lead to lower scrap and started to improve
efficiencies. Also we have further strengthened our sales organizations
to further penetrate certain market segments. During 1998, a Six-Sigma
program was initiated in two of our operations as part of our continuous
improvement program. For 1999, additional projects have been selected and
training will be expanded to include representatives for all our domestic
operations. We expect this program to accelerate the yields from our
continuous improvement program. The ongoing improvement and development
of all our employees remains a critical and never-ending element for
Bairnco's success.
OUTLOOK
Our management team has action plans in place designed to recover most of
the ground lost in 1998. In general we expect little improvement in
demand from our industrial markets served. Although most markets
stabilized after the sharp drop in the second quarter of 1998, the
recovery from those low levels has been and is expected to be modest.
Arlon's management team continues to improve efficiencies and quality to
more effectively compete in the electronic, electric, graphic, custom and
industrial markets. Although there is no meaningful recovery expected in
the markets served, the combined effect of the acquisition, improved
efficiencies, product developments and penetration of new market segments
should return Arlon to growing sales and earnings.
Kasco North America's programs to become the preeminent supplier of
cutting products and routine in-store equipment services are continuing.
Kasco's seasoning program for in-store meal preparation continued to grow.
Kasco North American operations earnings are expected to resume their
improving trend based on some increased market share but primarily from
cost reductions and efficiency improvements that were made in 1998 and
which are continuing in 1999. Kasco's management expects 1999 to see
Kasco back on its plan for continued improvements.
The outlook for 1999 is for improved sales and earnings. The US
industrial economy is expected to experience very slow growth during 1999
with inflation remaining under control and the Federal Reserve Board
maintaining low interest rates. Asia is expected to slowly recover but
represent continued strong competition to industrial America. We expect
the combination of growth from new products, higher growth in certain
niche markets, and a full year of the results of the acquisition will
result in increased sales. Improved earnings are expected both from the
increased sales and from continuing efficiency and yield improvement
programs.
The continuing dedication and excellent performance of our teammates
remains the key to our past and future success. We are all dedicated to
making 1999 a year of continuing improvement.
Respectfully yours,
/s/ Luke E. Fichthorn III
Luke E. Fichthorn III
Chairman and CEO
Arlon Engineered Materials and Components
Bairnco designs, manufactures, and sells engineered materials and
components for the electronic, industrial and commercial markets under the
Arlon brand identity. These products are based on common technologies in
coating, laminating, polymers, and dispersion chemistry.
Arlon Materials for Electronics has an international reputation as the
premier supplier of high technology materials for the printed circuit board
industry. 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 in the U.S. and through distributors and
manufacturers representatives in Europe, the Far East, and South America.
Our Electronic Substrates product line includes high temperature, high
performance thermoset laminates and prepreg bonding plies used in circuit
boards for sophisticated commercial applications and military electronics.
These applications require materials that withstand high continuous or
widely varying operating temperatures, provide ease of field repairability,
are highly reliable, and improve board fabrication yields. Intermediate
temperature laminates, which provide improved product reliability and ease
of manufacture at a lower cost, are also key to the line.
The Microwave Materials product line offers application matched, reinforced
PTFE and other resin based laminates providing high yields and high
performance for low signal-loss and frequency-dependent microwave
applications. The applications for this product line include microwave
antennas, digital cordless telephones, cellular phone systems, direct
broadcast satellite TV systems, personal communications networks, global
positioning satellites, local area networks, collision avoidance systems,
and radar detection systems.
Recently developed products which made commercial inroads in 1998 include:
. Arlon's 25N series, a laminate system based on aromatic polyolefin resin
that offers many of the performance advantages of PTFE materials with
the cost and processing advantages of traditional thermoset materials,
targeted for commercial electronics.
. Arlon's Thermount nonwoven, aramid reinforced materials that offer many
advantages for specialty applications at a more attractive cost-
performance ratio than woven aramids.
. Arlon's AD Series substrate materials: a specialized PTFE based laminate
system that offers all the performance characteristics of PTFE with
lower cost targeted for commercial applications.
. Arlon's 33N and 35N polyimide laminate systems provide high temperature
capability while reducing production time for board fabricators.
PHOTO - Coater operators inspect Thermount 85NT being produced at Arlon's
Rancho Cucamonga, CA facility. Thermount 85NT is a new product being
widely used for surface mount applications in sophisticated commercial
and military aircraft avionics circuit boards.
PHOTO - Lay up operators at the Bear, DE facility assemble Arlon's AD Series
laminates in a new clean room. AD Series substrate materials designate
a cost competitive PTFE based system that offers the performance
characteristics of traditional PTFE at a lower cost.
Bairnco manufactures and markets, under the Calon brand name, cast and
calendered vinyl films in a wide variety of colors, face stocks and
adhesive systems. These vinyl films are used in commercial and electrical
signage, point of purchase displays, highway signage, fleet markings, and
other commercial advertising applications.
We have continued to invest in new product development and to improve the
quality of our current product line. During 1998 we introduced ProFleet, a
pressure sensitive vinyl product specifically designed for fleet and
vehicle graphics. ProFleet features an ultra-durable 2mil high performance
cast vinyl and an adhesive formulated to reduce installation time and labor
costs. We also introduced a product line of electrostatic media in
September 1998. The Imageburst electrostatic media line includes StatPrint
HP, StatPrint Intermediate, StatPrint Promotional and overlaminates.
In November of 1998 we announced the purchase of MII International, Inc., a
manufacturer of adhesive coated films for use in the graphics and
industrial markets. MII's product lines complement Arlon's current vinyl
product lines, and will provide product line extensions, additional brand
recognition, product development synergies, and penetration into new
customer segments and markets. The acquisition has also expanded Arlon's
coating and converting capacity.
PHOTO - Arlon's Imageburst StatPrint Intermediate - Series 4000 vinyl, in
conjunction with the appropriate overlaminate, was used for the floor
graphics created for collegiate basketball's 1998 Western Athletic
Conference (WAC) games. StatPrint 4000 is a 3-mil, calendered vinyl
with permanent, clean-removing adhesive (up to 2 years).
PHOTO - Arlon's ProFleet vinyl, used for fleet markings and large format
graphics, is specially designed for flat, riveted and corrugated
surfaces.
PHOTO - Arlon has improved their line of translucent vinyl films. The product
has been modified for improved compatibility with thermoforming and
improved flexibility. This product improvement supports Arlon's sales
in the electrical and commercial signage markets.
Arlon also manufactures and markets custom-engineered laminates and coated
products. Typical applications include insulating foam tapes for thermopane
windows, specialty flexible circuit materials, electrical insulation
materials for motors and transformers, thermal insulation panels for
appliances and cars, identification cards and labels, durable printing
stock, and other custom engineered laminates for specific industrial
applications.
The keys to Arlon's success in custom-engineered laminates and coated
products are our knowledge base of materials and adhesives technology and
our understanding of customer applications. Our sales engineers and
product managers are dedicated to understanding customer requirements and
developing product specifications that meet those customer needs.
PHOTO - Arlon glazing tapes consist of a closed-cell copolymer foam coated
on both sides with an aggressive acrylic adhesive system. This
adhesive system provides optimum compatibility with a variety of
sash materials.
Bairnco manufactures a line of silicone rubber materials used in a broad
range of consumer, industrial and commercial products. Typical
applications and products include:
. Silicone rubber for molding composites
. Silicone rubber insulating tape for electric traction motor coil windings
. Insulation for industrial flexible heaters
. Silicone products for high temperature hose and duct markets
. Insulating tape for electrical splices
. Compliant, thermally or electrically conductive silicone sheet adhesive
known as ThermabondTM
In 1999 we will continue to focus application development efforts on
thermally and electrically conductive sheet adhesives for electrical and
electronic markets, as well as broaden our hose and duct material product
line.
PHOTO - An Arlon operator uses a micrometer to measure thickness of
flexible heater material. This production line performs precision
calendering and fabric coating to produce a family of silicone
products for industrial markets.
Kasco Replacement Products and Services
Kasco is the leading manufacturer and supplier of replacement products and
services principally to supermarkets; meat and deli operations; and meat,
poultry and fish processing plants throughout the United States, Canada and
Europe. These products and services include:
. Band saw blades for cutting meat and fish
. Chopper plates and knives for grinding meat
. Seasoning products
. Preventive maintenance for equipment in meat and deli operations
. Other related butcher supply products.
Kasco also manufactures small band saw blades for cutting metal and wood,
and large band saw blades for use at lumber mills. Kasco has manufacturing
operations in St. Louis, Missouri; Gwent, Wales, United Kingdom; and
Pansdorf, Germany. In Canada and France, in addition to providing its
replacement products, Kasco distributes equipment used in the supermarket
industry and in the food processing industry.
During 1998, Kasco made several product design improvements to its band saw
blades and its chopper plates and knives. Kasco has introduced a line of
premium wood cutting band saw blades for use by professional cabinetry and
furniture makers and serious hobbyists.
The Mealtime Solutions seasoning program continues to be a success as sales
for home meal replacement items within supermarkets increase. Mealtime
Solutions offers a package of seasoning blends, recipes and instructions
which allows a supermarket to present value-added products in their meat
and deli departments. During 1998 Kasco developed several new product
lines which expand their Mealtime Solutions program into deli and seafood
departments.
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 and exclusive distributors. During 1998, Kasco
increased its emphasis on preventive maintenance, increasing the value-
added service its network of professionals provides to customers.
PHOTO - Kasco's Mealtime Solutions seasoning program offers a package of
seasoning blends, recipes, and instructions which allows a
supermarket to present an attractive, ready-to-cook home meal to
their customers.
PHOTO - The Predator Series of splitter blades from Kasco features a Gold
Tooth Hardening process which offers high speed, high volume cutting
and less waste, straighter cuts, less workplace noise, and less
operator fatigue.
Directors
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
Independent Business Consultant
Management:
1.Jeffrey M. Berresford
President
Kasco Corporation
2.Robert M. Carini
Vice President
Arlon, Inc.
3.James W. Lambert
Controller
Bairnco Corporation
4.Elmer G. Pruim
Vice President
Arlon, Inc.
5.J. Robert Wilkinson
Vice President Finance & Treasurer
Bairnco Corporation
<TABLE>
FINANCIAL HISTORY
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Summary of Operations ($ in thousands)
Net sales $156,456 158,708 150,234 150,507 145,522
Gross profit $ 50,583 53,996 52,536 53,317 53,177
Earnings before interest, provision
for litigation costs & taxes (a) $ 12,029 15,592 14,956 14,633 13,654
Operating profit $ 4,529 15,592 14,956 14,633 13,654
Interest expense, net $ 1,998 1,834 1,725 2,026 2,144
Income before income taxes $ 2,531 13,758 13,231 12,607 11,510
Provision for income taxes $ 937 4,987 4,896 4,826 4,255
Net income $ 1,594 8,771 8,335 7,781 7,255
Return from operations on:
Net sales % 1.0 5.5 5.5 5.2 5.0
Stockholders' investment % 3.1 17.4 17.2 16.7 17.4
Capital employed % 3.3 12.2 12.3 11.9 10.6
Year-End Position ($ in thousands)
Working capital $ 33,259 35,712 30,341 28,350 26,277
Plant and equipment, net $ 41,402 39,913 38,276 34,449 36,289
Total assets excluding discontinued
operations $118,555 109,286 102,600 98,196 99,243
Net assets of discontinued operations $ -- -- -- -- 3,529
Total assets $118,555 109,286 102,600 98,196 102,772
Total debt $ 37,844 30,318 28,179 24,578 31,775
Stockholders' investment $ 46,438 52,469 49,464 48,024 43,997
Capital employed $ 84,282 82,787 77,643 72,602 75,772
Per Common Share Data
Income from continuing operations:
- Basic $ 0.18 0.96 0.85 0.75 0.69
- Diluted $ 0.18 0.94 0.85 0.75 0.69
Cash dividend $ 0.20 0.20 0.20 0.20 0.20
Stockholders' investment $ 5.27 5.61 5.02 4.60 4.19
Market price:
High $ 11-3/8 11-1/4 8-1/2 6 5-1/2
Low $ 5-9/16 6-3/8 5-1/2 3-7/8 3
Other Data (in thousands)
Depreciation and amortization $ 6,688 6,516 6,305 6,314 6,502
Capital expenditures $ 5,976 8,789 10,131 4,831 5,176
Average common shares outstanding 8,655 9,151 9,753 10,433 10,500
Diluted common shares outstanding 8,818 9,350 9,851 10,440 10,500
Current ratio 2.2 2.6 2.4 2.2 2.0
Number of common stockholders 1,436 1,574 1,773 1,967 2,198
Average number of employees 822 850 825 874 915
Sales per employee $190,340 186,710 182,100 172,200 159,040
(a) Excludes impact of provision for litigation costs of $7.5 million
(pre-tax) in 1998.
</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 18.
Results of Operations: 1998 Compared to 1997
1998 consolidated sales of $156,456,000 decreased 1.4% from $158,708,000 in
1997. Arlon's sales decreased 3.8%. All markets served declined during the
year after a strong first quarter. The electrical and electronic markets
were the most depressed. The drop in the electronic market due to the
Asian crisis adversely affected many of the end users of Arlon's products.
Others of Arlon's OEM final customers were hurt by low priced competition
from Asian competitors. Further penetration in new market segments offset
some of the decline. Kasco's sales increased 4.4% through growth in the
U.S. base business, seasoning programs for in-store meal preparation, and
in the European operations.
In 1998, gross profit decreased 6.3% to $50,583,000 from $53,996,000 in the
prior year with gross profit margins declining to 32.3% from 34% last year.
Gross profit decreased at Arlon as the combined result of lower sales,
lower prices, and a continuing change in mix to lower margin commercial
products to serve the electronic/communication markets. Kasco's gross
profit decreased slightly due to the costs from discontinued products and
services.
In 1998 the court in the Transactions Lawsuit (refer to Note 11 to the
Consolidated Financial Statements) issued a series of opinions that
eliminated certain claims and parties from the case and set the stage for
discovery and trial as to the claims and parties that remain. In
particular, the court dismissed the RICO claims; all claims against third-
party professionals, including lawyers, accountants and investment bankers;
and all claims against individuals with the exception of Bairnco's former
chairman and president. The court also narrowed the scope of certain
claims against Bairnco and the other corporate defendants. With the
initial motions phase of the case now complete, Bairnco is prepared to
mount a vigorous defense on the merits. Toward that end, a $7,500,000
provision for litigation costs was taken in the fourth quarter of 1998
(refer to Note 2 to the Consolidated Financial Statements).
Selling and administrative expenses, excluding the provision for litigation
costs, increased 0.4% to $38,554,000 from $38,404,000 in 1997. As a
percent of sales, these expenses increased to 24.6% in 1998 from 24.2% in
1997. Research and development expenses increased 4.8% as Bairnco
continued to invest in the development of new products and improved
quality. Based on sharp swings in order input throughout the year and
management's continuing belief in the future of the Corporation's key
markets, the decision was made to cut costs but not to impair the core
management competencies that have been developed. The average number of
employees was reduced by 3.3% from last year. Productivity as measured by
sales per employee increased 1.9%.
Earnings before interest, the provision for litigation costs and taxes were
$12,029,000 down 22.9% from $15,592,000 in 1997. The decline is primarily
attributable to reduced gross profit.
In the fourth quarter of 1998 Bairnco recorded the $7,500,000 pre-tax
provision for anticipated litigation costs.
Net interest expense increased from $1,834,000 to $1,998,000. The increase
was due to increased average debt outstanding primarily resulting form the
acquisition in the fourth quarter.
Income before income taxes decreased to $2,531,000 in 1998 as compared to
$13,758,000 in 1997. The effective tax rate was 37% as compared to 36.2% in
1997. 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 decreased to $1,594,000 from $8,771,000. Diluted earnings per
common share fell to $.18 from $.94 in 1997 as a result of the decreased
operating income and the provision for litigation costs. The provision for
litigation costs reduced net income in 1998 by $4,726,000 or $.54 per
share.
Results of Operations: 1997 Compared to 1996
Net sales for the year ended December 31, 1997 increased 5.6% to
$158,708,000 from $150,234,000 in 1996. Arlon's sales increased 8.3% as all
markets served experienced growth although there was substantial volatility
within the electronics market. Kasco's sales declined 0.2% as growth in
the US markets, especially in the seasonings for ready-to-cook foods for
supermarkets and special products areas, was offset by the planned
discontinuation of equipment sales in certain Canadian markets and the
negative impact of currency translation rates on sales of Kasco's European
operations.
In 1997, gross profit increased 2.8% to $53,996,000 from $52,536,000 in the
prior year. Gross profit increased 2.6% at Arlon and 1.0% at Kasco with
increased sales. However, the strong US dollar also negatively impacted
the translation of foreign gross profit. Gross profit margins declined to
34.0% from 35.0% in 1996. Profit margins were lower primarily due to plant
and labor inefficiencies caused by swings in demand during the year, new
equipment start-ups at three plants, and the two week strike at the Bear,
Delaware facility
Selling and administrative expenses increased 2.2% to $38,404,000 from
$37,580,000 in 1996. As a percent of sales, these expenses decreased to
24.2% in 1997 from 25.0% in 1996. Selling expenses were relatively
unchanged. General and administrative expenses increased $543,000 or 4.4%
reflecting the Company's on-going investment in recruiting, management
development and incentive compensation programs. Research and development
expenses increased 17.2% as Bairnco continued to invest in the development
of new products and improved quality.
Operating profit in 1997 was $15,592,000, or 9.8% of net sales, compared to
operating profit in 1996 of $14,956,000, or 10.0% of net sales.
Net interest expense increased $109,000 or 6.3% from $1,725,000 to
$1,834,000. The increase was due to increased average debt outstanding.
Income before income taxes increased 4.0% to $13,758,000 in 1997 as
compared to $13,231,000 in 1996. The effective tax rate decreased to 36.2%
from 37.0% in 1996 due primarily to the tax benefits attendant with
Bairnco's foreign sales corporation.
Net income increased 5.2% to $8,771,000 in 1997 as compared to $8,335,000
in 1996. Diluted earnings per share increased 10.6% to $.94 from $.85 in
1996. As a result of the stock repurchase program, the average number of
diluted shares outstanding in 1997 was 9,350,000, a 5.1% decrease from the
9,851,000 average outstanding in 1996.
Liquidity and Capital Resources
At December 31, 1998, Bairnco had working capital of $33.3 million compared
to $35.7 million at December 31, 1997. The increase in accounts receivable
relates primarily to the growth in export sales which have longer payment
terms. Current deferred tax assets increased with the increase in accrued
expenses primarily resulting from the $7.5 million provision for litigation
costs. Other current assets decreased primarily as a result of the
settlement of certain non-trade related receivables in the first quarter
1998. The increase in accrued expenses results primarily from provision
for litigation costs.
As of December 31, 1998, the reducing revolving credit agreement was
amended to extend the first commitment reduction date to December 31, 2000
and the final maturity to December 31, 2003.
At December 31, 1998, $37.8 million of total debt was outstanding compared
to $30.3 million at the end of 1997. As of December 31, 1998,
approximately $10.5 million was available for borrowing under the
Corporation's secured reducing revolving credit agreement, as amended. In
addition, approximately $4.3 million was available under various short-term
domestic and foreign uncommitted credit facilities. Debt as a percent of
equity increased to 81.5% at the end of 1998 from 57.8% at the end of 1997.
The increase was due to the $7.5 million provision for litigation costs
which reduced equity by $4,726,000 and the increased debt resulting from
the MII acquisition and stock repurchase program.
Bairnco made $5,976,000 of capital expenditures in 1998 as compared to its
plan of approximately $12.0 million. Capital expenditures were
significantly reduced in light of changing market conditions and were
focused on cost reduction projects, replacements and new MIS systems and
hardware that were installed during the year. Total capital expenditures
in 1999 are expected to be approximately $8.2 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, MIS
hardware and software, and limited capacity additions.
In 1998, Bairnco's Board of Directors authorized an additional $5,000,000
to be available for the ongoing repurchase of its common stock. The
authorization was in addition to the $3.7 million still unused from the
prior year $5,000,000 authorization. During 1998, Bairnco repurchased
737,400 shares of its common stock for $6.2 million. The diluted average
number of shares outstanding in 1998 was 8,818,000 a 5.7% decrease from the
9,350,000 diluted average shares outstanding in 1997. The Board has
authorized management to continue its stock repurchase program in 1999
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 1999.
Year 2000 Date Conversion
As previously 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 total estimated cost of achieving Year 2000
compliance remains at approximately $250,000 and includes software and
installation costs. Of this amount, approximately $175,000 had been
incurred through December 31, 1998 with the remainder expected to be
incurred during 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 during 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 December 31, 1998, four 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 four US locations expected to be completed by the end of
the second quarter of 1999. These four divisions were 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.
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. 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 analyzed the risks of a "most reasonably likely
worst case scenario" nor has it developed a contingency plan to address
this uncertainty. The Corporation's efforts to date have been focused on
ensuring the impact of Year 2000 issues is minimized. It is management's
intention to analyze the risks of this uncertainty and determine whether to
develop such a plan. This process is scheduled for completion during the
first half of 1999.
Other Matters
Bairnco Corporation and its subsidiaries are defendants in a number of
legal actions and proceedings that 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, 1998.
Outlook
Management is not aware of any adverse trends that would materially affect
the Company's strong financial position. The outlook for 1999 is for
improved sales and earnings. It is expected that the combination of growth
from new products, higher growth in certain niche markets and a full year
of the results of the acquisition will result in increased sales. Improved
earnings are expected both from increased sales and from continuing
efficiency and yield improvement programs.
<TABLE>
Quarterly Results of Operations (Unaudited)
(In thousands except per share data)
<CAPTION>
1st 2nd 3rd 4th Total
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 42,125 $ 37,445 $ 37,651 $ 41,128 $ 37,747 $ 39,814 $ 38,933 $ 40,321 $156,456 $158,708
Cost of sales 28,442 24,465 24,905 27,020 25,922 26,228 26,604 26,999 105,873 104,712
Gross Profit 13,683 12,980 12,746 14,108 11,825 13,586 12,329 13,322 50,583 53,996
Selling and
administrative
expenses 9,716 9,116 9,717 9,981 9,461 9,717 9,660 9,590 38,554 38,404
Provision for
litigation
costs -- -- -- -- -- -- 7,500 -- 7,500 --
Operating
Profit 3,967 3,864 3,029 4,127 2,364 3,869 (4,831) 3,732 4,529 15,592
Interest
expense, net 481 415 508 460 502 486 507 473 1,998 1,834
Income before
income taxes 3,486 3,449 2,521 3,667 1,862 3,383 (5,338) 3,259 2,531 13,758
Provision for
income taxes 1,290 1,276 933 1,320 689 1,218 (1,975) 1,173 937 4,987
Net Income $ 2,196 $ 2,173 $ 1,588 $ 2,347 $ 1,173 $ 2,165 $ (3,363)$ 2,086 $ 1,594 $ 8,771
Basic Earnings
per Share $ 0.25 $ 0.23 $ 0.18 $ 0.26 $ 0.14 $ 0.24 $ (0.40)$ 0.23 $ 0.18 $ 0.96
Diluted
Earnings per
Share $ 0.24 $ 0.23 $ 0.18 $ 0.25 $ 0.14 $ 0.23 $ (0.40)$ 0.23 $ 0.18 $ 0.94
Market Price:
High $ 11-3/8 $ 7-5/8 $ 11-3/8 $ 8-3/8 $ 9-1/8 $ 11 $ 7-1/8 $ 11-1/4 $ 11-3/8 $ 11-1/4
Low 9-13/16 6-3/8 8-7/8 6-7/8 5-9/16 8 5-3/4 6-11/16 5-9/16 6-3/8
</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, 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 deflation, 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, 1998 and 1997, and the related consolidated statements of
income, comprehensive income, stockholders' investment and cash flows
for each of the three years in the period ended December 31, 1998.
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, 1998 and
1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Orlando, Florida
January 21, 1999
Arthur Andersen LLP
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1998, 1997 and 1996
Bairnco Corporation and Subsidiaries
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net Sales $156,456,000 $158,708,000 $150,234,000
Cost of sales 105,873,000 104,712,000 97,698,000
Gross Profit 50,583,000 53,996,000 52,536,000
Selling and administrative expenses 38,554,000 38,404,000 37,580,000
Provision for litigation costs
(Note 2) 7,500,000 -- --
Operating Profit 4,529,000 15,592,000 14,956,000
Interest expense, net 1,998,000 1,834,000 1,725,000
Income before Income Taxes 2,531,000 13,758,000 13,231,000
Provision for income taxes (Note 5) 937,000 4,987,000 4,896,000
Net Income $ 1,594,000 $ 8,771,000 $ 8,335,000
Basic Earnings per Share of Common
Stock (Note 4) $ 0.18 $ 0.96 $ 0.85
Diluted Earnings per Share of Common
Stock (Note 4) $ 0.18 $ 0.94 $ 0.85
Dividends per Share of Common Stock $ 0.20 $ 0.20 $ 0.20
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 1998, 1997 and 1996
Bairnco Corporation and Subsidiaries
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net Income $ 1,594,000 $ 8,771,000 $ 8,335,000
Other comprehensive income,
net of tax:
Foreign currency translation
adjustment (Note 1) 173,000 (710,000) (18,000)
Comprehensive Income $ 1,767,000 $ 8,061,000 $ 8,317,000
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
Bairnco Corporation and Subsidiaries
<CAPTION>
1998 1997
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 822,000 $ 1,217,000
Accounts receivable, less allowances of
$1,224,000 and $943,000, respectively 27,999,000 24,939,000
Inventories:
Raw materials and supplies 5,701,000 5,646,000
Work in process 6,604,000 6,402,000
Finished goods 13,874,000 14,350,000
26,179,000 26,398,000
Deferred income taxes (Note 5) 4,137,000 2,641,000
Other current assets 1,709,000 2,748,000
Total current assets 60,846,000 57,943,000
Plant and Equipment, at cost:
Land 1,846,000 1,541,000
Buildings and leasehold interests and improvements 18,115,000 16,659,000
Machinery and equipment 77,330,000 71,670,000
97,291,000 89,870,000
Less - Accumulated depreciation and amortization (55,889,000) (49,957,000)
41,402,000 39,913,000
Cost in Excess of Net Assets of Purchased
Businesses (Note 1) 11,840,000 7,607,000
Other Assets (Note 1) 4,467,000 3,823,000
$118,555,000 $109,286,000
Liabilities and Stockholders' Investment
Current Liabilities:
Short-term debt (Note 7) $ 4,373,000 $ 3,018,000
Current maturities of long-term debt (Note 7) -- 9,000
Accounts payable 9,022,000 8,661,000
Accrued expenses (Note 6) 14,192,000 10,543,000
Total current liabilities 27,587,000 22,231,000
Long-Term Debt (Note 7) 33,471,000 27,291,000
Deferred Income Taxes (Note 5) 2,912,000 4,098,000
Other Liabilities 8,147,000 3,197,000
Stockholders' Investment (Notes 4, 7 and 8):
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 and 11,160,774 issued,
respectively 112,000 112,000
Paid-in capital 49,165,000 49,030,000
Retained earnings 22,670,000 22,802,000
Currency translation adjustment (Note 1) 1,745,000 1,572,000
Treasury stock, at cost, 2,904,165 and 2,166,765
shares, respectively (27,254,000) (21,047,000)
Total stockholders' investment 46,438,000 52,469,000
$118,555,000 $109,286,000
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998, 1997 and 1996
Bairnco Corporation and Subsidiaries
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,594,000 $ 8,771,000 $ 8,335,000
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 6,688,000 6,516,000 6,305,000
(Gain) loss on disposal of plant
and equipment (13,000) 34,000 203,000
Deferred income taxes (2,751,000) 1,265,000 373,000
Change in operating assets and
liabilities:
(Increase) in accounts
receivable, net (1,033,000) (3,874,000) (147,000)
Decrease (increase) in inventories 2,117,000 (3,406,000) (442,000)
Decrease (increase) in other
current assets 1,125,000 956,000 (1,628,000)
(Decrease) increase in accounts
payable (38,000) 1,510,000 (460,000)
Increase (decrease) in accrued
expenses 2,204,000 (480,000) (426,000)
Other 4,223,000 472,000 734,000
Net cash provided by operating
activities 14,116,000 11,764,000 12,847,000
Cash Flows from Investing Activities:
Capital expenditures (5,976,000) (8,789,000) (10,131,000)
Payment for purchased businesses,
net of cash acquired (8,423,000) -- --
Proceeds from sale of plant and
equipment 123,000 219,000 138,000
Net cash (used in) investing
activities (14,276,000) (8,570,000) (9,993,000)
Cash Flows from Financing Activities:
Net borrowings of external debt 7,746,000 2,434,000 3,968,000
Payment of dividends (1,726,000) (1,827,000) (1,937,000)
Purchase of treasury stock (6,207,000) (3,255,000) (5,412,000)
Exercise of stock options 135,000 26,000 472,000
Net cash (used in) financing
activities (52,000) (2,622,000) (2,909,000)
Effect of foreign currency exchange
rate changes on cash and cash
equivalents (183,000) (210,000) 302,000
Net (decrease) increase in cash and
cash equivalents (395,000) 362,000 247,000
Cash and cash equivalents, beginning
of year 1,217,000 855,000 608,000
Cash and cash equivalents, end of
year $ 822,000 $ 1,217,000 $ 855,000
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the year for:
Interest $ 2,008,000 $ 1,824,000 $ 1,696,000
Income taxes $ 2,402,000 2,805,000 5,378,000
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
For the years ended December 31, 1998, 1997 and 1996
Bairnco Corporation and Subsidiaries
<CAPTION>
Currency
Common Paid-in Retained Translation Treasury
Stock Capital Earnings Adjustment Stock
<S> <C> <C> <C> <C> <C>
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)
Net income -- -- 8,771,000 -- --
Cash dividends ($.20 per
share) -- -- (1,827,000) -- --
Issuance of 5,275 shares
pursuant to exercise of
stock options -- 26,000 -- -- --
Acquisition of treasury
stock (424,800 shares
at cost) -- -- -- -- (3,255,000)
Currency translation
adjustment (Note 1) -- -- -- (710,000) --
Balance, December 31, 1997 112,000 49,030,000 22,802,000 1,572,000 (21,047,000)
Net income -- -- 1,594,000 -- --
Cash dividends ($.20 per
share) -- -- (1,726,000) -- --
Issuance of 26,450 shares
pursuant to exercise of
stock options -- 135,000 -- -- --
Acquisition of treasury
stock (737,400 shares
at cost) -- -- -- -- (6,207,000)
Currency translation
adjustment (Note 1) -- -- -- 173,000 --
Balance, December 31, 1998 $112,000 $49,165,000 $22,670,000 $1,745,000 $(27,254,000)
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
(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 brand identity 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
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, 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.
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 inter-company 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.
Certain reclassifications were made to prior year balances in order to
conform to the current year presentation.
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 $6,509,000, $6,333,000 and $6,123,000 was
recognized during 1998, 1997 and 1996, 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 $10,020,000 and $5,625,000 at December
31, 1998 and 1997, respectively, is being amortized over 40 years. The
increase is due to the acquisition of MII (refer to Note 3 to the
Consolidated Financial Statements). Accumulated amortization at December
31, 1998 and 1997, was $1,665,000 and $1,504,000, respectively.
Amortization expense of $147,000, $146,000 and $149,000 was recognized
during 1998, 1997 and 1996, 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 non-discounted 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, 1998.
Intangibles:
Intangible assets of purchased businesses, net of amortization, are
included in other assets and totaled $123,000 and $99,000 at December 31,
1998 and 1997, respectively. These items are amortized over their
estimated lives, which generally range from three to twenty years.
Amortization expense recognized was $32,000 during 1998, $37,000 during
1997 and $33,000 during 1996.
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-insurance:
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 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.
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. Bairnco
adopted SFAS 130 effective January 1, 1998. 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.
Reportable segments:
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 quarterly disclosure
requirements and a finer partitioning of geographic disclosures. It
requires limited segment data on a quarterly basis. It also requires
geographic data by country, as opposed to broader geographic regions
permitted under previous standards.
Bairnco adopted SFAS 131 effective January 1, 1998 and prior year
segment information and disclosures have been restated, where applicable,
to conform to the current year presentation.
Pension Accounting:
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and other Postretirement Benefits" ("SFAS 132"),
which is effective for fiscal years beginning after December 15, 1997.
SFAS 132 standardizes the disclosure requirements for pensions and other
postretirement benefits and requires additional information on changes in
the benefit obligations and fair value of plan assets while eliminating
certain prior disclosures that are no longer considered useful.
Bairnco adopted SFAS 132 effective January 1, 1998 and prior year
pension disclosures have been restated, where applicable, to conform to the
current year presentation.
(2) Provision for Litigation Costs
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
Management's Discussion and Analysis and Note 11 to Consolidated Financial
Statements). $2.5 million of this provision for litigation costs is
included in accrued expenses with the remaining $5.0 million included in
other liabilities in the Corporation's consolidated balance sheet for the
year ended December 31, 1998.
After recognition of related tax benefits, the litigation provision
reduced net income in 1998 by $4.7 million or approximately $.54 diluted
earnings per common share.
(3) Acquisition
On October 31, 1998, Bairnco purchased MII International, Inc. ("MII")
for approximately $8.3 million including the repayment of its debt. MII
manufactures adhesive coated films for use in the graphics and industrial
markets. The transaction was accounted for as a purchase and was financed
with long-term debt. The purchase price exceeded the fair value of net
assets acquired by approximately $4.0 million which is being amortized on a
straight-line basis over 40 years. The results of operations of MII are
included in the accompanying consolidated financial statements from the
date of acquisition.
The following summarized unaudited pro forma financial information
assumes the acquisition had occurred on January 1 of each year:
Pro Forma Information
(in thousands, except per share data) 1998 1997
Net sales $167,865 $174,184
Net income $ 1,782 $ 9,053
Basic earnings per share $ 0.21 $ 0.99
Diluted earnings per share $ 0.20 $ 0.97
These amounts include MII's actual results in 1997 and for the first ten
months of 1998 prior to acquisition and actual results for the two months
in 1998 after acquisition. The amounts are based upon certain assumptions
and estimates, and do not reflect any benefit from economies which might be
achieved from combined operations. The pro forma results do not
necessarily represent results which would have occurred if the acquisition
had taken place on the basis assumed above, nor are they indicative of the
results of future combined operations.
(4)Earnings per Share
The Corporation accounts for earnings per share ("EPS") under Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). The
following disclosures comply with the requirements of SFAS 128.
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Basic Earnings per Common Share:
Net Income $ 1,594,000 $ 8,771,000 $ 8,335,000
Average common shares outstanding 8,655,000 9,151,000 9,753,000
Basic Earnings Per Common Share $ 0.18 $ 0.96 $ 0.85
Diluted Earnings per Common Share:
Net Income $ 1,594,000 $ 8,771,000 $ 8,335,000
Average common shares outstanding 8,655,000 9,151,000 9,753,000
Common shares issuable in respect
to options issued to employees,
with a dilutive effect 163,000 199,000 98,000
Total diluted common shares
outstanding 8,818,000 9,350,000 9,851,000
Diluted Earnings Per Common Share $ 0.18 $ 0.94 $ 0.85
Basic earnings per common share were computed by dividing net income by
the weighted average number of shares of common stock outstanding during
the year. Diluted earnings per common share includes the effect of all
dilutive stock options.
</TABLE>
(5) Income Taxes
The components of income before income taxes and the provisions for
domestic and foreign income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Income before Income Taxes:
Domestic $ 1,187,000 $12,765,000 $13,176,000
Foreign 1,344,000 993,000 55,000
Total Income before Income Taxes $ 2,531,000 $13,758,000 $13,231,000
Provision for Income Taxes:
Domestic:
Currently payable $ 3,266,000 $ 3,616,000 $ 4,096,000
Deferred (2,688,000) 1,102,000 594,000
Foreign:
Currently payable 422,000 106,000 452,000
Deferred (63,000) 163,000 (246,000)
Total Provision for Income Taxes $ 937,000 $ 4,987,000 $ 4,896,000
</TABLE>
Bairnco's net current and non-current deferred tax assets (liabilities)
include the following at December 31:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current Deferred Tax Items:
Accrued Expenses $ 2,840,000 $ 1,584,000 $ 1,887,000
Inventories 977,000 847,000 872,000
Other 320,000 210,000 163,000
Net Current Deferred Tax Asset 4,137,000 2,641,000 2,922,000
Non-Current Deferred Tax Items:
Fixed Assets (3,539,000) (3,291,000) (2,889,000)
Pensions (1,273,000) (1,051,000) (1,149,000)
Intangible Assets (13,000) 21,000 15,000
Provision for Litigation Costs 1,700,000 -- --
Other 213,000 223,000 909,000
Net Non-Current Deferred Tax
Liability (2,912,000) (4,098,000) (3,114,000)
Net Deferred Tax Asset (Liability) $ 1,225,000 $(1,457,000) $ (192,000)
</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.
In 1998, 1997 and 1996 the Corporation's effective tax rates were 37.0%,
36.2% 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>
1998 1997 1996
<S> <C> <C> <C>
Computed income taxes at
statutory rate $ 861,000 $ 4,678,000 $4,499,000
State and local taxes, net of
federal tax benefit 64,000 368,000 321,000
Dividend income -- 1,303,000 198,000
Amortization of goodwill 9,000 9,000 9,000
Foreign income taxed at different
rates (98,000) (69,000) 187,000
Tax credits (31,000) (1,182,000) (271,000)
Benefit of Foreign Sales Corporation (270,000) (289,000) (413,000)
Other, net 402,000 169,000 366,000
Provision for income taxes $ 937,000 $ 4,987,000 $4,896,000
</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
$3.1 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.
(6) Accrued Expenses
Accrued expenses consisted of the following as of December 31, 1998 and
1997, respectively:
1998 1997
Salaries and wages $ 2,669,000 $ 2,353,000
Income taxes 633,000 139,000
Insurance 2,462,000 2,216,000
Litigation 3,580,000 1,461,000
Other accrued expenses 4,848,000 4,374,000
Total accrued expenses $14,192,000 $10,543,000
(7) Debt
Long-term debt consisted of the following as of December 31, 1998 and
1997, respectively:
1998 1997
Revolving Credit Notes $30,471,000 $24,291,000
Industrial Revenue Bonds 3,000,000 3,000,000
Other -- 9,000
33,471,000 27,300,000
Less Current Maturities -- 9,000
Total $33,471,000 $27,291,000
On December 31, 1998, the Corporation's secured, reducing revolving
credit agreement (the "Credit Agreement") with a consortium of four banks
led by Bank of America, Illinois, and including SunTrust Bank, First Union
Bank of Florida and First National Bank of Maryland, was amended. The
amendment effectively extended the first commitment reduction date to
December 31, 2000 and the expiration date of the Credit Agreement from
December 31, 2001 to December 31, 2003. The Credit Agreement also includes
a letter of credit facility of $7 million, although the letter of credit
facility may be increased up to $20 million with a corresponding decrease
in the revolving credit facility. Effective December 31, 1998, the letter
of credit facility was increased by $2.0 million to $9.0 million with a
corresponding decrease in the revolving credit facility. At December 31,
1998, $30.5 million of revolving credit was outstanding and payable from
2001 through 2003. In addition, approximately $8.2 million of irrevocable
standby letters of credit were outstanding under the Credit Agreement,
which are not reflected in the accompanying consolidated financial
statements. $5.2 million of the letters of credit guarantee various trade
and insurance activities. An outstanding $3.0 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, 1998, were approximately 6.1% on US borrowings and ranged from
approximately 3.9% to 7.1% 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 approximately 3.9% at December 31, 1998.
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, 2003.
The Credit Agreement 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, 1998 the Corporation was in compliance with all covenants
contained in the Credit Agreement.
The Corporation has other short-term debt outstanding at rates of 5.9%
to 6.5% due in 1999.
The annual maturity requirements for long-term debt due after December
31, 1998, are summarized as follows:
Year Ended December 31,
1999 $ --
2000 --
2001 3,000,000
2002 3,000,000
2003 27,471,000
Total Long-term Debt $33,471,000
(8) 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 Corporation's 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 1998,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
Wtd Avg Wtd Avg Wtd Avg
1998 Exercise 1997 Exercise 1996 Exercise
Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 633,750 $5.89 684,225 $5.71 716,950 $5.56
Granted 52,625 8.20 33,400 8.24 78,000 6.32
Exercised (26,450) 5.13 (5,275) 4.93 (93,000) 5.09
Canceled (12,975) 6.75 (78,600) 5.39 (17,725) 5.28
Outstanding at
end of year 646,950 $6.09 633,750 $5.89 684,225 $5.71
Exercisable at
end of year 461,813 $5.79 465,563 $5.70 501,513 $5.62
</TABLE>
At December 31, 1998, 1997 and 1996, 1,450,825, 1,490,475 and 1,495,925
shares, respectively, were available for option grants under the 1990 Plan.
The weighted average contractual life of the 646,950 options outstanding at
December 31, 1998 was 3.17 years. There were no charges to income in
connection with stock option grants or exercises during 1998, 1997 and
1996.
(9) 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:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Change in Benefit Obligation:
Benefit obligation at September 30,
1997 and 1996, respectively $ 25,638,000 $ 24,241,000
Service cost 756,000 754,000
Interest cost 1,895,000 1,815,000
Actuarial loss 2,071,000 211,000
Benefits paid (1,457,000) (1,383,000)
Benefit obligation at September 30,
1998 and 1997, respectively 28,903,000 25,638,000
Change in Plan Assets:
Fair value of plan assets at
September 30, 1997 and 1996,
respectively 30,433,000 24,371,000
Actual return on plan assets 1,142,000 6,276,000
Employer contributions 667,000 1,148,000
Benefits paid (1,436,000) (1,362,000)
Fair value of plan assets at
September 30, 1998 and 1997,
respectively 30,806,000 30,433,000
Funded status 1,903,000 4,796,000
Unrecognized net transition obligation 349,000 447,000
Unrecognized prior service cost 266,000 323,000
Unrecognized net actuarial loss (gain) 744,000 (2,839,000)
Prepaid pension costs at September 30,
1998 and 1997, respectively 3,262,000 2,727,000
Fourth quarter accruals (26,000) (125,000)
Fourth quarter contributions 52,000 55,000
Prepaid pension costs at yearend $ 3,288,000 $ 2,657,000
</TABLE>
The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for the pension plan with plan assets in excess
of accumulated benefit obligations were $25,448,000, $22,705,000 and
$28,380,000, respectively, at September 30, 1998, and $22,534,000,
$20,223,000 and $28,066,000, respectively, at September 30, 1997. The
projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $3,455,000, $3,396,000 and $2,426,000,
respectively, at September 30, 1998, and $3,105,000, $3,036,000 and
$2,368,000, respectively, at September 30, 1997.
The discount rate used in determining the actuarial present value of the
projected benefit obligations in the table above was 7.0% at September 30,
1998 and 7.5% at September 30, 1997. The rate of projected pay increases,
where applicable, was 5% at both September 30, 1998 and 1997. The expected
long-term rate of return on retirement plan assets was 9% at both September
30, 1998 and 1997.
Amounts recognized in the consolidated balance sheets of the Corporation
consist of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Prepaid benefit cost $ 3,382,000 $ 2,845,000
Accrued benefit liability (969,000) (668,000)
Intangible asset 849,000 550,000
Net amount recognized at September 30 3,262,000 2,727,000
Fourth quarter accruals (26,000) (125,000)
Fourth quarter contributions 52,000 55,000
Net amount recognized at December 31 $ 3,288,000 $ 2,657,000
</TABLE>
Net periodic pension cost for the US plans included the following:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 752,000 $ 771,000 $ 716,000
Interest cost on projected
benefit obligation 1,918,000 1,823,000 1,695,000
Expected return on plan assets (2,722,000) (2,252,000) (2,018,000)
Amortization of net obligation at
date of transition 99,000 99,000 99,000
Amortization of prior service cost 56,000 61,000 26,000
Amortization of accumulated loss -- -- 7,000
Net periodic pension cost $ 103,000 $ 502,000 $ 525,000
</TABLE>
(10) Reportable Segment Data
Operating segments are components of an enterprise that:
a.Engage in business activities from which they may earn revenues and
incur expenses,
b.Whose operating results are regularly reviewed by the company's chief
operating decision-maker to make decisions about resources to be allocated
to the segment and assess its performance, and
c.For which discrete financial information is available.
Operating segments with similar products and services, production
processes, types of customers, and sales channels are combined into
reportable segments for disclosure purposes. Bairnco has two reportable
segments - the Arlon Engineered Materials and Components segment and the
Kasco Replacement Products and Services segment.
The Arlon Engineered Materials and Components segment designs, manufactures
and sells laminated and coated materials to the electronic, industrial and
commercial markets under the Arlon and Calon brand names. These products
are based on common technologies in coating, laminating, polymers, and
dispersion chemistry. Among the products included in this segment are high
technology materials for the printed circuit board industry, vinyl films
for graphics art applications, foam tapes used in window glazing,
electrical and thermal insulation products, and silicone rubber products
for insulating tapes and flexible heaters.
The Kasco Replacement Products and Services segment manufactures, sells and
services products and equipment used in supermarkets, meat and deli
operations, and meat, poultry, and fish processing plants throughout the
United States, Canada and Europe. It also manufactures and sells small
band saw blades for cutting wood and metal, and large band saw blades for
use at lumber mills.
Bairnco evaluates segment performance based on income before interest and
taxes and excluding allocation of headquarters expense. Segment income and
assets are measured on a basis that is consistent with the methods
described in the summary of significant accounting policies. Segment
assets exclude US deferred income taxes and assets attributable to US
employee benefit programs. Inter-segment transactions are not material.
No customer accounts for 10% or more of consolidated revenue.
Financial information about the Corporation's operating segments for the
years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Operating Capital Depreciation/
Net Sales Profit (Loss) Assets Expenditures Amortization
<S> <C> <C> <C> <C> <C>
1998
Arlon $107,736,000 $ 12,698,000 $ 72,880,000 $ 2,925,000 $3,952,000
Kasco 48,720,000 3,085,000 38,215,000 3,022,000 2,676,000
Headquarters -- (11,254,000)(a) 7,460,000 29,000 60,000
Total $156,456,000 $ 4,529,000 $118,555,000 $ 5,976,000 $6,688,000
1997
Arlon $112,036,000 $ 15,873,000 $ 64,530,000 $ 5,438,000 $3,665,000
Kasco 46,672,000 3,495,000 37,703,000 3,252,000 2,791,000
Headquarters -- (3,776,000) 7,053,000 99,000 60,000
Total $158,708,000 $ 15,592,000 $109,286,000 $ 8,789,000 $6,516,000
1996
Arlon $103,449,000 $ 16,159,000 $ 58,498,000 $ 7,255,000 $3,312,000
Kasco 46,785,000 2,649,000 35,328,000 2,830,000 2,933,000
Headquarters -- (3,852,000) 8,774,000 46,000 60,000
Total $150,234,000 $ 14,956,000 $102,600,000 $10,131,000 $6,305,000
(a) Includes impact of $7.5 million (pre-tax) provision for litigation
costs.
</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, 1998, 1997 and 1996 is as follows:
Sales to External Long-lived Segment
Customers Assets
1998
United States $133,005,000 $48,109,000
France 12,821,000 218,000
Other Foreign 10,630,000 4,997,000
1997
United States $136,010,000 $42,478,000
France 12,238,000 209,000
Other Foreign 10,460,000 5,169,000
1996
United States $124,154,000 $40,272,000
France 12,179,000 267,000
Other Foreign 13,901,000 5,823,000
(11) Contingencies
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 December 31, 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..
Bairnco and its Arlon subsidiary 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.
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 December 31, 1998.
CORPORATE INFORMATION
Corporate Office
Suite 300, 2251 Lucien Way
Maitland, Florida 32751
(407) 875-2222
www.bairnco.com
Principal Facilities
Bear, Delaware
East Providence, Rhode Island
Northbrook, Illinois
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 Bairnco's Corporate Office
on April 22, 1999 at 9:00 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 J. Robert Wilkinson, Vice President Finance and Treasurer, Bairnco
Corporation
(407) 875-2222, extension 228.
BAIRNCO CORPORATION
Suite 300, 2251 Lucien Way
Maitland, Florida 32751
407-875-2222
FAX 407-875-3398
www.bairnco.com
EXHIBIT 21
BAIRNCO CORPORATION AND SUBSIDIARIES
Subsidiaries of Registrant
as of March 19, 1999
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 19, 1999
Arthur Andersen LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM BAIRNCO'S ANNUAL
REPORT TO SHAREHOLDERS 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-31-1998 DEC-31-1998
<PERIOD-END> DEC-31-1998 DEC-31-1998
<CASH> 822,000 822,000
<SECURITIES> 0 0
<RECEIVABLES> 29,223,000 29,223,000
<ALLOWANCES> 1,224,000 1,224,000
<INVENTORY> 26,179,000 26,179,000
<CURRENT-ASSETS> 60,846,000 60,846,000
<PP&E> 97,291,000 97,291,000
<DEPRECIATION> 55,889,000 55,889,000
<TOTAL-ASSETS> 118,555,000 118,555,000
<CURRENT-LIABILITIES> 27,587,000 27,587,000
<BONDS> 33,471,000 33,471,000
0 0
0 0
<COMMON> 112,000 112,000
<OTHER-SE> 46,326,000 46,326,000
<TOTAL-LIABILITY-AND-EQUITY> 118,555,000 118,555,000
<SALES> 38,933,000 156,456,000
<TOTAL-REVENUES> 38,933,000 156,456,000
<CGS> 26,604,000 105,873,000
<TOTAL-COSTS> 26,604,000 105,873,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 507,000 1,998,000
<INCOME-PRETAX> (5,338,000) 2,531,000
<INCOME-TAX> (1,975,000) 937,000
<INCOME-CONTINUING> (3,363,000) 1,594,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,363,000) 1,594,000
<EPS-PRIMARY> (0.40) 0.18
<EPS-DILUTED> (0.40) 0.18
</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, 1998
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 (the
Plan) as of December 31, 1998 and 1997, and the related statement of
changes in net assets available for benefits for the year ended
December 31, 1998. These financial statements and the supplemental
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 Plan as of December 31, 1998 and 1997, and the changes
in its net assets available for benefits for the year ended December
31, 1998, 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
additional analysis and are not a required part of the basic financial
statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974.
The Fund Information in Note 6 is presented for purposes of additional
analysis rather than to present the changes in net assets available
for benefits of each fund. The supplemental schedules and Fund
Information 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
March 9, 1999
Arthur Andersen LLP
<TABLE>
BAIRNCO CORPORATION
401(k) SAVINGS PLAN AND TRUST
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 1998 AND 1997
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS
INVESTMENTS, at fair market value (Notes 2 & 3)
Bairnco common stock $ 194,962 $ 277,830
Mutual funds 5,131,997 3,873,674
Participant notes receivable 193,146 108,523
TOTAL INVESTMENTS 5,520,105 4,260,027
RECEIVABLES
Participants' contributions 71,745 69,647
Investment income -- 1,396
TOTAL RECEIVABLES 71,745 71,043
TOTAL ASSETS 5,591,850 4,331,070
NET ASSETS AVAILABLE FOR BENEFITS $5,591,850 $4,331,070
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, 1998
(Note 6)
1998
NET ASSETS AVAILABLE FOR BENEFITS, beginning of year $4,331,070
ADDITIONS:
Participants' contributions 1,038,728
Interest and dividends 157,892
Net realized and unrealized appreciation on
investments (Note 2) 654,560
1,851,180
DEDUCTIONS:
Distributions 584,679
Administrative expenses 5,721
590,400
NET INCREASE 1,260,780
NET ASSETS AVAILABLE FOR BENEFITS, end of year $5,591,850
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, 1998 and 1997
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:
Participant 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 $10,000 for 1998. 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 or losses, and charged with
an allocation of administrative expenses. Allocations are based on
participant account balances, as defined in the Plan. 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 1998, interest
rates ranged from 9.75% to 10.5%. Principal and interest are paid
quarterly through payroll deductions. As of December 31, 1998 and 1997,
there were 61 and 43 loans outstanding.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 benefits during the reporting period.
Actual results could differ from those estimates.
Basis Of Accounting-
For the year ended December 31, 1998, the accounting records of the
Plan and the Plan's assets were maintained by 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 market value.
Any unrealized appreciation/depreciation on investments represents the
difference between fair market value of investments at the beginning of the
Plan year or when acquired, whichever is later, and the fair market value
of investments at the end of the Plan year.
Interest income is recognized on the accrual basis.
Administrative Expenses-
Certain administrative expenses of the Plan are paid directly by
Bairnco on behalf of the Plan. During the year ended December 31, 1998,
Bairnco paid administrative expenses of approximately $16,000.
Benefit Payments-
Benefits are recorded when paid.
3. INVESTMENTS:
There are currently eight investment options into which participants
may direct the investment of their accounts. These are Invesco Strategic
Technology Fund, Founders Growth Fund, Schwab 1000 Equity Fund, Strong
Government Securities Fund, Schwab Retirement Money Fund, Neuberger &
Berman Partners Fund and Neuberger & Berman Guardian Fund (collectively the
"mutual funds"), and 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 eight 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.
The investments that represent 5% or more of the net assets available
for benefits are as follows at December 31, 1998 and 1997:
1998 1997
Invesco Strategic Technology Fund $ 476,615 $ 312,018
Founders Growth Fund 844,891 551,921
Schwab 1000 Equity Fund 2,379,812 1,907,170
Strong Government Securities Fund 758,197 565,494
Schwab Retirement Money Fund 637,965 537,071
Bairnco Common Stock Fund 194,962 277,830
$5,292,442 $4,151,504
4. TRUST AGREEMENT:
Schwab is 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 1998, 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 AVAILABLE FOR BENEFITS, WITH FUND INFORMATION:
The following schedule presents changes in net assets available for
benefits, by fund, for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Participant Directed
Invesco Schwab Strong Schwab Neuberger Neuberger Bairnco
Strategic Founders 1000 Government Retirement & Berman & Berman Common Participant
Technology Growth Equity Securities Money Partners Guardian Stock Notes Other
Fund Fund Fund Fund Fund Fund Fund Fund Receivable Receivable Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Assets
Available
for
Benefits,
beginning
of year $312,018 $551,921 $1,907,170 $565,494 $537,071 $ -- $ -- $277,830 $108,523 $71,043 $4,331,070
Additions:
Participant's
contributions 157,803 287,199 321,615 151,154 64,831 7,179 3,164 43,685 -- 2,098 1,038,728
Interest and
dividends (5) 47,062 17,830 52,496 31,558 2,448 946 6,953 -- (1,396) 157,892
Net realized
and
unrealized
appreciation
(depreciation)
on investments 111,924 115,830 509,632 (617) 390 (3,128) (2,429) (77,042) -- -- 654,560
Total additions 269,722 450,091 849,077 203,033 96,779 6,499 1,681 (26,404) -- 702 1,851,180
Deductions:
Distributions 64,038 86,971 319,600 55,558 37,899 1,728 -- 9,549 9,336 -- 584,679
Administrative
expenses 740 1,145 2,210 759 455 5 6 401 -- -- 5,721
Total
deductions 64,778 88,116 321,810 56,317 38,354 1,733 6 9,950 9,336 -- 590,400
Transfers to
other funds (40,347) (69,005) (54,625) 45,987 42,469 23,626 4,450 (46,514) 93,959 -- --
Net increase
(decrease) 164,597 292,970 472,642 192,703 100,894 28,392 6,125 (82,868) 84,623 702 1,260,780
Net Assets
Available
for
Benefits,
end of year $476,615 $844,891 $2,379,812 $758,197 $637,965 $28,392 $6,125 $194,962 $193,146 $71,745 $5,591,850
7. TRANSACTIONS WITH PARTIES IN INTEREST:
Under ERISA, 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, Schwab, as Plan Trustee, and any person or corporation which
renders services to the Plan. Certain 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 and are not included in the
accompanying financial statements. Additional fees paid by the Plan during
1998 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 April 29, 1997,
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. The plan administrator and legal counsel believe
that the Plan is currently being operated in compliance with the applicable
requirements of the Internal Revenue Code.
9. SUBSEQUENT EVENT
Effective October 31, 1998, Bairnco purchased MII International, Inc.
("MII"). On December 11, 1998, Bairnco's Board of Directors elected to
merge the MII 401(k) plan into the Plan effective January 1, 1999, at which
time the employees of MII will begin participating in the Plan.
10. SUPPLEMENTAL SCHEDULES:
Supplemental Schedule I lists the reportable transactions of the Plan
for the year ended December 31, 1998. Purchases and sales are made at
fair market value on the date of transaction.
Supplemental Schedule II lists the Plan assets held for investment as
of December 31, 1998.
Supplemental Schedule III lists transactions with parties in interest
of the Plan for the year ended December 31, 1998.
SCHEDULE I
BAIRNCO CORPORATION
401(k) SAVINGS PLAN AND TRUST
SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
Sales Sales Sales
Description of Transaction Purchases Cost Proceeds Net Gain
Founders Growth Fund $433,631 $236,572 $256,491 $ 19,919
Schwab 1000 Equity Fund 512,349 390,721 549,339 158,618
Strong Government Securities Fund 317,252 117,020 123,932 6,912
Schwab Retirement Money Fund 229,053 127,794 128,549 755
The preceding notes are an integral part of this schedule.
SCHEDULE II
BAIRNCO CORPORATION
401(k) SAVINGS PLAN AND TRUST
SCHEDULE OF ASSETS HELD FOR INVESTMENT
AS OF DECEMBER 31, 1998
Fair Market
Description Value (Note 2) Cost
Cash Equivalents
Schwab Money Market Fund $ 1,411 $ 1,411
Common Stocks
Bairnco Corporation 193,551 174,600
Total Bairnco Common Stock Fund $ 194,962 $ 176,011
Mutual Funds
Invesco Strategic Technology Fund $ 476,615 $ 419,042
Founders Growth Fund 844,891 760,963
Schwab 1000 Equity Fund 2,379,812 1,521,336
Strong Government Securities Fund 758,197 741,957
Schwab Retirement Money Fund 637,965 637,965
Neuberger & Berman Partners Fund 28,392 30,914
Neuberger & Berman Guardian Fund 6,125 7,492
Total Mutual Funds $5,131,997 $4,119,669
Other Investments
Participant Notes Receivable $ 193,146 $ 193,146
Total $5,520,105 $4,488,826
The preceding 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, 1998
Description Amount
Sold 8,228.303 units of Bairnco Corporation Common
Stock between $5.563 and $11.375 per unit $ 71,213
Purchased 7,469.303 units of Bairnco Corporation Common
Stock between $5.563 and $12.023 per unit $ 64,311
The preceding 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: March 9, 1999 By: /s/ J. ROBERT WILKINSON
J. ROBERT WILKINSON
Administrative Committee Member
</TABLE>
