UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY EXCHANGE REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8120
BAIRNCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3057520
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
300 Primera Boulevard, Suite 432, Lake Mary, FL 32746
(Address of principal executive offices) (Zip Code)
(407) 875-2222
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS)
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes No
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each issuer's
classes of common stock, as of the latest practicable date.
7,567,784 shares of Common Stock Outstanding as of July 25, 2000.
"Safe Harbor" Statement under the Private Securities Reform Act
of 1995
Certain of the statements contained in this Quarterly Report
(other than the financial statements and statements of historical
fact), including, without limitation, statements as to management
expectations and beliefs presented under the caption
"Management's Discussion and Analysis of Financial Condition and
Results of Operations", are forward-looking statements. Forward-
looking statements are made based upon management's expectations
and belief concerning future developments and their potential
effect upon the Corporation. There can be no assurance that
future developments will be in accordance with management's
expectations or that the effect of future developments on the
Corporation will be those anticipated by management.
The Corporation wishes to caution readers that the assumptions
which form the basis for forward-looking statements with respect
to or that may impact earnings for the year ended December 31,
2000 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,
disruptions in operations due to labor disputes; changes in the
pricing of the products of the Corporation or its competitors;
the costs and other effects of legal and administrative cases and
proceedings, settlements and investigations; the ability to
achieve anticipated revenue growth, synergies and other cost
savings in connection with acquisitions; 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 the product mix; the loss of a
significant customer or supplier; production delays or
inefficiencies; the costs and other effects of complying with
environmental regulatory requirements; losses due to natural
disasters where the Corporation is self-insured and changes in US
or international economic or political conditions, such as
inflation or fluctuations in interest or foreign exchange rates.
While the Corporation periodically reassesses material trends and
uncertainties affecting the Corporation's results of operations
and financial condition in connection with its preparation of
management's discussion and analysis contained in its quarterly
reports, the Corporation does not intend to review or revise any
particular forward-looking statement referenced herein in light
of future events.
PART I - FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
<TABLE>
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED JULY 1, 2000 AND JULY 3, 1999
(Unaudited)
<CAPTION>
2000 1999
<S> <C> <C>
Net sales $ 48,763,000 $ 42,653,000
Cost of sales 32,428,000 28,171,000
Gross profit 16,335,000 14,482,000
Selling and administrative expenses 11,623,000 10,461,000
Operating profit 4,712,000 4,021,000
Interest expense, net 944,000 515,000
Income before income taxes 3,768,000 3,506,000
Provision for income taxes 1,244,000 1,192,000
Net income $ 2,524,000 $ 2,314,000
Basic earnings per share of common
stock (Note 2) $ 0.33 $ 0.29
Diluted earnings per share of common
stock (Note 2) $ 0.33 $ 0.29
Dividends per share of common stock $ 0.05 $ 0.05
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<TABLE>
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JULY 1, 2000 AND JULY 3, 1999
(Unaudited)
<CAPTION>
2000 1999
<S> <C> <C>
Net sales $ 94,579,000 $ 85,315,000
Cost of sales 62,903,000 56,581,000
Gross profit 31,676,000 28,734,000
Selling and administrative expenses 22,541,000 20,706,000
Operating profit 9,135,000 8,028,000
Interest expense, net 1,627,000 1,082,000
Income before income taxes 7,508,000 6,946,000
Provision for income taxes 2,478,000 2,362,000
Net income $ 5,030,000 $ 4,584,000
Basic earnings per share of common
stock (Note 2) $ 0.65 $ 0.57
Diluted earnings per share of common
stock (Note 2) $ 0.65 $ 0.57
Dividends per share of common stock $ 0.10 $ 0.10
The accompanying notes are an integral part of these financial
statements.
</TABLE>
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE QUARTERS ENDED JULY 1, 2000 AND JULY 3, 1999
(Unaudited)
Note 3
2000 1999
Net income $ 2,524,000 $ 2,314,000
Other comprehensive income, net of tax:
Foreign currency translation adjustment (129,000) (181,000)
Comprehensive income $ 2,395,000 $ 2,133,000
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JULY 1, 2000 AND JULY 3, 1999
(Unaudited)
Note 3
2000 1999
Net income $ 5,030,000 $ 4,584,000
Other comprehensive income, net of tax:
Foreign currency translation adjustment (356,000) (516,000)
Comprehensive income $ 4,674,000 $ 4,068,000
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF JULY 1, 2000 AND DECEMBER 31, 1999
(Unaudited)
2000 1999
ASSETS
Current Assets:
Cash and cash equivalents $ 572,000 $ 660,000
Accounts receivable, less allowances of
$1,498,000 and $1,136,000, respectively 34,467,000 29,107,000
Inventories (Note 4) 30,233,000 25,204,000
Deferred income taxes 4,452,000 4,598,000
Other current assets 2,422,000 3,640,000
Total current assets 72,146,000 63,209,000
Plant and equipment, at cost 114,969,000 101,672,000
Less - Accumulated depreciation (65,931,000) (61,990,000)
Plant and equipment, net 49,038,000 39,682,000
Cost in excess of net assets of purchased
businesses (Note 5) 12,371,000 11,822,000
Other assets 4,858,000 4,432,000
$138,413,000 $119,145,000
LIABILITIES & STOCKHOLDERS' INVESTMENT
Current Liabilities:
Short-term debt $ 4,185,000 $ 4,692,000
Accounts payable 13,646,000 10,719,000
Accrued expenses (Note 6) 14,782,000 14,542,000
Total current liabilities 32,613,000 29,953,000
Long-term debt 42,447,000 26,591,000
Deferred income taxes 6,449,000 5,459,000
Other liabilities 4,594,000 6,975,000
Stockholders' Investment:
Preferred stock, par value $.01, 5,000,000
shares authorized, none issued -- --
Common stock, par value $.01, 30,000,000
shares authorized, 11,248,849 and
11,198,849 shares issued, respectively 112,000 112,000
Paid-in capital 49,494,000 49,235,000
Retained earnings 33,973,000 29,719,000
Accumulated other comprehensive income
(Note 3) 873,000 1,229,000
Treasury stock, at cost, 3,681,065 and
3,402,065 shares, respectively (32,142,000) (30,128,000)
Total stockholders' investment 52,310,000 50,167,000
$138,413,000 $119,145,000
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 1, 2000 AND JULY 3, 1999
(Unaudited)
2000 1999
Cash Flows from Operating Activities:
Net income $ 5,030,000 $ 4,584,000
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 4,502,000 3,688,000
(Gain) loss on disposal of plant and
equipment (6,000) 25,000
Deferred income taxes 1,136,000 226,000
Change in current assets and liabilities:
(Increase) in accounts receivable (4,506,000) (1,396,000)
(Increase) decrease in inventories (3,382,000) 392,000
Decrease (increase) in other current assets 1,206,000 (305,000)
Increase in accounts payable 1,472,000 1,755,000
(Decrease) in accrued expenses (591,000) (583,000)
Other (826,000) (384,000)
Net cash provided by operating activities 4,035,000 8,002,000
Cash Flows from Investing Activities:
Capital expenditures (3,710,000) (2,641,000)
Proceeds from sale of plant and equipment 50,000 2,000
Payment for purchased businesses, net of
cash acquired (13,337,000) --
Net cash (used in) investing activities (16,997,000) (2,639,000)
Cash Flows from Financing Activities:
Net borrowings (repayments) of external debt 15,465,000 (2,472,000)
Payment of dividends (767,000) (806,000)
Purchase of treasury stock (2,014,000) (2,163,000)
Exercise of stock options 250,000 --
Net cash provided by (used in) financing
activities 12,934,000 (5,441,000)
Effect of foreign currency exchange
rate changes on cash and cash equivalents (60,000) (48,000)
Net (decrease) in cash and cash equivalents (88,000) (126,000)
Cash and cash equivalents, beginning of period 660,000 822,000
Cash and cash equivalents, end of period $ 572,000 $ 696,000
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JULY 1, 2000
(Unaudited)
(1) Basis of Presentation
The accompanying consolidated condensed financial statements
include the accounts of Bairnco Corporation and its subsidiaries
("Bairnco" or the "Corporation") after the elimination of all
material intercompany accounts and transactions.
The unaudited consolidated condensed financial statements
included herein have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission for interim
financial reporting. Certain financial information and note
disclosures which are normally included in annual financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
those rules and regulations, although management believes that
the disclosures made are adequate to make the information
presented not misleading. Management believes the financial
statements include all adjustments of a normal and recurring
nature necessary to present fairly the results of operations for
all interim periods presented.
The quarterly financial statements should be read in conjunction
with the December 31, 1999 audited financial statements. The
consolidated results of operations for the quarter and six-month
period ended July 1, 2000 are not necessarily indicative of the
results of operations for the full year.
(2) Earnings per Common Share
Earnings per share data is based on net income and not
comprehensive income. Statements regarding the computation of
earnings per share for the quarters and six month periods ended
July 1, 2000 and July 3, 1999 are included as Exhibit 11.1 and
Exhibit 11.2, respectively, to this Quarterly Report on Form 10-Q.
Basic earnings per common share were computed by dividing net
income by the weighted average number of common shares
outstanding during the period. Diluted earnings per common share
include the effect of all dilutive stock options.
(3) Comprehensive Income
Comprehensive income includes net income as well as certain other
transactions shown as changes in stockholders' investment. For
Bairnco, comprehensive income includes net income plus the change
in net asset values of foreign divisions as a result of
translating the local currency values of net assets to US dollars
at varying exchange rates. Accumulated other comprehensive
income consists solely of foreign currency translation
adjustments. There are currently no tax expenses or benefits
associated with the foreign currency translation adjustments.
(4) Inventories
Inventories consisted of the following as of July 1, 2000 and
December 31, 1999:
2000 1999
Raw materials and supplies $ 7,434,000 $ 5,986,000
Work in process 9,075,000 8,574,000
Finished goods 13,724,000 10,644,000
Total inventories $ 30,233,000 $ 25,204,000
(5) 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 $11,029,000 and $10,298,000 at July 1, 2000 and
December 31, 1999, respectively, is being amortized over 40
years. Accumulated amortization at July 1, 2000 and December 31,
1999, was $2,144,000 and $1,964,000, respectively.
(6) Accrued Expenses
Accrued expenses consisted of the following as of July 1, 2000
and December 31, 1999:
2000 1999
Salaries and wages $ 2,456,000 $ 3,114,000
Income taxes 305,000 550,000
Insurance 3,325,000 3,581,000
Litigation 2,085,000 2,588,000
Other accrued expenses 6,611,000 4,709,000
Total accrued expenses $14,782,000 $14,542,000
Accrued expenses-litigation: The Corporation accrues for the
estimated costs to defend existing lawsuits, claims and
proceedings where it is probable that it will incur such costs in
the future. These non-discounted accruals are management's best
estimate of the most likely cost to defend the litigation based
on discussions with counsel. Such estimates are reviewed and
evaluated in light of ongoing experiences and expectations. Any
changes in estimates from this review process are reflected in
operations currently.
In the fourth quarter of 1998, Bairnco recorded a $7,500,000 pre-
tax provision for litigation costs. The litigation provision
added to the existing reserves for asbestos-related litigation
expenditures due to a change in the estimate to defend the
Transaction Lawsuit (refer to Part II, Item 1. "Legal
Proceedings" of this filing). Through July 1, 2000,
approximately $4.1 million had been spent. The remaining
litigation reserves included in accrued expenses and other long-
term liabilities in the Corporation's consolidated condensed
balance sheet are expected to be spent by the middle of 2002.
These litigation reserves and related time frame for spending
assume a vigorous defense of the case through discovery, summary
judgment motions and trial.
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.
(7) Reportable Segment Data
Bairnco's segment disclosures are prepared in accordance with
Statement of Financial Accounting Standards No. 131. There are
no differences to the 1999 annual report in the basis of
segmentation or in the basis of measurement of segment profit or
loss included herein. Financial information about the
Corporation's operating segments for the second quarter of 2000
and 1999 as required under SFAS 131 is as follows:
2000 Net Sales Operating Profit (Loss)
Arlon $37,790,000 $ 5,264,000
Kasco 10,973,000 518,000
Headquarters -- (1,070,000)
$48,763,000 $ 4,712,000
1999 Net Sales Operating Profit (Loss)
Arlon $30,372,000 $ 3,976,000
Kasco 12,281,000 1,129,000
Headquarters -- (1,084,000)
$42,653,000 $ 4,021,000
Financial information about the Corporation's operating segments
for the six-month periods ended July 1, 2000 and July 3, 1999 as
required by SFAS 131 is as follows:
2000 Net Sales Operating Profit (Loss)
Arlon $72,093,000 $10,148,000
Kasco 22,486,000 889,000
Headquarters -- (1,902,000)
$94,579,000 $ 9,135,000
1999 Net Sales Operating Profit (Loss)
Arlon $60,315,000 $ 7,986,000
Kasco 25,000,000 2,095,000
Headquarters -- (2,053,000)
$85,315,000 $ 8,028,000
The total assets of the segments as of July 1, 2000 and December
31, 1999 are as follows:
2000 1999
Arlon $ 88,561,000 $ 69,915,000
Kasco 40,627,000 39,294,000
Headquarters 9,225,000 9,936,000
$138,413,000 $119,145,000
(8) Contingencies
Bairnco Corporation and its subsidiaries are defendants in
certain legal actions which are discussed more fully in Part II,
Item 1 ("Legal Proceedings") of this filing.
Item 2:MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying Consolidated Condensed Financial Statements and
related notes and with Bairnco's Audited Consolidated Financial
Statements and related notes for the year ended December 31,
1999.
Bairnco Corporation is a diversified multinational company that
operates two distinct businesses under the names Arlon and Kasco.
Engineered materials and components are designed, manufactured
and sold under the Arlon brand identity to electronic, industrial
and commercial markets. These products are based on common
technologies in coating, laminating, polymers and dispersion
chemistry. Arlon's principal products include high performance
materials for the printed circuit board industry, cast and
calendered vinyl film systems, custom-engineered laminates, and
calendered and extruded silicone rubber insulation products used
in a broad range of industrial, consumer and commercial products.
Replacement products and services are manufactured and
distributed under the Kasco name principally to retail food
stores and meat, poultry and fish processing plants throughout
the United States, Canada and Europe. The principal products
include replacement band saw blades for cutting meat, fish, wood
and metal, on site maintenance services, and seasonings for ready-
to-cook foods for the retail food industry primarily in the meat
and deli departments. Kasco also distributes equipment to the
food industry in Canada and France. These products are sold under
a number of brand names including Kasco in the United States and
Canada, Atlantic Service in the United Kingdom, and Bertram &
Graf and Biro in Continental Europe.
Comparison of Second Quarter 2000 to Second Quarter 1999
The results for the second quarter 2000 were improved over last
year's second quarter. Sales in the second quarter 2000 were
$48,763,000, an increase of 14.3% from $42,653,000 in 1999.
Arlon's sales were up 24.4% from last year due to strength of the
electronics and electrical markets and the Signtech acquisition.
Kasco's sales decreased 10.7% due to competitive pressures in the
U.S. markets, reduced meat consumption in European markets and
negative currency translation impact of the strong dollar.
Gross profit increased 12.8% to $16,335,000 from $14,482,000 due
to the increased sales. The gross profit margin as a percent of
sales decreased marginally to 33.5% from 34.0%.
Selling and administrative expenses increased 11.1% to
$11,623,000 from $10,461,000. As a percent of sales, selling and
administrative expenses decreased to 23.8% from 24.5%.
Net interest expense increased to $944,000 in 2000 as compared to
$515,000 in 1999 due to higher average borrowings resulting from
the Signtech acquisition in the first quarter of 2000 and the
continuing program to repurchase Bairnco common stock, and higher
average interest rates. The effective tax rate for the second
quarter of 2000 was 33% versus 34% in 1999. The provision for
income taxes in both periods includes all applicable federal,
state, local, and foreign income taxes.
Net income increased 9.1% to $2,524,000 as compared to $2,314,000
in the second quarter of 1999.
Diluted earnings per common share increased 13.8% to $.33 from
$.29 as a result of improved earnings and the reduced number of
shares outstanding.
Comparison of First Six Months 2000 to First Six Months 1999
Sales for the first half of 2000 were up 10.9% to $94,579,000
from $85,315,000 in 1999 due primarily to the strength of the
electronics market and the Signtech acquisition.
Gross profit increased 10.2% to $31,676,000 from $28,734,000 in
the first half of 1999. The gross profit margin as a percent of
sales decreased slightly to 33.5% from 33.7%.
Selling and administrative expenses increased 8.9% to $22,541,000
from $20,706,000. As a percent of sales, selling and
administrative expenses decreased to 23.8% from 24.3%.
Net interest expense increased to $1,627,000 as compared to
$1,082,000 in the first half of 1999. The effective tax rate for
the first half of 2000 was 33% versus 34% in 1999. The provision
for income taxes in both periods includes all applicable federal,
state, local, and foreign income taxes.
Net income increased 9.7% to $5,030,000 from $4,584,000 and
diluted earnings per common share increased 14.0% to $.65 from
$.57 in 1999.
Acquisition
On February 16, 2000, Bairnco purchased certain assets of the
materials business ("Signtech") of Signtech USA, Ltd. for
approximately $14.5 million. $2.0 million of this amount was
placed in escrow subject to final audit of the acquired inventory
and accounts receivable. The purchase of Signtech was funded with
long-term debt. Signtech manufactures and distributes flexible
reinforced vinyl materials used as the substrate in flexible
faced sign systems. Signtech's products are sold primarily on a
specification basis for corporate specified programs using
various striping, heat transfer and screen print applications.
Signtech's sales for the year ended December 31, 1999 were
approximately $16.0 million. The transaction was accounted for
as a purchase and, accordingly, the operating results of Signtech
have been included in the Corporation's consolidated financial
statements since the date of acquisition. The purchase price was
allocated to the assets acquired based on their estimated fair
values.
During the second quarter 2000, $645,000 of the purchase price
was refunded from escrow based on the final audited values of the
acquired inventory and accounts receivable. The Corporation does
not believe that the final purchase price allocation will differ
significantly from the preliminary purchase price allocation
recorded at February 16, 2000.
Dividend
The second quarter cash dividend of $.05 per share was paid on
June 29, 2000 to stockholders of record on June 5, 2000.
Liquidity and Capital Resources
At July 1, 2000, Bairnco had working capital of $39.5 million
compared to $33.3 million at December 31, 1999. The increase in
accounts receivable and inventories are due to the increased
sales in the second quarter of 2000 versus the fourth quarter of
1999 and the impact of the Signtech acquisition. Other current
assets are down with the realization of the tax receivable in the
first quarter of 2000. The increase in accounts payable is
consistent with the build in inventories and the impact of the
Signtech acquisition.
During the second quarter Bairnco repurchased 137,000 shares of
its common stock at a total cost of $1,000,000. Total shares
repurchased during the first half of 2000 were 279,000. The
Board has authorized management to continue its stock repurchase
program subject to market conditions and capital requirements of
the business.
At July 1, 2000, Bairnco's total debt outstanding was $46,632,000
compared to $31,283,000 at the end of 1999. The increase was
primarily due to the acquisition of Signtech. At July 1, 2000
approximately $25.6 million was available for borrowing under the
Corporation's secured reducing revolving credit agreement, as
amended. In addition, approximately $4.4 million was available
under various short-term domestic and foreign uncommitted credit
facilities.
Bairnco made approximately $1.8 million of capital expenditures
during the second quarter of 2000 bringing the total capital
expenditures for the first half of 2000 to $3.7 million. Total
capital expenditures for 2000 are expected to approximate $8.3
million.
Cash provided by operating activities plus the amounts available
under the existing credit facilities are expected to be
sufficient to fulfill Bairnco's anticipated cash requirements in
2000.
Year 2000 Date Conversion
During the first six months of 2000, the Corporation did not
experience any 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.
Other Matters
Bairnco Corporation and its subsidiaries are defendants in a
number of legal actions and proceedings which are discussed in
more detail in Part II, Item 1 ("Legal Proceedings") of this
filing. Management of Bairnco believes that the disposition of
these actions and proceedings will not have a material adverse
effect on the consolidated results of operations or the financial
position of Bairnco Corporation and its subsidiaries as of July
1, 2000.
Outlook
The outlook for 2000 is for reasonable growth in our traditional
industrial markets with additional growth expected from our
continued penetration in certain market segments, new products
and the Signtech acquisition. Both foreign and domestic
competition remains intense in most markets. Based on the first
half of 2000 results and the trend of the business entering the
third quarter, we expect 2000 to be another year of growth.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The interest on the Corporation's bank debt is floating and based
on prevailing market interest rates. For market rate based debt,
interest rate changes generally do not affect the market value of
the debt but do impact future interest expense and hence earnings
and cash flows, assuming other factors remain unchanged. A
theoretical one-percentage point change in market rates in effect
on July 1, 2000 would increase interest expense and hence reduce
the net income of the Corporation by approximately $310,000 per
year.
The Corporation's fiscal second quarter 2000 sales denominated in
a currency other than U.S. dollars were approximately 10.5% of
total sales and net assets maintained in a functional currency
other than U.S. dollars at July 1, 2000 were approximately 13.8%
of total net assets. The effects of changes in foreign currency
exchange rates has not historically been significant to the
Corporation's operations or net assets.
PART II - OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
Bairnco and its subsidiaries are among the defendants in a
lawsuit pending in the U.S. District Court for the Southern
District of New York (the "Transactions Lawsuit") in which it is
alleged that Bairnco and others are derivatively liable for the
asbestos-related claims against its former subsidiary, Keene
Corporation ("Keene"). The plaintiffs in the Transactions
Lawsuit are the trustees of Keene Creditors Trust ("KCT"), a
successor in interest to Keene. In the Transactions Lawsuit
complaint, the KCT alleges that certain sales of assets by Keene
to other subsidiaries of Bairnco were fraudulent conveyances and
otherwise violative of state law, as well as being violative of
the civil RICO statute, 18 U.S.C. Section 1964. The complaint
seeks compensatory damages of $700 million, interest, punitive
damages, and trebling of the compensatory damages pursuant to
civil RICO. In a series of decisions that remain subject to
appeal, the court has dismissed plaintiff's civil RICO claims;
dismissed 14 of the 21 defendants named in the complaint; and
partially granted defendants' motions for summary judgment on
statute of limitations grounds. Discovery is now underway as to
the remaining claims and defendants. The court has entered a
scheduling order requiring the completion of all discovery
(including expert discovery) by January 18, 2002. A trial date
has not been set, but the Court has scheduled a conference for
January 18, 2002, to determine dates for filing a pretrial order,
for trial, and/or for any pretrial motions. These dates remain
subject to adjustment based upon the progress of discovery.
Keene was spun off in 1990, filed for relief under Chapter 11 of
the Bankruptcy Code in 1993, and emerged from Chapter 11 pursuant
to a plan of reorganization approved in 1996 (the "Keene Plan").
The Keene Plan provided for the creation of the KCT, and
transferred the authority to prosecute the Transactions Lawsuit
from the Official Committee of Unsecured Creditors of Keene
(which initiated the lawsuit in the Bankruptcy Court in 1995) to
the KCT. The Keene Plan further provided that only the KCT, and
no other entity, can sue Bairnco in connection with the claims in
the Transactions Lawsuit complaint. Therefore, although a number
of other asbestos-related personal injury and property damage
cases against Bairnco nominally remain pending in courts around
the country, it is expected that the resolution of the
Transactions Lawsuit in substance will resolve all such claims.
Bairnco also is the defendant in a separate action by the KCT
(the "NOL Lawsuit"), also pending in the United States District
Court for the Southern District of New York, in which the KCT
seeks the exclusive benefit of tax refunds attributable to the
carryback by Keene of certain net operating losses ("NOL
Refunds"), notwithstanding certain provisions of applicable tax
sharing agreements between Keene and Bairnco. (As with the
Transactions Lawsuit, the NOL Lawsuit was commenced during
Keene's Chapter 11 case and, pursuant to the Keene Plan, the KCT
became the plaintiff in the lawsuit and the lawsuit was moved
from the Bankruptcy Court to the District Court.) Pending
resolution of the NOL Lawsuit, any refunds actually received are
to be placed in escrow. Through July 1, 2000, approximately
$28.5 million of NOL Refunds had been received and placed in
escrow. There can be no assurance whatsoever that resolution of
the NOL Lawsuit will result in the release of any portion of the
NOL Refunds to Bairnco.
Bairnco and its Arlon subsidiary ("Arlon") also are among the
defendants in a third action by the KCT (the "Properties
Lawsuit"), commenced December 8, 1998 and pending in the United
States District Court for the Southern District of New York. In
the Properties Lawsuit complaint, the KCT seeks a declaratory
judgment that it owns certain patents and real property purchased
by Arlon from Keene in 1989, based on the allegations that
technical title to these assets was not conveyed at the time of
the sale and that no proof of claim specifically referencing
these assets was filed during Keene's Chapter 11 case. In an
answer and counterclaims, Bairnco and Arlon have denied the KCT's
claims and have requested a declaratory judgment that full title
to the patents and real property in question in fact was
transferred to Arlon at the time of the 1989 asset sale. The
Properties Lawsuit has been transferred to the Transactions
Lawsuit Judge for consolidated discovery and other proceedings.
Management believes that Bairnco has meritorious defenses to all
claims or liability purportedly derived from Keene and that it is
not liable, as an alter ego, successor, fraudulent transferee or
otherwise, for the asbestos-related claims against Keene or with
respect to Keene products.
Bairnco Corporation and its subsidiaries are defendants in a
number of other actions. Management of Bairnco believes that the
disposition of these other actions, as well as the actions and
proceedings described above, will not have a material adverse
effect on the consolidated results of operations or the financial
position of Bairnco Corporation and its subsidiaries as of July
1, 2000.
Item 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
Item 3: DEFAULTS UPON SENIOR SECURITIES
None.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security
holders during the second quarter of 2000.
Item 5: OTHER INFORMATION
None.
Item 6(a): EXHIBITS
Exhibit 11.1 - Calculation of Basic and Diluted Earnings
per Share for the Quarters ended July 1, 2000 and July 3,
1999.
Exhibit 11.2 - Calculation of Basic and Diluted Earnings
per Share for the Six Months ended July 1, 2000 and July
3, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Bairnco has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
BAIRNCO CORPORATION
(Registrant)
/s/ James W. Lambert
James W. Lambert
Vice President Finance and Treasurer
(Chief Financial Officer)
DATE: August 4, 2000
EXHIBITS
TO FORM 10-Q
FOR QUARTER ENDED
July 1, 2000
