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 September 30, 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.
7,450,884 shares of Common Stock Outstanding as of October 27, 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, the
costs and other effects of legal and administrative cases and
proceedings, settlements and investigations; changes in the
pricing of the products of the Corporation or its competitors;
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 ability to achieve anticipated revenue
growth, synergies and other cost savings in connection with
acquisitions; disruptions in operations due to labor disputes;
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
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
(Unaudited)
2000 1999
Net sales $ 46,781,000 $42,130,000
Cost of sales 32,189,000 28,945,000
Gross profit 14,592,000 13,185,000
Selling and administrative expenses 10,732,000 9,768,000
Operating profit 3,860,000 3,417,000
Interest expense, net 916,000 516,000
Income before income taxes 2,944,000 2,901,000
Provision for income taxes 971,000 888,000
Net income $ 1,973,000 $ 2,013,000
Earnings Per Share of Common Stock (Note 2):
Basic $ 0.26 $ 0.25
Diluted $ 0.26 $ 0.25
Weighted Average Number of Shares Outstanding:
Basic 7,513,000 7,895,000
Diluted 7,638,000 8,020,000
Dividends per share of common stock $ 0.05 $ 0.05
The accompanying notes are an integral part of these financial statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
(Unaudited)
2000 1999
Net sales $ 141,360,000 $127,445,000
Cost of sales 95,092,000 85,526,000
Gross profit 46,268,000 41,919,000
Selling and administrative expenses 33,273,000 30,474,000
Operating profit 12,995,000 11,445,000
Interest expense, net 2,543,000 1,598,000
Income before income taxes 10,452,000 9,847,000
Provision for income taxes 3,449,000 3,250,000
Net income $ 7,003,000 $ 6,597,000
Earnings Per Share of Common Stock (Note 2):
Basic $ 0.92 $ 0.82
Diluted $ 0.91 $ 0.82
Weighted Average Number of Shares Outstanding:
Basic 7,626,000 8,005,000
Diluted 7,737,000 8,073,000
Dividends per share of common stock $ 0.15 $ 0.15
The accompanying notes are an integral part of these financial statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE QUARTERS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
(Unaudited)
Note 3
2000 1999
Net income $ 1,973,000 $ 2,013,000
Other comprehensive income, net of tax:
Foreign currency translation adjustment (361,000) 246,000
Comprehensive income $ 1,612,000 $ 2,259,000
The accompanying notes are an integral part of these financial statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
(Unaudited)
Note 3
2000 1999
Net income $ 7,003,000 $ 6,597,000
Other comprehensive income, net of tax:
Foreign currency translation adjustment (717,000) (270,000)
Comprehensive income $ 6,286,000 $6,327,000
The accompanying notes are an integral part of these financial statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(Unaudited)
2000 1999
ASSETS
Current Assets:
Cash and cash equivalents $ 745,000 $ 660,000
Accounts receivable, less allowances of
$1,590,000 and $1,136,000, respectively 34,048,000 29,107,000
Inventories (Note 5) 28,570,000 25,204,000
Deferred income taxes 4,451,000 4,598,000
Other current assets 2,194,000 3,640,000
Total current assets 70,008,000 63,209,000
Plant and equipment, at cost 115,672,000 101,672,000
Less - Accumulated depreciation (67,995,000) (61,990,000)
Plant and equipment, net 47,677,000 39,682,000
Cost in excess of net assets of purchased
businesses (Note 6) 12,791,000 11,822,000
Other assets 5,141,000 4,432,000
$ 135,617,000 $ 119,145,000
LIABILITIES & STOCKHOLDERS' INVESTMENT
Current Liabilities:
Short-term debt $ 5,256,000 $ 4,692,000
Accounts payable 12,465,000 10,719,000
Accrued expenses (Note 7) 14,367,000 14,542,000
Total current liabilities 32,088,000 29,953,000
Long-term debt 40,834,000 26,591,000
Deferred income taxes 6,442,000 5,459,000
Other liabilities 3,586,000 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 49,485,000 49,235,000
Retained earnings 35,582,000 29,719,000
Accumulated other comprehensive income (Note 3) 512,000 1,229,000
Treasury stock, at cost, 3,797,965 and 3,402,065
shares, respectively (33,024,000) (30,128,000)
Total stockholders' investment 52,667,000 50,167,000
$135,617,000 $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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
(Unaudited)
2000 1999
Cash Flows from Operating
Activities:
Net income $ 7,003,000 $ 6,597,000
Adjustments to reconcile to net cash provided by
Operating activities:
Depreciation and amortization 6,985,000 5,578,000
(Gain) loss on disposal of plant and equipment (14,000) 75,000
Deferred income taxes 1,130,000 6,000
Change in current assets and liabilities:
(Increase)decrease in accounts receivable (4,332,000) (3,596,000)
(Increase)decrease in inventories (2,575,000) 1,523,000
Decrease (increase)in other current assets 1,420,000 (989,000)
Increase in accounts payable 440,000 1,916,000
(Decrease)in accrued expenses 83,000 902,000
Other (3,127,000) (1,091,000)
Net cash provided by operating activities 7,013,000 10,921,00
Cash Flows from Investing Activities:
Capital expenditures (4,798,000) (4,354,000)
Proceeds from sale of plant and equipment 61,000 2,000
Payment for purchased business, net of cash
acquired (13,337,000) --
Net cash (used in) investing activities (18,074,000) (4,352,000)
Cash Flows from Financing Activities:
Net borrowings (repayments)of external debt 15,072,000 (2,991,000)
Payment of dividends (1,140,000) (1,201,000)
Purchase of treasury stock (2,896,000) (2,233,000)
Exercise of stock options 250,000 70,000
Net cash provided by (used in)financing
activities 11,286,00 (6,355,000)
Effect of foreign currency exchange rate changes on
Cash and cash equivalents (140,000) (82,000)
Net increase in cash and cash equivalents 85,000 132,000
Cash and cash equivalents, beginning of period 660,000 822,000
Cash and cash equivalents, end of period $ 745,000 $ 954,000
The accompanying notes are an integral part of these financial statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 consolidated financial
statements. The consolidated results of operations for the
quarter and nine-month period ended September 30, 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 nine month periods ended
September 30, 2000 and October 2, 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) Financial Instruments
Statement of Financial Accounting Standards No. 133 ("SFAS No.
133") "Accounting for Derivative Instruments and Hedging
Activities", as amended by Statement of Financial Accounting
Standards No. 138 "Accounting for Certain Derivative Instruments
and Certain Hedging Activities - an Amendment of FASB Statement
No. 133", establishes accounting and reporting standards for
derivative instruments and for hedging activities. Statement of
Financial Accounting Standards No. 137 "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective
Date of FASB Statement No. 133 -- an Amendment of FASB Statement
No. 133", defers the effective date of SFAS No. 133 until January
2001 for the Corporation. Based on its current limited use of
derivatives, the Company expects no material impact on its
financial condition or results of operations upon adoption of
SFAS No. 133 on January 1, 2001.
(5) Inventories
Inventories consisted of the following as of September 30, 2000
and December 31, 1999:
2000 1999
Raw materials and supplies $ 6,672,000 $ 5,986,000
Work in process 8,662,000 8,574,000
Finished goods 13,236,000 10,644,000
Total inventories $ 28,570,000 $ 25,204,000
(6) 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 $11,542,000 and $10,298,000 at September 30, 2000 and
December 31, 1999, respectively, is being amortized over 40
years. Accumulated amortization at September 30, 2000 and
December 31, 1999, was $2,238,000 and $1,964,000, respectively.
(7) Accrued Expenses
Accrued expenses consisted of the following as of September 30,
2000 and December 31, 1999:
2000 1999
Salaries and wages $ 2,550,000 $ 3,114,000
Income taxes 133,000 550,000
Insurance 3,154,000 3,581,000
Litigation 1,980,000 2,588,000
Other accrued expenses 6,550,000 4,709,000
Total accrued expenses $ 14,367,000 $ 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 and
could substantially exceed the current best estimates which would
have a material impact on the results of operations of the period
in which the change in estimate was recorded. 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 September 30, 2000,
approximately $5.3 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, and the related time frame for spending assume a
vigorous defense of the case through discovery, summary judgment
motions and trial at the end of 2002.
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.
(8) 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 third quarter of 2000
and 1999 as required under SFAS 131 is as follows:
2000 Net Sales Operating Profit (Loss)
Arlon $36,890,000 $4,982,000
Kasco 9,891,000 (213,000)
Headquarters -- (909,000)
$46,781,000 $3,860,000
1999 Net Sales Operating Profit (Loss)
Arlon $30,222,000 $3,751,000
Kasco 11,908,000 794,000
Headquarters -- (1,128,000)
$42,130,000 $3,417,000
Financial information about the Corporation's operating segments
for the nine-month periods ended September 30, 2000 and October
2, 1999 as required by SFAS 131 is as follows:
2000 Net Sales Operating Profit (Loss)
Arlon $108,983,000 $15,130,000
Kasco 32,377,000 676,000
Headquarters -- (2,811,000)
$141,360,000 $12,995,000
1999 Net Sales Operating Profit (Loss)
Arlon $90,537,000 $11,737,000
Kasco 36,908,000 2,889,000
Headquarters -- (3,181,000)
$127,445,000 $11,445,000
The total assets of the segments as of September 30, 2000 and
December 31, 1999 are as follows:
2000 1999
Arlon $ 88,432,000 $ 69,915,000
Kasco 38,713,000 39,294,000
Headquarters 8,472,000 9,936,000
$ 135,617,000 119,145,000
(9) 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 determined values of the
acquired inventory and accounts receivable. During the third
quarter of 2000, the Corporation adjusted the preliminary
purchase price allocation by adding an additional $600,000 to
cost in excess of net assets of purchased businesses related to
overvalued inventory.
(10) Contingencies
Bairnco Corporation and its subsidiaries are defendants in
certain legal actions which are discussed more fully in Part II,
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 Third Quarter 2000 to Third Quarter 1999
Sales in the third quarter 2000 were $46,781,000, an increase of
11.0% from $42,130,000 in 1999. Arlon's sales of $36,890,000 were
up 22.1% from last year due to the strength of the electronics
and electrical markets and the inclusion of the first quarter
2000 acquisition. Kasco's sales decreased 16.9% to $9,891,000 as
compared to the third quarter of 1999. Kasco's US operations
continued to experience significant competitive pressures
resulting in lost sales and overall reduced pricing. Kasco's
European operations also reported reduced operating results due
to the negative currency translation impact of the strong dollar
and reduced meat consumption. As a result, the Kasco segment
reported a loss for the third quarter of 2000. Kasco began making
changes to its structure during the second and third quarters of
2000 to reduce costs.
Gross profit increased 10.7% to $14,592,000 from $13,185,000 due
to the increased sales. The gross profit margin as a percent of
sales decreased slightly to 31.2% from 31.3%.
Selling and administrative expenses increased 9.9% to $10,732,000
from $9,768,000. As a percent of sales, selling and
administrative expenses decreased to 22.9% from 23.2%.
Net interest expense increased to $916,000 in 2000 as compared to
$516,000 in 1999 due to higher average borrowings resulting from
the first quarter 2000 acquisition and the continuing program to
repurchase Bairnco common stock, and higher average interest
rates.
Income before income taxes increased 1.5% to $2,944,000 from
$2,901,000. However, due to a 33.0% effective tax rate in this
third quarter as compared to 30.6% in the third quarter last
year, net income decreased 2.0% to $1,973,000 as compared to
$2,013,000 in the third quarter of 1999. The provision for
income taxes in both periods includes all applicable federal,
state, local, and foreign income taxes.
Diluted earnings per common share increased 4.0% to $.26 from
$.25 as a result of the reduced number of shares outstanding.
Comparison of First Nine Months 2000 to First Nine Months 1999
Sales for the first nine months of 2000 were up 10.9% to
$141,360,000 from $127,445,000 in 1999 due primarily to the
strength of the electronics market and the Signtech acquisition.
Gross profit increased 10.4% to $46,268,000 from $41,919,000 in
the first nine months of 1999. The gross profit margin as a
percent of sales decreased slightly to 32.7% from 32.9%.
Selling and administrative expenses increased 9.2% to $33,273,000
from $30,474,000. As a percent of sales, selling and
administrative expenses decreased to 23.5% from 23.9%.
Net interest expense increased to $2,543,000 as compared to
$1,598,000 in the first nine months of 1999. The effective tax
rate for the first nine months of 2000 and 1999 was 33%. The
provision for income taxes in both periods includes all
applicable federal, state, local, and foreign income taxes.
Net income increased 6.2% to $7,003,000 from $6,597,000 and
diluted earnings per common share increased 11.0% to $.91 from
$.82 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 determined values of the
acquired inventory and accounts receivable. During the third
quarter of 2000, the Corporation adjusted the preliminary
purchase price allocation by adding an additional $600,000 to
cost in excess of net assets of purchased businesses related to
overvalued inventory.
Dividend
The third quarter cash dividend of $.05 per share was paid on
September 28, 2000 to stockholders of record on September 5,
2000.
Liquidity and Capital Resources
At September 30, 2000, Bairnco had working capital of $37.9
million compared to $33.3 million at December 31, 1999. The
increase in accounts receivable is due to the increased sales in
the third quarter of 2000 versus the fourth quarter of 1999 and
the impact of the Signtech acquisition. The increase in
inventories is primarily related to the Signtech acquisition.
Other current assets are down with the collection of the tax
receivable in the first quarter of 2000. The increase in
accounts payable is consistent with the impact of the Signtech
acquisition and the timing of payments to vendors.
During the third quarter Bairnco repurchased 116,900 shares of
its common stock at a total cost of $882,000. Total shares
repurchased during the first nine months of 2000 were 395,900.
The Board has authorized management to continue its stock
repurchase program subject to market conditions and capital
requirements of the business.
At September 30, 2000, Bairnco's total debt outstanding was
$46,090,000 compared to $31,283,000 at the end of 1999. The
increase was primarily due to the acquisition of Signtech. At
September 30, 2000 approximately $26.7 million was available for
borrowing under the Corporation's secured reducing revolving
credit agreement, as amended. In addition, approximately $3.2
million was available under various short-term domestic and
foreign uncommitted credit facilities.
Bairnco made approximately $1.1 million of capital expenditures
during the third quarter of 2000 bringing the total capital
expenditures for the first nine months of 2000 to approximately
$4.8 million. Total capital expenditures for 2000 are expected to
approximate $7.0 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 nine 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
September 30, 2000.
Outlook
For the remainder of 2000, while we anticipate continued growth
in Arlon's markets and contributions from new products and the
Signtech acquisition, the strong U.S. dollar will again have a
negative impact on our sales and earnings. This is due both to
the effect of exchange rates on our foreign sales and earnings,
as well as price reductions to remain competitive in export
markets. Kasco is expected to report additional losses in the
fourth quarter as it reengineers its business to meet the changes
in its market place. Based on the operating results for the
first nine months of 2000 and the trend of the business entering
the fourth quarter, we expect the consolidated results for 2000
to reflect 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 September 30, 2000 would increase interest expense and hence
reduce the net income of the Corporation by approximately
$310,000 per year.
The Corporation's fiscal third quarter 2000 sales denominated in
a currency other than U.S. dollars were approximately 10.3% of
total sales and net assets maintained in a functional currency
other than U.S. dollars at September 30, 2000 were approximately
16.4% 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 September 30, 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
September 30, 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 third 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 September 30, 2000 and
October 2, 1999.
Exhibit 11.2 - Calculation of Basic and Diluted Earnings
per Share for the Nine Months ended September 30, 2000
and October 2, 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: October 27, 2000
EXHIBITS
TO FORM 10-Q
FOR QUARTER ENDED
September 30, 2000
