BAIRNCO CORPORATION
1999 ANNUAL REPORT
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 13
Report of Independent Certified Public Accountants 14
Consolidated Financial Statements 15
Notes to Consolidated Financial Statements 19
FINANCIAL HIGHLIGHTS
Percent Change
(In thousands except per share data) 1999 1998 1997 99/98 98/97
Net Sales $168,881 $156,456 $158,708 8% (1%)
Operating Profit $ 15,002 $ 4,529 $ 15,592 231% (71%)
Net Income $ 8,641 $ 1,594 $ 8,771 442% (82%)
Diluted Earnings per Share $ 1.08 $ 0.18 $ 0.94 500% (81%)
Cash Dividends per Share $ 0.20 $ 0.20 $ 0.20 0% 0%
Stockholders' Investment per
Average Diluted Common Share
Outstanding $ 6.24 $ 5.27 $ 5.61 18% (6%)
Total Assets $119,145 $118,555 $109,286 0% 8%
Stockholders' Investment $ 50,167 $ 46,438 $ 52,469 8% (11%)
Average Diluted Common Shares
Outstanding 8,038 8,818 9,350 (9%) (6%)
(Data for Bar Charts for Five Years 1995 to 1999; in 000's)
Year Net Sales Operating Profit Net Income Diluted Earnings
per Share
1995 $150,507 $14,633 $7,781 $0.75
1996 $150,234 $14,956 $8,335 $0.85
1997 $158,708 $15,592 $8,771 $0.94
1998 $156,456 $ 4,529 $1,594 $0.18
1998(a) $156,456 $12,029 $6,320 $0.72
1999 $168,881 $15,002 $8,641 $1.08
(a) Prior to impact on operating profit, net income and diluted earnings
per share of $7.5 million (pre-tax) provision for litigation costs in the
fourth quarter of 1998.
LETTER TO OUR STOCKHOLDERS
1999 was a good year for Bairnco. Sales and earnings increased.
Productivity improved. Our management team was further strengthened and
deepened. The MII acquisition made at the end of 1998 was smoothly
integrated into Arlon. Subsequent to year-end, we acquired Signtech and
increased Bairnco's credit facility to $75 million. We continue to
repurchase our stock. Bairnco's financial condition remains strong. 2000 is
expected to be a year of continued growth in sales and earnings.
FINANCIAL RESULTS
1999 consolidated sales increased 7.9% to $168,881,000. Sales from new
products developed in the past five years accounted for 12.8% of total
sales in 1999 compared to 8.0% of sales in 1998. Bairnco's goal is to have
25% of annual sales from new products developed and acquired within the
last five years.
In 1999, gross profit increased 9.0% to $55,147,000 with gross profit
margins improving to 32.7% from 32.3% last year. A number of our
operational teams made significant improvements. Productivity improved 8.2%
as measured by sales per employee which increased to $205,950 from
$190,340. This accomplishment was due to the efforts of all our employees.
Selling and administrative expenses increased 4.1% to $40,145,000 in 1999
compared to $38,554,000 in 1998, excluding the $7,500,000 provision for
litigation costs taken in 1998. As a percent of sales, these expenses were
reduced to 23.8% from 24.6% in 1998. Research and development expenses
increased 19.3% as Bairnco invested in the development of new products and
improved quality.
Earnings before interest and taxes were $15,002,000, up 24.7% from
$12,029,000 excluding the provisions for litigation costs in 1998. The
growth is primarily attributable to increased gross profit and controlled
expenses.
Income before taxes increased to $12,898,000 from $2,531,000 in 1998.
Net income increased to $8,641,000 or $1.08 per share from $1,594,000 or
$.18 per share in 1998. The provision for litigation costs reduced net
income in 1998 by $4,726,000, or approximately $.54 diluted earnings per
common share. The diluted average number of shares outstanding in 1999 was
8,038,000 an 8.8% decrease from 8,818,000 diluted average shares
outstanding in 1998.
ACQUISITION
On February 16, 2000, Bairnco purchased certain assets of the materials
business ("Signtech") of Signtech USA, Ltd. for approximately $14.5
million. Signtech's sales for the year ended December 31, 1999 were
approximately $16.0 million.
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 has a strong presence in international markets.
The acquisition will complement 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 will also expand Arlon's coating and
converting capacity.
FINANCIAL MANAGEMENT
Return on capital employed increased to 11.9% from 8.9% last year and
return on stockholders' investment in 1999 increased to 18% compared to
12.4% last year. The 1998 returns exclude the impact of the provision for
litigation costs.
In 1999, Bairnco's Board of Directors authorized the repurchase of up to
$5,000,000 of its common stock. This was in addition to still unused prior
authorizations of $2.6 million as of January 1, 1999. During the year the
company repurchased 497,900 shares for $2.9 million. The Board has
authorized management to continue its stock repurchase program in 2000
subject to market conditions and capital requirements of the business. At
year-end $4.7 million was available for additional stock repurchases. The
Board may consider additional authorizations if appropriate during the
year.
Subsequent to year-end, Bairnco amended its secured reducing revolving
credit agreement. The amendment effectively extended the expiration date
from December 31, 2003 to February 22, 2005, and increased the credit
facility from $50 million at December 31, 1999 to $75 million. After the
Signtech acquisition approximately $27 million was unused and available
under the credit agreement.
Working capital management improved during the year. Working capital as a
percent of sales decreased from 21.3% to 19.7%.
Net cash flows provided by operating activities were $15,668,000. These
cash flows were more than sufficient to cover operating requirements, fund
Bairnco's capital expenditure program, pay dividends, purchase treasury
stock, while still permitting us to reduce debt by $6,391,000. Consequently
1999 total debt decreased to $31,283,000 from $37,844,000 at the end of
1998. Debt as a percent of equity decreased to 62.4% from 81.5% in 1998.
Bairnco made $5,670,000 of capital expenditures in 1999 as compared to its
plan of approximately $8.2 million. Capital expenditures were focused on
cost reduction projects, equipment replacements, and new information
systems software and hardware that were installed during the year.
Total capital expenditures in 2000 are expected to be approximately $8.9
million. Depreciation and amortization is estimated to be approximately
$8.0 million. The planned capital expenditures include quality
improvements, cost reduction projects replacements, new product
developments, new processing equipment, information systems hardware and
software, and limited capacity additions.
DIVIDEND
The quarterly $.05 per share cash dividend was maintained during the year.
MANAGEMENT
There were significant positive additions and changes in the Bairnco
management team.
Larry D. Smith became Vice President of Administration and Secretary of
Bairnco on April 26, 1999. He is responsible for our human resources
functions, coordination of the Six-Sigma program, and administration. Larry
came to Bairnco from Emerson Electric where he most recently was Vice
President, Human Resources, Therm-o-Disc, Inc. He previously was Corporate
Director, Employee Relations and Communications, with Emerson Electric
Company at the corporate headquarters in St. Louis, MO.
J. Robert Wilkinson, Vice President Finance and Treasurer, made the
decision to retire from Bairnco effective March 31, 2000. Bob assumed the
title Chief Financial Officer Emeritus effective December 31, 1999. Bob
has been with Bairnco fourteen years. He has made many contributions to the
Company. We all will miss him and wish him many happy years in retirement.
Bob developed a strong financial team at Bairnco which has resulted in a
seamless transition. Consequently, effective December 31, 1999, Jim
Lambert, Controller, was promoted to Vice President Finance and Treasurer
of Bairnco Corporation, and Larry Maingot, Assistant Controller, was
promoted to Controller of Bairnco Corporation.
Brian E. Turner became President of Kasco on November 10, 1999. Brian came
to Kasco from Allied Signal, Inc. where he was a Director of Marketing. His
experience includes an overseas assignment as the Managing Director of an
operation in the Netherlands.
During 1999 the management development program, which is one of the keys to
our future success, continued to make progress in all operations. Further
additions and changes were made to continue to strengthen operations
management which has lead to continuous improvement in efficiencies. We
have strengthened our sales and marketing teams to further penetrate
certain market segments. The development of management talent is an
essential ingredient to both internal and acquisition growth. The ongoing
improvement and development of all our employees remains a critical and
never-ending element for Bairnco's success.
During 1999, the Six-Sigma program was expanded to most of our operations
as part of our continuous improvement program. The initial training is
complete and we began to see the benefits from specific programs. For
2000, additional projects have been selected and training will be expanded.
We expect this program to accelerate the yields from our continuous
improvement program.
OUTLOOK
In 2000 we expect "GDP" type growth in most of our industrial markets
served assuming the Federal Reserve negotiates a gentle slowing of the
economy. Additional growth is expected from continued penetration in
certain market segments, new products and the Signtech acquisition.
Earnings are expected to grow both from improved sales and improved
productivity.
The continuing dedication and excellent performance of our teammates
remains the key to our past and future success. We are all dedicated to
making 2000 a year of continuing improvement.
Respectfully yours,
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 strong technical sales representatives in the
U.S. and through distributors and manufacturers representatives in Europe,
the Far East, and South America, supported by direct technical sales
specialists in Europe and Asia.
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 are highly reliable, withstand
high continuous or widely varying operating temperatures, provide ease of
field repairability, and improve board fabrication yields. Other specialty
laminates, many of which are based on specialized resin-coated substrates
provide improved product reliability and ease of manufacture for wireless
and high density interconnect (HDI) applications at a lower cost than
alternative technologies. Electronic Substrates also offers a very broad
line of specialized prepregs for heat sink bonding, use in flex-rigid
boards, for metal core board hole-filling, and other specialized printed
wire board applications. These materials can be tailored to the specific
applications for which they are used.
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. These PTFE laminates are also offered with bonding plies for
multi-layer applications. The applications for this product line include
microwave antennas, digital cordless telephones, cellular phone handsets,
cellular phone base stations, direct broadcast satellite TV systems,
personal communications networks, global positioning satellites, local area
networks, collision avoidance systems, and radar detection systems. With
the continuing proliferation of wireless applications there will be
continued aggressive growth opportunities for the Microwave product line.
Progress continued both in new PTFE product line extensions and further
commercialization of recently developed products serving the wireless
market:
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,
is targeted for commercial electronics. This product is currently being
used in cellular phones, Direct Broadcast Satellite TV, and cellular
antennas.
Arlon's Thermount nonwoven, aramid reinforced materials offer many
advantages for specialty applications at a more attractive cost-
performance ratio than woven aramids or buried metal cores.
Applications include cellular phones and other telecom uses, as well as
military and commercial avionics and missile systems.
Arlon's AD Series substrate materials, a specialized PTFE based laminate
family that offers all the performance characteristics of PTFE with
lower cost, is targeted for higher volume commercial applications.
Arlon's 33N and 35N polyimide laminate systems provide high temperature
capability for applications involving extreme environments. These products
are used in military hardware boards and semiconductor burn-in circuit
boards.
PHOTO - Advances in printed circuit boards are requiring higher quality
materials. In order to meet these demands, Arlon must continuously improve
its clean room technology. Lay-up operators at the Rancho Cucamonga, CA
facility assemble Arlon's polyimide laminates for pressing using a newly
installed tacking machine which removes minute particles of contamination
from the press plates used in the manufacturing process.
Arlon 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.
PHOTO - Arlon's 22T Series films, manufactured at the Northbrook, Illinois
facility, are designed for easy removal after up to 2 years of rugged
outdoor use. The films are ideal for markings on leased fleets and
containers, advertisements on motor and railway coaches, billboards,
signage, and point-of-purchase displays.
We have continued to invest in new product development and to improve the
quality of our current product line. During 1999 we developed an improved
adhesive system for our cast translucent vinyl which improves efficiencies
to our customers when manufacturing sign faces. Arlon also undertook a
significant program to expand the range of available colors and specialty
face stocks to broaden our product offering to meet the needs of several
new customers.
PHOTO - With its equipment and product upgrades, and its material
compatability programs, Arlon has begun penetrating the corporate
specification markets as evidenced by the KFC program observed above.
Arlon's translucent vinyl films manufactured at the Santa Ana, CA facility,
were written into the KFC program specifications along with Cooley's
flexface material.
In February of 2000 Arlon announced it had purchased certain assets of the
materials business ("Signtech") of Signtech USA, Ltd., a manufacturer of
laminated vinyl fabrics designated for use in the commercial graphics
market. Signtech'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.
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 - The newly installed automatic windup on the silicone calender at
the Bear, DE plant has increased throughput while significantly improving
the quality of the product. The automatic windup senses changes in tension
and automatically makes continuous adjustments throughout the run.
PHOTO - New semi-automatic barrel-feeding equipment allows the operator to
concentrate on in-line inspection to ensure quality product from the
silicone tape extruding line at the Bear, DE plant.
Arlon manufactures a line of silicone rubber materials used in a broad
range of consumer, industrial and commercial products. Typical
applications and products include:
Silicone sheet rubber for producing composite parts
Silicone rubber insulating tapes for electric traction motor coil windings
Insulation for industrial and commercial flexible heaters
Silicone products for high temperature hose and duct markets
Insulating tape for medium and high voltage electrical splices and
terminations
Compliant, thermally or electrically conductive silicone sheet adhesive
known as ThermabondT
In 2000 we will focus application development efforts on a new high
temperature UL approved compound, foil laminated heater products, high
performance hose and duct materials and retail opportunities for fusible
tape applications.
Kasco Replacement Products and Services
Kasco is a leading manufacturer and distributor of products and services to
the meat, deli and seafood departments of supermarkets; to meat, poultry
and fish processing plants; and to manufacturers and distributors of
electrical saws and cutting equipment throughout the United States, Canada
and Europe. These products and services include:
Band saw blades for cutting meat and fish
Saw blades for cutting wood and metal
Chopper plates and knives for grinding meat
Electrical saws and cutting machines
Seasoning products
Preventive maintenance for equipment in meat and deli operations
Other related butcher supply products.
Kasco has manufacturing operations in St. Louis, Missouri; Gwent, Wales,
United Kingdom; and Pansdorf, Germany. In addition, there are distribution
facilities in Montreal, Canada and Paris, France.
Kasco has a significant distribution network that reaches over 30,000
retail grocery stores, restaurants, delis, and processing plants in the US,
Canada, Europe, Latin America and Asia. Kasco's distribution network is
made up of Territory Managers and Distributors who have in-depth knowledge
of the local markets and the customer's needs. Kasco has an extensive
training program for its Territory Managers so that each is proficient in
the installation, repair, and service of meat, deli and seafood department
equipment.
Within our extensive market coverage of retail grocery stores, Kasco also
offers a unique product offering of seasoning blends, recipes and
instructions under the tradename Mealtime SolutionsT, which allows a
supermarket to present value-added products in their meat, deli and seafood
departments. The Mealtime SolutionsT seasoning program continues to be a
success as sales for home meal replacement items within supermarkets
increase.
PHOTO - Kasco's Mealtime SolutionsT 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 its customers.
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 *
CEO
LiveInsurance.com
* Audit Committee member
Management:
1.Robert M. Carini
Vice President
Arlon, Inc.
2.James W. Lambert
Vice President Finance & Treasurer
Bairnco Corporation
3.Lawrence C. Maingot
Controller
Bairnco Corporation
4.Elmer G. Pruim
Vice President
Arlon, Inc.
5.Larry D. Smith
Vice President Administration & Secretary
Bairnco Corporation
6.Brian E. Turner
President
Kasco Corporation
FINANCIAL HISTORY
1999 1998 1997 1996 1995
Summary of Operations
($ in thousands)
Net sales $168,881 156,456 158,708 150,234 150,507
Gross profit $ 55,147 50,583 53,996 52,536 53,317
Operating profit $ 15,002 4,529 15,592 14,956 14,633
Interest expense, net $ 2,104 1,998 1,834 1,725 2,026
Income before income taxes $ 12,898 2,531 13,758 13,231 12,607
Provision for income taxes $ 4,257 937 4,987 4,896 4,826
Net income $ 8,641 1,594 8,771 8,335 7,781
Return from operations on:
Net sales % 5.1 1.0 5.5 5.5 5.2
Stockholders' investment % 18.0 3.1 17.4 17.2 16.7
Capital employed % 11.9 3.3 12.2 12.3 11.9
Year-End Position
($ in thousands)
Working capital $ 33,256 33,259 35,712 30,341 28,350
Plant and equipment, net $ 39,682 41,402 39,913 38,276 34,449
Total assets $119,145 118,555 109,286 102,600 98,196
Total debt $ 31,283 37,844 30,318 28,179 24,578
Stockholders' investment $ 50,167 46,438 52,469 49,464 48,024
Capital employed $ 81,450 84,282 82,787 77,643 72,602
Per Common Share Data
Income from continuing
operations - Basic $ 1.08 0.18 0.96 0.85 0.75
- Diluted $ 1.08 0.18 0.94 0.85 0.75
Cash dividend $ 0.20 0.20 0.20 0.20 0.20
Stockholders' investment $ 6.43 5.61 5.83 5.25 4.74
Market price:
High $ 8 11-3/8 11-1/4 8-1/2 6
Low $ 4-5/8 5-9/16 6-3/8 5-1/2 3-7/8
Other Data (in thousands)
Depreciation and amortization $ 7,365 6,688 6,516 6,305 6,314
Capital expenditures $ 5,670 5,976 8,789 10,131 4,831
Average common shares outstanding 7,965 8,655 9,151 9,753 10,433
Diluted common shares outstanding 8,038 8,818 9,350 9,851 10,440
Current ratio 2.1 2.2 2.6 2.4 2.2
Number of common stockholders 1,356 1,436 1,574 1,773 1,967
Average number of employees 820 822 850 825 874
Sales per employee $205,950 190,340 186,710 182,100 172,200
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 15.
Results of Operations: 1999 Compared to 1998
1999 consolidated sales increased 7.9% to $168,881,000 from $156,456,000 in
1998. Arlon's sales increased 12.0%, due to the full year effect of the
acquisition made late in 1998, the rebound in most markets from the
depressed conditions due to the Asian crisis in 1998, and further
penetration in new market segments. Kasco's sales declined 1.0% due to
competitive pressures in the North American base business, the currency
translation effect of the strong dollar and lower demand in the European
markets for selected products.
In 1999, gross profit increased 9.0% to $55,147,000 from $50,583,000 in the
prior year with gross profit margins improving to 32.7% from 32.3% last
year. Gross profit increased at Arlon as the result of the 1998
acquisition and improved sales and manufacturing efficiencies. Kasco's
gross profit improved slightly as better manufacturing cost performance
offset the sales decline.
Selling and administrative expenses increased 4.1% to $40,145,000 in 1999
compared to $38,554,000 in 1998, excluding the $7,500,000 provision for
litigation costs taken in 1998. As a percent of sales, these expenses
declined to 23.8% from 24.6% in 1998. Research and development expenses
increased 19.3% as Bairnco invested in the development of new products and
improved quality. The average number of employees was essentially
unchanged from last year. Productivity as measured by sales per employee
increased 8.2%.
Earnings before interest and taxes were $15,002,000, up significantly from
$4,529,000 in 1998. The improvement is attributable to higher gross profit
and the effect of the $7,500,000 provision for litigation costs on 1998
results.
Net interest expense increased to $2,104,000 from $1,998,000 in 1998. The
increase was due to increased average debt outstanding primarily resulting
from the acquisition in the fourth quarter of 1998.
Income before income taxes increased to $12,898,000 as compared to
$2,531,000 in 1998. The effective tax rate was 33% compared to 37% in 1998
due to the implementation of tax planning strategies and increase in the
Foreign Sales Corporation tax benefit. The provision for income taxes in
both years includes all applicable federal, state, local and foreign income
taxes.
Net income increased to $8,641,000 from $1,594,000 in 1998. The provision
for litigation costs reduced net income in 1998 by $4,726,000, or
approximately $.54 diluted earnings per common share. Diluted earnings per
common share increased to $1.08 from $.18 in 1998 as a result of the
increase in operating income and reduced number of shares outstanding.
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%, as 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, as did 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 and 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% in 1997.
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 10 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 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 1998 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 1997. 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.
Net income decreased to $1,594,000 from $8,771,000. Diluted earnings per
common share fell sharply 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.
Liquidity and Capital Resources
At December 31, 1999, Bairnco had working capital of $33.3 million,
essentially the same level as December 31, 1998. The increase in accounts
receivable relates primarily to the growth in sales. Other current assets
increased due primarily to a tax refund expected to be received during the
first quarter 2000. The increase in accounts payable is due primarily to a
higher level of purchases in support of the higher levels of sales and
production.
At December 31, 1999, $31.3 million of total debt was outstanding compared
to $37.8 million at the end of 1998. As of December 31, 1999,
approximately $17.4 million was available for borrowing under the
Corporation's secured reducing revolving credit agreement. In addition,
approximately $4.1 million was available under various short-term domestic
and foreign uncommitted credit facilities. Debt as a percent of equity was
reduced to 62.4% at the end of 1999 from 81.5% at the end of 1998. The
reduction was due to the repayments of debt during the course of 1999.
On February 15, 2000, the Corporation's Credit Agreement was amended. The
amendment effectively increased the credit facility from $50 million at
December 31, 1999 to $75 million, including a five-year term loan credit
facility of $20 million subject to quarterly amortization of principal of
$500,000 in 2000, $750,000 in 2001, $1,000,000 in 2002, $1,250,000 in 2003
and $1,500,000 in 2004. The amended credit facility also includes a letter
of credit facility for $9 million which may be increased up to $15 million
or decreased to $5 million with a corresponding change in the loan
commitment under the revolving credit facility. The amendment extended the
expiration date of the Credit Agreement from December 31, 2003 to February
22, 2005, although the term loan expires on December 31, 2004.
Bairnco made $5,670,000 of capital expenditures in 1999 as compared to its
plan of approximately $8.2 million. Capital expenditures were focused on
cost reduction projects, equipment replacements, and new information
systems software and hardware that were installed during the year. Total
capital expenditures in 2000 are expected to be approximately $8.9 million.
Depreciation and amortization is estimated to be approximately $8.0
million. The planned capital expenditures include quality improvements,
cost reduction projects, replacements, new product developments, new
processing equipment, information systems hardware and software, and
limited capacity additions.
In 1999, Bairnco's Board of Directors authorized an additional $5,000,000
to be available for the ongoing repurchase of its common stock. This was
in addition to still unused prior authorizations of $2.6 million as of
January 1, 1999. During 1999, Bairnco repurchased 497,900 shares of its
common stock for $2.9 million. The diluted average number of shares
outstanding in 1999 was 8,038,000 an 8.8% decrease from the 8,818,000
diluted average shares outstanding in 1998. The Board has authorized
management to continue its stock repurchase program in 2000 subject to
market conditions and the capital requirements of the business.
Cash provided by operating activities plus the amounts available under
Bairnco's credit facilities (refer to Note 7 and Note 12 to the
Consolidated Financial Statements) are expected to be sufficient to fulfill
Bairnco's anticipated cash requirements in 2000.
Year 2000 Date Conversion
In January of 1998 Bairnco adopted a formal plan to address the Year 2000
issue and thus maintain the integrity of its financial systems and ensure
the reliability of its operating systems. The implementation and
validation of the system upgrades was completed during the fourth quarter
of 1999 at a total cost of approximately $250,000.
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 that are discussed in more detail in Note 11
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, 1999.
Outlook
Management is not aware of any adverse trends that would materially affect
the Company's financial position. The outlook for 2000 is for improved
sales and earnings. It is expected that the combination of growth from new
products, higher growth in certain niche markets and the results of the
acquisition will result in increased sales. Improved earnings are expected
both from increased sales and from ongoing productivity improvement
programs.
Quarterly Results of Operations (Unaudited)
(In thousands except per share data)
1st 2nd 3rd 4th Total
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
Net Sales $42,662 $42,125 $42,653 $37,651 $42,130 $37,747 $41,436 $38,933 $168,881 $156,456
Cost of sales 28,410 28,442 28,171 24,905 28,945 25,922 28,208 26,604 113,734 105,873
Gross Profit 14,252 13,683 14,482 12,746 13,185 11,825 13,228 12,329 55,147 50,583
Selling and
administrative
expenses 10,245 9,716 10,461 9,717 9,768 9,461 9,671 9,660 40,145 38,554
Provision for
litigation costs -- -- -- -- -- -- -- 7,500 -- 7,500
Operating Profit 4,007 3,967 4,021 3,029 3,417 2,364 3,557 (4,831) 15,002 4,529
Interest expense, net 567 481 515 508 516 502 506 507 2,104 1,998
Income before income
taxes 3,440 3,486 3,506 2,521 2,901 1,862 3,051 (5,338) 12,898 2,531
Provision for income
taxes 1,170 1,290 1,192 933 888 689 1,007 (1,975) 4,257 937
Net Income $ 2,270 $ 2,196 $ 2,314 $ 1,588 $ 2,013 $ 1,173 $ 2,044 $(3,363) $ 8,641 $ 1,594
Basic Earnings
per Share $ 0.28 $ 0.25 $ 0.29 $ 0.18 $ 0.25 $ 0.14 $ 0.26 $ (0.40) $ 1.08 $ 0.18
Diluted Earnings
per Share $ 0.28 $ 0.24 $ 0.29 $ 0.18 $ 0.25 $ 0.14 $ 0.26 $ -- $ 1.08 $ 0.18
Market Price:
High $7-5/16 $11-3/8 $7-5/8 $11-3/8 $ 8 $ 9-1/8 $ 7-1/2 $11-1/4 $ 8 $ 11-3/8
Low 4-5/8 9-13/16 5 8-7/8 6-7/8 5-9/16 5-7/8 6-11/16 4-5/8 5-9/16
"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's 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, 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 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 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, 1999 and 1998, 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, 1999.
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, 1999 and
1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
Orlando, Florida
January 21, 2000
(except with respect to the matters discussed in Note 12,
as to which the date is February 16, 2000)
Arthur Andersen LLP
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1999, 1998 and 1997
Bairnco Corporation and Subsidiaries
1999 1998 1997
Net Sales $168,881,000 $156,456,000 $158,708,000
Cost of sales 113,734,000 105,873,000 104,712,000
Gross Profit 55,147,000 50,583,000 53,996,000
Selling and administrative expenses 40,145,000 38,554,000 38,404,000
Provision for litigation costs
(Note 2) -- 7,500,000 --
Operating Profit 15,002,000 4,529,000 15,592,000
Interest expense, net 2,104,000 1,998,000 1,834,000
Income before Income Taxes 12,898,000 2,531,000 13,758,000
Provision for income taxes (Note 5) 4,257,000 937,000 4,987,000
Net Income $ 8,641,000 $ 1,594,000 $ 8,771,000
Basic Earnings per Share of Common
Stock (Note 4) $ 1.08 $ 0.18 $ 0.96
Diluted Earnings per Share of Common
Stock (Note 4) $ 1.08 $ 0.18 $ 0.94
Dividends per Share of Common Stock $ 0.20 $ 0.20 $ 0.20
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 1999, 1998 and 1997
Bairnco Corporation and Subsidiaries
1999 1998 1997
Net Income $8,641,000 $1,594,000 $8,771,000
Other comprehensive income, net of tax:
Foreign currency translation
adjustment (Note 1) (516,000) 173,000 (710,000)
Comprehensive Income $8,125,000 $1,767,000 $8,061,000
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
Bairnco Corporation and Subsidiaries
1999 1998
Assets
Current Assets:
Cash and cash equivalents $ 660,000 $ 822,000
Accounts receivable, less allowances
of $1,136,000 and $1,224,000, respectively 29,107,000 27,999,000
Inventories:
Raw materials and supplies 5,986,000 5,701,000
Work in process 8,574,000 6,604,000
Finished goods 10,644,000 13,874,000
25,204,000 26,179,000
Deferred income taxes (Note 5) 4,598,000 4,137,000
Other current assets 3,640,000 1,709,000
Total current assets 63,209,000 60,846,000
Plant and Equipment, at cost:
Land 1,826,000 1,846,000
Buildings and leasehold interests
and improvements 17,873,000 18,115,000
Machinery and equipment 81,973,000 77,330,000
101,672,000 97,291,000
Less - Accumulated depreciation and amortization (61,990,000) (55,889,000)
39,682,000 41,402,000
Cost in Excess of Net Assets of Purchased
Businesses (Note 1) 11,822,000 11,840,000
Other Assets (Note 1) 4,432,000 4,467,000
$119,145,000 $118,555,000
Liabilities and Stockholders' Investment
Current Liabilities:
Short-term debt (Note 7) $ 4,692,000 $ 4,373,000
Accounts payable 10,719,000 9,022,000
Accrued expenses (Note 6) 14,542,000 14,192,000
Total current liabilities 29,953,000 27,587,000
Long-Term Debt (Notes 7 and 12) 26,591,000 33,471,000
Deferred Income Taxes (Note 5) 5,459,000 2,912,000
Other Liabilities 6,975,000 8,147,000
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, 11,198,849 and 11,187,224 issued,
respectively 112,000 112,000
Paid-in capital 49,235,000 49,165,000
Retained earnings 29,719,000 22,670,000
Currency translation adjustment (Note 1) 1,229,000 1,745,000
Treasury stock, at cost, 3,402,065 and 2,904,165
shares, respectively (30,128,000) (27,254,000)
Total stockholders' investment 50,167,000 46,438,000
$119,145,000 $118,555,000
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1999, 1998 and 1997
Bairnco Corporation and Subsidiaries
1999 1998 1997
Cash Flows from Operating Activities:
Net income $ 8,641,000 $ 1,594,000 $ 8,771,000
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 7,365,000 6,688,000 6,516,000
(Gain) loss on disposal of plant and
equipment 12,000 (13,000) 34,000
Deferred income taxes 2,086,000 (2,751,000) 1,265,000
Change in operating assets and
liabilities:
(Increase) in accounts receivable,
net (1,553,000) (1,033,000) (3,874,000)
Decrease (increase) in inventories 544,000 2,117,000 (3,406,000)
(Increase) decrease in other current
assets (1,960,000) 1,125,000 956,000
Increase (decrease) in accounts
payable 1,749,000 (38,000) 1,510,000
(Decrease) increase in accrued
expenses 376,000 2,204,000 (480,000)
Other (1,592,000) 4,223,000 472,000
Net cash provided by
operating activities 15,668,000 14,116,000 11,764,000
Cash Flows from Investing Activities:
Capital expenditures (5,670,000) (5,976,000) (8,789,000)
Payment for purchased businesses, net
of cash acquired -- (8,423,000) --
Proceeds from sale of plant and
equipment 309,000 123,000 219,000
Net cash (used in)
investing activities (5,361,000) (14,276,000) (8,570,000)
Cash Flows from Financing Activities:
Net (repayments) borrowings of
external debt (6,391,000) 7,746,000 2,434,000
Payment of dividends (1,592,000) (1,726,000) (1,827,000)
Purchase of treasury stock (2,874,000) (6,207,000) (3,255,000)
Exercise of stock options 70,000 135,000 26,000
Net cash (used in)
financing activities (10,787,000) (52,000) (2,622,000)
Effect of foreign currency exchange
rate changes on cash and cash
equivalents 318,000 (183,000) (210,000)
Net (decrease) increase in cash and
cash equivalents (162,000) (395,000) 362,000
Cash and cash equivalents, beginning
of year 822,000 1,217,000 855,000
Cash and cash equivalents, end of year $ 660,000 $ 822,000 $ 1,217,000
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the year for:
Interest $ 2,100,000 $ 2,008,000 $ 1,824,000
Income taxes $ 4,976,000 $ 2,402,000 $ 2,805,000
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
For the years ended December 31, 1999, 1998 and 1997
Bairnco Corporation and Subsidiaries
Currency
Common Paid-in Retained Translation Treasury
Stock Capital Earnings Adjustment Stock
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 ($.20 per
share) -- -- (1,726,000) -- --
Issuance of 26,450 shares
pursuant to exercise of
stock options -- 135,000 -- -- --
Acquisition of treasury
stock (737,400 shares
at cost) -- -- -- -- (6,207,000)
Currency translation
adjustment (Note 1) -- -- -- 173,000 --
Balance, December 31, 1998 112,000 49,165,000 22,670,000 1,745,000 (27,254,000)
Net income -- -- 8,641,000 -- --
Cash dividends ($.20 per
share) -- -- (1,592,000) -- --
Issuance of 11,625 shares
pursuant to exercise of
stock options -- 70,000 -- -- --
Acquisition of treasury
stock (497,900 shares
at cost) -- -- -- -- (2,874,000)
Currency translation
adjustment (Note 1) -- -- -- (516,000) --
Balance, December 31, 1999 $112,000 $49,235,000 $29,719,000 $1,229,000 $(30,128,000)
The accompanying notes are an integral part of these consolidated
financial statements.
(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 $6,992,000, $6,509,000 and $6,333,000 was
recognized during 1999, 1998 and 1997, 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 $10,298,000 and $10,020,000 at December
31, 1999 and 1998, respectively, is being amortized over 40 years.
Accumulated amortization at December 31, 1999 and 1998, was $1,964,000 and
$1,665,000, respectively. Amortization expense of $335,000, $147,000 and
$146,000 was recognized during 1999, 1998 and 1997, 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, 1999.
Intangibles:
Intangible assets of purchased businesses, net of amortization, are
included in other assets and totaled $85,000 and $123,000 at December 31,
1999 and 1998, respectively. These items are amortized over their
estimated lives, which generally range from three to twenty years.
Amortization expense recognized was $38,000 during 1999, $32,000 during
1998 and $37,000 during 1997.
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.
Had SFAS 123 been implemented, the Corporation's net income and earnings
per share would have been reduced to the amounts indicated below:
1999 1998 1997
Net income (in thousands):
As reported $8,641 $1,594 $8,771
Pro forma $8,529 $1,529 $8,733
Diluted earnings per share:
As reported $ 1.08 $ 0.18 $ 0.94
Pro forma $ 1.06 $ 0.17 $ 0.93
In preparing these disclosures, the Corporation determined the values using
the Black Scholes model based on the following assumptions: expected lives
of 7 years, volatility of 38.0%, a risk-free rate of 7.0% and a dividend
yield of 3.1%.
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. As of December 31, 1999, $1.5 million of the
provision was included in accrued expenses and $4.0 million was included in
other liabilities.
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.
1999 1998 1997
Basic Earnings per Common Share:
Net Income $ 8,641,000 $ 1,594,000 $ 8,771,000
Average common shares outstanding 7,965,000 8,655,000 9,151,000
Basic Earnings Per Common Share $ 1.08 $ 0.18 $ 0.96
Diluted Earnings per Common Share:
Net Income $ 8,641,000 $ 1,594,000 $ 8,771,000
Average common shares outstanding 7,965,000 8,655,000 9,151,000
Common shares issuable in respect
to options issued to employees,
with a dilutive effect 73,000 163,000 199,000
Total diluted common shares
outstanding 8,038,000 8,818,000 9,350,000
Diluted Earnings Per Common Share $ 1.08 $ 0.18 $ 0.94
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.
(5) Income Taxes
The components of income before income taxes and the provisions for
domestic and foreign income taxes are as follows:
1999 1998 1997
Income before Income Taxes:
Domestic $11,002,000 $ 1,187,000 $12,765,000
Foreign 1,896,000 1,344,000 993,000
Total Income before
Income Taxes $12,898,000 $ 2,531,000 $13,758,000
Provision for Income Taxes:
Domestic:
Currently payable $ 2,145,000 $ 3,266,000 $ 3,616,000
Deferred 1,359,000 (2,688,000) 1,102,000
Foreign:
Currently payable 618,000 422,000 106,000
Deferred 135,000 (63,000) 163,000
Total Provision for
Income Taxes $ 4,257,000 $ 937,000 $ 4,987,000
Bairnco's net current and non-current deferred tax assets (liabilities)
include the following at December 31:
1999 1998 1997
Current Deferred Tax Items:
Accrued Expenses $ 3,002,000 $ 2,840,000 $ 1,584,000
Inventories 1,458,000 977,000 847,000
Other 138,000 320,000 210,000
Net Current Deferred
Tax Asset 4,598,000 4,137,000 2,641,000
Non-Current Deferred Tax Items:
Fixed Assets (5,086,000) (3,539,000) (3,291,000)
Pensions (1,386,000) (1,273,000) (1,051,000)
Intangible Assets (6,000) (13,000) 21,000
Provision for litigation costs 1,360,000 1,700,000 --
Other (341,000) 213,000 223,000
Net Non-Current Deferred
Tax Liability (5,459,000) (2,912,000) (4,098,000)
Net Deferred Tax Asset
(Liability) $ (861,000) $ 1,225,000 $(1,457,000)
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 1999, 1998 and 1997 the Corporation's effective tax rates were 33.0%,
37.0% and 36.2%, 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:
1999 1998 1997
Computed income taxes at
statutory rate $ 4,385,000 $ 861,000 $ 4,678,000
State and local taxes,
net of federal tax benefit 283,000 64,000 368,000
Dividend income -- -- 1,303,000
Amortization of goodwill 51,000 9,000 9,000
Foreign income taxed at
different rates 107,000 (98,000) (69,000)
Tax credits (13,000) (31,000) (1,182,000)
Benefit of Foreign Sales
Corporation (473,000) (270,000) (289,000)
Other, net (83,000) 402,000 169,000
Provision for income taxes $ 4,257,000 $ 937,000 $ 4,987,000
Provision has not been made for US income taxes on approximately
$3.7 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, 1999 and
1998, respectively:
1999 1998
Salaries and wages $ 3,114,000 $ 2,669,000
Income taxes 550,000 633,000
Insurance 3,581,000 2,462,000
Litigation 2,588,000 3,580,000
Other accrued expenses 4,709,000 4,848,000
Total accrued expenses $14,542,000 $14,192,000
(7) Debt
Long-term debt consisted of the following as of December 31, 1999 and
1998, respectively:
1999 1998
Revolving Credit Notes $23,591,000 $30,471,000
Industrial Revenue Bonds 3,000,000 3,000,000
Total $26,591,000 $33,471,000
The Corporation's has a credit agreement (the "Credit Agreement") with a
consortium of four banks led by Bank of America, N.A., and including
SunTrust Bank, First Union National Bank, N.A., and Allfirst Bank. The
Credit Agreement provides a secured, reducing revolving credit facility for
a maximum loan commitment at December 31, 1999 of $43 million and 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,
1999, $23.6 million of revolving credit was outstanding and payable from
2001 through 2003. In addition, approximately $7.5 million of irrevocable
standby letters of credit were outstanding under the Credit Agreement,
which are not reflected in the accompanying consolidated financial
statements. $4.5 million of the letters of credit guarantee various
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, 1999, were approximately 7.4% on US borrowings and 4.4% 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 4.7% at December 31, 1999.
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, 1999 the Corporation was in compliance with all covenants
contained in the Credit Agreement.
The Corporation has other short-term debt outstanding at rates of 6.1%
to 6.5% due in 2000.
The annual maturity requirements for long-term debt due after December
31, 1999, are summarized as follows:
Year Ended December 31,
2000 $ --
2001 1,000,000
2002 1,500,000
2003 24,091,000
Total Long-term Debt $ 26,591,000
(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 1999,
1998 and 1997 were as follows:
1999 1998 1997
Wtd Avg Wtd Avg Wtd Avg
Exercise Exercise Exercise
Options Price Options Price Options Price
Outstanding at
beginning of
year 646,950 $6.09 633,750 $5.89 684,225 $5.71
Granted 96,500 6.62 52,625 8.20 33,400 8.24
Exercised (11,625) 6.04 (26,450) 5.13 (5,275) 4.93
Canceled (43,600) 6.83 (12,975) 6.75 (78,600) 5.39
Outstanding at
end of year 688,225 $6.12 646,950 $6.09 633,750 $5.89
Exercisable at
end of year 465,964 $5.86 461,813 $5.79 465,563 $5.70
At December 31, 1999, 1998 and 1997, 1,397,925, 1,450,825 and 1,490,475
shares, respectively, were available for option grants under the 1990 Plan.
The weighted average contractual life of the 688,225 options outstanding at
December 31, 1999 was 2.83 years. There were no charges to income in
connection with stock option grants or exercises during 1999, 1998 and
1997.
(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:
1999 1998
Change in Benefit Obligation:
Benefit obligation at
September 30, 1998 and 1997,
respectively $ 28,903,000 $ 25,638,000
Service cost 867,000 756,000
Interest cost 1,935,000 1,895,000
Actuarial (gain) loss (2,390,000) 2,071,000
Benefits paid (1,525,000) (1,457,000)
Benefit obligation at
September 30, 1999 and 1998,
respectively 27,790,000 28,903,000
Change in Plan Assets:
Fair value of plan assets at
September 30, 1998 and 1997,
respectively 30,806,000 30,433,000
Actual return on plan assets 4,340,000 1,142,000
Employer contributions 216,000 667,000
Benefits paid (1,504,000) (1,436,000)
Fair value of plan assets at
September 30, 1999 and 1998,
respectively 33,858,000 30,806,000
Funded status 6,068,000 1,903,000
Unrecognized net transition
obligation 250,000 349,000
Unrecognized prior service cost 211,000 266,000
Unrecognized net actuarial
(gain) loss (3,032,000) 744,000
Prepaid pension costs at
September 30, 1999 and 1998,
respectively 3,497,000 3,262,000
Fourth quarter accruals 8,000 (26,000)
Fourth quarter contributions 58,000 52,000
Prepaid pension costs at
yearend $ 3,563,000 $ 3,288,000
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 $25,013,000, $22,879,000 and
$31,622,000, respectively, at September 30, 1999, and $25,448,000,
$22,705,000 and $28,380,000, respectively, at September 30, 1998. 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 $2,777,000, $2,734,000 and $2,235,000,
respectively, at September 30, 1999, and $3,455,000, $3,396,000 and
$2,426,000, respectively, at September 30, 1998.
The discount rate used in determining the actuarial present value of the
projected benefit obligations in the table above was 7.5% at September 30,
1999 and 7.0% at September 30, 1998. The rate of projected pay increases,
where applicable, was 5% at both September 30, 1999 and 1998. The expected
long-term rate of return on retirement plan assets was 9% at both September
30, 1999 and 1998.
Amounts recognized in the consolidated balance sheets of the Corporation
consist of the following:
1999 1998
Prepaid benefit cost $ 3,620,000 $ 3,382,000
Accrued benefit liability (499,000) (969,000)
Intangible asset 376,000 849,000
Net amount recognized at
September 30 3,497,000 3,262,000
Fourth quarter accruals 8,000 (26,000)
Fourth quarter contributions 58,000 52,000
Net amount recognized at
December 31 $ 3,563,000 $ 3,288,000
Net periodic pension cost for the US plans included the following:
1999 1998 1997
Service cost-benefits earned
during the year $ 905,000 $ 752,000 $ 771,000
Interest cost on projected
benefit obligation 1,940,000 1,918,000 1,823,000
Expected return on plan assets (3,027,000) (2,722,000) (2,252,000)
Amortization of net obligation
at date of transition 99,000 99,000 99,000
Amortization of prior service
cost 53,000 56,000 61,000
Net periodic pension cost $ (30,000) $ 103,000 $ 502,000
(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, 1999, 1998 and 1997 is as follows:
Operating Capital Depreciation/
Net Sales Profit (Loss) Assets Expenditures Amortization
1999
Arlon $120,640,000 $ 15,815,000 $ 69,915,000 $1,761,000 $4,407,000
Kasco 48,241,000 3,319,000 39,294,000 3,719,000 2,871,000
Headquarters -- (4,132,000) 9,936,000 190,000 87,000
Total $168,881,000 $ 15,002,000 $119,145,000 $5,670,000 $7,365,000
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
(a) Includes impact of $7.5 million (pre-tax) provision for litigation
costs.
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, 1999, 1998 and 1997 is as follows:
Sales to External Long-lived Segment
Customers Assets
1999
United States $145,454,000 $46,815,000
France 13,125,000 253,000
Other Foreign 10,302,000 4,370,000
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
(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. The
court has entered a scheduling order requiring the completion of
all discovery (including expert discovery) by May 11, 2001. A
trial date has not been set, but the Court has scheduled a
conference for June 19, 2001, to determine dates for filing a
pretrial order, for trial, and/or for any pretrial motions.
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, 1999, approximately $28.5 million of NOL Refunds had
been received and placed in escrow. There can be no assurance
whatsoever that resolution of the NOL Lawsuit will result in the
release of any portion of the NOL Refunds to Bairnco.
Bairnco and its Arlon subsidiary ("Arlon") also are among the
defendants in a third action by the KCT (the "Properties Lawsuit"),
commenced December 8, 1998 and pending in the United States
District Court for the Southern District of New York. In the
Properties Lawsuit complaint, the KCT seeks a declaratory judgment
that it owns certain patents and real property purchased by Arlon
from Keene in 1989, based on the allegations that technical title
to these assets was not conveyed at the time of the sale and that
no proof of claim specifically referencing these assets was filed
during Keene's Chapter 11 case. In an answer and counterclaims,
Bairnco and Arlon have denied the KCT's claims and have requested a
declaratory judgment that full title to the patents and real
property in question in fact was transferred to Arlon at the time
of the 1989 asset sale. 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 December
31, 1999.
(12) Subsequent Events
Amendment to Credit Agreement:
On February 15, 2000, the Corporation's Credit Agreement was amended.
The amendment effectively increased the credit facility from $50
million at December 31, 1999 to $75 million, including a five-year
term loan credit facility of $20 million subject to quarterly
amortization of principal of $500,000 in 2000, $750,000 in 2001,
$1,000,000 in 2002, $1,250,000 in 2003 and $1,500,000 in 2004. The
amended credit facility also includes a letter of credit facility for
$9 million which may be increased up to $15 million or decreased to $5
million with a corresponding change in the loan commitment under the
revolving credit facility. The amendment extended the expiration date
of the Credit Agreement from December 31, 2003 to February 22, 2005,
although the term loan expires on December 31, 2004.
Acquisition:
On February 16, 2000, Bairnco purchased certain assets of the
materials business ("Signtech") of Signtech USA, Ltd. for
approximately $14.5 million. 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 was
financed with long-term debt. The purchase price was allocated to the
assets acquired based on their estimated fair values.
CORPORATE INFORMATION
Corporate Office
300 Primera Boulevard, Suite 432
Lake Mary, Florida 32746
(407) 875-2222
www.bairnco.com
Principal Facilities
Bear, Delaware
East Providence, Rhode Island
Northbrook, Illinois
Rancho Cucamonga, California
St. Louis, Missouri
San Antonio, Texas
Santa Ana, California
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 21, 2000 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 James W. Lambert, Vice President Finance and Treasurer, Bairnco
Corporation
(407) 875-2222, extension 227.
BAIRNCO CORPORATION
300 Primera Boulevard, Suite 432
Lake Mary, Florida 32746
407-875-2222
FAX 407-875-3398
www.bairnco.com