UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) [X] QUARTERLY EXCHANGE REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 2, 1994 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-8120 BAIRNCO CORPORATION (Exact name of registrant as specified in its charter) Delaware 13-3057520 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2251 Lucien Way, Suite 300, Maitland, FL 32751 (Address of principal executive offices) (Zip Code) (407) 875-2222 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No (APPLICABLE ONLY TO CORPORATE ISSUERS) Indicate the number of shares outstanding of each issuer's classes of common stock, as of the latest practicable date. 10,500,259 shares of Common Stock Outstanding as of July 29, 1994. PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS BAIRNCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE QUARTERS ENDED JULY 2, 1994 AND JULY 3, 1993 (Unaudited) 1994 1993 <F1> Net sales $ 36,977,000 $ 35,336,000 Cost of sales 23,311,000 21,063,000 Gross profit 13,666,000 14,273,000 Selling and administrative expenses 9,964,000 9,920,000 Operating profit 3,702,000 4,353,000 Interest expense, net 536,000 575,000 Income before income taxes 3,166,000 3,778,000 Provision for income taxes 1,266,000 1,473,000 Income from continuing operations 1,900,000 2,305,000 (Loss) from discontinued operations, net of tax -- (373,000) Net income $ 1,900,000 $ 1,932,000 Primary and fully diluted earnings per share of common stock (Note 3): Continuing operations $ 0.18 $ 0.22 Discontinued operations -- (0.04) Total $ 0.18 $ 0.18 Dividends per share of common stock $ 0.05 $ 0.05 <FN> <F1> Restated for discontinued operations - see Note 2 to Consolidated Financial Statements. The accompanying notes are an integral part of these financial statements. BAIRNCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JULY 2, 1994 AND JULY 3, 1993 (Unaudited) 1994 1993 <F1> Net sales $ 72,653,000 $ 68,368,000 Cost of sales 45,381,000 41,541,000 Gross profit 27,272,000 26,827,000 Selling and administrative expenses 20,235,000 19,570,000 Operating profit 7,037,000 7,257,000 Interest expense, net 1,037,000 1,164,000 Income before income taxes 6,000,000 6,093,000 Provision for income taxes 2,400,000 2,376,000 Income from continuing operations 3,600,000 3,717,000 (Loss) from discontinued operations, net of tax -- (412,000) Net income $ 3,600,000 $ 3,305,000 Primary and fully diluted earnings per share of common stock (Note 3): Continuing operations $ 0.34 $ 0.35 Discontinued operations -- (0.04) Total $ 0.34 $ 0.31 Dividends per share of common stock $ 0.10 $ 0.10 <FN> <F1> Restated for discontinued operations - see Note 2 to Consolidated Financial Statements. The accompanying notes are an integral part of these financial statements. BAIRNCO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF JULY 2, 1994 AND DECEMBER 31, 1993 (Unaudited) 1994 1993 ASSETS Current assets: Cash and cash equivalents $ 1,467,000 $ 1,383,000 Accounts receivable, less allowances of $905,000 and $844,000, respectively 21,240,000 18,932,000 Inventories: Raw materials and supplies 4,200,000 3,173,000 Work in process 3,879,000 4,471,000 Finished goods 12,068,000 11,849,000 20,147,000 19,493,000 Deferred income taxes 3,567,000 3,495,000 Other current assets 915,000 2,156,000 Total current assets 47,336,000 45,459,000 Plant and equipment, at cost 77,771,000 76,418,000 Less - Accumulated depreciation and amortization (40,323,000) (37,764,000) Plant and equipment, net 37,448,000 38,654,000 Cost in excess of net assets of purchased businesses 8,247,000 8,244,000 Other assets 2,831,000 3,190,000 Net assets of discontinued operations (Note 2) 13,247,000 12,434,000 $109,109,000 $107,981,000 LIABILITIES & STOCKHOLDERS' INVESTMENT Current Liabilities: Short-term debt $ 5,967,000 $ 5,130,000 Current maturities of long-term debt 188,000 189,000 Accounts payable 8,642,000 7,363,000 Accrued expenses (Note 4) 13,547,000 12,679,000 Total current liabilities 28,344,000 25,361,000 Long-term debt 33,864,000 38,399,000 Deferred income taxes 3,121,000 3,232,000 Other liabilities 2,465,000 2,474,000 Stockholders' Investment: Preferred stock, par value $.01, 5,000,000 shares authorized, none issued -- -- Common stock, par value $.01, 30,000,000 shares authorized, 10,952,124 issued 109,000 109,000 Paid-in capital 49,835,000 49,595,000 Retained earnings 1,171,000 (1,389,000) Treasury stock, at cost, 451,865 shares (9,800,000) (9,800,000) Total stockholders' investment 41,315,000 38,515,000 $109,109,000 $107,981,000 The accompanying notes are an integral part of these financial statements. BAIRNCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JULY 2, 1994 AND JULY 3, 1993 (Unaudited) 1994 1993 <F1> Cash Flows from Operating Activities: Income from continuing operations $ 3,600,000 $ 3,717,000 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization 3,364,000 3,346,000 Deferred income taxes (183,000) (2,004,000) Changes in current assets and liabilities: (Increase) in accounts receivable (2,308,000) (1,623,000) (Increase) in inventories (654,000) (2,574,000) Decrease (increase) in other current assets 1,241,000 (51,000) Increase (decrease) in accounts payable 1,279,000 (44,000) Increase (decrease) in accrued expenses 868,000 (1,770,000) (Decrease) increase in other liabilities (9,000) 673,000 Translation adjustment and other, net 915,000 (558,000) Net cash provided by (used in) operating activities 8,113,000 (888,000) Cash Flows from Investing Activities: Capital expenditures (2,365,000) (3,844,000) Funds (used in) provided by discontinued operations (813,000) 3,559,000 Net cash (used in) investing activities (3,178,000) (285,000) Cash Flows from Financing Activities: Net (repayments) borrowings of external debt (3,801,000) 1,920,000 Exercise of stock options -- 20,000 Payment of dividends (1,050,000) (1,050,000) Net cash (used in) provided by financing activities (4,851,000) 890,000 Net increase (decrease) in cash and cash equivalents 84,000 (283,000) Cash and cash equivalents, beginning of period 1,383,000 835,000 Cash and cash equivalents, end of period $ 1,467,000 $ 552,000 <FN> <F1> Restated for discontinued operations - see Note 2 to Consolidated Financial Statements. The accompanying notes are an integral part of these financial statements. BAIRNCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 2, 1994 (Unaudited) (1) Basis of Presentation The accompanying consolidated 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 financial information included herein reflects all adjustments of a normal recurring nature which the Corporation's management considers necessary for a fair summarized presentation of the consolidated financial statements included in this Form 10-Q filing. The consolidated results of operations for the quarter and six months ended July 2, 1994, are not necessarily indicative of the results of operations for the full year. (2) Discontinued Operations As discussed in Note 3 to Bairnco's 1993 Audited Consolidated Financial Statements, the Corporation adopted a restructuring plan as of December 31, 1993 which included a formal plan of divestiture relating to the businesses that comprised Bairnco's Specialty Construction Products segment and secure communications electronics operations. Accordingly, these businesses were classified as discontinued operations as of December 31, 1993 for financial reporting purposes and the accompanying Consolidated Financial Statements have been reclassified to report separately the net assets and operating results of discontinued operations. The Letter of Intent with Lindgren RF Enclosures, Inc., for the sale of Ray Proof Canada, Ltd., Ray Proof North America and ray Proof Ltd., has been terminated, however, the sale of Ray Proof Ltd. to Lindgren RF Enclosures, Inc. is expected to be completed in the third quarter. The formal plan of divestiture related to the other businesses comprising the discontinued operations is expected to be completed during the remainder of 1994. Net sales for the discontinued operations for the quarters ended July 2, 1994 and July 3, 1993 were $6.3 million and $6.1 million, respectively. Net sales for the discontinued operations for the six months ended July 2, 1994 and July 3, 1993 were $11.6 million and $11.8 million, respectively. (3) Earnings per Common Share Earnings per common share are based on the weighted average number of shares outstanding during the periods as follows: Second Quarter First Six Months 1994 1993 1994 1993 Primary 10,500,000 10,536,000 10,500,000 10,663,000 Fully Diluted 10,500,000 10,556,000 10,500,000 10,674,000 Primary and fully diluted earnings per share include all common stock equivalents. Statements showing the calculation of primary and fully diluted earnings per share for the quarters ended July 2, 1994 and July 3, 1993, and for the six months ended July 2, 1994 and July 3, 1993, are included as Exhibit 11.1 and Exhibit 11.2, respectively, to this Quarterly Report on Form 10-Q. (4) Accrued Expenses Accrued expenses consisted of the following as of July 2, 1994 and December 31, 1993: 1994 1993 Salaries and wages $ 1,695,000 $ 1,520,000 Income taxes 1,904,000 -- Insurance 1,900,000 2,346,000 Litigation 3,070,000 3,812,000 Other accrued expenses 4,978,000 5,001,000 Total accrued expenses $ 13,547,000 $ 12,679,000 (5) Contingencies Bairnco Corporation and its subsidiaries are defendants in certain legal actions which are discussed more fully in Part II, Item 1 ("Legal Proceedings") of this filing. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and related notes and with Bairnco's Audited Consolidated Financial Statements and related notes for the year ended December 31, 1993. 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 to electronic, industrial and commercial markets. These products are based on a common technology in coating, laminating and dispersion chemistry. Arlon's principal products include high technology materials for the printed circuit board industry, cast and calendered vinyl film systems, custom engineered laminates and pressure sensitive adhesive systems and silicone rubber 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, and on site maintenance services for the retail food industry primarily in the meat, bakery 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 U.S. and Canada, Atlantic Service in the United Kingdom and Bertram & Graf and Biro in Europe. Comparison of Second Quarter 1994 to Second Quarter 1993 Sales in the second quarter of 1994 were $36,977,000 a 4.6% increase over sales of $35,336,000 in the second quarter of 1993. Sales of Arlon engineered materials and components increased 8.7% due to strong sales to the graphics market, which more than offset continued weak sales to the defense related markets. Sales of Kasco replacement products and services declined 1.7% due to lower equipment distribution sales in Canada and the translation impact of the weaker dollar in the second quarter of 1994 as compared to the second quarter of 1993. Gross profit decreased 4.3% to $13,666,000 from $14,273,000. The decline in gross profit was attributable to lower gross profit margins as a percent of sales which declined to 37.0% in 1994 from 40.4% in 1993. In the second quarter of 1993, our operations had a very profitable mix of business due to certain large high profit margin defense related programs. Additionally, the gross profit margin of Kasco's replacement products and services has eroded since last year as a result of the changing mix of business to a higher percentage of sales related to repair services which continue to have very low margins due to the high front end costs of the service center program which has yet to achieve critical mass. Selling and administrative expenses increased only 0.4% to $9,964,000 from $9,920,000. As a percent of sales, selling and administrative expenses declined to 26.9% from 28.1%. Interest expense decreased 6.8% to $536,000 from $575,000 last year. The decrease in interest expense was due to a reduction in indebtedness of approximately $7,500,000 from the second quarter of 1993, which was substantially offset by increased short term interest rates. The effective tax rate for the second quarter of 1994 was 40% as compared to 39% in 1993. The provision for income taxes in both periods includes all applicable federal, state, local and foreign income taxes. Income from continuing operations was $1,900,000 or $0.18 per share, which was a decrease of 17.6% from $2,305,000 or $0.22 per share in the second quarter 1993. Comparison of First Six Months 1994 to First Six Months 1993 Sales for the first six months of 1994 were $72,653,000, an increase of 6.3% as compared with $68,368,000 in 1993. The increase was due to higher sales of Arlon's cast and calendered vinyl film systems for the graphics market. Income from continuing operations decreased 3.1% to $3,600,000, or $0.34 per share, from $3,717,000, or $0.35 per share. The decrease was due to the reduction in second quarter gross profit and margins. The effective tax rate for the first half of 1994 was 40% as compared to 39% in 1993. The provision for income taxes in both periods includes all applicable federal, state, local and foreign income taxes. Liquidity and Capital Resources At July 2, 1994 Bairnco's total debt was $40,019,000 compared to $43,718,000 at the end of 1993. At July 2, 1994 approximately $19.9 million was available for borrowing under the Corporation's secured reducing revolving credit agreement ("Credit Agreement") with a consortium of four banks. In addition, approximately $2.3 million was available under various short term domestic and foreign uncommitted credit facilities. Under the terms of the Credit Agreement, the maximum amount available for borrowings pursuant thereto will be reduced by $5,000,000 as of December 31, 1994. Cash and cash equivalents are being maintained at minimum levels in order to utilize all available cash to reduce outstanding debt. Bairnco made approximately $2.4 million of capital expenditures during the first half of 1994. Total capital expenditures for 1994 are expected to be approximately $6.5 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 1994. PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS On July 9, 1990, a consolidated class action complaint was filed in the U.S. District Court for the Southern District of New York (superseding eight complaints filed in April 1990) against Bairnco and certain of its current and former officers and directors. A subsequently filed amended complaint alleged violations of the federal securities laws concerning disclosure of matters relating to asbestos personal injury and property damage claims asserted against Keene (Bairnco's subsidiary until August 6, 1990) and sought unspecified damages for losses purportedly incurred by persons who purchased Bairnco common stock between March 13, 1989 and April 2, 1990. The Corporation and the individual defendants denied the principal allegations of the complaint and vigorously defended the action. After extensive discovery and preparations for trial, the parties reached an agreement for the settlement of the action on terms favorable to Bairnco in light of the ongoing cost of defense, including trial. Following a hearing held on May 20, 1994, the Court approved the settlement as fair, reasonable and adequate and entered judgment dismissing the action with prejudice. The settlement included the resolution, without additional cost to Bairnco, of two purported derivative actions arising out of the same circumstances as the class actions. Since its announcement in January 1990 of its intention to spin off Keene, Bairnco has been named as a defendant in a number of individual personal injury and wrongful death cases in which it is alleged that Bairnco is derivatively liable for the asbestos-related claims against Keene. In 1993 Bairnco and certain of its present and former officers and directors were also named as defendants in two purported class actions in which the same types of claims were made. Both of these purported class actions, which have been consolidated in the United States District Court for the Southern District of New York, have been stayed by order of the Bankruptcy Court for the Southern District of New York, as described in the following paragraph. On December 6, 1993 Keene filed for protection under Chapter 11 of the Bankruptcy Code. The filing and certain subsequent proceedings led to a stay of the asbestos-related individual and class actions referred to above. In an order entered on March 11, 1994, the Bankruptcy Court overseeing the reorganization of Keene entered an order appointing an examiner (the "Examiner") to evaluate and report to the Court whether there are any viable claims arising out of the transfer of assets for value by Keene to other subsidiaries of Bairnco or the spinoffs of certain subsidiaries, including Keene, by Bairnco. Bairnco has provided evidence and other information to the Examiner. On July 18, 1994, the Examiner's preliminary report was filed with the Bankruptcy Court under seal pending further order of the Court. Management believes that Bairnco has meritorious defenses to all claims of liability 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 financial position of Bairnco Corporation and its subsidiaries as of July 2, 1994. Item 2. OTHER INFORMATION None. Item 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of stockholders of Bairnco was held in Orlando, Florida on May 20, 1994. Stockholders' ratified management's selection of Arthur Andersen & Co. as auditors for Bairnco for the 1994 fiscal year and elected all nominees to the Board of Directors. Item 4. EXHIBITS Exhibit 11.1: Calculation of Primary and Fully Diluted Earnings per Share for the Quarters ended July 2, 1994 and July 3, 1993. Exhibit 11.2: Calculation of Primary and Fully Diluted Earnings per Share for the Six Months ended July 2, 1994 and July 3, 1993. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Bairnco has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BAIRNCO CORPORATION (Registrant) /s/ J. Robert Wilkinson J. Robert Wilkinson Vice President Finance and Treasurer (Chief Financial Officer) DATE: August 10, 1994