BAIRNCO CORPORATION
ANNUAL REPORT 1994
THE COMPANY
Bairnco Corporation is a diversified multinational company that
operates two distinct businesses under the names Arlon and KASCO.
Engineered materials and components are designed, manufactured
and sold under the Arlon brand identity to electronic, industrial and
commercial markets. These products are based on 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 and deli departments. KASCO also
distributes equipment to the food industry in Canada and France. These
products are sold under a number of brand names including KASCO in the United
States and Canada, Atlantic Service in the United Kingdom, and Bertram & Graf
and Biro in Europe.
STRATEGY
Bairnco's strategy is to serve a broad range of niche markets with quality
products and services, while providing extra value to its customers through
focused and cost effective organizations and facilities. Bairnco strives to
develop true partnership relationships with its customers in these 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 the customers.
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 a 15% compound rate of
earnings growth, a 20% return on stockholders' investment, and a 15% return on
total capital employed.
CONTENTS
Financial Highlights................................... 1
Letter to our Stockholders............................. 2
Engineered Materials & Components (Arlon).............. 4
Replacement Products & Services (KASCO)................ 6
Directors and Management............................... 8
Financial History...................................... 9
Management's Discussion and Analysis................... 10
Quarterly Results of Operations........................ 11
Consolidated Financial Statements...................... 12
Notes to Consolidated Financial Statements............. 15
FINANCIAL HIGHLIGHTS
(In thousands except per share data)
Percent Change
1994 1993 1992 94/93 93/92
Net Sales $ 145,522 $ 134,958 $ 135,581 8% 0%
Earnings before Interest,
Charges, and Taxes (a) $ 13,654 $ 13,617 $ 15,846 0% (14%)
Operating Profit $ 13,654 $ 4,874 $ 15,846 180% (69%)
Income from
Continuing Operations $ 7,255 $ 817 $ 7,755 788% (89%)
Earnings per Share from
Continuing Operations $ 0.69 $ 0.08 $ 0.72 763% (89%)
Cash Dividends per Share $ 0.20 $ 0.20 $ 0.20 0% 0%
Stockholders' Investment
per Share $ 4.19 $ 3.67 $ 5.91 14% (38%)
Total Assets $ 102,772 $ 107,981 $ 133,253 (5%) (19%)
Stockholders' Investment $ 43,997 $ 38,515 $ 62,055 14% (38%)
Average Shares
Outstanding 10,500 10,500 10,749 0% (2%)
(a) Excludes impact of non-recurring litigation and restructuring
costs of $8,743 in 1993 - see Note 2 to Consolidated Financial Statements.
Graphic - Bar Chart depicting Sales (y-axis) for five years - 1990 to
1994 (x-axis):
SALES
Year (In thousands)
1990 $130,404
1991 $128,566
1992 $135,581
1993 $134,958
1994 $145,522
Graphic - Bar Chart depicting Earnings before Interest, Charges, and
Taxes (y-axis) for five years - 1990 to 1994 (x-axis):
EARNINGS (Before Interest, Charges,
Year and Taxes - In thousands)
1990 $15,117
1991 $15,225
1992 $15,846
1993 $13,617
1994 $13,654
LETTER TO OUR STOCKHOLDERS
Overall Bairnco had a good year in 1994. Most importantly net income
was $7,255,000 as compared to a net loss in 1993 of ($22,578,000) after
substantial restructuring expenses and losses from discontinued operations.
Operating profit in 1994 was up slightly over the 1993 results excluding the
non-recurring litigation and restructuring costs in 1993, as the improved
results at Arlon were substantially offset by the erosion in KASCO's operating
profit due primarily to the difficulties with its service center program.
This program was revised in the fourth quarter of 1994. Key elements of the
divestiture program were accomplished. Debt was reduced by $11,943,000. The
quality and focus of management was improved in many operations.
FINANCIAL RESULTS
Sales increased 7.8% to $145,522,000 in 1994 from $134,958,000 in 1993, due
to the 11.9% increase in Arlon sales and the 1.4% increase in KASCO sales.
In 1994, gross profit increased 1.0% to $53,177,000 from $52,645,000 in the
prior year. The good results at Arlon were substantially offset by the poor
results at KASCO's North American operations. Arlon's gross profit increased
10.5%, slightly less than the sales increase of 11.9%, as a result of the
continuing shift in the business mix to lower margin commercial products from
military products. KASCO's gross profit declined 9.2% while sales increased
1.4%.
Selling and administrative expenses increased 1.3% to $39,523,000 as compared
to $39,028,000 in 1993. As a percent of sales, these expenses decreased to
27.2% in 1994 from 28.9% in 1993. The composition of these expenses continues
to change in accordance with the ongoing plan to make the administrative
functions more efficient while increasing sales and marketing efforts to
develop new products and to increase penetration into selected markets.
Selling expenses increased 8.9%. Approximately half the increase was
attributable to the increase in Arlon's sales. The other half of the increase
was primarily due to the costs associated with KASCO's service center program.
Again, the action plan that was implemented during the fourth quarter will
reduce these KASCO related costs in the future. Administrative expenses
decreased 7.1% while research and development expenses decreased 4.8%.
Earnings before taxes and non-recurring litigation and restructuring costs
that were incurred in 1993 were $11,510,000 in 1994 up slightly from the
$11,369,000 in 1993.
Earnings before taxes from continuing operations were $11,510,000 in 1994 as
compared to $2,626,000 after charges of $8,743,000 in 1993.
Income from continuing operations was $7,255,000, or $.69 per share in 1994,
as compared to $817,000, or $.08 per share in 1993.
Net income in 1994 was $7,255,000, or $.69 per share as compared to a loss of
($22,578,000), or ($2.15) per share in 1993 which included the loss from
discontinued operations.
RESTRUCTURING AND DIVESTITURES
During 1994 the strategic decision made in 1993 to focus Bairnco's management
and financial resources on its two core business areas and to divest the
non-related businesses was implemented.
The majority of the specialty construction businesses were sold in 1994.
RayProof Limited and RayProof North America were sold to buyers that
understood the businesses and should provide good continuity to the customers
of these businesses. Plans are underway concerning the disposition of the
smallest and last remaining operation of the specialty construction business.
The secure communications business was restructured during the year bringing
the operation to an acceptable level of profitability. Negotiations for this
operation have not yet resulted in an offer equal to the value that management
believes is inherent in the operation. The business continues to be reported
as a discontinued operation.
During the fourth quarter one of Arlon's small product lines which was not
part of the 1993 restructuring plan, but was a distraction to the Arlon
management and did not fit with the long term focus of the business, was sold.
The sale of this $2,000,000 product line is not material to our ongoing
operations.
FINANCIAL MANAGEMENT
The return on stockholders' investment in 1994 was 17.4% and the return on
capital employed was 10.6%. Management continues to expect that Bairnco's
future results will approach our long term objectives of a 20% return on
stockholders' investment and a 15% return on total capital employed.
Net cash flows provided by operating activities were $10,022,000. These cash
flows together with the net funds received from the disposition of discontinued
operations provided the cash used to reduce debt and fund Bairnco's capital
expenditure program in 1994.
During 1994 total debt was reduced by $11,943,000 and as a percent of equity
declined from 114% in 1993 to 72% in 1994. At year end 1994 Bairnco had
$21.4 million available under its revolving credit agreement, and $4.0 million
available under short term lines of credit.
1994 capital expenditures were $5,176,000 as compared to the budget of
$6,500,000. Depreciation and amortization was $6,502,000. The focus of the
capital expenditure program during 1994 was primarily on normal replacements
and some capacity additions.
The capital expenditure budget for 1995 is approximately $14.4 million.
Depreciation and amortization is estimated to be approximately $6.2 million.
The planned capital expenditures include normal replacements, quality
improvements, cost reduction projects, new product developments and capacity
additions. The large increase in planned capital expenditures
is due to substantial sales growth over the last three years at one of
Arlon's major facilities. It is expected that a major new capacity addition
will be required by the end of 1995 to be operational in mid 1996. The scope
of this project is still under review.
DIVIDEND
The quarterly $.05 per share cash dividend was maintained during the year.
MANAGEMENT
Effective January 16, 1995, Duncan del Toro resigned as President of Bairnco
Corporation to pursue other business interests. As a result of a more focussed
Bairnco and the quality of our three Division Presidents, we do not intend to
fill this position in the near future.
Jim Whiteaker was appointed President of KASCO North America effective July 11,
1994. Jim was previously Operations Manager for FMC Corporation's retail
citrus machinery business. He has a background that includes both marketing
and engineering positions. We expect Jim to play a major role in the
development of KASCO's business and in restoring it to its historical levels
of profitability in all of North America.
In the first quarter of 1994, Tim Mortenson, Controller of Bairnco Corporation,
was promoted to Vice-President and Controller of KASCO Corporation.
Effective August 1, 1994, Elmer Pruim was appointed Controller of Bairnco
Corporation. Elmer was previously an Audit Manager for Arthur Andersen LLP.
Elmer has already become a meaningful contributor to the Bairnco organization.
During 1994 the management development program, which is one of the keys to
our future success, continued to make progress in all operations. Many key
positions were filled or upgraded through a combination of internal promotions
and external additions. The ongoing improvement and development of all our
employees remains a critical and never ending element for Bairnco's future
success.
SUMMARY AND OUTLOOK
1994 was a year of progress for Bairnco. The restructuring program adopted at
the end of 1993 was substantially implemented during 1994. The improvements
in Arlon's results began to manifest the benefits of investing in the
development of new products, new markets, and expanded sales, marketing and
research efforts.
The poor results at KASCO were a severe disappointment. The reduced level of
profitability is primarily attributable to the very poor implementation of the
original service center program. During the fourth quarter, the program was
reevaluated and a more focused program was developed. This program is being
implemented and concentrates on a few selected markets with a revised approach.
KASCO management believes it can be a value added supplier of cost efficient
services to its customers with this new program.
The outlook for 1995 is for improved sales and earnings. The U.S. economy is
expected to continue to experience modest growth at least through the first
half of 1995. At some point, the continuing escalation of interest rates by
the Federal Reserve is expected to slow the economy, if not result in no growth
or a modest recession. There are strong pressures from many of our suppliers
to increase their prices. It is expected that the combination of continuing
cost and efficiency improvement programs combined with price increases will
result in no margin deterioration from these cost pressures. As a result of
certain niche growth products and markets, combined with cost reductions from
refocusing KASCO, 1995 should be a year of improved earnings and continued
progress.
Respectfully yours,
Luke E. Fichthorn III
Chairman and CEO
ENGINEERED MATERIALS AND COMPONENTS
BUSINESS
Bairnco designs, manufactures, and sells engineered materials and components
for the electronic, industrial and commercial markets under the Arlon brand
name. These products are based on a common technology in coating, laminating
and dispersion chemistry.
PRODUCTS AND APPLICATIONS
CIRCUIT BOARD MATERIALS:
Arlon Materials for Electronics has an international reputation as the premier
supplier of high technology materials for the printed circuit board industry.
Their products include the high performance and high temperature materials of
the Electronic Substrates product line, and the frequency dependent and low
signal loss materials of the Microwave Materials product line. These products
are marketed principally to printed circuit board manufacturers and OEMs by a
direct sales force in concert with strong technical support teams. These
materials are used in products for the commercial, military, industrial and
telecommunications markets.
The economic factors affecting demand for these products include the level of
economic activity in North America, Europe and Asia for high performance
electronics, sophisticated defense electronics procurement, and
telecommunication systems.
The core of the Electronic Substrates line includes premium high temperature
capable laminate products used in circuit boards for military electronics and
sophisticated commercial applications, such as the surface mount electronics
for the Motorola worldwide satellite telephone system (Iridium). Intermediate
temperature laminates which provide both improved product reliability in the
field and ease of manufacturing is another area of expertise. Specialty
products have been developed for surface mounting of computer chips on circuit
boards and multi-chip modules which are growing segments of the printed
circuit board market. Efforts at the Rancho Cucamonga, California facility
continue to stress improved customer responsiveness both in product design as
well as shortened delivery time.
The Microwave Materials product line produces the world's leading substrates
for microwave applications. The business mix is moving from a predominantly
military base to technology and cost driven commercial applications. The
existing and emerging consumer products operating at microwave frequencies
include digital cordless telephones, local and global cellular phone systems,
direct broadcast satellite T.V. systems, global positioning satellite systems,
and other personal communications equipment.
The frequency dependent market area continues to drive toward lower cost to
allow greater commercial/consumer penetration by new electronics applications.
The Arlon Microwave facility in Bear, Delaware continues to invest in
equipment to convert from low volume military to high volume commercial
materials. In addition, new product development continues with emphasis on
low cost - low signal loss materials.
Emerging wireless opportunities for Arlon circuit board materials include
local area networks for computers and public business exchange systems or
PBX's where telephones operate as microcellular phones within the confines of
a facility or complex. The elimination of wiring costs, the ease of
renovations and the flexibility of mobile phones are the primary advantages of
such a system. Other applications are being developed continuously in the
wireless area. Some of these applications are less sensitive to signal loss
and can therefore be designed with conventional circuit materials, which are
also lower cost, while others absolutely require low loss materials such as
those produced by Arlon. This will continue to be an attractive area for
Arlon in the foreseeable future.
SPECIALTY GRAPHIC FILMS:
Bairnco manufactures and markets, under the Calon brand name, cast and
calendered vinyl films in a wide variety of colors and with varying face
stocks and adhesive systems for specialty graphics which are used by
commercial sign manufacturers, graphic printing houses, and in numerous
commercial and governmental specification applications.
Graphic - John Diag, Coater Operator, monitors Calon Cast Vinyl manufacturing
specifications on a real time basis at Arlon's Adhesives & Films Division,
Santa Ana, California.
The economic factors affecting this business are the general level of economic
activity in the United States, Europe, South America and the Asian Basin.
Late in 1994 a new manager was hired for Arlon N.V., Arlon's Belgium based
European common market subsidiary. While the European market remained weak in
1994 due to economic conditions, under the leadership of the new manager,
combined with the improved service capabilities and new product lines
introduced in 1994, sales are expected to show meaningful improvements in
1995 and beyond.
Investments in new equipment and R&D resources yielded improvements in quality
and productivity, and new graphics products are being test-marketed prior to
introduction in 1995.
The Graphics sector continues to grow and the new range of Arlon calendered
vinyl films continues to penetrate the North American and export sign and
graphics markets. In 1995, new products are planned for introduction to
further increase market penetration. Arlon has a world-class range of
products to serve these markets and continues to invest in sales and technical
resources to provide excellent support for our customers.
Graphic - Raul Patino, QA Senior Technician, Jaime Perez, QA Supervisor, and
Trieu Do, QA Technician, inspect perforated Calon product for accepatable
appearance and punch pattern at Arlon's Adhesives & Films Division, Santa Ana,
California.
Graphic - Wahid Saadat, R&D Chemist, Belen Trajano, R&D Engineer, and Chan
Syamphay, R&D Lab Technician, evaluate the cutting and handling properties of
Calon Cast Vinyl Film at Arlon's Adhesives & Films Division, Santa Ana,
California.
CUSTOM ENGINEERED LAMINATES AND ADHESIVE SYSTEMS:
Bairnco manufactures and markets custom engineered laminates and adhesives
systems under the Arlon brand name.
The economic factors impacting this business are primarily the general level
of economic activity in the United States.
Typical applications include insulating foam tapes for thermopane windows,
adhesive coated copper for flexible circuitry, electrical insulation, thermal
insulation panels for appliances and cars, security tags and labels, and
durable printing stock for high speed laser printing systems.
Arlon is also developing new products for the industrial pressure sensitive
systems and specialty laminates markets. The combination of the Santa Ana,
California and East Providence, Rhode Island operations provides a unique
ability to meet the needs of emerging new markets such as high durability
coatings and flexible laminated products for the electronics industry.
Graphic - Tom Carey and Rock Messick, Silicone Calendar Operators, verify
surface quality of glass reinforced silicone at Arlon's Silicone Technologies
Division, Bear, Delaware.
Graphic - Ron Frazier and Bill Sherman, Microwave Press Operators, prepare a
laminate for the press operation at Arlon's Materials for Electronics Division,
Bear, Delaware.
SILICONE RUBBER TECHNOLOGIES:
Bairnco manufactures a line of silicone rubber materials used in a broad range
of consumer, industrial and commercial products. This business is sensitive
both to the level of general industrial and consumer spending in the United
States.
Typical applications of these materials include silicone rubber for molding
composites, silicone rubber insulating tape for electric traction motor
windings, industrial flexible heaters, and power utility insulator
applications. The silicone rubber product line provides significant
opportunity for Bairnco via several avenues. Opportunities exist for
current products or variants in both new geographical markets and through new
distribution channels. In particular, key international markets, where little
emphasis has been placed, offer good growth potential. Additionally, a
distributor agreement has been signed with Airtech, a leading supplier of
vacuum bagging materials to the composite industry. This partnership is
anticipated to foster growth in industrial and aerospace composite markets.
A key marketing person has been added to pursue the many opportunities in
this business area.
During 1994 a small product line, comprised of specialty environmental and
electromagnetic interference seals and conductive gaskets serving primarily
military markets, was sold. The remaining Silicone Rubber Technologies line
is a growth oriented materials business which will continue to focus its
efforts on engineered products for commercial and industrial applications.
Graphic - Betty Clugston, Side Arm Operator, slits reinforced silicone rubber
product to customer specifications at Arlon's Silicone Technologies Division,
Bear, Delaware.
REPLACEMENT PRODUCTS AND SERVICES
BUSINESS
Bairnco, through its multinational KASCO operations, manufactures and supplies
replacement products and services principally to retail food stores and meat,
poultry and fish processing plants throughout the United States, Canada and
Europe. Replacement band saw blades are also sold for use in wood and metal
industries. The French and Canadian operations also distribute equipment to
the supermarket and food processing industries in their respective markets.
PRODUCTS AND APPLICATIONS
KASCO manufactures band saw blades for cutting and chopper plates and knives
for grinding meat in supermarkets and packing plants, band saw blades used in
frozen fish factories, small band saw blades for cutting metal and wood and
large band saw blades for lumber mills. KASCO distributes related supply
products and seasoning to supermarkets and other customers.
KASCO also provides preventive maintenance and repair parts and service for a
broad range of supermarket equipment primarily in the meat and deli areas in
selected markets.
VAN SERVICE:
In North America, KASCO supplies its products and services directly to the
supermarket and meat cutting industries through van sales people. These van
sales people make regularly scheduled calls on the accounts in their region.
They both supply the Company's products and provide related equipment
maintenance services. The route service people are continuously trained in
the service and maintenance of the equipment used in the meat preparation
areas of retail food outlets.
Graphic - Harry Donovan, Welder and Flash Grinder, monitors the welding of
this meat band saw blade to ensure it meets with KASCO's high quality
standards.
A field computerization system was expanded to include all service people
in 1994. This computerization program permits the route service people to
more efficiently service their customer base.
SERVICE CENTERS:
KASCO currently operates service centers in North America. The service
centers provide preventive maintenance programs and emergency repair programs
for a broad range of equipment primarily in the meat preparation and deli
areas of supermarkets and other retail food outlets in their respective
geographical areas.
In the fourth quarter of 1994, the decision was made to refocus the service
center program back to several selected market areas where KASCO can provide
cost effective, value added preventive maintenance and emergency service in
confined geographical markets. Eight service centers in North America were
closed. These service centers although achieving increasing revenues
continued to fail to achieve the critical mass necessary to support the
attendant overhead structure and provide the level of service deserved by our
clients and consistent with KASCO's objective of being a superior quality
provider. These actions will result in lower revenues and initial phase out
expenses which will continue through the first half of 1995 but substantially
lower costs over time. The cost savings will begin to be evident during the
second quarter of 1995.
Graphic - Al Ford, Toothing Machine Operator, monitors the operation of his
grinding machine, assuring quality band saw blades are produced.
SPECIAL PRODUCTS:
Through its special products group, KASCO supplies band saw blades to OEMs in
the meat cutting industry and band saw blades for cutting wood and metal to
the OEMs supplying machines to those industries. Special products also handles
the sale of KASCO manufactured products through general distribution and is
responsible for export sales throughout the world with the exception of Europe
where such sales are the responsibility of the three operations in Europe.
EQUIPMENT DISTRIBUTION:
In Canada and France, in addition to providing its standard products, KASCO
distributes equipment used in the supermarket industry and in the food
processing industry.
MANUFACTURING
KASCO and its subsidiaries have manufacturing operations in St. Louis,
Missouri; City of Industry, California; Toronto, Canada; Gwent, Wales, United
Kingdom; and Pansdorf, Germany. During 1994, KASCO added new production lines
in the United States which incorporate manufacturing and grinding techniques
that enhance the overall quality of KASCO's finished band saw blades. The
improved processes and equipment continue to enable KASCO to provide a
superior band saw blade for its customers. KASCO is committed to continuing
quality improvements to ensure conformance of the Company's products to our
customer requirements.
Graphic - Dan Winkler, Quality Auditor, and Melissa Coffin, Project Engineer,
check the tooth hardness of a meat cutting band saw blade in the
Microhardness Lab at KASCO's Manufacturing and Distribution Facility in
St. Louis, Missouri.
DIRECTORS (Individual Photographs)
Luke E. Fichthorn III
Chairman and CEO
Bairnco Corporation
Charles T. Foley
President
Estabrook Capital Management, Inc.
Richard A. Shantz
Private Investor
William F. Yelverton
Chairman and CEO
New York Life Worldwide Holding, Inc.
MANAGEMENT (Individual Photographs)
Robert M. Carini
President
Arlon Materials for Electronics
Elmer G. Pruim
Controller
Bairnco Corporation
Barry M. Steinhart
Vice President Administration & Secretary
Bairnco Corporation
J. Robert Wilkinson
Vice President Finance & Treasurer
Bairnco Corporation
Mike Willott
President
Arlon Adhesives & Films
Gary M. Wimberly
Director of Systems
Bairnco Corporation
James L. Whiteaker
President
KASCO North America
FINANCIAL HISTORY
1994 1993 1992 1991 1990
Summary of Operations
($ in thousands)
Net sales....................... $ 145,522 134,958 135,581 128,566 130,404
Gross profit.................... $ 53,177 52,645 54,714 52,492 54,949
Earnings before interest,
charges and taxes <F1>........ $ 13,654 13,617 15,846 15,225 15,117
Operating profit................ $ 13,654 4,874 15,846 15,225 8,977
Interest expense, net........... $ 2,144 2,248 2,911 4,277 5,524
Income before income taxes...... $ 11,510 2,626 12,935 10,948 3,453
Provision for income taxes...... $ 4,255 1,809 5,180 4,305 2,436
Income from continuing
operations.................... $ 7,255 817 7,755 6,643 1,017
Return from continuing
operations on:
Net sales................... % 5.0 0.6 5.7 5.2 0.8
Stockholders' investment.... % 17.4 1.4 12.1 11.0 1.6
Capital employed............ % 10.6 2.0 8.6 8.4 4.1
Proforma return on:
Net sales <F1>................ % 5.0 5.3 5.7 5.2 3.6
Stockholders' investment <F1>
<F2>........................ % 17.4 17.4 18.4 17.2 11.5
Capital employed <F1> <F2>.... % 10.6 9.7 10.7 10.5 9.1
Year-End Position ($ in thousands)
Working capital................. $ 26,277 20,098 18,983 20,342 17,401
Plant and equipment, net........ $ 36,289 38,654 39,232 32,025 31,499
Total assets excluding
discontinued operations....... $ 99,243 95,547 98,916 90,982 90,455
Net assets of discontinued
operations.................... $ 3,529 12,434 34,337 39,109 43,853
Total assets................ $ 102,772 107,981 133,253 130,091 134,308
Total debt...................... $ 31,775 43,718 45,733 45,891 53,109
Stockholders' investment........ $ 43,997 38,515 62,055 59,529 57,123
Capital employed-total.......... $ 75,772 82,233 107,788 105,420 110,232
Capital employed-proforma <F2>.. $ 75,772 82,233 85,895 83,527 88,339
Per Share Data
Income from continuing operations:
Primary and fully diluted.... $ 0.69 0.08 0.72 0.61 0.10
Cash dividend................... $ 0.20 0.20 0.20 0.20 0.40
Cash dividend rate at year-end.. $ 0.20 0.20 0.20 0.20 0.20
Stockholders' investment........ $ 4.19 3.67 5.91 5.68 5.47
Market Price:
High......................... $ 5-1/2 8-1/2 8-1/4 9 18-3/8
Low.......................... $ 3 3-3/8 5-5/8 3-3/4 3-3/4
Other Data (in thousands)
Backlog.......... .............. $ 7,833 7,998 6,392 9,615 7,467
Depreciation and amortization... $ 6,502 6,700 5,808 5,748 6,115
Capital expenditures <F3>....... $ 5,176 6,318 13,195 5,858 5,977
Average shares outstanding <F4>. 10,500 10,500 10,749 10,807 10,442
Current ratio................... 2.0 1.8 1.7 1.9 1.7
Number of common stockholders... 2,198 2,326 2,440 2,586 2,756
Average number of employees .... 915 920 935 903 927
Sales per employee ............. $ 159,040 146,700 145,000 142,400 140,700
<FN>
<F1> Excludes impact of non-recurring litigation and restructuring costs of
$8,743 (pre-tax) in 1993 - see Note 2 to Consolidated Financial
Statements, and excludes impact of restructuring costs of $6,140 (pre-tax)
in 1990.
<F2> Stockholders' investment and capital employed adjusted on a proforma basis
for discontinued operations NRV writedown and loss on discontinuance
recorded in 1993.
<F3> Exclusive of acquired businesses' plant & equipment at date of acquisition.
<F4> Assuming full dilution.
</FN>
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 12.
As stated in Note 3 therein, Bairnco adopted a restructuring plan
effective December 31, 1993, a major component of which involved a
formal plan of divestiture relating to the businesses that
comprised Bairnco's Specialty Construction Products segment and
secure communications electronics operations. The operating
results discussed below exclude the discontinued operations.
Results of Operations: 1994 Compared to 1993
Net sales increased 7.8% to $145,522,000 in 1994 from $134,958,000
in 1993. Arlon engineered materials and components sales in 1994
increased $9,817,000, or 11.9%, from 1993 due to strong sales to
the graphics market, more than offsetting continued weak sales to
the defense related markets. Sales of KASCO replacement products
and services increased $747,000, or 1.4%, from 1993 as the European
economic improvements were offset by the impact of the retrenchment
and refocusing of the KASCO service center business in the fourth
quarter of 1994.
The backlog of unfilled orders for Arlon at the end of 1994 was
$7,833,000, down slightly from $7,998,000 at the end of 1993.
KASCO does not have a backlog.
In 1994, gross profit increased 1.0% to $53,177,000, or 36.5% of net
sales, from $52,645,000, or 39.0% of net sales, in 1993. The
increase in gross profit was attributable to the increase in sales,
whereas the decline in the gross profit as a percentage of sales
was due to a significant decline in KASCO's gross profit resulting
from the service center operations and to a lesser extent the lower
gross margin at Arlon as a result of the continuing shift in the
business mix to lower margin commercial products from higher margin
military products.
Selling and administrative expenses increased 1.3% in 1994 to
$39,523,000 from $39,028,000 in 1993. As a percent of sales, these
expenses decreased to 27.2% in 1994 from 28.9% in 1993. The
composition of these expenses continues to change in accordance
with the ongoing plan to make the administrative functions more
efficient while increasing sales and marketing efforts to develop
new products and to increase penetration into selected markets.
Operating profit in 1994 was $13,654,000, or 9.4% of net sales,
compared to operating profit in 1993 of $13,617,000, or 10.1% of
net sales, excluding the non-recurring restructuring and litigation
charges. After recognition of the non-recurring restructuring and
litigation costs, which totalled $8,743,000, 1993 operating profit
was $4,874,000.
Net interest expense decreased to $2,144,000 in 1994 from
$2,248,000 in 1993 due primarily to an $11,943,000 reduction in indebtedness
which was largely offset by increased interest rates.
The effective tax rate for 1994 was 37.0% as compared to 68.9% in
1993. The high effective tax rate for 1993 reflects the absence of
a tax benefit on a portion of the restructuring costs recognized at
KASCO. The provision for income taxes in both years includes all
applicable federal, state, local and foreign income taxes. Audits
of the Corporation's consolidated U.S. federal income tax returns
have been completed for all years through 1992.
Income from continuing operations for 1994 was $7,255,000 or $.69
per share. Excluding the restructuring and litigation related
charges, which net of related tax benefits amounted to $6,263,000
or approximately $.60 per share, 1993 income from continuing
operations was $7,080,000 or $.67 per share. Income from
continuing operations including the charges was $817,000 or $.08
per share in 1993.
Results of Operations: 1993 Compared to 1992
Net sales declined slightly to $134,958,000 in 1993 from
$135,581,000 in 1992. Arlon engineered materials and components
sales in 1993 increased $3,718,000, or 4.7%, from 1992 due to
increased sales of circuit board materials and vinyl graphics
materials. KASCO replacement products and services sales in 1993
declined $4,341,000, or 7.6%, as compared to 1992, a result of
changes in exchange rates and sales declines in the Canadian and
European markets due to the weak economic conditions that prevailed
in these established markets throughout the year, partially offset
by the increased sales through KASCO service centers.
The backlog of unfilled orders for Arlon at the end of 1993 was
$7,998,000, up from $6,392,000 at the end of 1992. The increase
was across all major product lines. KASCO does not have a backlog.
In 1993, gross profit decreased 3.8% to $52,645,000, or 39.0% of
net sales, from $54,714,000, or 40.4% of net sales, in 1992. This
decrease was attributable to the decline in KASCO's sales and an
increase in depreciation associated with the major capital
expenditures made in 1992.
Selling and administrative expenses increased slightly in 1993 to
$39,028,000 from $38,868,000 in 1992. Modest increases in the
selling and marketing areas were partially offset by declines in
other areas.
During the fourth quarter of 1993, restructuring costs of
$5,743,000 (pre-tax) were recognized in conjunction with programs
then underway to focus KASCO on those lines of business with the
greatest growth and profit potential and to rationalize KASCO's
North American production facilities. All but approximately
$500,000 of the restructuring costs related to the revaluation of
certain assets and other non-cash charges necessitated by the
adoption of the restructuring plan. Also in the fourth quarter,
Bairnco recorded a $3,000,000 pre-tax provision for anticipated
litigation expenses. The litigation provision established a
reserve for future litigation related expenditures resulting from
the December 1993 bankruptcy filing by Bairnco's former subsidiary,
Keene Corporation (see Note 11), and the defense against claims
that Bairnco is liable for injuries allegedly caused by asbestos-
containing products manufactured by Keene or its predecessors.
Liquidity and Capital Resources
At December 31, 1994, Bairnco had working capital of $26.3 million
compared to $20.1 million at December 31, 1993. At December 31,
1994, $31.8 million of total debt was outstanding compared to $43.7
million at the end of 1993. In March 1994, Bairnco's secured
reducing revolving credit agreement with a consortium of four banks
led by Bank of America, Illinois, and including, SunBank, N.A., NBD
Bank, N.A., and First Union National Bank of Florida, was amended
to permit the execution of the restructuring plan adopted by
Bairnco effective December 31, 1993. As of December 31, 1994,
$21.4 million of the revolving credit facility provided under the
agreement was unused and available for borrowing. The credit
agreement expires in August 1997. In addition, approximately $4.0
million was available under various short term domestic and foreign
uncommitted credit facilities. Debt was 41.9% of Bairnco's total
capitalization at the end of 1994, a decrease from 53.2% at the end of 1993.
Bairnco made $5.2 million of capital expenditures in 1994 as
compared to its plan at the start of the year of approximately $6.5
million. Total capital expenditures in 1995 are expected to be
approximately $14.4 million which includes approximately $1.0 million
deferred from 1994. Reflected in the 1995 capital expenditures
plan is approximately $6.0 million related to a new facility
which is not committed and is still under review.
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 1995.
QUARTERLY RESULTS OF OPERATIONS (Unaudited)
(In thousands except per share data)
1st 2nd 3rd 4th Total
1994 1993 1994 1993 1994 1993 1994 1993 1994 1993
Net Sales.................... $35,676 $33,032 $36,977 $35,336 $35,918 $33,434 $36,951 $33,156 $145,522 $134,958
Cost of sales............. 22,070 20,478 23,311 21,063 23,054 20,375 23,910 20,397 92,345 82,313
Gross Profit................. 13,606 12,554 13,666 14,273 12,864 13,059 13,041 12,759 53,177 52,645
Selling and administrative
expenses................. 10,271 9,650 9,964 9,920 9,396 9,698 9,892 9,760 39,523 39,028
Restructuring costs <F1>.. -- -- -- -- -- -- -- 5,743 -- 5,743
Provision for
litigation costs <F1>.... -- -- -- -- -- -- -- 3,000 -- 3,000
Operating Profit (Loss)...... 3,335 2,904 3,702 4,353 3,468 3,361 3,149 (5,744) 13,654 4,874
Interest expense, net..... 501 589 536 575 559 573 548 511 2,144 2,248
Income (loss) before
income taxes.............. 2,834 2,315 3,166 3,778 2,909 2,788 2,601 (6,255) 11,510 2,626
Provision for income taxes 1,134 903 1,266 1,473 1,164 1,087 691 (1,654) 4,255 1,809
Income (Loss) from
Continuing Operations..... $ 1,700 $ 1,412 $ 1,900 $ 2,305 $ 1,745 $ 1,701 $ 1,910 $(4,601) $ 7,255 $ 817
Earnings (Loss) per Share -
Continuing Operations..... $ 0.16 $ 0.13 $ 0.18 $ 0.22 $ 0.17 $ 0.16 $ 0.18 $ (0.44) $ 0.69 $ 0.08
Market Price:
High...................... $ 3-7/8 $ 8-1/2 $ 5-1/4 $ 6-1/4 $ 5-1/2 $ 5-7/8 $ 4-5/8 $ 4-3/8 $ 5-1/2 $ 8-1/2
Low....................... 3-1/4 5-1/4 3 4-3/4 4-1/8 3-3/8 3-3/4 3-1/2 3 3-3/8
<FN>
<F1> See Note 2 to Consolidated Financial Statements.
</FN>
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1994, 1993 and 1992
Bairnco Corporation and Subsidiaries
1994 1993 1992
Net Sales............................ $145,522,000 $134,958,000 $135,581,000
Cost of sales...................... 92,345,000 82,313,000 80,867,000
Gross Profit......................... 53,177,000 52,645,000 54,714,000
Selling and administrative
expenses......................... 39,523,000 39,028,000 38,868,000
Restructuring costs (Note 2)....... -- 5,743,000 --
Provision for litigation costs
(Note 2)......................... -- 3,000,000 --
Operating Profit..................... 13,654,000 4,874,000 15,846,000
Interest expense, net.............. 2,144,000 2,248,000 2,911,000
Income before Income Taxes........... 11,510,000 2,626,000 12,935,000
Provision for income taxes (Note 5) 4,255,000 1,809,000 5,180,000
Income from Continuing Operations.... 7,255,000 817,000 7,755,000
Discontinued Operations (Note 3):
(Loss) from operations, net of
income tax (benefit) provision
of ($6,733,000) and $30,000, in
1993 and 1992, respectively.... -- (21,679,000) (257,000)
(Loss) on discontinuance, net of
income tax (benefit) of
($884,000) in 1993............. -- (1,716,000) --
Net income (loss).................. $ 7,255,000 $(22,578,000) $ 7,498,000
Earnings (Loss) per Share of Common
Stock (Note 4):
Earnings per Share from Continuing
Operations......................... $ 0.69 $ 0.08 $ 0.72
Discontinued operations (Note 3)... -- (2.23) (0.02)
Net income (loss).................. $ 0.69 $ (2.15) $ 0.70
Dividends per Share of Common Stock.. $ 0.20 $ 0.20 $ 0.20
The accompanying notes are an integral part of these financial statements.
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, 1994
and 1993, and the related consolidated statements of income, stockholders'
investment and cash flows for each of the three years in the period ended
December 31, 1994. 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, 1994 and 1993, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
Orlando, Florida
January 27, 1995
Arthur Andersen LLP
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
Bairnco Corporation and Subsidiaries
1994 1993
Assets
Current Assets:
Cash and cash equivalents.................. $ 1,478,000 $ 1,383,000
Accounts receivable, less allowances of
$1,097,000 and $844,000, respectively.... 20,885,000 18,932,000
Inventories:
Raw materials and supplies............... 4,794,000 3,173,000
Work in process.......................... 4,767,000 4,471,000
Finished goods........................... 10,481,000 11,849,000
20,042,000 19,493,000
Deferred income taxes (Note 5)............. 4,941,000 3,495,000
Other current assets (Note 5).............. 4,785,000 2,156,000
Total current assets................... 52,131,000 45,459,000
Plant and Equipment, at cost:
Land....................................... 1,241,000 1,344,000
Buildings and leasehold interests and
improvements............................. 15,163,000 15,836,000
Machinery and equipment.................... 60,260,000 59,238,000
76,664,000 76,418,000
Less - Accumulated depreciation
and amortization......................... (40,375,000) (37,764,000)
36,289,000 38,654,000
Cost in Excess of Net Assets of Purchased
Businesses (Note 1)........................ 8,201,000 8,244,000
Other Assets (Note 1)........................ 2,622,000 3,190,000
Net Assets of Discontinued Operations
(Note 3)................................... 3,529,000 12,434,000
$102,772,000 $107,981,000
Liabilities and Stockholders' Investment
Current Liabilities:
Short-term debt............................ $ 4,710,000 $ 5,130,000
Current maturities of long-term debt
(Note 7)................................. 201,000 189,000
Accounts payable........................... 9,762,000 7,363,000
Accrued expenses (Note 6).................. 11,181,000 12,679,000
Total current liabilities.............. 25,854,000 25,361,000
Long-Term Debt (Note 7)...................... 26,864,000 38,399,000
Deferred Income Taxes (Note 5)............... 3,743,000 3,232,000
Other Liabilities............................ 2,314,000 2,474,000
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, 10,952,124 issued..... 109,000 109,000
Paid-in capital............................ 49,922,000 49,595,000
Retained earnings (deficit)................ 3,766,000 (1,389,000)
Treasury stock, at cost, 451,865 shares.... (9,800,000) (9,800,000)
Total stockholders' investment......... 43,997,000 38,515,000
$102,772,000 $107,981,000
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, 1993 and 1992
Bairnco Corporation and Subsidiaries
1994 1993 1992
Cash Flows from Operating Activities:
Income from continuing operations..... $ 7,255,000 $ 817,000 $ 7,755,000
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization..... 6,502,000 6,700,000 5,808,000
Loss on disposal of plant and
equipment....................... 18,000 -- 161,000
Deferred income taxes............. 242,000 (222,000) 1,083,000
Changes in non-current assets
related to restructuring........ -- 2,992,000 --
Change in current assets and
liabilities, net of effect from
acquisitions and dispositions:
(Increase) decrease in accounts
receivable, net............... (1,953,000) 575,000 (1,160,000)
(Increase) decrease in
inventories................... (549,000) 284,000 (368,000)
(Increase) in other current
assets........................ (2,629,000) (27,000) (908,000)
Increase (decrease) in accounts
payable....................... 2,399,000 (839,000) 396,000
(Decrease) in accrued expenses.. (1,498,000) (284,000) (1,067,000)
(Decrease) increase in other
liabilities................... (160,000) 1,119,000 1,172,000
Translation adjustment and other, net. 395,000 (822,000) (2,829,000)
Net cash provided by operating
activities.................... 10,022,000 10,293,000 10,043,000
Cash Flows from Investing Activities:
Capital expenditures.................. (5,176,000) (6,318,000) (13,195,000)
Proceeds from sale of plant and
equipment........................... 1,728,000 -- --
Funds provided by discontinued
operations.......................... 7,728,000 350,000 4,515,000
Net cash provided by (used in)
investing activities.......... 4,280,000 (5,968,000) (8,680,000)
Cash Flows from Financing Activities:
Net (repayment) borrowings of external
debt................................ (12,107,000) (1,697,000) 462,000
Payment of dividends.................. (2,100,000) (2,100,000) (2,098,000)
Repurchase of the Corporation's stock. -- -- (1,000)
Exercise of stock options............. -- 20,000 51,000
Net cash (used in) financing
activities.................... (14,207,000) (3,777,000) (1,586,000)
Net increase (decrease) in cash
and cash equivalents.................. 95,000 548,000 (223,000)
Cash and cash equivalents,
beginning of year..................... 1,383,000 835,000 1,058,000
Cash and cash equivalents, end of year.. $ 1,478,000 $ 1,383,000 $ 835,000
Cash paid (received) during the year for:
Interest.............................. $ 2,242,000 $ 2,138,000 $ 2,931,000
Income Taxes.......................... $ (533,000) $ 2,703,000 $ 1,161,000
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
For the years ended December 31, 1994, 1993, and 1992
Bairnco Corporation and Subsidiaries
Retained
Common Paid-In Earnings Treasury
Stock Capital (Deficit) Stock
Balance, December 31, 1991........ $109,000 $51,330,000 $17,889,000 $(9,799,000)
Net income....................... -- -- 7,498,000 --
Acquisition of treasury stock
(176 shares at cost)........... -- -- -- (1,000)
Cash dividends ($.20 per share).. -- -- (2,098,000) --
Issuance of 10,225 shares
pursuant to exercise of
stock options.................. -- 51,000 -- --
Currency translation adjustment
(Note 1)....................... -- (2,924,000) -- --
Balance, December 31, 1992........ 109,000 48,457,000 23,289,000 (9,800,000)
Net (loss)....................... -- -- (22,578,000) --
Cash dividends ($.20 per share).. -- -- (2,100,000) --
Issuance of 4,000 shares
pursuant to exercise of
stock options.................. -- 20,000 -- --
Currency translation adjustment
(Note 1)....................... -- (724,000) -- --
Transfer of currency translation
adjustment related to
discontinued operations to
income statement............... -- 1,842,000 -- --
Balance, December 31, 1993........ 109,000 49,595,000 (1,389,000) (9,800,000)
Net income....................... -- -- 7,255,000 --
Cash dividends ($.20 per share).. -- -- (2,100,000) --
Currency translation adjustment
(Note 1)....................... -- 327,000 -- --
Balance, December 31, 1994........ $109,000 $49,922,000 $ 3,766,000 $(9,800,000)
The accompanying notes are integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
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 intercompany accounts and transactions.
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.
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.
Cost in excess of net assets of purchased businesses:
Cost in excess of net assets of purchased businesses acquired prior to 1971
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 $5,816,000 at
December 31, 1994, is being amortized over 40 years. Accumulated amortization
at December 31, 1994 was $1,099,000. Amortization expense of $146,000,
$221,000 and $230,000 was recognized during 1994, 1993 and 1992, respectively.
Intangibles:
Intangible assets of purchased businesses, net of amortization, are included
in other assets and totalled $127,000 and $650,000 at December 31, 1994 and
1993, respectively. These items are amortized over their estimated lives,
which generally range from three to twenty years. Amortization expense
recognized was $159,000 during 1994, $217,000 during 1993 and $359,000 during
1992.
Approximately $361,000 of the decrease in intangibles in 1994 is attributable
to the sale of Arlon's silicone rubber specialties product line.
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.
The cumulative effect of such translation adjustments has been included as an
increase to paid-in capital and was $1.9 million and $1.6 million at December
31, 1994 and 1993, respectively.
(2) Restructuring Costs and Provision For Litigation Costs
Pursuant to the restructuring plan adopted by Bairnco effective December 31,
1993, restructuring costs totalling $5,743,000 (pre-tax) were recognized in
the fourth quarter of 1993. The restructuring costs were entirely attributable
to programs underway at Bairnco's KASCO subsidiary to phase out unprofitable
and low potential product lines and to rationalize KASCO's North American
production facilities. All but approximately $500,000 of the restructuring
costs related to the revaluation of certain assets and other non-cash charges
necessitated by the adoption of the restructuring plan. The charges included
a reduction of approximately $2.5 million in the carrying value of KASCO's
cost in excess of net assets of purchased businesses as well as adjustments to
the carrying values of inventory, machinery and equipment, and other current
assets.
In the fourth quarter of 1993, Bairnco also recorded a $3,000,000 pre-tax
provision for anticipated litigation expenses. The litigation provision
established a reserve for future litigation related expenditures resulting
from the December 1993 bankruptcy filing by Bairnco's former subsidiary, Keene
Corporation (see Note 11 to Consolidated Financial Statements), and the
defense against claims that Bairnco is liable for injuries allegedly caused by
asbestos-containing products manufactured or distributed by Keene or its
predecessors.
After recognition of related tax benefits, these two items reduced income from
continuing operations in 1993 by $6,263,000 or approximately $.60 per share.
(3) Discontinued Operations
The restructuring plan adopted by Bairnco effective December 31, 1993,
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 for financial reporting purposes as
of December 31, 1993.
In connection with management's plan to sell these businesses, the 1993 loss
from operations for the discontinued operations included a charge to adjust
the carrying values of the related assets and liabilities to their expected
net realizable value of $12.4 million as of December 31, 1993 which was
comprised of estimated net sales proceeds and tax benefits associated with the
divestitures. The loss on discontinuance for the discontinued operations
included provisions for estimated operating losses until divestiture and other
costs expected to be incurred as a result of the divestiture plan.
During 1994 the majority of the Specialty Construction businesses were sold
and plans are underway concerning the disposition of the smallest and last
remaining operation of the Specialty Construction business. The sales price
of the net assets sold of the discontinued operations was approximately $2.9
million in 1994. The secure communications business was restructured during
the year bringing the operation to an acceptable level of profitability.
Negotiations for this operation have not yet resulted in an offer equal to
the value that management believes is inherent in the operation. The
business continues to be reported as a discontinued operation. The net
realizable value of discontinued operations as of December 31, 1994 was $3.5
million which consisted of estimated net sales proceeds and tax benefits
associated with the remaining operations to be sold. These operations are
expected to be disposed of during 1995.
Net sales from the discontinued operations for the years ended December 31,
1994, 1993 and 1992 were $20.2 million, $22.8 million and $28.9 million,
respectively. The 1994 losses of the discontinued operations approximated
the prior estimates.
(4) Earnings per Share
Primary and fully diluted earnings per share are equal within each of the
years ended December 31, 1994, 1993 and 1992. Earnings per share are based on
the weighted average number of shares outstanding during the year as follows:
1994 1993 1992
Primary 10,500,000 10,500,000 10,744,000
Fully Diluted 10,500,000 10,500,000 10,749,000
Primary and fully diluted shares outstanding reflect all common stock
equivalents (primarily outstanding stock options as described in Note 8 to
the Consolidated Financial Statements) to the extent they are not antidilutive.
(5) Income Taxes
The components of income from continuing operations before income taxes and
the provisions for domestic and foreign income taxes on continuing operations
are as follows:
1994 1993 1992
Income (Loss) before
Income Taxes:
Domestic..................... $11,096,000 $ 3,116,000 $10,927,000
Foreign...................... 414,000 (490,000) 2,008,000
Total Income before
Income Taxes................. $11,510,000 $ 2,626,000 $12,935,000
Provision for Income Taxes:
Domestic:
Currently payable............ $ 3,731,000 $ 2,418,000 $ 1,506,000
Deferred..................... 751,000 (439,000) 2,986,000
Foreign:
Currently payable............ (135,000) (19,000) 735,000
Deferred..................... (92,000) (151,000) (47,000)
Total Provision for
Income Taxes................. $ 4,255,000 $ 1,809,000 $ 5,180,000
Bairnco's restated net current and non-current deferred tax assets
(liabilities) are comprised of the following at December 31:
1994 1993 1992
Current Deferred Tax Items:
Accrued Expenses............... $ 2,528,000 $ 2,521,000 $ 1,724,000
Other.......................... 1,236,000 974,000 1,262,000
Tax Credit Carryforwards....... 1,177,000 -- --
Net Current Deferred
Tax Asset.................... 4,941,000 3,495,000 2,986,000
Non-Current Deferred Tax Items:
Fixed Assets................... (2,749,000) (2,196,000) (1,639,000)
Pensions....................... (781,000) (716,000) (766,000)
Intangible Assets.............. (102,000) (168,000) (183,000)
Other.......................... (111,000) (152,000) (357,000)
Net Non-Current
Deferred Tax Liability....... (3,743,000) (3,232,000) (2,945,000)
Net Deferred Tax Asset....... $ 1,198,000 $ 263,000 $ 41,000
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.
As a result of tax benefits of approximately $7.7 million to be realized from
the discontinued operations sold in 1994, certain reclassifications were made
between current and deferred income taxes and net assets of discontinued
operations. Other current assets on the balance sheet include current income
taxes receivable of $3,527,000 at December 31, 1994 due to the
reclassifications. Current income taxes receivable of $1,091,000 were
included in other current assets at December 31, 1993.
In 1994, 1993 and 1992 the Corporation's restated effective tax rates were
37.0%, 68.9% and 40.1%, respectively, of income (loss) from continuing
operations before income taxes. An analysis of the differences between these
rates and the U.S. federal statutory income tax rate is as follows:
1994 1993 1992
Computed income taxes
at statutory rate.............. $ 3,910,000 $ 893,000 $ 4,398,000
State and local taxes, net
of federal tax benefit......... 310,000 63,000 359,000
Write-off of goodwill............ -- 865,000 --
Dividend income.................. 185,000 160,000 156,000
Amortization of goodwill......... 43,000 55,000 60,000
Foreign income taxed at
different rates................ (368,000) (4,000) 5,000
Tax credits...................... (242,000) (175,000) (138,000)
Other, net....................... 417,000 (48,000) 340,000
Provision for income taxes....... $ 4,255,000 $ 1,809,000 $ 5,180,000
Audits of the federal income tax returns of the Corporation and its
subsidiaries have been completed through 1992.
Provision has not been made for U.S. income taxes on approximately $3.2
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 U.S.
foreign tax credits would largely eliminate any U.S. income tax incurred.
(6) Accrued Expenses
Accrued expenses consisted of the following as of December 31, 1994 and 1993,
respectively:
1994 1993
Salaries and wages.............. $ 2,521,000 $ 1,520,000
Income taxes.................... 315,000 --
Insurance....................... 2,165,000 2,346,000
Litigation...................... 2,163,000 3,812,000
Other accrued expenses.......... 4,017,000 5,001,000
Total accrued expenses........ $11,181,000 $12,679,000
(7) Long-Term Debt
Long-term debt consists of the following as of December 31:
1994 1993
Revolving Credit Notes.......... $23,553,000 $37,893,000
Equipment Loans................. 464,000 639,000
Industrial Revenue Bonds........ 3,000,000 --
Other........................... 48,000 56,000
27,065,000 38,588,000
Less Current Maturities......... 201,000 189,000
Total......................... $26,864,000 $38,399,000
The Corporation has a credit agreement ("Credit Agreement") with a consortium
of four banks which provides a secured, reducing revolving credit facility for
a maximum loan commitment at December 31, 1994 of $45 million and a letter of
credit facility of at least $10 million, although the letter of credit
facility may be increased up to $20 million with a corresponding decrease in
the revolving credit facility. At December 31, 1994, $23.6 million of
revolving credit was outstanding and payable in installments from 1995 to
1997. In addition, $10.0 million of irrevocable standby letters of credit were
outstanding under the Credit Agreement which are not reflected in the
accompanying consolidated financial statements. Approximately $6.7 million of
the letters of credit guarantee various trade and insurance activities. An
outstanding $3.3 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, 1994, were 7.1% on U.S. borrowings
and ranged from 6.3% to 6.8% on European borrowings. A commitment fee is paid
on the unused portion of the total credit.
Substantially all of the assets of the Corporation and its U.S. subsidiaries
are pledged as collateral under the Credit Agreement, which expires on August
31, 1997.
The Credit Agreement contains covenants which require the Corporation to meet
minimum interest coverage ratios and which limit the ratio of total
liabilities to stockholders' investment as defined in the Credit Agreement.
In addition, minimum levels of stockholders' investment must be maintained.
The Credit Agreement also places certain restrictions on the declaration of
dividends and repurchases of the Corporation's stock. At December 31, 1994,
future declarations of dividends and repurchases of Bairnco's stock, were
limited to $1,714,000 plus 25% of future consolidated quarterly net earnings
of the Corporation. At December 31, 1994 the Corporation was in compliance
with all covenants contained in the Credit Agreement.
The Corporation has equipment loans, mortgages and other debt outstanding at
rates of 6.0% to 7.8% due in 1995 through 1998.
The annual maturity requirements for amounts due after December 31, 1994, are
summarized as follows:
Year Ended December 31,
1995........................ $ 201,000
1996........................ 187,000
1997........................ 23,665,000
1998........................ 12,000
1999........................ --
Due after December 31, 1999... 3,000,000
Total Long-Term Debt........ $27,065,000
(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 or book value on the date of grant. These performance options become
exercisable in equal installments if levels of $.70, $.75 and $.80 of net
income per share are attained by the Corporation during calendar years up
through 1995 (with only one installment becoming exercisable for a given
year) or, become fully exercisable on the tenth anniversary of the date of
grant if the executive is still employed by the Corporation. On January 28,
1993, 83,333 of these options became exercisable as a result of the
Corporation's earnings performance for 1992. 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 1994
and 1993 were as follows:
1994 1993
Outstanding options,
beginning of year............. 1,086,287 1,090,320
Options granted between
$3.375 and $7.375 per share... 32,500 18,300
Options canceled between
$4.00 and $7.75 per share..... (136,637) (18,333)
Options exercised at
$5.00 per share............... -- (4,000)
Outstanding options between
$3.375 and $8.25 per share,
end of year................. 982,150 1,086,287
Exercisable options between
$4.00 and $8.25 per share,
end of year................. 666,397 650,937
At December 31, 1994, 1,401,375 shares were available for option grants under
the 1990 Plan. There were no charges to income in connection with stock
option activity during the years presented.
(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 U.S. 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 book accounting 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.
Net periodic pension cost for the U.S. plans included the following:
1994 1993 1992
Service cost-benefits
earned during the year........ $ 915,000 $ 962,000 $ 913,000
Interest cost on projected
benefit obligation............ 1,493,000 1,405,000 1,305,000
Return on plan assets:
Expected return-(gain)........ (1,803,000) (1,661,000) (1,520,000)
Asset gain (loss)............. (2,774,000) 242,000 (710,000)
Actual return-loss (gain)..... 971,000 (1,903,000) (810,000)
Net amortization and deferral... (2,584,000) 471,000 (493,000)
Net periodic pension cost....... $ 795,000 $ 935,000 $ 915,000
The following table describes the funded status of U.S. pension plans.
Overfunded plans are those in which the amount provided for future benefits
(fair value of plan assets) exceeds the accumulated benefit obligation
(actuarial present value of benefits earned to date based on present pay
levels).
1994 1993
Overfunded Underfunded Overfunded Underfunded
Actuarial present value of
benefit obligation:
Vested..................... $(15,580,000) $ (2,190,000) $(16,039,000) $ (2,190,000)
Non-vested................. (430,000) (43,000) (517,000) (44,000)
Accumulated benefit
obligation................... (16,010,000) (2,233,000) (16,556,000) (2,234,000)
Additional amounts related
to projected pay increases... (2,224,000) (57,000) (2,641,000) (119,000)
Projected benefit obligation... (18,234,000) (2,290,000) (19,197,000) (2,353,000)
Plan assets at fair value...... 17,841,000 1,338,000 18,493,000 1,306,000
Projected benefit obligation
in excess of plan assets..... (393,000) (952,000) (704,000) (1,047,000)
Unrecognized net transition
obligation................... 491,000 369,000 570,000 52,000
Unrecognized prior service
cost......................... (4,000) 139,000 220,000 448,000
Unrecognized net loss.......... 1,956,000 262,000 2,034,000 393,000
Adjustment to recognize
minimum liability............ -- (713,000) -- (774,000)
Prepaid (accrued) pension
cost recognized in balance
sheet at September 30........ 2,050,000 (895,000) 2,120,000 (928,000)
Fourth quarter accruals........ (147,000) (51,000) (187,000) (46,000)
Fourth quarter contributions... 179,000 42,000 201,000 70,000
Effect of curtailment.......... (136,000) -- -- --
Prepaid (accrued) pension
costs at December 31......... $ 1,946,000 $ (904,000) $ 2,134,000 $ (904,000)
The discount rate used in determining the actuarial present value of the
projected benefit obligations in the table above was 8% at September 30, 1994
and 7% at September 30, 1993. The rate of projected pay increases, where
applicable, was 5% at both September 30, 1994 and 1993. The expected
long-term rate of return on retirement plan assets was 9% at both September
30, 1994 and 1993.
(10) Business Segment Data
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, 1994, 1993 and 1992 is as follows:
Segment
Operating
Net Sales Profit Loss Assets <F3>
1994
United States........... $119,045,000 $ 12,754,000 $ 80,579,000
Foreign................. 26,477,000 900,000 18,664,000
Total.............. $145,522,000 $ 13,654,000 $ 99,243,000
1993
United States........... $108,132,000 $ 7,475,000 <F1> $ 76,165,000
Foreign................. 26,826,000 (2,601,000) <F2> 19,382,000
Total.............. $134,958,000 $ 4,874,000 $ 95,547,000
1992
United States........... $105,703,000 $ 12,808,000 $ 77,351,000
Foreign................. 29,878,000 3,038,000 21,565,000
Total.............. $135,581,000 $ 15,846,000 $ 98,916,000
<FN>
<F1> After $4,736,000 of restructuring and litigation costs - see Note 2
to Consolidated Financial Statements.
<F2> After $4,007,000 of restructuring costs - see Note 2 to Consolidated
Financial Statements.
<F3> Excludes net assets of discontinued operations of $3,529,000,
$12,434,000 and $34,337,000 for 1994, 1993 and 1992, respectively.
</FN>
Information about the Corporation's major lines of business for the years
ended December 31, 1994, 1993 and 1992 is as follows:
Segment Depreciation
Operating Capital and
Net Sales Profit(Loss) Assets <F1> Expenditures Amortization
1994
Engineered Materials and Components (Arlon).. $ 92,214,000 $15,712,000 $50,234,000 $ 2,084,000 $ 3,562,000
Replacement Products and Services (KASCO).... 53,308,000 2,197,000 39,317,000 3,083,000 2,874,000
Corporate.................................... -- (4,255,000) 9,692,000 9,000 66,000
Total............................... $145,522,000 $13,654,000 $99,243,000 $ 5,176,000 $ 6,502,000
1993
Engineered Materials and Components (Arlon) $ 82,397,000 $12,884,000 $48,870,000 $ 2,673,000 $ 3,523,000
Replacement Products and Services -
Operations............................... 52,561,000 5,625,000 40,205,000 3,617,000 3,096,000
Replacement Products and Services -
Restructuring............................ -- (5,743,000) -- -- --
Replacement Products and Services (KASCO).... 52,561,000 (118,000) 40,205,000 3,617,000 3,096,000
Corporate.................................... -- (7,892,000)<F2> 6,472,000 28,000 81,000
Total............................... $134,958,000 $ 4,874,000 $95,547,000 $ 6,318,000 $ 6,700,000
1992
Engineered Materials and Components (Arlon).. $ 78,679,000 $13,359,000 $48,949,000 $ 9,274,000 $ 3,128,000
Replacement Products and Services (KASCO).... 56,902,000 7,277,000 45,776,000 3,866,000 2,592,000
Corporate.................................... -- (4,790,000) 4,191,000 55,000 88,000
Total............................... $135,581,000 $15,846,000 $98,916,000 $13,195,000 $ 5,808,000
<FN>
<F1> Excludes net assets of discontinued operations of $3,529,000, $12,434,000
and $34,337,000 for 1994, 1993 and 1992, respectively.
<F2> Includes $3.0 million provision for anticipated litigation costs - See
Note 2 to Consolidated Financial Statements.
</FN>
(11) Contingencies
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 provided evidence and other information to the
Examiner. The Examiner's preliminary report was released on October 3, 1994.
Since that time, the Court has held a number of hearings at which the report
has been discussed. The Court has not ruled on whether the potential claims
discussed in the report should be prosecuted, and if so by whom or under what
circumstances.
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, 1994.
CORPORATE INFORMATION
Corporate Office
Suite 300, 2251 Lucien Way
Maitland, Florida 32751
407-875-2222
Principal Facilities
Bear, Delaware
City of Industry, California
East Providence, Rhode Island
Rancho Cucamonga, California
St. Louis, Missouri
Santa Ana, California
Vancouver, B.C., Canada
Toronto, Ontario, Canada
Antwerp, Belgium
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 Sun Bank Center,
Office Tower 2, University Hall, 200 South Orange Avenue,
Orlando, Florida 32801,
on April 21, 1995 at 10:00 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 Investor Relations at Bairnco's Corporate Office.
BAIRNCO
CORPORATION
Suite 300, 2251 Lucien Way
Maitland, Florida 32751
407-875-2222
FAX 407-875-3398