UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY EXCHANGE REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1996
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.
9,775,334 shares of Common Stock Outstanding as of July 26, 1996.
PART I - FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED JUNE 29, 1996 AND JULY 1, 1995
(Unaudited)
1996 1995
Net sales $ 37,323,000 $ 38,309,000
Cost of sales 24,067,000 24,462,000
Gross profit 13,256,000 13,847,000
Selling and administrative expenses 9,276,000 9,980,000
Operating profit 3,980,000 3,867,000
Interest expense, net 433,000 527,000
Income before income taxes 3,547,000 3,340,000
Provision for income taxes 1,348,000 1,269,000
Net Income $ 2,199,000 $ 2,071,000
Primary and fully diluted earnings per
share of common stock (Note 2) $ 0.22 $ 0.20
Dividends per share of common stock $ 0.05 $ 0.05
The accompanying notes are an integral part of these financial statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 29, 1996 AND JULY 1, 1995
(Unaudited)
1996 1995
Net sales $ 75,417,000 $ 76,832,000
Cost of sales 48,723,000 49,256,000
Gross profit 26,694,000 27,576,000
Selling and administrative expenses 18,897,000 20,112,000
Operating profit 7,797,000 7,464,000
Interest expense, net 848,000 1,074,000
Income before income taxes 6,949,000 6,390,000
Provision for income taxes 2,641,000 2,428,000
Net Income $ 4,308,000 $ 3,962,000
Primary and fully diluted earnings per
share of common stock (Note 2) $ 0.43 $ 0.38
Dividends per share of common stock $ 0.10 $ 0.10
The accompanying notes are an integral part of these financial statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 29, 1996 AND DECEMBER 31, 1995
(Unaudited)
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $ 789,000 $ 608,000
Accounts receivable, less allowances of
$850,000 and $763,000, respectively 23,661,000 21,472,000
Inventories (Note 3) 23,322,000 23,736,000
Deferred income taxes 3,396,000 3,396,000
Other current assets 2,580,000 2,130,000
Total current assets 53,748,000 51,342,000
Plant and equipment, at cost 82,914,000 77,792,000
Less - Accumulated depreciation and
amortization (45,930,000) (43,343,000)
Plant and equipment, net 36,984,000 34,449,000
Cost in excess of net assets of purchased
businesses 8,008,000 8,152,000
Other assets 3,621,000 4,253,000
$102,361,000 $ 98,196,000
LIABILITIES & STOCKHOLDERS' INVESTMENT
Current Liabilities:
Short-term debt $ 4,506,000 $ 3,156,000
Current maturities of long-term debt 185,000 186,000
Accounts payable 8,234,000 7,885,000
Accrued expenses (Note 4) 11,423,000 11,765,000
Total current liabilities 24,348,000 22,992,000
Long-term debt 23,415,000 21,236,000
Deferred income taxes 3,216,000 3,215,000
Other liabilities 2,589,000 2,729,000
Stockholders' Investment:
Preferred stock, par value $.01, 5,000,000
shares authorized, none issued -- --
Common stock, par value $.01, 30,000,000
shares authorized, 11,134,499 and
11,062,499 shares issued, respectively 111,000 111,000
Paid-in capital 50,991,000 50,833,000
Retained earnings 12,783,000 9,460,000
Treasury stock, at cost, 1,322,365 and
938,065 shares, respectively (15,092,000) (12,380,000)
Total stockholders' investment 48,793,000 48,024,000
$102,361,000 $ 98,196,000
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 JUNE 29, 1996 AND JULY 1, 1995
(Unaudited)
1996 1995
Cash Flows from Operating Activities:
Net income $ 4,308,000 $ 3,962,000
Adjustments to reconcile to net cash provided
by operating activities:
Depreciation and amortization 3,333,000 3,421,000
Loss on disposal of plant and equipment 31,000 188,000
Deferred income taxes 1,000 16,000
Change in operating assets and liabilities:
(Increase) in accounts receivable (2,189,000) (3,304,000)
Decrease (increase) in inventories 414,000 (4,082,000)
(Increase) decrease in other current assets (450,000) 3,143,000
Increase in accounts payable 349,000 592,000
(Decrease) increase in accrued expenses (342,000) 1,904,000
Cash provided by discontinued operations -- 70,000
Other 119,000 277,000
Net cash provided by operating activities 5,574,000 6,187,000
Cash Flows from Investing Activities:
Capital expenditures (5,899,000) (2,784,000)
Proceeds from collection on notes receivable 366,000 --
Proceeds from sales of plant and equipment 43,000 105,000
Net cash (used in) investing activities (5,490,000) (2,679,000)
Cash Flows from Financing Activities:
Net borrowings (repayments) of external debt 3,243,000 (3,861,000)
Payment of dividends (979,000) (1,050,000)
Purchase of treasury stock (2,712,000) --
Exercise of stock options 369,000 --
Net cash (used in) financing activities (79,000) (4,911,000)
Effect of foreign currency exchange rate changes
on cash and cash equivalents 176,000 452,000
Net increase (decrease) in cash and cash
equivalents 181,000 (951,000)
Cash and cash equivalents, beginning of period 608,000 1,478,000
Cash and cash equivalents, end of period $ 789,000 $ 527,000
The accompanying notes are an integral part of these financial statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1996
(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 June 29, 1996, are not
necessarily indicative of the results of operations for the full year.
(2) 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
1996 1995 1996 1995
Primary 9,975,000 10,500,000 10,020,000 10,500,000
Fully Diluted 9,982,000 10,500,000 10,038,000 10,500,000
Primary and fully diluted earnings per share include all common stock
equivalents. Statements regarding the computation of earnings per share for
the quarters and six month periods ended June 29, 1996 and July 1, 1995 are
included as Exhibit 11.1 and Exhibit 11.2, respectively, to this Quarterly
Report on Form 10-Q.
(3) Inventories
Inventories consisted of the following as of June 29, 1996 and December 31,
1995:
1996 1995
Raw materials and supplies $ 4,985,000 $ 4,651,000
Work in process 4,988,000 5,451,000
Finished goods 13,349,000 13,634,000
Total inventories $ 23,322,000 $ 23,736,000
(4) Accrued Expenses
Accrued expenses consisted of the following as of June 29, 1996 and December
31, 1995:
1996 1995
Salaries and wages $ 1,862,000 $ 2,312,000
Income taxes 287,000 360,000
Insurance 1,855,000 2,026,000
Litigation 1,964,000 1,942,000
Other accrued expenses 5,455,000 5,125,000
Total accrued expenses $ 11,423,000 $ 11,765,000
(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, 1995.
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 performance
materials for the printed circuit board industry, cast and calendered vinyl
film systems, custom engineered laminates and pressure sensitive adhesive
systems, and calendered and extruded silicone rubber insulation products used
in a broad range of industrial, consumer and commercial products.
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 Continental Europe.
Comparison of Second Quarter 1996 to Second Quarter 1995
Sales in the second quarter 1996 were $37,323,000, a decrease of 2.6% from
$38,309,000 in 1995. Increased sales to the graphics and insulation markets
were more than offset by lower Kasco exports and equipment sales in France.
Also, sales to the electronics markets were lower during the second quarter
due to inventory corrections made by customers in the electronics industry.
Gross profit decreased 4.3% to $13,256,000 from $13,847,000. The gross profit
margin as a percent of sales decreased from 36.1% to 35.5%. The decrease is
attributable to lower sales, a continuing mix shift to lower margin
commercial electronics markets, and volume declines at plants serving the
electronic markets.
Continuing programs to improve operating efficiencies more than offset the
decline in gross profit. Selling and administrative expenses improved 7.1%
to $9,276,000 from $9,980,000 primarily as the result of the ongoing impact
of programs to make Kasco a more cost effective enterprise. As a percent of
sales, selling and administrative expenses were reduced to 24.9% from 26.1%.
Interest expense was reduced $94,000 to $433,000 for the second quarter from
$527,000 last year. This reduction was the result of combined lower interest
rates and lower average borrowings in the quarter.
The effective tax rate for both the second quarter of 1996 and 1995 was 38%.
The provision for income taxes in both periods includes all applicable
federal, state, local and foreign income taxes.
Net income increased 6.2% to $2,199,000 as compared to $2,071,000 in the
second quarter of 1995. Earnings per share increased 10% to $.22 from $.20
as a result of the increased net income and the reduced number of shares
outstanding.
Comparison of First Six Months 1996 to First Six Months 1995
Sales for the first half of 1996 were $75,417,000, a decrease of 1.8% from
$76,832,000 in 1995. The decrease in sales was attributable to a 9.7% decline
in Kasco's sales. Arlon's sales increased 2.3% over the same period as the
growing insulation and graphics markets offset the declines in demand from the
electronics markets.
Gross profit decreased $882,000, or 3.2% in 1996, from $27,576,000 in the
first half of 1995. The gross profit margin as a percent of sales decreased
from 35.9% to 35.4%. The profit margin declines are primarily attributable
to the continuing increase in Arlon's lower margin commercial electronics
business and reduced volumes at the plants serving the electronics markets.
Kasco's gross profit margin as a percent of sales improved during 1996 as the
divisions continued to focus on the core business.
Selling and administrative expenses decreased 6.0% to $18,897,000 from
$20,112,000. As a percent of sales, selling and administrative expenses
decreased to 25.1% from 26.2%, the result of the ongoing impact of programs
to make Kasco a more cost effective enterprise.
Interest expense decreased $226,000 from the first half of 1995. This
reduction was the result of combined lower interest rates and lower average
borrowings in the first half of 1996.
The effective tax rate for both the first half of 1996 and 1995 was 38%. The
provision for income taxes in both periods includes all applicable federal,
state, local and foreign income taxes.
Net income increased 8.7% to $4,308,000 as compared to $3,962,000 in the first
half of 1995. Earnings per share increased 13.2% to $.43 from $.38 as a
result of increased net income and fewer average shares outstanding.
Liquidity and Capital Resources
On April 30, 1996 Bairnco's secured reducing revolving credit agreement with
a consortium of four banks led by Bank of America, Illinois, and including,
SunTrust Bank, NBD Bank and First Union Bank of Florida, was amended. The
amended agreement permits Bairnco to repurchase up to $10.0 million of its
common stock.
At June 29, 1996, Bairnco had working capital of $29.4 million compared to
$28.4 million at December 31, 1995. The increase in accounts receivable
relates to the increased sales activity during the second quarter of 1996 over
that of the fourth quarter 1995 and the increase in export business which has
longer payment terms.
During the second quarter the Board of Directors authorized the repurchase of
an additional $5,000,000 of the Corporation's common stock pursuant to which
35,300 shares of common stock have been repurchased. A total of 384,300
shares of the Corporation's common stock have been repurchased during the six
months ended June 29, 1996.
At June 29, 1996, Bairnco's total debt outstanding was $28,106,000 compared to
$24,578,000 at the end of 1995. This increase was primarily due to the stock
repurchases and the first quarter acquisition of a small silicone product
line. At June 29, 1996 approximately $20.6 million was available for
borrowing under the Corporation's secured reducing revolving credit agreement,
as amended. In addition, approximately $4.2 million was available under
various short-term domestic and foreign uncommitted credit facilities.
Bairnco made approximately $3.1 million of capital expenditures during the
second quarter of 1996 bringing the total capital expenditures for the six
months ended June 29, 1996 to $5,899,000. Total capital expenditures in 1996
are now expected to be approximately $13.8 million which includes
approximately $2.5 million related to the small silicone product line
acquisition.
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 1996.
Other Matters
Bairnco Corporation and its subsidiaries are defendants in a number of legal
actions and proceedings which are discussed in more detail in Part II, Item 1
("Legal Proceedings") of this filing. Management of Bairnco believes that the
disposition of these actions and proceedings will not have a material adverse
effect on the consolidated results of operations or the financial position of
Bairnco Corporation and its subsidiaries as of June 29, 1996.
Outlook
Management is not aware of any adverse trends that would materially affect the
Corporation's strong financial position. Although the economy and a number of
Bairnco's served markets were soft during the second quarter, it is expected
that 1996 will be another year of continued improvement.
PART II - OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
Since its announcement in January 1990 of its intention to spin off Keene
Corporation ("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 were consolidated in the United States District Court for the
Southern District of New York, subsequently were 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. On
May 5, 1995, the Bankruptcy Court overseeing the reorganization of Keene
entered an order allowing the Creditors' Committee to assume from Keene
responsibility for the pursuit of claims arising out of the transfer of assets
for value by Keene to other subsidiaries of Bairnco and the spin-offs of
certain subsidiaries, including Keene, by Bairnco. On June 8, 1995, the
Creditors' Committee commenced an adversary proceeding in the Bankruptcy Court
against Bairnco and others alleging that the transfers of assets by Keene were
fraudulent and otherwise violative of law and seeking compensatory damages of
$700 million, plus interest and punitive damages (the "Transactions Lawsuit").
The complaint in the Transactions Lawsuit includes a count under the civil
RICO statute, 18 U.S.C. Section 1964, pursuant to which compensatory damages
are trebled. Pending the confirmation of Keene's plan of reorganization,
no answers or responsive pleadings have been filed in the Transactions
Lawsuit.
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 is party to a separate action brought by Keene in the United States
Bankruptcy Court for the Southern District of New York, in which Keene seeks
exclusive benefit of tax refunds attributable to the carryback by Keene of
certain net operating losses ("NOL's"), notwithstanding certain provisions of
tax sharing agreements between Keene and Bairnco (the "NOL Lawsuit"). (After
filing the NOL Lawsuit, Keene ceded control of the action to the Creditors'
Committee.) Pending resolution of the dispute by the Bankruptcy Court, any
refunds actually received are to be placed in escrow. Through March 30,
1996, approximately $28.5 million of refunds had been received and placed in
escrow. By stipulation, which has been approved by the Bankruptcy Court,
Bairnco and the Creditors' Committee, the NOL Lawsuit was stayed pending
confirmation of Keene's plan of reorganization (see below). There can be no
assurance whatsoever that resolution of the NOL Lawsuit will result in the
release of any portion of the refunds to Bairnco.
The IRS has taken the position that the NOL refunds, which are issued on a
provisional basis, ultimately might be disapproved or reduced by the
congressional Joint Committee on Taxation and in that event would have to be
returned to the government in whole or in part. There can be no assurance
that the NOL refunds ultimately will be approved.
Keene's plan of reorganization was submitted to creditors for approval, and
was approved by the requisite majorities. On June 12, 1996 the Bankruptcy
Court and the United States District Court for the Southern District of New
York (the "District Court") entered orders approving the plan. The plan
became effective on July 31, 1996.
The plan, as approved, creates a Creditors Trust that has succeeded to all of
Keene's asbestos liabilities, and also has succeeded to the right to prosecute
both the Transactions Lawsuit and the NOL Lawsuit. The plan also includes a
permanent injunction under which only the Creditors Trust, and no other
entity, can sue Bairnco in connection with the claims asserted in the
Transactions Lawsuit. Prior to confirmation, Bairnco and other defendants in
the Transactions Lawsuit had entered into a stipulation (the "Transactions
Stipulation") that calls for the Transactions Lawsuit to be litigated in the
District Court. The anticipated effect of these various provisions is that
all claims and claimants against Bairnco that relate to Keene's asbestos
liabilities should be consolidated for a single, binding resolution in the
Transactions Lawsuit in the District Court.
The Transactions Stipulation also stayed the Transactions Lawsuit until after
confirmation. Prior to confirmation, Bairnco and the Creditors Committee also
entered into a stipulation that stayed the NOL lawsuit until after
confirmation.
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 June 29,
1996.
Item 2: OTHER INFORMATION
None.
Item 3: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 4: EXHIBITS
Exhibit 4: Amendment dated as of April 30, 1996 to Amended and Restated
Credit Agreement dated as of December 17, 1992, by and among
Bairnco Corporation and certain of its subsidiaries and certain
Commercial Lending Institutions and Bank of America, Illinois
(formerly Continental Bank N.A.), as the Agent for Lenders,
which is incorporated herein by reference to Exhibit 3.1 to
Bairnco's Annual Report on Form 10-K for fiscal year ended
December 31, 1992.
Exhibit 11.1: Calculation of Primary and Fully Diluted Earnings per Share
for the Quarters ended June 29, 1996 and July 1, 1995.
Exhibit 11.2: Calculation of Primary and Fully Diluted Earnings per Share
for the Six Months ended June 29, 1996 and July 1, 1995.
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 8, 1996
EXHIBITS
TO FORM 10-Q
FOR QUARTER ENDED
June 29, 1996