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 April 4, 1998
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.
8,793,509 shares of Common Stock Outstanding as of April 9, 1998.
"Safe Harbor" Statement under the Private Securities Reform Act of 1995
Certain of the statements contained in this Quarterly Report
(other than the financial statements and statements of
historical fact), including, without limitation, statements
as to management expectations and beliefs presented under
the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations", are forward-
looking statements. Forward-looking statements are made
based upon management's expectations and belief concerning
future developments and their potential effect upon the
Corporation. There can be no assurance that future
developments will be in accordance with management's
expectations or that the effect of future developments on
the Corporation will be those anticipated by management.
The Corporation wishes to caution readers that the
assumptions which form the basis for forward-looking
statements with respect to or that may impact earnings for
the year ended December 31, 1998 and thereafter include many
factors that are beyond the Corporation's ability to control
or estimate precisely. These risks and uncertainties
include, but are not limited to, the market demand and
acceptance of the Corporation's existing and new products,
the impact of competitive products, changes in the market
for raw or packaging materials which could impact the
Corporation's manufacturing costs, changes in product mix,
changes in the pricing of the products of the Corporation or
its competitors, the loss of a significant customer or
supplier, production delays or inefficiencies, the costs and
other effects of complying with environmental regulatory
requirements, losses due to natural disasters where the
Corporation is self-insured, the costs and other effects of
legal and administrative cases and proceedings, settlements
and investigations, and changes in US or international
economic or political conditions, such as inflation or
fluctuations in interest or foreign exchange rates.
While the Corporation periodically reassesses material
trends and uncertainties affecting the Corporation's results
of operations and financial condition in connection with its
preparation of management's discussion and analysis
contained in its quarterly reports, the Corporation does not
intend to review or revise any particular forward-looking
statement referenced herein in light of future events.
PART I - FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED APRIL 4, 1998 AND MARCH 29, 1997
(Unaudited)
1998 1997
Net sales $42,125,000 $37,445,000
Cost of sales 28,442,000 24,465,000
Gross profit 13,683,000 12,980,000
Selling and administrative expenses 9,716,000 9,116,000
Operating profit 3,967,000 3,864,000
Interest expense, net 481,000 415,000
Income before income taxes 3,486,000 3,449,000
Provision for income taxes 1,290,000 1,276,000
Net income $ 2,196,000 $ 2,173,000
Basic earnings per share of
common stock (Note 2) $ 0.25 $ 0.23
Diluted earnings per share of
common stock (Note 2) $ 0.24 $ 0.23
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 COMPREHENSIVE INCOME
FOR THE QUARTERS ENDED APRIL 4, 1998 AND MARCH 29, 1997
(Unaudited)
Note 3
1998 1997
Net income $ 2,196,000 $ 2,173,000
Other comprehensive income, net of tax:
Foreign currency translation adjustment (74,000) (468,000)
Comprehensive income $ 2,122,000 $ 1,705,000
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF APRIL 4, 1998 AND DECEMBER 31, 1997
(Unaudited)
1998 1997
ASSETS
Current assets:
Cash and cash equivalents $ 648,000 $ 1,217,000
Accounts receivable, less allowances of
$966,000 and $943,000, respectively 27,724,000 24,939,000
Inventories (Note 4) 27,202,000 26,398,000
Deferred income taxes 2,641,000 2,641,000
Other current assets 2,809,000 2,748,000
Total current assets 61,024,000 57,943,000
Plant and equipment, at cost 91,179,000 89,870,000
Less - Accumulated depreciation and
amortization (51,191,000) (49,957,000)
Plant and equipment, net 39,988,000 39,913,000
Cost in excess of net assets of purchased
businesses 7,549,000 7,607,000
Other assets 3,785,000 3,823,000
$112,346,000 $109,286,000
LIABILITIES & STOCKHOLDERS' INVESTMENT
Current Liabilities:
Short-term debt $ 6,594,000 $ 3,018,000
Current maturities of long-term debt 4,000 9,000
Accounts payable 9,773,000 8,661,000
Accrued expenses (Note 5) 9,373,000 10,543,000
Total current liabilities 25,744,000 22,231,000
Long-term debt 27,294,000 27,291,000
Deferred income taxes 4,102,000 4,098,000
Other liabilities 3,191,000 3,197,000
Stockholders' Investment:
Preferred stock, par value $.01,
5,000,000 shares authorized,
none issued -- --
Common stock, par value $.01,
30,000,000 shares authorized,
11,167,274 and 11,160,774 shares
issued, respectively 112,000 112,000
Paid-in capital 49,065,000 49,030,000
Retained earnings 24,551,000 22,802,000
Accumulated other comprehensive
income (Note 3) 1,498,000 1,572,000
Treasury stock, at cost, 2,371,065
and 2,166,765 shares, respectively (23,211,000) (21,047,000)
Total stockholders' investment 52,015,000 52,469,000
$112,346,000 $109,286,000
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED APRIL 4, 1998 AND MARCH 29, 1997
(Unaudited)
1998 1997
Cash Flows from Operating Activities:
Net Income $ 2,196,000 $ 2,173,000
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 1,704,000 1,672,000
(Gain) on disposal of plant and
equipment (42,000) (17,000)
Deferred income taxes 4,000 (10,000)
Change in operating assets and
liabilities:
(Increase) in accounts receivable (2,866,000) (2,992,000)
(Increase) in inventories (879,000) (1,766,000)
(Increase) decrease in other
current assets (71,000) 1,331,000
Increase in accounts payable 1,143,000 2,150,000
(Decrease) in accrued expenses (1,124,000) (888,000)
Other 55,000 7,000
Net cash provided by operating activities 120,000 1,660,000
Cash Flows from Investing Activities:
Capital expenditures (1,775,000) (1,589,000)
Proceeds from collection on notes
receivable -- 307,000
Proceeds from sale of plant and equipment 55,000 19,000
Net cash (used in) investing activities (1,720,000) (1,263,000)
Cash Flows from Financing Activities:
Net borrowings of external debt 3,602,000 483,000
Payment of dividends (443,000) (471,000)
Purchase of treasury stock (2,164,000) (601,000)
Exercise of stock options 35,000 --
Net cash provided by (used in) financing
activities 1,030,000 (589,000)
Effect of foreign currency exchange rate
changes on cash and cash equivalents 1,000 (45,000)
Net (decrease) in cash and cash equivalents (569,000) (237,000)
Cash and cash equivalents, beginning
of period 1,217,000 855,000
Cash and cash equivalents, end of period $ 648,000 $ 618,000
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
APRIL 4, 1998
(Unaudited)
(1) Basis of Presentation
The accompanying consolidated condensed financial statements
include the accounts of Bairnco Corporation and its subsidiaries
("Bairnco" or the "Corporation") after the elimination of all
material intercompany accounts and transactions.
The unaudited consolidated condensed financial statements
included herein have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and note disclosures which are normally included in
annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to those rules and regulations, although the Corporation
believes that the disclosures made are adequate to make the
information presented not misleading.
The consolidated results of operations for the quarter ended
April 4, 1998, are not necessarily indicative of the results of
operations for the full year.
Certain reclassifications were made to prior year balances in
order to conform to the current year presentation.
(2) Earnings per Common Share
The Corporation adopted Statement of Financial Accounting
Standards ("SFAS") No. 128 effective December 15, 1997, and as a
result, the Corporation's previously reported quarterly earnings
per common share for 1997 have been restated. Earnings per share
data is based on net income and not comprehensive income.
Statements regarding the computation of earnings per share for
the quarters ended April 4, 1998 and March 29, 1997 are included
as Exhibit 11 to this Quarterly Report on Form 10-Q.
(3) Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), which is effective for years
beginning after December 15, 1997. SFAS 130 established
standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial
statements. This statement requires that all items of
comprehensive income are classified by their nature in a
financial statement and that the accumulated balance of other
comprehensive income be displayed separately from retained
earnings and additional paid-in capital in the equity section of
a statement of financial position. The comparative prior period
financial statements have been reclassified to conform to the
current period presentation.
Comprehensive income includes net income as well as certain other
transactions shown as changes in stockholders' investment. For
Bairnco, comprehensive income includes net income plus the change
in net asset values of foreign divisions as a result of
translating the local currency values of net assets to US dollars
at varying exchange rates. Accumulated other comprehensive
income consists solely of foreign currency translation
adjustments. There are currently no tax expenses or benefits
associated with the foreign currency translation adjustments.
(4) Inventories
Inventories consisted of the following as of April 4, 1998 and
December 31, 1997:
1998 1997
Raw materials and supplies $ 6,233,000 $ 5,646,000
Work in process 6,107,000 6,402,000
Finished goods 14,862,000 14,350,000
Total inventories $27,202,000 $26,398,000
(5) Accrued Expenses
Accrued expenses consisted of the following as of April 4, 1998
and December 31, 1997:
1998 1997
Salaries and wages $ 1,536,000 $ 2,353,000
Income taxes 440,000 139,000
Insurance 1,973,000 2,216,000
Litigation 1,156,000 1,461,000
Other accrued expenses 4,268,000 4,374,000
Total accrued expenses $ 9,373,000 $10,543,000
(6) 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 Condensed Financial Statements and
related notes and with Bairnco's Audited Consolidated Financial
Statements and related notes for the year ended December 31,
1997.
Bairnco Corporation is a diversified multinational company that
operates two distinct businesses under the names Arlon and Kasco.
Engineered materials and components are designed, manufactured
and sold under the Arlon brand identity to electronic, industrial
and commercial markets. These products are based on common
technologies in coating, laminating, polymers and dispersion
chemistry. Arlon's principal products include high performance
materials for the printed circuit board industry, cast and
calendered vinyl film systems, custom engineered laminates and
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, on site maintenance services and seasonings for ready-
to-cook foods for the retail food industry primarily in the meat
and deli departments. Kasco also distributes equipment to the
food industry in 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 First Quarter 1998 to First Quarter 1997
Sales in the first quarter 1998 were $42,125,000, an increase of
12.5% from $37,445,000 in 1997. The increase in the first quarter
sales was across all product groups. Arlon sales increased 14.7%
led by the improved demand for the products serving the
telecommunications markets. The telecommunications and
electronics markets remain volatile month to month. Kasco sales
increased 7.3% due to improved seasoning and route sales.
Gross profit increased 5.4% to $13,683,000 from $12,980,000 as
the margin contributions from increased sales were partially
offset by manufacturing inefficiencies at plants serving the
electronics materials and replacement products markets. In
addition, costs associated with a four week shutdown for a major
equipment upgrade also contributed to the lower margins. The
gross profit margin as a percent of sales decreased from 34.7% to
32.5%.
Selling and administrative expenses increased 6.6% to $9,716,000
from $9,116,000 consistent with the planned strengthening of the
sales force and the continuing investment in the development of
new products and information system upgrades. As a percent of
sales, selling and administrative expenses were reduced to 23.1%
from 24.3%.
Interest expense increased to $481,000 in 1998 as compared to
$415,000 in 1997 due primarily to higher average borrowings.
The effective tax rate for the first quarter of 1998 and 1997 was
37%. The provision for income taxes in both periods includes all
applicable federal, state, local and foreign income taxes.
Net income was flat at $2,196,000 as compared to $2,173,000 in
the first quarter of 1997. Diluted earnings per common share
increased 4.3% to $.24 from $.23 as a result of the reduced
number of shares outstanding.
Liquidity and Capital Resources
At April 4, 1998, Bairnco had working capital of $35.3 million
compared to $35.7 million at December 31, 1997. The increase in
accounts receivable relates primarily to the increased sales
activity during the first quarter of 1998 over that of the fourth
quarter 1997. Accrued expenses are down from December 31, 1997
as 1997 bonuses were paid out during the first quarter 1998.
During the first quarter 1998, the Board of Directors authorized
an additional $5,000,000 to be available for the ongoing
repurchase of Bairnco's common stock. The Board has authorized
management to continue its stock repurchase program subject to
market conditions and capital requirements of the business.
During the first quarter Bairnco repurchased 204,300 shares of
its common stock at a total cost of $2,164,000.
At April 4, 1998, Bairnco's total debt outstanding was
$33,892,000 compared to $30,318,000 at the end of 1997. This
increase was primarily due to the stock repurchases. At April 4,
1998 approximately $15.7 million was available for borrowing
under the Corporation's secured reducing revolving credit
agreement, as amended. In addition, approximately $1.2 million
was available under various short-term domestic and foreign
uncommitted credit facilities.
Bairnco made approximately $1.8 million of capital expenditures
during the first quarter of 1998. Total capital expenditures
planned for 1998 are approximately $12 million of which
approximately $3.0 million are for additional capacity and are
contingent upon the growth being realized.
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
1998.
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 April
4, 1998.
Outlook
Management is not aware of any adverse trends that would
materially affect the Corporation's strong financial position.
It is expected that 1998 will be another year of continued
improvement.
PART II - OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
Bairnco has been named as a defendant in a number of personal
injury and wrongful death cases in which it is alleged that
Bairnco is derivatively liable for the asbestos-related claims
against its former subsidiary, Keene Corporation ("Keene"). On
December 6, 1993, Keene filed for protection under Chapter 11 of
the Bankruptcy Code. On June 8, 1995, the Keene Creditors'
Committee commenced an adversary proceeding in the Bankruptcy
Court against Bairnco, its subsidiaries, certain of its present
and former officers and directors, and others alleging that the
transfer of assets for value by Keene to other subsidiaries of
Bairnco, and the spin-offs of certain other subsidiaries by
Bairnco, were fraudulent and otherwise violative of law (the
"Transactions Lawsuit") and seeking compensatory damages of $700
million, plus interest and punitive damages. 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.
Bairnco also is the defendant in a separate action originally
brought by Keene in the United States Bankruptcy Court for the
Southern District of New York in which Keene sought the exclusive
benefit of tax refunds attributable to the carryback by Keene of
certain net operating losses ("NOL Refunds"), 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 NOL Lawsuit, any refunds actually
received are to be placed in escrow. Through April 4, 1998,
approximately $28.5 million of NOL Refunds had been received and
placed in escrow. There can be no assurance whatsoever that
resolution of the NOL Lawsuit will result in the release of any
portion of the NOL Refunds to Bairnco.
Keene's plan of reorganization was approved and 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 these lawsuits.
By order entered April 10, 1997, the Transactions Lawsuit was
transferred from the Bankruptcy Court to the United States
District Court for the Southern District of New York, where it
will be litigated. On September 15, 1997, Bairnco and other
defendants filed motions to dismiss the
complaint for failure to state a claim as well as motions for
summary judgment on the grounds that the complaint is time-
barred. Briefing on these motions is complete. On February 6,
1998, the court issued an opinion granting the motions to dismiss
four of the defendants in the Transactions Lawsuit. The court
reserved decision on the other defendants' motions. There can be
no assurance that the remaining motions will result in dismissal
of the Transactions Lawsuit or any part thereof.
On January 6, 1998, the Creditors Trust filed a motion, to which
Bairnco consented, to have the NOL Lawsuit transferred from the
Bankruptcy Court to the District Court. That motion is pending.
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 April
4, 1998.
Item 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
Item 3: DEFAULTS UPON SENIOR SECURITIES
None.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the first quarter of 1998. The annual meeting of
stockholders of Bairnco was held in Maitland, Florida on April
24, 1998. Stockholders ratified management's selection of Arthur
Andersen LLP as auditors for Bairnco for the 1998 fiscal year and
elected all nominees to the Board of Directors. The following
table sets forth the results of votes:
Votes Against
Votes For or Withheld
a. Votes on Ratification of Management's
selection of Auditors:
Arthur Andersen LLP 8,061,898 31,607
b. Votes on Election of Directors:
Luke E. Fichthorn III 8,065,144 28,361
Charles T. Foley 8,067,214 26,291
Richard A. Shantz 8,064,860 28,645
William F. Yelverton 8,066,014 27,491
Item 5: OTHER INFORMATION
None.
Item 6(a): EXHIBITS
Exhibit 11 - Calculation of Basic and Diluted Earnings per Share for
the Quarters ended April 4, 1998 and March 29, 1997.
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: May 7, 1998
EXHIBITS
TO FORM 10-Q
FOR QUARTER ENDED
April 4, 1998