UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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, Maitland, Florida 32751 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (407) 875-2222 Securities registered pursuant to Section 12(b) of the Act: Name of each Exchange on Title of each class which registered Common Stock, par value $.01 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 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 On March 8, 1999, the aggregate market value of the Registrant's voting stock held by non-affiliates was $38,993,888. On March 8, 1999, there were 8,209,659 shares of Common Stock outstanding, exclusive of treasury shares or shares held by subsidiaries of the Registrant. Parts I, II and IV incorporate information by reference from the Annual Report to Stockholders for the fiscal year ended December 31, 1998. Part III incorporates information by reference from the Proxy Statement dated March 17, 1999 in connection with the Registrant's Annual Meeting of Stockholders to be held on April 22, 1999. PART I Item 1. BUSINESS a. Recent Developments and Description Bairnco Corporation was incorporated under the laws of the State of New York on April 9, 1981. Effective September 24, 1991, Bairnco Corporation changed its state of incorporation from New York to Delaware. Unless otherwise indicated herein, the terms "Bairnco" and the "Corporation" refer to Bairnco Corporation and its subsidiaries. Bairnco's two core businesses are Arlon's Engineered Materials and Components, and Kasco's Replacement Products and Services. At December 31, 1998, Bairnco employed 816 persons including 13 Headquarters personnel. Bairnco's operations occupy approximately 634,700 square feet of factory and office space at its principal locations. There is an additional 54,000 square feet of leased space used as field warehouses throughout North America. b. & c. Financial Information About Industry Segments and Narrative Description of Business Bairnco Corporation is a diversified multinational company that operates two business sectors. 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. Replacement products and services are manufactured and distributed under the Kasco brand identity principally to supermarkets, meat and deli operations, and meat, poultry and fish processing plants throughout the United States, Canada and Europe. Kasco also manufactures small band saw blades for cutting metal and wood, and large band saw blades for use at lumber mills. In Canada and France, in addition to providing its replacement products, Kasco also distributes equipment to the supermarket and food processing industries. Financial data and other information about the Corporation's segments is set forth in Note 10 to the Consolidated Financial Statements on pages 29 through 31 and on pages 4 through 7 of Bairnco's 1998 Annual Report to Stockholders which is incorporated herein by reference. This information should be read in conjunction with the "Financial History" set forth on page 9 of Bairnco's 1998 Annual Report to Stockholders, and "Management's Discussion and Analysis" set forth on pages 10 and 13 of Bairnco's 1998 Annual Report to Stockholders, which is incorporated herein by reference. The principal facilities utilized by each segment are detailed on page 10 under "Item 2. PROPERTIES" of this filing. ENGINEERED MATERIALS AND COMPONENTS (ARLON) Description of Business 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 technology materials for the printed circuit board industry, pressure sensitive and adhesive coated cast and calendered vinyl films, custom-engineered laminates and coated products, and special silicone rubber compounds and components. Arlon Materials for Electronics has an international reputation as the premier supplier of high technology materials for the printed circuit board industry. These products are marketed principally to printed circuit board manufacturers and OEM's by a direct sales force in concert with strong technical support teams in the US and through distributors and manufacturers representatives in Europe, the Far East, and South America. Our Electronic Substrates product line includes high temperature, high performance thermoset laminates and prepreg bonding plies used in circuit boards for sophisticated commercial applications and military electronics. These applications require materials that withstand continuous high or widely varying operating temperatures, provide ease of field reparability, are highly reliable, and improve board fabrication yields. Intermediate temperature laminates, which provide improved product reliability and ease of manufacture at a lower cost, are also key to the line. The Microwave Materials product line offers application matched, reinforced PTFE and other resin based laminates providing high yields and high performance for low signal-loss and frequency-dependent microwave applications. The applications for this product line include digital cordless telephones, cellular phone systems, direct broadcast satellite TV systems, personal communications networks, global positioning satellites, local area networks, collision avoidance systems, and radar detection systems. Arlon specialty graphic films are marketed under the Calon brand name and include cast and calendered vinyl films that are manufactured in a wide variety of colors, face stocks and adhesive systems. These vinyl films are used in commercial and electrical signage, point of purchase displays, highway signage, fleet markings, and other commercial advertising applications. In November of 1998, Bairnco announced the purchase of MII International, Inc., a manufacturer of adhesive coated films for use in the graphics and industrial markets. MII's product lines complement Arlon's current vinyl product lines, and will provide product line extensions, additional brand recognition, product development synergies, and penetration into new customer segments and markets. The acquisition also expanded Arlon's coating and converting capacity. Custom engineered laminates and coated products are also manufactured and marketed under the Arlon brand identity. Typical applications include insulating foam tapes for thermopane windows, specialty flexible circuit materials, electrical insulation materials for motors and transformers, thermal insulation panels for appliances and cars, identification cards and labels, durable printing stock, and other custom engineered laminates for specific industrial applications. A line of silicone rubber materials, used in a broad range of consumer, industrial and commercial products, is also manufactured and marketed under the Arlon brand identity. Typical applications and products include silicone rubber for molding composites, silicone rubber insulating tapes for traction motor coil windings, insulation for industrial flexible heaters, silicone materials for high temperature hose and duct markets, insulating tapes for electrical splices, as well as compliant thermally and electrically conductive silicone sheet adhesives known as ThermabondT. Competition Arlon has numerous competitors ranging in size from small, sole proprietorships to units of very large, multinational corporations that in certain instances have far greater market positions and financial resources than the Corporation's. The principal method of competition for Arlon's products varies by product line and type of customer. While competition for established lines is usually based on one or more of lead time, price, product performance, technical support and customer service, it may also be based on the ability to service emerging technologies through the custom design of new products, or redesign of existing products, and materials for the new applications. For high performance materials sold to the printed circuit board industry, the consistent technical performance of the materials supplied in excess of minimum specified standards can be the critical competitive element. In addition, Arlon sells a significant portion of its circuit board materials into the Japanese and European markets where local producers of similar materials have a competitive advantage related to their geographic location. Distribution Arlon products are marketed by company sales personnel, outside sales representatives and distributors in the North and South America, Europe, the Far East and several other international markets. Raw Materials and Purchased Parts The essential raw materials used in Arlon engineered materials and components are silicone rubber, fiberglass cloth, pigments, steel and aluminum parts, copper foil, aluminum foil, polyethylene foam and various plastic films, special papers and release liners, vinyl resins, various adhesives and solvents, TeflonT or polytetrafluoroethylene (PTFE) resin, polyimide resin, epoxy resins, and various chemicals. Generally, these materials are each available from several qualified suppliers. There are, however, several raw materials used in Arlon's products that are purchased from chemical companies and are proprietary in nature. Other raw materials are purchased from a single approved vendor on a "sole source" basis although alternative sources could be developed in the future if necessary. However, the qualification procedure can take up to several months and could therefore interrupt production if the primary raw material source was lost unexpectedly. Due to the number and diversity of Arlon's products it is unlikely that availability problems with any one raw material would have a material adverse effect on Arlon. The Corporation is aware that a raw material supplier will discontinue the sale of a resin system currently used in certain Arlon products. An alternative resin system has been qualified and is expected to completely replace the existing resin system during 1999. There are no other known limitations to the continued availability of Arlon's raw materials. Current suppliers are located in the United States, Japan, Europe and Brazil. Employees As of December 31, 1998, approximately 486 employees were employed by the operations, which constitute Arlon's engineered materials and components. Patents and Trademarks The Corporation owns several registered trademarks under which certain Arlon products are sold. The Corporation does not believe that the loss of any or all of these trademarks would have a material adverse effect on this segment. REPLACEMENT PRODUCTS AND SERVICES (KASCO) Description of Business Replacement products and services are manufactured and distributed under the Kasco brand identity principally to supermarkets, meat and deli operations, and meat, poultry and fish processing plants throughout the United States, Canada and Europe. These products and services include band saw blades for cutting meat and fish, chopper plates and knives for grinding meat, seasoning products, preventive maintenance for equipment in meat and deli operations, and other related butcher supply products. Kasco also manufactures small band saw blades for cutting metal and wood, and large band saw blades for use at lumber mills. Kasco's Canadian and French operations also distribute equipment to the supermarket and food processing industries. Replacement products and services 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. Competition and Marketing Kasco competes with several large and medium-sized national and regional companies, as well as numerous small local companies. The principal methods of competition are service, price and product performance. The performance of meat band saw blades used in cutting meat or other food items is balanced between minimizing waste and maximizing the efficiency and productivity of the band saw machine and operator or other cutting/processing equipment being used. During 1998, Kasco made several product design improvements to its band saw blades and its chopper plates and knives. Kasco has introduced a line of premium wood cutting band saw blades for use by professional cabinetry and furniture makers and serious hobbyists. The Mealtime Solutions seasoning program continues to be a success as sales for home meal replacement items within supermarkets increase. Mealtime Solutions offers a package of seasoning blends, recipes and instructions which allows a supermarket to present value-added products in their meat and deli departments. During 1998, Kasco developed several new product lines which expand their Mealtime Solutions program into deli and seafood departments. In North America, Kasco supplies its products and services directly to the supermarket and meat cutting industries through a continent-wide network of service professionals and exclusive distributors. During 1998, Kasco increased its emphasis on preventive maintenance, increasing the value-added service its network of professionals provides to customers. Raw Materials and Purchased Supplies High quality carbon steel is the principal raw material used in the manufacture of band saw blades and is purchased from multiple domestic and international suppliers. Tool steel is utilized in manufacturing meat grinder plates and knives and is purchased from qualified suppliers located in the United States, Europe and Japan. Equipment, replacement parts and supplies are purchased from a number of manufacturers and distributors, mostly in the United States and Europe. In France, certain specialty equipment and other items used in the supermarket industry and in the food processing industry are purchased and resold under exclusive distributorship agreements with the equipment manufacturers. All of the raw materials and purchased products utilized by this segment have been readily available throughout this last year and, despite some tightness in several seasoning raw materials forecasted for 1999, Kasco's long-term supply contracts assume adequate availability of raw materials to sustain the current growth rate in this segment. Employees As of December 31, 1998, approximately 317 persons were employed in the replacement products and services segment. Patents and Trademarks The Corporation has a number of United States and foreign mechanical patents related to several of the products manufactured and sold by Kasco, as well as a number of design patents and registered trademarks. The Corporation does not believe, however, that the loss of any or all of those patents would have a material adverse effect on this segment. d. Foreign Operations The Corporation has foreign operations located in Canada, the United Kingdom, France, and Germany. Information on the Corporation's operations by geographical area for the last three fiscal years is set forth in Note 10 to the Consolidated Financial Statements on pages 29 through 31 of Bairnco's 1998 Annual Report to Stockholders which is incorporated herein by reference. In addition, export sales from the Corporation's US based operations for the years ended December 31, 1998, 1997 and 1996 were $30,554,000, $28,770,000 and $28,692,000, respectively. Export sales to any particular country or geographic area did not exceed 10% of consolidated sales during any of these years. Item 2. PROPERTIES The following chart lists for the Corporation as a whole, and by each of its segments, the principal locations of the Corporation's facilities and indicates whether the property is owned or leased and if leased, the lease expiration date. LEASED OR OWNED LOCATION SQUARE FEET (LEASE EXPIRATION) CORPORATION TOTAL 688,700 Headquarters Maitland, FL 7,700 Leased (Expires 2000) Engineered Materials and Components (Arlon) Bear, DE 135,000 Owned East Providence, RI 60,000 Owned Northbrook, IL 30,000 Owned Rancho Cucamonga, CA 80,000 Owned Santa Ana, CA 124,000 Leased (Expires 2003) Replacement Products and Services (Kasco) Gwent, Wales, UK 25,000 Owned Pansdorf, Germany 22,000 Owned Paris, France 20,000 Leased (Expires 2000) St. Louis, MO 78,000 Owned St. Louis, MO 20,000 Leased (Expires 2000) Toronto, Ontario, Canada 33,000 Owned Field Warehouses (Approximately 70 locations in North America) 54,000 Leased Item 3. LEGAL PROCEEDINGS Bairnco and its subsidiaries are among the defendants in a lawsuit pending in the U.S. District Court for the Southern District of New York (the "Transactions Lawsuit") in which it is alleged that Bairnco and others are derivatively liable for the asbestos-related claims against its former subsidiary, Keene Corporation ("Keene"). The plaintiffs in the Transactions Lawsuit are the trustees of Keene Creditors Trust ("KCT"), a successor in interest to Keene. In the Transactions Lawsuit complaint, the KCT alleges that certain sales of assets by Keene to other subsidiaries of Bairnco were fraudulent conveyances and otherwise violative of state law, as well as being violative of the civil RICO statute, 18 U.S.C. Section 1964. The complaint seeks compensatory damages of $700 million, interest, punitive damages, and trebling of the compensatory damages pursuant to civil RICO. In a series of decisions that remain subject to appeal, the court has dismissed plaintiff's civil RICO claims; dismissed 14 of the 21 defendants named in the complaint; and partially granted defendants' motions for summary judgment on statute of limitations grounds. Discovery is now underway as to the remaining claims and defendants. Keene was spun off in 1990, filed for relief under Chapter 11 of the Bankruptcy Code in 1993, and emerged from Chapter 11 pursuant to a plan of reorganization approved in 1996 (the "Keene Plan"). The Keene Plan provided for the creation of the KCT, and transferred the authority to prosecute the Transactions Lawsuit from the Official Committee of Unsecured Creditors of Keene (which initiated the lawsuit in the Bankruptcy Court in 1995) to the KCT. The Keene Plan further provided that only the KCT, and no other entity, can sue Bairnco in connection with the claims in the Transactions Lawsuit complaint. Therefore, although a number of other asbestos-related personal injury and property damage cases against Bairnco nominally remain pending in courts around the country, it is expected that the resolution of the Transactions Lawsuit in substance will resolve all such claims. Bairnco also is the defendant in a separate action by the KCT (the "NOL Lawsuit"), also pending in the United States District Court for the Southern District of New York, in which the KCT seeks the exclusive benefit of tax refunds attributable to the carryback by Keene of certain net operating losses ("NOL Refunds"), notwithstanding certain provisions of applicable tax sharing agreements between Keene and Bairnco. (As with the Transactions Lawsuit, the NOL Lawsuit was commenced during Keene's Chapter 11 case and, pursuant to the Keene Plan, the KCT became the plaintiff in the lawsuit and the lawsuit was moved from the bankruptcy Court to the District Court.) Pending resolution of the NOL Lawsuit, any refunds actually received are to be placed in escrow. Through December 31, 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. Bairnco and its Arlon subsidiary also are among the defendants in a third action by the KCT (the "Properties Lawsuit"), commenced December 8, 1998 and pending in the United States District Court for the Southern District of New York. In the Properties Lawsuit complaint, the KCT seeks a declaratory judgment that it owns certain patents and real property purchased by Arlon from Keene in 1989, based on the allegations that technical title to these assets was not conveyed at the time of the sale and that no proof of claim specifically referencing these assets was filed during Keene's Chapter 11 case. 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, 1998. Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of 1998. EXECUTIVE OFFICERS OF THE REGISTRANT The information required with respect to executive officers of the Corporation is as follows: Name and Age of Data Pertaining to Executive Officers Executive Officers Luke E. Fichthorn III (57) Mr. Fichthorn has served as Chairman of Bairnco since May 23, 1990, and on December 18, 1991, became Chief Executive Officer of Bairnco. For over twenty-five years, Mr. Fichthorn has been a private investment banker and partner of Twain Associates, a private investment banking and consulting firm. Mr. Fichthorn served as a director of Keene Corporation, a former subsidiary of Bairnco Corporation from August, 1969 until May, 1981, and became a director of Bairnco in January, 1981. Mr. Fichthorn is also a director of Florida Rock Industries, Inc. and FRP Properties, Inc., neither of which is affiliated with Bairnco. J. Robert Wilkinson (64) Mr. Wilkinson was elected Vice President - Finance and Treasurer in March 1990. From September 1986 to September 1989, Mr. Wilkinson was Bairnco's Vice President - Controller. From October 1989 to March 1990 he was Executive Vice President of Shielding Systems Corporation, a wholly owned subsidiary of Bairnco. James W. Lambert (45) Mr. Lambert was appointed Corporate Controller of Bairnco on August 11, 1997. Prior to joining Bairnco, Mr. Lambert was employed for over 15 years by Air Products and Chemicals Inc., in a variety of financial, marketing and product management capacities. PART II Item 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS a. & c. Data regarding market prices of Bairnco's common stock is included in the "Quarterly Results of Operations" on page 14 of Bairnco's 1998 Annual Report to Stockholders which is incorporated herein by reference. Bairnco's common stock is traded on the New York Stock Exchange under the symbol BZ. Data on dividends paid is included in the Consolidated Statements of Income on page 16 of Bairnco's 1998 Annual Report to Stockholders, which is incorporated herein by reference. The quarterly cash dividend remained constant at $0.05 per share during 1998. The Board continues to review the dividend on a quarterly basis. b. The approximate number of holders of record of Bairnco common stock (par value $.01 per share) as of December 31, 1998 was 1,436. Item 6. SELECTED FINANCIAL DATA Reference is made to "Financial History" on page 9 of Bairnco's 1998 Annual Report to Stockholders, which is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the "Management's Discussion and Analysis" on pages 10 through 13 of Bairnco's 1998 Annual Report to Stockholders which is incorporated herein by reference. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The interest on the Corporation's bank debt is floating and based on prevailing market interest rates. For market rate based debt, interest rate changes generally do not affect the market value of the debt but do impact future interest expense and hence earnings and cash flows, assuming other factors remain unchanged. A theoretical one percentage point change in market rates in effect on December 31, 1998 would increase interest expense and hence reduce the net income of the Corporation by approximately $250,000 per year. The Corporation's fiscal 1998 sales denominated in a currency other than U.S. dollars were less than 15% of total sales and net assets maintained in a functional currency other than U.S. dollars at December 31, 1998 were less than 15% of total net assets. The effects of changes in foreign currency exchange rates has not historically been significant to the Corporation's operations or net assets. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the Consolidated Financial Statements and accompanying Notes included on pages 16 through 32 and the "Quarterly Results of Operations" on page 14 of Bairnco's 1998 Annual Report to Stockholders which is incorporated herein by reference. Financial Statement Schedules are included in Part IV of this filing. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required with respect to directors of Bairnco is included in the Proxy Statement for the 1999 Annual Meeting of Stockholders of Bairnco, which will be filed with the Securities and Exchange Commission and is incorporated herein by reference. See the information regarding executive officers of the Corporation on page 13 of this Annual Report on Form 10-K. Item 11. EXECUTIVE COMPENSATION The information required by Item 11 is included in the Proxy Statement for the 1999 Annual Meeting of Stockholders of Bairnco, which will be filed with the Securities and Exchange Commission and is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is included in the Proxy Statement for the 1999 Annual Meeting of Stockholders of Bairnco, which will be filed with the Securities and Exchange Commission and is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is included in the Proxy Statement for the 1999 Annual Meeting of Stockholders of Bairnco, which will be filed with the Securities and Exchange Commission and is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K a) 1. Financial Statements Included in the 1998 Annual Report to Stockholders which is included as Exhibit 13 to this Annual Report on Form 10-K: - Report of Independent Certified Public Accountants; - Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996; - Consolidated Statements of Comprehensive Income for the years ended December 31, 1998, 1997 and 1996; - Consolidated Balance Sheets as of December 31, 1998 and 1997; - Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996; - Consolidated Statements of Stockholders' Investment for the years ended December 31, 1998, 1997 and 1996; - Notes to Consolidated Financial Statements. 2. Financial Statement Schedules Included in Part IV of this Annual Report on Form 10-K: - Report of Independent Certified Public Accountants on Financial Statement Schedules on page 20 of this Annual Report on Form 10-K; - Financial Statement Schedules for the years ended December 31, 1998, 1997 and 1996: Schedule II - Valuation and Qualifying Accounts on page 21 of this Annual Report on Form 10-K; All other schedules and notes are omitted because they are either not applicable, not required or the information called for therein appears in the Consolidated Financial Statements or Notes thereto. 3. See Index to Exhibits on pages 23 through 25 of this Annual Report on Form 10-K. b) Reports on Form 8-K - None in fiscal year 1998. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BAIRNCO CORPORATION (Registrant) Date: March 19, 1999 By: /s/ J. Robert Wilkinson J. Robert Wilkinson Vice President-Finance and Treasurer (Principal Financial Officer) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been executed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated above. /s/ Luke E. Fichthorn III Luke E. Fichthorn III - Chairman and CEO /s/ Richard A. Shantz Richard A. Shantz - Director /s/ Charles T. Foley Charles T. Foley - Director /s/ William F. Yelverton William F. Yelverton - Director /s/ J. Robert Wilkinson J. Robert Wilkinson - Vice President-Finance and Treasurer (Principal Financial Officer) /s/ James W. Lambert James W. Lambert - Controller (Principal Accounting Officer) REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES TO BAIRNCO CORPORATION: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Bairnco Corporation's Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 21, 1999. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14(a) 2 is the responsibility of the company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Orlando, Florida January 21, 1999 Arthur Andersen LLP BAIRNCO CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 Balance Balance Year Ended Beginning Deductions End December 31, of Year Expenses (a) Other (b) of Year 1998 - Reserve for Doubtful Accounts $943,000 $372,000 $(241,000) $150,000 $1,224,000 1997 - Reserve for Doubtful Accounts $822,000 $365,000 $(244,000) $ -- $ 943,000 1996 - Reserve for Doubtful Accounts $763,000 $300,000 $(241,000) $ -- $ 822,000 (a) Actual charges incurred in connection with the purpose for which the reserves were established. (b) Additions to the reserve from acquisition. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 EXHIBITS TO FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 Commission File No.: 1-8120 BAIRNCO CORPORATION (Exact name of registrant as specified in the charter) INDEX TO EXHIBITS Description Incorporated Herein By Reference To Certificate of Incorporation, as Exhibit 3 to Bairnco's Annual amended through September 24, 1991. Report on Form 10-K for fiscal year ended December 31, 1991. By Laws, as amended through December Exhibit 3 to Bairnco's Annual 18, 1991. Report on Form 10-K for fiscal year ended December 31, 1991. Amended and Restated Credit Exhibit 3.1 to Bairnco's Annual Agreement, dated as of December 17, Report on Form 10-K for fiscal 1992, among Bairnco Corporation and year ended December 31, 1992. certain of its subsidiaries, as guarantors, and certain Commercial Lending Institutions and Continental Bank NA (now Bank of America, Illinois), as the Agent for Lenders. Amendment dated as of March 16, 1994 Exhibit 3 to Bairnco's Annual to Amended and Restated Credit Report on Form 10-K for fiscal Agreement dated as of December 17, year ended December 31, 1993. 1992, by and among Bairnco Corporation and certain of its subsidiaries and certain Commercial Lending Institutions and Continental Bank NA (now Bank of America, Illinois), as the Agent for Lenders. Promissory note dated as of Exhibit 4 to Bairnco's Annual September 1, 1989, between Arlon, Report on Form 10-K for fiscal Inc. And the Delaware Economic year ended December 31, 1989. Development Authority. Indenture of Trust, series 1989, Exhibit 4 to Bairnco's Annual dated as of September 1, 1989, Report on Form 10-K for fiscal between the Delaware Economic year ended December 31, 1989. Development Authority and Manufacturers and Traders Trust Company, securing variable rate demand Industrial Development Refunding Revenue Bonds (Arlon, Inc. Project), series 1989 of the Delaware Economic Development Authority. Loan Agreement, dated as of Exhibit 4 to Bairnco's Annual September 1, 1989, between the Report on Form 10-K for fiscal Delaware Economic Development year ended December 31, 1989. Authority and Arlon, Inc. Reimbursement Agreement dated as of Exhibit 4 to Bairnco's Annual September 1, 1989 by and among Report on Form 10-K for fiscal Arlon, Inc., Bairnco Corporation and year ended December 31, 1989. Continental Bank NA (now Bank of America, Illinois). Agreement of the Company, dated Exhibit 4(e) to Bairnco's March 30, 1987, to furnish a copy of Annual Report on Form 10-K for any instrument with respect to fiscal year ended December 31, certain other long-term debt to the 1986. Securities and Exchange Commission upon its request. Lease dated December 10, 1991 Exhibit 10 to Bairnco's Annual between Mattei Corporation and Report on Form 10-K for fiscal Bairnco Corporation. year ended December 31, 1991. Lease, dated May 1, 1985, between Exhibit 10 to Bairnco's John B. Merrill, Joseph S. Weedon Annual Report on Form 10-K and Richard A. Westberg and KASCO for fiscal year ended Corporation as successor to Atlantic December 31, 1986. Service, Inc. Standard Industrial Lease dated June Exhibit 10 to Bairnco's 30, 1983 between James E. and Nancy Annual Report on Form 10-K S. Welsh, trustees under Welsh for fiscal year ended Family Trust, dated April 20, 1979 December 31, 1983. and Arlon, Inc. as successor to Keene Corporation. Bairnco Corporation 401(k) Savings Exhibit 4.3 to Bairnco's Plan and Trust. Registration Statement on Form S-8, No. 33-41313. Bairnco Corporation 1990 Stock Exhibit 4.3 to Bairnco's Incentive Plan. Registration Statement on Form S-8, No. 33-36330. Bairnco Corporation Management Exhibit 10 to Bairnco's Incentive Compensation Plan. Annual Report on Form 10-K for fiscal year ended December 31, 1981. Employment Agreement dated January Exhibit 10 to Bairnco's 22, 1990, between Bairnco Annual Report on Form 10-K Corporation and Luke E. Fichthorn for fiscal year ended III. December 31, 1989. Amendment dated as of April 18, Exhibit 4 to Bairnco's 1995, to Amended and Restated Credit Quarterly Report on Form 10-Q Agreement dated as of December 17, for the quarterly period 1992, by and among Bairnco ended April 1, 1995. Corporation and certain of its subsidiaries and certain Commercial Lending Institutions and Continental Bank NA (now Bank of America, Illinois), as the Agent for Lenders. Amendment dated as of February 14, Exhibit 4 to Bairnco's 1997, to Amended and Restated Credit Annual Report on Form 10-K Agreement dated as of December 17, for fiscal year ended 1992, by and among Bairnco December 31, 1996. Corporation and certain of its subsidiaries and certain Commercial Lending Institutions and Bank of America, Illinois, as the Agent for Lenders. Promissory Note dated January 31, Exhibit 4 to Bairnco's 1998, between Bairnco Corporation Annual Report on Form 10-K and Bank of America NT&SA. for fiscal year ended December 31, 1997. Amendment dated as of October 13, Exhibit 4 to Bairnco's 1998, to Amended and Restated Credit Quarterly Report on Form 10- Agreement dated as of December 17, Q for the quarterly period 1992, by and among Bairnco ended October 3, 1998. Corporation and certain of its subsidiaries and certain Commercial Lending Institutions and Bank of America, Illinois, as the Agent for Lenders. Amendment dated as of December 31, Exhibit 4 filed herewith. 1998, 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, as the Agent for Lenders. Calculation of Basic and Diluted Exhibit 11 filed herewith. Earnings per Share for the years ended December 31, 1998, 1997 and 1996. 1998 Annual Report to Stockholders. Exhibit 13 filed herewith. Subsidiaries of the Registrant. Exhibit 21 filed herewith. Consent of Independent Certified Exhibit 23 filed herewith. Public Accountants. Financial Data Schedules. Exhibit 27 filed herewith (electronic filing only). Form 11-K Re: Bairnco Corporation Exhibit 99 filed herewith. 401(k) Savings Plan and Trust for the fiscal year ended December 31, 1998.