-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EBAza2rLzJxsuWqE3zyZ0pFn1sI75sk+yEAtUiHAvcGFvmE8e/Fqspd59w19ZVAA M5u60FmrQ9AhMQ7RFFx+KA== 0000350750-97-000005.txt : 19970321 0000350750-97-000005.hdr.sgml : 19970321 ACCESSION NUMBER: 0000350750-97-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970320 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAIRNCO CORP /DE/ CENTRAL INDEX KEY: 0000350750 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 133057520 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08120 FILM NUMBER: 97560086 BUSINESS ADDRESS: STREET 1: 2251 LUCIEN WAY SUITE 300 CITY: MAITLAND STATE: FL ZIP: 32751 BUSINESS PHONE: 4078752222 MAIL ADDRESS: STREET 1: 2251 LUCIEN WAY, SUITE 300 CITY: MAITLAND STATE: FL ZIP: 32751-7037 10-K 1 FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 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, 1996 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 10, 1997, the aggregate market value of the Registrant's voting stock held by non-affiliates was $64,066,267. On March 10, 1997, there were 9,346,934 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, 1996. Part III incorporates information by reference from the Proxy Statement dated March 21, 1997 in connection with the Registrant's Annual Meeting of Stockholders to be held on April 18, 1997. 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, 1996, Bairnco employed 820 persons including 11 Headquarters personnel. Bairnco's operations occupy approximately 685,500 square feet of factory and office space at its principal locations. 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. 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. Kasco also distributes equipment to the food industry in Canada and France. Financial data and other information about the Corporation's segments is set forth in Note 9 to the Consolidated Financial Statements on pages 23 and 24 and on pages 4 through 7 of Bairnco's 1996 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 1996 Annual Report to Stockholders, and "Management's Discussion and Analysis" set forth on pages 10 and 11 of Bairnco's 1996 Annual Report to Stockholders, which is incorporated herein by reference. The principal facilities utilized by each segment are detailed on page 9 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 a common technology in coating, laminating, resin technology 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. Arlon circuit board materials (also referred to as substrates) are grouped as follows: (1) High performance and high temperature materials used in circuit boards for military electronics and sophisticated commercial applications. Product applications include next-generation commercial and military avionics systems combining demands for surface mount technology with high temperature fabrication and use temperatures, and high performance test fixturing for next-generation integrated circuits. Intermediate temperature laminates which provide both improved product reliability in the field and ease of manufacture are also key to the line. Specialty products have been developed for the surface mounting of computer chips on circuit boards and for multi-chip modules which are growing segments of the printed circuit board market; and, (2) Frequency dependent and low signal loss materials used for circuit boards and antennas used in microwave applications such as digital cordless telephones, local and global cellular phone systems, direct broadcast satellite TV systems, global positioning satellite systems and other personal communications systems. Additional 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. A major emerging market for wireless communications is the new phone systems which are being planned for a number of developing countries in Asia and South America. These systems will bypass the high cost of installing and maintaining a hardwire infrastructure and will permit regional installation based on population density. This should be a large and growing market over the next decade as numerous countries become involved. Arlon specialty graphic films include cast and calendered vinyl films that are manufactured and marketed under the Calon brand name. These films are offered in a wide variety of colors and with varying face stocks and adhesive systems to the specialty graphics market which includes commercial sign manufacturers and graphic printing houses, and to customers involved in numerous commercial and governmental specification applications. During 1996, Arlon entered into a strategic alliance with a United Kingdom based graphics and distribution company to further develop the European market. This new venture is expected to provide better and more cost effective services to Arlon's European distributors. Arlon N.V., Arlon's Belgium subsidiary which has served Europe, continued to under perform and was closed in 1996. Custom engineered laminates and adhesive systems are also manufactured and marketed under the Arlon brand name and include insulating foam tapes for thermopane windows, electrical insulation, thermal insulation panels for appliances and cars, security tags and labels, durable printing stock for high speed laser printing systems and custom engineered laminates for specific industrial applications. Arlon is also now focusing on developing additional engineered laminates, coatings and pressure sensitive systems for specific industrial applications. A line of silicone rubber based materials, used in a broad range of consumer, industrial and commercial products, is also manufactured and marketed under the Arlon brand name. 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 insulating tapes, as well as many thermal and electrical conductivity applications. During 1996, further progress was made in both the development and applications of Thermabond(tm), a range of thermally conductive silicone products designed for the dissipation of heat from electronic circuit boards. During 1996, Arlon acquired a silicone rubber tape product line which provided additional capacity and a broader range of capability including the ability to calender ultra-thin silicone rubber materials both with a supporting backbone as well as unsupported. 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 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 United States, Canada, 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, Teflon(tm) or polytetrafluoroethelene (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. There are no known limitations to the continued availability of Arlon's raw materials. Current suppliers are located in the United States, Japan and France. Employees As of December 31, 1996, approximately 476 employees were employed by the operations comprising 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 name 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. Kasco's French and Canadian operations also distribute equipment to the supermarket and food processing industries in their respective markets. 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 formulates, manufactures and markets seasoning products for the meat and deli departments of supermarkets which are primarily used in the preparation of in-store products. Kasco distributes related supply products to supermarkets and other customers. Kasco, through its continent-wide network of service professionals, 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. 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 1996, Kasco's management continued the process to improve the efficiencies in manufacturing and distribution. These actions, together with significant capital and process investments resulted in superior quality bands, improved on-time deliveries and improved productivity. In North America, Kasco supplies its products and services directly to the supermarket and meat cutting industries through its continent-wide network of service professionals. These service professionals make regularly scheduled calls on the accounts in their region. They supply the Company's products and provide related equipment maintenance services. Kasco's service professionals are continuously trained in the service and maintenance of equipment used in the meat preparation areas of retail food outlets. The field computerization program permits the service professionals to more efficiently service their customer base. In order to improve the cost effectiveness and provide improved timely equipment maintenance, Kasco integrated its service centers with its van service network during the fourth quarter 1996. The repair service operations 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. Seasoning represents an emerging opportunity for Kasco to provide new value added programs to the meat and deli departments of its supermarket customers. As supermarkets increasingly compete with the restaurant trade for the consumers food dollars, they are turning to prepared foods. Kasco is well positioned to support its customers with its comprehensive "Mealtime Solutions" seasoning program. "Mealtime Solutions" offers a package of seasoning blends, recipes and instruction which allows a supermarket to present value added products in their meat and deli departments. 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 chopper 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 the Canadian and French operations, certain specialty equipment and other items are purchased and resold under exclusive distributorship agreements with the equipment manufacturers. All of the raw materials and purchased products utilized by this sector have been readily available throughout this last year and it is anticipated that adequate supplies will continue to be available throughout the coming year. Employees As of December 31, 1996, approximately 333 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 9 to the Consolidated Financial Statements on page 24 of Bairnco's 1996 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, 1996, 1995 and 1994 were $28,692,000, $27,115,000 and $21,093,000, 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 685,500 Headquarters Maitland, FL 7,700 Leased(Expires 2000) Replacement Products and Services (KASCO) City of Industry, CA 15,000 Leased(Expires 1997) Gwent, Wales, UK 25,000 Owned Lyon, France 11,000 Leased(Expires 1999) Montreal, Quebec, Canada 7,000 Leased(Expires 1998) Pansdorf, Germany 22,000 Owned Paris, France 12,000 Leased(Expires 1997) Rennes, France 4,800 Leased(Expires 1997) Scarborough, Ontario, Canada 33,000 Owned St. Louis, MO 75,000 Owned St. Louis, MO 20,000 Leased(Expires 2000) Field Warehouses (Approximately 70 locations in North America) 36,000 Leased Engineered Materials and Components (Arlon) Bear, DE 145,000 Owned East Providence, RI 68,000 Owned Rancho Cucamonga, CA 80,000 Owned Santa Ana, CA 124,000 Leased(Expires 2003) Item 3. LEGAL PROCEEDINGS 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. On December 6, 1993, Keene filed for protection under Chapter 11 of the Bankruptcy Code. On June 8, 1995, the Creditors' Committee commenced an adversary proceeding in the Bankruptcy Court against Bairnco, 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 subsidiaries by Bairnco, 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. 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 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 December 31, 1996, 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 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. In keeping with the Transactions Stipulation, the parties have moved to withdraw the reference - that is, they have requested that the District Court assume from the Bankruptcy Court all responsibility for overseeing the Transactions Lawsuit. Pending action on this request, proceedings in the Transactions Lawsuit are stayed. 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, 1996. 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 1996. 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 (55) Mr. Fichthorn has served as Chairman of Bairnco since May 1990, and on December 18, 1991, became Chief Executive Officer of Bairnco. For over twenty-four 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 (62) 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. Prior to joining Bairnco, Mr. Wilkinson served as Vice President and Controller of Transway International Corporation from November 1981 to June 1986. Linda Metcalf (51) Mrs. Metcalf was appointed Vice President Administration & Secretary of Bairnco on October 21, 1996. Mrs. Metcalf was previously Managing director of Human Resources at CBIS. 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 12 of Bairnco's 1996 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 14 of Bairnco's 1996 Annual Report to Stockholders which is incorporated herein by reference. The quarterly cash dividend remained constant at $0.05 per share during 1996. The Board continues to review the dividend on a quarterly basis. b. The approximate number of common equity security holders is as follows: Approximate Number of Holders of Record Title of Stock as of December 31, 1996 Common Stock, Par Value $.01 per share 1,773 Item 6. SELECTED FINANCIAL DATA Reference is made to "Financial History" on page 9 of Bairnco's 1996 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 and 11 of Bairnco's 1996 Annual Report to Stockholders which is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the Consolidated Financial Statements and accompanying Notes included on pages 14 through 24 and the "Quarterly Results of Operations" on page 12 of Bairnco's 1996 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 1997 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 12 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 1997 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 1997 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 1997 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 1996 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, 1996, 1995 and 1994; Consolidated Balance Sheets as of December 31, 1996 and 1995; Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994; Consolidated Statements of Stockholders' Investment for the years ended December 31, 1996, 1995 and 1994; 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 19 of this Annual Report on Form 10-K; Financial Statement Schedules for the years ended December 31, 1996, 1995 and 1994: Schedule II - Valuation and Qualifying Accounts on page 20 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 22 through 24 of this Annual Report on Form 10-K. b) Reports on Form 8-K - None for fiscal year 1996. 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 21, 1997 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) 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 23, 1997. 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 23, 1997 Arthur Andersen LLP BAIRNCO CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Balance Balance Year Ended Beginning Deductions End December 31, of Year Expenses (a) of Year 1996 - Reserve for Doubtful Accounts $ 763,000 $300,000 $(241,000) $ 822,000 1995 - Reserve for Doubtful Accounts $1,097,000 $202,000 $(536,000) $ 763,000 1994 - Reserve for Doubtful Accounts $ 844,000 $430,000 $(177,000) $1,097,000 (a) Actual charges incurred in connection with the purpose for which the reserves were established.
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, 1996 Commission File No.: 1-8120 BAIRNCO CORPORATION (Exact name of registrant as specified in the charter) INDEX TO EXHIBITS Certificate of Incorporation, as amended through September 24, 1991. Incorporated herein by reference to Exhibit 3 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1991. By Laws, as amended through December 18, 1991. Incorporated herein by reference to Exhibit 3 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1991. Amended and Restated Credit Agreement, dated as of December 17, 1992, among Bairnco Corporation and 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. Incorporated herein by reference to Exhibit 3.1 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1992. Promissory note, dated December 17, 1992, between Bairnco Corporation and Continental Bank NA (now Bank of America, Illinois). Incorporated herein by reference to Exhibit 3.2 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1992. Amendment dated as of March 16, 1994 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 Continental Bank NA (now Bank of America, Illinois), as the Agent for Lenders. Incorporated herein by reference to Exhibit 3 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1993. Promissory note, dated as of September 1, 1989, between Arlon, Inc. and the Delaware Economic Development Authority. Incorporated herein by reference to Exhibit 4 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1989. Indenture of Trust, series 1989, dated as of September 1, 1989, between the Delaware Economic 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. Incorporated herein by reference to Exhibit 4 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1989. Loan Agreement, dated as of September 1, 1989, between the Delaware Economic Development Authority and Arlon, Inc. Incorporated herein by reference to Exhibit 4 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1989. Reimbursement Agreement dated as of September 1, 1989 by and among Arlon, Inc., Bairnco Corporation and Continental Bank NA (now Bank of America, Illinois). Incorporated herein by reference to Exhibit 4 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1989. Agreement of the Company, dated March 30, 1987, to furnish a copy of any instrument with respect to certain other long-term debt to the Securities and Exchange Commission upon its request. Incorporated herein by reference to Exhibit 4(e) to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1986. Lease dated December 10, 1991 between Mattei Corporation and Bairnco Corporation. Incorporated herein by reference to Exhibit 10 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1991. Lease, dated May 1, 1985, between John B. Merrill, Joseph S. Weedon and Richard A. Westberg and KASCO Corporation as successor to Atlantic Service, Inc. Incorporated herein by reference to Exhibit 10 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1986. Standard Industrial Lease dated June 30, 1983 between James E. and Nancy S. Welsh, trustees under Welsh Family Trust, dated April 20, 1979 and Arlon, Inc. as successor to Keene Corporation. Incorporated herein by reference to Exhibit 10 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1983. Bairnco Corporation 401(k) Savings Plan and Trust. Incorporated herein by reference to Exhibit 4.3 to Bairnco's Registration Statement on Form S-8, No. 33-41313. Bairnco Corporation 1990 Stock Incentive Plan. Incorporated herein by reference to Exhibit 4.3 to Bairnco's Registration Statement on Form S-8, No. 33-36330. Bairnco Corporation Management Incentive Compensation Plan. Incorporated herein by reference to Exhibit 10 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1981. Employment Agreement dated January 22, 1990, between Bairnco Corporation and Luke E. Fichthorn III. Incorporated herein by reference to Exhibit 10 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1989. Amendment dated as of April 18, 1995, 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 Continental Bank NA (now Bank of America, Illinois), as the Agent for Lenders. Incorporated herein by reference to Exhibit 4 to Bairnco's Quarterly Report on Form 10-Q for the quarterly period ended April 1, 1995. Amendment dated as of February 14, 1997, 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. Exhibit 4 filed herewith. Calculation of Primary and Fully Diluted Earnings per Share for the years ended December 31, 1996, 1995 and 1994. Exhibit 11 filed herewith. 1996 Annual Report to Stockholders. Exhibit 13 filed herewith. Subsidiaries of the Registrant. Exhibit 21 filed herewith. Consent of Independent Certified Public Accountants. Exhibit 23 filed herewith. Financial Data Schedules. Exhibit 27 filed herewith (electronic filing only). Form 11-K Re: Bairnco Corporation 401(k) Savings Plan and Trust for the fiscal year ended December 31, 1996. Exhibit 99 filed herewith. EX-4 2 AMENDMENT TO CREDIT AGREEMENT FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT This Agreement, dated as of February 14, 1997 (this "Amendment") is entered into by and among BAIRNCO CORPORATION, a Delaware corporation ("Bairnco"), certain of its Subsidiaries party to the Credit Agreement referred to below (together with Bairnco, hereinafter referred to collectively as the "Borrowers" and individually as a "Borrower"), the several financial institutions parties to this Amendment (collectively, the "Lenders"; individually, a "Lender"), and BANK OF AMERICA ILLINOIS (formerly known as Continental Bank N.A.), as agent for the Lenders (in such capacity, the "Agent"). RECITALS The Borrowers, the Lenders and the Agent are parties to an Amended and Restated Credit Agreement dated as of December 17, 1992 (as heretofore amended, supplemented or otherwise modified, the "Credit Agreement"). Capitalized terms used and not otherwise defined or amended in this Amendment shall have the meanings respectively assigned to them in the Credit Agreement. The Borrowers have requested that the Lenders and the Agent amend the Credit Agreement in certain respects, and the Lenders and the Agent have agreed to do so, all upon the terms and provisions and subject to the conditions hereinafter set forth, including, without limitation, payment of the amendment fee referred to in Section C below. AGREEMENT In consideration of the foregoing and the mutual covenants and agreement hereinafter set forth, the parties hereto mutually agree as follows: A. AMENDMENTS 1. Amendments of Section 1.1 (Defined Terms). Section 1.1 of the Credit Agreement is hereby amended by: (a) deleting therefrom the definition of "Applicable Euro Rate Margin" in its entirety and substituting therefor the following: "'Applicable Euro Rate Margin' shall mean: (a) 0.375% for each period (i) commencing on the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for any Fiscal Quarter required under Section 7.1.1(c) showing that the Debt to Capital Ratio for such Fiscal Quarter was less than 35%, and (ii) ending on the earlier of (A) the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for the next Fiscal Quarter, or (B) the date on which Bairnco fails to deliver to the Agent such Compliance Certificate for the next Fiscal Quarter as required under Section 7.1.1(c); (b) .50% for each period (i) commencing on the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for any Fiscal Quarter required under Section 7.1.1(c) showing that the Debt to Capital Ratio for such Fiscal Quarter was 35% or greater but less than 45%, and (ii) ending on the earlier of (A) the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for the next Fiscal Quarter, or (B) the date on which Bairnco fails to deliver to the Agent such Compliance Certificate for the next Fiscal Quarter as required under Section 7.1.1(c); (c) .75% for each period (i) commencing on the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for any Fiscal Quarter required under Section 7.1.1(c) showing that the Debt to Capital Ratio for such Fiscal Quarter was 45% or greater but less than 55%, and (ii) ending on the earlier of (A) the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for the next Fiscal Quarter, or (B) the date on which Bairnco fails to deliver to the Agent such Compliance Certificate for the next Fiscal Quarter as required under Section 7.1.1(c); and (d) 1.00% for each period (i) commencing on the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for any Fiscal Quarter required under Section 7.1.1(c) showing that the Debt to Capital Ratio for such Fiscal Quarter was 55% or greater, and (ii) ending on the earlier of (A) the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for the next Fiscal Quarter, or (B) the date on which Bairnco fails to deliver to the Agent such Compliance Certificate for the next Fiscal Quarter as required under Section 7.1.1(c). (b) deleting therefrom the definition of "Applicable Reference Rate Margin" in its entirety and substituting therefor the following: "'Applicable Reference Rate Margin' shall mean: (a) 0.25% for each period (i) commencing on the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for any Fiscal Quarter required under Section 7.1.1(c) showing that the Debt to Capital Ratio for such Fiscal Quarter was 55% or greater, and (ii) ending on the earlier of (A) the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for the next Fiscal Quarter, or (B) the date on which Bairnco fails to deliver to the Agent such Compliance Certificate for the next Fiscal Quarter as required under Section 7.1.1(c); and (b) zero at all other times." (c) deleting therefrom the definition of "Arlon Loan Commitment Amount" in its entirety and substituting therefor the following: "'Arlon Loan Commitment Amount' shall mean, at any date $26,000,000 as such amount may be reduced from time to time pursuant to Section 2.2."; (d) deleting therefrom the definition of "Kasco Dollar Loan Commitment Amount" in its entirety and substituting therefor the following: "'Kasco Dollar Loan Commitment Loan' shall mean, on any date, $3,000,000, as such amount may be reduced from time to time pursuant to Section 2.2." (e) deleting therefrom the definition of "Bairnco Loan Commitment Amount" in its entirety and substituting therefor the following: "'Bairnco Loan Commitment Amount' shall mean, at any date, $13,000,000, as such amount may be reduced from time to time pursuant to Section 2.2."; (f) deleting from the definition of "Commitment Termination Date" the date "August 31, 1999" and substituting therefor the date "December 31, 2001"; (g) deleting from the definition of "Cumulative Net Income" in its entirety and substituting therefor the following: "'Cumulative Net Income' shall mean, at any date of calculation an amount (not less than zero) equal to the sum of the amounts of the net quarterly income and losses of Bairnco and its Subsidiaries on a consolidated basis for the period beginning after December 31, 1996 and ending on the last day of the Fiscal Quarter in which such date of calculation occurs. (h) deleting from the definition of "Maximum Loan Commitment Amount" the amount "$42,000,000" and substituting therefor the amount "$45,000,000"; (i) deleting the definition of "Net Worth" in its entirety and substituting therefor the following: "'Net Worth' shall mean with respect to Bairnco and its Subsidiaries at a particular date, an amount equal to the aggregate par value of the outstanding shares of all classes of stock of Bairnco plus paid-in capital in excess of the par value of any shares of stock (excluding the amounts which relate to the cumulative translation adjustment beginning after December 31, 1996) plus retained earnings, less all amounts carried on the books of Bairnco for treasury stock, plus, solely for purposes of Section 7.2.3, Subordinated Debt with no put options in favor of the holder of such Subordinated Debt, on the consolidated balance sheet of Bairnco. (j) deleting the definition of "Obligations" in its entirety and substituting the following therefor: "'Obligations" shall mean (a) all obligations (monetary or otherwise) of the Borrowers and each other Obligor arising under or in connection with this Agreement, the Notes and each other Loan Document and all Hedging Obligations owed by any Obligor to any Lender, and (b) all Indebtedness owing to a Lender or an Affiliate of a Lender (not to exceed $8,000,000 in the aggregate) in respect of the lines of credit cross collateralized with the Loans as permitted by Subsection 7.2.1(i) hereof. (k) deleting from the definition of "Stated Maturity Date" the date "August 31, 1999" and substituting therefor the date "December 31, 2001"; (l) adding the following definition: "'Debt to Capital Ratio' is defined in Section 7.2.3." (m) adding the following definition: "'Consolidated Funded Debt' shall mean the sum of the amounts indicated for the items 'Short-Term Debt', 'Current Maturities of Long-Term Debt' and 'Long-Term Debt' in the Quarterly Report on Form 10Q for the first three quarterly periods or in the Annual Report on Form 10K of BAIRNCO and its Subsidiaries for the fourth quarterly period." (n) adding the following definition: "'Stockholders' Investment' shall mean the sum of the amounts indicated for the item 'Stockholders' Investment' in the Quarterly Report on Form 10Q for the first three quarterly periods or in the Annual Report on Form 10K of BAIRNCO and its Subsidiaries for the fourth quarterly period. 2. Amendment of Section 2.2.2 (Reduction of Commitment Amounts; Mandatory--All Loans and Specific Loans). Section 2.2.2 of the Credit Agreement is hereby amended by deleting such Section in its entirety and substituting therefor the following: "SECTION 2.2.2 Mandatory--All Loans and Specific Loans. (a) As of the end of business on each date set forth below, the Maximum Loan Commitment Amount shall, without any further action, automatically and permanently be reduced by the amount set forth opposite such date: Date Amount December 31, 1997 $ 5,000,000 December 31, 1998 $ 5,000,000 December 31, 1999 $ 5,000,000 December 31, 2000 $10,000,000 provided, however, that on the Commitment Termination Date, the Maximum Loan Commitment Amount shall be zero. (b) In order to implement the reductions in the Maximum Loan Commitment Amount contemplated by (a) above, automatic and permanent reductions shall, without any further action, be made to the Bairnco Loan Commitment Amount, the Arlon Loan Commitment Amount and the Kasco Dollar Loan Commitment Amount, as follows: (i) As of the end of business on each date set forth below, the Bairnco Loan Commitment Amount shall, without any further action, automatically and permanently be reduced by the amount set forth opposite such date: Date Amount December 31, 1997 $3,000,000 December 31, 1999 $2,000,000 December 31, 2000 $3,000,000 (ii) As of the end of business on each date set forth below, the Arlon Loan Commitment Amount shall, without any further action, automatically and permanently be reduced by the amount set forth opposite such date: Date Amount December 31, 1997 $2,000,000 December 31, 1998 $5,000,000 December 31, 1999 $2,000,000 December 31, 2000 $6,000,000 (iii) As of the end of business on each date set forth below, the Kasco Dollar Loan Commitment Amount shall, without any further action, automatically and permanently be reduced by the amount set forth opposite such date: Date Amount December 31, 1999 $1,000,000 December 31, 2000 $1,000,000" 4. Amendment of Section 3.3.1 (Commitment Fee). Section 3.3.1 of the Credit Agreement is hereby amended by deleting such Section in its entirety and substituting therefor the following: The Borrowers jointly and severally agree to pay to the Agent for the account of the Lenders for the period (including any portion thereof when any of its Commitments are suspended by reason of the Borrowers' inability to satisfy any condition of Article V) commencing on the Effective Date and continuing through the final Commitment Termination Date, a commitment fee on each Lender's share of the sum of the average daily unused portion of (x) the Maximum Loan Commitment Amount and (y) the Bairnco LC Commitment Amount at a rate equal to: (a) 0.125% for each period (i) commencing on the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for any Fiscal Quarter required under Section 7.1.1(c) showing that the Debt to Capital Ratio for such Fiscal Quarter was less than 35%, and (ii) ending on the earlier of (A) the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for the next Fiscal Quarter, or (B) the date on which Bairnco fails to deliver to the Agent such Compliance Certificate for the next Fiscal Quarter as required under Section 7.1.1(c); (b) .15% for each period (i) commencing on the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for any Fiscal Quarter required under Section 7.1.1(c) showing that the Debt to Capital Ratio for such Fiscal Quarter was 35% or greater but less than 45%, and (ii) ending on the earlier of (A) the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for the next Fiscal Quarter, or (B) the date on which Bairnco fails to deliver to the Agent such Compliance Certificate for the next Fiscal Quarter as required under Section 7.1.1(c); (c) .20% for each period (i) commencing on the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for any Fiscal Quarter required under Section 7.1.1(c) showing that the Debt to Capital Ratio for such Fiscal Quarter was 45% or greater but less than 55%, and (ii) ending on the earlier of (A) the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for the next Fiscal Quarter, or (B) the date on which Bairnco fails to deliver to the Agent such Compliance Certificate for the next Fiscal Quarter as required under Section 7.1.1(c); and (d) .25% for each period (i) commencing on the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for any Fiscal Quarter required under Section 7.1.1(c) showing that the Debt to Capital Ratio for such Fiscal Quarter was 55% or greater, and (ii) ending on the earlier of (A) the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for the next Fiscal Quarter, or (B) the date on which Bairnco fails to deliver to the Agent such Compliance Certificate for the next Fiscal Quarter as required under Section 7.1.1(c). Such commitment fees shall be payable by such Borrowers in arrears on each Quarterly Payment Date, commencing with the first such day following the Effective Date, and on each Commitment Termination Date. As among the Lenders, the allocable amount of the commitment fee payable to each Lender shall be computed giving effect to the fact that only Bank of America (and no other Lender) is obligated to provide Loans in respect of the Foreign Loan Commitment and the Foreign Dollar Loan Commitment. 5. Amendment of Section 3.3.2 (Letter of Credit Fees). Section 3.3.2 is hereby amended by deleting therefrom clauses (a) through (d) of the second sentence thereof and substituting therefor the following: (a) 0.375% for each period (i) commencing on the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for any Fiscal Quarter required under Section 7.1.1(c) showing that the Debt to Capital Ratio for such Fiscal Quarter was less than 35%, and (ii) ending on the earlier of (A) the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for the next Fiscal Quarter, or (B) the date on which Bairnco fails to deliver to the Agent such Compliance Certificate for the next Fiscal Quarter as required under Section 7.1.1(c); (b) .50% for each period (i) commencing on the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for any Fiscal Quarter required under Section 7.1.1(c) showing that the Debt to Capital Ratio for such Fiscal Quarter was 35% or greater but less than 45%, and (ii) ending on the earlier of (A) the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for the next Fiscal Quarter, or (B) the date on which Bairnco fails to deliver to the Agent such Compliance Certificate for the next Fiscal Quarter as required under Section 7.1.1(c); (c) .75% for each period (i) commencing on the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for any Fiscal Quarter required under Section 7.1.1(c) showing that the Debt to Capital Ratio for such Fiscal Quarter was 45% or greater but less than 55%, and (ii) ending on the earlier of (A) the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for the next Fiscal Quarter, or (B) the date on which Bairnco fails to deliver to the Agent such Compliance Certificate for the next Fiscal Quarter as required under Section 7.1.1(c); and (d) 1.00% for each period (i) commencing on the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for any Fiscal Quarter required under Section 7.1.1(c) showing that the Debt to Capital Ratio for such Fiscal Quarter was 55% or greater, and (ii) ending on the earlier of (A) the fifth day following delivery by Bairnco to the Agent of the Compliance Certificate for the next Fiscal Quarter, or (B) the date on which Bairnco fails to deliver to the Agent such Compliance Certificate for the next Fiscal Quarter as required under Section 7.1.1(c). 6. Amendment of Section 7.2.1(i). Section 7.2.1(i) is hereby amended by deleting such Section in its entirety and substituting the following therefor: "(i) Indebtedness owing to a Lender or an Affiliate of a Lender in respect of other lines of credit cross- collateralized with the Loans and Obligations contemplated hereby as long as (i) the aggregate amount available to be drawn under such lines of credit does not exceed $10,000,000, and (ii) the aggregate amount at any time outstanding under such lines of credit does not exceed $8,000,000; and" 7. Amendment of Section 7.2.3 (Financial Condition). Section 7.2.3 of the Credit Agreement is hereby amended by deleting such Section in its entirety and substituting therefor the following: "SECTION 7.2.3 Financial Condition. The Borrowers will not permit: (a) Net Worth. Their Net Worth to be less than the sum of (i) $40,000,000, plus (ii) 60% of Cumulative Net Income plus (iii) 60% of the net cash proceeds of stock sold by Bairnco after December 31, 1996. (b) Debt/Capital Test. The ratio for Bairnco and its Subsidiaries of (i) all Consolidated Funded Debt to (ii) the sum of (A) Consolidated Funded Debt, plus (B) Stockholders' Investment (the 'Debt to Capital Ratio') to exceed 65%. (c) Interest Coverage Ratio. The ratio for Bairnco and its Subsidiaries of (i) consolidated earnings before deducting interest and taxes (excluding non-recurring gains and charges) to (ii) consolidated interest expense for Indebtedness (including, without limitation, Subordinated Debt and Capitalized Lease Liabilities) (the 'Interest Coverage Ratio') to be less than 2.00:1 for any Fiscal Quarter." 8. Amendment of Section 7.2.5 (Bairnco Restricted Payments, etc.). Section 7.2.5 of the Credit Agreement is hereby amended by deleting the text in its entirety and substituting therefor the text, "Intentionally Omitted". 9. Amendment of Section 7.2.6 (Rental Obligations). Section 7.2.6. of the Credit Agreement by deleting the amount"$20,000,000" and substituting the amount "$10,000,000" therefor. 10. Amendments of Section 7.2.9 (Asset Dispositions, etc.). Section 7.2.9 of the Credit Agreement is hereby amended by deleting therefrom clause (b) thereof in its entirety and substituting therefor the following: "(b) the net book value of such assets, together with the net book value of all other assets sold, transferred, leased, contributed or conveyed otherwise than in the ordinary course of business by all Borrowers or any of their Subsidiaries pursuant to this clause after December 31, 1996, does not exceed $5,000,000 in the aggregate for all Borrowers and their Subsidiaries;" 11. Amendment of Exhibit G (Form of Compliance Certificate). Exhibit G to the Credit Agreement is hereby amended by deleting such Exhibit in its entirety and substituting therefor a new Exhibit G in the form of Annex I hereto. B. REPRESENTATIONS AND WARRANTIES The Borrowers hereby represent and warrant to the Agent and the Lenders that: 1. No Default has occurred and is continuing; and 2. The representations and warranties of the Borrowers contained in Article VI of the Credit Agreement are true on and as of the date hereof as if made on and as of said date; provided, however, that each reference to "this Agreement" contained in such Article VI shall be deemed to be a reference to the Credit Agreement as amended hereby. C. CONDITIONS PRECEDENT This Amendment will become effective as of the date first written above upon receipt by the Agent of counterparts hereof duly executed by each Borrower, each of the Lenders party to the Credit Agreement and the Agent, provided that contemporaneously with such execution and delivery, the Agent shall have received for the account of the Lenders, an amendment fee in an amount equal to $55,000 to be distributed to the Lenders as set forth below: Lender Amount Bank of America Illinois $28,558 First Union National Bank of Florida $8,814 NBD Bank $8,814 Sun Bank, National Association $8,814 D. MISCELLANEOUS 1. This Amendment may be signed in any number of counterparts, each of which shall be an original, with same effect as if the signatures thereto and hereto were upon the same instrument. 2. Except as herein specifically amended, all terms, covenants and provisions of the Credit Agreement shall remain in full force and effect and shall be performed by the parties hereto in accordance therewith. All references to the "Agreement" or the "Credit Agreement" contained in the Credit Agreement or in the Schedules or Exhibits shall henceforth refer to the Credit Agreement as amended by this Amendment. 3. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first written. BAIRNCO CORPORATION By:/s/ J. Robert Wilkinson Name: J. Robert Wilkinson Title: Vice President ARLON, INC. By:/s/ J. Robert Wilkinson Name: J. Robert Wilkinson Title: Vice President KASCO CORPORATION By:/s/ J. Robert Wilkinson Name: J. Robert Wilkinson Title: Vice President ATLANTIC SERVICE CO. (UK), LTD. By:/s/ J. Robert Wilkinson Name: J. Robert Wilkinson Title: Director BERTRAM & GRAF GMBH By:/s/ J. Robert Wilkinson Name: J. Robert Wilkinson Title: Director EUROKASCO S.A. By:/s/ J. Robert Wilkinson Name: J. Robert Wilkinson Title: Director BANK OF AMERICA ILLINOIS, as Agent By:/s/ Steve A. Aronowitz Name: Steve A. Aronowitz Title: Managing Director BANK OF AMERICA ILLINOIS, as a Lender By:/s/ Steve A. Aronowitz Name: Steve A. Aronowitz Title: Managing Director FIRST UNION NATIONAL BANK OF FLORIDA By:/s/ Billy A. Green Name: Billy A. Green Title: Senior Vice President NBD BANK By:/s/ J. Philip Lowman Name: J. Philip Lowman Title: First Vice President SUNTRUST BANK By:/s/ J. Brian Lewis Name: J. Brian Lewis Title: Vice President ANNEX I to Amendment EXHIBIT G BAIRNCO CORPORATION Compliance Certificate Quarter Ended Reference is made to that certain Amended and Restated Credit Agreement dated as of December 17, 1992, among Bairnco Corporation, certain of its subsidiaries as Borrowers, certain financial institutions as Lenders, and Bank of America Illinois (formerly known as Continental Bank N.A.), as Agent, as amended, supplemented or otherwise modified from time to time (the "Credit Agreement"). Capitalized terms used herein without definition shall have the same respective meanings ascribed thereto in the Credit Agreement. Pursuant to Section 7.1.1(c) of the Credit Agreement, the Borrowers HEREBY CERTIFY THAT: 1. No Default. As of the date hereof, no Default under the Credit Agreement has occurred and is continuing, except as set forth below (If no exceptions, state "None"): 2. Net Worth (Section 7.2.3(a)) A. Net Worth (a) Aggregate Par Value of Outstanding Shares $ (b) Paid-in Capital (excluding cumulative translation adjustment since 12/31/96) $ (c) Retained Earnings $ (d) Treasury Stock $ (e) Subordinated Debt with No Put Option $ Sum of (a)+(b)+(c)+(e) less (d) $ B. Cumulative Net Income from 12/31/96 $ C. Proceeds of Bairnco Stock since 12/31/96 $ D. Credit Agreement Requirements: Net Worth (A) not to be less than: (1) $40,000,000 plus (2) 60% of Cumulative Net Income (B) plus (3) 60% of net cash proceeds of Bairnco stock sold since 12/31/96 Compliance Indicated . . . . . . . . . . . . . . . . . 3. Debt to Capital Ratio (Section 7.2.3(b)) A. Consolidated Funded Debt $ B. Stockholders' Investment $ C. Sum of A + B $ D. Ratio of A to A + B E. Credit Agreement Requires Not Greater Than: 65% F. Compliance Indicated . . . . . . . . . . . . . 4. Interest Coverage Ratio (Section 7.2.3(c)) A. Consolidated Earnings Before Interest Expenses and Taxes for the fiscal quarter ended, excluding non-recurring gains and charges $ B. Consolidated Interest Expense for Indebtedness for the fiscal quarter ended $ C. Ratio of A to B D. Credit Agreement Requires Not Less Than: 2.00:1 Compliance Indicated . . . . . . . . . . . . . . . . IN WITNESS WHEREOF, the undersigned has executed this certificate on behalf of the Borrowers as of the day of , . BAIRNCO CORPORATION By: Chief Financial Officer EX-11 3 CALCULATION OF PRIMARY AND FULLY DILUTED EPS EXHIBIT 11 BAIRNCO CORPORATION AND SUBSIDIARIES CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 PRIMARY EARNINGS PER SHARE: Net Income $ 8,335,000 $ 7,781,000 $ 7,255,000 Average common shares outstanding 9,753,000 10,433,000 10,500,000 Common shares issuable in respect to common stock equivalents, with a dilutive effect 98,000 3,000 -- Total common and common equivalent shares 9,851,000 10,436,000 10,500,000 Primary Earnings Per Common Share $ 0.85 $ 0.75 $ 0.69 FULLY DILUTED EARNINGS PER SHARE: Net Income $ 8,335,000 $ 7,781,000 $ 7,255,000 Total common and common equivalent shares 9,851,000 10,436,000 10,500,000 Additional common shares assuming full dilution -- 4,000 -- Total common shares assuming full dilution 9,851,000 10,440,000 10,500,000 Fully Diluted Earnings Per Common Share $ 0.85 $ 0.75 $ 0.69 Earnings per share is based on the average number of shares outstanding during each period. Primary earnings per share includes all common stock equivalents. Fully diluted earnings per share includes all common stock equivalents plus the additional common shares issuable assuming full dilution.
EX-13 4 1996 ANNUAL REPORT TO STOCKHOLDERS THE COMPANY 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 a common technology in coating, laminating, resin technology 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. 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 12 Report of Independent Certified Public Accountants 13 Consolidated Financial Statements 14 Notes to Consolidated Financial Statements 18 FINANCIAL HIGHLIGHTS (In thousands except per share data)
Percent Change 1996 1995 1994 96/95 95/94 Net Sales $ 150,234 $ 150,507 $ 145,522 0% 3% Operating Profit $ 14,956 $ 14,633 $ 13,654 2% 7% Net Income $ 8,335 $ 7,781 $ 7,255 7% 7% Earnings per Share $ 0.85 $ 0.75 $ 0.69 13% 9% Cash Dividends per Share $ 0.20 $ 0.20 $ 0.20 0% 0% Stockholders' Investment per Share $ 5.02 $ 4.60 $ 4.19 9% 10% Total Assets $ 102,600 $ 98,196 $ 102,772 4% (4%) Stockholders' Investment $ 49,464 $ 48,024 $ 43,997 3% 9% Average Shares Outstanding 9,851 10,440 10,500 (6%) (1%)
Graphic - Bar Chart depicting Sales (y-axis) for six years - 1991 to 1996 (x-axis): Year Sales (in thousands) 1991 $128,566 1992 $135,581 1993 $134,958 1994 $145,522 1995 $150,507 1996 $150,234 Graphic - Bar Chart depicting Income from Continuing Operations (y-axis) for six years - 1991 to 1996 (x-axis): Year Income from Continuing Operations (in thousands) 1991 $6,643 1992 $7,755 1993 $ 817 1994 $7,255 1995 $7,781 1996 $8,355 Graphic - Bar Chart depicting Earnings per Share from Continuing Operations (y-axis) for six years - 1991 to 1996 (x-axis): Year Earnings per Share from Continuing Operations 1991 $0.61 1992 $0.72 1993 $0.08 1994 $0.69 1995 $0.75 1996 $0.85 LETTER TO OUR STOCKHOLDERS 1996 was a year of solid progress for Bairnco. Earnings increased despite level sales. Debt increased modestly as the result of the stock repurchase program and a small product line acquisition. Our strong financial condition improved. Significant personnel additions and promotions added to the management strength of our operations and headquarters. FINANCIAL RESULTS Sales of $150,234,000 in 1996 were level with $150,507,000 in 1995. Arlon's sales increased 4.1%. Sales to the graphics and electric insulation markets continued to grow which more than offset lower sales to the electronics industry caused by the industry inventory correction primarily during the second and third quarters. Kasco's sales decreased 8.5%, part of which was consistent with the program to refocus Kasco North America on its core business and part of which was totally unexpected due to the severe impact of BSE ("mad cow" disease) on meat consumption in Europe and its attendant impact on Kasco's replacement, and equipment business in Europe. In 1996, gross profit decreased 1.5% to $52,536,000 from $53,317,000 in the prior year. Gross profit margins declined to 35.0% from 35.4% last year. Arlon's gross profit increased 3.7% as a result of sales growth and a mix change, which was partially offset by lower yields in two plants caused by the gyrations in the electronics market during the year resulting in lower gross profit margins as a percent of sales. Kasco's gross profit declined 8.6% as a result of the sales decrease. The program to refocus Kasco's North America operations was substantially completed and gross profit margin increased 1.5% on lower sales. However these improvements were more than offset by the $1.1 million reduced gross profit in Europe most of which occurred in the second and third quarters from the BSE panic. Meat consumption and the confidence of the European meat processing and distribution markets began to recover in the fourth quarter. Selling and administrative expenses decreased $1,104,000 or 2.9% to $37,580,000 from $38,684,000 in 1995. As a percent of sales, these expenses decreased to 25.0% in 1996 from 25.7% in 1995. Selling expense decreased slightly. Kasco's expenses were reduced consistent with its plan. Arlon's sales and marketing expenses increased in accord with its continued investment in sales and marketing. Administrative expenses continued to be reduced both absolutely and as a percentage of sales. Research and development expenses increased 1.5% as Bairnco continued to invest in the development of new products and improved quality. New and improved products introduced in the last 5 years accounted for approximately 30% of our sales in 1996. Net interest expense decreased $301,000 or 14.9% from $2,026,000 to $1,725,000. The decrease was due primarily to lower interest rates. Income before income taxes increased 4.9% to $13,231,000 in 1996 as compared to $12,607,000 in 1995. The effective tax rate decreased to 37.0% from 38.3% in 1995. Net income increased 7.1% to $8,335,000 in 1996 as compared to $7,781,000 in 1995. Earnings per share increased 13.3% to $.85 from $.75 last year. As a result of the stock repurchase program, the average number of shares outstanding in 1996 was 9,851,000, a 5.6% decrease from the 10,440,000 average outstanding in 1995. FINANCIAL MANAGEMENT Return on capital employed increased to 12.3% from 11.9% last year. Return on stockholders' investment increased to 17.2% compared to 16.7% last year. Management continues to make progress towards our long term objectives of a 20% return on stockholders' investment and a 15% return on total capital employed. In 1996, Bairnco's Board of Directors authorized the repurchase of up to $5,000,000 of its common stock. This authorization was in addition to the $2,420,000 still unused from the prior year $5,000,000 authorization. During the year the Company repurchased 803,900 shares for $5,412,000. The Board has authorized management to continue its stock repurchase program in 1997 subject to market conditions and the capital requirements of the business. Working capital as a percent of sales increased from 18.8% to 20.2%. The increase in other current assets is due to a tax refund expected to be received during the first quarter 1997. Net cash flows provided by operating activities were $13,612,000. These cash flows were more than sufficient to cover operating requirements, fund Bairnco's capital expenditure program, pay dividends and generate some excess cash. However, the acquisition, attendant capital expenditures and the stock repurchase program required $7.9 million in additional funds. Consequently, 1996 total debt increased to $28,179,000 from $24,578,000 at the end of 1995. Debt as a percent of equity increased to 57.0% from 51.2% in 1995. Subsequent to year end, the reducing revolving credit agreement was amended to increase the maximum available borrowings to $45 million from $35 million and to extend the final maturity to December 31, 2001. At year end 1996, Bairnco had $23.3 million available under its revolving credit agreement, and $5.6 million available under short term lines of credit. 1996 capital expenditures were $10,131,000 as compared to a plan of $12,300,000. The reduction in capital expenditures from plan was due primarily to the deferment of a capacity addition from 1996 into future years. Again substantial improvements in operating efficiencies in 1996 and planned for 1997 permitted the postponement of this major capital expenditure. Depreciation and amortization were $6,305,000. The focus of the capital expenditure program during 1996 was primarily on required replacements, efficiency and quality improvements, and capacity additions. The capital expenditure plan for 1997 is approximately $13.3 million. Depreciation and amortization is estimated to be approximately $7.0 million. The planned capital expenditures include cost reduction projects, replacements, quality improvements, new product developments, new processing equipment, capacity additions and equipment to meet new environmental regulatory requirements primarily in California. Approximately $4 million of the planned expenditures are contingent upon the realization of the anticipated growth in several markets. DIVIDEND The quarterly $.05 per share cash dividend was maintained during the year. MANAGEMENT Effective October 1, 1996, Jeff Berresford was appointed President of Kasco Corporation. Mr. Berresford was previously Vice President of Marketing for the Food and Beverage Division of Ecolab, Inc. Effective October 14, 1996, Elmer Pruim was appointed President of Arlon's Adhesives & Films Division. Mr. Pruim was Acting President of Kasco North America from September 1995 to September 1996 and served as Bairnco's Controller since August 1994. Effective October 21, 1996, Linda Metcalf was appointed Vice President Administration and Secretary of Bairnco. Mrs. Metcalf was previously Managing Director of Human Resources at CBIS. During 1996 the management development program, which is one of the keys to our 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 employees remains a critical and never ending element for Bairnco's success. SUMMARY AND OUTLOOK 1996 was another year of progress for Bairnco. Arlon's results continued to manifest the benefits of investing in the development of new products, new markets, and expanded sales, marketing and research efforts. The depressing impact of the electronics industry inventory correction during 1996 is not expected to recur in 1997. The program of refocusing Kasco North America to become the preeminent supplier of cutting products and routine instore equipment services was substantially completed during the year. There were again expenses incurred in the continuing re-engineering and cost reduction programs. Throughout the year, in the North American operations, the benefits of these actions appeared in the improving financial results as compared to last year. We expect to see continuing benefits in 1997 and beyond from the actions taken. The positive impact of these programs was substantially offset by the impact of BSE on the European operations. BSE's negative impact appears to be behind us but the recovery will be gradual over the next several years. Kasco's entire organization is now focused on growing through providing superior products and services to its customers and core markets. The outlook for 1997 is for improved sales and earnings. The US economy is again expected to experience slow growth during 1997 with inflation remaining under control and the Federal Reserve Board maintaining interest rates within recent historical bands. It is expected that the combination of growth in new products and in certain niche markets will result in sales increases more than offsetting the low margin sales that have been eliminated. Improved earnings are expected both from increased sales and the continuing cost reduction and efficiency and yield improvement programs. Due to the relatively strong first quarter in 1996, the timing of product line pruning during 1996 and the anticipated implementation of programs in 1997, the first part of 1997 is expected to be level with last year with the improvements beginning during the second quarter. The continuing dedication and excellent performance of all our employees remains the key to our past and future success. Bairnco is dedicated to making 1997 a year of continuing improvement. 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, resin technology 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. The 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 OEM's by a direct sales force in concert with strong technical support teams. These materials are used in products for the commercial, military, industrial, computer 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. Product applications included next-generation commercial and military avionics systems combining demands for surface mount technology with high temperature fabrication and use temperatures, and high performance test fixturing for next-generation integrated circuits. Intermediate temperature laminates which provide both improved product reliability in the field and ease of manufacture are also key to the line. Specialty products have been developed for the 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. This facility is ISO 9002 (International Quality Standard) certified. The Microwave Materials product line produces the world's leading substrates for microwave applications. The business mix has moved 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 TV systems, global positioning satellite systems, and other personal communications equipment. Additional 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. A major emerging market for wireless communications is the new phone systems which are being planned for a number of developing countries in Asia and South America. These systems will bypass the high cost of installing and maintaining a hard-wire infrastructure and will permit regional installation based on population density. This should be a large and growing market over the next decade as numerous countries become involved. The frequency dependent market area continues to drive toward lower cost to allow greater commercial and consumer penetration by new electronics applications. Increased activity in high speed digital applications and low cost, low signal loss materials has resulted in the development of a multi-layerable low loss product at Rancho Cucamonga. New product development continues with emphasis on low cost , low signal loss materials. The Arlon Microwave facility in Bear, Delaware continues to invest in equipment to convert from low volume military to high volume commercial materials. It is expected this facility will be ISO 9002 certified in 1997. 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 and graphic printing houses, and in numerous commercial and governmental specification applications. The economic factors affecting this business are the general level of economic activity in the United States, Canada, Europe, South America and the Asian Basin. Arlon has entered into a strategic alliance with a United Kingdom based graphics and distribution company to further develop the European market. This new venture is expected to provide better and more cost effective services to Arlon's European distributors. Arlon N.V., Arlon's Belgium subsidiary which had served Europe, continued to under perform and was closed in 1996. The graphic film products are produced primarily at the Santa Ana facility which is ISO 9001 certified. Products are also produced and distributed from the East Providence facility. Continued investments in equipment and R&D resources yielded further improvements in quality and productivity. Additional quality and productivity gains are expected in 1997. Several new graphics products and colors were introduced in 1996. This market is expected to continue to grow modestly in excess of the economy. Price competition in the lower performance calendered vinyl films continued in 1996. Additional new products and colors are planned for introduction in 1997. It is also expected that the additional sales and marketing resources put in place during 1996 will result in better market penetration and that the new European market strategy will contribute positively to sales and earnings. Graphic - Arlon Adhesives & Films Division's new line of inkjet vinyl offers new application opportunities to the graphics industry. 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 industrial economic activity in the United States. Typical applications include insulating foam tapes for thermopane windows, electrical insulation, thermal insulation panels for appliances and cars, security tags and labels, durable printing stock for high speed laser printing systems, and custom engineered laminates for specific industrial applications. The combination of the Santa Ana, California and East Providence, Rhode Island operations provides a unique ability to meet the needs of new custom laminate applications. The East Providence facility was certified ISO 9001 during 1996. Arlon is now focusing on developing additional engineered laminates, coatings and pressure sensitive systems for specific industrial applications. In addition to focused sales efforts, certain engineered laminates and coated products are now being marketed through the electronic and silicone products sales teams. 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 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, power utility insulating tapes, as wall as, many thermal and electrical conductivity applications. The silicone rubber product line provides significant opportunity for Arlon in a number of areas. During 1996 further progress was made in both the development and applications of Thermabond(tm), a range of thermally conductive silicone products designed for the dissipation of heat from electronic circuit boards. Further progress was also made during the year in identifying new channels of distribution to serve international markets. The distributor agreement with Airtech, a leading supplier of vacuum bagging materials to the composite industry, continues to develop opportunities in industrial as well as defense and aerospace composite applications. In January of 1996, Arlon acquired the silicone rubber tape product line of Permacel, Inc.. During the year the Permacel line was integrated into the Bear, Delaware facility and now provides additional capacity and a broader range of capability including the ability to calender ultra-thin silicone rubber materials both with a supporting backbone as well as unsupported. 1997 is expected to be a year of continued growth for existing and new engineered products. Graphic - Arlon's Thermabond(tm), a conductive silicone-sheet adhesive, is laser-cut to conform to PCB and heat-sink configurations and forms a flexible bond to transfer energy away from a densely populated board. 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 formulates, manufactures and markets seasoning products for the meat and deli departments of supermarkets which are primarily used in the preparation of instore products. Kasco distributes related supply products 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 a continent-wide network of service professionals. These service professionals make regularly scheduled calls on the accounts in their region. They supply the Company's products and provide related equipment maintenance services. Kasco's service professionals are continuously trained in the service and maintenance of equipment used in the meat preparation areas of retail food outlets. The field computerization program permits the service professionals to more efficiently service their customer base. Graphic - Kasco's continent-wide network of service professionals provides quick, efficient and practical solutions to its customers. REPAIR SERVICE: Kasco integrated its service centers with its van service network in North America during the fourth quarter of 1996. This integration was designed to both improve the cost effectiveness and provide improved timely equipment maintenance. The integration will result in lower revenues in 1997 but improved profit contribution. The repair service operations 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 geographical areas. SEASONING: Seasoning represents an emerging opportunity for Kasco to provide new value added programs to the meat and deli departments of its supermarket customers. As supermarkets increasingly compete with the restaurant trade for the consumers food dollars, they are turning to prepared foods. Kasco is well positioned to support its customers with its comprehensive "Mealtime Solutions" seasoning program. "Mealtime Solutions" offers a package of seasoning blends, recipes and instruction which allows a supermarket to present value added products in their meat and deli departments. Graphic - Kasco offers its customers "Mealtime Solutions", a value added seasoning program. 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 sells 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 France, in addition to providing its standard products, Kasco distributes equipment used in the supermarket industry and in the food processing industry. In Canada Kasco has reduced its equipment distribution activity during 1996 to those select markets where it provides superior value and service to its customers. 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 1996, Kasco's continuous improvement programs combined with significant capital and process investments resulted in superior quality bands, improved on time deliveries and improved productivity. Continuing improvements are expected in 1997. DIRECTORS (individual photographs) 1. Luke E. Fichthorn III Chairman and CEO Bairnco Corporation 2. Charles T. Foley President Estabrook Capital Management, Inc. 3. Richard A. Shantz Private Investor 4. William F. Yelverton CEO - Individual Insurance Group Prudential Insurance Company of America MANAGEMENT (individual photographs) 1. Jeffrey M. Berresford President Kasco Corporation 2. Robert M. Carini President Arlon Materials for Electronics 3. Linda M. Metcalf Vice President Administration & Secretary Bairnco Corporation 4. Elmer G. Pruim President Arlon Adhesives & Films 5. J. Robert Wilkinson Vice President Finance & Treasurer Bairnco Corporation FINANCIAL HISTORY
1996 1995 1994 1993 1992 Summary of Operations ($ in thousands) Net sales $ 150,234 150,507 145,522 134,958 135,581 Gross profit $ 52,536 53,317 53,177 52,645 54,714 Earnings before interest, charges & taxes (a) $ 14,956 14,633 13,654 13,617 15,846 Operating profit $ 14,956 14,633 13,654 4,874 15,846 Interest expense, net $ 1,725 2,026 2,144 2,248 2,911 Income before income taxes $ 13,231 12,607 11,510 2,626 12,935 Provision for income taxes $ 4,896 4,826 4,255 1,809 5,180 Income from continuing operations $ 8,335 7,781 7,255 817 7,755 Return from continuing operations on: Net sales % 5.5 5.2 5.0 0.6 5.7 Stockholders' investment % 17.2 16.7 17.4 1.4 12.1 Capital employed % 12.3 11.9 10.6 2.0 8.6 Year-End Position ($ in thousands) Working capital $ 30,341 28,350 26,277 20,098 18,983 Plant and equipment, net $ 38,276 34,449 36,289 38,654 39,232 Total assets excluding discontinued operations $ 102,600 98,196 99,243 95,547 98,916 Net assets of discontinued operations $ -- -- 3,529 12,434 34,337 Total assets $ 102,600 98,196 102,772 107,981 133,253 Total debt $ 28,179 24,578 31,775 43,718 45,733 Stockholders' investment $ 49,464 48,024 43,997 38,515 62,055 Capital employed - total $ 77,643 72,602 75,772 82,233 107,788 Capital employed - proforma (b) $ 77,643 72,602 75,772 82,233 85,895 Per Share Data Primary and fully diluted income from continuing operations $ 0.85 0.75 0.69 0.08 0.72 Cash dividend $ 0.20 0.20 0.20 0.20 0.20 Stockholders' investment $ 5.02 4.60 4.19 3.67 5.91 Market price: High $ 8-1/2 6 5-1/2 8-1/2 8-1/4 Low $ 5-1/2 3-7/8 3 3-3/8 5-5/8 Other Data (in thousands) Depreciation and amortization $ 6,305 6,314 6,502 6,700 5,808 Capital expenditures $ 10,131 4,831 5,176 6,318 13,195 Average shares outstanding (c) 9,851 10,440 10,500 10,500 10,749 Current ratio 2.4 2.2 2.0 1.8 1.7 Number of common stockholders 1,773 1,967 2,198 2,326 2,440 Average number of employees 825 874 915 920 935 Sales per employee $ 182,100 172,200 159,040 146,700 145,000 (a) Excludes impact of non-recurring litigation and restructuring costs of $8,743 (pre-tax) in 1993. (b) Stockholders' investment and capital employed adjusted on a proforma basis for discontinued operations NRV writedown and loss on discontinuance recorded in 1993. (c) Assuming full dilution.
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 14. Results of Operations: 1996 Compared to 1995 Net sales for 1996 of $150,234,000 were level with net sales for 1995 of $150,507,000. Arlon's sales increased 4.1%. Sales to the graphics and electrical insulation markets continued to grow which more than offset lower sales to the electronics industry caused by the industry inventory correction primarily in the second and third quarters. Kasco's sales decreased 8.5%, part of which was consistent with the program to refocus Kasco North America on its core business and part of which was due to the severe impact of BSE ("mad cow" disease) on meat consumption in Europe and its attendant impact on Kasco's replacement and equipment business in Europe. In 1996, gross profit decreased 1.5% to $52,536,000 from $53,317,000 in the prior year. Gross profit margins declined to 35.0% from 35.4% last year. Arlon's gross profit increased 3.7% as a result of sales growth and a mix change, which was partially offset by lower yields in two plants caused by the gyrations in the electronics market during the year resulting in lower gross profit margins as a percent of sales. Kasco's gross profit declined 8.6% as a result of the sales decrease. The program to refocus Kasco's North America operations was substantially completed and gross profit margin increased 1.5% on lower sales. However these improvements were more than offset by the $1.1 million reduced gross margin in Europe most of which occurred in the second and third quarters from the BSE panic. Meat consumption and the confidence of the European meat processing and distribution markets began to recover in the fourth quarter. Selling and administrative expenses decreased $1,104,000 or 2.9% to $37,580,000 from $38,684,000 in 1995. As a percent of sales, these expenses decreased to 25.0% in 1996 from 25.7% in 1995. Selling expense decreased slightly. Kasco's expenses were reduced consistent with its plan. Arlon's sales and marketing expenses increased in accord with its continued investment in sales and marketing. Administrative expenses continued to be reduced both absolutely and as a percentage of sales. Research and development expenses increased 1.5% as Bairnco continued to invest in the development of new products and improved quality. Operating profit in 1996 was $14,956,000, or 10.0% of net sales, compared to operating profit in 1995 of $14,633,000, or 9.7% of net sales. Net interest expense decreased $301,000 or 14.9% from $2,026,000 to $1,725,000. The decrease was due primarily to lower interest rates. Income before income taxes increased 4.9% to $13,231,000 in 1996 as compared to $12,607,000 in 1995. The effective tax rate decreased to 37.0% from 38.3% in 1995 due primarily to the tax benefits attendant with the establishment of Bairnco's foreign sales corporation. The provision for income taxes in both years includes all applicable federal, state, local and foreign income taxes. Audits of the Corporation's consolidated US federal income tax returns have been completed for all years through 1992. Net income increased 7.1% to $8,335,000 in 1996 as compared to $7,781,000 in 1995. Earnings per share increased 13.3% to $.85 from $.75 last year. As a result of the stock repurchase program, the average number of shares outstanding in 1996 was 9,851,000, a 5.6% decrease from the 10,440,000 average outstanding in 1995. Results of Operations: 1995 Compared to 1994 Net sales increased 3.4% to $150,507,000 in 1995 from $145,522,000 in 1994. Sales of Arlon engineered materials and components increased 7.8% due to growing sales to the high end and microwave printed circuit board markets. Sales of Kasco replacement products and services declined 4.1% due to the planned reduction in Kasco's North American service center revenues as part of the program to focus Kasco on its core business. In 1995, gross profit increased nominally to $53,317,000 from $53,177,000 in the prior year. The favorable impact from increased sales was offset by the decline in gross profit margins to 35.4% from 36.5% last year. Arlon's gross profit increased only 3.1% as a result of the growth in lower margin commercial products and margin erosion in certain market segments due to competitive pressures. Kasco's gross profit declined 3.5% as a result of the 4.1% sales decrease, whereas its gross profit margin increased slightly due to an improved sales mix and reduced manufacturing costs. Selling and administrative expenses decreased $839,000 or 2.1% to $38,684,000 from $39,523,000 in 1994. As a percent of sales, these expenses decreased to 25.7% in 1995 from 27.2% in 1994. Selling expenses decreased slightly as the reductions in Kasco from focusing on the core business were partially offset by the continued investment in sales and marketing expense to grow selected Arlon segments. Administrative expenses continued to be reduced both absolutely and as a percentage of sales. Research and development expenses increased 3.0% as Bairnco continued to invest in the development of new products and improved quality. Operating profit in 1995 was $14,633,000, or 9.7% of net sales, compared to operating profit in 1994 of $13,654,000, or 9.4% of net sales. Net interest expense decreased to $2,026,000 in 1995 from $2,144,000 in 1994 due primarily to a $7.2 million reduction in debt of which approximately $3.5 million occurred during the fourth quarter of 1995. Income before income taxes increased 9.5% to $12,607,000 in 1995 as compared to $11,510,000 in 1994. The effective tax rate increased to 38.3% in 1995 from 37.0% in 1994. The lower effective tax rate in 1994 resulted from the benefit of foreign losses which were booked at a higher tax rate. The provision for income taxes in both years includes all applicable federal, state, local and foreign income taxes. Net income increased 7.3% to $7,781,000 in 1995 as compared to $7,255,000 in 1994. Earnings per share increased 8.7% to $.75 from $.69 last year. The average number of shares outstanding in 1995 was 10,440,000, a 0.6% decrease from the 10,500,000 average outstanding in 1994 due to the stock repurchase program. Liquidity and Capital Resources At December 31, 1996, Bairnco had working capital of $30.3 million compared to $28.4 million at December 31, 1995. The increase in other current assets is primarily due to a tax refund expected to be received during the first quarter 1997. The decrease in other assets primarily reflects payments on the long term portion of the notes receivable on the discontinued operations disposed of during 1995 (refer to Note 2 to the Consolidated Financial Statements). Subsequent to year end, the reducing revolving credit agreement was amended to increase the maximum available borrowings to $45 million from $35 million and to extend the final maturity to December 31, 2001. At December 31, 1996, $28.2 million of total debt was outstanding compared to $24.6 million at the end of 1995. As of December 31, 1996, approximately $23.3 million was available for borrowing under the Corporation's secured reducing revolving credit agreement, as amended. In addition, approximately $5.6 million was available under various short term domestic and foreign uncommitted credit facilities. Debt as a percent of equity increased to 57.0% at the end of 1996 from 51.2% at the end of 1995. Bairnco made $10,131,000 of capital expenditures in 1996 as compared to its plan of approximately $12.3 million. The reduction in capital expenditures from plan was due primarily to the deferment of a capacity addition from 1996 into future years. Again, substantial improvements in operating efficiencies in 1996 and planned for 1997 permitted the postponement of this major capital expenditure. Total capital expenditures in 1997 are expected to be approximately $13.3 million. Approximately $4.0 million of the planned expenditures are contingent upon realization of the anticipated growth in several markets. In 1996, Bairnco's Board of Directors authorized the repurchase of up to $5,000,000 of its common stock. The authorization was in addition to the $2,420,000 still unused from the prior year $5,000,000 authorization. During the year the Company repurchased 803,900 shares for $5,412,000. The Board has authorized management to continue its stock repurchase program in 1997 subject to market conditions and the capital requirements of the business. 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 1997. Other Matters Bairnco Corporation and its subsidiaries are defendants in a number of legal actions and proceedings which are discussed in more detail in Note 10 to the Consolidated Financial Statements. 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 December 31, 1996. Outlook Management is not aware of any adverse trends that would materially affect the Company's strong financial position. The outlook for 1997 is for improved sales and earnings. It is expected that the combination of growth from new products and in certain niche markets will result in sales increases more than offsetting the low margin sales that have been eliminated. Improved earnings are expected both from increased sales and the continuing cost reduction and efficiency and yield improvement programs. Due to the relatively strong first quarter in 1996, the timing of product line pruning during 1996 and the anticipated implementation of programs in 1997, the first part of 1997 is expected to be level with last year with the improvements beginning during the second quarter. Quarterly Results of Operations (Unaudited) (In thousands except per share data)
1st 1st 2nd 2nd 3rd 3rd 4th 4th Total Total 1996 1995 1996 1995 1996 1995 1996 1995 1996 1995 Net Sales $38,094 $38,523 $37,323 $38,309 $36,152 $37,386 $38,665 $36,289 $150,234 $150,507 Cost of sales 24,656 24,794 24,067 24,462 23,645 24,511 25,330 23,423 97,698 97,190 Gross Profit 13,438 13,729 13,256 13,847 12,507 12,875 13,335 12,866 52,536 53,317 Selling and administrative expenses 9,621 10,132 9,276 9,980 8,965 9,292 9,718 9,280 37,580 38,684 Operating Profit 3,817 3,597 3,980 3,867 3,542 3,583 3,617 3,586 14,956 14,633 Interest expense, net 415 547 433 527 417 479 460 473 1,725 2,026 Income before income taxes 3,402 3,050 3,547 3,340 3,125 3,104 3,157 3,113 13,231 12,607 Provision for income taxes 1,293 1,159 1,348 1,269 1,187 1,211 1,068 1,187 4,896 4,826 Net Income $ 2,109 $ 1,891 $ 2,199 $ 2,071 $ 1,938 $ 1,893 $ 2,089 $ 1,926 $ 8,335 $ 7,781 Earnings per Share $ 0.21 $ 0.18 $ 0.22 $ 0.20 $ 0.20 $ 0.18 $ 0.22 $ 0.19 $ 0.85 $ 0.75 Market Price: High $ 8-1/2 $ 4-7/8 $ 7-5/8 $ 4-7/8 $ 7-3/8 $ 5-1/2 $ 6-7/8 $ 6 $ 8-1/2 $ 6 Low 5-7/8 3-7/8 6-5/8 3-7/8 5-1/2 4-3/8 5-3/4 4-3/8 5-1/2 3-7/8
"Safe Harbor" Statement under the Private Securities Reform Act of 1995 Certain of the statements contained in this annual report (other than the financial statements and statements of historical fact), including, without limitation, statements as to management expectations and belief presented under the captions "Letter to Our Stockholders" and "Management's Discussion and Analysis", 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, 1997 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, 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 the stockholders' letter and management's discussion and analysis contained in its annual reports, the Corporation does not intend to review or revise any particular forward-looking statement referenced herein in light of future events. 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, 1996 and 1995, and the related consolidated statements of income, stockholders' investment and cash flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Orlando, Florida January 23, 1997 Arthur Andersen LLP CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31, 1996, 1995 and 1994 Bairnco Corporation and Subsidiaries
1996 1995 1994 Net Sales $ 150,234,000 $ 150,507,000 $ 145,522,000 Cost of sales 97,698,000 97,190,000 92,345,000 Gross Profit 52,536,000 53,317,000 53,177,000 Selling and administrative expenses 37,580,000 38,684,000 39,523,000 Operating Profit 14,956,000 14,633,000 13,654,000 Interest expense, net 1,725,000 2,026,000 2,144,000 Income before Income Taxes 13,231,000 12,607,000 11,510,000 Provision for income taxes (Note 4) 4,896,000 4,826,000 4,255,000 Net Income $ 8,335,000 $ 7,781,000 $ 7,255,000 Earnings per Share of Common Stock (Note 3) $ 0.85 $ 0.75 $ 0.69 Dividends per Share of Common Stock $ 0.20 $ 0.20 $ 0.20 The accompanying notes are an integral part of these financial statements.
CONSOLIDATED BALANCE SHEETS December 31, 1996 and 1995 Bairnco Corporation and Subsidiaries
1996 1995 Assets Current Assets: Cash and cash equivalents $ 855,000 $ 608,000 Accounts receivable, less allowances of $822,000 and $763,000, respectively 21,476,000 21,472,000 Inventories: Raw materials and supplies 4,733,000 4,651,000 Work in process 5,999,000 5,451,000 Finished goods 12,767,000 13,634,000 23,499,000 23,736,000 Deferred income taxes (Note 4) 2,922,000 3,396,000 Other current assets (Note 2) 3,748,000 2,130,000 Total current assets 52,500,000 51,342,000 Plant and Equipment, at cost: Land 1,560,000 1,534,000 Buildings and leasehold interests and improvements 16,451,000 16,332,000 Machinery and equipment 66,520,000 59,926,000 84,531,000 77,792,000 Less - Accumulated depreciation and amortization (46,255,000) (43,343,000) 38,276,000 34,449,000 Cost in Excess of Net Assets of Purchased Businesses (Note 1) 7,922,000 8,152,000 Other Assets (Notes 1 and 2) 3,902,000 4,253,000 $102,600,000 $ 98,196,000 Liabilities and Stockholders' Investment Current Liabilities: Short-term debt (Note 6) $ 3,337,000 $ 3,156,000 Current maturities of long-term debt (Note 6) 125,000 186,000 Accounts payable 7,383,000 7,885,000 Accrued expenses (Note 5) 11,314,000 11,765,000 Total current liabilities 22,159,000 22,992,000 Long-Term Debt (Note 6) 24,717,000 21,236,000 Deferred Income Taxes (Note 4) 3,114,000 3,215,000 Other Liabilities 3,146,000 2,729,000 Stockholders' Investment (Notes 3, 6 and 7): Preferred stock, par value $.01, 5,000,000 shares authorized, none issued -- -- Common stock, par value $.01, 30,000,000 shares authorized, 11,155,499 and 11,062,499 issued, respectively 112,000 111,000 Paid-in capital 49,004,000 48,533,000 Retained earnings 15,858,000 9,460,000 Currency translation adjustment (Note 1) 2,282,000 2,300,000 Treasury stock, at cost, 1,741,965 and 938,065 shares, respectively (17,792,000) (12,380,000) Total stockholders' investment 49,464,000 48,024,000 $102,600,000 $ 98,196,000 The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1996, 1995 and 1994 Bairnco Corporation and Subsidiaries
1996 1995 1994 Cash Flows from Operating Activities: Income from continuing operations $ 8,335,000 $ 7,781,000 $ 7,255,000 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization 6,305,000 6,314,000 6,502,000 Loss on disposal of plant and equipment 203,000 294,000 18,000 Deferred income taxes 373,000 1,561,000 242,000 Change in operating assets and liabilities: (Increase) in accounts receivable, net (4,000) (587,000) (1,953,000) Decrease (increase) in inventories 237,000 (3,694,000) (549,000) (Increase) decrease in other current assets (1,618,000) 3,205,000 (2,629,000) (Decrease) increase in accounts payable (502,000) (1,877,000) 2,399,000 (Decrease) in accrued expenses (451,000) (1,019,000) (1,498,000) Cash provided by discontinued operations -- 1,988,000 4,863,000 Other 734,000 699,000 (115,000) Net cash provided by operating activities 13,612,000 14,665,000 14,535,000 Cash Flows from Investing Activities: Capital expenditures (10,131,000) (4,831,000) (5,176,000) Proceeds from sale of plant and equipment 138,000 328,000 1,728,000 Proceeds from sale of discontinued operations -- 100,000 2,865,000 Net cash (used in) investing activities (9,993,000) (4,403,000) (583,000) Cash Flows from Financing Activities: Net borrowings (repayment) of external debt 3,968,000 (7,427,000) (12,107,000) Payment of dividends (1,937,000) (2,087,000) (2,100,000) Purchase of treasury stock (5,412,000) (2,580,000) -- Exercise of stock options 472,000 560,000 -- Net cash (used in) financing activities (2,909,000) (11,534,000) (14,207,000) Effect of foreign currency exchange rate changes on cash and cash equivalents (463,000) 402,000 350,000 Net increase (decrease) in cash and cash equivalents 247,000 (870,000) 95,000 Cash and cash equivalents, beginning of year 608,000 1,478,000 1,383,000 Cash and cash equivalents, end of year $ 855,000 $ 608,000 $ 1,478,000 Supplemental Disclosures of Cash Flow Information: Cash paid (received) during the year for: Interest $ 1,696,000 $ 1,992,000 $ 2,242,000 Income Taxes $ 5,378,000 $ (310,000) $ (533,000) Noncash investing activities: Notes Received from Sale of Discontinued Operations $ -- $ 2,500,000 $ -- The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT For the years ended December 31, 1996, 1995 and 1994 Bairnco Corporation and Subsidiaries
Retained Currency Common Paid-In Earnings Translation Treasury Stock Capital (Deficit) Adjustment Stock Balance, December 31, 1993 $109,000 $47,975,000 $(1,389,000) $1,620,000 $ (9,800,000) Net income -- -- 7,255,000 -- -- Cash dividends ($.20 per share) -- -- (2,100,000) -- -- Currency translation adjustment (Note 1) -- -- -- 327,000 -- Balance, December 31, 1994 109,000 47,975,000 3,766,000 1,947,000 (9,800,000) Net income -- -- 7,781,000 -- -- Cash dividends ($.20 per share) -- -- (2,087,000) -- -- Issuance of 110,375 shares pursuant to exercise of stock options 2,000 558,000 -- -- -- Acquisition of treasury stock (486,200 shares at cost) -- -- -- -- (2,580,000) Currency translation adjustment (Note 1) -- -- -- 353,000 -- Balance, December 31, 1995 111,000 48,533,000 9,460,000 2,300,000 (12,380,000) Net income -- -- 8,335,000 -- -- Cash dividends ($.20 per share) -- -- (1,937,000) -- -- Issuance of 93,000 shares pursuant to exercise of stock options 1,000 471,000 -- -- -- Acquisition of treasury stock (803,900 shares at cost) -- -- -- -- (5,412,000) Currency translation adjustment (Note 1) -- -- -- (18,000) -- Balance, December 31, 1996 $112,000 $49,004,000 $15,858,000 $ 2,282,000 $(17,792,000) The accompanying notes are integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Nature of Operations and Summary of Significant Accounting Policies Nature of operations: Bairnco Corporation is a diversified multinational company that operates two business sectors: Engineered Materials and Components which are designed, manufactured and sold under the Arlon brand identity to electronic, industrial and commercial markets worldwide; and, Replacement Products and Services which 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. Arlon's products are based on a common technology in coating, laminating, resin technology 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. Kasco's 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. 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. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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. Depreciation expense of $6,123,000, $6,131,000 and $6,197,000 was recognized during 1996, 1995 and 1994, respectively. Cost in excess of net assets of purchased businesses: Cost in excess of net assets of purchased businesses acquired prior to 1971 of approximately $3.5 million 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 $5,833,000 and $5,931,000 at December 31, 1996 and 1995, respectively, is being amortized over 40 years. Accumulated amortization at December 31, 1996 and 1995, was $1,396,000 and $1,265,000, respectively. Amortization expense of $149,000, $150,000 and $146,000 was recognized during 1996, 1995 and 1994, respectively. At each balance sheet date, the Corporation evaluates the realizability of its cost in excess of net assets of purchased businesses based upon expectations of nondiscounted cash flows and operating income for each division having a material cost in excess of net assets of purchased businesses balance. Based upon its most recent analysis, the Corporation believes that no material impairment of its cost in excess of net assets of purchased businesses exists at December 31, 1996. Intangibles: Intangible assets of purchased businesses, net of amortization, are included in other assets and totaled $136,000 and $94,000 at December 31, 1996 and 1995, respectively. These items are amortized over their estimated lives, which generally range from three to twenty years. Amortization expense recognized was $33,000 during 1996 and 1995, and $159,000 during 1994. Long-lived assets: Effective January 1, 1996, the Corporation adopted Statement of Financial Accounting Standards No. 121, Accounting for Impairment of Long-Lived Assets ("SFAS 121"). SFAS 121 requires the Corporation to review the recoverability of long-lived assets, including certain identifiable intangibles to be held and used, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The implementation of SFAS 121 had no impact on the accompanying consolidated financial statements. Revenue recognition: Revenues are recognized when products are shipped or when services are rendered. Income taxes: The Corporation accounts for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Corporation's financial statements or tax returns. In estimating future tax consequences, the Corporation generally considers all expected future events other than enactment of changes in the tax law or changes in tax rates. Changes in tax laws or rates will be recognized in the future years in which they occur. Temporary differences between income for financial reporting and income tax purposes arise primarily from the timing of the deduction of certain accruals and from the use of accelerated methods of depreciation for income tax reporting purposes compared to the method of depreciation used for financial reporting purposes. Accrued expenses: Accrued expenses-insurance represents the estimated costs of known and anticipated claims under the Corporation's general liability, automobile liability, property and workers compensation insurance policies for all of its US operations. The Corporation provides reserves on reported claims and claims incurred but not reported at each balance sheet date based upon the estimated amount of the probable claim or the amount of the deductible, whichever is lower. Such estimates are reviewed and evaluated in light of emerging claim experience and existing circumstances. Any changes in estimates from this review process are reflected in operations currently. Stock options: The Corporation accounts for stock options under Accounting Principles Board Opinion No. 25 ("APB 25"), under which no compensation expense has been recognized. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which is effective for years beginning after December 15, 1995. SFAS 123 established financial accounting and reporting standards for stock-based employee compensation plans. The statement defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their stock compensation plans. However, it also allows an entity to continue to measure compensation costs for those plans using the intrinsic value based method of accounting prescribed by APB 25, but requires pro-forma disclosure of net income and earnings per share for the effects on compensation expense had the accounting guidance for SFAS 123 been adopted. Compensation costs determined consistent with SFAS 123 did not have a material impact on the accompanying consolidated net earnings and earnings per share. 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. Fair value of financial instruments: The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the short-term maturities of these assets and liabilities. The interest rates on the notes receivable (see Note 2 to the Consolidated Financial Statements) are reset at least quarterly to reflect current market rates. Consequently, the carrying values of the notes receivable approximate fair value. The carrying amount of the Corporation's short-term and long-term debt approximates fair value, since the debt is at floating rates or rates approximating rates currently offered to the Corporation for debt of the same remaining maturities. Reclassifications: Certain reclassifications were made to prior year balances in order to conform to the current year presentation (2) Discontinued Operations Bairnco adopted a restructuring plan effective December 31, 1993, which included a formal plan of divestiture relating to the businesses that comprised Bairnco's Specialty Construction Products segment and secure communications electronics operations. During 1994, the majority of the Specialty Construction businesses were sold. The smallest and last remaining operation of the Specialty Construction business was sold on December 29, 1995. The secure communications business was sold on November 30, 1995. The net sales price of the discontinued operations sold in 1995 was $2.6 million and consisted of $100,000 in cash and two promissory notes. The current portion of the promissory notes is $550,000 and is included in Other Current Assets in the Consolidated Balance Sheet as of December 31, 1996 and 1995. The remaining $1,017,000 at December 31, 1996 and $1,950,000 at December 31, 1995 represents the net long term portion of the promissory notes and is included in Other Assets in the Consolidated Balance Sheet as of December 31, 1996 and 1995, respectively. No gain or loss was recognized on the sale of these operations in 1994, 1995 nor 1996. As part of the asset purchase agreements for the two discontinued operations disposed of in 1995, the Corporation has guaranteed certain lease payments of one facility and remains the lessee/guarantor of a second facility even though such obligations have been transferred to the respective buyers. The total lease payments guaranteed as of December 31, 1996 amounted to approximately $821,000. In the event the Corporation is called upon to satisfy these guarantees, such payments would be offset by certain buyout provisions which could reduce the total lease payments by as much as $335,000, in addition to any recoveries from sub-leasing the property of which the Corporation remains the lessee/guarantor. Net sales from the discontinued operations for the years ended December 31, 1995 and 1994 were $10.6 million and $20.2 million, respectively. The 1995 and 1994 losses of the discontinued operations approximated the prior estimates. (3) Earnings per Share Primary and fully-diluted earnings per share are equal within each of the years ended December 31, 1996, 1995 and 1994. Earnings per share are based on the weighted average number of common shares outstanding during the year as follows: 1996 1995 1994 Primary 9,851,000 10,436,000 10,500,000 Fully-Diluted 9,851,000 10,440,000 10,500,000 Primary and fully-diluted shares outstanding reflect all common stock equivalents (primarily outstanding stock options as described in Note 7 to the Consolidated Financial Statements) to the extent they are not antidilutive. (4) 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:
1996 1995 1994 Income before Income Taxes: Domestic $13,176,000 $11,360,000 $11,096,000 Foreign 55,000 1,247,000 414,000 Total Income before Income Taxes $13,231,000 $12,607,000 $11,510,000 Provision for Income Taxes: Domestic: Currently payable $ 4,096,000 $ 1,671,000 $ 3,731,000 Deferred 594,000 2,413,000 751,000 Foreign: Currently payable 452,000 943,000 (135,000) Deferred (246,000) (201,000) (92,000) Total Provision for Income Taxes $ 4,896,000 $ 4,826,000 $ 4,255,000
Bairnco's restated net current and non-current deferred tax assets (liabilities) are comprised of the following at December 31:
1996 1995 1994 Current Deferred Tax Items: Accrued Expenses $ 1,887,000 $ 2,211,000 $ 2,528,000 Inventories 872,000 961,000 980,000 Other 163,000 224,000 256,000 Tax Credit Carryforwards -- -- 1,177,000 Net Current Deferred Tax Asset 2,922,000 3,396,000 4,941,000 Non-Current Deferred Tax Items: Fixed Assets (2,889,000) (2,650,000) (2,749,000) Pensions (1,149,000) (938,000) (781,000) Intangible Assets 15,000 (107,000) (102,000) Other 909,000 480,000 (111,000) Net Non-Current Deferred Tax Liability (3,114,000) (3,215,000) (3,743,000) Net Deferred Tax (Liability) Asset $ (192,000) $ 181,000 $ 1,198,000
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 $1.1 and $7.7 million to be realized from the discontinued operations sold in 1995 and 1994, respectively, 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 approximately $1.1 million at December 31, 1996. In 1996, 1995 and 1994 the Corporation's effective tax rates were 37.0%, 38.3% and 37.0%, respectively, of income before income taxes. An analysis of the differences between these rates and the US federal statutory income tax rate is as follows:
1996 1995 1994 Computed income taxes at statutory rate $ 4,499,000 $ 4,287,000 $ 3,910,000 State and local taxes, net of federal tax benefit 321,000 205,000 310,000 Dividend income 198,000 193,000 185,000 Amortization of goodwill 9,000 9,000 43,000 Foreign income taxed at different rates 187,000 318,000 (368,000) Tax credits (271,000) (281,000) (242,000) Benefit of Foreign Sales Corporation (413,000) -- -- Other, net 366,000 95,000 417,000 Provision for income taxes $ 4,896,000 $ 4,826,000 $ 4,255,000
Audits of the federal income tax returns of the Corporation and its subsidiaries have been completed through 1992. Provision has not been made for US income taxes on approximately $3.3 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 US foreign tax credits would largely eliminate any US income tax incurred. (5) Accrued Expenses Accrued expenses consisted of the following as of December 31, 1996 and 1995, respectively: 1996 1995 Salaries and wages $ 2,708,000 $ 2,312,000 Income taxes 245,000 360,000 Insurance 2,648,000 2,026,000 Litigation 1,654,000 1,942,000 Other accrued expenses 4,059,000 5,125,000 Total accrued expenses $ 11,314,000 $ 11,765,000 (6) Debt Long-term debt consisted of the following as of December 31, 1996 and 1995, respectively: 1996 1995 Revolving Credit Notes $21,707,000 $18,099,000 Equipment Loans 115,000 290,000 Industrial Revenue Bonds 3,000,000 3,000,000 Other 20,000 33,000 24,842,000 21,422,000 Less Current Maturities 125,000 186,000 Total $24,717,000 $21,236,000 Subsequent to year end, the Corporation's secured, reducing revolving credit agreement ("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 amendment effectively extended the expiration date of the Credit Agreement from August 31, 1999 to December 31, 2001 and increased the revolving credit facility's maximum loan commitment of $35 million at December 31, 1996 to $45 million. The Credit Agreement also includes 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, 1996, $21.7 million of revolving credit was outstanding and payable in 2001. In addition, approximately $8.3 million of irrevocable standby letters of credit were outstanding under the Credit Agreement, which are not reflected in the accompanying consolidated financial statements. $5.0 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, 1996, were 6.4% on US borrowings and 4.1% on European borrowings. A commitment fee is paid on the unused portion of the total credit. The interest rate on the Industrial Revenue Bonds was 4.6% at December 31, 1996. Substantially all of the assets of the Corporation and its US subsidiaries are pledged as collateral under the Credit Agreement, which expires on December 31, 2001. The Credit Agreement, as amended, contains covenants which require the Corporation to meet minimum interest coverage ratios and which limit the ratio of total debt to capital employed as defined in the Credit Agreement. In addition, minimum levels of stockholders' investment must be maintained. At December 31, 1996 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 5.8% to 8.5% due in 1997 and 1998. The annual maturity requirements for long-term debt due after December 31, 1996, are summarized as follows: Year Ended December 31, 1997 $ 125,000 1998 10,000 1999 -- 2000 -- 2001 21,707,000 Due after December 31, 2001 3,000,000 Total Long-Term Debt $24,842,000 (7) 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 on the date of grant. Two-thirds of these performance options became exercisable as a result of the Corporations earnings performance in 1992 and 1995 with the remaining one-third becoming fully exercisable on the tenth anniversary of the date of grant if the executive is still employed by the Corporation. 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 1996, 1995 and 1994 were as follows:
1996 1996 1995 1995 1994 1994 Wtd Avg Wtd Avg Wtd Avg Exercise Exercise Exercise Options Price Options Price Options Price Outstanding at beginning of year 716,950 $5.56 982,150 $5.44 1,086,287 $5.44 Granted 78,000 $6.32 21,600 $4.70 32,500 $4.55 Exercised (93,200) $5.09 (110,375) $5.06 -- $ -- Canceled (17,725) $5.28 (176,425) $5.13 (136,637) $5.22 Outstanding at end of year 684,225 $5.71 716,950 $5.56 982,150 $5.44 Exercisable at end of year 501,513 $5.62 506,917 $5.48 666,397 $5.36
At December 31, 1996, 1995 and 1994, 1,495,925, 1,556,200 and 1,401,375 shares, respectively, were available for option grants under the 1990 Plan. The weighted average contractual life of the 684,225 options outstanding at December 31, 1996 was 4.46 years. There were no charges to income in connection with stock option activity during the years presented. (8) 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 US 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 financial reporting 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. The following table describes the funded status of US 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).
1996 1996 1995 1995 Overfunded Underfunded Overfunded Underfunded Actuarial present value of benefit obligation: Vested $(19,242,000) $(2,476,000) $(18,137,000) $(2,409,000) Non-vested (225,000) (24,000) (427,000) (66,000) Accumulated benefit obligation (19,467,000) (2,500,000) (18,564,000) (2,475,000) Additional amounts related to projected pay increases (2,209,000) (65,000) (2,670,000) (69,000) Projected benefit obligation (21,676,000) (2,565,000) (21,234,000) (2,544,000) Plan assets at fair value 22,531,000 1,841,000 20,172,000 1,587,000 Plan assets in excess of (less than) projected benefit obligation 855,000 (724,000) (1,062,000) (957,000) Unrecognized net transition obligation 255,000 291,000 334,000 330,000 Unrecognized prior service costs (83,000) 94,000 (61,000) 116,000 Unrecognized net loss 1,171,000 207,000 2,514,000 307,000 Adjustment to recognize minimum liability -- (527,000) -- (685,000) Prepaid (accrued) pension costs recognized in balance sheet at September 30 2,198,000 (659,000) 1,725,000 (889,000) Fourth quarter accruals (91,000) (64,000) (225,000) (48,000) Fourth quarter contributions -- 65,000 169,000 44,000 Effect of curtailment -- -- (36,000) -- Prepaid (accrued) pension costs at December 31 $ 2,107,000 $ (658,000) $ 1,633,000 $ (893,000)
The discount rate used in determining the actuarial present value of the projected benefit obligations in the table above was 7.5% at both September 30, 1996 and 1995. The rate of projected pay increases, where applicable, was 5% at both September 30, 1996 and 1995. The expected long-term rate of return on retirement plan assets was 9% at both September 30, 1996 and 1995. Net periodic pension cost for the US plans included the following:
1996 1995 1994 Service cost-benefits earned during the year $ 716,000 $ 858,000 $ 915,000 Interest cost on projected benefit obligation 1,695,000 1,646,000 1,493,000 Return on plan assets: Expected return-(gain) (2,018,000) (1,666,000) (1,803,000) Asset gain (loss) 434,000 2,879,000 (2,774,000) Actual return-(gain) loss (2,452,000) (4,545,000) 971,000 Net amortization and deferral 566,000 3,135,000 (2,584,000) Net periodic pension cost $ 525,000 $ 1,094,000 $ 795,000
(9) Business Segment Data The Corporation operates two distinct businesses: Arlon - Engineered Materials and Components' segment; and, Kasco - Replacement Products and Services' segment. Information about the Corporation's major lines of business for the years ended December 31, 1996, 1995 and 1994 is as follows:
Segment Depreciation Operating Capital and Net Sales Profit(Loss) Assets (a) Expenditures Amortization 1996 Arlon $103,449,000 $16,159,000 $ 61,118,000 $ 7,255,000 $3,312,000 Kasco 46,785,000 2,649,000 35,161,000 2,830,000 2,933,000 Corporate -- (3,852,000) 6,321,000 46,000 60,000 Total $150,234,000 $14,956,000 $102,600,000 $10,131,000 $6,305,000 1995 Arlon $ 99,391,000 $15,389,000 $ 55,108,000 $ 1,999,000 $3,274,000 Kasco 51,116,000 2,889,000 38,690,000 2,805,000 2,975,000 Corporate -- (3,645,000) 4,398,000 27,000 65,000 Total $150,507,000 $14,633,000 $ 98,196,000 $ 4,831,000 $6,314,000 1994 Arlon $ 92,214,000 $15,712,000 $ 50,234,000 $ 2,084,000 $3,562,000 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
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, 1996, 1995 and 1994 is as follows:
Segment Operating Net Sales Profit Assets (a) 1996 United States $124,154,000 $ 14,564,000 $ 84,269,000 Foreign 26,080,000 392,000 18,331,000 Total $150,234,000 $ 14,956,000 $102,600,000 1995 United States $122,510,000 $ 12,797,000 $ 77,917,000 Foreign 27,997,000 1,836,000 20,279,000 Total $150,507,000 $ 14,633,000 $ 98,196,000 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 (a) Excludes net assets of discontinued operations of $3,529,000 for 1994.
(10) 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 personal injury, property damage and wrongful death cases in which it is alleged that Bairnco is derivatively liable for the asbestos-related claims against Keene. On December 6, 1993, Keene filed for protection under Chapter 11 of the Bankruptcy Code. On June 8, 1995, the Creditors' Committee commenced an adversary proceeding in the Bankruptcy Court against Bairnco, 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 subsidiaries by Bairnco, 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. 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 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 December 31, 1996, 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 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. In keeping with the Transactions Stipulation, the parties have moved to withdraw the reference - that is, they have requested that the District Court assume from the Bankruptcy Court all responsibility for overseeing the Transactions Lawsuit. Pending action on this request, proceedings in the Transactions Lawsuit are stayed. 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, 1996. 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 Toronto, Ontario, Canada 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 the Sheraton Orlando North, 600 North Lake Destiny Road, Maitland, Florida 32751, on April 18, 1997 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 EX-21 5 SUBSIDIARIES OF REGISTRANT EXHIBIT 21 BAIRNCO CORPORATION AND SUBSIDIARIES Subsidiaries of Registrant as of March 21, 1997 Percentage State/Country of Ownership Incorporation Arlon, Inc. 100% Delaware Kasco Corporation 100% Delaware Bairnco Foreign Sales Corporation 100% Barbados Bertram & Graf Gmbh (1) 100% Germany Invabond Ltd. (1) 100% Ireland Atlantic Service Co. Ltd. (1) 100% Canada Atlantic Service Co. (UK) Ltd. (1) 98.9% United Kingdom EuroKasco S.A. (1) 100% France (1) Indirect wholly-owned subsidiary of Bairnco Corporation. EX-23 6 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO BAIRNCO CORPORATION: As independent certified public accountants, we hereby consent to the incorporation of our reports included and incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (Files 33-36330 and 33-41313). Orlando, Florida March 21, 1997 Arthur Andersen LLP EX-27 7 FINANCIAL DATA SCEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM BAIRNCO'S 1996 ANNUAL REPORT TO STOCKHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS YEAR DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 855,000 855,000 0 0 22,298,000 22,298,000 822,000 822,000 23,499,000 23,499,000 52,500,000 52,500,000 84,531,000 84,531,000 46,255,000 46,255,000 102,600,000 102,600,000 22,159,000 22,159,000 24,717,000 24,717,000 0 0 0 0 112,000 112,000 49,352,000 49,352,000 102,600,000 102,600,000 38,665,000 150,234,000 38,665,000 150,234,000 25,330,000 97,698,000 25,330,000 97,698,000 0 0 0 0 460,000 1,725,000 3,157,000 13,231,000 1,068,000 4,896,000 2,089,000 8,335,000 0 0 0 0 0 0 2,089,000 8,335,000 0.22 0.85 0.22 0.85
EX-99 8 FORM 11-K RE: 401K SAVINGS PLAN & TRUST SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K FOR ANNUAL REPORT OF EMPLOYEE STOCK PURCHASE, SAVINGS AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 33-41313 A. Full title of the plan and the address of the plan, if different from that of the issuer named below: Bairnco Corporation 401(K) Savings Plan and Trust B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: Bairnco Corporation 2251 Lucien Way Maitland, Florida 32751 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Advisory Committee of Bairnco Corporation 401(k) Savings Plan and Trust: We have audited the accompanying statements of net assets available for benefits of Bairnco Corporation 401(k) Savings Plan and Trust as of December 31, 1996 and 1995, and the related statement of changes in net assets available for benefits for the year ended December 31, 1996. These financial statements and the schedules referred to below are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements and schedules 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 financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Bairnco Corporation 401(k) Savings Plan and Trust as of December 31, 1996 and 1995, and the changes in net assets available for benefits for the year ended December 31, 1996 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of reportable transactions, assets held for investment and transactions with parties in interest are presented for purposes of complying with the Department of Labor Rules and Regulations for reporting and Disclosure under the Employee Retirement Income Security Act of 1974 and are not a required part of the basic financial statements. Such schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Orlando, Florida February 13, 1997 Arthur Andersen LLP BAIRNCO CORPORATION 401(k) SAVINGS PLAN AND TRUST STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS AS OF DECEMBER 31, 1996 AND 1995
1996 1995 ASSETS INVESTMENTS, at fair market value (Notes 2 & 3) Bairnco common stock fund $ 181,378 $ 154,559 Mutual funds 2,805,520 2,161,181 Participant notes receivable 42,633 12,744 TOTAL INVESTMENTS 3,029,531 2,328,484 RECEIVABLES Participants' contributions 67,678 46,494 Accrued investment income 1,289 6,865 TOTAL RECEIVABLES 68,967 53,359 TOTAL ASSETS 3,098,498 2,381,843 NET ASSETS AVAILABLE FOR BENEFITS $ 3,098,498 $ 2,381,843 The accompanying notes are an integral part of these financial statements.
BAIRNCO CORPORATION 401(k) SAVINGS PLAN AND TRUST STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1996 (Note 6) 1996 NET ASSETS AVAILABLE FOR BENEFITS, beginning of year $ 2,381,843 ADDITIONS: Participants' contributions 797,786 Interest and dividends 116,976 Net realized and unrealized appreciation on investments (Note 2) 226,560 1,141,322 DEDUCTIONS: Distributions 424,267 Administrative expenses 400 424,667 NET INCREASE 716,655 NET ASSETS AVAILABLE FOR BENEFITS, end of year $ 3,098,498 The accompanying notes are an integral part of these financial statements. BAIRNCO CORPORATION 401(k) SAVINGS PLAN AND TRUST NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 and 1995 1. PLAN DESCRIPTION: The following description of the Bairnco Corporation 401(k) Savings Plan and Trust (the "Plan") provides only general information. Participants of the Plan should refer to the Plan document for a complete description of the Plan's provisions. The Plan document is available from Bairnco Corporation ("Bairnco" or the "Corporation") at its offices in Maitland, Florida. General Bairnco established the Plan effective July 1, 1991. The Plan is a defined contribution plan under which all full-time employees become eligible for participation on the first day of the month following completion of thirty days of service. Once an employee becomes eligible for participation, salary deferrals (contributions) may commence on any subsequent date. The Plan excludes non-resident aliens, leased employees and independent contractors from participating in the Plan. Union employees of the Corporation are permitted to participate in the Plan. The Plan is subject to the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 (ERISA). Contributions Under the terms of the Plan, allowable contributions are outlined as follows: Employee Contributions - The participants may elect to defer a minimum of 1% and a maximum of 20% of compensation, as defined in the Plan, not to exceed $9,500 and $9,240 for 1996 and 1995, respectively. The maximum dollar amount that may be deferred is adjusted annually by the Internal Revenue Service. The amount of the compensation which is deferred, plus any earnings or losses on that amount, is not subject to federal income tax until the funds are actually distributed to the participant by the Plan. However, contributions are subject to FICA (Social Security and Medicare Taxes). Employer Contributions - The Corporation does not match elective deferrals pursuant to the Plan. Participant Accounts Each participant's account is credited with the participant's contribution and allocations of Plan earnings, and charged with an allocation of administrative expenses. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the amount that can be provided from the participant's vested account. Vesting A participant shall at all times have a 100 percent nonforfeitable interest in the value of his/her account attributable to all contributions made plus or minus investment earnings and losses thereon and related administrative costs. Transfers From Other Qualified Plans Participants who have an interest in any other qualified employee benefit plan (as described in Section 401(a) of the Internal Revenue Code) may transfer the distributions from these plans directly into the Plan at the discretion of the Administrative Committee (see Note 4). Distributions A participant who has attained age 59-1/2 may elect, by filing a written application with the Administrative Committee, to withdraw any amount up to 100 percent of the vested portion of his/her account, for any reason. For participants who have not attained age 59-1/2, the reasons for such withdrawals are restricted to those defined in the Plan. Upon termination of employment, a participant can elect to have the balance in the participant's account distributed to the participant in a single lump sum cash distribution or a partial distribution if requested in writing by the participant. As an alternative, the participant may also elect to leave the related funds in the Plan or transfer the related funds into another qualified plan. Participant Notes Receivable An active participant may borrow from his/her account a minimum of $1,000 up to a maximum equal to the lesser of (1) a total of $50,000 of borrowings within one year or (2) 50% of the participant's account balance. Loan transactions are treated as transfers between the investment fund and the participant notes receivable account. Loan terms range from 1-5 years or up to 15 years for the purchase of a primary residence. The loans are secured by the balance in the participant's account and bear interest at the prime rate at the time of borrowing plus 2%. During 1996, interest rates ranged from 9.5% to 10.5%. Principal and interest are paid quarterly through payroll deductions. As of December 31, 1996, there were 14 loans outstanding. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Reclassifications- Certain reclassifications were made to prior year balances in order to conform to the current year presentation. Use of Estimates- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of additions and deductions from the net assets available for plan benefits during the reporting period. Actual results could differ from those estimates. Basis Of Accounting- Through June 30, 1996, the accounting records of the Plan and the Plan's assets were maintained by SunTrust Banks of Florida, Inc. ("SunTrust"). Effective July 1, 1996, the accounting records of the Plan and the Plan's assets were transferred from SunTrust to Schwab Retirement Plan Services, Inc. ("Schwab") a subsidiary of the Charles Schwab Corporation. The participants' account balances are determined on the cash basis; however, the Plan's financial statements contained herein are presented on an accrual basis. Investment Valuation and Income Recognition- Investments are stated at fair market value. Securities which are traded on a national securities exchange are valued at the last reported sales price on the last business day of the year. Any unlisted securities are valued at the bid price next preceding the close of business on the valuation date. Participant notes receivable are valued at cost which approximates fair value. Any unrealized appreciation/depreciation on investments represents the difference between fair value of investments at the beginning of the Plan year or when acquired, whichever is later, and the fair value of investments at the end of the Plan year. Interest income is recognized on the accrual basis. Administrative Expenses- Administrative expenses of the Plan are paid directly by Bairnco on behalf of the Plan. During the year ended December 31, 1996, Bairnco paid administrative expenses of approximately $11,500. Benefit Payments- Benefits are recorded when paid. 3. INVESTMENTS: There are currently six investment options into which participants may direct the investment of their accounts. These are the Invesco Strategic Technology Fund, Founders Growth Funds, Schwab 1000 Equity Fund, Strong Government Securities Fund and the Schwab Retirement Money Fund (collectively the "mutual funds"), and the Bairnco Corporation Common Stock Fund ("Bairnco common stock fund"). Participants invest in units of participation of the fund which represents an undivided interest in the underlying assets of the fund. Participants may separately direct the investment of future deferrals and existing account balances into these six investment options in increments of 5%. Participants are permitted to modify their elections for future deferrals and existing account balances between investment funds on a daily basis. Except for the Invesco Strategic Technology Fund, all the investments represent 5% or more of the net assets available for benefits (see Note 6). 4. TRUST AGREEMENT: From the Plan's inception through June 30, 1996, SunTrust acted as the Plan Trustee. Effective July 1, 1996, Schwab became the Plan's Trustee pursuant to the Plan document which is signed by the Corporation and Plan Trustee. Schwab manages the Plan assets and makes distributions to participants as directed by the Plan Administrator. The Administrative Committee of the Corporation is the Plan Administrator. Expenses incurred by the Plan Trustee or the Plan Administrator in the performance of their duties may be paid by the Plan or the Corporation at the Corporation's discretion. During 1996 and 1995, all investment managers' fees were paid directly by the Plan. 5. PLAN TERMINATION: Although it has not expressed any intent to do so, the Corporation reserves the right under the Plan to terminate the Plan, in whole or in part, at any time. In the event of the Plan's termination, the Plan assets will be distributed to the participants in lump sum distributions or transferred to another qualified plan at the direction of the participant. 6. CHANGES IN NET ASSETS BY INVESTMENT FUND: The following schedule presents changes in the net assets of the investment funds for the year ended December 31, 1996:
STI Classic STI Classic STI Classic Bairnco Capital Investment Prime Common Participants Growth Grade Bond Quality Stock Notes Other Fund Fund MM Fund Fund Receivable Receivables Total Net Assets available for Plan Benefits, 01-01-96 $ 1,120,700 $ 409,483 $ 630,998 $154,559 $12,744 $ 53,359 $ 2,381,843 Additions: Participants' contributions 160,825 60,903 102,512 20,453 -- (46,494) 298,199 Interest and dividends 5,257 11,789 15,626 2,506 -- (6,865) 28,313 Net realized and unrealized appreciation (depreciation)on investments 113,089 (24,339) -- 39,867 -- -- 128,617 Loan repayments 955 594 236 75 (1,860) -- -- Transfers from other funds 17,158 5,097 662 -- -- 2,388,301 2,411,218 297,284 54,044 119,036 62,901 (1,860) 2,334,942 2,866,347 Deductions: Distributions (108,765) (46,029) (78,412) (16,148) (3,135) -- (252,489) Loans (1,051) (477) (472) -- 2,000 -- -- Transfers to other funds (1,308,168) (417,021) (671,150) (14,879) -- -- (2,411,218) (1,417,984) (463,527) (750,034) (31,027) (1,135) -- (2,663,707) Net Assets available for Plan Benefits, 06-20-96 $ -- $ -- $ -- $186,433 $ 9,749 $2,388,301 $ 2,584,483
Invesco Strong Schwab Bairnco Strategic Founders Schwab Government Retirement Common Participants Technology Growth 1000 Securities Money Stock Notes Other Fund Fund Fund Fund Fund Fund Receivable Receivable Total Transfers (from) to other funds $ -- $ -- $1,308,168 $415,615 $ 664,518 $ -- $ -- $(2,388,301) $ -- Net Assets available for Plan Benefits, 06-21-96 -- -- 1,308,168 415,615 664,518 186,433 9,749 -- 2,584,483 Additions: Participants contributions 78,359 119,235 107,664 60,671 45,670 20,310 -- 67,678 499,587 Interest and dividends 18,850 13,445 18,271 15,815 18,369 2,624 -- 1,289 88,663 Net realized and unrealized apprec (deprec) on investments (13,525) (7,295) 124,716 13,686 -- (19,639) -- -- 97,943 Loan repayments 712 504 462 78 416 168 (2,340) -- -- Transfers from other funds 58,827 48,420 -- -- -- 1,050 -- -- 108,297 143,223 174,309 251,113 90,250 64,455 4,513 (2,340) 68,967 794,490 Deductions: Distributions (583) (1,487) (97,003) (17,722) (47,894) (7,089) -- -- (171,778) Loans (555) (534) (24,190) (3,142) (5,722) (1,081) 35,224 -- -- Admin expenses (8) (17) (280) (18) (66) (11) -- -- (400) Transfers to other funds -- -- (46,098) (10,194) (50,618) (1,387) -- -- (108,297) (1,146) (2,038) (167,571) (31,076) (104,300) (9,568) 35,224 -- (280,475) Net Assets available for Plan Benefits, 12-31-96 $142,077 $172,271 $1,391,710 $474,789 $ 624,673 $181,378 $42,633 $ 68,967 $3,098,498
7. TRANSACTIONS WITH PARTIES IN INTEREST: Under Department of Labor Rules and Regulations for Reporting and Disclosure, the Plan is required to report investment transactions with and compensation paid to a "party in interest". The term "party in interest" is broadly defined but includes Bairnco Corporation as the Plan's sponsor, SunTrust and Schwab, as Plan Trustees, and any person or corporation which renders services to the Plan. Certain 1996 and 1995 fees for legal and accounting services provided in connection with the Plan were paid by the Plan sponsor on behalf of the Plan during these years. Additional fees paid by the Plan during 1996 and 1995 for services rendered by parties in interest were based on rates which the Plan's Administrator believes were customary and reasonable. 8. INCOME TAX STATUS: The Plan obtained its latest determination letter on March 5, 1996, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. Effective July 1, 1996, as a result of the transfer from SunTrust to Schwab, a revised Plan document was filed with the Internal Revenue Serivce. The plan administrator and legal counsel believe that the Plan is designed and currently being operated in compliance with the applicable requirements of the Internal Revenue Code. 9. SUPPLEMENTAL SCHEDULES: Supplemental Schedule I lists the reportable transactions of the Plan for the year ended December 31, 1996. Purchases and sales are made at market value on the date of transaction. Supplemental Schedule II lists the Plan assets held for investment at December 31, 1996. Supplemental Schedule III lists transactions with parties in interest of the Plan for the year ended December 31, 1996. SCHEDULE I BAIRNCO CORPORATION 401(k) SAVINGS PLAN AND TRUST SCHEDULE OF REPORTABLE TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 1996
Sales Sales Sales Description of Transaction Purchases Cost Proceeds Net Gain Purchases: STI Classic Prime Quality Money Market Fund, Class A Trust Shares $ 128,652 STI Classic Capital Growth Fund 199,773 STI Classic Investment Grade Bond Fund 84,799 Founders Growth Fund 190,992 Invesco Strategic Technology Fund 162,410 Schwab Money Market Fund 2,436,833 Schwab Retirement Money Fund 743,117 Schwab 1000 Equity Fund 1,474,332 Strong Government Securities 515,755 Sales: STI Classic Prime Quality Money Market Fund, Class A Trust Shares $ 759,650 $ 759,650 $ -- STI Classic Capital Growth Fund 1,212,280 1,433,562 221,282 STI Classic Investment Grade Bond Fund 465,535 469,943 4,408 Founders Growth Fund 11,092 11,426 334 Invesco Strategic Technology Fund 6,600 6,809 209 Schwab Money Market Fund 2,435,821 2,435,821 -- Schwab Retirement Money Fund 118,442 118,442 -- Schwab 1000 Equity Fund 199,956 207,338 7,382 Strong Government Securities 53,541 54,652 1,111 Total All Funds $5,936,663 $5,262,917 $5,497,643 $234,726 The accompanying notes are an integral part of this schedule.
SCHEDULE II BAIRNCO CORPORATION 401(k) SAVINGS PLAN AND TRUST SCHEDULE OF ASSETS HELD FOR INVESTMENT AS OF DECEMBER 31, 1996 Fair Value Description (Note 2) Cost Cash Equivalents Schwab Money Market Fund $ 1,012 $ 1,012 Common Stocks Bairnco Corporation 180,366 196,459 Total Bairnco Common Stock Fund $ 181,378 $ 197,471 Mutual Funds Invesco Strategic Technology Fund $ 142,077 $ 155,275 Founders Growth Fund 172,271 179,725 Schwab 1000 Equity Fund 1,391,710 1,264,701 Strong Government Securities Fund 474,789 462,014 Schwab Retirement Money Fund 624,673 624,673 Total Mutual Funds $2,805,520 $2,686,388 Other Investments Participant Notes Receivable $ 42,633 $ 42,633 Total $3,029,531 $2,926,492 The accompanying notes are an integral part of this schedule. SCHEDULE III BAIRNCO CORPORATION 401(k) SAVINGS PLAN AND TRUST SCHEDULE OF TRANSACTIONS WITH PARTIES IN INTEREST FOR THE YEAR ENDED DECEMBER 31, 1996 Description Amount Sold 6,411 shares of Bairnco Corporation Common Stock between $6.125 and $7.625 per share $42,279 Purchased 7,910 shares of Bairnco Corporation Common Stock between $6.125 and $7.375 per share $52,614 The accompanying notes are an integral part of this schedule. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Administrative Committee has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. BAIRNCO CORPORATION 401(K) SAVINGS PLAN AND TRUST (Name of Plan) Date: February 13, 1997 By: /s/ J. ROBERT WILKINSON J. ROBERT WILKINSON Administrative Committee Member -----END PRIVACY-ENHANCED MESSAGE-----