-----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, QV5vhKwdEZROel8cwcIlGu9dTWHUQ0WHohTxfZLgZxAVxanfEDFxfAPtS2bMBiVH MSdfWQ+Sm6qBhBRGrL4tng== 0000350750-98-000003.txt : 19980327 0000350750-98-000003.hdr.sgml : 19980327 ACCESSION NUMBER: 0000350750-98-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980326 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: SEC FILE NUMBER: 001-08120 FILM NUMBER: 98573670 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, 1997 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, 1997 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 9, 1998, the aggregate market value of the Registrant's voting stock held by non-affiliates was $87,548,579. On March 9, 1998, there were 8,855,209 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, 1997. Part III incorporates information by reference from the Proxy Statement dated March 18, 1998 in connection with the Registrant's Annual Meeting of Stockholders to be held on April 24, 1998. 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, 1997, Bairnco employed 855 persons including 10 Headquarters personnel. Bairnco's operations occupy approximately 649,700 square feet of factory and office space at its principal locations. There is an additional 45,000 square feet of leased space used as field warehouses throughout North America. b. & c. Financial Information About Industry Segments and Narrative Description of Business Bairnco Corporation is a diversified multinational company that operates two business sectors. Engineered materials and components are designed, manufactured and sold under the Arlon brand identity to electronic, industrial and commercial markets. These products are based on common technologies in coating, laminating, polymers and dispersion chemistry. Replacement products and services are manufactured and distributed under the Kasco brand identity principally to supermarkets, meat and deli operations, and meat, poultry and fish processing plants throughout the United States, Canada and Europe. Kasco also manufactures small band saw blades for cutting metal and wood, and large band saw blades for use at lumber mills. In France, in addition to providing its replacement products, Kasco also distributes equipment to the supermarket and food processing industries. Financial data and other information about the Corporation's segments is set forth in Note 8 to the Consolidated Financial Statements on page 27 and on pages 6 through 11 of Bairnco's 1997 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 13 of Bairnco's 1997 Annual Report to Stockholders, and "Management's Discussion and Analysis" set forth on pages 14 and 15 of Bairnco's 1997 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 common technology in coating and laminating, as well as in polymers and dispersion chemistry. Arlon's principal products include high performance materials for the printed circuit board industry, cast and calendered vinyl film systems, custom engineered laminates and pressure sensitive adhesive systems, and calendered and extruded silicone rubber insulation products used in a broad range of electrical, industrial, consumer and commercial products. Arlon Materials for Electronics has an international reputation as the premier supplier of high technology materials for the printed circuit board industry. These products are marketed principally to printed circuit board manufacturers and OEM's by a direct sales force in concert with strong technical support teams in the US and through distributors and manufacturers representatives in Europe, the Far East, and South America. Our Electronic Substrates product line includes high temperature, high performance thermoset laminates and prepreg bonding plies used in circuit boards for demanding commercial applications and military electronics. These applications require materials that withstand high continuous operating temperatures, provide ease of field repairability, are highly reliable, and improve fabrication yields. Intermediate temperature laminates, which provide improved product reliability and ease of manufacture at a lower cost, are also key to the line. The Microwave Materials product line offers application matched, reinforced PTFE laminates providing high yields and high performance for temperature and frequency dependent microwave applications. The applications for this product line are found in digital cordless telephones, cellular phone systems, direct broadcast satellite TV systems, personal communications networks, global positioning satellites, local area networks, collision avoidance systems, and radar detection systems. Arlon specialty graphic films are marketed under the Calon brand name and include cast and calendered vinyl films that are manufactured in a wide variety of colors, face stocks and adhesive systems. These vinyl films are used in commercial and electrical signage, point of purchase displays, highway signage, fleet markings, and other commercial advertising applications. Custom engineered laminates and coated products are also manufactured and marketed under the Arlon brand identity. Typical applications include insulating foam tapes for thermopane windows, specialty circuit materials, electrical insulation materials for motors and transformers, thermal insulation panels for appliances and cars, identification cards and labels, durable printing stock, and other custom engineered laminates for specific industrial applications. A line of silicone rubber based materials, used in a broad range of consumer, industrial and commercial products, is also manufactured and marketed under the Arlon brand identity. Typical applications of these materials include silicone rubber for molding composites, silicone rubber insulating tape for electric traction motor coil windings, insulation for industrial flexible heaters, insulating tape for electrical splices, as well as many thermal and electrical conductivity applications. Competition Arlon has numerous competitors ranging in size from small, sole proprietorships to units of very large, multinational corporations that in certain instances have far greater market positions and financial resources than the Corporation's. The principal method of competition for Arlon's products varies by product line and type of customer. While competition for established lines is usually based on one or more of lead time, price, product performance, technical support and customer service, it may also be based on the ability to service emerging technologies through the custom design of new products, or redesign of existing products, and materials for the new applications. For high performance materials sold to the printed circuit board industry, the consistent technical performance of the materials supplied in excess of minimum specified standards can be the critical competitive element. In addition, Arlon sells a significant portion of its circuit board materials into the Japanese and European markets where local producers of similar materials have a competitive advantage related to their geographic location. Distribution Arlon products are marketed by company sales personnel, outside sales representatives and distributors in the 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 polytetrafluoroethylene (PTFE) resin, polyimide resin, epoxy resins, and various chemicals. Generally, these materials are each available from several qualified suppliers. There are, however, several raw materials used in Arlon's products that are purchased from chemical companies and are proprietary in nature. Other raw materials are purchased from a single approved vendor on a "sole source" basis although alternative sources could be developed in the future if necessary. However, the qualification procedure can take up to several months and could therefore interrupt production if the primary raw material source was lost unexpectedly. Due to the number and diversity of Arlon's products it is unlikely that availability problems with any one raw material would have a material adverse effect on Arlon. The Corporation is aware that a raw material supplier will discontinue the sale of a resin system currently used in certain Arlon products. An alternative resin system is being qualified and is expected to replace the existing resin system during 1998. There are no other known limitations to the continued availability of Arlon's raw materials. Current suppliers are located in the United States, Japan, Europe and Brazil. Employees As of December 31, 1997, approximately 505 employees were employed by the operations, which constitute Arlon's engineered materials and components. Patents and Trademarks The Corporation owns several registered trademarks under which certain Arlon products are sold. The Corporation does not believe that the loss of any or all of these trademarks would have a material adverse effect on this segment. REPLACEMENT PRODUCTS AND SERVICES (KASCO) Description of Business Replacement products and services are manufactured and distributed under the Kasco brand identity principally to supermarkets, meat and deli operations, and meat, poultry and fish processing plants throughout the United States, Canada and Europe. These products and services include band saw blades for cutting meat and fish, grinder plates and knives for grinding meat, seasoning products, preventive maintenance for equipment in meat and deli operations, and other related butcher supply products. Kasco also manufactures small band saw blades for cutting metal and wood, and large band saw blades for use at lumber mills. Kasco's French operation also distributes equipment to the supermarket and food processing industries. Replacement products and services are sold under a number of brand names including Kasco in the United States and Canada, Atlantic Service in the United Kingdom, and Bertram & Graf and Biro in Continental Europe. Competition and Marketing Kasco competes with several large and medium-sized national and regional companies, as well as numerous small local companies. The principal methods of competition are service, price and product performance. The performance of meat band saw blades used in cutting meat or other food items is balanced between minimizing waste and maximizing the efficiency and productivity of the band saw machine and operator or other cutting/processing equipment being used Kasco introduced several new products in 1997. One of the most exciting is the Predator Series of custom splitter blades. These splitter blades offer reduced workplace noise, peak high speed cutting performance, and increased durability with a unique Gold Tooth Hardening process. The Mealtime Solutions seasoning program continues to be a success as sales for home meal replacement items within supermarkets increase. Mealtime Solutions offers a package of seasoning blends, recipes and instructions which allows a supermarket to present value-added products in their meat and deli departments. To support this growing market, Kasco has moved seasoning manufacturing from City of Industry, CA to St. Louis, MO and built a formulation lab and test kitchen. In North America, Kasco supplies its products and services directly to the supermarket and meat cutting industries through a continent-wide network of service professionals and exclusive distributors. During 1997 Kasco reorganized this network to better serve its customers, and also designed an extensive training program that will be implemented in 1998. In addition, Kasco has increased its emphasis on preventive maintenance, increasing the value-added service its network of professionals provides to customers. Raw Materials and Purchased Supplies High quality carbon steel is the principal raw material used in the manufacture of band saw blades and is purchased from multiple domestic and international suppliers. Tool steel is utilized in manufacturing meat grinder plates and knives and is purchased from qualified suppliers located in the United States, Europe and Japan. Equipment, replacement parts and supplies are purchased from a number of manufacturers and distributors, mostly in the United States and Europe. In France, certain specialty equipment and other items used in the supermarket industry and in the food processing industry are purchased and resold under exclusive distributorship agreements with the equipment manufacturers. All of the raw materials and purchased products utilized by this 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, 1997, approximately 340 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 8 to the Consolidated Financial Statements on page 27 of Bairnco's 1997 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, 1997, 1996 and 1995 were $28,770,000, $28,692,000 and $27,115,000, 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 694,700 Headquarters Maitland, FL 7,700 Leased (Expires 2000) Engineered Materials and Components (Arlon) Bear, DE 135,000 Owned East Providence, RI 68,000 Owned Rancho Cucamonga, CA 80,000 Owned Santa Ana, CA 124,000 Leased (Expires 2003) Replacement Products and Services (Kasco) City of Industry, CA 15,000 Leased (Expires 1998) Gwent, Wales, UK 25,000 Owned Pansdorf, Germany 22,000 Owned Paris, France 20,000 Leased (Expires 2000) St. Louis, MO 78,000 Owned St. Louis, MO 42,000 Leased (Expires 2000) Toronto, Ontario, Canada 33,000 Owned Field Warehouses (Approximately 70 locations in North America) 45,000 Leased Item 3. LEGAL PROCEEDINGS Bairnco has been named as a defendant in a number of personal injury and wrongful death cases in which it is alleged that Bairnco is derivatively liable for the asbestos-related claims against its former subsidiary, Keene Corporation ("Keene"). On December 6, 1993, Keene filed for protection under Chapter 11 of the Bankruptcy Code. On June 8, 1995, the Keene Creditors' Committee commenced an adversary proceeding in the Bankruptcy Court against Bairnco, certain of its present and former officers and directors, and others alleging that the transfer of assets for value by Keene to other subsidiaries of Bairnco, and the spin-offs of certain other subsidiaries by Bairnco, were fraudulent and otherwise violative of law (the "Transactions Lawsuit") and seeking compensatory damages of $700 million, plus interest and punitive damages. The complaint in the Transactions Lawsuit includes a count under the civil RICO statute, 18 U.S.C. Section 1964, pursuant to which compensatory damages are trebled. Bairnco 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, 1997, approximately $28.5 million of NOL Refunds had been received and placed in escrow. There can be no assurance whatsoever that resolution of the NOL Lawsuit will result in the release of any portion of the NOL Refunds to Bairnco. Keene's plan of reorganization was approved and became effective on July 31, 1996. The plan, as approved, creates a Creditors Trust that has succeeded to all of Keene's asbestos liabilities, and also has succeeded to the right to prosecute both the Transactions Lawsuit and the NOL Lawsuit. The plan also includes a permanent injunction under which only the Creditors Trust, and no other entity, can sue Bairnco in connection with the claims asserted in these lawsuits. By order entered April 10, 1997, the Transactions Lawsuit was transferred from the Bankruptcy Court to the United States District Court for the Southern District of New York, where it will be litigated. On September 15, 1997, Bairnco and other defendants filed motions to dismiss the complaint for failure to state a claim as well as motions for summary judgment on the grounds that the complaint is time-barred. Briefing on these motions is complete. Subsequent to year-end, the court issued an opinion granting the motions to dismiss four of the twenty-one defendants in the Transactions Lawsuit. The court reserved decision on the motions of the other defendants. There can be no assurance that the remaining motions will result in dismissal of the Transactions Lawsuit or any part thereof. On January 6, 1998, the Creditors Trust filed a motion, to which Bairnco consented, to have the NOL Lawsuit transferred from the Bankruptcy Court to the District Court. That motion is pending. Management believes that Bairnco has meritorious defenses to all claims or liability purportedly derived from Keene and that it is not liable, as an alter ego, successor, fraudulent transferee or otherwise, for the asbestos-related claims against Keene or with respect to Keene products. Bairnco Corporation and its subsidiaries are defendants in a number of other actions. Management of Bairnco believes that the disposition of these other actions, as well as the actions and proceedings described above, will not have a material adverse effect on the consolidated results of operations or the financial position of Bairnco Corporation and its subsidiaries as of December 31, 1997. 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 1997. 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 (56) Mr. Fichthorn has served as Chairman of Bairnco since May 23, 1990, and on December 18, 1991, became Chief Executive Officer of Bairnco. For over twenty-five years, Mr. Fichthorn has been a private investment banker and partner of Twain Associates, a private investment banking and consulting firm. Mr. Fichthorn served as a director of Keene Corporation, a former subsidiary of Bairnco Corporation from August, 1969 until May, 1981, and became a director of Bairnco in January, 1981. Mr. Fichthorn is also a director of Florida Rock Industries, Inc. and FRP Properties, Inc., neither of which is affiliated with Bairnco. J. Robert Wilkinson (63) Mr. Wilkinson was elected Vice President - Finance and Treasurer in March 1990. From September 1986 to September 1989, Mr. Wilkinson was Bairnco's Vice President - Controller. From October 1989 to March 1990 he was Executive Vice President of Shielding Systems Corporation, a wholly owned subsidiary of Bairnco. James W. Lambert (44) Mr. Lambert was appointed Corporate Controller of Bairnco on August 11, 1997. Prior to joining Bairnco, Mr. Lambert was employed for over 15 years by Air Products and Chemicals Inc., in a variety of financial, marketing and product management capacities. PART II Item 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS a. & c. Data regarding market prices of Bairnco's common stock is included in the "Quarterly Results of Operations" on page 16 of Bairnco's 1997 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 18 of Bairnco's 1997 Annual Report to Stockholders, which is incorporated herein by reference. The quarterly cash dividend remained constant at $0.05 per share during 1997. The Board continues to review the dividend on a quarterly basis. b. The approximate number of holders of record of Bairnco common stock (par value $.01 per share) as of December 31, 1997 was 1,574. Item 6. SELECTED FINANCIAL DATA Reference is made to "Financial History" on page 13 of Bairnco's 1997 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 14 and 15 of Bairnco's 1997 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 18 through 28 and the "Quarterly Results of Operations" on page 16 of Bairnco's 1997 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 1998 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 1998 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 1998 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 1998 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 1997 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, 1997, 1996 and 1995; Consolidated Balance Sheets as of December 31, 1997 and 1996; Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995; Consolidated Statements of Stockholders' Investment for the years ended December 31, 1997, 1996 and 1995; 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, 1997, 1996 and 1995: 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 1997. 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 23, 1998 By: /s/ J. Robert Wilkinson J. Robert Wilkinson Vice President - Finance and Treasurer (Principal Financial Officer) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been executed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated above. /s/ Luke E. Fichthorn III Luke E. Fichthorn III - Chairman and CEO /s/ Richard A. Shantz Richard A. Shantz - Director /s/ Charles T. Foley Charles T. Foley - Director /s/ William F. Yelverton William F. Yelverton - Director /s/ J. Robert Wilkinson J. Robert Wilkinson - Vice President-Finance and Treasurer (Principal Financial Officer) /s/ James W. Lambert James W. Lambert - Controller (Principal Accounting Officer) REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES TO BAIRNCO CORPORATION: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Bairnco Corporation's Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 22, 1998. 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 22, 1998 Arthur Andersen LLP BAIRNCO CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Balance Balance Year Ended Beginning Deductions End December 31, of Year Expenses (a) of Year 1997 - Reserve for Doubtful Accounts $ 822,000 $365,000 $(244,000) $943,000 1996 - Reserve for Doubtful Accounts $ 763,000 $300,000 $(241,000) $822,000 1995 - Reserve for Doubtful Accounts $1,097,000 $202,000 $(536,000) $763,000 (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, 1997 Commission File No.: 1-8120 BAIRNCO CORPORATION (Exact name of registrant as specified in the charter) INDEX TO EXHIBITS Description Incorporated Herein By Reference To Certificate of Incorporation, as Exhibit 3 to Bairnco's Annual amended through September 24, 1991. Report on Form 10-K for fiscal year ended December 31, 1991. By Laws, as amended through December Exhibit 3 to Bairnco's Annual 18, 1991. Report on Form 10-K for fiscal year ended December 31, 1991. Amended and Restated Credit Exhibit 3.1 to Bairnco's Annual Agreement, dated as of December 17, Report on Form 10-K for fiscal 1992, among Bairnco Corporation and year ended December 31, 1992. certain of its subsidiaries, as guarantors, and certain Commercial Lending Institutions and Continental Bank NA (now Bank of America, Illinois), as the Agent for Lenders. Amendment dated as of March 16, 1994 Exhibit 3 to Bairnco's Annual to Amended and Restated Credit Report on Form 10-K for fiscal Agreement dated as of December 17, year ended December 31, 1993. 1992, by and among Bairnco Corporation and certain of its subsidiaries and certain Commercial Lending Institutions and Continental Bank NA (now Bank of America, Illinois), as the Agent for Lenders. Promissory note dated as of Exhibit 4 to Bairnco's Annual September 1, 1989, between Arlon, Report on Form 10-K for fiscal Inc. and the Delaware Economic year ended December 31, 1989. Development Authority. Indenture of Trust, series 1989, Exhibit 4 to Bairnco's Annual dated as of September 1, 1989, Report on Form 10-K for fiscal between the Delaware Economic year ended December 31, 1989. Development Authority and Manufacturers and Traders Trust Company, securing variable rate demand Industrial Development Refunding Revenue Bonds (Arlon, Inc. Project), series 1989 of the Delaware Economic Development Authority. Loan Agreement, dated as of Exhibit 4 to Bairnco's Annual September 1, 1989, between the Report on Form 10-K for fiscal Delaware Economic Development year ended December 31, 1989. Authority and Arlon, Inc. Reimbursement Agreement dated as of Exhibit 4 to Bairnco's Annual September 1, 1989 by and among Report on Form 10-K for fiscal Arlon, Inc., Bairnco Corporation and year ended December 31, 1989. Continental Bank NA (now Bank of America, Illinois). Agreement of the Company, dated Exhibit 4(e) to Bairnco's Annual March 30, 1987, to furnish a copy of Report on Form 10-K for fiscal any instrument with respect to year ended December 31, 1986. certain other long-term debt to the Securities and Exchange Commission upon its request. Lease dated December 10, 1991 Exhibit 10 to Bairnco's Annual between Mattei Corporation and Report on Form 10-K for fiscal Bairnco Corporation. year ended December 31, 1991. Lease, dated May 1, 1985, between Exhibit 10 to Bairnco's Annual John B. Merrill, Joseph S. Weedon Report on Form 10-K for fiscal and Richard A. Westberg and KASCO year ended December 31, 1986. Corporation as successor to Atlantic Service, Inc. Standard Industrial Lease dated June Exhibit 10 to Bairnco's Annual 30, 1983 between James E. and Nancy Report on Form 10-K for fiscal S. Welsh, trustees under Welsh year ended December 31, 1983. Family Trust, dated April 20, 1979 and Arlon, Inc. as successor to Keene Corporation. Bairnco Corporation 401(k) Savings Exhibit 4.3 to Bairnco's Plan and Trust. Registration Statement on Form S-8, No. 33-41313. Bairnco Corporation 1990 Stock Exhibit 4.3 to Bairnco's Incentive Plan. Registration Statement on Form S-8, No. 33-36330. Bairnco Corporation Management Exhibit 10 to Bairnco's Annual Incentive Compensation Plan. Report on Form 10-K for fiscal year ended December 31, 1981. Employment Agreement dated January Exhibit 10 to Bairnco's Annual 22, 1990, between Bairnco Report on Form 10-K for fiscal Corporation and Luke E. Fichthorn year ended December 31, 1989. III. Amendment dated as of April 18, Exhibit 4 to Bairnco's 1995, to Amended and Restated Credit Quarterly Report on Form 10-Q Agreement dated as of December 17, for the quarterly period ended 1992, by and among Bairnco April 1, 1995. Corporation and certain of its subsidiaries and certain Commercial Lending Institutions and Continental Bank NA (now Bank of America, Illinois), as the Agent for Lenders. Amendment dated as of February 14, Exhibit 4 to Bairnco's Annual 1997, to Amended and Restated Credit Report on Form 10-K for fiscal Agreement dated as of December 17, year ended December 31, 1996. 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. Promissory Note dated January 31, Exhibit 4 filed herewith. 1998, between Bairnco Corporation and Bank of America NT&SA Calculation of Basic and Diluted Exhibit 11 filed herewith. Earnings per Share for the years ended December 31, 1997, 1996 and 1995. 1997 Annual Report to Stockholders. Exhibit 13 filed herewith. Subsidiaries of the Registrant. Exhibit 21 filed herewith. Consent of Independent Certified Exhibit 23 filed herewith. Public Accountants. Financial Data Schedules. Exhibit 27 filed herewith (electronic filing only). Form 11-K Re: Bairnco Corporation Exhibit 99 filed herewith. 401(k) Savings Plan and Trust for the fiscal year ended December 31, 1997. EX-4 2 PROMISSORY NOTE DATED JANUARY 31, 1998 PROMISSORY NOTE $5,000,000 New York, New York January 31, 1998 FOR VALUE RECEIVED, the undersigned, for value hereby promises to pay to the order of Bank of America NT&SA (the "Bank"), on demand, or if no demand is made, then on January 31, 2002 at 231 South LaSalle Street, Chicago, Illinois 60604, the total aggregate unpaid principal amount of all advances that may be made from time to time by the Bank to the undersigned hereunder, together with interest thereon at the times and at the rates as the undersigned and the Bank may from time to time agree in writing in respect of each advance hereunder. No advance shall be made under this Note if as a result of such advance, the total principal amount outstanding under this Note would exceed $5,000,000. The initial advance, all subsequent advances and all payments made on account of principal shall be recorded by the holder in its records or, at its option, on attached schedule to this Note. This Note evidences indebtedness incurred with respect to overnight advances that may be extended from time to time in the sole discretion of the Bank to the undersigned but in no event in excess of $5,000,000. The Bank is under no obligation to make any advance to the undersigned hereunder. BAIRNCO CORPORATION By: /s/ J. Robert Wilkinson J. Robert Wilkinson Vice President Address: 2251 Lucien Way, Suite 300 Maitland, Florida 32751 EX-11 3 BASIC AND DILUTED EPS EXHIBIT 11 BAIRNCO CORPORATION AND SUBSIDIARIES CALCULATION OF BASIC AND DILUTED EARNINGS PER SHARE FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 BASIC EARNINGS PER SHARE: Net Income $8,771,000 $8,335,000 $ 7,781,000 Average common shares outstanding 9,151,000 9,753,000 10,433,000 Basic Earnings Per Common Share $ 0.96 $ 0.85 $ 0.75 DILUTED EARNINGS PER SHARE: Net Income $8,771,000 $8,335,000 $ 7,781,000 Average common shares outstanding 9,151,000 9,753,000 10,433,000 Common shares issuable in respect to options issued to employees with a dilutive effect 199,000 98,000 7,000 Total common shares assuming full dilution 9,350,000 9,851,000 10,440,000 Diluted Earnings Per Common Share $ 0.94 $ 0.85 $ 0.75 Basic earnings per common share were computed by dividing net income by the weighted average number of shares of common stock outstanding during each year. Diluted earnings per common share include the effect of all dilutive stock options.
EX-13 4 ANNUAL REPORT FOR YEAR ENDED DECEMBER 31, 1997 Our mission Bairnco is an organization of people committed to providing value-added industrial and commercial products and services to niche markets which meet or exceed our customers' requirements leading to the creation of stockholder and employee value. Our strategy Bairnco strives to develop true partnership relationships with its customers in 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 customers. Bairnco implements this mission and strategy through two business segments: Engineered materials and components are designed, manufactured and sold under the Arlon brand identity. Replacement products and services are manufactured and distributed under the Kasco brand identity. Our 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: 15% compound rate of earnings growth 20% return on stockholders' investment 15% return on total capital employed. CONTENTS Financial Highlights 1 Letter to our Stockholders 2 Our Values and People 4 Engineered Materials & Components (Arlon) 6 Replacement Products & Services (Kasco) 11 Directors and Management 12 Financial History 13 Management's Discussion and Analysis 14 Quarterly Results of Operations 16 Report of Independent Certified Public Accountants 17 Consolidated Financial Statements 18 Notes to Consolidated Financial Statements 22 FINANCIAL HIGHLIGHTS (In thousands except per share data)
Percent Change 1997 1996 1995 97/96 96/95 Net Sales $158,708 $150,234 $150,507 6% 0% Operating Profit $ 15,592 $ 14,956 $ 14,633 4% 2% Net Income $ 8,771 $ 8,335 $ 7,781 5% 7% Diluted Earnings per Share $ 0.94 $ 0.85 $ 0.75 11% 13% Cash Dividends per Share $ 0.20 $ 0.20 $ 0.20 0% 0% Stockholders' Investment per Average Diluted Common Share Outstanding $ 5.61 $ 5.02 $ 4.60 12% 9% Total Assets $109,286 $102,600 $ 98,196 7% 4% Stockholders' Investment $ 52,469 $ 49,464 $ 48,024 6% 3% Average Diluted Common Shares Outstanding 9,350 9,851 10,440 (5%) (6%)
Graphic - Bar Chart depicting Sales (y-axis) for five years - 1993 to 1997 (x-axis): Year Sales (in thousands) 1993 $134,958 1994 $145,522 1995 $150,507 1996 $150,234 1997 $158,708 Graphic - Bar Chart depicting Income from Continuing Operations (y-axis) for five years - 1993 to 1997 (x-axis): Year Income from Continuing Operations (in thousands) 1993 $ 817 1994 $7,255 1995 $7,781 1996 $8,335 1997 $8,771 Graphic - Bar Chart depicting Diluted Earnings per Share from Continuing Operations ( y-axis) for five years - 1993 to 1997 (x-axis): Year Diluted Earnings per Share from Continuing Operations 1993 $0.08 1994 $0.69 1995 $0.75 1996 $0.85 1997 $0.94 LETTER TO OUR STOCKHOLDERS 1997 was another year of good progress for Bairnco. Earnings and sales increased. Our management teams improved. The stream of new products continued to grow. We repurchased more of our common stock. Our financial condition remained strong. FINANCIAL RESULTS 1997 sales of $158,708,000 increased 5.6% from $150,234,000 in 1996. Arlon's sales increased 8.3%. All markets served experienced growth although there was substantial volatility within the electronics market. Kasco's sales declined 0.2% as growth in the U.S. was offset by the planned discontinuation of equipment sales in certain Canadian markets and the negative impact of the strong dollar on the "translation" of foreign sales. In 1997, gross profit increased 2.8% to $53,996,000 from $52,536,000 in the prior year. Gross profit increased at both Arlon and Kasco with increased sales. However, the strong dollar also negatively impacted the translation of foreign gross profit. Gross profit margins declined to 34% from 35% last year. Profit margins were lower primarily due to plant and labor inefficiencies caused by swings in demand during the year, new equipment start-ups at three plants, and the two week strike at the Bear Delaware facility. Selling and administrative expenses increased 2.2% to $38,404,000 from $37,580,000 in 1996. As a percent of sales, these expenses decreased to 24.2% in 1997 from 25.0% in 1996. Research and development expenses increased 17.2% as Bairnco continued to invest in the development of new products and improved quality. Net interest expense increased from $1,725,000 to $1,834,000. The increase was due to increased average debt outstanding. Income before income taxes increased 4% to $13,758,000 in 1997 as compared to $13,231,000 in 1996. The effective tax rate was 36.2% as compared to 37.0% in 1996. Net income increased 5.2% to $8,771,000 in 1997 as compared to $8,335,000 in 1996. Diluted earnings per share increased 10.6% to $.94 from $.85 last year. As a result of the stock repurchase program, the average number of diluted shares outstanding in 1997 was 9,350,000, a 5.1% decrease from the 9,851,000 average shares outstanding in 1996. FINANCIAL MANAGEMENT Return on capital employed decreased to 12.2% from 12.3% last year, as the positive impact of many of the major capital expenditures will not be realized until 1998 and beyond. Return on stockholders' investment in 1997 increased to 17.4% compared to 17.2% 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 1997, 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 $2,008,000 still unused from the prior year authorization. During the year the company repurchased 424,800 shares for $3,255,000. The Board has authorized management to continue its stock repurchase program in 1998 subject to market conditions and capital requirements of the business. At year-end $3.75 million was available for additional stock repurchases. The Board may consider additional authorizations if appropriate during the year. Working capital as a percent of sales increased from 20.2% to 22.5%. The increase is primarily attributable to increased accounts receivable from strong fourth quarter sales and growing export sales and increased inventories. Net cash flows provided by operating activities were $12,203,000. 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 stock repurchasing program required $3,255,000 in cash. Consequently 1997 total debt increased to $30,318,000 from $28,179,000 at the end of 1996. Debt as a percent of equity increased to 57.8% from 57.0% in 1996. At year-end 1997 Bairnco had $15.7 million available under its revolving credit agreement, and $5.6 million available under short-term lines of credit. 1997 capital expenditures were $8,789,000 as compared to a plan of $13,300,000. Depreciation and amortization was $6,516,000. Improvements in operating efficiencies in 1997 and planned for 1998 permitted the postponement of some planned capital expenditures. Approximately half the capital expenditures were related to both increased capacity and cost reduction programs. The capital expenditure plan for 1998 is approximately $12.0 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 and capacity additions. Approximately $3.0 million of the planned capital expenditures are for additional capacity and are contingent upon the growth being realized. DIVIDEND The quarterly $.05 per share cash dividend was maintained during the year. MANAGEMENT Effective August 11, 1997, James W. Lambert was appointed Corporate Controller of Bairnco Corporation. Jim was formerly Manager of Group Financial Planning and Analysis with Air Products and Chemicals Inc. of Allentown, PA. Jim filled the vacancy left when Elmer Pruim was appointed President of Arlon's Adhesive and Films Division at the end of 1996. Effective December 15, 1997, Linda Metcalf resigned as Vice President Administration and Secretary of Bairnco. A search is currently underway to fill this position. During 1997 the management development program, which is one of the keys to our future success, continued to make progress in all operations. To further push the responsibility and authority closer to the marketplace, to increase product development focus, and as a result of their individual growth, Eric Kleinschmidt was promoted to Business Unit Manager of ELCD and Chuck Roye was promoted to Business Unit Manager of STD. The ongoing improvement and development of all our employees remains a critical and never-ending element for Bairnco's success. SUMMARY AND OUTLOOK 1997 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 of expanded sales, marketing and research efforts. Kasco North America's program to become the preeminent supplier of cutting products and routine in-store equipment services was continued during the year. Kasco's seasoning program for in-store meal preparation continued its strong growth. The North American operations had improved results from increased revenues in the US and from reduced costs from product line pruning in Canada. European meat markets continued to recover from the "Mad Cow" panic of 1996. We expect to see both improved revenues and improved efficiencies in 1998 and beyond. The outlook for 1998 is for another year of improved sales and earnings. The US economy is again expected to experience slow growth during 1998 with inflation remaining under control and the Federal Reserve Board maintaining interest rates within recent historical bands. We expect the combination of general economic growth, growth from new products, and higher growth in certain niche markets will result in increased sales. Improved earnings are expected both from the increased sales and from continuing efficiency and yield improvement programs. The continuing dedication and excellent performance of our teammates remains the key to our past and future success. We are all dedicated to making 1998 a year of continuing improvement. Respectfully yours, Luke E. Fichthorn III Chairman and CEO Our values: At Bairnco, our values are the core of our corporate culture. They are the basis for the decisions we make regarding the development and deployment of our people, the improvement and investment in our processes, and the manufacture and distribution of our products. We value: Personal and corporate integrity; The inevitability and opportunity of change; Continuous improvement and development; Total customer satisfaction; Decentralized organization and empowered employees; Superior rewards for superior performance; Have fun - enjoy your work and your life. PHOTO - Kasco employees review recipe instructions in the new seasoning test kitchen. Employees will use the test kitchen for product development and training. Our people: People are our most valuable asset. We continuously invest in education, communication, and reward programs to develop this vital resource. Whether it's a marketing specialist who is completing her MBA, a lab technician attending a seminar on infrared spectroscopy analysis, or a machine operator receiving instruction on using a micrometer, we make sure our employees are given the opportunity to expand their skills. Our management development process includes the identification of specific employee needs and also sponsors group training for supervisors and management. We foster communication throughout the organization with cross functional work teams, round table discussions, plant meetings, "state of the business" meetings, and newsletters. Many of our employees have also participated in management training to enhance feedback and communication skills. PHOTO - Arlon technicians use reference materials from their new R&D library and conference area. We are committed to creating an environment conducive to employee development and learning. We strive to develop internal advancement programs for our employees and always look first within the organization when filling open positions. All of our employees participate in incentive programs: from corporate accountants to band saw blade welding operators. These incentive programs are tied to realistic performance goals. We believe that development, education, communication, goal setting, and rewards are keys to the successful management of our people. PHOTO - Arlon employees discuss process improvements and new product development within the Microwave Materials product line. Cross-functional meetings facilitate information sharing and project management. Our products, our processes: We believe that the continuous improvement and development of our products and processes are vital to our success. Total customer satisfaction can only be achieved by delivering products that meet and exceed customer needs. Because these customers needs continue to evolve, we are committed to continuous investment in product development, process improvements, capacity expansion, and research and development to insure we deliver products that are competitive in the market. PHOTO - An Arlon technical director reviews a polyimide reaction with a chemist. Sharing knowledge is crucial to employee development. Arlon Engineered Materials and Components Bairnco designs, manufactures, and sells engineered materials and components for the electronic, industrial and commercial markets under the Arlon brand identity. These products are based on common technologies in coating, laminating, polymers, and dispersion chemistry. Arlon Materials for Electronics has an international reputation as the premier supplier of high technology materials for the printed circuit board industry. These products are marketed principally to printed circuit board manufacturers and OEM's by a direct sales force in concert with strong technical support teams in the U.S. and through distributors and manufacturers representatives in Europe, the Far East, and South America. Our Electronic Substrates product line includes high temperature, high performance thermoset laminates and prepreg bonding plies used in circuit boards for sophisticated commercial applications and military electronics. These applications require materials, which withstand high continuous operating temperatures, provide ease of field reparability, are highly reliable, and improve fabrication yields. Intermediate temperature laminates, which provide improved product reliability and ease of manufacture at a lower cost, are also key to the line. The Microwave Materials product line offers application matched, reinforced PTFE laminates providing high yields and high performance for temperature and frequency dependent microwave applications. The applications for this product line include digital cordless telephones, cellular phone systems, direct broadcast satellite TV systems, personal communications networks, global positioning satellites, local area networks, collision avoidance systems, and radar detection systems. The markets served by Electronic Substrates and Microwave Materials continue to migrate toward lower cost solutions to allow for greater commercialization and consumer penetration of electronic applications. To support this trend we have made significant investments in new equipment, product development, and research and development: New lamination presses with increased capacity and the ability to press larger sheet sizes. New material handling equipment and clean rooms to improve efficiency and product quality. Research and development laboratory expansion to reduce time to market with new products. Arlon's 25N series, a laminate system based on aromatic polyolefin resin that offers many of the performance advantages of PTFE materials with the cost and processing advantages of traditional thermoset materials, targeted for commercial electronics. Arlon's Thermount nonwoven, aramid reinforced materials that offer many advantages for specialty applications at a more attractive cost- performance ratio than woven aramids. Arlon's AD Series substrate materials: a PTFE based laminate system that offers all the performance characteristics of PTFE with lower cost targeted for commercial applications. PHOTO - Coater operators inspect Thermount 85NT being produced at Arlon's Rancho Cucamonga, CA facility. Thermount 85NT is a new product being widely used for surface mount technology such as in sophisticated avionics used in commercial and military aircraft. PHOTO - Arlon chemists study the reaction of a developmental resin in a new laboratory facility at Rancho Cucamonga, CA. Arlon has made a major commitment to new product development by investing in facility and personnel additions. PHOTO - The press operator explains the control panel on Rancho Cucamonga's, CA new press to lamination employees. The new press has approximately 30% more capacity than the older presses and can press a larger sheet to supply a wider variety of customer specified finished panel sizes. PHOTO - A new lamination press, lay up room, and material handling system at Arlon's Bear, DE facility will improve the production efficiency and the product quality of Arlon's Microwave Materials product line. PHOTO - Lay up operators at the Bear, DE facility assemble Arlon's AD Series laminates in a new clean room. AD Series substrate materials designate a cost competitive PTFE based system that offers all the performance characteristics of PTFE at a lower cost. Bairnco manufactures and markets, under the Calon brand name, cast and calendered vinyl films in a wide variety of colors, face stocks and adhesive systems. These vinyl films are used in commercial and electrical signage, point of purchase displays, highway signage, fleet markings, and other commercial advertising applications. We have continued to invest in new product development and to improve the quality of our current product line. During 1997 we extended our line of translucent vinyl for back lit applications with diffuser films and additional colors. We also introduced several products for the digital imaging market, including a vinyl for electrostatic printed graphics. We will continue to expand and improve our products for use in commercial and electrical signage and in fleet graphics in 1998. Our product development is supported with investments in manufacturing process improvements, research and development and distribution. In 1997, these investments and improvements included: Optimization of production processes to improve the quality of our translucent vinyl for back lit applications; Investment in new coating technology to reduce the variability of our films' thickness profile; Optimization of chemical formulas to improve the physical properties of our films; Decreased the production time of custom colored vinyl films; Increased research and development staff; Expanded regional distribution for improved product delivery. We will continue to make these investments because we are committed to delivering high quality competitive products to our customers. PHOTO - Arlon is an established fleet vinyl supplier, with fleet graphic installations around the world. Arlon continues to make product advances in this market. PHOTO - Arlon's engineers and operators review new coating heads on a vinyl coating line at the Santa Ana, CA facility. This equipment upgrade has improved the film's thickness profile, leading to better physical properties and color consistency. PHOTO - Calon translucent vinyl is used in back lit applications all over the world. A complete line of translucent and diffuser film is available, as well as a custom color program to match corporate identification needs. We manufacture and market custom-engineered laminates and coated products under the Arlon brand identity. Typical applications include insulating foam tapes for thermopane windows, specialty circuit materials, electrical insulation materials for motors and transformers, thermal insulation panels for appliances and cars, identification cards and labels, durable printing stock, and other custom engineered laminates for specific industrial applications. The key to Arlon's success in custom-engineered laminates and coated products is our knowledge base of materials technology, process technology, and customer applications. In 1998 we will be expanding our research and development facilities and staff to support our strategy of increasing this business. Our strategy and knowledge base has led to several recent product developments. We have expanded our product offering of specialty circuit materials with the addition of polyimide coated copper foils for use in printed circuit board manufacturing. We introduced an improved glazing tape, AWT2, which provides enhanced adhesive properties on vinyl, wood, and aluminum sash materials. PHOTO - An engineer at Arlon's East Providence, RI facility is analyzing Duralon using a precision smoothness tester. Duralon is a tear resistant paper/film/paper laminate whose applications include durable printing stock, envelopes, and printable file folders. PHOTO - Arlon glazing tapes consist of closed cell copolymer foam coated on both sides with an aggressive acrylic adhesive system. This adhesive system provides optimum compatibility with a variety of sash materials. PHOTO - Arlon produces electrical insulation over a broad performance range for use in motors, generators, and transformers. Substrates used include papers, fabrics, and dielectric films, which are combined with polymer adhesives and coatings. Bairnco manufactures a line of silicone rubber materials used in a broad range of consumer, industrial and commercial products. Typical applications of these materials include: Silicone rubber for molding composites; Silicone rubber insulating tape for electric traction motor coil windings; Insulation for industrial flexible heaters; Thermal and electrical conductivity applications; Insulating tape for electrical splices. The silicone rubber product line provides significant opportunity for Arlon in a number of areas: The product line and equipment acquired in 1996 from Permacel was integrated into our business in 1997. We fully realized the gains in capability and capacity we expected with this acquisition. Additional capacity is available for growth. Thermabond(R) is a compliant, thermally conductive silicone sheet adhesive with elastic properties. It continues to penetrate the market and commercial applications continue to be identified. In 1998 we will continue to focus application development efforts on thermally and electrically conductive sheet adhesives for electrical and electronic markets. Our fusible tape business will benefit by the installation of a new extruder line completed in 1997. This equipment gives us improved production capabilities and lower costs that allow us to more competitively address retail applications and other commercial markets. PHOTO - The new extruder installed at Arlon's Bear, DE facility increases the production capacity of silicone extruded fusible tape. Arlon is poised to address new markets in silicone extruded tape using the new extruder, along with a new oven and an automatic windup station. PHOTO - An Arlon operator uses a micrometer to measure thickness of flexible heater material. This production line performs precision calendering and fabric coating to produce a family of silicone products for industrial markets. Kasco Replacement Products and Services Kasco is the leading manufacturer and supplier of replacement products and services principally to supermarkets; meat and deli operations; and meat, poultry and fish processing plants throughout the United States, Canada and Europe. These products and services include: Band saw blades for cutting meat and fish; Chopper plates and knives for grinding meat; Seasoning products; Preventive maintenance for equipment in meat and deli operations; Other related butcher supply products. Kasco also manufactures small band saw blades for cutting metal and wood, and large band saw blades for use at lumber mills. Kasco has manufacturing operations in St. Louis, Missouri; Toronto, Canada; Gwent, Wales, United Kingdom; and Pansdorf, Germany. In France, in addition to providing its replacement products, Kasco distributes equipment used in the supermarket industry and in the food processing industry. Kasco introduced several new products in 1997. One of the most exciting is the Predator Series of custom splitter blades. These splitter blades offer reduced workplace noise, peak high speed cutting performance, and increased durability with a unique Gold Tooth Hardening process. The Mealtime Solutions seasoning program continues to be a success as sales for home meal replacement items within supermarkets increase. Mealtime Solutions offers a package of seasoning blends, recipes and instructions which allows a supermarket to present value-added products in their meat and deli departments. To support this growing market, Kasco has moved seasoning manufacturing from City of Industry, CA to St. Louis, MO and built a formulation lab and test kitchen. In North America, Kasco supplies its products and services directly to the supermarket and meat cutting industries through a continent-wide network of service professionals and exclusive distributors. During 1997 Kasco reorganized this network to better serve its customers, and also designed an extensive training program that will be implemented in 1998. In addition, Kasco has increased its emphasis on preventive maintenance, increasing the value-added service its network of professionals provides to customers. PHOTO - Kasco's Mealtime Solutions seasoning program offers a package of seasoning blends, recipes, and instructions which allows a supermarket to present an attractive ready-to-cook home meal to their customers. PHOTO - The Predator Series of splitter blades from Kasco features a Gold Tooth Hardening process which offers high speed, high volume cutting with less waste, straighter cuts, less workplace noise, and less operator fatigue. PHOTO - Kasco's investment in seasoning production in 1997 included the form and fill machine featured here; other mixing, blending, and handling equipment; and a new building to accommodate the expanded seasoning operation in St. Louis, MO. Directors 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 Independent Business Consultant Management: 1. Jeffrey M. Berresford President Kasco Corporation 2. Robert M. Carini President Arlon Materials for Electronics 3. James W. Lambert Controller Bairnco Corporation 4. Elmer G. Pruim President Arlon Adhesives & Films 5. J. Robert Wilkinson Vice President Finance & Treasurer Bairnco Corporation FINANCIAL HISTORY
1997 1996 1995 1994 1993 Summary of Operations ($ in thousands) Net sales $158,708 150,234 150,507 145,522 134,958 Gross profit $ 53,996 52,536 53,317 53,177 52,645 Earnings before interest, charges & taxes (a) $ 15,592 14,956 14,633 13,654 13,617 Operating profit $ 15,592 14,956 14,633 13,654 4,874 Interest expense, net $ 1,834 1,725 2,026 2,144 2,248 Income before income taxes $ 13,758 13,231 12,607 11,510 2,626 Provision for income taxes $ 4,987 4,896 4,826 4,255 1,809 Income from continuing operations $ 8,771 8,335 7,781 7,255 817 Return from continuing operations on: Net sales % 5.5 5.5 5.2 5.0 0.6 Stockholders' investment % 17.4 17.2 16.7 17.4 1.4 Capital employed % 12.2 12.3 11.9 10.6 2.0 Year-End Position ($ in thousands) Working capital $ 35,712 30,341 28,350 26,277 20,098 Plant and equipment, net $ 39,913 38,276 34,449 36,289 38,654 Total assets excluding discontinued operations $109,286 102,600 98,196 99,243 95,547 Net assets of discontinued operations $ -- -- -- 3,529 12,434 Total assets $109,286 102,600 98,196 102,772 107,981 Total debt $ 30,318 28,179 24,578 31,775 43,718 Stockholders' investment $ 52,469 49,464 48,024 43,997 38,515 Capital employed - total $ 82,787 77,643 72,602 75,772 82,233 Per Common Share Data Income from continuing operations - Basic $ 0.96 0.85 0.75 0.69 0.08 Income from continuing operations - Diluted $ 0.94 0.85 0.75 0.69 0.08 Cash dividend $ 0.20 0.20 0.20 0.20 0.20 Stockholders' investment $ 5.61 5.02 4.60 4.19 3.67 Market price: High $ 11-1/4 8-1/2 6 5-1/2 8-1/2 Low $ 6-3/8 5-1/2 3-7/8 3 3-3/8 Other Data (in thousands) Depreciation and amortization $ 6,516 6,305 6,314 6,502 6,700 Capital expenditures $ 8,789 10,131 4,831 5,176 6,318 Average common shares outstanding 9,151 9,753 10,433 10,500 10,500 Diluted common shares outstanding 9,350 9,851 10,440 10,500 10,500 Current ratio 2.6 2.4 2.2 2.0 1.8 Number of common stockholders 1,574 1,773 1,967 2,198 2,326 Average number of employees 850 825 874 915 920 Sales per employee $186,710 182,100 172,200 159,040 146,700 (a) Excludes impact of non-recurring litigation and restructuring costs of $8,743 (pre-tax) in 1993.
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 18. Results of Operations: 1997 Compared to 1996 Net sales for the year ended December 31, 1997 increased 5.6% to $158,708,000 from $150,234,000 in 1996. Arlon's sales increased 8.3% as all markets served experienced growth although there was substantial volatility within the electronics market. Kasco's sales declined 0.2% as growth in the US markets, especially in the seasonings for ready-to-cook foods for supermarkets and special products areas, was offset by the planned discontinuation of equipment sales in certain Canadian markets and the negative impact of currency translation rates on sales of Kasco's European operations. In 1997, gross profit increased 2.8% to $53,996,000 from $52,536,000 in the prior year Gross profit increased 2.6% at Arlon and 1.0% at Kasco with increased sales. However, the strong US dollar also negatively impacted the translation of foreign gross profit. Gross profit margins declined to 34.0% from 35.0% last year. Profit margins were lower primarily due to plant and labor inefficiencies caused by swings in demand during the year, new equipment start-ups at three plants, and the two week strike at the Bear, Delaware facility Selling and administrative expenses increased 2.2% to $38,404,000 from $37,580,000 in 1996. As a percent of sales, these expenses decreased to 24.2% in 1997 from 25.0% in 1996. Selling expenses were relatively unchanged. General and administrative expenses increased $543,000 or 4.4% reflecting the Company's on-going investment in recruiting, management development and incentive compensation programs. Research and development expenses increased 17.2% as Bairnco continued to invest in the development of new products and improved quality. Operating profit in 1997 was $15,592,000, or 9.8% of net sales, compared to operating profit in 1996 of $14,956,000, or 10.0% of net sales. Net interest expense increased $109,000 or 6.3% from $1,725,000 to $1,834,000. The increase was due to increased average debt outstanding. Income before income taxes increased 4.0% to $13,758,000 in 1997 as compared to $13,231,000 in 1996. The effective tax rate decreased to 36.2% from 37.0% in 1996 due primarily to the tax benefits attendant with 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 5.2% to $8,771,000 in 1997 as compared to $8,335,000 in 1996. Diluted earnings per share increased 10.6% to $.94 from $.85 last year. As a result of the stock repurchase program, the average number of diluted shares outstanding in 1997 was 9,350,000, a 5.1% decrease from the 9,851,000 average outstanding in 1996. 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. 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. Liquidity and Capital Resources At December 31, 1997, Bairnco had working capital of $35.7 million compared to $30.3 million at December 31, 1996. The increase in accounts receivable relates primarily to the increased sales activity during the fourth quarter of 1997 over that of the fourth quarter 1996 and to growing export sales. Inventories, which increased $2.9 million or 12.3%, were built in response to increased sales and customer demand for reduced lead times. Other current assets decreased as a result of the anticipated tax refund received during the first quarter 1997. The increase in accounts payable results primarily from the corresponding increase in inventories. At December 31, 1997, $30.3 million of total debt was outstanding compared to $28.2 million at the end of 1996. As of December 31, 1997, approximately $15.7 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 slightly to 57.8% at the end of 1997 from 57.0% at the end of 1996. Bairnco made $8.8 million of capital expenditures in 1997 as compared to its plan of approximately $13.3 million. Improvements in operating efficiencies in 1997 and planned for 1998 permitted the postponement of some planned capital expenditures. Total capital expenditures in 1998 are expected to be approximately $12.0 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 and capacity additions. Approximately $3.0 million of the planned capital expenditures are for additional capacity and is contingent upon the growth being realized. In 1997, Bairnco's Board of Directors authorized an additional $5,000,000 to be available for the ongoing repurchase of its common stock. The authorization was in addition to the $2,008,000 still unused from the prior year $5,000,000 authorization. During the year the Company repurchased 424,800 shares for $3,255,000. The Board has authorized management to continue its stock repurchase program in 1998 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 1998. Year 2000 Date Conversion The Corporation has evaluated and identified the risks of software failure due to processing errors arising from calculations using the Year 2000 date. A plan for conversion has been established to maintain the integrity of its financial systems and ensure the reliability of its operating systems. The cost of achieving Year 2000 compliance is estimated to be approximately $250,000, which includes software and installation, and will be incurred during 1998 and 1999. Other Matters Bairnco Corporation and its subsidiaries are defendants in a number of legal actions and proceedings that are discussed in more detail in Note 9 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, 1997. Outlook Management is not aware of any adverse trends that would materially affect the Company's strong financial position. The outlook for 1998 is for improved sales and earnings. It is expected that the combination of general economic growth, growth from new products, and higher growth in certain niche markets will result in increased sales. Improved earnings are expected both from increased sales and from continuing efficiency and yield improvement programs. Quarterly Results of Operations (Unaudited) (In thousands except per share data)
1st 1st 2nd 2nd 3rd 3rd 4th 4th Total Total 1997 1996 1997 1996 1997 1996 1997 1996 1997 1996 Net Sales $37,445 $38,094 $41,128 $37,323 $39,814 $36,152 $40,321 $38,665 $158,708 $150,234 Cost of sales 24,465 24,656 27,020 24,067 26,228 23,645 26,999 25,330 104,712 97,698 Gross Profit 12,980 13,438 14,108 13,256 13,586 12,507 13,322 13,335 53,996 52,536 Selling and administrative expenses 9,116 9,621 9,981 9,276 9,717 8,965 9,590 9,718 38,404 37,580 Operating Profit 3,864 3,817 4,127 3,980 3,869 3,542 3,732 3,617 15,592 14,956 Interest expense, net 415 415 460 433 486 417 473 460 1,834 1,725 Income before income taxes 3,449 3,402 3,667 3,547 3,383 3,125 3,259 3,157 13,758 13,231 Provision for income taxes 1,276 1,293 1,320 1,348 1,218 1,187 1,173 1,068 4,987 4,896 Net Income $ 2,173 $ 2,109 $ 2,347 $ 2,199 $ 2,165 $ 1,938 $ 2,086 $ 2,089 $ 8,771 $ 8,335 Basic Earnings per Share $ 0.23 $ 0.21 $ 0.26 $ 0.22 $ 0.24 $ 0.20 $ 0.23 $ 0.22 $ 0.96 $ 0.85 Diluted Earnings per Share $ 0.23 $ 0.21 $ 0.25 $ 0.22 $ 0.23 $ 0.20 $ 0.23 $ 0.22 $ 0.94 $ 0.85 Market Price: High $ 7-5/8 $ 8-1/2 $ 8-3/8 $ 7-5/8 $ 11 $ 7-3/8 $11-1/4 $ 6-7/8 $ 11-1/4 $ 8-1/2 Low 6-3/8 5-7/8 6-7/8 6-5/8 8 5-1/2 6-11/16 5-3/4 6-3/8 5-1/2
"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, 1998 and thereafter include many factors that are beyond the Corporation's ability to control or estimate precisely. These risks and uncertainties include, but are not limited to, the market demand and acceptance of the Corporation's existing and new products, the impact of competitive products, changes in the market for raw or packaging materials which could impact the Corporation's manufacturing costs, changes in product mix, changes in the pricing of the products of the Corporation or its competitors, the loss of a significant customer or supplier, production delays or inefficiencies, the costs and other effects of complying with environmental regulatory requirements, losses due to natural disasters where the Corporation is self insured, the costs and other effects of legal and administrative cases and proceedings, settlements and investigations, and changes in US or international economic or political conditions, such as inflation or fluctuations in interest or foreign exchange rates. While the Corporation periodically reassesses material trends and uncertainties affecting the Corporation's results of operations and financial condition in connection with its preparation of 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, 1997 and 1996, and the related consolidated statements of income, stockholders' investment and cash flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Orlando, Florida January 22, 1998 Arthur Andersen LLP CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31, 1997, 1996 and 1995 Bairnco Corporation and Subsidiaries
1997 1996 1995 Net Sales $158,708,000 $150,234,000 $150,507,000 Cost of sales 104,712,000 97,698,000 97,190,000 Gross Profit 53,996,000 52,536,000 53,317,000 Selling and administrative expenses 38,404,000 37,580,000 38,684,000 Operating Profit 15,592,000 14,956,000 14,633,000 Interest expense, net 1,834,000 1,725,000 2,026,000 Income before Income Taxes 13,758,000 13,231,000 12,607,000 Provision for income taxes (Note 3) 4,987,000 4,896,000 4,826,000 Net Income $ 8,771,000 $ 8,335,000 $ 7,781,000 Basic Earnings per Share of Common Stock (Note 2) $ 0.96 $ 0.85 $ 0.75 Diluted Earnings per Share of Common Stock (Note 2) $ 0.94 $ 0.85 $ 0.75 Dividends per Share of Common Stock $ 0.20 $ 0.20 $ 0.20 The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996 Bairnco Corporation and Subsidiaries
1997 1996 Assets Current Assets: Cash and cash equivalents $ 1,217,000 $ 855,000 Accounts receivable, less allowances of $943,000 and $822,000, respectively 24,939,000 21,476,000 Inventories: Raw materials and supplies 5,646,000 4,733,000 Work in process 6,402,000 5,999,000 Finished goods 14,350,000 12,767,000 26,398,000 23,499,000 Deferred income taxes (Note 3) 2,641,000 2,922,000 Other current assets 2,748,000 3,748,000 Total current assets 57,943,000 52,500,000 Plant and Equipment, at cost: Land 1,541,000 1,560,000 Buildings and leasehold interests and improvements 16,659,000 16,451,000 Machinery and equipment 71,670,000 66,520,000 89,870,000 84,531,000 Less - Accumulated depreciation and amortization (49,957,000) (46,255,000) 39,913,000 38,276,000 Cost in Excess of Net Assets of Purchased Businesses (Note 1) 7,607,000 7,922,000 Other Assets (Note 1) 3,823,000 3,902,000 $109,286,000 $102,600,000 Liabilities and Stockholders' Investment Current Liabilities: Short-term debt (Note 5) $ 3,018,000 $ 3,337,000 Current maturities of long-term debt (Note 5) 9,000 125,000 Accounts payabl 8,661,000 7,383,000 Accrued expenses (Note 4) 10,543,000 11,314,000 Total current liabilities 22,231,000 22,159,000 Long-Term Debt (Note 5) 27,291,000 24,717,000 Deferred Income Taxes (Note 3) 4,098,000 3,114,000 Other Liabilities 3,197,000 3,146,000 Stockholders' Investment (Notes 2, 5 and 6): Preferred stock, par value $.01, 5,000,000 shares authorized, none issued -- -- Common stock, par value $.01, 30,000,000 shares authorized, 11,160,774 and 11,155,499 issued respectively 112,000 112,000 Paid-in capital 49,030,000 49,004,000 Retained earnings 22,802,000 15,858,000 Currency translation adjustment (Note 1) 1,572,000 2,282,000 Treasury stock, at cost, 2,166,765 and 1,741,965 shares, respectively (21,047,000) (17,792,000) Total stockholders' investment 52,469,000 49,464,000 $109,286,000 $102,600,000 The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1997, 1996 and 1995 Bairnco Corporation and Subsidiaries
1997 1996 1995 Cash Flows from Operating Activities: Income from continuing operations $ 8,771,000 $ 8,335,000 $ 7,781,000 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization 6,516,000 6,305,000 6,314,000 Loss on disposal of plant and equipment 34,000 203,000 294,000 Deferred income taxes 1,265,000 373,000 1,561,000 Change in operating assets and liabilities: (Increase) in accounts receivable, net (3,463,000) (4,000) (587,000) (Increase) decrease in inventories (2,899,000) 237,000 (3,694,000) Decrease (increase) in other current assets 1,000,000 (1,618,000) 3,205,000 Increase (decrease) in accounts payable 1,278,000 (502,000) (1,877,000) (Decrease) in accrued expenses (771,000) (451,000) (1,019,000) Cash provided by discontinued operations -- -- 1,988,000 Other 472,000 734,000 699,000 Net cash provided by operating activities 12,203,000 13,612,000 14,665,000 Cash Flows from Investing Activities: Capital expenditures (8,789,000) (10,131,000) (4,831,000) Proceeds from sale of plant and equipment 219,000 138,000 328,000 Proceeds from sale of discontinued operations -- -- 100,000 Net cash (used in) investing activities (8,570,000) (9,993,000) (4,403,000) Cash Flows from Financing Activities: Net borrowings (repayments) of external debt 2,434,000 3,968,000 (7,427,000) Payment of dividends (1,827,000) (1,937,000) (2,087,000) Purchase of treasury stock (3,255,000) (5,412,000) (2,580,000) Exercise of stock options 26,000 472,000 560,000 Net cash (used in) financing activities (2,622,000) (2,909,000) (11,534,000) Effect of foreign currency exchange rate changes on cash and cash equivalents (649,000) (463,000) 402,000 Net increase (decrease) in cash and cash equivalents 362,000 247,000 (870,000) Cash and cash equivalents, beginning of year 855,000 608,000 1,478,000 Cash and cash equivalents, end of year $ 1,217,000 $ 855,000 $ 608,000 Supplemental Disclosures of Cash Flow Information: Cash paid (received) during the year for: Interest $ 1,824,000 $ 1,696,000 $ 1,992,000 Income taxes $ 2,805,000 $ 5,378,000 $ (310,000) Non-cash investing activities: Notes received from sale of discontinued operations $ -- $ -- $ 2,500,000 The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT For the years ended December 31, 1997, 1996 and 1995 Bairnco Corporation and Subsidiaries
Currency Common Paid-in Retained Translation Treasury Stock Capital Earnings Adjustment Stock 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) Net income -- -- 8,771,000 -- -- Cash dividends ($.20 per share) -- -- (1,827,000) -- -- Issuance of 5,275 shares pursuant to exercise of stock options -- 26,000 -- -- -- Acquisition of treasury stock (424,800 shares at cost) -- -- -- -- (3,255,000) Currency translation adjustment (Note 1) -- -- -- (710,000) -- Balance, December 31, 1997 $112,000 $49,030,000 $22,802,000 $1,572,000 $(21,047,000) The accompanying notes are an integral part of these consolidated 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 brand identity 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 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, on-site maintenance services and seasonings for ready-to-cook foods for the retail food industry primarily in the meat and deli departments. Kasco also distributes equipment to the food industry in 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 inter-company 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 $6,333,000, $6,123,000 and $6,131,000 was recognized during 1997, 1996 and 1995, 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 $5,625,000 and $5,833,000 at December 31, 1997 and 1996, respectively, is being amortized over 40 years. Accumulated amortization at December 31, 1997 and 1996, was $1,504,000 and $1,396,000, respectively. Amortization expense of $146,000, $149,000 and $150,000 was recognized during 1997, 1996 and 1995, 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 non-discounted 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, 1997. Intangibles: Intangible assets of purchased businesses, net of amortization, are included in other assets and totaled $99,000 and $136,000 at December 31, 1997 and 1996, respectively. These items are amortized over their estimated lives, which generally range from three to twenty years. Amortization expense recognized was $37,000 during 1997 and $33,000 during 1996 and 1995. 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 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. (2) Earnings per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share," effective for reporting periods ending after December 15, 1997. SFAS No. 128 requires companies to present basic earnings per share ("EPS") and diluted earnings per share, instead of primary and fully diluted EPS previously required. The new standard also requires additional informational disclosures and makes certain modifications to the EPS calculations previously reported under Accounting Principles Board No. 15. The Corporation has adopted SFAS No. 128 effective December 15, 1997 and, as a result, the Corporation's reported quarterly EPS for 1997 have been restated. This accounting change had no effect on previously reported EPS data for 1996 and 1995. The following disclosures comply with the requirements of SFAS No. 128.
1997 1996 1995 Basic Earnings per Common Share: Net Income $8,771,000 $8,335,000 $ 7,781,000 Average common shares outstanding 9,151,000 9,753,000 10,433,000 Basic Earnings Per Common Share $ 0.96 $ 0.85 $ 0.75 Diluted Earnings per Common Share: Net Income $8,771,000 $8,335,000 $ 7,781,000 Average common shares outstanding 9,151,000 9,753,000 10,433,000 Common shares issuable in respect to options issued to employees, with a dilutive effect 199,000 98,000 7,000 Total diluted common shares outstanding 9,350,000 9,851,000 10,440,000 Diluted Earnings Per Common Share $ 0.94 $ 0.85 $ 0.75 Basic earnings per common share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share includes the effect of all dilutive stock options.
(3) 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:
1997 1996 1995 Income before Income Taxes: Domestic $12,765,000 $13,176,000 $11,360,000 Foreign 993,000 55,000 1,247,000 Total Income before Income Taxes $13,758,000 $13,231,000 $12,607,000 Provision for Income Taxes: Domestic: Currently payable $ 3,616,000 $ 4,096,000 $ 1,671,000 Deferred 1,102,000 594,000 2,413,000 Foreign: Currently payable 106,000 452,000 943,000 Deferred 163,000 (246,000) (201,000) Total Provision for Income Taxes $ 4,987,000 $ 4,896,000 $ 4,826,000
Bairnco's restated net current and non-current deferred tax assets (liabilities) include the following at December 31:
1997 1996 1995 Current Deferred Tax Items: Accrued Expenses $ 1,584,000 $ 1,887,000 $ 2,211,000 Inventories 847,000 872,000 961,000 Other 210,000 163,000 224,000 Net Current Deferred Tax Asset 2,641,000 2,922,000 3,396,000 Non-Current Deferred Tax Items: Fixed Assets (3,291,000) (2,889,000) (2,650,000) Pensions (1,051,000) (1,149,000) (938,000) Intangible Assets 21,000 15,000 (107,000) Other 223,000 909,000 480,000 Net Non-Current Deferred Tax Liability (4,098,000) (3,114,000) (3,215,000) Net Deferred Tax (Liability) Asset $(1,457,000) $ (192,000) $ 181,000
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. Other current assets on the balance sheet include current income taxes receivable of approximately $0.2 million at December 31, 1997 and $1.1 million at December 31, 1996. In 1997, 1996 and 1995 the Corporation's effective tax rates were 36.2%, 37.0% and 38.3%, 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:
1997 1996 1995 Computed income taxes at statutory rate $ 4,678,000 $ 4,499,000 $ 4,287,000 State and local taxes, net of federal tax benefit 368,000 321,000 205,000 Dividend income 1,303,000 198,000 193,000 Amortization of goodwill 9,000 9,000 9,000 Foreign income taxed at different rates (69,000) 187,000 318,000 Tax credits (1,182,000) (271,000) (281,000) Benefit of Foreign Sales Corporation (289,000) (413,000) -- Other, net 169,000 366,000 95,000 Provision for income taxes $ 4,987,000 $ 4,896,000 $ 4,826,000
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 $2.3 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. (4) Accrued Expenses Accrued expenses consisted of the following as of December 31, 1997 and 1996, respectively: 1997 1996 Salaries and wages $ 2,353,000 $ 2,708,000 Income taxes 139,000 245,000 Insurance 2,216,000 2,648,000 Litigation 1,461,000 1,654,000 Other accrued expenses 4,374,000 4,059,000 Total accrued expenses $10,543,000 $11,314,000 (5) Debt Long-term debt consisted of the following as of December 31, 1997 and 1996, respectively: 1997 1996 Revolving Credit Notes $24,291,000 $21,707,000 Equipment Loans -- 115,000 Industrial Revenue Bonds 3,000,000 3,000,000 Other 9,000 20,000 27,300,000 24,842,000 Less Current Maturities 9,000 125,000 Total $27,291,000 $24,717,000 The Corporation has a credit agreement ("Credit Agreement") with a consortium of four banks led by Bank of America, Illinois, and including SunTrust Bank, First Union Bank of Florida and First National Bank of Maryland. The Credit Agreement provides a secured, reducing revolving credit facility for a maximum loan commitment at December 31, 1997 of $40 million and a letter of credit facility of $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, 1997, $24.3 million of revolving credit was outstanding and payable in 2000 and 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, 1997, were 6.4% on US borrowings and 4.1% to 8.0% 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 4.3% at December 31, 1997. 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 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, 1997 the Corporation was in compliance with all covenants contained in the Credit Agreement. The Corporation has mortgages and other short-term debt outstanding at rates of 4.2% to 6.0% due in 1998. The annual maturity requirements for long-term debt due after December 31, 1997, are summarized as follows: Year Ended December 31, 1998 $ 9,000 1999 -- 2000 6,000,000 2001 18,291,000 2002 -- Due after December 31, 2002 3,000,000 Total Long-Term Debt $27,300,000 (6) 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 1997, 1996 and 1995 were as follows:
1997 1996 1995 Wtd Avg Wtd Avg Wtd Avg 1997 Exercise 1996 Exercise 1995 Exercise Options Price Options Price Options Price Outstanding at beginning of 684,225 $5.71 716,950 $5.56 982,150 $5.44 year Granted 33,400 8.24 78,000 6.32 21,600 4.70 Exercised (5,275) 4.93 (93,000) 5.09 (110,375) 5.06 Canceled (78,600) 5.39 (17,725) 5.28 (176,425) 5.13 Outstanding at end of year 633,750 $5.89 684,225 $5.71 716,950 $5.56 Exercisable at end of year 465,563 $5.70 501,513 $5.62 506,917 $5.48
At December 31, 1997, 1996 and 1995, 1,490,475, 1,495,925 and 1,556,200 shares, respectively, were available for option grants under the 1990 Plan. The weighted average contractual life of the 633,750 options outstanding at December 31, 1997 was 3.68 years. There were no charges to income in connection with stock option grants or exercises during 1997, 1996 and 1995. (7) 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).
1997 1997 1996 1996 Overfunded Underfunded Overfunded Underfunded Actuarial present value of benefit obligation: Vested $(19,931,000) $(3,021,000) $(19,242,000) $(2,476,000) Non-vested (292,000) (15,000) (225,000) (24,000) Accumulated benefit obligation (20,223,000) (3,036,000) (19,467,000) (2,500,000) Additional amounts related to projected pay increases (2,311,000) (69,000) (2,209,000) (65,000) Projected benefit obligation (22,534,000) (3,105,000) (21,676,000) (2,565,000) Plan assets at fair value 28,066,000 2,368,000 22,531,000 1,841,000 Plan assets in excess of (less than) projected benefit obligation 5,532,000 (737,000) 855,000 (724,000) Unrecognized net transition obligation 195,000 253,000 255,000 291,000 Unrecognized prior service costs (86,000) 409,000 (83,000) 94,000 Unrecognized net (gain) loss (2,796,000) (43,000) 1,171,000 207,000 Adjustment to recognize minimum liability -- (550,000) -- (527,000) Prepaid (accrued) pension costs recognized in balance sheet at September 30 2,845,000 (668,000) 2,198,000 (659,000) Fourth quarter accruals (72,000) (53,000) (91,000) (64,000) Fourth quarter contributions -- 55,000 -- 65,000 Prepaid (accrued) pension costs at December 31 $ 2,773,000 $ (666,000) $ 2,107,000 $ (658,000)
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, 1997 and 1996. The rate of projected pay increases, where applicable, was 5% at both September 30, 1997 and 1996. The expected long-term rate of return on retirement plan assets was 9% at both September 30, 1997 and 1996. Net periodic pension cost for the US plans included the following:
1997 1996 1995 Service cost-benefits earned during the year $ 771,000 $ 716,000 $ 858,000 Interest cost on projected benefit obligation 1,823,000 1,695,000 1,646,000 Return on plan assets: Expected return-(gain) (2,252,000) (2,018,000) (1,666,000) Asset (gain) (4,471,000) (434,000) (2,879,000) Actual return-(gain) (6,723,000) (2,452,000) (4,545,000) Net amortization and deferral 4,631,000 566,000 (3,135,000) Net periodic pension cost $ 502,000 $ 525,000 $ 1,094,000
(8) 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, 1997, 1996 and 1995 is as follows:
Segment Depreciation Operating Capital and Net Sales Profit(Loss) Assets Expenditures Amortization 1997 Arlon $112,036,000 $15,873,000 $ 65,525,000 $ 5,438,000 $3,665,000 Kasco 46,672,000 3,495,000 38,617,000 3,252,000 2,791,000 Corporate -- (3,776,000) 5,144,000 99,000 60,000 Total $158,708,000 $15,592,000 $109,286,000 $ 8,789,000 $6,516,000 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
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, 1997, 1996 and 1995 is as follows:
Segment Operating Net Sales Profit Assets 1997 United States $136,010,000 $13,886,000 $ 92,393,000 Foreign 22,698,000 1,706,000 16,893,000 Total $158,708,000 $15,592,000 $109,286,000 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
(9) Contingencies Bairnco has been named as a defendant in a number of personal injury and wrongful death cases in which it is alleged that Bairnco is derivatively liable for the asbestos-related claims against its former subsidiary, Keene Corporation ("Keene"). On December 6, 1993, Keene filed for protection under Chapter 11 of the Bankruptcy Code. On June 8, 1995, the Keene Creditors' Committee commenced an adversary proceeding in the Bankruptcy Court against Bairnco, certain of its present and former officers and directors, and others alleging that the transfer of assets for value by Keene to other subsidiaries of Bairnco, and the spin-offs of certain other subsidiaries by Bairnco, were fraudulent and otherwise violative of law (the "Transactions Lawsuit") and seeking compensatory damages of $700 million, plus interest and punitive damages. The complaint in the Transactions Lawsuit includes a count under the civil RICO statute, 18 U.S.C. Section 1964, pursuant to which compensatory damages are trebled. Bairnco 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, 1997, approximately $28.5 million of NOL Refunds had been received and placed in escrow. There can be no assurance whatsoever that resolution of the NOL Lawsuit will result in the release of any portion of the NOL Refunds to Bairnco. Keene's plan of reorganization was approved and became effective on July 31, 1996. The plan, as approved, creates a Creditors Trust that has succeeded to all of Keene's asbestos liabilities, and also has succeeded to the right to prosecute both the Transactions Lawsuit and the NOL Lawsuit. The plan also includes a permanent injunction under which only the Creditors Trust, and no other entity, can sue Bairnco in connection with the claims asserted in these lawsuits. By order entered April 10, 1997, the Transactions Lawsuit was transferred from the Bankruptcy Court to the United States District Court for the Southern District of New York, where it will be litigated. On September 15, 1997, Bairnco and other defendants filed motions to dismiss the complaint for failure to state a claim as well as motions for summary judgment on the grounds that the complaint is time-barred. Briefing on these motions is complete. Subsequent to year-end, the court issued an opinion granting the motions to dismiss four of the twenty-one defendants in the Transactions Lawsuit. The court reserved decision on the motions of the other defendants. There can be no assurance that the remaining motions will result in dismissal of the Transactions Lawsuit or any part thereof. On January 6, 1998, the Creditors Trust filed a motion, to which Bairnco consented, to have the NOL Lawsuit transferred from the Bankruptcy Court to the District Court. That motion is pending. Management believes that Bairnco has meritorious defenses to all claims or liability purportedly derived from Keene and that it is not liable, as an alter ego, successor, fraudulent transferee or otherwise, for the asbestos- related claims against Keene or with respect to Keene products. Bairnco Corporation and its subsidiaries are defendants in a number of other actions. Management of Bairnco believes that the disposition of these other actions, as well as the actions and proceedings described above, will not have a material adverse effect on the consolidated results of operations or the financial position of Bairnco Corporation and its subsidiaries as of December 31, 1997. CORPORATE INFORMATION Corporate Office Suite 300, 2251 Lucien Way Maitland, Florida 32751 (407) 875-2222 www.bairnco.com Principal Facilities Bear, Delaware 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 Bairnco's Corporate Office on April 24, 1998 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 www.bairnco.com EX-21 5 SUBSIDIARIES OF REGISTRANT EXHIBIT 21 BAIRNCO CORPORATION AND SUBSIDIARIES Subsidiaries of Registrant as of March 23, 1998 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 ACOUNTANTS 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 23, 1998 Arthur Andersen LLP EX-27 7 FINANCIAL DATA SCEDULES
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM BAIRNCO'S 1997 ANNUAL REPORT TO STOCKHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS YEAR DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997 1,217,000 1,217,000 0 0 25,882,000 25,882,000 943,000 943,000 26,398,000 26,398,000 57,943,000 57,943,000 89,870,000 89,870,000 49,957,000 49,957,000 109,286,000 109,286,000 22,231,000 22,231,000 27,291,000 27,291,000 0 0 0 0 112,000 112,000 52,357,000 52,357,000 109,286,000 109,286,000 40,321,000 158,708,000 40,321,000 158,708,000 26,999,000 104,712,000 26,999,000 104,712,000 0 0 0 0 473,000 1,834,000 3,259,000 13,758,000 1,173,000 4,987,000 2,086,000 8,771,000 0 0 0 0 0 0 2,086,000 8,771,000 0.23 0.94 0.23 0.94
EX-99 8 FORM 11-K FOR YEAR ENDED DECEMBER 31, 1997 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, 1997 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, 1997 and 1996, and the related statement of changes in net assets available for benefits for the year ended December 31, 1997. 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, 1997 and 1996, and the changes in its net assets available for benefits for the year ended December 31, 1997, 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, 1998 Arthur Andersen LLP BAIRNCO CORPORATION 401(k) SAVINGS PLAN AND TRUST STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS AS OF DECEMBER 31, 1997 AND 1996
1997 1996 ASSETS INVESTMENTS, at fair market value (Notes 2 & 3) Bairnco common stock $ 277,830 $ 181,378 Mutual funds 3,873,674 2,805,520 Participant notes receivable 108,523 42,633 TOTAL INVESTMENTS 4,260,027 3,029,531 RECEIVABLES Participants' contributions 69,647 67,678 Accrued investment income 1,396 1,289 TOTAL RECEIVABLES 71,043 68,967 TOTAL ASSETS 4,331,070 3,098,498 NET ASSETS AVAILABLE FOR BENEFITS $4,331,070 $3,098,498
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, 1997 (Note 6)
1997 NET ASSETS AVAILABLE FOR BENEFITS, beginning of year $3,098,498 ADDITIONS: Participants' contributions 1,172,323 Interest and dividends 216,775 Net realized and unrealized appreciation on investments (Note 2) 505,548 1,894,646 DEDUCTIONS: Distributions 659,088 Administrative expenses 2,986 662,074 NET INCREASE 1,232,572 NET ASSETS AVAILABLE FOR BENEFITS, end of year $4,331,070 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, 1997 and 1996 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 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: Participant 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 for 1997. 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 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 1997, interest rates ranged from 10.25% to 10.5%. Principal and interest are paid quarterly through payroll deductions. As of December 31, 1997, there were 43 loans outstanding. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 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 benefits during the reporting period. Actual results could differ from those estimates. Basis Of Accounting- For the year ended December 31, 1997, the accounting records of the Plan and the Plan's assets were maintained by 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, 1997, Bairnco paid administrative expenses of approximately $15,205. 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 Fund, 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. All the investments represent 5% or more of the net assets available for benefits (see Note 6). 4. TRUST AGREEMENT: Schwab is 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 1997, 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 available for benefits of the investment funds for the year ended December 31, 1997:
Invesco Schwab Strong Schwab Bairnco Strategic Founders 1000 Government Retirement Common Participant Technology Growth Equity Securities Money Stock Notes Other Fund Fund Fund Fund Fund Fund Receivable Receivable Total Net assets available for benefits, 01-01-97 $142,077 172,271 1,391,710 474,789 624,673 181,378 42,633 68,967 3,098,498 Additions: Participant contributions 202,107 340,361 278,904 128,233 97,466 48,485 5,831 70,936 1,172,323 Interest and dividends 61,294 76,126 18,688 28,289 26,138 6,133 -- 107 216,775 Net realized and unrealized appreciation (depreciation) on investments (44,641) 8,435 438,062 13,751 -- 89,941 -- -- 505,548 Loan repayments 1,094 1,458 2,418 447 173 241 (5,831) -- -- Transfers from other funds 38,885 63,160 87,815 49,752 33,120 25,676 -- -- 298,408 258,739 489,540 825,887 220,472 156,897 170,476 -- 71,043 2,193,054 Deductions: Distributions (55,939) (76,835) (221,550) (82,419) (109,615) (37,314) (6,449) (68,967) (659,088) Loans (13,472) (11,624) (42,294) (10,067) (9,150) (6,187) 92,794 -- -- Administrative expenses (351) (456) (1,280) (376) (381) (142) -- -- (2,986) Transfers to other funds (19,036) (20,975) (45,303) (36,905) (125,353) (30,381) (20,455) -- (298,408) (88,798) (109,890) (310,427) (129,767) (244,499) (74,024) 65,890 (68,967) (960,482) Net assets available for benefits, 12-31-97 $312,018 551,921 1,907,170 565,494 537,071 277,830 108,523 71,043 4,331,070
7. TRANSACTIONS WITH PARTIES IN INTEREST: Under ERISA, 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, Schwab, as Plan Trustee, and any person or corporation which renders services to the Plan. Certain 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 and are not included in the accompanying financial statements. Additional fees paid by the Plan during 1997 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 April 29, 1997, 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. The plan administrator and legal counsel believe that the Plan is 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, 1997. Purchases and sales are made at fair market value on the date of transaction. Supplemental Schedule II lists the Plan assets held for investment at December 31, 1997. Supplemental Schedule III lists transactions with parties in interest of the Plan for the year ended December 31, 1997. SCHEDULE I BAIRNCO CORPORATION 401(k) SAVINGS PLAN AND TRUST SCHEDULE OF REPORTABLE TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 1997
Sales Sales Sales Net Gain Description of Transaction Purchases Cost Proceeds (Loss) Purchases: Founders Growth Fund $ 479,647 Invesco Strategic Technology Fund 302,286 Schwab Retirement Money Fund 156,724 Schwab 1000 Equity Fund 385,407 Strong Government Securities Fund 206,274 Sales: Founders Growth Fund $ 95,468 $108,432 $12,964 Invesco Strategic Technology Fund 86,306 87,704 1,398 Schwab Retirement Money Fund 244,691 244,326 (365) Schwab 1000 Equity Fund 250,400 308,009 57,609 Strong Government Securities Fund 126,563 129,320 2,757 Total All Funds $1,530,338 $803,428 $877,791 $74,363 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, 1997
Fair Market Description Value (Note 2) Cost Cash Equivalents Schwab Money Market Fund $ 335 $ 326 Common Stocks Bairnco Corporation 277,495 172,105 Total Bairnco Common Stock Fund $ 277,830 $ 172,431 Mutual Funds Invesco Strategic Technology Fund $ 312,018 $ 371,255 Founders Growth Fund 551,921 563,904 Schwab 1000 Equity Fund 1,907,170 1,399,708 Strong Government Securities Fund 565,494 541,725 Schwab Retirement Money Fund 537,071 536,706 Total Mutual Funds $3,873,674 $3,413,298 Other Investments Participant Notes Receivable $ 108,523 $ 108,523 Total $4,260,027 $3,694,252 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, 1997
Description Amount Sold 9,222 shares of Bairnco Corporation Common Stock between $6.875 and $10.8125 per share $73,991 Purchased 9,866 shares of Bairnco Corporation Common Stock between $7.125 and $10.4375 per share $80,294 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, 1998 By: /s/ J. ROBERT WILKINSON J. ROBERT WILKINSON Administrative Committee Member -----END PRIVACY-ENHANCED MESSAGE-----