Bairnco Corporation

2251 Lucien Way
Suite 300
Maitland, Florida 32751-7037
U.S.A.
(407) 875-2222
Fax: (407) 875-3398
Web site: http://www.bairnco.com

Public Company
Incorporated : 1981
Employees : 816
Sales : $156.46 million (1998)
Stock Exchanges : New York
Ticker Symbol : BZ
NAIC : 322221 Coated & Laminated Packaging Paper & Plastics Film Manufacturing; 325211 Plastics Material & Resin Manufacturing; 32552 Adhesive Manufacturing; 332213 Saw Blade & Handsaw Manufacturing; 332211 Cutlery & Flatware Manufacturing; 332321 Metal Window & Door Manufacturing; 333515 Cutting Tool & Machine Tool Accessory Manufacturing; 334413 Semiconductor & Related Device Manufacturing; 334412 Circuit Boards, Printed, Bare, Manufacturing; 334220 Communications Equipment, Mobile & Microwave, Manufacturing

Bairnco Corporation is a multinational company with subsidiaries operating in two business segments: engineered materials and components, and replacement products and services. Subsidiary Arlon, Inc. designs, manufactures, and sells engineered materials and components used in the electronic, industrial, and commercial markets. Its products include high-technology materials for printed circuit board industries, both commercial and military, in the United States, Europe, the Far East, and South America. Arlon also manufactures laminates providing high yields and high performance for microwave applications, such as in digital cordless telephones, direct broadcast satellite television systems, personal communications networks, and global positioning satellites. Finally, Arlon is also one of the most experienced vinyl film manufacturers in the world; under the Arlon brand name it markets specialty graphic films in a wide variety of colors, face stocks, and adhesive systems. Bairnco’s other business segment, represented by its Kasco Corporation subsidiary, manufactures and distributes replacement products and services to supermarkets; meat and delicatessen operations; and meat-, poultry-, and fish-processing plants throughout the United States, Canada, and Europe. These products and services are sold under several brand names: Kasco in the United States and Canada; Atlantic Service in the United Kingdom; and Bertram & Graf and Biro in continental Europe. In addition, Kasco distributes equipment to the supermarket and food-processing industries and also manufactures small bandsaw blades for cutting metal and wood, as well as large bandsaw blades used at lumber mills.

The Early Years: 1967-89

Bairnco’s origins may be traced to 1967, when Glenn W. Bailey bought a small company called Keene Packaging Company, “a producer of heat-sealed plastic packaging,” according to Feder’s story in the March 23, 1982 New York Times. Bailey previously had run 11 companies for Harold S. Geneen, the builder of the giant conglomerate that became known as the International Telephone and Telegraph Corporation. Using Geneen’s growth strategy as a model, Bailey developed Keene by acquiring new companies in order to diversify into microcircuits, industrial bearings, fireproofing material, lighting fixtures, and advanced composite materials. In 1968 he made his fourth acquisition, that of Baldwin-Ehret-Hill Inc., a manufacturer of insulation with $30 million in annual sales, about $4 million of which was derived from asbestos products. That acquisition would become a nightmare for Bailey, who told news writer Feder that it was not until 1971 that he “first heard there might be problems with asbestos.” The problems materialized and then lingered for many years.

Although asbestos products were dropped from the Baldwin line in 1972 and the major part of that company’s operations were eventually sold, Keene became an “asbestos victim”: lawyers included Keene with other asbestos producers as defendants in thousands of lawsuits. “Partly because Wall Street was unenthusiastic about conglomerates and partly because of the asbestos cloud hanging over Keene, in the late 1970s the company’s shares seldom edged above an unimpressive price/earning ratio of 6 during the late 1970s,” according to Feder’s story. However, despite a slump in sales during the 1974-75 recession, net income and sales grew steadily.

In an effort to draw the attention of Wall Street to the fact that Keene was a highly viable company, in April 1981 Bailey—with himself as chairman, president, and chief executive officer—established Bairnco (bairn is the Scottish word for child) as a holding company. His business plan, according to a case study in the July-August 1990 issue of Harvard Business Review, “was to acquire a family of separate companies with single or focused product lines, nurture them to the point where they may stand successfully on their own, and then spin them off to its shareholders—that is, to buy, build, and harvest.” By implementing this strategy, Bailey rewarded investors and motivated entrepreneurship in the subsidiaries. He instituted basic management controls for all the 22 companies acquired since 1967, and Bairnco’s slogan, “We grow companies,” drew investors.

Over the long term, Bailey’s strategy generated exceptional returns. For example, according to the Harvard Business Review case study, “an investor who held $ 1,000 worth of Bairnco shares on December 31, 1978, and who maintained the holdings in Bairnco plus its spinoff companies, would have held shares worth $14,551 ten years later—a 31 percent compound annual return—almost double the return from a similar investment in the Standard & Poor’s ‘500’.”

By year-end 1981, Keene—then a Bairnco subsidiary—had disposed of 2,425 of its asbestos cases, but the parent company remained questionably responsible for nearly 9,000 lawsuits. The other acquired companies were reorganized along specialty lines and grouped into five subsidiaries: Kay don Corp. in Muskegon, Michigan; Genlyte Inc. in Secaucus, New Jersey; Kasco Corp. in St. Louis; Arlon Inc. in Rancho Cucamonga, California; and Shielding Systems Corp. in Norwalk, Connecticut. Kaydon and Genlyte were divested in 1984 and 1986, respectively.

In 1988 Bairnco generated revenues of close to $230 million, but the millions of dollars swallowed up by litigation penalized the company’s earnings, with an estimated $260 million being paid for settlements from the mid-1970s to the late 1980s. While Keene’s insurance companies covered all but $9 million, additional coverage remained in dispute. By year-end 1989, partly because of cutbacks in the U.S. defense budget, Keene and Shielding Systems reported losses of $1.9 million and $8.4 million, respectively. Still, the Arlon and Kasco subsidiaries cleared healthy profits. At the end of fiscal 1989 Bairnco’s earnings were back in the black—a $7 million profit on sales of $196.6 million—and plans for another reorganization got underway.

Continuing Litigation in the Early 1990s

Chairman and President Bailey retired in May 1990. At that time, Luke E. Fichthorn III became chairman, and Richard A. Shantz took over as president. In June of that year Bairnco moved its headquarters from Manhattan to Maitland, Florida. Then the company spun off its Keene Corporation subsidiary, at a cost of $6 million. With these moves, Bairnco officials thought liability problems had ended, and Keene filed for relief under Chapter 11 of the Bankruptcy Code in 1993. However, on August 13, 1993, asbestos claimants filed a lawsuit against Bairnco and its five formerly or currently affiliated companies, accusing Keene Corporation of illegally spinning off key assets to its former parent company, a move, claimants asserted, made to avoid hundreds of millions of dollars in liability. Bairnco share prices tumbled to $4.125—from a high of $41 in 1987.

Maintaining that the claims against Bairnco were without merit and vowing to fight them, Fichthorn remarked in the August 14, 1993 issue of the Orlando Sentinel that “neither Bairnco nor any of its subsidiaries other than Keene ever produced or distributed asbestos products.” Fichthorn further explained that Keene had ceased selling asbestos-related products before Bairnco had acquired it and that since 1990 Keene had operated separately from Bairnco.

Apart from its legal entanglements, Bairnco began focusing on its two core business segments—Arlon Engineered Materials and Components and Kasco Replacement Products and Services—and continued to divest itself of businesses not related to those two subsidiaries.

Company Perspectives

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. 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.

Refocusing Product Lines in the 1990s

Arlon’s Electronic Substrates line included premium laminate products capable of sustaining the high temperatures needed in circuit boards for military electronics and sophisticated commercial applications, such as the surface-mount electronics for the Motorola worldwide satellite telephone system known as Iridium. The Microwave Materials product line produced the world’s leading substrates for microwave applications. The business mix moved from a predominately military base to consumer products operating at microwave frequencies—digital cordless telephones, local and global cellular phone systems, direct-broadcast satellite television systems, global positioning satellite systems, and other personal communications equipment.

Under the Calon brand name, Bairnco also manufactured and marketed cast and calendered vinyl films for specialty graphics that were used by commercial sign manufacturers, graphic printing houses, and in other commercial and governmental-specification applications.

Under the Arlon brand name, Bairnco manufactured and marketed custom-engineered laminates and adhesives systems as well as a line of silicone-rubber materials used in consumer, industrial, and commercial products.

Through its multinational Kasco operations, Bairnco manufactured and supplied replacement products and services, principally to retail food stores, and to meat-, poultry-, and fish-processing plants throughout the United States, Canada, and Europe. Kasco made bandsaw blades for cutting and chopper plates and knives for grinding meat in supermarkets and packing plants; bandsaw blades for frozen-fish factories; small bandsaw blades for cutting metal and wood; and large bandsaw blades for lumber mills. During the fourth quarter of 1994, Bairnco decided to refocus Kasco’s service-center program back to several selected market areas so that Kasco could provide cost-effective, value-added preventive maintenance and emergency service in confined geographical markets. Consequently, eight North American centers were closed.

Slow but Steady Progress in the Mid-1990s

Improvements in Arlon’s results began to show the benefits of investing in the development of new markets as well as in expanding sales, marketing, and research efforts. During the first quarter, Kasco’s reduced profits were disappointing, but by year-end a revised program was being implemented to make Kasco a value-added supplier of cost-efficient services to its customers. For fiscal 1994 Bairnco and its subsidiaries posted net sales of $145.52 million, compared to $135.58 million for 1992.

Bairnco’s net sales increased 3.4 percent to $150.51 million in 1995. Arlon’s sales of engineered materials and components increased 7.8 percent due to growing demand in the high-end and circuit board market but gross profit increased only 3.1 percent due to the impact of competitive pressures for lower-margin commercial products and attendant market erosion. Sales of Kasco replacement products and services declined 4.1 percent due to the reduction in Kasco’s North American service-center revenues after the closing of eight centers. However, Kasco’s gross-profit margin increased slightly due to an improved sales mix and reduced manufacturing costs.

Meanwhile, Keene Corporation emerged from Chapter 11 pursuant to a plan of reorganization approved in 1996. The Keene Plan provided for the creation of Keene Creditors Trust (KCT), a successor in interest to Keene. Bairnco and its subsidiaries remained entangled in legal battles, however, as the defendants in a lawsuit in which the KCT trustees, as plaintiffs, alleged “that certain sales of assets by Keene to other subsidiaries of Bairnco were fraudulent conveyances and otherwise violative of [New York State] law, as well as being violative of the civil RICO statute,” according to the company’s 1998 10-K annual report. It was not until the fourth quarter of 1998 that this legal matter approached a partial solution.

For 1996, Bairnco’s sales of $150.23 million were slightly lower than those of 1995. Arlon’s sales grew only 4.1 percent; however, sales to the graphics and electrical insulation markets continued to grow and more than offset lower sales to the electronics industry. Kasco’s sales decreased 8.5 percent partly because of the program to refocus Kasco on its North American core business, partly because of decreased exports and reduced sales of equipment in Canada and France, and partly because of the severe impact of the “Mad Cow” disease on European meat consumption and the meat-processing markets.

During 1997, Arlon’s Electronic Substrates and Microwave Materials product lines continued to implement lower-cost solutions in order to increase commercial sales and penetration of electronic applications in the consumer market. Significant investments in new equipment, product development, and research resulted in new lamination presses and expansion of the research and development laboratory, among other things.

Kasco remained the leading manufacturer and supplier of replacement products and services. The company had manufacturing facilities in St. Louis; Toronto; Gwent, Wales; and Pansdorf, Germany. In France, over and above producing replacement products, Kasco distributed equipment used in the supermarket and food-processing industries. Among the new products Kasco introduced in 1997 was the Predator Series of custom-splitter blades. These splitter blades reduced workplace noise, provided peak high-speed cutting, and lasted longer because of a unique Gold Tooth Hardening process. Kasco increased sales of its Mealtime Solutions seasoning program that allowed supermarkets to offer value-added products in their meat and delicatessen departments. The company moved its seasoning manufacturing plant from California to St. Louis, Missouri, and added a formulation lab and test kitchen.

During this time, Bairnco’s board of directors authorized $5 million for ongoing repurchase of its common stock. Net sales for fiscal 1997 increased 5.6 percent to $158.71 million from $150.23 million in 1996. Arlon’s sales increased 8.3 percent: all its markets experienced growth though there was substantial volatility within the electronics industry. Kasco’s sales declined 0.2 percent: growth in the U.S. 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 some Canadian markets. Furthermore, Kasco suffered from the negative impact of currency translation rates on sales of its European operations.

Toward the New Millennium: 1998 and Beyond

In 1998 Bairnco’s board of directors authorized the repurchase of up to another $5 million of its common stock, in addition to the $3.5 million still unused from the $5 million authorized for this purpose in 1997. During 1998 Bairnco repurchased 737,400 shares for $6.2 million and was authorized to continue its stock repurchase program in 1999. At year-end 1998, $2.5 million remained available for additional stock repurchases.

Arlon introduced ProFleet, a pressure-sensitive vinyl product specifically designed for fleet and vehicle graphics. In September a new product line of electrostatic media was put on the market: the Imageburst electrostatic media line included StatPrint HP, StatPrint Intermediate, and StatPrint Promotional. Then, in November 1998 Bairnco purchased Northbrook, Illinois-based MII International, Inc., a manufacturer of adhesive-coated films for use in the graphics and industrial markets. MII’s product lines complemented Arlon’s vinyl product lines, expanded Arlon’s coating and converting capacity, and provided additional brand recognition and new customer segments.

During 1998, Kasco improved several designs of its bandsaw blades, chopper plates, and knives. The company introduced a line of premium wood-cutting bandsaw blades for professional cabinetry and furniture makers. The Mealtime Solutions seasoning program continued to be popular for home-meal replacement items in supermarkets; several new product lines expanded the Mealtime Solutions program into delicatessen and seafood departments. Kasco placed greater emphasis on preventive maintenance, thereby increasing the value-added service given to its customers.

During the fourth quarter of 1998, the Transaction Lawsuit initiated in 1996 by KCT trustees against Bairnco and its subsidiaries again came to the fore. The plaintiffs alleged that Bairnco and others were derivatively liable for the asbestos-related claims against its former subsidiary, Keene Corporation, and wanted “compensatory damages of $700 million, interest, punitive damages, and trebling of the compensatory damages pursuant to civil RICO,” according to Bairnco’s 1998 annual report.

In a series of decisions that remained subject to appeal, the U.S. District Court for the Southern District of New York “dismissed plaintiff’s civil RICO claims; dismissed 14 of the 21 defendants named in the complaint, and partially granted defendants’ motions for summary judgment on statute of limitations grounds.” All other claims were under investigation. These other claims included some against Bairnco, but company management believed that it had “meritorious defenses to all claims or liability purportedly derived from Keene and that it ... [was] not liable, as an alter ego, successor, fraudulent transferee or otherwise, for the asbestos-related claims against Keene or with respect to Keene products.” To that end, in the fourth quarter Bairnco set aside $7.5 million as a pre-tax provision for anticipated litigation costs.

Sales for fiscal 1998 decreased to $158.71 million in 1997 to $156.46 million in 1998. Operating profit before the provision for litigation costs was $12.03 million, down from $15.6 million in 1997. Weak demand in Bairnco’s electronics markets was partly responsible for the dip in sales, while the lingering litigation about asbestos and other claims did not help the stock price. However, in a letter prefacing Bairnco’s 1998 annual report, Chairman Fichthorn said that “the management development program, which is one of the keys to our future success, continued to make progress in all operations.” He added that additional projects had been identified and that the outlook for 1999 was for improved sales and earnings.” He expressed the belief that the company “would recover most of the ground lost in 1998” through the combination of growth from new products, higher growth in certain niche markets, and programs for continuing efficiency and yield improvement. At the approach of the 21st century, judging from Bairnco’s past performance in overcoming obstacles, it did seem that the company was again headed for profitability.

Principal Subsidiaries

Arlon, Inc.; Kasco Corporation; Bairnco Foreign Sales Corporation (Barbados); Bertram & Graf Gmbh (Germany); Invabond Ltd. (Ireland); Atlantic Service Co. Ltd. (Canada); Atlantic Service Co. (UK) Ltd., (98.9%); EuroKasco S.A. (France).