<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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
For the transition period from to
Commission file number 1-4801
BARNES GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-0247840
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
123 MAIN STREET, BRISTOL, CONNECTICUT 06011-0489
- ------------------------------------- ----------
(Address of Principal Executive Office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (860) 583-7070
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $0.01 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 __
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. _____
The aggregate market value of the registrant's voting stock held by
non-affiliates amounted to $509,179,001 as of January 31, 1998. The registrant
had outstanding 20,165,505 shares of common stock as of January 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts I and II incorporate information by reference from the registrant's 1997
Annual Report to Stockholders. Part III incorporates information by reference
from the registrant's Proxy Statement dated March 11, 1998.
<PAGE> 2
PART I
Item 1. Business.
The Company was organized as a Delaware corporation in 1925.
The Company is in three businesses: Bowman Distribution, a distributor of
consumable repair and replacement products for industrial, heavy equipment, and
transportation maintenance markets; Associated Spring, a manufacturer and
distributor of custom-made springs and other close-tolerance engineered metal
components; and Barnes Aerospace, a manufacturer of precision machined and
fabricated assemblies for the aircraft and aerospace industries and a
refurbisher of jet engine components.*
Bowman Distribution. Bowman Distribution is engaged in
distributing in the United States, Canada, the United Kingdom and France, a
variety of replacement parts and other products, including fasteners and special
purpose hardware, automotive parts, automotive specialties and accessories,
general purpose electric and gas welding supplies, industrial maintenance
supplies, and industrial aerosols such as adhesives, lubricants, and sealants.
The products sold by Bowman Distribution are generally not
manufactured by the Company, but are obtained from a number of outside
suppliers. The vast majority of the products are repackaged and sold under
Bowman's labels.
Sales by Bowman Distribution in the United States and Canada
are primarily to industrial and food processing plants, chemical and
petrochemical process industries, contractors, new-car dealers, garages, service
stations, operators of vehicle fleets, railroads, electric utilities and airline
ground maintenance facilities.
Associated Spring. Associated Spring manufactures and
distributes a wide variety of custom metal parts for mechanical purposes. It is
equipped to produce practically every type of spring requiring precision
engineering, as well as an extensive variety of precision metal components and
assemblies. Its products range in size from fine hairsprings for instruments to
large springs for heavy machinery, and its output of a given metal part may vary
in amount from a few units to several million. Associated Spring does not
produce leaf springs or bed springs.
Associated Spring's custom metal parts are sold in the United
States and through the Company's foreign subsidiaries to manufacturers in many
industries, chiefly for use as components in their own products. Custom metal
parts are sold primarily
- ------------------
*As used in this annual report, "Company" refers to the registrant and its
consolidated subsidiaries except where the context requires otherwise, and
"Associated Spring," "Barnes Aerospace," and "Bowman Distribution" refer to the
above-defined businesses, but not to separate corporate entities.
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through Associated Spring's sales employees. In view of the diversity of
functions which Associated Spring's custom metal parts perform, Associated
Spring's output is characterized by little standardization, with the major
portion being manufactured to customer specifications.
The automotive and automotive parts industries constitute
Associated Spring's largest single custom metal parts market. Other important
outlets include manufacturers of industrial and textile machinery, motors,
generators, electronic equipment, aircraft, diesel and other internal combustion
engines, household appliances and fixtures, hardware, office equipment,
agricultural equipment, railroad equipment, general machinery and scientific
instruments.
The Associated Spring Distribution division is engaged in the
distribution of industrial products to the tool and die market, of which die
springs manufactured primarily by Associated Spring are the principal item. It
also distributes certain standard parts manufactured by Associated Spring
consisting primarily of stock wire and flat springs which are sold under the
Company's SPEC registered trademark.
Associated Spring also has manufacturing operations in Brazil,
Canada, Mexico and Singapore, and distribution operations in the United Kingdom
and France. The Company has retained a minority interest of 15% in its former
subsidiary in Argentina.
The Company is a partner in a joint venture corporation in the
United States with NHK Spring Co., Ltd. of Japan. The joint venture corporation,
NHK-Associated Spring Suspension Components Inc. ("NASCO"), has a manufacturing
facility in Bowling Green, Kentucky. It manufactures and sells hot-wound coil
springs for automotive suspension systems and counterbalance torque bars for
trunk lids. Barnes Group owns a minority interest of 45% in NASCO.
Barnes Aerospace. Barnes Aerospace is engaged in the advanced
fabrication and precision machining of components for jet engines and airframes
as well as the repair and overhaul of jet engine components. The Original
Equipment Manufacture (OEM) and overhaul and repair businesses constitute the
Barnes Aerospace group.
The OEM division consists of three facilities located at
Windsor, Connecticut, Lansing, Michigan and Ogden, Utah. The Windsor plant
manufactures machined and fabricated parts as well as assemblies. It specializes
in the machining of difficult-to-process aircraft engine superalloys.
Manufacturing processes include computer numerically controlled machining,
electrical discharge machining, laser drilling, creep-feed grinding and
automated deburring. Customers include gas turbine engine manufacturers for
commercial and military jets as well as land-based turbines. The Lansing and
Ogden plants specialize in hot forming and fabricating titanium and other
high-temperature alloys
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such as hastelloy and inconel for use in precision details and assemblies for
aircraft engine and airframe applications. They utilize advanced manufacturing
processes including superplastic forming and diffusion bonding.
The overhaul and repair business, which maintains facilities
in Windsor, Connecticut and Singapore, specialize in refurbishing jet engine
components. Electron beam welding and plasma spray are two of the major
processes used by this business. Customers include approximately 30 airlines and
engine overhaul businesses worldwide and the U.S. military.
Segment Analysis. The analysis of the Company's revenue from
sales to unaffiliated customers, operating income and identifiable assets by
industry segments and geographic areas appearing on pages 29 and 30 of the
Company's 1997 Annual Report to Stockholders, included as Exhibit 13 to this
report, is incorporated by reference.
Competition. The Company competes with many other companies,
large and small, engaged in the manufacture and sale of custom metal parts
(including aerospace components). The Company believes Associated Spring is the
largest domestic manufacturer of precision springs used for mechanical purposes.
The Company also faces active competition in the products sold by Bowman
Distribution. The principal methods of competition for the Company's three
businesses include service, quality, price, reliability of supply, and also, in
the case of Associated Spring and Barnes Aerospace, technology and design.
Backlog. The backlog of the Company's orders believed to be
firm amounted to $185,336,000 at the end of 1997, as compared with $151,142,000
at the end of 1996. Of the 1997 year-end backlog, $131,427,000 is attributable
to the Barnes Aerospace Group and all of the balance is attributable to the
Associated Spring Group. $29,487,000 of Barnes Aerospace's backlog is not
expected to be shipped in 1998. Substantially all of the remainder of the
Company's backlog is expected to be shipped during 1998.
Raw Materials and Customers. None of the Company's divisions
or groups are dependent upon any single source for any of their principal raw
materials or products for resale, and all such materials and products are
readily available. No one customer accounted for more than 10% of total sales in
1997. Automotive manufacturers and manufacturers of electronic products are
important customers of Associated Spring. Sales by Barnes Aerospace to two
domestic jet engine manufacturers accounted for approximately 53% of its
business. Bowman Distribution is not dependent on any one or a few customers for
a significant portion of its sales.
Research and Development. Although most of the products
manufactured by the Company are custom parts made to the customers'
specifications, the Company is engaged in continuing efforts aimed at
discovering and implementing new knowledge that is useful in developing new
products or services or improving significantly existing
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products or services. The Company spent approximately $3,625,000 on its research
and development activities in 1997, as compared to expenditures of approximately
$3,957,000 in 1996 and $3,087,000 in 1995. There were no significant
customer-sponsored research and development activities.
Patents and Trademarks. Patents, licenses, franchises and
concessions are not material to any of the Company's businesses.
Employees. As of the date of this report, the Company employs
approximately 3,900 people, 670 of which are union employees. The Company
considers its relations with its employees to be good.
Environmental Laws. Compliance with federal, state, and local
laws which have been enacted or adopted regulating the discharge of materials
into the environment or otherwise relating to the protection of the environment
has not had a material effect and is not expected to have a material effect upon
the capital expenditures, earnings, or competitive position of the Company.
Item 2. Properties.
The Company and its Canadian subsidiary operate 12
manufacturing plants and 14 warehouses at various locations throughout the
United States and Canada, of which all of the plants and 6 of the warehouses are
owned and the others are leased. Of the properties which are owned, none are
subject to any encumbrance. The Company's other foreign subsidiaries own or
lease plant or warehouse facilities in the countries where their operations are
conducted. The listing of the facility locations of each of the Company's
businesses contained in the Directory of Operations, which appears on page 34 of
the 1997 Annual Report to Stockholders included as Exhibit 13 to this report, is
incorporated by reference.
The Company believes that its owned and leased properties have
been adequately maintained, are in satisfactory operating condition, are
suitable and adequate for the business activities conducted therein, and have
productive capacities sufficient to meet current needs.
Item 3. Legal Proceedings.
There are no material pending legal proceedings to which the
Company or any of its subsidiaries is a party, or of which any of their property
is the subject.
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Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of 1997 to a
vote of security holders.
The following information is included in accordance with the
provisions of Item 401(b) of Regulation S-K:
Executive Officers of the Company*
<TABLE>
<CAPTION>
Age as of
Executive Officer Position December 31, 1997
- ----------------- -------- -----------------
<S> <C> <C>
Theodore E. Martin President and Chief Executive Officer 58
(since 1995)
Cedric D. Beckett Vice President, Barnes Group Inc. and President, 33
Barnes Aerospace (since 1997)
Francis C. Boyle, Jr. Vice President, Controller (since 1997) 47
Leonard M. Carlucci Vice President, Barnes Group Inc. (since 1994) 51
and President, Bowman Distribution (since 1995)
Ali A. Fadel Vice President, Barnes Group Inc. and President, 42
Associated Spring (since 1994)
William V. Grickis, Jr. Vice President, General Counsel and Secretary 47
(since 1997)
John J. Locher Vice President, Treasurer (since 1992) 53
Terry M. Murphy Senior Vice President, Finance 49
(since 1997)
James A. Paynter Senior Vice President, Human Resources (since 57
1997)
</TABLE>
* All officers are elected by the Board of Directors and serve an indefinite
term at the discretion of the Board.
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Except for Messrs. Beckett, Grickis, Murphy and Paynter, each
of the Company's executive officers has been employed by the Company or its
subsidiaries in an executive or managerial capacity for at least the past five
years. Each officer holds office until his successor is chosen and qualified or
otherwise as provided in the By-Laws. No family relationships exist among the
executive officers of the Company.
Mr. Beckett joined the Company as Operations Analyst in June
1994; was promoted to Director, Operations, for Windsor Manufacturing in
December 1994; and became Acting President of that unit in April 1995. In July
1995, he was named President, Windsor Manufacturing. He was thereafter promoted
to President, Barnes Aerospace, OEM and Fabrications, in August 1997; and in
November 1997, he was elected to the position of Vice President, Barnes Group
Inc. and President, Barnes Aerospace. Prior to joining the Company, Mr. Beckett
held various positions at the Hamilton Standard Division of United Technologies
Corporation.
Mr. Grickis joined the Company as Vice President, General
Counsel in February 1997, and was elected Secretary in October 1997. Prior to
joining the Company Mr. Grickis was Corporate Counsel and Assistant Secretary of
Loctite Corporation, a multinational manufacturer and marketer of specialty
chemical adhesives and sealants.
Mr. Murphy joined the Company as Senior Vice President,
Finance in September 1997. Prior to joining the Company Mr. Murphy was Vice
President and Chief Financial Officer for Kysor Industrial Corporation, a major
manufacturer of refrigeration equipment and transportation components.
Mr. Paynter joined the Company as Senior Vice President, Human
Resources in May 1997. Prior to joining the Company Mr. Paynter was Senior Vice
President of Human Resources for Grimes Aerospace Company, a major manufacturer
of airframe products.
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PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.
The information regarding the Company's common stock contained
on pages 25 and 26 of the Company's 1997 Annual Report to Stockholders is
incorporated by reference. As of January 31, 1998, the Company's common stock
was held by 3,828 stockholders of record. The Company's common stock is traded
on the New York Stock Exchange.
Item 6. Selected Financial Data.
The selected financial data for the last six years contained
on pages 32 and 33 of the Company's 1997 Annual Report to Stockholders is
incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The financial review and management's analysis thereof
appearing on pages 13 through 16 of the Company's 1997 Annual Report to
Stockholders are incorporated by reference.
Item 8. Financial Statements and Supplementary Data.
The financial statements and report of independent accountants
appearing on pages 17 through 30 of the Company's 1997 Annual Report to
Stockholders are incorporated by reference. See also the report of independent
accountants included on page 13 below pursuant to Item 302(a) of Regulation S-K.
The material under "Quarterly Data" on page 31 of the Company's 1997 Annual
Report to Stockholders is also incorporated by reference.
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
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PART III
Item 10. Directors and Executive Officers of the Company.
The material under "Election of Directors" on pages 1 through
4 of the Company's Proxy Statement dated March 11, 1998 is incorporated by
reference. See also "Executive Officers of the Company," included above pursuant
to Item 401(b) of Regulation S-K.
Item 11. Executive Compensation.
The information under "Compensation of Directors" appearing on
page 4 and the information under "Report of the Compensation Committee,"
"Compensation," "Stock Options," "Long-Term Incentive Awards," "Pension Plans,"
and "Change-In-Control Agreements" appearing on pages 6 through 13 of the
Company's Proxy Statement dated March 11, 1998, is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information concerning this item appearing on pages 5 and
6 of the Company's Proxy Statement dated March 11, 1998, is incorporated by
reference.
Item 13. Certain Relationships and Related Transactions.
None.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The report of Price Waterhouse LLP, independent
accountants, and the following financial statements
and financial statement schedules are filed as part
of this report:
<TABLE>
<CAPTION>
Reference
-------------------------------------------
Annual Report
Form 10-K to Stockholders
(page) (page)
<S> <C> <C>
Report of independent accountants 13 30
Consolidated balance sheets at December 31, 1997 and 1996 18
Consolidated statements of income for the years ended December 17
31, 1997, 1996 and 1995
Consolidated statements of changes in stockholders' equity for 20
the years ended December 31, 1997, 1996 and 1995
Consolidated statements of cash flows for the years ended 19
December 31, 1997, 1996 and 1995
Notes to consolidated financial statements 21-30
Supplementary information 31
Quarterly data (unaudited)
Consolidated schedule for the years ended December 31, 1997, 14
1996 and 1995:
Schedule II - Valuation and Qualifying Accounts
</TABLE>
All other schedules have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or notes thereto.
9
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The consolidated financial statements listed in the above index
which are included in the Annual Report to Stockholders of Barnes Group Inc. for
the year ended December 31, 1997, are hereby incorporated by reference. With the
exception of the pages listed in the above index and in Items 1, 2, 5, 6, 7 and
8, the 1997 Annual Report to Stockholders is not to be deemed filed as part of
this report.
(b) No reports on Form 8-K were filed during the last
quarter of the period covered by this report.
(c) The Exhibits required by Item 601 of Regulation S-K are
filed as Exhibits to this Annual Report and indexed at
pages 15 through 17 of this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 20, 1998
BARNES GROUP INC.
By /s/ Theodore E. Martin
-------------------------------------
Theodore E. Martin
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below as of the above date by the following
persons on behalf of the Company in the capacities indicated.
/s/ Theodore E. Martin
- ------------------------------------------
Theodore E. Martin
President and Chief Executive Officer
(principal executive officer) and Director
/s/ Terry M. Murphy
- ------------------------------------------
Terry M. Murphy
Senior Vice President, Finance
(principal financial officer)
/s/ Francis C. Boyle, Jr.
- ------------------------------------------
Francis C. Boyle, Jr.
(principal accounting officer)
/s/ Thomas O. Barnes
- ------------------------------------------
Thomas O. Barnes
Director
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/s/ Gary G. Benanav
- ------------------------------------------
Gary G. Benanav
Director
/s/ William S. Bristow, Jr.
- ------------------------------------------
William S. Bristow, Jr.
Director
/s/ Robert J. Callander
- ------------------------------------------
Robert J. Callander
Director
/s/ George T. Carpenter
- ------------------------------------------
George T. Carpenter
Director
/s/ Donna R. Ecton
- ------------------------------------------
Donna R. Ecton
Director
/s/ Robert W. Fiondella
- ------------------------------------------
Robert W. Fiondella
Director
/s/ Frank E. Grzelecki
- ------------------------------------------
Frank E. Grzelecki
Director
/s/ Marcel P. Joseph
- ------------------------------------------
Marcel P. Joseph
Director
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REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Barnes Group Inc.
Our audits of the consolidated financial statements for the years ended December
31, 1997, 1996 and 1995 referred to in our report dated January 21, 1998
appearing on page 30 of the 1997 Annual Report to Stockholders of Barnes Group
Inc. (which report and consolidated financial statements are incorporated by
reference in this Annual Report on Form 10-K) also included an audit of the
Financial Statement Schedule for the years ended December 31, 1997, 1996 and
1995 listed in Item 14(a) of this Form 10-K. In our opinion this Financial
Statement Schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Hartford, Connecticut
January 21, 1998
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BARNES GROUP INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
Provision
Balance at charged to Balance
beginning costs and at end of
of year expenses Deductions(1) year
------- -------- ------------- ----
<S> <C> <C> <C> <C>
1997
Allowance for $3,158 $1,232 $1,329 $3,061
doubtful accounts
1996
Allowance for $3,635 $ 545 $1,022 $3,158
doubtful accounts
1995
Allowance for $3,222 $1,577 $1,164 $3,635
doubtful accounts
</TABLE>
- ------------------
(1) Write-offs, net of recoveries
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EXHIBIT INDEX
Barnes Group Inc.
Annual Report on Form 10-K
for the year ended December 31, 1997
<TABLE>
<CAPTION>
Exhibit No. Description Reference
- ----------- ----------- ---------
<S> <C> <C>
3.1 Restated Certificate of Incorporation. Filed with this report.
3.2 Amended and Restated By-Laws. Filed with this report.
4.1 Revolving Credit Agreement dated as of Incorporated by referenced to Exhibit 4.1 to
December 1, 1991 among the Company and the Company's report on Form 10-K for the
several commercial banks. year ended December 31, 1996.
4.2 Sixth Amendment to Credit Agreement set Filed with this report.
forth in Exhibit 4.1 dated as of December
1, 1997.
4.3 Rights Agreement dated as of December 10, Incorporated by reference to Exhibit 1 to
1996, between the Company and ChaseMellon the Company's report on Form 8-A filed on
Shareholder Services, L.L.C. December 20, 1996.
4.4 Note Agreement dated as of September 16, Incorporated by reference to Exhibit 4.8 to
1991, among the Company and several the Company's report on Form 10-K for the
insurance companies. year ended December 31, 1996.
4.5 Note Purchase Agreement dated as of Incorporated by reference to Exhibit 4.9 to
December 1, 1995, between the Company and the Company's report on Form 10-K for the
several insurance companies. year ended December 31, 1995.
10.1 The Company's Management Incentive Incorporated by reference to Exhibit 10.1 to
Compensation Plan. the Company's report on Form 10-K for the
year ended December 31, 1995.
</TABLE>
15
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<TABLE>
<CAPTION>
Exhibit No. Description Reference
- ----------- ----------- ---------
<S> <C> <C>
10.2 The Company's Long Term Incorporated by reference to Exhibit 10.2 to
Incentive Plan the Company's report on Form 10-K for the
year ended December 31, 1995.
10.3 The Company's Retirement Benefit Incorporated by reference to Exhibit 10.3 to
Equalization Plan. the Company's report on Form 10-K for the
year ended December 31, 1995.
10.4 The Company's Supplemental Executive Incorporated by reference to Exhibit 10.4 to
Retirement Plan. the Company's report on Form 10-K for the
year ended December 31, 1995.
10.5 The Company's 1981 Stock Incentive Plan. Incorporated by reference to Exhibit 10.5 to
the Company's report on Form 10-K for the
year ended December 31, 1996.
10.6 The Company's 1991 Stock Incentive Plan, as Incorporated by reference to Exhibit 10.6 to
amended February 21, 1997. the Company's report on Form 10-K for the
year ended December 31, 1996.
10.7 The Company's Non-Employee Director Incorporated by reference to Exhibit 10.7 to
Deferred Stock Plan. the Company's report on Form 10-K for the
year ended December 31, 1994.
10.8 The Company's Amended and Restated Incorporated by reference to Exhibit 10.8 to
Directors' Deferred Compensation Plan. the Company's report on Form 10-K for the
year ended December 31, 1996.
10.9 Consulting Agreement dated as of April 1, Incorporated by reference to Exhibit 10.9 to
1994 between the Company and Wallace Barnes. the Company's report on Form 10-K for the
year ended December 31, 1994.
</TABLE>
16
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<TABLE>
<CAPTION>
Exhibit No. Description Reference
- ----------- ----------- ---------
<S> <C> <C>
10.10 Addendum to Consulting Agreement set forth Incorporated by reference to Exhibit 10.10
in Exhibit 10.9 dated as of May 22, 1995. to the Company's report on Form 10-K for the
year ended December 31, 1995.
10.11 The Company's Officer Enhanced Life Incorporated by reference to Exhibit 10.11
Insurance Program. to the Company's report on Form 10-K for the
year ended December 31, 1993.
10.12 The Company's Enhanced Life Insurance Incorporated by reference to Exhibit 10.12
Program. to the Company's report on Form 10-K for the
year ended December 31, 1993.
10.13 The Company's Supplemental Senior Officer Incorporated by reference to Exhibit 10.13
Retirement Plan. to the Company's report on Form 10-K for the
year ended December 31, 1996.
10.14 The Company's Executive Officer Severance Filed with this report.
Agreement.
13 Portions of the 1997 Annual Report to Filed with this report.
Stockholders
21 List of Subsidiaries. Filed with this report.
23 Consent of Independent Accountants. Filed with this report.
27 Financial Data Schedule. Filed with this report.
</TABLE>
The Company agrees to furnish to the Commission, upon request,
a copy of each instrument with respect to which there are outstanding issues of
unregistered long-term debt of the Company and its subsidiaries the authorized
principal amount of which does not exceed 10% of the total assets of the Company
and its subsidiaries on a consolidated basis.
Except for Exhibit 13, which will be furnished free of charge,
and Exhibits 21 and 23, which are included herein, copies of exhibits referred
to above will be furnished at a cost of twenty cents per page to security
holders who make a written request to the Secretary, Barnes Group Inc.,
Executive Office, 123 Main Street, P.O. Box 489, Bristol, Connecticut
06011-0489.
17
<PAGE> 1
Exhibit 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
BARNES GROUP INC.
-----------
Barnes Group Inc., having filed its original Certificate of
Incorporation with the Secretary of State of the State of Delaware on January
30, 1925 under the name of Associated Spring Corporation of Delaware, thereby
forming a corporation under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, does hereby restate its Certificate of
Incorporation and certify as follows:
FIRST: The name of this corporation is
BARNES GROUP INC.
SECOND: Its principal office in the State of Delaware is
located at No. 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name and address of its resident agent is The Corporation Trust
Company, No. 1209 Orange Street, Wilmington, Delaware.
THIRD: The nature of the business or objects or purposes
proposed to be transacted, promoted or carried on are:-
(a) To deal in, purchase, manufacture, hold, own, sell or
otherwise dispose of, repair, exchange, import and export, all kinds
and varieties of springs and spring beds, wire and wire rope, rivets,
screws, bolts, nuts, shanks, and other wares manufactured from metals
or alloys, either alone or in combination with leather, paper, wood or
other substance; all kinds and varieties of articles composed wholly or
in part of metal, leather, paper, wood or other substance; plates made
of any kind of metal or alloy by rolling or otherwise manufacturing the
same;
(b) To purchase, produce, manufacture, lease, and sell all
kinds of stock, tools, machinery, machine supplies, engineering
appliances, engineering accessories, goods, wares, and merchandise,
necessary or incidental to the manufacture, purchase, sale, storage or
repair of the articles hereinbefore mentioned in clause (a);
(c) To produce, manufacture, purchase, sell and deal in
manufacturers' and mill supplies, engines, boilers, machinery, tools,
machine shops, electrical supplies and appliances, foundry and factory
supplies and hardware of all kinds; and generally to produce,
manufacture, buy, sell, exchange and deal in all or any of the above
specified products or by-products thereof, and all materials used in
the production thereof;
(d) To acquire, buy, hold, mortgage, lease, sell, exchange and
convey, for the purpose of carrying on the business of the
<PAGE> 2
corporation, any and all property, both real and personal and any
interest therein;
(e) To purchase or otherwise acquire, hold, operate under,
own, sell, give and receive licenses under, and otherwise deal in
patents, patent rights or privileges, inventions, improvements or
secret processes, trade marks and trade names, whether or not in any
way relating to any of the business aforesaid;
(f) To purchase, subscribe for, or otherwise acquire and hold
for investment, or otherwise, or to use, sell, assign, transfer,
mortgage, pledge, or otherwise dispose of, any shares of stock, bonds,
securities, or other obligations or evidences of indebtedness of this
corporation or of any other corporation or association, firm, or
individual, or of any government, or of any subdivision thereof, and to
aid in any manner any such corporation, association, firm, individual,
government or any subdivision thereof, whose shares of stock, bonds, or
other obligations are held by this corporation, and to do any other act
or thing permitted by law for the preservation, protection,
improvement, or enhancement of the value of such shares of stock,
bonds, securities, or other obligations, and while the owner thereof to
exercise all the rights, powers and privileges of ownership, including
the right to vote thereon, so far as the same may be permitted by law;
(g) To borrow money and from time to time to make and issue
promissory notes, bills of exchange, bonds, debentures, and other
obligations and evidences of indebtedness of all kinds, secured or
unsecured, of the corporation for moneys borrowed or in payment for
property acquired, or for any of the other objects or purposes of the
corporation, or for any of the objects of its business; to secure the
same by mortgage or mortgages, or deed or deeds of trust, or pledge, or
other lien upon any or all of the property, rights, privileges, or
franchises of the corporation wheresoever situated, acquired, or to be
acquired; to sell, pledge, or otherwise dispose of any or all
debentures, or other bonds, notes and other obligations, in such manner
and upon such terms as the Board of Directors may deem judicious, and
to guarantee the payment of any dividends upon stocks, or the principal
or interest upon bonds, or the contracts or other obligations of any
corporation, association, firm, or individual, so far as the same may
be permitted by law;
(h) To conduct its business, so far as permitted by law, in
the State of Delaware and other states of the United States and in the
territories and District of Columbia, and all dependencies and colonies
or possessions of the United States and in foreign countries, and for
and in connection with such business to acquire, hold, possess,
purchase, lease, sell, mortgage and convey real and personal property,
or any interest therein, and to maintain offices and agencies either
within or anywhere without the State of Delaware;
(i) To carry on all or any part of the foregoing objects as
principal, factor, agent, contractor or otherwise, either alone or
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<PAGE> 3
in connection with, any person, firm, association, or corporation, in
any part of the world, and in general to do any and all things and to
exercise any and all such powers as may be incidental to the conduct of
the business of the corporation, and in pursuance thereof to exercise
all the powers conferred upon the corporation by the General
Corporation Law of the State of Delaware, or any other law that may be
now or hereinafter applicable to the corporation.
The foregoing clauses shall be construed both as objects and
powers, and it is hereby expressly provided that the foregoing enumeration of
specific powers shall not be held to limit or restrict in any manner the powers
of this corporation.
FOURTH: The total number of shares of all classes of stock
which the corporation shall have authority to issue is 63,000,000 shares,
consisting of 3,000,000 shares of preferred stock of the par value of $.01 per
share and 60,000,000 shares of common stock of the par value of $.01 per share.
Shares of preferred stock may be issued from time to time in
one or more series, as may be determined from time to time by the Board of
Directors, each of said series to be distinctly designated. All shares of any
one series of preferred stock shall be alike in every particular, except that
shares of any one series issued at different times may differ as to the dates
from which dividends thereon shall be cumulative. The Board of Directors is
hereby authorized to fix the dividend rights, dividend rate, conversion rights,
voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation preferences of
any wholly unissued series of preferred shares, and any other powers,
designations, preferences and relative, participating, optional or other rights
of such series, and any qualifications, limitations, or restrictions on any of
the rights of such series, and the number of shares constituting any such series
and the designation thereof, or any of them; and to increase or decrease the
number of shares of any series subsequent to the issue of shares of that series,
but not below the number of shares of such series then outstanding. In case the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status which they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
Subject to any rights and privileges granted to the holders of
preferred stock by resolution of the Board of Directors pursuant to the
provisions of this Article FOURTH, the holders of common stock shall exercise
one vote in respect of each share of stock held by them on all matters voted
upon by the stockholders; shall be entitled to receive such dividends as may be
declared from time to time by the Board of Directors; shall be entitled, upon
liquidation or dissolution, to receive all the assets of the corporation,
tangible and intangible, of whatever kind available for distribution, remaining
after payment of the liquidation preferences granted to any shares of preferred
stock, ratably in proportion to the number of shares of common stock held by
them; and shall have such other rights and privileges as may be allowed to them
by the laws of the State of Delaware.
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The amount of the authorized stock of the corporation of any
class or classes may be increased or decreased by the affirmative vote of the
holders of a majority of the stock of the corporation entitled to vote.
No holder or owner of any shares of stock of the corporation
of any class, now or hereafter authorized, at any time shall be entitled as of
right, by reason of the holding or ownership of such stock, to subscribe to
additional shares of stock (or to obligations convertible into stock) of any
class, now or hereafter authorized, which may at any time be issued and disposed
of by the corporation. The corporation, from time to time, may issue and dispose
of the shares of its stock of any class, now or hereafter authorized, and for
such purpose may grant rights or options to subscribe for, purchase or otherwise
acquire any shares of such stock, to such person or persons, in such amounts,
for such consideration, and on such terms, as the Board of Directors lawfully
may determine.
At the discretion of the Board of Directors, any distribution
to the stockholders upon the liquidation, dissolution or winding up of the
corporation may be in whole or in part in securities or property and the
determination of the Board of Directors as to the value of such securities or
other property shall be conclusive.
So far as permitted by law, the corporation may acquire or
purchase, out of surplus, shares of any class of the outstanding stock of the
corporation in such amounts and for such consideration as the Board of Directors
may determine. The corporation from time to time may sell or otherwise dispose
of treasury stock held by the corporation (that is to say, stock issued and
thereafter acquired by the corporation) to such person or persons and in such
amounts and for such consideration as the Board of Directors may determine, and
no holder or owner of shares of the stock of the corporation at any time shall
be entitled as of right, by reason of the holding or ownership of such stock, to
acquire any part thereof.
In accordance with this Article FOURTH, the Board of Directors
has designated certain shares of preferred stock into a series with the voting
powers, preferences, rights, qualifications, limitations and restrictions set
forth in the Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock of the corporation filed with the Secretary
of State of the State of Delaware on July 25, 1986 which is attached hereto as
Exhibit A.
FIFTH: The number of shares with which the corporation will
commence business is ten (10) shares of capital stock, which shares are without
nominal or par value.
SIXTH: The corporation is to have perpetual existence.
SEVENTH: The private property of the stockholders shall not be
subject to the payment of corporate debts to any extent whatever.
EIGHTH: The Directors of the corporation need not be
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<PAGE> 5
stockholders thereof.
NINTH: In furtherance, and not in limitation of the powers
conferred by statute, the Board of Directors, subject to the provisions of this
Certificate of Incorporation, is expressly authorized:
(a) To make and alter the by-laws of the corporation.
(b) To fix the amount to be reserved as working capital over
and above its capital stock paid in.
(c) From time to time to determine whether and to what extent,
and at what times and places, and under what conditions and regulations, the
accounts and books of the corporation (other than the stock ledger), or any of
them, shall be open to inspection of stockholders; and no stockholder shall have
any right of inspecting any account, book or document of the corporation except
as conferred by statute, unless authorized by a resolution of the stockholders
or the Board of Directors.
(d) If the by-laws so provide, to designate three or more of
its number to constitute an executive committee, which committee shall, to the
extent provided in the by-laws of the corporation, have and exercise any or all
of the powers of the Board of Directors in the management of the business and
affairs of the corporation and have power to cause the seal of the corporation
to be affixed to all papers which may require it.
(e) Pursuant to the affirmative vote of the holders of at
least two-thirds of the shares of capital stock then issued and outstanding,
given at a stockholders' meeting duly called for that purpose, the board of
Directors shall have power and authority to mortgage, sell, lease or exchange
all of the property and assets of the corporation, including its good will and
its corporate franchises, upon such terms and conditions as the Board of
Directors deem expedient and for the best interests of the corporation.
(f) Both stockholders and directors shall have power, if the
by-laws so provide, to hold their meetings, and to have one or more offices
within or without the State of Delaware, and to keep the books of the
corporation (subject to the provisions of the statutes), outside of the State of
Delaware at such places as may be from time to time designated by the Board of
Directors.
(g) Subject to the provisions of this Certificate of
Incorporation, the corporation may in its by-laws confer powers upon its
directors in addition to the foregoing, and in addition to the powers and
authorities expressly conferred upon them by statute.
TENTH: In so far as the same is not contrary to the laws of
the State of Delaware, in case the corporation enters into contracts or
transacts business with one or more of its Directors, or with any firm of which
one or more of its Directors are members, or with any
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association or other corporation of which one or more of its Directors are
directors or officers, such contract or transaction shall not be invalidated or
in any wise affected by the fact that such Director or Directors were or may be
adversely interested therein, even though the vote of the Director or Directors
having such adverse interest shall have been necessary to obligate the
corporation upon such contract or transaction, and even though the fact of such
adverse interest may not have been disclosed prior to the time when the
corporation became obligated thereon; no such Director or Directors shall be
liable to the corporation or to any stockholder or creditor thereof or by reason
of any such contract or transaction, nor shall such Director or Directors be
accountable for any gains or profits realized thereon.
ELEVENTH: Notwithstanding the provisions of paragraph (a) of
Article NINTH of this Certificate of Incorporation and any provision of the
By-Laws of the corporation, no amendment to this Certificate of Incorporation or
to the By-Laws shall amend, alter, change or repeal any of the provisions of
Sections 2, 3, 8 or 9 of Article II of the By-Laws or of this Article ELEVENTH
unless adopted by the affirmative vote of the holders of not less than
two-thirds of the outstanding shares of stock of the corporation entitled to
vote in elections of directors, considered for purposes of this Article ELEVENTH
as one class.
TWELFTH: 1. In addition to the affirmative vote required by
law, the terms of any other Article of this Restated Certificate of
Incorporation or otherwise, the approval or authorization of any Business
Combination (as hereinafter defined) with any Interested Person (as hereinafter
defined) shall require the affirmative vote of the holders of not less than 70
percent of the corporation's Voting Stock (as hereinafter defined); provided
that such 70 percent voting requirement shall not be applicable if both of the
following conditions are met:
(a) The cash per share, if any, plus the fair market value (as
determined by a majority of the Continuing Directors) of any other
consideration to be received per share by the holders of shares of any
class of the corporation's capital stock in conjunction with a Business
Combination is not less than the greater of (with appropriate
adjustments for any recapitalizations, stock splits, stock dividends
and like distributions):
(i) the highest price per share (including any and
all brokerage, soliciting dealer's or other fees or taxes) paid by the
Interested Person to acquire any such shares of the corporation's
capital stock during the period beginning two years prior to such
Interested Person's acquisition of sufficient shares to become an
Interested Person and ending immediately prior to the vote of the
stockholders upon such Business Combination involving such Interested
Person; or
(ii) an amount per share at least equal to the Market
Price per share of such shares of the corporation's capital stock
immediately prior to the announcement of such Business Combination
involving such Interested Person plus a percentage of such Market Price
equal to the highest percentage of premium over the then Market Price
paid by the Interested Person (including any and all
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brokerage, soliciting dealer's or other fees or taxes) to acquire any
such shares of capital stock during the period beginning two years
prior to such Interested Person's acquisition of sufficient shares to
become an Interested Person and ending immediately prior to the vote by
stockholders upon such Business Combination.
(b) After such Interested Person's acquisition of such shares
which caused it to become an Interested Person but before the
consummation of any Business Combination:
(i) such Interested Person has received no benefit
directly or indirectly (except proportionately as a stockholder) of any
loans, advances, guarantees, pledges or other financial assistance or
tax credits or other tax advantages provided by the corporation; and
(ii) such Interested Person has made no major changes
in the corporation's business or capital structure; and
(iii) there has been no reduction in the rate of
dividends payable on any class of the corporation's capital stock
except as may have been approved by a majority of the Continuing
Directors; and
(iv) such Interested Person has not acquired directly
or indirectly any additional newly issued or treasury shares of the
corporation's capital stock from the corporation except as a result of
a pro rata stock dividend or stock split; and
(v) unless otherwise decided by a majority of
Continuing Directors, a proxy statement responsive to the requirements
of the Securities Exchange Act of 1934, as amended, is mailed to all
holders of Voting Stock at least thirty days prior to the vote by
stockholders upon such Business Combination for the purpose of
soliciting stockholder approval of such Business Combination. Such
proxy statement shall contain recommendations in a prominent place, if
any have been furnished in writing by the Continuing Directors or any
of them, as to the advisability (or inadvisability) of the Business
Combination and, if deemed advisable by a majority of the Continuing
Directors, an opinion of a reputable investment banking firm as to the
fairness (or lack of fairness) of the terms of such Business
Combination from the point of view of the holders of Voting Stock other
than the Interested Person (such investment banking firm is to be
selected by a majority of the Continuing Directors, furnished with all
information it reasonably requests and paid a reasonable fee for its
services upon receipt by the corporation of such opinion); and
(vi) the consideration offered to the corporation's
stockholders for the consummation of the Business Combination shall be
consideration of the same type and kind paid by the Interested Person
in the acquisition of Voting Stock by the Interested Person which
caused it to become an Interested Person.
2. Notwithstanding any other provisions of this Article, the 70
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percent voting requirement shall not apply if the Continuing Directors have by
an affirmative vote of at least 66 2/3 percent approved the Business
Combination.
3. As used in this Article:
(a) Business Combination means (i) any merger or consolidation of the
corporation or any subsidiary (for the purposes of this section 3, subsidiary
means any company in which the corporation owns directly or indirectly a
majority of any class of equity security) with or into an Interested Person,
(ii) any merger or consolidation of an Interested Person with or into the
corporation or any subsidiary, (iii) any sale, lease, exchange, transfer or
other disposition, including without limitation a mortgage or any other security
device, in one transaction or a series of transactions, of all or any
Substantial Part (as hereinafter defined) of the assets either of the
corporation or of any subsidiary (including without limitation any voting
securities of a subsidiary) to an Interested Person, (iv) any sale, lease,
exchange, transfer or other disposition in one transaction or a series of
transactions, of all or any Substantial Part of the assets of an Interested
Person to the corporation or a subsidiary, (v) the issuance or transfer of any
securities (other than by way of pro rata distribution to all stockholders) of
the corporation or a subsidiary to an Interested Person, (vi) any
reclassification of securities (including without limitation a reverse stock
split), recapitalization, reorganization, merger or consolidation that would
have the effect of increasing the voting power of an Interested Person, (vii)
any liquidation or dissolution of the corporation or any subsidiary, and (viii)
any agreement, contract or other arrangement providing for any of the
transactions described in this definition of Business Combination.
(b) Continuing Director means a person who
(i) has been a member of the corporation's Board of Directors
since January 1, 1983; or
(ii) was a director of the corporation prior to the time that
such Interested Person acquired ownership of sufficient Voting Stock to become
an Interested Person and who continues to serve as a director after such
Interested Person became an Interested Person; or
(iii) was a director who has been recommended to directly
succeed a Continuing Director or to join the Board of Directors by a majority of
the remaining Continuing Directors.
(c) Interested Person means any individual, corporation, partnership or
other person or entity (including any group composed of persons and any of their
Affiliates or Associates acting pursuant to an agreement, arrangement or
understanding to acquire, hold, vote or dispose of any of the corporation's
Voting Stock) which, together with its Affiliates and Associates, at any time
Beneficially Owns in the aggregate 5 percent or more of the Voting
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<PAGE> 9
Stock of the corporation or any subsidiary, and any Affiliate or Associate of
any such individual, corporation, partnership or other person or entity. Further
and without limitation, any shares of Voting Stock of the corporation or a
subsidiary that any Interested Person has the right to acquire pursuant to any
agreement, or upon exercise of conversion rights, warrants or options, or
otherwise, shall be deemed beneficially owned by such Interested Person. The
terms Affiliates, Associates, and Beneficially Owns as used herein have the
meanings set forth as of January 1, 1983 in Regulations 12B and 13D under the
Securities Exchange Act of 1934.
(d) Market Price means (i) the last sale price of the relevant class of
the corporation's capital stock as reported on the composite tape of a national
securities exchange on the relevant date, or (ii) if such class of capital stock
is not so listed and reported on a national securities exchange, the highest
closing asked quotation with respect to a share of such stock during the 30 day
period preceding the date in question on the National Association of Securities
Dealers, Inc. Automated Quotation System or any system then in use, or (iii) if
such class of capital stock is not so listed or quoted, that fair market value
determined in good faith by a majority of the Continuing Directors.
(e) Substantial Part means the lesser of (i) $10,000,000 or (ii) 10
percent or more of the book value of the total assets of the corporation in
question as of the end of its most recent fiscal year ending prior to the time
the determination is being made.
(f) Voting Stock means all outstanding shares of capital stock of the
corporation or another corporation entitled to vote generally in the election of
directors and each reference to a proportion of shares of Voting Stock shall
refer to such proportion of the votes entitled to be case by holders of shares
of Voting Stock.
4. The provisions of this Article TWELFTH shall also apply to a Business
Combination with any individual, corporation, partnership or other person or
entity which had been an Interested Person, notwithstanding that such
individual, corporation, partnership or other person or entity has reduced its
stockholdings below 5 percent of the Voting Stock of the corporation.
5. A majority of the Continuing Directors shall have the power and
authority to construe and apply any and all of the terms and provisions of this
Article TWELFTH on the basis of information known to them after reasonable
inquiry.
6. No amendment to this Restated Certificate of Incorporation shall amend,
alter, change or repeal any of the provisions of this Article TWELFTH, unless
such amendment shall receive the affirmative vote of the holders of not less
than 70 percent of the corporation's Voting Stock; provided that if two-thirds
of the Continuing Directors vote to recommend the amendment to the stockholders,
such amendment shall only require the affirmative vote of the holders of a
majority of the corporation's Voting Stock.
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7. Nothing in this Article TWELFTH shall be deemed or construed to
relieve any Interested Person from any fiduciary or other obligation
imposed by law.
THIRTEENTH: No action required to be taken or which may be
taken at any annual or special meeting of stockholders may be taken by consent
in writing without a meeting of stockholders. No amendment to this Certificate
of Incorporation or to the By-Laws shall amend, alter, change or repeal any
provision of this Article THIRTEENTH unless adopted by the affirmative vote of
the holders of not less than two-thirds of the outstanding shares of stock of
the corporation entitled to vote in elections of directors, considered for
purposes of this Article THIRTEENTH as one class.
FOURTEENTH: A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from which
the director derived an improper personal benefit.
If the General Corporation Law of the State of Delaware is
amended to authorize the further elimination or limitation of the liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent authorized by the General
Corporation Law of the State of Delaware, as so amended.
Any repeal or modification of this Article shall not adversely
affect any right or protection of a director of the Corporation existing
hereunder with respect to any act or omission occurring prior to or at the time
of such repeal or modification.
This Restated Certificate of Incorporation was duly adopted by
the Board of Directors of the corporation in accordance with the provisions of
Section 245 of the General Corporation Law of the State of Delaware. It only
restates and integrates and does not further amend the provisions of the
corporation's existing Restated Certificate of Incorporation as heretofore
amended or supplemented. There is no discrepancy between those provisions and
the provisions of this Restated Certificate of Incorporation.
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IN WITNESS WHEREOF, Barnes Group Inc. has caused this Restated
Certificate of Incorporation to be signed in its corporate name this 17th day of
October, 1997.
BARNES GROUP INC.
By /s/ Theodore E. Martin
-----------------------------------
Theodore E. Martin
President and
Chief Executive Officer
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<PAGE> 1
Exhibit 3.2
BARNES GROUP INC.
AMENDED AND RESTATED BY-LAWS
(as of October 17, 1997)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I MEETINGS OF STOCKHOLDERS................................................................. 1
Section 1. Annual Meetings......................................................................... 1
Section 2. Special Meetings........................................................................ 1
Section 3. Place of Meetings....................................................................... 1
Section 4. Notice of Meetings...................................................................... 1
Section 5. Quorom.................................................................................. 1
Section 6. Voting.................................................................................. 2
Section 7. Nominations............................................................................. 2
Section 8. Proposals............................................................................... 3
ARTICLE II BOARD OF DIRECTORS...................................................................... 4
Section 1. General Powers.......................................................................... 5
Section 2. Number, Classification, Term of Office, and Qualifications.............................. 5
Section 3. Election of Directors................................................................... 5
Section 4. Term of Office for Directors Elected to Newly Created Directorships..................... 5
Section 5. Time of Meetings, Notices, etc.......................................................... 5
Section 6. Quorum and Manner of Acting............................................................. 6
Section 7. Resignations............................................................................ 7
Section 8. Removal of Directors.................................................................... 7
Section 9. Vacancies and Newly Created Directorships............................................... 7
Section 10. Committees.............................................................................. 7
ARTICLE III OFFICERS............................................................................... 7
Section 1. Number, Appointment, Term of Office and Qualifications.................................. 7
Section 2. The President and Vice Presidents....................................................... 8
ARTICLE IV REIMBURSEMENT AND INDEMNIFICATION
OF DIRECTORS, OFFICERS AND EMPLOYEES.................................................... 8
Section 1. Reimbursement........................................................................... 8
Section 2. Indemnification......................................................................... 9
ARTICLE V SHARES AND THEIR TRANSFER................................................................ 11
ARTICLE VI FISCAL YEAR............................................................................. 11
ARTICLE VII AMENDMENTS............................................................................. 11
</TABLE>
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BARNES GROUP INC. (the "Corporation")
AMENDED AND RESTATED BY-LAWS
(as of October 17, 1997)
-------
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meetings.
The annual meeting of the stockholders of the Corporation for
the election of directors and for the transaction of such other
business as may properly come before the meeting shall be held on such
date or time as may be designated by the Board of Directors.
SECTION 2. Special Meetings.
Special meetings of the stockholders may be called at any time
by the Chairman of the Board, the President or the Board of Directors.
SECTION 3. Place of Meetings.
All meetings of the stockholders shall be held at such place,
within or without the State of Delaware, as may be designated by the
Board of Directors and specified in the notice to be given to the
stockholders in the manner provided in Section 4 of this Article I.
SECTION 4. Notice of Meetings.
Except as otherwise provided by law, notice of each meeting of
the stockholders, whether annual or special, shall be given to each
stockholder of record entitled to vote thereat, not less than ten days
before the day on which the meeting is to be held, by delivering a
written or printed notice thereof to the stockholder personally or by
posting such notice in a postage prepaid envelope addressed to the
stockholder at the stockholder's last known post-office address. Except
as otherwise provided by law, no publication of any notice of a meeting
of the stockholders shall be required. Every notice of a special
meeting of stockholders, besides stating the time and place of the
meeting, shall state briefly the objects thereof, and no business other
than that specified in such notice shall be presented at such meeting,
except with the unanimous consent in writing of the holders of all the
outstanding shares of the Corporation entitled to vote thereon.
Nevertheless, notice of any meeting shall not be required to be given
to any stockholder who shall attend such meeting in person or by proxy;
and if any stockholder shall waive notice of any meeting in person or
by attorney thereunto authorized in writing, notice thereof need not be
given to him. Notice of any adjourned meeting of stockholders shall not
be required to be given.
SECTION 5. Quorum.
At each meeting of stockholders, the holders of record of a
majority of the shares
<PAGE> 4
outstanding and entitled to vote at such meeting, present in person or
represented by proxy, shall be necessary and sufficient to constitute a
quorum for the transaction of business. In the absence of a quorum, a
majority in interest of the stockholders entitled to vote who or which
are present in person or represented by proxy at the meeting or, if no
such stockholder is present or represented, any officer entitled to
preside or act as secretary of such meeting, may adjourn the meeting
from time to time. At any such adjourned meeting at which a quorum may
be present, any business may be transacted which might have been
transacted at the meeting as originally called.
SECTION 6. Voting.
Unless otherwise provided in the Certificate of Incorporation
or these By-Laws, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each
share of stock held by such stockholder. Except as otherwise provided
by law, the Certificate of Incorporation or these By-Laws, at all
meetings of the stockholders, all matters shall be decided by the vote
of a majority in interest of the stockholders present in person or
represented by proxy and entitled to vote, a quorum being present.
SECTION 7. Nominations.
Only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors of the
Corporation, except as may be otherwise provided in the Certificate of
Incorporation. Nominations of persons for election to the Board of
Directors may be made at any annual meeting of stockholders, or at any
special meeting of stockholders called for the purpose of electing
directors, (a) by or at the direction of the Board of Directors or (b)
by any stockholder of the Corporation (i) who is a stockholder of
record on the date of the giving of the notice provided for in this
Section 7 and on the record date for the determination of stockholders
entitled to vote at such meeting and (ii) who complies with the notice
procedures set forth in this Section 7.
In addition to any other applicable requirements, for a
nomination to be made by a stockholder, such stockholder must have
given timely notice thereof in proper written form to the Secretary of
the Corporation. To be timely, a stockholder's notice to the Secretary
must be delivered to or mailed and received at the principal executive
offices of the Corporation: (a) in the case of an annual meeting, not
less than 60 days nor more than 90 days prior to the anniversary date
of the immediately preceding annual meeting of stockholders; provided,
however, that in the event that the annual meeting is called for a date
that is not within 30 days before or after such anniversary date,
notice by the stockholder in order to be timely must be so received not
later than the close of business on the 10th day following the day on
which such notice of the date of the annual meeting is mailed or such
public disclosure of the date of the annual meeting is made, whichever
first occurs; and (b) in the case of a special meeting of stockholders
called for the purposes of electing directors, not later than the close
of business on the 10th day following the day on which notice of the
date of the special meeting is mailed or public disclosure of the date
of the special meeting is made, whichever first occurs.
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To be in proper written form, a stockholder's notice to the
Secretary must set forth: (a) as to each person whom the stockholder
proposes to nominate for election as a director (i) the name, age,
business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class or
series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder; and (b) as to the stockholder giving the notice (i) the
name and record address of such stockholder, (ii) the class or series
and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such stockholder, (iii) a
description of all arrangements or understandings between such
stockholder and each proposed nominee and any other person or persons
(including their names) pursuant to which the nomination(s) are to be
made by such stockholder, (iv) a representation that such stockholder
intends to appear in person or by proxy at the meeting to nominate the
persons named in its notice and (v) any other information relating to
such stockholder that would be required to be disclosed in a proxy
statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section
14 of the Exchange Act and the rules and regulations promulgated
thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a
director if elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set
forth in this Section 7. If the Chairman of the Board of Directors or
such other authorized representative of the Corporation presiding over
the meeting determines that a nomination was not made in accordance
with the foregoing procedures, the Chairman of the Board of Directors
or such other authorized representative shall declare to the meeting
that the nomination was defective and such defective nomination shall
be disregarded.
SECTION 8. Proposals.
No business may be transacted at an annual meeting of
stockholders, other than business that is (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the
annual meeting by or at the direction of the Board of Directors or (c)
otherwise properly brought before the annual meeting by any stockholder
of the Corporation (i) who is a stockholder of record on the date of
the giving of the notice provided for in this Section 8 and on the
record date for the determination of stockholders entitled to vote at
such annual meeting and (ii) who complies with the notice procedures
set forth in this Section 8.
In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written
form to the Secretary of the Corporation. To be timely, a stockholder's
notice to the Secretary must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 60
days nor more than 90
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<PAGE> 6
days prior to the anniversary date of the immediately preceding annual
meeting of stockholders; provided, however, that in the event that the
annual meeting is a called for a date that is not within 30 days before
or after such anniversary date, notice by the stockholder in order to
be timely must be so received not later than the close of business on
the 10th day following the day on which such notice of the date of the
annual meeting is mailed or such public disclosure of the date of the
annual meeting is made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to
bring before the annual meeting (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and
record address of such stockholder, (iii) the class or series and
number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings between such stockholder and any
other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest
of such stockholder in such business and (v) a representation that such
stockholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting.
No business shall be conducted at the annual meeting of
stockholders except business brought before the annual meeting in
accordance with the procedures set forth in this Section 8; provided,
however, that, once business has been properly brought before the
annual meeting in accordance with such procedures, nothing in this
Section 8 shall be deemed to preclude discussion by any stockholder of
any such business. If the Chairman of the Board of Directors or such
other authorized representative of the Corporation presiding over an
annual meeting determines that business was not properly brought before
the annual meeting in accordance with the foregoing procedures, the
Chairman of the Board of Directors or such other authorized
representative shall declare to the meeting that the business was not
properly brought before the meeting and such business shall not be
transacted.
ARTICLE II
BOARD OF DIRECTORS
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<PAGE> 7
SECTION 1. General Powers.
The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors. The Board of
Directors shall have the authority to fix the compensation of the
members thereof.
SECTION 2. Number, Classification, Term of Office, and Qualifications.
The number of directors to constitute the whole Board of
Directors shall be nine, but such number may from time to time be
increased, or diminished to not less than three, by resolution adopted
by the Board of Directors. The Board of Directors shall be divided into
three classes as nearly equal in number as may be, with the term of
office of one class expiring each year. At the annual meeting of
stockholders in 1970, directors of the first class shall be elected to
hold office for a term expiring at the next succeeding annual meeting,
directors of the second class shall be elected to hold office for a
term expiring at the second succeeding annual meeting and directors of
the third class shall be elected to hold office for a term expiring at
the third succeeding annual meeting. At each annual meeting of
stockholders after 1970, successors to the directors whose terms shall
then expire shall be elected to hold office for terms expiring at the
third succeeding annual meeting, except that any director elected to a
directorship newly created since the last annual meeting shall hold
office for the same term as the other directors of the class to which
such director has been assigned. When the number of directors is
changed, any newly created directorships or any decrease in
directorships shall be so assigned among the classes by the Board of
Directors as to make all classes as nearly equal in number as may be.
Each director shall continue in office until his successor shall have
been elected and qualified or until his death or until his resignation
or removal in the manner hereinafter provided. No director need be a
stockholder, nor a resident of the State of Delaware.
SECTION 3. Election of Directors.
At each meeting of the stockholders for the election of
directors, the directors shall be elected by a plurality of the votes
given at such election.
SECTION 4. Term of Office for Directors Elected to Newly Created Directorships.
In furtherance of Sections 2 and 9 of this Article II, any
director elected to a directorship newly created since the last annual
meeting shall be elected to serve the term of the class to which such
director is assigned; provided, however that the stockholders of the
Corporation shall be afforded the opportunity to ratify and approve the
election of that director to the director's assigned class at the next
succeeding annual meeting of stockholders. If the election of the
director is so ratified and approved, the director shall serve out the
remainder of the director's term without further stockholder
ratification or approval. Any director elected by stockholders to a
directorship newly created at an annual meeting of stockholders at
which such director is elected shall serve out the term of the class to
which such director is assigned without further stockholder
ratification or approval.
SECTION 5. Time of Meetings, Notices, etc.
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<PAGE> 8
There shall be an organizational meeting of the Board of
Directors for the election of officers and for the transaction of such
other business as may properly come before the meeting on the date of
the annual meeting of stockholders or as soon as practicable thereafter
upon the notice hereinafter provided for a special meeting of the Board
of Directors. The directors may, however, without notice, hold the
organizational meeting in the city where the annual meeting of
stockholders is held and immediately following such annual meeting of
stockholders. At the organizational meeting, the directors shall elect
one of the directors as Chairman of the Board of Directors. The
Chairman of the Board of Directors may, but need not, be an officer or
other employee of the Corporation. The Chairman of the Board of
Directors, or in the absence of the Chairman of the Board of Directors,
any other director selected by those directors attending the meeting,
shall preside at all meetings of the Board of Directors. The Chairman
of the Board of Directors, or in the absence of the Chairman of the
Board of Directors, the President of the Company, shall preside at all
meetings of the stockholders. The Chairman of the Board of Directors
may be removed as Chairman of the Board of Directors at any time by the
Board of Directors. The Board of Directors may provide by resolution
for the holding of regular meetings and may fix the time of holding
such meetings. Such regular meetings of the Board of Directors may be
held without notice. Special meetings of the Board of Directors may be
called by the Chairman of the Board of Directors, the President or any
three directors. Unless otherwise specified in the notice or waiver of
notice thereof, each meeting of the Board of Directors shall be held at
the office of the Corporation in Bristol, Connecticut. Notice of each
special meeting (a) shall be mailed to each director, addressed to the
director at the director's residence or usual place of business, at
least seven days before the day on which the meeting is to be held or
(b) shall be sent to the director by telecopy (if confirmed) or shall
be telephoned or delivered to the director personally, in any such
case, not later than three days before the day on which the meeting is
to be held, unless the Chairman of the Board of Directors or the
President determines that circumstances require that a meeting be held
on shorter notice. Notice of any meeting need not be given to any
director, however, if waived by that director in writing. Any meeting
of the Board of Directors shall be a legal meeting without any notice
thereof having been given if all the directors shall be present
thereat.
SECTION 6. Quorum and Manner of Acting.
A majority of the directors at the time in office (but not
less than one-third of the number necessary to constitute the whole
Board of Directors) at a meeting duly assembled shall be necessary and
sufficient to constitute a quorum for the transaction of business,
subject, however, to the provisions of Section 9 of this Article II.
Except as otherwise provided by law, the Certificate of Incorporation
or these By-Laws, the act of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of
Directors. In the absence of a quorum, a majority of the directors
present at any meeting may adjourn the meeting from time to time until
a quorum is available and present. Notice of any adjourned meeting need
not be given.
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<PAGE> 9
SECTION 7. Resignations.
Any director may resign at any time by giving written notice
to the Chairman of the Board, the President or the Secretary. Such
resignation shall take effect at the time specified therein; and unless
otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
SECTION 8. Removal of Directors.
Any director may be removed at any time for cause, at a
meeting of stockholders called for the purpose, by the affirmative vote
of the holders of not less than two-thirds of the outstanding shares of
stock of the Corporation entitled to vote in elections of directors,
considered for the purposes of this Section 8 as one class.
SECTION 9. Vacancies and Newly Created Directorships.
Any vacancy occurring among the directors by death,
resignation, removal or otherwise and any newly created directorships
may be filled by a majority of the directors then in office, though
less than a quorum, or, in the event such directors are unable to act,
by the stockholders. Each director elected to fill a vacancy shall hold
office for the unexpired term in respect of which such vacancy
occurred. Each director elected to a newly created directorship shall
hold office until the next annual meeting of stockholders.
SECTION 10. Committees.
The Board of Directors, by resolution or resolutions passed by
a majority of the whole Board of Directors, may appoint such committees
of the Board of Directors as the Board of Directors may determine. Such
committees shall have the powers delegated thereto by the Board of
Directors. Unless otherwise provided in a resolution of the Board of
Directors, each committee of the Board of Directors may fix its own
rules of procedure and may meet at such place or places and at such
time or times as the committee from time to time shall determine. Each
such committee shall cause its proceedings to be recorded, and the
minutes of committee meetings shall be distributed to the Board of
Directors.
ARTICLE III
OFFICERS
SECTION 1. Number, Appointment, Term of Office and Qualifications.
The officers of the Corporation shall be the President and any
Vice President or other person determined by the Board of Directors to
be an "executive officer" under the rules of the U.S. Securities and
Exchange Commission. Each officer shall be appointed by the Board of
Directors and shall hold office until a successor shall have been duly
appointed and qualified or until death or until earlier resignation or
removal. Any officer may be removed either with or without cause by a
vote of a majority of the directors then
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<PAGE> 10
in office at any meeting of the Board of Directors at which a quorum is
present.
SECTION 2. The President and Vice Presidents.
The President, subject to the instructions of the Board of
Directors and the committees of the Board of Directors, shall have
general charge of the business, affairs and property of the Corporation
and control over its several officers. The President shall perform such
other duties as from time to time may be assigned by the Board of
Directors, or any committee of the Board of Directors. At the request
of the President or, in his absence or disability, a Vice President
designated by the President (or in the absence of such designation, a
Vice President designated by the Board of Directors) shall perform all
the duties of the President, and when so acting, that Vice President
shall have all the powers of, and be subject to all restrictions upon,
the President. Any Vice President shall perform such other duties as
from time to time may be assigned to that Vice President or to Vice
Presidents generally by the Board of Directors, any committee of the
Board of Directors or the President.
ARTICLE IV
REIMBURSEMENT AND INDEMNIFICATION OF
DIRECTORS, OFFICERS AND EMPLOYEES
SECTION 1. Reimbursement.
Each director and officer of the Corporation shall be entitled
to reimbursement for his reasonable expenses incurred in connection
with his attention to the affairs of the Corporation, including
attendance at meetings. Each employee of the Corporation other than an
officer shall be entitled to such reimbursement for that employee's
reasonable expenses incurred in connection with his attention to the
affairs of the Corporation in accordance with applicable policy of the
Corporation or as the Board of Directors or any person designated by it
may authorize.
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<PAGE> 11
SECTION 2. Indemnification.
(a) Each person who was or is a party or is threatened to
be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he/she, or
a person of whom he/she is the legal representative,
is or was a director or officer of the Corporation or
is or was serving at the request of the Corporation
as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust
or other enterprise, including service with respect
to employee benefit plans, whether the basis of such
proceeding is alleged action or inaction in an
official capacity or in any other capacity while
serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the
Corporation to the fullest extent permitted by the
laws of Delaware, as the same exist or may hereafter
be amended, against all costs, charges, expenses,
liabilities and losses (including attorneys' fees,
judgments, fines, employee benefit plan excise taxes
or penalties and amounts paid or to be paid in
settlement reasonably incurred or suffered by such
person in connection therewith) and such
indemnification shall continue as to a person who has
ceased to be a director, officer, employee or agent
and shall inure to the benefit of his/her heirs,
executors and administrators; provided, however,
that, except as provided in subdivision (b) of this
Section 2, the Corporation shall indemnify any such
person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person
only if such proceeding (or part thereof) was
authorized by the Board. The right to indemnification
conferred in this Section 2 shall include the right
to be paid by the Corporation the expenses incurred
in defending any such proceeding in advance of its
final disposition; provided, however, that, if the
Delaware General Corporation Law requires, the
payment of such expenses incurred by a director or
officer in his/her capacity as a director or officer
(and not in any other capacity in which service was
or is rendered by such person while a director or
officer, including, without limitation, service to
any employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or
on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be
determined that such director or officer is not
entitled to be indemnified under this subdivision (a)
or otherwise. The Corporation may, by action of the
Board, provide indemnification to employees and
agents of the Corporation with the same scope and
effect as the foregoing indemnification of directors
and officers.
(b) If a claim under subdivision (a) of this Section 2 is
not paid in full by the Corporation within sixty days
after a written claim has been received by the
Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to
be paid also the expense of prosecuting such claim.
It shall be a defense to any
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<PAGE> 12
such action (other than an action brought to enforce
a claim for expenses incurred in defending any
proceeding in advance of its final disposition where
the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant
has failed to meet a standard of conduct which makes
it permissible under the Delaware law for the
Corporation to indemnify the claimant for the amount
claimed. Neither the failure of the Corporation
(including the Board, independent legal counsel, or
its stockholders) to have made a determination prior
to the commencement of such action that
indemnification of the claimant is permissible in the
circumstances because he/she has met such standard of
conduct, nor an actual determination by the
Corporation (including the Board, independent legal
counsel, or its stockholders) that the claimant has
not met such standard of conduct, shall be a defense
to the action or create a presumption that the
claimant has failed to meet such standard of conduct.
(c) The right to indemnification and the payment of
expenses incurred in defending a proceeding in
advance of its final disposition conferred in this
Section 2 shall not be exclusive of any other right
which any person may have or hereafter acquire under
any statute, provision of the Certificate of
Incorporation, By-Laws, agreement, vote of
stockholders or disinterested directors or otherwise.
(d) The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer,
employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability
or loss, whether or not the Corporation would have
the power to indemnify such person against such
expense, liability or loss under Delaware law.
(e) To the extent that any director, officer, employee or
agent of the Corporation is by reason of such
position, or a position with another entity at the
request of the Corporation, a witness in any action,
suit or proceeding, he shall be indemnified against
all costs and expenses actually and reasonably
incurred by him or on his behalf in connection
therewith.
(f) The Corporation may enter into agreements with any
director, officer, employee or agent of the
Corporation providing for indemnification to the full
extent permitted by Delaware law.
(g) For purposes of this Section 2, the term "Board"
shall mean the Board of Directors of the Corporation
or, to the extent permitted by the laws of Delaware,
as the same exist or may hereafter be amended, its
Executive Committee. On vote of the Board, the
Corporation may assent to the adoption of this
Article V by any subsidiary, whether or not wholly
owned.
(h) The rights provided by this Section 2 shall not be
available with respect to any claim asserted against
the director, officer, employee or agent which
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is based on matters which antedate the adoption of
this Section 2; any such claim will be governed by
the By-Laws in effect prior to April 2, 1987.
(i) If any provision of this Section 2 shall for any
reason be determined to be invalid, the remaining
provisions hereof shall not be affected thereby but
shall remain in full force and effect.
ARTICLE V
SHARES AND THEIR TRANSFER
Certificates for stock of the Corporation shall be issued in
the form and bear the signatures required by Delaware law and otherwise shall be
as set forth in any applicable resolutions or other action of the Board of
Directors. The Corporation and its transfer agents and registrars, if any, shall
be entitled to treat the holder of record of any share or shares of stock as the
absolute owner thereof for all purposes, except as otherwise expressly provided
by the statutes of the State of Delaware. The Board of Directors may make any
such policies, rules and regulations as it may deem expedient or advisable
concerning the issuance, replacement, transfer and registration of certificates
for shares of stock of the Corporation. The Board of Directors may fix in
advance a date, determined in accordance with applicable law, as a record date
for the determination of the stockholders entitled to notice of, and to vote at,
any meeting of stockholders or entitled to consent to corporate action in
writing without a meeting or entitled to receive payment of any dividend or
distribution or to any allotment of rights or to exercise the rights in respect
of any change, conversion or exchange of stock or for the purpose of any other
lawful action.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall
be subject to change, by the Board of Directors.
ARTICLE VII
AMENDMENTS
Except as otherwise provided by law or the Certificate of
Incorporation, the power to amend, alter or repeal these By-Laws and adopt new
By-Laws may be exercised by the Board of Directors or by the affirmative vote of
the holders of record of a majority of the outstanding shares of stock of the
Corporation entitled to vote.
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<PAGE> 1
Exhibit 4.2
SIXTH AMENDMENT
TO
CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"),
dated as of December 1, 1997, by and between BARNES GROUP INC. (the "Borrower"),
the Lenders parties to the Credit Agreement (as defined below) from time to time
(the "Lenders'), and MELLON BANK, N.A., a national banking association, as Agent
(in such capacity, the "Agent").
WHEREAS, the Agent, the Lenders and the Borrower are parties
to a certain Credit Agreement dated as of December 1, 1991 (as amended, the
"Credit Agreement"); and
WHEREAS, the Borrower has requested that the Lenders extend
the Revolving Credit Maturity Date for a period of one year;
WHEREAS, the Agent, the Lenders and the Borrower desire to
amend the Credit Agreement as set forth herein; and
WHEREAS, all words and terms used in this Amendment which are
defined in the Credit Agreement are used herein with the same meanings unless
otherwise defined herein or required by the context;
NOW, THEREFORE, in consideration of the foregoing premises and
intending to be legally bound, the Agent, the Lenders and the Borrower hereby
agree as follows:
Section 1. Extension of Revolving Credit Maturity Date.
Pursuant to Section 2.03 of the Credit Agreement and as requested by the
Borrower in a letter to the Agent dated November 10, 1997, the Lenders and the
Agent hereby agree to extend the Revolving Credit Maturity Date for a period of
one year. On and after December 6, 1997 (the "Effective Date"), as provided in
Section 2.03 of the Credit Agreement, the Revolving Credit Maturity Date shall
be December 6, 2002, as such date may be further extended by the Lenders
pursuant to Section 2.03 of the Credit Agreement.
Section 2. Conditions. The obligation of the Agent and the
Lenders to extend the Revolving Credit Maturity Date shall be subject to
satisfaction by the Borrower of the following conditions precedent:
(a) The Agent shall have received (with a copy for
each Lender) the following documents dated as of the date of
the issuance of the Amendment (the "Closing Date") and in form
and substance satisfactory to the Lenders:
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<PAGE> 2
(i) An executed counterpart of this
Amendment;
(ii) A certificate signed by a duly
authorized officer of the Borrower stating that (A)
the representations and warranties contained in
Article III of the Credit Agreement (except for
Section 3.06 which continues to be true as of the
date set forth therein) are correct on and as of the
Closing Date and as though made on and as of the
Closing Date and (B) no Event of Default and no
event, act or omission which, with the giving of
notice or the lapse of time or both, would constitute
such an Event of Default has occurred and is
continuing or would result from the execution and
delivery of the Amendment.
(b) The Agent shall have received (with a copy for each
Lender) such other approvals, certificates, opinions or documents, in
form and substance satisfactory to the Lenders, as the Lenders may
reasonably request.
Section 3. Effect of Amendment. The Credit Agreement, as
amended by this Amendment, is in all respects ratified, approved and confirmed
and shall, as so amended, remain in full force and effect. From and after the
date hereof, all references in any document or instrument to the Credit
Agreement shall mean and include the Credit Agreement, as amended by this
Amendment.
Section 4. Governing Law. This Amendment shall be governed by
and shall be interpreted and enforced in accordance with the laws of the State
of New York.
Section 5. Counterparts. This Amendment may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, and all of which counterparts, taken together,
shall constitute but one and the same Amendment.
Section 6. Expenses. The Borrower shall reimburse the Lenders
for all costs and expenses (including fees and expenses of counsel to the Agent)
incurred in connection with this Amendment.
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<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized.
BARNES GROUP INC.
By: \s\ David J. Sinder
--------------------------
Title: Director of Operations
--------------------------
MELLON BANK, N.A.,
individually and as Agent
By: \s\ John Paul Marotta
--------------------------
Title: Assistant Vice President
--------------------------
FLEET NATIONAL BANK
By: \s\ Jeff Lynch
--------------------------
Title: Vice President
--------------------------
THE CHASE MANHATTAN BANK
By: \s\Carol Ulmer
--------------------------
Title: Vice President
--------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By: \s\ Tom Dow
--------------------------
Title: Corporate Banking Officer
--------------------------
KEYBANK NATIONAL ASSOCIATION
By: Karen A. Lee
--------------------------
Title: Vice President
--------------------------
BANKBOSTON
By: \s\ Harvey Thayer
--------------------------
Title: Director
--------------------------
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<PAGE> 1
EXHIBIT 10.14
SEVERANCE AGREEMENT
THIS AGREEMENT, dated __________, is made by and between
Barnes Group, Inc., a Delaware corporation (the "Company"), and ____________
(the "Executive").
WHEREAS, the Company considers it essential to the best
interests of its shareholders to foster the continued employment of key
management personnel; and
WHEREAS, the Board recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders; and
WHEREAS, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used
in this Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall
commence on the date hereof and shall continue in effect through December 31,
1999; provided, however, that commencing on January 1, 1999 and each January 1
thereafter, the Term shall automatically be extended for one additional year
unless, not later than September 30 of the preceding year, the Company or the
Executive shall have given notice not to extend the Term; and further provided,
however, that if a Change in Control shall have occurred during the Term, the
Term shall expire no earlier than twenty-four (24) months beyond the month in
which such Change in Control occurred.
<PAGE> 2
3. Company's Covenants Summarized. In order to induce the
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants set forth in Section 4 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the Severance Payments and
the other payments and benefits described herein. Except as provided in Section
9.1 hereof, no Severance Payments shall be payable under this Agreement unless
there shall have been a termination of the Executive's employment with the
Company following a Change in Control and during the Term. This Agreement shall
not be construed as creating an express or implied contract of employment and,
except as otherwise agreed in writing between the Executive and the Company, the
Executive shall not have any right to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that,
subject to the terms and conditions of this Agreement, in the event of a
Potential Change in Control during the Term, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six (6) months
from the date of such Potential Change of Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason or by reason of death, Disability or Retirement, or
(iv) the termination by the Company of the Executive's employment for any
reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term,
during any period that the Executive fails to perform the Executive's full-time
duties with the Company as a result of incapacity due to physical or mental
illness, the Company shall pay the Executive's full salary to the Executive at
the rate in effect at the commencement of any such period, together with all
compensation and benefits payable to the Executive under the terms of any
compensation or benefit plan, program or arrangement maintained by the Company
during such period, until the Executive's employment is terminated by the
Company for Disability; provided, however, that the amounts received under this
Section 5.1 shall be reduced by any amounts received by the Executive with
respect to the same period of time under any long term disability plan of the
Company.
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5.2 If the Executive's employment shall be terminated for
any reason following a Change in Control and during the Term, the Company shall
pay the Executive's full salary to the Executive through the Date of Termination
at the rate in effect immediately prior to the Date of Termination or, if
higher, the rate in effect immediately prior to the first occurrence of an event
or circumstance constituting Good Reason, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of the Company's compensation and benefit plans, programs or arrangements
as in effect immediately prior to the Date of Termination or, if more favorable
to the Executive, as in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason.
5.3 If the Executive's employment shall be terminated for
any reason following a Change in Control and during the Term, the Company shall
pay to the Executive the Executive's normal post-termination compensation and
benefits as such payments become due. Such post-termination compensation and
benefits shall be determined under, and paid in accordance with, the Company's
retirement, insurance and other compensation or benefit plans, programs and
arrangements as in effect immediately prior to the Date of Termination or, if
more favorable to the Executive, as in effect immediately prior to the
occurrence of the first event or circumstance constituting Good Reason.
5.4 Upon a Change in Control which occurs during the Term,
(A) the Company shall, within five (5) days after such Change in Control, pay to
the Executive a lump sum cash amount equal to the product of (i) the target
award to which the Executive would have been entitled under each of the
Company's incentive compensation plans, other than an award of the type
described in Section 5.4(B) or 5.4(C) hereof (such target award to be determined
pursuant to the provisions of each such plan or, if no such provisions exist in
the case of any such plan, as determined by the Compensation Committee of the
Board, as constituted immediately prior to the Change in Control, in its sole
discretion), in respect of the year in which such Change in Control occurs and
(ii) a fraction, the numerator of which shall be the number of months (including
fractions thereof) from the first day of the year in which the Change in Control
occurs to the
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date on which the Change in Control occurs, and the denominator of which shall
be twelve (12); (B) all options held by the Executive to acquire Company stock
shall immediately become vested and exercisable in full, and all restrictions on
restricted Company stock and other Company stock-based awards held by the
Executive shall immediately lapse; and (C) the Company shall, within five (5)
days after such Change in Control, pay to the Executive a lump sum cash amount
equal to the product of (i) the target award to which the Executive would have
been entitled for the then uncompleted cycle under the Company's Long Term
Incentive Plan, regardless of whether the Executive is vested in such award, and
(ii) a fraction, the numerator of which shall be the number of months (including
fractions thereof) from the first day of the cycle in which the Change in
Control occurs to the date on which the Change in Control occurs, and the
denominator of which shall be the total of months in the cycle.
6. Severance Payments.
6.1 Subject to Section 6.2 hereof, if the Executive's
employment is terminated following a Change in Control and during the Term,
other than (A) by the Company for Cause, (B) by reason of death or Disability,
or (C) by the Executive without Good Reason, then the Company shall pay the
Executive the amounts, and provide the Executive the benefits, described in this
Section 6.1 ("Severance Payments"), in addition to any payments and benefits to
which the Executive is entitled under Section 5 hereof. Notwithstanding the
foregoing, the Executive shall not be eligible to receive any payment or benefit
provided for in this Section 6.1 unless the Executive shall have executed a
release (substantially in the form of Exhibit A hereto) in favor of the Company
and others set forth on said Exhibit A, relating to all claims or liabilities of
any kind relating to the Executive's employment and termination of employment
with the Company.
(A) In lieu of any further salary
payments to the Executive for periods subsequent to the Date of
Termination and in lieu of any severance benefit otherwise payable to
the Executive, the Company shall pay to the Executive within five (5)
days of such termination of employment an amount, in
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cash, equal to [3][2] times the sum of (i) the Executive's base salary
as in effect immediately prior to the Date of Termination or, if
higher, in effect immediately prior to the first occurrence of an event
or circumstance constituting Good Reason, and (ii) the highest of (a)
the average annual bonus earned by the Executive in respect of the
three fiscal years ending immediately prior to the fiscal year in which
occurs the Date of Termination, (b) the average annual bonus earned by
the Executive in respect of the three fiscal years ending immediately
prior to the fiscal year in which occurs the Change in Control or (c)
the target bonus in respect of the fiscal year in which occurs the Date
of Termination.
(B) For the [thirty-six (36)][twenty-four
(24)] month period immediately following the Date of Termination, the
Company shall cause the Executive to continue to participate in all
employee pension and welfare benefit plans (including, but not limited
to, the Company's executive life insurance plan) in which the Executive
was participating immediately prior to the Date of Termination (or, if
more favorable to the Executive, immediately prior to the Change in
Control) and to continue to receive such other benefits and perquisites
as the Executive was receiving immediately prior to the Date of
Termination (or, if more favorable to the Executive, immediately prior
to the Change in Control); provided, however, that neither the Company
nor any affiliate shall be required by virtue of this Section 6.1(B) to
grant stock options or other stock-based awards to the Executive during
such period. To the extent such participation in any such plan is
barred or otherwise not feasible, the Company shall arrange to provide
substantially similar benefits to the Executive (and, if applicable,
the Executive's dependents) outside such plan. Benefits otherwise
receivable by the Executive pursuant to this Section 6.1 (B) shall be
reduced to the extent benefits of the same type are received by or made
available to the Executive during the [thirty-six (36)][twenty-four
(24)] month period following the Executive's termination of employment
(and any such benefits received by or made available to the Executive
shall be reported to the Company by the Executive). If the Severance
Payments shall be
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decreased pursuant to Section 6.2 hereof, and the Section 6.1(B)
benefits are thereafter reduced pursuant to the immediately preceding
sentence, the Company shall, no later than five (5) business days
following such reduction, pay to the Executive in cash the maximum
amount which can be paid to the Executive without being, or causing any
other payment to be, nondeductible by reason of section 280G of the
Code.
(C) Within five (5) days of such
termination of employment, the Company shall pay to the Executive a
lump sum cash amount (the "Pro-Rata Bonus") equal to the product of (i)
the target award to which the Executive would have been entitled under
each of the Company's incentive compensation plans, other than an award
of the type described in Section 5.4(B) or 5.4(C) hereof (such target
award to be determined pursuant to the provisions of each such plan or,
if no such provisions exist in the case of any such plan, as determined
by the Board in its sole discretion), in respect of the year in which
such termination occurs and (ii) a fraction, the numerator of which
shall be the number of months (including fractions thereof) from the
first day of the year during which such termination occurs to the date
on which such termination occurs, and the denominator of which shall be
twelve (12); provided, however, that if such termination of employment
occurs during the same year in which the Change in Control occurs, the
Pro Rata Bonus shall be offset by any payments received by the
Executive pursuant to Section 5.4(A) hereof.
6.2 (A) Notwithstanding any other provisions of this
Agreement, in the event that any payment or benefit received or to be received
by the Executive in connection with a Change in Control or the termination of
the Executive's employment (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company, any Person whose
actions result in a Change in Control or any Person affiliated with the Company
or such Person) (all such payments and benefits, including the Severance
Payments, being hereinafter called "Total Payments") would be subject (in whole
or part), to the Excise Tax, then, the cash Severance Payments shall first be
reduced, and the other payments
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and benefits hereunder shall thereafter be reduced, to the extent necessary so
that no portion of the Total Payments is subject to the Excise Tax, but only if
(A) is greater than or equal to (B), where (A) equals the reduced amount of such
Total Payments minus the aggregate amount of federal, state and local income
taxes on such reduced Total Payments and (B) equals the unreduced amount of such
Total Payments minus the sum of (1) the aggregate amount of federal, state and
local income taxes on such Total Payments and (2) the amount of Excise Tax to
which the Executive would be subject in respect of such unreduced Total
Payments; provided, however, that the Executive may elect to have the other
payments and benefits hereunder reduced (or eliminated) prior to any reduction
of the cash Severance Payments.
(B) For purposes of determining whether and the extent to
which the Total Payments will be subject to the Excise Tax, (i) no portion of
the Total Payments the receipt or enjoyment of which the Executive shall have
waived at such time and in such manner as not to constitute a "payment" within
the meaning of section 280G(b) of the Code shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which, in the opinion
of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and
selected by the accounting firm (the "Auditor") which was, immediately prior to
the Change in Control, the Company's independent auditor, does not constitute a
"parachute payment" within the meaning of section 280G(b)(2) of the Code
(including by reason of section 280G(b)(4)(A) of the Code) and, in calculating
the Excise Tax, no portion of such Total Payments shall be taken into account
which, in the opinion of Tax Counsel, constitutes reasonable compensation for
services actually rendered, within the meaning of section 280G(b)(4)(B) of the
Code, in excess of the Base Amount allocable to such reasonable compensation,
and (iii) the value of any non-cash benefit or any deferred payment or benefit
included in the Total Payments shall be determined by the Auditor in accordance
with the principles of sections 280G(d)(3) and (4) of the Code.
(C) At the time that payments are made under this Agreement,
the Company shall provide the Executive with a written statement setting forth
the manner in which such payments were calculated and the
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basis for such calculations including, without limitation, any opinions or other
advice the Company has received from Tax Counsel, the Auditor or other advisors
or consultants (and any such opinions or advice which are in writing shall be
attached to the statement). If the Executive objects to the Company's
calculations, the Company shall pay to the Executive such portion of the
Severance Payments (up to 100% thereof) as the Executive reasonably determines
is necessary to result in the proper application of subsection A of this Section
6.2.
6.3 The payments provided in subsections (A), (C) of Section
6.1 hereof shall be made not later than the fifth day following the Date of
Termination; provided, however, that if the amounts of such payments, and the
limitation on such payments set forth in Section 6.2 hereof, cannot be finally
determined on or before such day, the Company shall pay to the Executive on such
day an estimate, as determined in good faith by the Company of the minimum
amount of such payments to which the Executive is clearly entitled and shall pay
the remainder of such payments (together with interest on the unpaid remainder
(or on all such payments to the extent the Company fails to make such payments
when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as
soon as the amount thereof can be determined but in no event later than the
thirtieth (30th) day after the Date of Termination. In the event that the amount
of the estimated payments exceeds the amount subsequently determined to have
been due, such excess shall constitute a loan by the Company to the Executive,
payable on the fifth (5th) business day after demand by the Company (together
with interest at 120% of the rate provided in section 1274(b)(2)(B) of the
Code).
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and
during the Term, any purported termination of the Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party hereto to the other party hereto in accordance with Section 10
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in
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reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
Further, a Notice of Termination for Cause is required to include a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting of the Board which was
called and held for the purpose of considering such termination (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive was guilty of
conduct set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect
to any purported termination of the Executive's employment after a Change in
Control and during the Term, shall mean (i) if the Executive's employment is
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day period), and
(ii) if the Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a termination by
the Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive, shall
not be less than fifteen (15) days nor more than sixty (60) days, respectively,
from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15)
days after any Notice of Termination is given, or, if later, prior to the Date
of Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an arbitrator; provided,
however, that the Date of Termination shall be extended by a notice of dispute
given by the Executive only if
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such notice is given in good faith and the Executive pursues the resolution of
such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination
occurs following a Change in Control and during the Term and the Date of
Termination is extended in accordance with Section 7.3 hereof, the Company shall
continue to pay the Executive the full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, salary) and
continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when the notice giving
rise to the dispute was given, until the Date of Termination, as determined in
accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in
addition to all other amounts due under this Agreement (other than those due
under Section 5.2 hereof) and shall not be offset against or reduce any other
amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the
Executive's employment with the Company terminates during the Term, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to Section 6
hereof or Section 7.4 hereof. Further, the amount of any payment or benefit
provided for in this Agreement (other than Section 6.1(B) hereof) shall not be
reduced by any compensation earned by the Executive as the result of employment
by another employer, by retirement benefits, by offset against any amount
claimed to be owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
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Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for Good
Reason after a Change in Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death of
the Executive) if the Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or administrators of the
Executive's estate.
10. Notices. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed, if
to the Executive, to the address inserted below the Executive's signature on the
final page hereof and, if to the Company, to the address set forth below, or to
such other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:
To the Company:
Barnes Group, Inc.
123 Main Street
P.O. Box 489
Bristol, CT 06011-0489
Attention:
----------------------
----------------------
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11. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or of any lack of compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
forth the terms and conditions of the Executive's employment with the Company
only in the event that the Executive's employment with the Company is terminated
on or following a Change in Control, by the Company other than for Cause or by
the Executive for Good Reason. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Connecticut. All references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under
this Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without limitation,
those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
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14. Settlement of Disputes; Arbitration.
14.1 All claims by the Executive for benefits under this
Agreement shall be directed to and determined by the Board and shall be in
writing. Any denial by the Board of a claim for benefits under this Agreement
shall be delivered to the Executive in writing and shall set forth the specific
reasons for the denial and the specific provisions of this Agreement relied
upon. The Board shall afford a reasonable opportunity to the Executive for a
review of the decision denying a claim and shall further allow the Executive to
appeal to the Board a decision of the Board within sixty (60) days after
notification by the Board that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Hartford, Connecticut in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
set forth in this Agreement shall apply. The arbitrator shall have the authority
to require that the Company reimburse the Executive for the payment of all or
any portion of the legal fees and expenses incurred by the Executive in
connection with such dispute or controversy. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule
12b-2 promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section
6.2 hereof.
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(C) "Base Amount" shall have the meaning set forth in
section 280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the
Company.
(F) "Cause" for termination by the Company of the
Executive's employment shall mean (i) the willful and continued failure by the
Executive to substantially perform the Executive's duties with the Company
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure after the
issuance of a Notice of Termination for Good Reason by the Executive pursuant to
Section 7.1 hereof) after a written demand for substantial performance is
delivered to the Executive by the Board, which demand specifically identifies
the manner in which the Board believes that the Executive has not substantially
performed the Executive's duties, (ii) the engaging by the Executive in conduct
which is demonstrably and materially injurious to the Company or its
subsidiaries, monetarily or otherwise or (iii) the Executive's conviction for
the commission of (a) a felony or (b) any other crime involving moral turpitude.
For purposes of clauses (i) and (ii) of this definition, no act, or failure to
act, on the Executive's part shall be deemed "willful" unless done, or omitted
to be done, by the Executive not in good faith and without reasonable belief
that the Executive's act, or failure to act, was in the best interest of the
Company.
(G) A "Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:
(I) any Person is or becomes the
Beneficial Owner, directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by
such Person any securities acquired directly from the Company
or its affiliates) representing 25% or more of the combined
voting power of the Company's then outstanding securities,
excluding any Person who becomes such a Beneficial Owner
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in connection with a transaction described in clause (i) of
paragraph (III) below; or
(II) the following individuals cease for
any reason to constitute a majority of the number of directors
then serving: individuals who, on the date hereof, constitute
the Board and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's shareholders was
approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were
directors on the date hereof or whose appointment, election or
nomination for election was previously so approved or
recommended; or
(III) there is consummated a merger or
consolidation of the Company or any direct or indirect
subsidiary of the Company with any other corporation, other
than (i) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent
thereof), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit
plan of the Company or any subsidiary of the Company, at least
60% of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company (not including in
the securities Beneficially Owned by such Person any
securities acquired directly
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from the Company or its Affiliates) representing 25% or more
of the combined voting power of the Company's then outstanding
securities; or
(IV) the shareholders of the Company
approve a plan of complete liquidation or dissolution of the
Company or there is consummated an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets, other than a sale or disposition by the
Company of all or substantially all of the Company's assets to
an entity, at least 60% of the combined voting power of the
voting securities of which are owned by shareholders of the
Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale.
(H) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(I) "Company" shall mean Barnes Group, Inc. and, except in
determining under Section 15(E) hereof whether or not any Change in Control of
the Company has occurred, shall include any successor to its business and/or
assets which assumes and agrees to perform this Agreement by operation of law,
or otherwise.
(J) "Date of Termination" shall have the meaning set forth in
Section 7.2 hereof.
(K) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, as a result of the
Executive's incapacity due to physical or mental illness, the Executive shall
have been absent from the full-time performance of the Executive's duties with
the Company for a period of six (6) consecutive months, the Company shall have
given the Executive a Notice of Termination for Disability, and, within thirty
(30) days after such Notice of Termination is given, the Executive shall not
have returned to the full-time performance of the Executive's duties.
(L) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
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(M) "Excise Tax" shall mean any excise tax imposed under
section 4999 of the Code.
(N) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(O) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) after any Change in Control, of any one of the
following acts by the Company, or failures by the Company to act, unless, in the
case of any act or failure to act described in paragraph (I) or (IV) below, such
act or failure to act is corrected prior to the Date of Termination specified in
the Notice of Termination given in respect thereof:
(I) the assignment to the Executive of any
duties inconsistent with the Executive's status as an
executive officer of the Company or a substantial adverse
alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the
Change in Control;
(II) a reduction by the Company in the
Executive's annual base salary as in effect on the date hereof
or as the same may be increased from time to time;
(III) the relocation of the Executive's
principal place of employment to a location more than 50 miles
from the Executive's principal place of employment immediately
prior to the Change in Control or the Company's requiring the
Executive to be based anywhere other than such principal place
of employment (or permitted relocation thereof) except for
required travel on the Company's business to an extent
substantially consistent with the Executive's present business
travel obligations;
(IV) any purported termination of the
Executive's employment which is not effected pursuant to a
Notice of Termination satisfying the requirements of Section
7.1 hereof; for
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purposes of this Agreement, no such purported termination
shall be effective.
The Executive's right to terminate the Executive's employment
for Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any act or failure
to act constituting Good Reason hereunder.
(P) "Notice of Termination" shall have the meaning set forth
in Section 7.1 hereof.
(Q) "Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) any member of the Barnes family (by
blood or marriage) or any entity for the benefit of, or controlled by, a member
of the Barnes family (by blood or marriage), (ii) the Company or any of its
subsidiaries, (iii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iv) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (v) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(R) "Potential Change in Control" shall be deemed to have
occurred if the event set forth in any one of the following paragraphs shall
have occurred:
(i) the Company enters into an agreement,
the consummation of which would result in the occurrence of a
Change in Control;
(ii) the Company or any Person publicly
announces an intention to take or to consider taking actions
which, if consummated, would constitute a Change in Control;
(iii) any Person becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
representing 15% or more of
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<PAGE> 19
either the then outstanding shares of common stock of the
Company or the combined voting power of the Company's then
outstanding securities (not including in the securities
beneficially owned by such Person any securities acquired
directly from the Company or its affiliates); or
(iv) the Board adopts a resolution to the
effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(S) "Retirement" shall be deemed the reason for the
termination by the Executive of the Executive's employment if such employment is
terminated in accordance with the Company's retirement policy, including early
retirement, generally applicable to its salaried employees.
(T) "Severance Payments" shall have the meaning set forth in
Section 6.1 hereof.
(U) "Tax Counsel" shall have the meaning set forth in
Section 6.2 hereof.
(V) "Term" shall mean the period of time described in
Section 2 hereof (including any extension, continuation or termination described
therein).
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<PAGE> 20
(W) "Total Payments" shall mean those payments so described in
Section 6.2 hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
BARNES GROUP, INC.
By:
-------------------------------
Name:
Title:
-------------------------------
EXECUTIVE
Address:
-------------------------------
-------------------------------
-------------------------------
(Please print carefully)
20
<PAGE> 21
EXHIBIT A - COMPLETE AND PERMANENT RELEASE
TO: __________________ (the "Executive")
DATE: _________________
The Executive is hereby offered severance payments and benefits in accordance
with and subject to the terms of the Severance Agreement between the Executive
and the Company (the "Agreement") dated as of October 17, 1997, in consideration
of the Executive's execution and return of this Complete and Permanent Release
(the "Release").
The Executive's severance payments and benefits pursuant to the Agreement will
commence ten (10) business days after the execution and return to the Company of
this Release, but no sooner than the Termination Date, provided that the
Executive has not revoked this Release as hereinafter described. The Executive
has seven (7) calendar days from the date that the Executive signs this Release
to revoke this Release by giving written notice of the Executive's intent to do
so to the Company. This Release shall not become effective or enforceable until
this seven (7) day period has expired. If the Executive revokes this Release,
the Executive will not receive the severance payments and benefits described in
the Agreement.
By signing below, the Executive agrees that execution of this Release operates
to, and hereby does, release the Company, its subsidiaries and affiliates, its
(and its subsidiaries' and affiliates') present or former employees, officers,
directors, shareholders, representatives and agents (the "Released Parties")
from all claims or demands (the "Claims") the Executive has had, presently has
or may have, based on the Executive's employment with the Company or the
termination of that employment, including any rights or claims the Executive may
have based on any facts or events, whether known or unknown by the Executive,
including, without limitation, a release of any rights or claims the Executive
may have based on the Civil Rights Act of 1966, as amended; the Civil Rights Act
of 1991, as amended; the Age Discrimination in Employment Act of 1967, as
amended; Title VII of the Civil Rights Act of 1964, as amended; the Americans
with Disabilities Act of 1990; the Equal Pay Act of 1963; any and
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<PAGE> 22
all laws of any state concerning wages, employment and discharge; any state or
local municipality fair employment statutes or laws; or any other law, rule,
regulation or ordinance pertaining to employment, terms and conditions of
employment, or termination of employment; provided, however, that execution of
this Release shall not adversely affect (i) the Executive's rights to receive
benefits under the employee benefit plans and arrangements of the Company,
following termination of the Executive's employment; (ii) the Executive's rights
under the Agreement; or (3) the Executive's rights to indemnification under
applicable law, the Certificate of Incorporation or by-laws of the Company or
any agreement between the Executive and the Company. The Executive is advised to
consult with an attorney before signing the Release.
The Executive has twenty-one (21) calendar days from the date of the Release, as
set forth above, in which to sign and return this Release to the Company.
For the Company:
- -----------------------
- -----------------------
- -----------------------
ACCEPTED THIS ____ DAY OF ___________, 19___
- -----------------------
Executive
22
<PAGE> 1
EXHIBIT - 13
[BARNES GROUP INC LOGO]
TECHNOLOGY AND SERVICE: ADDING VALUE THROUGH INNOVATION
BARNES GROUP INC.
1997 ANNUAL REPORT
<PAGE> 2
BARNES GROUP CORPORATE PROFILE
Founded in 1857 in Bristol, Connecticut, Barnes Group is a diversified
international company with three businesses serving a range of industrial and
transportation markets worldwide.
INSIDE
Financial Highlights......... ....................................3
Stockholder Letter........... ....................................4
The Year in Review:
Bowman Distribution....... ....................................6
Barnes Aerospace.......... ....................................8
Associated Spring......... ...................................10
Five-Year
Operating Results ...............................................12
Management's Discussion
and Analysis ....................................................13
A Continuing Salute to
Our Employees................ ...................................13
Consolidated
Financial Statements......... ...................................17
Notes to Consolidated
Financial Statements ............................................21
Quarterly Data............... ...................................31
Selected Financial Data...... ...................................32
Directory of Operations...... ...................................34
Directors and Officers,
Stockholders' Information.... ...................................35
ASSOCIATED SPRING
For nearly a century and a half, Associated Spring has been one of the world's
leading precision spring manufacturers. Today, more than 90 percent of its
business is built on providing highly engineered custom solutions for a range of
transportation and industrial applications, including precision stampings and
assemblies designed to meet the exacting requirements of durable goods
manufacturers. Key markets range from automotive, farm equipment, and
construction machinery to home appliances, electronics, and telecommunications.
As a high-technology company, Associated Spring has built on its basic strengths
with advanced automated systems and research facilities, highly specialized
capabilities and services, and a talented team of scientists, engineers, and
manufacturing professionals. Quality is at the heart of everything Associated
Spring does, as typified by the cover photo, which depicts the inspection of a
part for a high-voltage electrical contact at the group's Center For Advanced
Research.
BOWMAN DISTRIBUTION
Bowman Distribution has been an industry leader in the distribution of
maintenance, repair and operating (MRO) supplies since 1927. It is one of the
world's largest MRO distributors and has grown into an international logistical
management services business, serving thousands of customers in North America
and Europe.
Bowman uses innovative methods to solve customer issues. It has excelled over
the years by focusing on three areas: inventory management services, technical
support programs, and superior quality products -- all tailored to customer
needs. Its primary goal is to help customers maximize their MRO performance to
support continued productivity improvement. Bowman does this by managing and
controlling the basic logistical costs using the latest technology, such as the
developing global management information network shown on the cover.
BARNES AEROSPACE
Barnes Aerospace is a worldwide producer of machined and fabricated components
and assemblies for aircraft engine and airframe builders. It provides engine
component overhaul and repair services for most of the world's major commercial
airlines and the military.
Barnes Aerospace has earned an international reputation both for serving the
original equipment manufacture and overhaul and repair markets. The group
manufactures complex components for the compressor, combustor, and turbine
sections of jet engines. It also produces hot-formed parts from titanium and
other high temperature materials for ducting, bulkheads, exhaust nozzles, and
fairings. Barnes Aerospace uses the most advanced process control and production
techniques available for machining, forming, fabricating, and joining exotic
materials. Its quality and continuous improvement programs, as shown in the
cover photo, are essential to meeting customer expectations.
2
<PAGE> 3
FINANCIAL HIGHLIGHTS - BARNES GROUP INC.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
YEARS ENDED DECEMBER 31, 1997 1996 1995
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Net sales $642,660 $594,989 $592,509
Operating income 65,766 55,316 48,804
Net income 40,423 32,568 27,484
Net income per share
Basic 2.00 1.63 1.40
Diluted 1.96 1.61 1.38
Capital expenditures 33,398 33,892 35,820
Stockholders' equity at year-end 180,859 157,164 128,841
Return on average equity 23.4% 22.8% 22.6%
Total market value of stock at year-end $458,700 $399,835 $235,970
Closing market price per share 22 3/4 20 12
Dividends paid per share .65 .60 .53
Total return (stock price appreciation plus dividends) 17% 72% (1%)
</TABLE>
All per share data adjusted for 3-for-1 stock split, effective April, 1997.
[NET SALES BAR GRAPH OF BARNES GROUP INC.]
[NET INCOME BAR GRAPH OF BARNES GROUP INC.]
[TOTAL MARKET VALUE OF STOCK BAR GRAPH OF BARNES GROUP INC.]
[TOTAL RETURN ON STOCK BAR GRAPH OF BARNES GROUP INC.]
3
<PAGE> 4
FROM THEODORE E. MARTIN, PRESIDENT AND CEO
A MESSAGE TO OUR STOCKHOLDERS
By any measure, Barnes Group had another outstanding year in 1997. The company
continued its momentum that began in 1994, setting new records in net income and
earnings per share for the third consecutive year, and new highs in sales for
the fourth successive year.
Net income for 1997 rose 24 percent to a record $40.4 million, from $32.6
million a year ago. On a basic earnings per share basis, earnings for the year
climbed to a new high of $2.00 per share, up 23 percent from $1.63 in 1996.
[PICTURE OF THEODORE E. MARTIN]
THEODORE E. MARTIN PRESIDENT AND CHIEF EXECUTIVE OFFICER
Diluted earnings per share, calculated according to the new Statement of
Financial Accounting Standards No. 128, was $1.96 per share in 1997, versus
$1.61 per share in 1996. Operating income for 1997 increased 19 percent to $65.8
million, and stockholders' equity at year-end grew 15 percent to $180.9 million.
Sales for the year totaled $643 million, up 8 percent from $595 million in 1996.
Fourth quarter 1997 earnings also established a new record for the quarter, as
the company turned in double-digit gains in both sales and profits. It was the
seventh successive quarter of record-breaking earnings. Contributing to the
year's overall performance were foreign exchange gains of $1.8 million for the
full year, of which $1.1 million occurred in the fourth quarter.
Our stockholders continued to reap the rewards of the company's strong
performance in 1997. The company's stock price over the year increased 14
percent, closing at $22.75 per share, compared with $20 per share at the end of
1996. In April 1997, our stockholders approved an increase in the company's
authorized common shares from 20 million to 60 million and a 3-for-1 stock
split, which is reflected in all per share data. We also raised the quarterly
cash dividend 11 percent to 16.7 cents per share in the second quarter of 1997,
the third increase in the last three years. The dividend, combined with our
stock price appreciation, provided a total annual return of 17 percent. The
total market value of our company rose 15 percent to $459 million, from $400
million at the end of 1996.
For each of the past three years, Barnes Group has posted record financial
results with meaningful growth in income and earnings per share. This orderly
progression of increased year-over-year results did not happen by chance. It has
been the direct result of nearly 3,900 employees working and pulling together to
meet our plan for making Barnes Group a top-tier performer for the long term.
This has been the blueprint behind the company's record of steady improvement,
one that we expect to continue in 1998 and well into the next century.
Our record-breaking performance in 1997 was driven by exceptionally strong
earnings growth in our Bowman Distribution and Barnes Aerospace businesses, and
a respectable performance from Associated Spring. We are especially pleased with
the accomplishments of Bowman's North American business, and with the strong,
positive strides made by our aerospace group for the fourth consecutive year.
Bowman continued its strong profit growth in North America and Europe in 1997.
It increased penetration of targeted markets, such as railroads, aerospace
companies and manufacturing plants; further developed large multilocation
maintenance, repair and operating supplies customers, and continued to reduce
operating costs. As a result, Bowman's operating income in 1997 increased for
the fourth consecutive year, up 22 percent from a strong 1996 performance. Sales
were $220 million, compared with $213 million the previous year.
Bowman's gains were also due to a highly successful program for increasing its
product mix through new supplier partnerships and alliances, which are providing
customers with the right innovative solutions for their particular needs. In
addition, it continued to make good progress in its transition to a logistics
management operation, with increasingly strong gains in the integrated supply
business. This type of operation is enabling large companies to
4
<PAGE> 5
adopt a unified approach to their professional maintenance and supply needs,
using Bowman as a single-source supplier. A new global management information
network is also being developed to improve Bowman's linkage with its customers
worldwide.
Barnes Aerospace increased its momentum in 1997, turning in significant sales
and profits from all of its operations. Buoyed by the sharp upturn in the
aerospace market, sales were $137 million, up 33 percent from $103 million in
1996. Operating income climbed dramatically to $14.4 million, up 172 percent
from $5.3 million in the prior year. Strong gains were made in the group's
precision machining, advanced fabrications and overhaul and repair businesses,
as Barnes Aerospace expanded services to aircraft and airframe builders for both
commercial airlines and the military. Backlog at year-end reached a record high
$131 million, up 27 percent from $103 million in 1996.
Under the direction of Cedric D. Beckett, the company's newest vice president
and president of Barnes Aerospace, the group completed an important move in
1997, integrating its separate businesses serving the Original Equipment
Manufacture (OEM) markets. The OEM operation now includes precision machining
and material fabrication, which together are creating a synergy that will lead
to further cost savings and productivity. The overhaul and repair business
continues to operate separately reporting to Beckett.
Associated Spring had sales of $287 million in 1997, up from $280 million the
year before. Operating income was $43.0 million, compared with $45.8 million in
1996. The lower income was due partly to softer sales in the electronics and
telecommunications markets, and to operating issues in Mexico which were
resolved. The group made significant improvements in both its U.S. and Mexico
operations in the second half of the year and is poised to capitalize on new
growth opportunities in 1998.
During the past year, Associated Spring continued to make gains in its
automotive-related operations, including its NASCO joint venture, and increased
business with Japanese "transplants" in the U.S. It also continued to penetrate
the European market, winning new business from several major automotive
manufacturers in Germany and Sweden, and it established an office in China to
expand its business along the Pacific Rim. The group's distribution business
also turned in higher sales and profits from its expanding business for die
springs and Stock Precision Engineered Components, particularly in Europe.
Our main strategies in 1997 continued to focus on investing in the latest
technology and the best people, enabling us to sustain our momentum and respond
better to the needs of our customers. To this end, we made important senior
management changes at the Executive Office, filling the top positions in
Finance, Law and Human Resources. We also elected two new directors, Frank E.
Grzelecki, vice chairman of Handy & Harman, and Robert W. Fiondella, chairman,
president and CEO of Phoenix Home Life Mutual Insurance Company.
As we look to the future, we are confident that our strategy for growth is on
target. Our goal remains to continue our global expansion in Europe and Asia,
and to further intensify our focus on building profitable sales, improving
productivity and reducing costs in all three of our businesses. These efforts
will include launching new products and expanding our existing products and
services. We firmly believe the company is on track to become one of the leading
service-focused companies in distribution and manufacturing worldwide.
/s/ Theodore E. Martin
Theodore E. Martin
President and Chief Executive Officer
By order of the Board of Directors
February 20, 1998
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<PAGE> 6
BOWMAN DISTRIBUTION: THE YEAR IN REVIEW
[PICTURE OF LI-FEN JOU]
LI-FEN JOU, INFORMATION CENTER ANALYST AT BOWMAN GROUP HEADQUARTERS IN
CLEVELAND, OHIO, EXAMINES A SUPPLY CHAIN PLANNING PYRAMID, ONE OF THE KEY
ELEMENTS IN BOWMAN'S NEW WORLDWIDE INFORMATION NETWORK. DESIGNED TO MEET THE
CHANGING MRO NEEDS OF ITS CUSTOMERS AND SUPPLIERS INTO THE NEXT CENTURY, THE
SYSTEM WILL PROVIDE IMPROVEMENTS IN COMMUNICATIONS, COSTS, PRODUCTIVITY AND
ON-TIME DELIVERY THROUGHOUT THE SUPPLY CHAIN.
[PICTURE OF LEORNARD M. CARLUCI]
LEONARD M. CARLUCCI PRESIDENT, BOWMAN DISTRIBUTION
During the past year, Bowman Distribution continued its pivotal role as an
essential player in helping the company become a top-tier performer for the long
term. In 1997, Bowman moved closer to its strategic goal of becoming the most
efficient provider of logistical management services both to targeted markets
and to maintenance, repair and operating supplies (MRO) customers on a global
basis.
1997 PERFORMANCE
Bowman's strategy requires a strong and increasing emphasis on service, cost,
and technology. This strategy provided the direction for continued growth in
1997. Sales for the group were $220 million, up from $213 million in 1996.
Operating income increased strongly for the fourth consecutive year, advancing
22 percent to $26.7 million, from $22.0 million a year ago.
The increase in sales and profits was due to gains made in penetrating large,
multilocation MRO customers in targeted transportation, industrial and utilities
markets in the U.S., Canada and Europe. Further impetus was provided by Bowman's
North American operations, which continued to reduce distribution costs and
upgrade both its sales and service account teams. In its European operations,
Bowman continued to improve the profit picture, especially in the United
Kingdom, reflecting gains in sales and productivity and lower operating
expenses. Productivity gains in the U.K. were driven by the full implementation
of upgraded systems including bar code scanners to help reduce inventory, error
rates, and order processing time.
Bowman's primary business focus over the past two years has been to
differentiate itself from its competitors by becoming a logistics management
operation with a strong emphasis on integrated supply. Because of this approach,
Bowman is increasing its high-volume, multiple-location customers, such as Union
Pacific Railroad, Grumman Northrop, Federal Express, and Waste Management.
During 1997, Bowman continued to build a strong and successful track record in
integrated supply. For a growing number of large, multi-location accounts,
Bowman is setting up and staffing the customer's own in-house maintenance
department. In other accounts, the level of service may consist simply of
delivering the product to the loading dock.
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<PAGE> 7
In all cases, Bowman provides a flexible mix of systems, products and services
tailored to meet individual customers' needs.
The move to selling large accounts has created the need for greater teamwork,
with more sophisticated sales and service people working together to build each
account. At one large account, where hundreds of suppliers were formerly
utilized, a move toward integrated supply resulted in Bowman expanding product
offerings and increasing the number of customer locations from six to ultimately
over 100 throughout the U.S. This requires account management at the corporate
level of the customer and coordination of the entire sales organization by sales
management to set up the locations. In addition, product sourcing, inventory and
logistics planning are all part of the successful implementation to ensure
accelerated sales growth with this key account.
This logistics management program is focused on creating a partnership that
allows both the customer and Bowman to benefit from the economics of a large
account relationship. The goal is to reduce the number of required vendors,
provide overall cost reductions for the customer, and improve product quality
and service.
The past year was also marked by a significant increase in Bowman's product
line. Through supplier partnerships and alliances, approximately one million
parts are now available to customers. It is all part of a strategy to provide
Bowman's customers with innovative solutions to their particular needs. This
"bread-basket" approach allows customers to choose the right product mix or
system configuration for maximizing their MRO performance.
In response to growing market demands worldwide, Bowman has embarked on a major
upgrade of its management information system. This investment will enable it to
become one of the few MRO suppliers capable of networking information worldwide
to its distributors and customers in the U.S., Canada and Europe. Once
completed, this new system will meet Bowman's future needs as it expands into
additional world markets and strengthens its position as a global, world-class
business.
MARKET OPPORTUNITIES
Bowman is fast becoming the supplier of choice for companies seeking a unified
approach to their MRO needs. As major corporations continue their drive to focus
on core competencies and productivity, the need to outsource MRO and logistical
activities will create significant opportunities for Bowman on a worldwide
scale.
[BAR GRAPH OF NET SALES OF BOWMAN]
[BAR GRAPH OF OPERATING INCOME OF BOWMAN]
[PICTURE OF BOWMAN'S RESOURCE PLANNING TEAM]
BOWMAN HAS EXTENDED ITS TEAM APPROACH TO EVERY ASPECT OF ITS BUSINESS, FROM
SELLING AND SERVICING LARGE, MULTIPLE-LOCATION ACCOUNTS, TO THE DEVELOPMENT OF A
NEW STATE-OF-THE-ART GLOBAL MANAGEMENT INFORMATION NETWORK. A CRITICAL PART OF
THIS NETWORK INVOLVES SUPPLY CHAIN PLANNING FOR BOWMAN'S MAJOR PRODUCT GROUPS IN
THE AREAS OF FORECASTING, INVENTORY PLANNING AND DISTRIBUTION REQUIREMENT
PLANNING. HERE, A RESOURCE PLANNING PROJECT TEAM, LED BY MANAGER LOU DIFRANCESCO
(CENTER) AND INCLUDING PAM BRITTON (FRONT) AND VIKKI SUTTON, WORKS ON A
FORECASTING MODEL FOR BOWMAN'S HIGH-STRENGTH FASTENER LINE. THE TEAM'S GOAL IS
TO ENHANCE BOWMAN'S ABILITY TO HAVE THE RIGHT PRODUCT IN THE RIGHT PLACE AT THE
RIGHT TIME.
THE ADVANCED SYSTEM UPGRADES THE GROUP'S MIS CAPABILITIES, ENABLING BOWMAN TO
BECOME MORE RESPONSIVE, EFFICIENT AND COMPETITIVE INTO THE NEW MILLENIUM. THIS
TECHNOLOGY ADDS GREAT SPEED TO EVERYTHING FROM PURCHASING TO ORDER PROCESSING,
AND PROVIDES BOWMAN WITH THE TIMELY INFORMATION NEEDED FOR LONG-TERM GROWTH AND
PRODUCTIVITY GAINS.
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<PAGE> 8
BARNES AEROSPACE: THE YEAR IN REVIEW
[PICTURE OF LEE ALBERT]
LEE ALBERT, PROCESS ENGINEER AT BARNES AEROSPACE'S OVERHAUL AND REPAIR FACILITY
IN EAST GRANBY, CONNECTICUT, EXAMINES THE FRONT INNER FLANGE THICKNESS ON A
PRATT & WHITNEY JT9D TURBINE EXHAUST CASE. THIS IS THE LATEST IN A SERIES OF
OUTER SHELL REPAIRS APPROVED BY P&W FOR THE GROUP'S OVERHAUL AND REPAIR UNIT.
DEVELOPING NEW REPAIR PROCESSES IS ESSENTIAL TO BARNES AEROSPACE'S GROWTH AS A
LEADING PROVIDER OF ENGINE COMPONENT REPAIRS FOR THE WORLD'S AIRLINES.
[PICTURE OF CEDRIC D. BECKETT]
CEDRIC D. BECKETT PRESIDENT, BARNES AEROSPACE
The entire Barnes Aerospace business has capitalized on the strong upturn in the
commercial aviation market for both engines and airframes. Sales for the group
were $137 million in 1997, up 33 percent from $103 million in the previous year,
and operating income increased 172 percent to $14.4 million, from $5.3 million a
year ago.
1997 PERFORMANCE
Barnes Aerospace experienced robust growth in 1997, expanding its service to
aircraft engine and airframe builders for commercial airlines and the military
at five locations -- four in the U.S. and one in Singapore. Shipments increased
more than 30 percent during the year, as demand for the group's capabilities
continued to surge. Backlog at year-end reached a record high $131 million,
versus $103 million in 1996.
For the fourth consecutive year, the aerospace group made solid gains in sales
and profits. Significant progress was made by the group's engine component
overhaul and repair business in serving the world's major airlines, and by its
Original Equipment Manufacture (OEM) units which increased penetration of such
major customers as Boeing, Allied Signal and Rolls Royce with both machined
components and fabricated assemblies. The group's precision machining unit in
Windsor, Connecticut, also continued to make significant gains in penetrating
the market for high-thrust, lightweight aircraft engines,
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<PAGE> 9
particularly the GE 90 engine, which powers the new wide-body Boeing 777.
CREATING SYNERGY
In 1997, the aerospace group began the integration of its three separate
businesses serving two distinct market segments -- OEM and overhaul and repair
- -- to create a synergy for enhancing future growth and productivity
opportunities. The OEM businesses include precision machining and advanced
fabrications operations in Windsor, Connecticut; Ogden, Utah; and Lansing,
Michigan. Overhaul and repair includes plants in East Granby, Connecticut, and
Singapore.
The integration of the group's OEM businesses will eliminate duplication of
services and operations previously offered independently, and will result in
increased cost savings in operations. The ultimate strategic objective of the
integration is to offer airframe and engine customers one source for kits,
modules and assemblies.
[BAR GRAPH OF NET SALES OF BARNES AEROSPACE]
[BAR GRAPH OF OPERATING INCOME OF BARNES ACCOUNTING]
Barnes Aerospace expects major benefits to come from combining this synergy with
its continuing emphasis on research and development, which together will give
the group a unique and distinguished position in the aerospace industry. These
elements are the key to advancing technology and improving both manufacturing
costs and productivity. This is particularly true in its fabrications units
where many parts and assemblies made from titanium and other high-temperature
metals are being produced for the first time.
Further investment is being made in the group's Research and Development Center
in Windsor, which serves both the OEM and overhaul and repair units. The center
helps aerospace customers with their engine and airframe component designs and
materials selection, and analyzes the various metals used by the group to
improve product quality and reliability.
MARKET OPPORTUNITIES
The aviation industry is on an upward trend. With the aerospace manufacturing
sector recovering and the maintenance, repair and overhaul sector moving quickly
to outsourcing, Barnes Aerospace has many ongoing, long-range customer projects
in progress around the world. The response it has received from the aerospace
marketplace and customers alike validates the group's focus on quality
improvements, shortened delivery times and cost reduction.
The Goal Of Barnes Aerospace is to meet the aerospace industry's demand for
complex components, while continuing to advance its entire production process
and enhance the capabilities of its people. This focus on challenging
traditional ways of doing business will continue to provide increases in new
orders and repeat business for the entire aerospace group.
TEAMWORK AT BARNES AEROSPACE'S PRECISION MACHINING DIVISION IN WINDSOR,
CONNECTICUT, PLAYED A CRUCIAL ROLE IN THE DEVELOPMENT AND SUCCESS OF INDIVIDUAL
PRODUCT FAMILY CELLS ON THE FACTORY FLOOR, AND LED TO GREATER PRODUCTIVITY,
LOWER COSTS AND FASTER CUSTOMER RESPONSE.
PICTURED BELOW, IS A BEARING HOUSING CELL, ONE OF A DOZEN PRODUCT CELLS NOW IN
OPERATION AT WINDSOR. HERE, MACHINISTS EDGAR MALDONADO (LEFT) AND STANLEY WIECEK
(RIGHT), ALONG WITH PAM MICHAELS, INVENTORY CONTROL SUPERVISOR, WORK TOGETHER ON
THE FINAL PHASE OF TURNING THE REAR STUB SHAFT FOR A ROLLS ROYCE ENGINE. THE
WORK IN THIS CELL IS BEING DONE ON A 4-AXIS OKUMA LATHE, ONE OF MANY
HIGH-TECHNOLOGY PROCESSES EMPLOYED BY OUR AEROSPACE GROUP TO MAINTAIN ITS HIGH
STANDARDS OF QUALITY AND SERVICE.
[PICTURE OF EDGAR MALDONADO, STANLEY WIECEK, AND PAM MICHAELS]
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<PAGE> 10
Associated Spring: The Year In Review
[PICTURE OF DENNIS MARTIN]
DENNIS MARTIN, SENIOR LABORATORY TECHNICIAN AT ASSOCIATED SPRING'S CENTER FOR
ADVANCED RESEARCH IN BRISTOL, CONNECTICUT, PERFORMS CLOSE-UP INSPECTION ON THE
CONFIGURATION OF A BATTERY CONTACT SPRING USED IN PAGERS TO ENSURE THE STRINGENT
QUALITY AND RELIABILITY STANDARDS SET BY THE CUSTOMER. MARTIN SET UP THE
COMPUTER-CONTROLLED WIRE-FORMING MACHINE TO MAKE THE PART AND THEN TRANSFERRED
THE TOOLING AND PROGRAMMING TO THE MILWAUKEE PLANT FOR PRODUCTION.
[PICTURE OF ALI A. FADEL]
ALI A. FADEL PRESIDENT, ASSOCIATED SPRING
Associated Spring continued to strengthen its technology and service in 1997,
paving the way for increased growth in key industrial and transportation
markets. While setting a new high in sales for the sixth consecutive year, its
profits were slightly lower in 1997, due to softer sales in the electronics and
telecommunications markets, and to operating issues at its Mexico facility early
in the year that have since been resolved.
1997 PERFORMANCE
Net sales for the group were $287 million in 1997, up from $280 million in the
previous year. Operating income for 1997 totaled $43.0 million, compared with
$45.8 million in 1996. A number of Associated Spring's U.S. operations performed
well, particularly in the second half of 1997. Some of the group's operations
experienced strong gains in all market segments and in developing new
manufacturing systems to enhance future productivity and profit levels. Strong
performances were also turned in by operations serving the industrial sector.
These facilities currently supply parts to companies in the durable goods
sector, especially those in transportation, home appliances, farm and
construction machinery, and electrical and residential products.
Associated Spring's distribution business turned in gains in both sales and
profits. Strong gains were achieved in expanding the distribution of die springs
and Stock Precision Engineered Components (SPEC), particularly in Europe, where
it now has 12 locations, including new distributorships in Finland and Hungary.
The entire distribution business, including SPEC, was moved from Associated
Spring to Bowman Distribution beginning in 1998 to maximize synergies in the
company's distribution operations. In addition, Associated Spring's NASCO joint
venture in Kentucky, which serves Japanese automotive "transplants" in the U.S.,
also reported profit gains in 1997.
10
<PAGE> 11
Transportation continues to be Associated Spring's largest single market,
accounting for about 60 percent of its total business. Associated Spring
presently manufactures more than one million parts a day for domestic passenger
cars and trucks built by the "Big Three" and by Japanese "transplants" in the
U.S. Today, a typical American car is likely to contain more than 100
precision-engineered components built by Associated Spring -- everything from
engine valve springs and fuel injection components to brake and suspension
stampings. In addition, Associated Spring has increased its penetration of the
European spring market, providing components to major European automakers in
Germany, Austria, Hungary, and Sweden.
In September, Associated Spring officially dedicated a major addition at its
Milwaukee facility that has nearly tripled the plant size to 77,000 square feet.
The additional capacity will mean increased growth for both existing products,
such as starter and torque coil springs, and for new products serving the
fast-growing industrial, telecommunications, medical components and residential
products markets.
In 1997, Associated Spring marked its entry into mainland China, with a sales
and engineering office in Tianjin. The group expects to put a full production
facility in China for metal fabrications, high-speed stamping, and injection
molding by mid-1999, providing a major boost to our spring business in Asia.
Continuing its focus on total quality, Associated Spring achieved QS/ISO 9000
certification at two additional operations in 1997. QS 9000 for the automotive
industry and ISO 9000 for others, represents a new and improved way of doing
business, and sets a high standard of excellence. Associated Spring began its
goal to certify each of its manufacturing operations and its Center For Advanced
Research (CFAR) in these world-quality system standards in mid-1994. To date,
five operations have achieved certification, three in North America and two in
Latin America, as well as the Advanced Program Engineering groups.
MARKET OPPORTUNITIES
Associated Spring is continuing to make solid gains expanding its industrial
customer base, particularly in the electronics and telecommunications markets.
The business will expand in these and other markets that best benefit from its
intensive use of technology. In 1998, Associated Spring plans to continue to
build upon its strengths, investing in advanced systems, state-of-the-art
facilities, and technological expertise.
[BAR GRAPH OF NET SALES OF ASSOCIATED SPRING]
[BAR GRAPH OF OPERATING INCOME OF ASSOCIATED SPRING]
AS ASSOCIATED SPRING CONTINUES TO STRENGTHEN ITS ADVANCED TECHNOLOGICAL
CAPABILITIES, IT IS PLACING A MAJOR EMPHASIS ON AUTOMATING ITS KEY MANUFACTURING
OPERATIONS WORLDWIDE. AT ITS BRISTOL, CONNECTICUT PLANT, A TEAM OF ENGINEERS HAS
WORKED WITH THE GROUP'S CENTER FOR ADVANCED RESEARCH (CFAR) TO DEVELOP AN
AUTOMATIC HEAT SET MACHINE THAT HAS TRANSFORMED THE WAY TRANSMISSION WASHERS ARE
FORMED FOR THE AUTOMOTIVE INDUSTRY.
AT LEFT IN ABOVE PHOTO, MICHAEL MCGINTY, PROCESS ENGINEER AT BRISTOL, WHO
SPECIALIZES IN AUTOMATION AND CONTROLS, AND PAULO COIT, QUALITY ENGINEER,
EXAMINE A PART PRODUCED BY ONE OF 11 NEW HEAT SET MACHINES NOW IN OPERATION AT
BRISTOL. THE TWO, ALONG WITH OTHER TEAM MEMBERS, ESTABLISHED THE PRODUCTION
EQUIPMENT AND QUALITY SPECIFICATIONS FOR THE MACHINES, WHILE CFAR ENGINEERS
HELPED DEVELOP THE PROCESS SPECIFICATIONS. THIS INTERNAL TEAMWORK WAS CARRIED
THROUGH TO THE MANUFACTURER, ABACUS AUTOMATION, WHICH BECAME PART OF THE
PRODUCTION TEAM AT BRISTOL AND WORKED TOGETHER TO BUILD THE MACHINES.
11
<PAGE> 12
FIVE-YEAR OPERATING RESULTS - BARNES GROUP INC.
<TABLE>
<CAPTION>
BOWMAN DISTRIBUTION (Dollars in millions) 1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales $220.0 $213.4 $217.0 $215.1 $193.2
Operating income 26.7 22.0 17.4 12.6 6.7
Identifiable assets (average for the year) 78.1 76.1 82.6 83.4 82.2
Capital expenditures 6.6 2.9 3.6 4.3 5.6
Depreciation expense 3.8 3.7 4.1 3.1 2.9
Yardsticks of profitability:
Operating margin 12.1% 10.3% 8.0% 5.9% 3.5%
Return on average assets 34.2% 28.9% 21.1% 15.1% 8.2%
</TABLE>
<TABLE>
<CAPTION>
BARNES AEROSPACE (Dollars in millions) 1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales $136.6 $103.1 $ 97.3 $ 82.3 $ 77.0
Operating income (loss) 14.4 5.3 5.0 (1.8) (7.9)
Identifiable assets (average for the year) 96.2 91.6 86.3 87.8 96.4
Capital expenditures 7.9 9.4 7.8 3.7 5.4
Depreciation expense 7.1 7.0 7.2 7.5 8.0
Order backlog (at year-end) 131.4 103.4 54.4 53.6 55.7
Yardsticks of profitability
Operating margin 10.5% 5.1% 5.1% (2.2%) (10.3%)
Return on average assets 15.0% 5.8% 5.8% (2.1%) (2.1%)
</TABLE>
<TABLE>
<CAPTION>
ASSOCIATED SPRING (Dollars in millions) 1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales $287.1 $279.5 $279.0 $272.4 $233.0
Operating income 43.0 45.8 42.6 41.7 27.1
Identifiable assets (average for the year) 180.5 169.1 152.5 134.5 115.3
Capital expenditures 18.7 21.5 24.2 23.7 11.1
Depreciation expense 14.3 13.0 11.6 9.0 7.7
Order backlog (at year-end) 53.9 47.8 56.7 54.5 46.9
Yardsticks of profitability:
Operating margin 15.0% 16.4% 15.3% 15.3% 11.6%
Return on average assets 23.8% 27.1% 27.9% 31.0% 23.5%
</TABLE>
12
<PAGE> 13
Management's Discussion And Analysis - Barnes Group Inc.
A CONTINUING SALUTE TO OUR EMPLOYEES
Once again this year, we are using the financial section to salute a
representative number of employees throughout the company whose contributions in
1997 enabled us to achieve record earnings for the third consecutive year.
Because of their efforts and those of so many others, our momentum has
accelerated in each of the past four years, as we aim to become a top-tier
performer for the long term.
Carm Buonerba
Bowman Distribution
Concord, Ontario
Michael Utschig
Associated Spring
Farmington, Connecticut
Lonel Douglas
Barnes Aerospace
East Granby, Connecticut
OUR BUSINESS
Barnes Group is a worldwide manufacturer of precision metal parts and an
industrial maintenance logistics company with three business segments. The
Bowman Distribution segment provides maintenance, repair, operating and
production services and supplies to industrial and transportation markets. The
Barnes Aerospace segment manufactures precision components and assemblies for
commercial and military aircraft and provides overhaul and repair services for
large commercial aircraft engines. The Associated Spring segment is a
manufacturer of assemblies, high precision springs, wireforms and stampings for
the transportation, industrial, electronics and telecommunications markets.
Through these three businesses, Barnes Group works with its customers'
organizations to help them realize the benefits of Barnes Group's manufacturing
capabilities and logistics management to enhance the customer's competitiveness
and responsiveness.
RESULTS OF OPERATIONS
For 1997, Barnes Group reported record sales and earnings for the third
consecutive year. Sales were up 8% to $643 million compared to $595 million in
1996 and $593 million in 1995. The increase in 1997 sales reflects growth at all
three business segments, particularly at Barnes Aerospace, where sales increased
33%. In 1996, sales were up from 1995 primarily as a result of improvement at
Barnes Aerospace.
Barnes Group continues to generate excellent profit gains. Operating income
increased for the fifth consecutive year, up 19% in 1997 to $65.8 million
compared to $55.3 million in 1996. The 1997 profit growth was driven by higher
sales volume, improved productivity and continued cost reductions at Barnes
Aerospace and Bowman Distribution. This was partially offset by Associated
Spring, which was impacted by softer sales to the electronics and
telecommunications markets, by increased fixed costs related to the Milwaukee
plant expansion and by operating issues in Mexico. Operating income in 1996
increased 13% over the $48.8 million reported in 1995, reflecting solid gains at
all three business segments.
Operating margin has steadily increased to 10.2% in 1997 from the 9.3% and 8.2%
reported in 1996 and 1995, respectively. This reflects higher sales volume and
lower selling and administrative expenses, partially offset by increased cost of
sales. In the past three years, the company has reduced selling and
administrative expenses by $15.7 million as sales increased by $73.5 million.
This focus on cost management is a key component of Barnes Group's future
operating strategy. Lower selling and administrative expenses are driven in
large part by Bowman Distribution's ongoing efforts to reduce its operating
expenses. In 1997, cost of sales as a percentage of sales increased to 66.4%
compared to 64.7% in 1996 and 64.5% in 1995. This is a result of a change in the
revenue mix among our three businesses, lower margins associated with new
products and larger customers at Bowman Distribution, and slightly higher fixed
costs at Associated Spring.
SEGMENT REVIEW --
SALES AND OPERATING INCOME
Bowman Distribution segment sales for 1997 were $220 million compared to $213
million in 1996 and $217 million in 1995. Bowman North America continues to
effectively implement its strategy of penetrating targeted markets, such as
railroad, aerospace, public utilities and waste management companies and
integrated supply customers to which Bowman provides the support needed to
maintain their operating facilities. In Europe, Bowman's sales were flat, as
management strategically downsized its van-based sales force in an effort to
eliminate low margin business.
Bowman's operating income in 1997 of $26.7 million increased $4.7 million, or
22%, from 1996. The 1996 level of $22.0 million increased $4.6 million, or 26%,
from 1995. The gains in operating income reflect volume increases, improved
supply chain management and lower operating expenses in both North America and
Europe. Continued productivity improvements and cost reductions are crucial to
Bowman's strategy where competitive pricing is a key to success.
13
<PAGE> 14
Management's Discussion And Analysis - Barnes Group Inc.
Arturo Mendoza
Associated Spring
Mexico City, Mexico
Kevin Brooks
Associated Spring
Milwaukee, Wisconsin
Dennis Houle
Barnes Aerospace
Windsor, Connecticut
Bridgette ByField
Executive Office
Bristol, Connecticut
Barnes Aerospace segment sales were $137 million in 1997, up 33% from 1996,
which followed an increase of 6% from 1995. In 1997, sales improved in all three
aerospace businesses: precision machining, overhaul and repair and advanced
fabrications on the strength of the commercial aviation market for engines and
airframes. Sales growth in 1996 was driven primarily by the overhaul and repair
business.
Barnes Aerospace operating income increased 172% to $14.4 million in 1997
compared to $5.3 million in 1996. In 1995, the group reported operating income
of $5.0 million. The increase in profits for 1997 reflects higher sales volume,
improved pricing and significant productivity gains. To further increase
productivity while enhancing customer support, Barnes Aerospace consolidated its
separate businesses serving the Original Equipment Manufacture (OEM) markets.
The OEM operation now incorporates the precision machining and advanced
fabrications operations. This integration is expected to leverage resources and
result in a more effective organization.
Associated Spring segment sales for 1997 were $287 million, up 3% from 1996.
Sales in 1996 of $280 million were up slightly from 1995. This segment reported
operating income of $43.0 million in 1997 compared to $45.8 million in 1996 and
$42.6 million in 1995. Sales from manufacturing operations rose slightly, while
profits declined, reflecting some softness in its electronics and
telecommunications markets. Additionally, profits were impacted by the increased
fixed costs related to the expansion at the Milwaukee facility and operating
issues at the manufacturing facility in Mexico in early 1997. The issues in
Mexico were resolved and significant improvement was reported in the second half
of 1997 at this operation.
The Associated Spring distribution business, which markets die springs and
precision stock springs, reported both sales and profit growth. Strong gains
were achieved in Europe where there are now 12 locations. Effective January
1998, this distribution business was transferred to the Bowman segment to
maximize synergies in distribution operations.
NON-OPERATING INCOME/EXPENSE
Other income was $6.0 million in 1997, $4.1 million in 1996 and $4.4 million in
1995. In 1997, 1996 and 1995, other income included $1.8 million, $1.6 million
and $1.9 million, respectively, from the company's investment in NASCO, a
company jointly owned with NHK Spring Co., Ltd. of Japan. The 1997 increase in
NASCO profits reflects higher sales volume, the direct result of a capacity
expansion completed in 1996. Foreign exchange gains, another component of other
income, were $2.1 million in 1997. This compares to losses in 1996 and 1995
which are included in other expenses for those years. Additionally, interest
income of $1.2 million was generated in 1997 and 1996, and $1.4 million in 1995.
Interest expense was $4.9 million in 1997 compared to $5.0 million in 1996 and
$5.3 million in 1995. These results reflect comparable borrowing levels and
interest rates in 1997 and 1996. For further information on interest expense,
see Note 5 of the Notes to Consolidated Financial Statements on page 22.
Other expenses were $2.4 million in 1997 compared to $2.1 million in 1996 and
$2.5 million in 1995. Included in 1996 and 1995 are foreign exchange and
translation losses of $0.8 million and $1.1 million, respectively.
INCOME TAXES
The company's effective income tax rate has declined steadily over the last four
years. The company's effective tax rate was 37.3% in 1997 compared with 37.7% in
1996 and 39.5% in 1995. The lower rate in 1997 was due in part to lower foreign
losses without tax benefit and higher foreign income with tax rates lower than
the U.S. statutory tax rate. For further discussion of income taxes, see Note 6
of the Notes to Consolidated Financial Statements on page 23.
NET INCOME AND
NET INCOME PER SHARE
Consolidated net income was $40.4 million in 1997, $32.6 million in 1996 and
$27.5 million in 1995. On a basic earnings per share basis, income for 1997 was
$2.00, compared to $1.63 in 1996 and $1.40 in 1995. Diluted earnings per share,
calculated in accordance with the newly issued Statement of Financial
14
<PAGE> 15
Michael Fishleigh
Bowman Distribution
Concord, Ontario
Holly Bunn
Associated Spring
Bristol, Connecticut
Andre Luis Goncalves
Associated Spring
Campinas, Brazil
Peggie Canada
Bowman Distribution
Rockford, Illinois
Accounting Standards No. 128, shows the same positive trend as basic earnings
per share, increasing from $1.38 in 1995 to $1.61 in 1996 to $1.96 in 1997. This
marks the third consecutive year of record earnings.
In April 1997, stockholders approved an increase in authorized common shares
from 20 million to 60 million and a 3-for-1 stock split. All per share data
reflects the stock split.
INFLATION
Management believes that inflation during the 1995-1997 period did not have a
material impact on the company's historical financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The company's ability to generate cash from operations in excess of its internal
operating needs is one of its leading financial strengths. In 1997, management
intensified its efforts on working capital management, which contributed
significantly to the increase in the cash provided by operating activities.
Management will continue to manage liquidity aggressively and anticipates that
operating activities in 1998 will provide sufficient cash flows to take
advantage of opportunities for internal business expansion and to meet all of
the company's financial commitments.
Management assesses the company's liquidity in terms of its overall ability to
generate cash to fund its operating and investing activities. Of particular
importance in the management of liquidity are cash flows generated from
operating activities, capital expenditure levels, dividends, capital stock
transactions, effective utilization of surplus cash positions overseas and
adequate bank lines of credit.
Operating activities are the principal source of cash flow for the company,
generating a record $71.6 million of cash flow in 1997 compared to $45.8 million
in 1996 and $47.3 million in 1995. During the past three years, operating
activities provided approximately $165 million in cash which the company used,
in part, to pay dividends to stockholders, reduce financing debt, repurchase
shares and fund significant investments in plant and equipment. Within operating
activities, continued emphasis on asset management eliminated the need for
additional investment in working capital in 1997 during a period of increasing
sales. This contrasts with 1996, where significant additional working capital
was invested to support the sales growth.
Investing activities used cash of $34.2 million in 1997 compared with $32.2
million in 1996 and $36.6 million in 1995. Capital expenditures in 1997 were
$33.4 million versus $33.9 million in 1996 and $35.8 million in 1995. During the
past three years the company has invested over $103 million in new plant,
equipment and systems improvements. The focus of these investments is to support
business growth and to improve productivity and quality. The company expects
1998 capital spending to continue at a strong pace.
In 1997, the company's financing activities used cash of $26.6 million compared
to $6.9 million in 1996 and $13.8 million in 1995. The higher usage of cash in
1997 was due to a $10.0 million reduction in long-term debt and the repurchase
of $10.7 million of the company's stock. Cash dividends increased to $0.65 per
share in 1997. As a result, total cash dividends paid to stockholders increased
to $13.2 million.
The company has and will continue to utilize cash from non-U.S. subsidiaries to
fund international cash requirements when it is cost effective to do so. The
repatriation of certain cash balances to the U.S. could have adverse tax
consequences; however, those balances are generally available to fund ordinary
business needs outside the U.S.
To supplement internal cash generation, the company maintains substantial bank
borrowing facilities. At December 31, 1997, the company had $150 million of
borrowing capacity available under a revolving credit agreement that expires in
2002. During 1997, the company used a portion of the free cash flow generated by
its U.S. operations to reduce its long-term debt position from $70 million to
$60 million. The long-term debt is comprised, in part, of borrowings under its
short-term bank credit lines backed by its long-term revolving credit agreement.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS - BARNES GROUP INC.
Mak Wah Weng
Associated Spring
Singapore
Manjit Grewal
Associated Spring
Burlington, Ontario
Holly LeBlanc
Executive Office
Bristol, Connecticut
Chan Chaturia
Barnes Aerospace
Windsor, Connecticut
The company considers this a cost effective way to manage its long-term
financing needs. The company believes its bank credit facilities coupled with
cash generated from operations are adequate for its anticipated future
requirements.
YEAR 2000 CONVERSION
The company recognizes the need to ensure that its systems, applications and
computerized equipment will recognize and process transactions for the year 2000
and beyond. In continuing efforts to become more productive and competitive, the
company continues to implement management, financial and operational systems
throughout the businesses. As part of these implementation processes, the
company is managing the risks and the costs associated with the Year 2000 issue.
More specifically, Bowman Distribution is in the process of implementing a
comprehensive distribution system, which will be utilized worldwide to meet its
growing market demands for superior customer service. This system will be
compliant with Year 2000 requirements. Barnes Aerospace is in the process of
implementing a fully integrated management and manufacturing information system
in its advanced fabrications business. This system, which is currently
operational in its precision machining business, is Year 2000 compliant.
Associated Spring is also in the process of implementing a management and
manufacturing information system at all locations. This project began in 1995
and as of December 1997, the system has been implemented at all but two
locations. This system will be compliant with Year 2000 requirements.
These projects are designed to address the company's operating and business
information needs while simultaneously addressing the Year 2000 issue for the
majority of the company's critical management, financial and operating systems.
In addition, the company's other computer systems and applications are being
reviewed and, where appropriate, detailed plans have been, or are being
developed and implemented on a schedule intended to permit the company's
computer systems to continue to function properly. The costs specific to the
Year 2000 issue are not expected to have a material impact on future operating
results, financial position or cash flows of the company. Management expects
that all projects related to the Year 2000 will be completed on a timely basis;
however, if such modifications and conversions are not completed on time, or if
the company's suppliers and customers do not address this issue successfully,
the Year 2000 issue could have a material impact on the operations and financial
condition of the company.
FUTURE ACCOUNTING CHANGES
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This standard
requires that the company disclose total comprehensive income, which includes
net income and other transactions which bypass the income statement. In 1997,
the Financial Accounting Standards Board also issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." This standard establishes new requirements for reporting
segment information. Under the provisions of these standards the company is not
required to, and will not adopt these new standards until 1998. These standards
will not impact the company's financial position, results of operations or cash
flows.
FORWARD-LOOKING STATEMENTS
The company cautions readers that certain factors may affect the company's
results for future fiscal periods. These factors involve risks and uncertainties
that could cause future results to differ materially from those expressed or
implied in any forward-looking statements made on behalf of the company. For
this purpose, any statement other than one of historical fact may be considered
a forward-looking statement. Some important factors that could cause actual
results to vary materially from those anticipated in forward-looking statements
include economic volatility, currency fluctuations, regulatory changes and
technological changes (including Year 2000 issues), all of which may affect the
company's operations, products and markets. (See the company's annual report on
Form 10-K for more information about the factors that could affect future
results.)
16
<PAGE> 17
CONSOLIDATED STATEMENTS OF INCOME - BARNES GROUP INC.
Zaya Oshana
Executive Office
Bristol, Connecticut
Janice Fisher
Associated Spring
Milwaukee, Wisconsin
George Bernier
Barnes Aerospace
East Granby, Connecticut
Catherine Lee
Associated Spring
Farmington, Connecticut
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Years Ended December 31, 1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 642,660 $ 594,989 $ 592,509
Cost of sales 426,550 384,722 382,150
Selling and administrative expenses 150,344 154,951 161,555
----------- ----------- -----------
576,894 539,673 543,705
----------- ----------- -----------
Operating income 65,766 55,316 48,804
Other income 5,969 4,095 4,373
Interest expense 4,864 4,981 5,274
Other expenses 2,369 2,120 2,453
----------- ----------- -----------
Income before income taxes 64,502 52,310 45,450
Income taxes 24,079 19,742 17,966
----------- ----------- -----------
Net income $ 40,423 $ 32,568 $ 27,484
=========== =========== ===========
Per common share:
Net income:
Basic $ 2.00 $ 1.63 $ 1.40
Diluted 1.96 1.61 1.38
Dividends 0.65 0.60 0.53
Average common shares outstanding 20,236,884 19,923,987 19,640,013
</TABLE>
See accompanying notes.
17
<PAGE> 18
CONSOLIDATED BALANCE SHEETS - BARNES GROUP INC.
Seow Kee Chong
Barnes Aerospace
Singapore
Elizabeth Jocham
Bowman Distribution
Edison, New Jersey
Tyroon Ataw
Bowman Distribution
Concord, Ontario
Claudemir Goncalves Martins
Associated Spring
Campinas, Brazil
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 32,530 $ 23,986
Accounts receivable, less allowances
(1997 - $3,061; 1996 - $3,158) 91,757 88,060
Inventories 61,082 64,942
Deferred income taxes 10,966 9,772
Prepaid expenses 6,682 3,538
--------- ---------
Total current assets 203,017 190,298
Deferred income taxes 24,083 23,575
Property, plant and equipment 133,830 131,071
Goodwill 18,773 19,441
Other assets 28,275 25,571
--------- ---------
Total assets $ 407,978 $ 389,956
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 2,437 $ 1,767
Accounts payable 37,776 30,363
Accrued liabilities 46,966 46,152
Guaranteed ESOP obligation-current 2,746 2,540
--------- ---------
Total current liabilities 89,925 80,822
Long-term debt 60,000 70,000
Guaranteed ESOP obligation 2,205 4,951
Accrued retirement benefits 67,486 69,085
Other liabilities 7,503 7,934
Stockholders' equity
Common stock - par value $.01 per share
Authorized: 60,000,000 shares
Issued: 22,037,769 shares at par value 220 15,737
Additional paid-in capital 47,007 28,347
Retained earnings 183,857 156,698
Foreign currency translation adjustments (15,841) (10,087)
Treasury stock at cost (1997 - 1,875,111 shares;
1996 - 2,046,009 shares) (29,433) (26,040)
Guaranteed ESOP obligation (4,951) (7,491)
--------- ---------
Total stockholders' equity 180,859 157,164
--------- ---------
Total liabilities and stockholders' equity $ 407,978 $ 389,956
========= =========
</TABLE>
See accompanying notes.
18
<PAGE> 19
CONSOLIDATED STATEMENTS OF CASH FLOWS - BARNES GROUP INC.
Edward Edgar, Jr.
Bowman Distribution
Edison, New Jersey
Heather Gibson
Associated Spring
Burlington, Ontario
Noyace Daniel
Associated Spring
Southfield, Michigan
Corlisa Edwards
Associated Spring
Glen Ellyn, Illinois
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended December 31, 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 40,423 $ 32,568 $ 27,484
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 28,123 26,626 26,750
Loss (gain) on sale of property, plant and equipment 735 (528) (268)
Translation losses 237 427 290
Changes in assets and liabilities:
Accounts receivable (4,786) (2,321) 365
Inventories 3,150 (9,971) (6,073)
Accounts payable 8,036 (1,548) 794
Accrued liabilities 781 2,797 (2,664)
Deferred income taxes (1,215) 564 3,479
Other (3,844) (2,810) (2,862)
-------- -------- --------
Net cash provided by operating activities 71,640 45,804 47,295
INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 1,442 2,361 1,301
Capital expenditures (33,398) (33,892) (35,820)
Other (2,266) (706) (2,057)
-------- -------- --------
Net cash used by investing activities (34,222) (32,237) (36,576)
FINANCING ACTIVITIES:
Net increase (decrease) in notes payable 813 1,322 (7,389)
Payments on long-term debt (10,000) -- --
Proceeds from the issuance of common stock 6,476 4,907 5,849
Common stock repurchases (10,673) (1,197) (1,746)
Dividends paid (13,187) (11,967) (10,491)
-------- -------- --------
Net cash used by financing activities (26,571) (6,935) (13,777)
Effect of exchange rate changes on cash flows (2,303) (514) (1,097)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 8,544 6,118 (4,155)
Cash and cash equivalents at beginning of year 23,986 17,868 22,023
-------- -------- --------
Cash and cash equivalents at end of year $ 32,530 $ 23,986 $ 17,868
======== ======== ========
</TABLE>
See accompanying notes.
19
<PAGE> 20
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - BARNES GROUP INC.
<TABLE>
<CAPTION>
Foreign
Additional Currency Guaranteed
Common Paid-In Retained Translation Treasury ESOP Stockholders
(Dollars in thousands) Stock Capital Earnings Adjustments Stock Obligation Equity
--------- --------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1995 $ 15,737 $ 27,772 $ 118,938 $ (8,715) $ (34,582) $ (12,011) $ 107,139
Net income 27,484 27,484
Dividends paid (10,491) (10,491)
Common stock repurchases (1,746) (1,746)
Employee stock plans (412) 6,475 6,063
Guaranteed ESOP obligation 2,172 2,172
Income tax benefits on unallocated
ESOP dividends 161 161
Translation adjustments (1,941) (1,941)
--------- --------- --------- ----------- --------- --------- ---------
December 31, 1995 15,737 27,360 136,092 (10,656) (29,853) (9,839) 128,841
Net income 32,568 32,568
Dividends paid (11,967) (11,967)
Common stock repurchases (1,197) (1,197)
Employee stock plans 987 (134) 5,010 5,863
Guaranteed ESOP obligation 2,348 2,348
Income tax benefits on unallocated
ESOP dividends 139 139
Translation adjustments 569 569
--------- --------- --------- ----------- --------- --------- ---------
December 31, 1996 15,737 28,347 156,698 (10,087) (26,040) (7,491) 157,164
Net income 40,423 40,423
Reduction in par value (15,517) 15,517 --
Dividends paid (13,187) (10,673) (13,187)
Common stock repurchases 7,280 (10,673)
Employee stock plans 3,143 (181) 2,540 10,242
Guaranteed ESOP obligation 2,540
Income tax benefits on unallocated
ESOP dividends 104 104
Translation adjustments (5,754) (5,754)
--------- --------- --------- ----------- --------- --------- ---------
December 31, 1997 $ 220 $ 47,007 $ 183,857 $ (15,841) $ (29,433) $ (4,951) $ 180,859
========= ========= ========= =========== ========= ========= =========
</TABLE>
See accompanying notes.
20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - BARNES GROUP INC.
Ed Guthrie
Associated Spring
Burlington, Ontario
Valerie Rose
Associated Spring
Glen Ellyn, Illinois
Kathryn Browne
Barnes Aerospace
Windsor, Connecticut
Dave Imm
Bowman Distribution
Corsham, United Kingdom
(All dollar amounts included in the notes are stated in thousands except per
share data and the tables in Note 13.)
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
GENERAL: The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
CONSOLIDATION: The accompanying consolidated financial statements include the
accounts of the company and all of its subsidiaries. Intercompany transactions
and account balances have been eliminated. The company accounts for its 45%
investment in the common stock of NASCO, an automotive suspension spring company
jointly owned with NHK Spring Co., Ltd. of Japan, under the equity method. Other
income in the accompanying income statements includes $1,763, $1,550 and $1,897
for the years 1997, 1996 and 1995, respectively, of income from the company's
investment in NASCO. The company received dividends from NASCO totaling $596 and
$709 in 1997 and 1996, respectively.
REVENUE RECOGNITION: Sales and related cost of sales are recognized when
products are shipped to customers.
CASH AND CASH EQUIVALENTS: All highly liquid investments purchased with an
original maturity of three months or less are cash equivalents and are carried
at fair market value.
INVENTORIES: Inventories are valued at the lower of cost or market. The last-in,
first-out (LIFO) method was used to accumulate the cost of all U.S. inventories
which represent 75% of total inventories. The cost of foreign subsidiary
inventories was determined using the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at cost.
Depreciation is provided using accelerated methods over estimated useful lives
ranging generally from 20 to 50 years for buildings and 3 to 17 years for
machinery and equipment. Maintenance and repairs charged to expense were
$16,536, $16,179 and $15,396 in 1997, 1996 and 1995, respectively.
GOODWILL: Goodwill represents the excess purchase price over the net assets of
companies acquired in business combinations. Goodwill acquired since 1970 is
being amortized on a straight-line basis over 40 years; similar investments for
businesses acquired prior to 1970 (approximately $5,200) are not being
amortized. On a periodic basis, the company estimates future undiscounted cash
flows of the businesses to which goodwill relates to ensure that the carrying
value of goodwill has not been impaired. Accumulated amortization was $8,842 and
$8,175 at December 31, 1997 and 1996, respectively.
FOREIGN CURRENCY TRANSLATION: Assets and liabilities of foreign operations,
except those in countries with high rates of inflation, are translated at
year-end rates of exchange; revenue and expenses are translated at average
annual rates of exchange. The resulting translation gains and losses are
reflected in foreign currency translation adjustments within stockholders'
equity.
For operations in countries that have high rates of inflation, translation gains
and losses are included in net income. These translation effects, along with
foreign currency transactions, generated a net gain of $2,095 in 1997 and net
losses of $826 and $1,078 in 1996 and 1995, respectively.
STOCK-BASED COMPENSATION: The company applies APB Opinion 25 to account for
stock-based compensation. The FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," (SFAS 123)
effective for years beginning after December 15, 1995. Under the provisions of
this accounting standard, the company is not required to change its method of
accounting for stock-based compensation. Had the company adopted SFAS 123, the
impact on net income and income per share would not have been significant.
STOCK SPLIT: On April 2, 1997, the stockholders approved an amendment to the
company's Restated Certificate of Incorporation providing for an increase in the
number of authorized common shares from 20 million to 60 million and a reduction
in the par value of common and preferred stock from $1.00 to $.01 per share.
This enabled the company to effect a 3-for-1 stock split for stockholders of
record on April 3, 1997. All references to shares and per-share amounts in the
consolidated financial statements and accompanying notes have been adjusted
retroactively for the 3-for-1 stock split, unless otherwise noted.
NET INCOME PER COMMON SHARE: Earnings per share is computed in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share." Basic
earnings per share is based on the weighted average number of common shares
outstanding during the year. Diluted earnings per share reflects the assumed
exercise and conversion of all securities. Shares held by the Employee Stock
Ownership Plan (ESOP) are considered outstanding for both basic and diluted
earnings per share.
There are no adjustments to net income for purposes of computing income
available to common stockholders for the years ended December 31, 1997, 1996 and
1995. For purposes of computing dilutive earnings per share, the weighted
average number of shares outstanding were increased by 419,433, 277,077 and
233,565 for 1997, 1996 and 1995, respectively, representing the potential
dilutive effects of stock-based plans.
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - BARNES GROUP INC.
Daniel Dufeu
Bowman Distribution
Voisins LeBretonneaux, France
Michelle Shuckerow
Bowman Distribution
Cromwell, Connecticut
Roger Yap
Associated Spring
Singapore
William Koss
Associated Spring
Glen Ellyn, Illinois
2. INVENTORIES
Inventories at December 31, consisted of:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Finished goods $30,519 $30,285
Work-in-process 17,369 17,730
Raw materials and supplies 13,194 16,927
------- -------
$61,082 $64,942
======= =======
</TABLE>
Inventories valued by the LIFO method aggregated $45,661 and $46,056 at December
31, 1997 and 1996, respectively. If LIFO inventories had been valued using the
FIFO method, they would have been $13,744 and $13,348 higher at those dates.
3. PROPERTY,
PLANT AND
EQUIPMENT
Property, plant and equipment at December 31, consisted of:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Land $ 3,782 $ 4,577
Buildings 65,610 64,336
Machinery and equipment 265,444 251,691
-------- --------
334,836 320,604
Less accumulated depreciation 201,006 189,533
-------- --------
$133,830 $131,071
======== ========
</TABLE>
4. ACCRUED
LIABILITIES
Accrued liabilities at December 31, consisted of:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Payroll and other compensation $17,006 $15,188
Postretirement/
postemployment benefits 6,047 6,465
Vacation pay 4,621 4,521
Accrued income taxes 2,872 6,688
Pension and profit sharing 3,163 2,102
Other 13,257 11,188
------- -------
$46,966 $46,152
======= =======
</TABLE>
5. DEBT AND
COMMITMENTS
Long-term debt at December 31, consisted of:
<TABLE>
<CAPTION>
1997 1996
------------------------ -------
CARRYING FAIR Carrying
AMOUNT VALUE Amount
------- ------- -------
<S> <C> <C> <C>
9.47% Notes $24,615 $25,771 $30,769
7.13% Notes 25,000 25,192 25,000
Borrowings under
lines of credit 3,385 3,385 7,231
Industrial
Revenue Bond 7,000 7,000 7,000
------- ------- -------
$60,000 $61,348 $70,000
======= ======= =======
</TABLE>
The 9.47% Notes are payable in thirteen semi-annual payments of $3,077 which
began on September 16, 1995, while the 7.13% Notes are payable in four equal
installments of $6,250 beginning on December 5, 2002. The fair values of these
notes are determined using discounted cash flows based upon the company's
estimated current interest cost for similar types of borrowings. The carrying
values of other long-term debt, notes payable and the guaranteed ESOP obligation
approximate their fair market value.
22
<PAGE> 23
Jocelyn Carlson
Executive Office
Bristol, Connecticut
Richmond Cursiter
Bowman Distribution
Corsham, United Kingdom
Gene Little
Bowman Distribution
Rockford, Illinois
Thomas Manayathara
Associated Spring
Farmington, Connecticut
The company has a revolving credit agreement with six banks that allows
borrowings up to $150,000 under notes due December 6, 2002. A commitment fee of
.115% per annum is paid on the unused portion of the commitments. The company
had no borrowings under this agreement at December 31, 1997 and 1996.
The company has available approximately $90,000 in short-term bank credit lines,
of which $3,400 and $7,500 were in use at December 31, 1997 and 1996,
respectively. The interest rate on these borrowings was 5.9% and 5.7% at
December 31, 1997 and 1996.
The Industrial Revenue Bond, due in 2008, has a variable interest rate. The
interest rate on this borrowing was 4.5% at December 31, 1997 and 1996.
At December 31, 1997, the company classified $3,385 of borrowings under its
lines of credit and $6,154 of its 9.47% Notes due within one year as long-term
debt. The company has both the intent and the ability, through its revolving
credit agreement, to refinance these amounts on a long-term basis.
The company had outstanding an interest rate swap, a form of derivative, which
effectively converted $12,300 of its fixed rate 9.47% Notes to floating rate
debt with interest equal to LIBOR plus 83 basis points.
The effective interestrate on the floating rate portion was 6.9% and 6.4% at
December 31, 1997 and 1996, respectively. This swap decreases as the Notes are
repaid. The fair value of the swap is determined based upon current market
prices and was $851 at December 31, 1997. The company does not use derivatives
for trading purposes.
The company guaranteed $8,100 of letters of credit, bank borrowings and capital
lease obligations related to its 45% investment in NASCO. In addition, the
company had other outstanding letters of credit totaling $3,990.
Certain of the company's debt arrangements contain requirements as to
maintenance of minimum levels of working capital and net worth, and place
certain restrictions on dividend payments and acquisitions of the company's
common stock. Under the most restrictive covenant in any agreement, $58,048 was
available for dividends or acquisitions of common stock at December 31, 1997.
Interest paid was $5,554, $5,736 and $5,661 in 1997, 1996 and 1995,
respectively. Interest capitalized was $472, $527 and $214 in 1997, 1996 and
1995, respectively, and is being depreciated over the lives of the related fixed
assets.
6. INCOME TAXES
The components of income before income taxes and the provision for income taxes
follow:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income before income taxes:
U.S. $ 49,517 $ 37,957 $ 31,722
International 14,985 14,353 13,728
-------- -------- --------
$ 64,502 $ 52,310 $ 45,450
======== ======== ========
Income tax provision:
Current:
U.S. - federal $ 16,339 $ 12,451 $ 7,668
U.S. - state 4,050 3,045 1,363
International 4,905 3,682 5,456
-------- -------- --------
25,294 19,178 14,487
-------- -------- --------
Deferred:
U.S. - federal (821) (388) 2,479
U.S. - state (217) (105) 1,056
International (177) 1,057 (56)
-------- -------- --------
(1,215) 564 3,479
-------- -------- --------
$ 24,079 $ 19,742 $ 17,966
======== ======== ========
</TABLE>
23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - BARNES GROUP INC.
Paulo Coit
Associated Spring
Bristol, Connecticut
Tuck Martin
Bowman Distribution
Elizabethtown, Kentucky
Christine Sych
Barnes Aerospace
East Granby, Connecticut
Neil McCallum
Bowman Distribution
Concord, Ontario
Deferred income tax assets and liabilities at December 31, consist of the tax
effects of temporary differences related to the following:
<TABLE>
<CAPTION>
Assets Liabilities
------------------------ ----------------------
1997 1996 1997 1996
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 1,139 $ 1,108 $ -- $ --
Depreciation and amortization (6,492) (7,083) 2,680 2,450
Inventory valuation 4,418 4,143 529 1,382
Postretirement/postemployment costs 27,771 28,510 (331) (467)
Tax loss carryforwards 9,988 9,329 -- --
Other 5,954 4,770 1,709 1,260
-------- -------- ------- -------
42,778 40,777 4,587 4,625
Valuation allowance (7,729) (7,430) -- --
-------- -------- ------- -------
$ 35,049 $ 33,347 $ 4,587 $ 4,625
======== ======== ======= =======
Current deferred income taxes $ 10,966 $ 9,772 $ 850 $ 1,379
Noncurrent deferred income taxes 24,083 23,575 3,737 3,246
-------- -------- ------- -------
$ 35,049 $ 33,347 $ 4,587 $ 4,625
======== ======== ======= =======
</TABLE>
A portion of the deferred income tax assets can be realized through carrybacks
and reversals of existing taxable temporary differences with the remainder, net
of the valuation allowance, dependent on future income. Management believes that
sufficient income will be earned in the future to realize the remaining net
deferred income tax assets. The tax loss carryforwards have remaining
carryforward periods ranging from five years to unlimited.
The company has not recognized deferred income taxes on $89,349 of undistributed
earnings of its international subsidiaries since such earnings are considered to
be reinvested indefinitely. If the earnings were distributed in the form of
dividends, the company would be subject, in certain cases, to both U.S. income
taxes and foreign withholding taxes. Determination of the amount of this
unrecognized deferred income tax liability is not practicable.
A reconciliation of the U.S. federal statutory income tax rate to the
consolidated effective income tax rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory income tax rate 35.0% 35.0% 35.0%
State taxes (net of federal benefit) 3.9 3.6 3.5
Foreign losses without tax benefit 0.6 1.6 2.7
Foreign tax rates (1.5) (2.5) (1.6)
NASCO equity income (0.6) (0.6) (1.0)
Other (0.1) 0.6 0.9
---- ---- ----
Consolidated effective income tax rate 37.3% 37.7% 39.5%
==== ==== ====
</TABLE>
Income taxes paid, net of refunds, were $25,337, $17,825 and $13,269 in 1997,
1996 and 1995, respectively.
24
<PAGE> 25
Denise Bradley
Bowman Distribution
Edison, New Jersey
Ricardo Mohr
Associated Spring
Mexico City, Mexico
Mark Baker
Associated Spring
Burlington, Ontario
George Naseef
Associated Spring
Glen Ellyn, Illinois
7. COMMON STOCK
In 1997, 1996 and 1995, 566,077, 389,418 and 503,337 shares of common stock were
issued from treasury for the exercise of stock options, purchases by the
Employee Stock Purchase Plan and various other incentive awards. In 1997, 1996
and 1995, the company acquired 395,179, 61,812 and 126,708 shares of the
company's common stock at a cost of $10,673, $1,197 and $1,746, respectively.
These acquired shares were placed in treasury.
On April 2, 1997, the stockholders approved an amendment to the company's
Restated Certificate of Incorporation providing for an increase in the number of
authorized common shares from 20 million to 60 million and a reduction in the
par value of common and preferred stock from $1.00 to $.01 per share. This
enabled the company to effect a 3-for-1 stock split for stockholders of record
on April 3, 1997. All references to shares and per-share amounts in the
consolidated financial statements and accompanying notes have been adjusted
retroactively for the 3-for-1 stock split. Stockholders' equity at December 31,
1997, reflects the effect of the stock split and change in par value per share.
These changes reduced the common stock account by $15,517 and increased the
additional paid-in capital account by a like amount.
In December 1996, the company adopted a new stockholder rights plan. Under the
new plan, each share of common stock contains one right (Right) that entitles
the holder to purchase one one-hundredth of a share of Series A Junior
Participating Preferred Stock for two hundred dollars. The Rights generally will
not become exercisable unless and until, among other things, any person or group
acquires beneficial ownership of 35% or more of the outstanding stock. The new
Rights are generally redeemable at $.01 per Right at any time until 10 days
following a public announcement that a 35% or greater position in the company's
common stock has been acquired and will expire, unless earlier redeemed or
exchanged, on December 23, 2006.
If, following the acquisition by a person or group of 35% or more of the
outstanding shares of the company's common stock, the company is acquired in a
merger or other business combination or 50% or more of the company's assets or
earning power is sold or transferred, each outstanding Right becomes exercisable
for common stock or other securities of the acquiring entity having a value of
twice the exercise price of the Right.
8. PREFERRED STOCK
At December 31, 1997 and 1996, the company had 3,000,000 shares of preferred
stock authorized, none of which were outstanding. As discussed in Note 7, the
par value of preferred stock was reduced from $1.00 to $.01 per share in 1997.
9. STOCK PLANS
All U.S. salaried and non-union hourly employees are eligible to participate in
the company's Guaranteed Stock Plan (GSP). The GSP provides for the investment
of employer and employee contributions in the company's common stock. The
company guarantees a minimum rate of return on certain GSP assets.
The GSP is a leveraged ESOP. In 1989, the GSP purchased 1,737,930 shares of the
company's common stock at a cost of $21,000 using the proceeds of a loan
guaranteed by the company. These shares are held in trust and are issued to
employees' accounts in the GSP as the loan is repaid. Principal and interest on
the GSP loan are being paid in quarterly installments through 1999. The loan
bears interest based on LIBOR. At December 31, 1997 the interest rate was 6.5%.
Interest of $387, $538 and $747 was incurred in 1997, 1996 and 1995,
respectively. Contributions and certain dividends received are used in part by
the GSP to service its debt. Contributions include both employee contributions
up to a maximum of 10% of eligible pay and company contributions.
The company contributions are equal to the amount required by the GSP to pay the
principal and interest due under the GSP loan plus that required to purchase any
additional shares required to be allocated to participant accounts, less the sum
of participant contributions and dividends received by the GSP. The GSP used
$1,781, $1,642 and $1,459 of company dividends for debt service in 1997, 1996
and 1995, respectively. The company expenses all cash contributions made to the
GSP. Cash contributions in 1996 and 1995 resulted in compensation cost of $1,666
and $2,019, respectively, and in income of $498 in 1997. As of December 31,
1997, the GSP held 3,201,772 shares of the company's common stock, of which
318,476 shares were unallocated. For financial statement purposes, the company
reflects its guarantee of the GSP's debt as a liability with a like amount
reflected as a reduction of stockholders' equity.
25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - BARNES GROUP INC.
Philip Laux
Associated Spring
Glen Ellyn, Illinois
Fran Lamprey
Bowman Distribution
Cromwell, Connecticut
Carlos Perez
Associated Spring
Bristol, Connecticut
Karen Tharpe
Bowman Distribution
Elizabethtown, Kentucky
The company has an Employee Stock Purchase Plan (ESPP) under which eligible
employees may elect to have up to 10% of base compensation deducted from payroll
for the purchase of the company's common stock at 85% of market value on the
date of purchase. The maximum number of shares which may be purchased under the
ESPP is 2,025,000. During 1997, 46,600 shares (53,535 and 63,036 shares in 1996
and 1995, respectively) were purchased. As of December 31, 1997, 565,478 shares
may be purchased in the future.
The 1991 Barnes Group Stock Incentive Plan (1991 Plan) authorizes the granting
of incentives to executive officers and other key employees in the form of stock
options, stock appreciation rights, incentive stock rights and performance unit
awards. A predecessor plan that provided for similar incentives expired in 1991.
Options granted under that plan continue to be exercisable and any options which
terminate without being exercised become available for grant under the 1991
Plan. A maximum of 2,650,029 common shares are subject to issuance under this
plan after December 31, 1997. Compensation cost related to these plans was
$1,150 and $904 in 1997 and 1996, respectively. No amount was recorded in 1995.
Data relating to options granted under these plans follow:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------------------------
AVERAGE Average Average
NUMBER EXERCISE Number Exercise Number Exercise
OF SHARES PRICE of Shares Price of Shares Price
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, January 1 1,088,991 $ 10.98 1,501,068 $ 10.91 1,933,662 $ 10.54
Granted 441,190 $ 22.96 69,450 $ 15.65 237,300 $ 13.36
Exercised 505,113 $ 10.79 327,636 $ 11.30 438,138 $ 10.67
Cancelled 45,624 $ 18.44 153,891 $ 11.67 231,756 $ 10.75
------- --------- --------- --------- --------- ---------
Outstanding, December 31, 979,444 $ 16.13 1,088,991 $ 10.98 1,501,068 $ 10.91
======= ========= ========= ========= ========= =========
Exercisable, December 31, 478,680 $ 10.77 217,020 $ 10.25 427,200 $ 10.76
======= ========= ========= ========= ========= =========
</TABLE>
As of December 31, 1997 there were 1,345,013 shares available for future grant
(1,750,890 at December 31, 1996).
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- -------------------------
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OF SHARES LIFE PRICE OF SHARES PRICE
------ ----------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
$ 7 TO $11 414,555 5.4 YEARS $10.03 393,861 $ 10.08
$12 TO $14 134,469 7.1 YEARS $13.27 73,719 $ 13.15
$19 TO $23 358,470 9.2 YEARS $22.28 11,100 $ 19.50
$24 TO $30 71,950 9.7 YEARS $26.01 -- $ --
============ ======= ========= ====== ======= ========
</TABLE>
Incentive Stock Rights entitle the holder to receive shares of the company's
common stock without payment, after the lapse of the incentive period and
certain units are subject to the satisfaction of established performance goals.
Additionally, holders are credited with dividend equivalents, which are
converted into additional incentive stock units, based on dividends paid on
outstanding shares. All units granted have a five-year incentive period. In
1997, 4,500 units were granted, 5,811 units were credited to holders for
dividend equivalents and no units were forfeited. As of December 31, 1997, there
were 325,572 units outstanding.
Under the Non-Employee Director Deferred Stock Plan each non-employee director
is awarded 6,000 shares of the company's common stock upon retirement. There
were 12,000 shares issued under this plan in 1997 and 6,000 in 1996. No shares
were issued in 1995. As of December 31, 1997, 54,000 shares were reserved for
issuance under this plan.
Total shares reserved for issuance under all stock plans aggregated 3,269,507 at
December 31, 1997.
26
<PAGE> 27
Eduardo Mariscal
Associated Spring
Mexico City, Mexico
JoAnn Calcinari
Bowman Distribution-Raymond
Bristol, Connecticut
Brian Tomczak
Associated Spring
Milwaukee, Wisconsin
Jim Higdon
Bowman Distribution
Elizabethtown, Kentucky
10. PENSION PLANS
The company has noncontributory defined benefit pension plans covering a
majority of its worldwide employees at Associated Spring, Bowman Distribution
and its Executive Office. Plan benefits for salaried and non-union hourly
employees are based on years of service and average salary. Plans covering union
hourly employees provide benefits based on years of service. The company funds
U.S. pension costs in accordance with the Employee Retirement Income Security
Act of 1974 (ERISA). Plan assets consist primarily of common stocks and fixed
income investments.
Pension (income) expense consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost $ 5,384 $ 5,591 $ 4,836
Interest cost 16,668 15,839 15,907
Actual return on plan assets (43,726) (34,906) (43,256)
Net amortization and deferral 21,442 13,981 22,960
-------- -------- --------
$ (232) $ 505 $ 447
======== ======== ========
</TABLE>
The funded status of the plans at December 31, is set forth below:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Plan assets at fair value $299,632 $271,450
Actuarial present value of benefit obligations:
Vested benefits 195,120 187,728
Nonvested benefits 14,910 13,713
-------- --------
Accumulated benefit obligations 210,030 201,441
Additional benefits based on projected -------- --------
future salary increases 23,922 20,840
-------- --------
Projected benefit obligations 233,952 222,281
-------- --------
Plan assets greater than projected benefit obligations $ 65,680 $ 49,169
======== ========
</TABLE>
The following is a reconciliation to the net pension asset recognized in the
accompanying balance sheets:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Plan assets greater than projected benefit obligations $ 65,680 $ 49,169
Adjustments for unrecognized:
Net gains (56,091) (39,387)
Prior service costs 5,934 6,843
Net asset at transition (5,765) (7,505)
-------- --------
(55,922) (40,049)
-------- --------
Net pension asset $ 9,758 $ 9,120
======== ========
</TABLE>
Significant assumptions used in determining pension expense and the funded
status of the plans were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate 7.50% 7.75% 7.25%
Increase in compensation 5.25% 5.25% 5.25%
Long-term rate of return on plan assets 9.00% 9.00% 9.00%
</TABLE>
The company has a defined contribution plan covering employees of Barnes
Aerospace and field sales employees of Bowman Distribution's U.S. operation.
Company contributions under this plan are based primarily on the performance of
the business units and employee compensation. Total expense amounted to $2,593,
$1,735 and $1,748 in 1997, 1996 and 1995, respectively.
27
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - BARNES GROUP INC.
Kalil Diah Volante
Associated Spring
Campinas, Brazil
Lim Mun Cheong
Associated Spring
Singapore
Ken Wright
Bowman Distribution
Cromwell, Connecticut
Sheila Rippy
Bowman Distribution
Rockford, Illinois
11. POSTRETIREMENT HEALTHCARE AND LIFE INSURANCE BENEFITS
The company provides certain medical, dental and life insurance benefits for a
majority of its retired employees in the U.S. and Canada. It is the company's
practice to fund these benefits as incurred.
Postretirement benefit expense consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost $ 506 $ 660 $ 679
Interest cost 4,320 4,782 5,594
Net amortization (1,422) (1,150) (158)
------- ------- -------
$ 3,404 $ 4,292 $ 6,115
======= ======= =======
</TABLE>
The amounts included in the accompanying balance sheets at December 31, were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Accumulated benefit obligations:
Retirees $46,928 $ 46,283 $ 57,160
Employees eligible to retire 4,067 5,283 6,904
Employees not eligible to retire 8,988 10,464 13,654
Unrecognized prior service cost 8,376 9,799 1,021
Unrecognized net gain (loss) 245 (1,331) (7,339)
------- -------- --------
$68,604 $ 70,498 $ 71,400
======= ======== ========
</TABLE>
Postretirement benefit obligations included in:
<TABLE>
<S> <C> <C> <C>
Accrued liabilities $5,076 $5,273 $5,673
Accrued retirement benefits 63,528 65,225 65,727
------- -------- --------
$68,604 $70,498 $71,400
======= ======== ========
</TABLE>
Cash payments made in 1997, 1996 and 1995 for postretirement benefits were
$5,298, $5,194 and $5,210, respectively.
The company's accumulated benefit obligations take into account certain
cost-sharing provisions. The annual assumed rate of increase in the cost of
covered benefits (i.e., healthcare cost trend rate) is assumed to be 8.0% for
1997, 7.0% for 1998, with a further reduction to 5.0% by the year 2001. A one
percentage point increase in the assumed healthcare cost trend rate would
increase the accumulated benefit obligations by approximately $1,991 at December
31, 1997, and would have increased the 1997 aggregate of the service and
interest cost components of postretirement benefit expense by approximately
$156.
Discount rates of 7.50%, 7.75% and 7.25% were used in determining the
accumulated benefit obligation at December 31, 1997, 1996 and 1995,
respectively.
12. LEASES
The company has various noncancellable operating leases for buildings, office
space and equipment. Capital leases were not significant. Rent expense was
$7,178, $6,268 and $5,866 for 1997, 1996 and 1995, respectively. During 1997,
both Associated Spring headquarters and Bowman Distribution headquarters
relocated to new facilities under operating leases. Minimum rental commitments
under noncancellable leases in years 1998 through 2002 are $5,124, $3,824,
$3,376, $3,111, $2,633 and $11,623 thereafter.
28
<PAGE> 29
13. INFORMATION ON
BUSINESS SEGMENTS
The company operates three businesses:
BOWMAN DISTRIBUTION: distributes fast-moving, consumable repair and replacement
products for industrial, heavy equipment and transportation maintenance markets.
Bowman Distribution's operations and markets are located primarily in the U.S.
Other important locations include Canada and Europe.
BARNES AEROSPACE: manufactures precision machined parts and fabricated
assemblies, and refurbishes jet engine components for the aircraft and aerospace
industries. Barnes Aerospace's operations and markets are located primarily in
the U.S., Europe and Asia.
ASSOCIATED SPRING: manufactures and distributes custom-made springs and other
close-tolerance engineered metal components, principally for the transportation,
electronics and industrial markets. Associated Spring's custom metal parts are
sold in the U.S. and through its international subsidiaries. International
manufacturing operations are located in Brazil, Canada, Mexico and Singapore.
The automotive and automotive parts industries constitute Associated Spring's
largest market.
Sales between the business segments and between the geographic areas are
accounted for on the same basis as sales to unaffiliated customers. Operating
income includes net sales less cost of sales and selling and administrative
expenses. Other income and expenses are not included in operating income.
Corporate assets consist of cash and cash equivalents, deferred income taxes,
other assets, transportation and office equipment and the Executive Office
building. Included in the 1997 identifiable international assets are the assets
of manufacturing facilities in Singapore ($30,005), Brazil ($16,378), Canada
($19,610) and Mexico ($9,968) and distribution facilities in Canada ($13,697),
U.K. ($16,095) and France ($7,314). Associated Spring's operation in Singapore
was an important contributor to the company's international operating income
during each of the three years presented.
The following tables set forth information about the company's operations by its
three business segments and by geographic area.
OPERATIONS BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
Net Sales Operating Income
---------------------------- ------------------------
(Dollars in millions) 1997 1996 1995 1997 1996 1995
------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Bowman Distribution $220.0 $213.4 $217.0 $26.7 $22.0 $17.4
Barnes Aerospace 136.6 103.1 97.3 14.4 5.3 5.0
Associated Spring 287.1 279.5 279.0 43.0 45.8 42.6
Intersegment sales (1.0) (1.0) (0.8) -- -- --
------ ------ ------ ---- ---- ----
$642.7 $595.0 $592.5 84.1 73.1 65.0
====== ====== ======
Corporate expenses (18.3) (17.8) (16.2)
----- ----- -----
Operating income $65.8 $55.3 $48.8
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Identifiable Assets Capital Expenditures Depreciation Expense
----------------------------- -------------------------- ----------------------------
(Dollars in millions) 1997 1996 1995 1997 1996 1995 1997 1996 1995
- --------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bowman Distribution $ 83.2 $ 73.0 $ 79.2 $ 6.6 $ 2.9 $ 3.6 $ 3.8 $ 3.7 $ 4.1
Barnes Aerospace 96.2 96.1 87.0 7.9 9.4 7.8 7.1 7.0 7.2
Associated Spring 183.2 177.8 160.3 18.7 21.5 24.2 14.3 13.0 11.6
Corporate 45.4 43.1 35.0 0.2 0.1 0.2 0.2 0.3 0.3
----------------------------------------------------------------------------------------------------
$ 408.0 $ 390.0 $ 361.5 $ 33.4 $ 33.9 $ 35.8 $ 25.4 $ 24.0 $ 23.2
====================================================================================================
</TABLE>
29
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - BARNES GROUP INC.
OPERATIONS BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
Net Sales Operating Income
--------------------------------------- -------------------------------------
1997 1996 1995 1997 1996 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in millions) $ 515.0 $ 466.4 $ 463.4 $ 71.6 $ 59.5 $ 51.3
Domestic 139.5 138.8 137.9 12.5 13.6 13.7
International (11.8) (10.2) (8.8) -- -- --
--------- --------- --------- --------- --------- ---------
Sales between geographic areas $ 642.7 $ 595.0 $ 592.5 $ 84.1 $ 73.1 $ 65.0
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Identifiable Assets
-------------------------------------
(Dollars in millions) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Domestic $ 249.4 $ 239.8 $ 227.5
International 113.2 107.1 99.0
Corporate 45.4 43.1 35.0
-------------------------------------
$ 408.0 $ 390.0 $ 361.5
=====================================
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF BARNES GROUP INC.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, changes in stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of Barnes
Group Inc. and its subsidiaries at 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. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/S/PRICE WATERHOUSE LLP
Hartford, Connecticut
January 21, 1998
30
<PAGE> 31
QUARTERLY DATA (UNAUDITED) - BARNES GROUP INC.
<TABLE>
<CAPTION>
First Second Third Fourth Full
(Dollars in millions, except per share data) Quarter Quarter Quarter Quarter Year
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1997
Net sales $ 158.1 $ 165.9 $ 158.5 $ 160.2 $ 642.7
Gross profit(1) 55.2 54.6 53.2 53.1 216.1
Operating income 16.8 17.5 16.1 15.4 65.8
Net income 10.1 10.7 10.1 9.5 40.4
Per Common Share:(2)
Net income:
Basic 0.50 0.53 0.50 0.47 2.00
Diluted 0.49 0.52 0.49 0.46 1.96
Dividends 0.15 0.17 0.16 0.17 0.65
Market prices (high-low) $24.92-19.79 $29.88-22.88 $30.38-27.00 $29.25-22.75 $30.38-19.79
1996
Net sales $ 150.1 $ 152.6 $ 147.1 $ 145.2 $ 595.0
Gross profit(1) 52.9 53.7 52.2 51.5 210.3
Operating income 11.2 14.4 14.7 15.0 55.3
Net income 6.6 8.7 8.7 8.6 32.6
Per Common Share:(2)
Net income:
Basic 0.34 0.43 0.44 0.42 1.63
Diluted 0.33 0.43 0.43 0.42 1.61
Dividends 0.15 0.15 0.15 0.15 0.60
Market prices (high-low) $ 15.08-11.67 $17.29-14.92 $17.04-15.42 $20.67-16.54 $20.67-11.67
</TABLE>
(1) Sales minus cost of sales.
(2) All per share data has been adjusted for the 3-for-1 stock split.
31
<PAGE> 32
SELECTED FINANCIAL DATA - BARNES GROUP INC.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
PER COMMON SHARE (1) (2)
Income (loss)
-------- -------- --------
Continuing operations $ 2.00 $ 1.63 $ 1.40
-------- -------- --------
Effect of accounting changes -- -- --
-------- -------- --------
Net income (loss)
Basic 2.00 1.63 1.40
-------- -------- --------
Diluted 1.96 1.61 1.38
-------- -------- --------
Dividends paid .65 .60 .53
-------- -------- --------
Stockholders' equity (at year-end) 8.97 7.86 6.55
-------- -------- --------
Stock price (at year-end) 22.75 20.00 12.00
======== ======== ========
FOR THE YEAR (in thousands)
Net sales $642,660 $594,989 $592,509
-------- -------- --------
Operating income 65,766 55,316 48,804
-------- -------- --------
As a percent of sales 10.2% 9.3% 8.2%
-------- -------- --------
Income from continuing operations before income taxes
and effect of accounting changes $ 64,502 $ 52,310 $ 45,450
-------- -------- --------
Income taxes 24,079 19,742 17,966
-------- -------- --------
Income from continuing operations before
effect of accounting changes 40,423 32,568 27,484
-------- -------- --------
As a percent of average stockholders' equity 23.4% 22.8% 22.6%
-------- -------- --------
Effect of accounting changes $ -- $ -- $ --
-------- -------- --------
Net income (loss) 40,423 32,568 27,484
-------- -------- --------
Depreciation and amortization 28,123 26,626 26,750
-------- -------- --------
Capital expenditures 33,398 33,892 35,820
-------- -------- --------
Average common shares outstanding - basic 20,237 19,924 19,640
======== ======== ========
YEAR-END FINANCIAL POSITION (in thousands)
Working capital $113,092 $109,476 $ 95,280
-------- -------- --------
Current ratio 2.3 to 1 2.4 to 1 2.2 to 1
-------- -------- --------
Property, plant and equipment $133,830 $131,071 $122,870
-------- -------- --------
Total assets 407,978 389,956 361,549
-------- -------- --------
Long-term debt 60,000 70,000 70,000
-------- -------- --------
Guaranteed ESOP obligation - long term portion 2,205 4,951 7,491
-------- -------- --------
Stockholders' equity 180,859 157,164 128,841
-------- -------- --------
Debt as a percent of total capitalization(6) 27.1% 33.5% 38.4%
======== ======== ========
YEAR-END STATISTICS
Employees 3,872 3,761 3,880
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
1994 1993 (3) 1992(4)(5)
--------- -------- ---------
<S> <C> <C>
$ 1.07 $ .23 $ .31
--------- -------- ---------
-- -- (2.19)
--------- -------- ---------
1.07 .23 (1.87)
--------- -------- ---------
1.06 .23 (1.87)
--------- -------- ---------
.48 .47 .47
--------- -------- ---------
5.55 4.86 5.01
--------- -------- ---------
12.67 10.42 10.17
========= ======== =========
$ 569,197 $502,292 $ 529,073
--------- -------- ---------
36,649 12,538 7,259
--------- -------- ---------
6.4% 2.5% 1.4%
--------- -------- ---------
$ 33,922 $ 8,391 $ 7,671
--------- -------- ---------
13,606 4,008 1,838
--------- -------- ---------
20,316 4,383 5,833
--------- -------- ---------
20.3% 4.7% 5.8%
--------- -------- ---------
$ -- $ -- $ (40,695)
--------- -------- ---------
20,316 4,383 (34,862)
--------- -------- ---------
23,733 23,094 23,741
--------- -------- ---------
31,848 22,216 16,238
--------- -------- ---------
19,061 18,750 18,607
========= ======== =========
$ 88,325 $ 87,011 $ 93,500
--------- -------- ---------
2.0 to 1 2.1 to 1 2.0 to 1
--------- -------- ---------
$ 112,569 $103,043 $ 104,437
--------- -------- ---------
351,956 333,296 348,346
--------- -------- ---------
70,000 70,000 70,000
--------- -------- ---------
9,839 12,011 14,019
--------- -------- ---------
107,139 91,849 93,575
--------- -------- ---------
45.6% 50.7% 51.9%
========= ======== =========
4,181 4,357 4,051
</TABLE>
(1) All per share data, other than earnings per common share, are based on
common shares outstanding at the end of each year. Earnings per common share
are based on weighted average common shares outstanding during each year.
(2) All per share data has been adjusted for the 3-for-1 stock split effective
April, 1997.
(3) Includes a $3.4 million pretax, $2.0 million after-tax charge ($.11 per
share) against income related to the plant consolidation and work-force
reduction at Barnes Aerospace and a $1.5 million charge without tax benefit
($.08 per share) for a plant consolidation at Associated Spring's Mexico
operations.
(4) Includes a $17.8 million pretax, $10.7 million after-tax charge ($.58 per
share) against income related to the costs of plant closings at Associated
Spring, Barnes Aerospace charges on a terminated contract and restructuring
of Bowman's U.S. sales organization. These charges were partially offset by
a $5.0 million pretax gain, $3.7 million after-tax ($.20 per share) from the
sale of Bowman's Pioneer division.
(5) Barnes Group adopted three new accounting standards in 1992 retroactive to
the beginning of the year. Included is a one-time $39.7 million after-tax
charge ($2.14 per share) to comply with SFAS 106 and 112, both of which
change the accounting for certain postretirement and postemployment benefits
to the accrual method and an additional $1.0 million income tax charge ($.05
per share) for SFAS 109, which changed income tax accounting.
(6) Debt includes all interest-bearing debt including the guaranteed ESOP
obligation, and total capitalization includes interest-bearing debt and
stockholders' equity.
33
<PAGE> 34
BARNES GROUP AROUND THE WORLD
[GRAPHIC OMITTED]
BARNES
GROUP INC.
Headquarters
- - BRISTOL, CONNECTICUT
BOWMAN
DISTRIBUTION
Headquarters
1 CLEVELAND, OHIO
Distribution Operations
United States
2 ANAHEIM, CALIFORNIA
3 BAKERSFIELD, CALIFORNIA
4 NORCROSS, GEORGIA
5 ROCKFORD, ILLINOIS
6 ELIZABETHTOWN, KENTUCKY
7 EDISON, NEW JERSEY
8 COLUMBUS, OHIO
9 ARLINGTON, TEXAS
10 HOUSTON, TEXAS
11 AUBURN, WASHINGTON
Canada
12 CONCORD, ONTARIO
13 EDMONTON, ALBERTA
14 MONCTON, NEW BRUNSWICK
United Kingdom
15 CORSHAM
France
16 VOISINS LE BRETONNEUX
Raymond Distribution
United States
17 MAUMEE, OHIO
18 CERRITOS, CALIFORNIA
19 YPSILANTI, MICHIGAN
20 ARLINGTON, TEXAS
21 NEW BERLIN, WISCONSIN
United Kingdom
22 EVESHAM
France
23 MONTIGNY
BARNES
AEROSPACE
Headquarters
1 WINDSOR, CONNECTICUT
Manufacturing Plants
United States
2 EAST GRANBY, CONNECTICUT
3 WINDSOR, CONNECTICUT
4 LANSING, MICHIGAN
5 OGDEN, UTAH
Asia
6 REPUBLIC OF SINGAPORE
ASSOCIATED
SPRING
Headquarters
1 FARMINGTON, CONNECTICUT
Manufacturing Plants
North America
2 BRISTOL, CONNECTICUT
3 SALINE, MICHIGAN
4 SYRACUSE, NEW YORK
5 ARDEN, NORTH CAROLINA
6 CORRY, PENNSYLVANIA
7 DALLAS, TEXAS
8 MILWAUKEE, WISCONSIN
9 BURLINGTON, ONTARIO, CANADA
10 MEXICO CITY, MEXICO
South America
11 CAMPINAS, BRAZIL
Asia
12 REPUBLIC OF SINGAPORE
34
<PAGE> 35
DIRECTORS
*THOMAS O. BARNES
CHAIRMAN OF THE BOARD
*-++GARY G. BENANAV
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
New York Life International, Inc.
EXECUTIVE VICE PRESIDENT
New York Life Insurance Company
New York, New York
*-WILLIAM S. BRISTOW, JR.
PRESIDENT
W.S. Bristow & Associates, Inc.
Rollinsford, New Hampshire
*++ROBERT J. CALLANDER
EXECUTIVE IN RESIDENCE
Columbia University
School of Business
RETIRED VICE CHAIRMAN
Chemical Banking Corporation
New York, New York
*-++GEORGE T. CARPENTER
PRESIDENT
The S. Carpenter Construction Company
Bristol, Connecticut
- -++DONNA R. ECTON
CHIEF OPERATING OFFICER
PETsMART, Inc.
Phoenix, Arizona
- -ROBERT W. FIONDELLA
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Phoenix Home Life
Mutual Insurance Company
Hartford, Connecticut
++FRANK E. GRZELECKI
VICE CHAIRMAN
Handy & Harman
Rye, New York
- -++MARCEL P. JOSEPH
FORMER CHAIRMAN
OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Augat Inc.
Mansfield, Massachusetts
*THEODORE E. MARTIN
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
OFFICERS
EXECUTIVE OFFICE
THEODORE E. MARTIN
President and
Chief Executive
Officer
TERRY M. MURPHY
Senior Vice President,
Finance
JAMES A. PAYNTER
Senior Vice President,
Human Resources
WILLIAM V. GRICKIS, JR.
Vice President,
General Counsel
and Secretary
JOHN J. LOCHER
Vice President,
Treasurer
FRANCIS C. BOYLE, JR.
Vice President,
Controller
OPERATIONS
ALI A. FADEL
Vice President,
Barnes Group Inc.,
and President,
Associated Spring
LEONARD M. CARLUCCI
Vice President,
Barnes Group Inc.,
and President,
Bowman Distribution
CEDRIC D. BECKETT
Vice President,
Barnes Group Inc.,
and President,
Barnes Aerospace
STOCKHOLDERS' INFORMATION
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
Phone: 1-800-288-9541 (Continental U.S. only)
or 1-201-329-8660
For Hearing Impaired 1-800-231-5469
USE THE ABOVE ADDRESS AND PHONE NUMBERS FOR INFORMATION ON THE FOLLOWING
SERVICES:
STOCKHOLDER INQUIRIES/ADDRESS CHANGES/
CONSOLIDATIONS
LOST CERTIFICATES/REPLACEMENTS
CERTIFICATE TRANSFERS:
All certificates should be sent certified or registered mail.
DIVIDEND INVESTMENT/STOCKHOLDER INVESTMENT PLANS:
Dividends on Barnes Group common stock may be
automatically invested in additional shares.
HAND DELIVERIES:
ChaseMellon Shareholder Services, L.L.C.
120 Broadway, 13th Floor
New York, NY 10271
STOCK EXCHANGE
New York Stock Exchange
Stock Trading Symbol: B
Listed on the S&P Small Cap 600 Index
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
One Financial Plaza
Hartford, CT 06103
ANNUAL MEETING
Barnes Group Inc. annual meeting of stockholders
will be held at 10:30 a.m., Wednesday, April 8, 1998,
at Associated Spring Group Headquarters,
Farmington, CT.
INVESTOR INFORMATION
Barnes Group welcomes inquiries from stockholders, analysts and prospective
investors. Quarterly reports, 10-K's and other information on the company are
available on request. Please note that the company is no longer required to
provide quarterly reports to stockholders. Those wishing to receive this
information can obtain it over the Internet or by requesting it from the company
at the phone or fax numbers listed below.
Contact: Robert D. Lipira (for investor relations)
or Holly V. LeBlanc (for stockholder relations)
Barnes Group Inc.
123 Main St., P.O. Box 489
Bristol, CT 06011-0489
Phone: 1-860-583-7070
Fax: 1-860-589-3507
COMMUNICATION
For additional information on the company, call our Fax-on-Demand Service at
1-800-311-4606. For press releases on the Internet, address
http://www.businesswire.com/cnn
* Member of Executive Committee
- - Member of Audit Committee
++ Member of Compensation Committee
Design: Susan Brier, The WriteDesign Company, LLC / Printing: Universal Press
35
<PAGE> 36
BARNES GROUP INC [LOGO]
<PAGE> 1
EXHIBIT 21
BARNES GROUP INC.
LIST OF SUBSIDIARIES
Operating Subsidiaries of the Company:
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
---- -------------
<S> <C>
Associated Spring-Asia PTE. LTD. Singapore
Associated Spring SPEC Limited United Kingdom
Barnes Group (Bermuda) Limited Bermuda
Barnes Group Canada Inc. Canada
Barnes Group Holding B.V. Netherlands
Bowman Distribution Europe Limited United Kingdom
Bowman Distribution France S.A. France
Resortes Mecanicos, S.A. Mexico
Ressorts SPEC, EURL France
Stumpp & Schuele do Brasil Industria e Brazil
Comercio Limitada
Windsor Airmotive Asia PTE. LTD. Singapore
</TABLE>
Associated Spring SPEC Limited is wholly-owned by Bowman
Distribution Europe Limited. Ressorts SPEC, EURL is wholly-owned by Bowman
Distribution France S.A. Windsor Airmotive Asia PTE. LTD. is wholly-owned by
Barnes Group Canada Inc. Associated Spring-Asia PTE. LTD. and Stumpp & Schuele
do Brasil Industria e Comercio Limitada are wholly-owned by Barnes Group
(Bermuda) Limited. Resortes Mecanicos, S.A. is owned by Barnes Group (Bermuda)
Limited (20%), Barnes Group Canada Inc. (40%), and Associated Spring-Asia PTE.
LTD. (40%). Barnes Group Canada Inc., Bowman Distribution Europe Limited, and
Bowman Distribution France S.A. are wholly-owned by Barnes Group Holding B.V.
Barnes Group (Bermuda) Limited and Barnes Group Holding B.V. are wholly-owned by
Barnes Group Inc. The Company's consolidated financial statements include all of
the above-named subsidiaries. For a statement of the principles of consolidation
applicable to these subsidiaries, see Note 1 of the Notes to Consolidated
Financial Statements on page 21 of the 1997 Annual Report to Stockholders.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 2-56437, pertaining to the Employee Stock Purchase
Plan; No. 2-91285, pertaining to the 1981 Stock Incentive Plan; Nos. 33-20932
and 33-30229, pertaining to the Guaranteed Stock Plan; and the registration
statements filed on July 18, 1994, No. 33-91758 and May 16, 1997, No. 33-27339,
pertaining to the 1991 Barnes Group Stock Incentive Plan) of Barnes Group Inc.
of our report dated January 21, 1998 appearing on page 30 of the Annual Report
to Stockholders which is incorporated in this Annual Report on Form 10-K. We
also consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 13 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Hartford, Connecticut
March 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF BARNES GROUP INC. AS OF DECEMBER 31, 1997, THE
RELATED CONSOLIDATED STATEMENT OF INCOME, NOTE 3 TO THE CONSOLIDATED FINANCIAL
STATEMENTS AND SCHEDULE II OF FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS, NOTE AND SCHEDULE.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 32,530
<SECURITIES> 0
<RECEIVABLES> 94,818
<ALLOWANCES> 3,061
<INVENTORY> 61,082
<CURRENT-ASSETS> 203,017
<PP&E> 334,836
<DEPRECIATION> 201,006
<TOTAL-ASSETS> 407,978
<CURRENT-LIABILITIES> 89,925
<BONDS> 62,205
0
0
<COMMON> 220
<OTHER-SE> 180,639
<TOTAL-LIABILITY-AND-EQUITY> 407,978
<SALES> 642,660
<TOTAL-REVENUES> 642,660
<CGS> 426,550
<TOTAL-COSTS> 426,550
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,232
<INTEREST-EXPENSE> 4,864
<INCOME-PRETAX> 64,502
<INCOME-TAX> 24,079
<INCOME-CONTINUING> 40,423
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,423
<EPS-PRIMARY> 2.00
<EPS-DILUTED> 1.96
</TABLE>
