UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM l0-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For transition period from
--------------------
to
--------------------
Commission File Number 1-4801
BARNES GROUP INC.
(a Delaware Corporation)
I.R.S. Employer Identification No. 06-0247840
123 Main Street, Bristol, Connecticut 06010
Telephone Number (860) 583-7070
Number of common shares outstanding at
August 5, 1998 - 20,095,983
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
--- ---
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<PAGE>
<TABLE>
BARNES GROUP INC.
FORM 10-Q INDEX
For the Quarterly period ended June 30, 1998
<CAPTION>
DESCRIPTION PAGES
----------- -----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Income
for the six months and second quarter
ended June 30, 1998 and 1997 3
Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997 4-5
Consolidated Statements of Cash Flows
for the six months ended June 30,
1998 and 1997 6
Notes to Consolidated Financial
Statements 7-9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-13
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 13
Signatures 13
</TABLE>
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<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $169,151 $165,867 $338,067 $324,000
Cost of sales 112,201 111,243 223,559 214,189
Selling and admin-
istrative expenses 50,096 37,141 88,274 75,524
-------- -------- -------- --------
162,297 148,384 311,833 289,713
-------- -------- -------- --------
Operating income 6,854 17,483 26,234 34,287
Other income 1,700 1,202 2,896 2,122
Interest expense 929 1,237 2,054 2,525
Other expenses 192 306 697 553
-------- -------- -------- --------
Income before income
taxes 7,433 17,142 26,379 33,331
Income taxes 2,787 6,428 9,892 12,499
-------- -------- -------- --------
Net income $ 4,646 $ 10,714 $ 16,487 $ 20,832
======== ======== ======== ========
Per common share:
Net income - basic $ .23 $ .53 $ .82 $ 1.03
- diluted .23 .52 .81 1.01
Dividends .17 .17 .33 .32
Average common shares
outstanding 20,222,640 20,307,821 20,198,031 20,197,220
</TABLE>
[FN]
See accompanying notes.
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<PAGE>
<TABLE>
BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
ASSETS June 30, December 31,
1998 1997
-------- -----------
(Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 37,133 $ 32,530
Accounts receivable, less allowances
(1998-$2,851; 1997-$3,061) 92,983 91,757
Inventories
Finished goods 34,040 30,519
Work-in-process 18,879 17,369
Raw materials and supplies 15,742 13,194
-------- --------
68,661 61,082
Deferred income taxes and prepaid
expenses 17,647 17,648
-------- --------
Total current assets 216,424 203,017
Deferred income taxes 24,810 24,083
Property, plant and equipment 346,639 334,836
Less accumulated depreciation 210,728 201,006
-------- --------
135,911 133,830
Goodwill 18,499 18,773
Other assets 28,430 28,275
-------- --------
Total assets $424,074 $407,978
======== ========
</TABLE>
[FN]
See accompanying notes.
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<PAGE>
<TABLE>
BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
Current liabilities
Notes payable $ 2,619 $ 2,437
Accounts payable 42,127 37,776
Accrued liabilities 49,843 46,966
Guaranteed ESOP obligation-current 2,856 2,746
-------- --------
Total current liabilities 97,445 89,925
Long-term debt 60,000 60,000
Guaranteed ESOP obligation 749 2,205
Accrued retirement benefits 69,411 67,486
Other liabilities 10,482 7,503
Stockholders' equity
Common stock-par value $0.01 per share
Authorized: 60,000,000 shares
Issued: 22,037,769 shares
stated at par value 220 220
Additional paid-in capital 48,175 47,007
Retained earnings 193,505 183,857
Accumulated other comprehensive income (19,138) (15,841)
Treasury stock at cost,
1998-1,885,159 shares
1997-1,875,111 shares (33,170) (29,433)
Guaranteed ESOP obligation (3,605) (4,951)
-------- --------
Total stockholders' equity 185,987 180,859
-------- --------
Total liabilities and stockholders'
equity $424,074 $407,978
======== ========
</TABLE>
[FN]
See accompanying notes.
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<PAGE>
<TABLE>
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1998 and 1997
(Dollars in thousands)
(Unaudited)
<CAPTION>
1998 1997
Operating activities: ------- -------
<S> <C> <C>
Net income $16,487 $20,832
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 14,091 13,906
Gain on sale of property, plant
and equipment (98) (305)
Changes in assets and liabilities:
Accounts receivable (1,876) (11,935)
Inventories (7,956) (1,929)
Accounts payable 4,532 7,652
Accrued liabilities 3,077 (5,006)
Deferred income taxes (937) 463
Other 6,086 (1,803)
------- -------
Net cash provided by operating activities 33,406 21,875
Investing activities:
Proceeds from sale of property, plant
and equipment 423 1,295
Capital expenditures (16,332) (19,212)
Other (813) (239)
------- -------
Net cash used by investing activities (16,722) (18,156)
Financing activities:
Net increase in notes payable 260 4,012
Proceeds from the issuance of common stock 2,747 5,439
Common stock repurchases (6,651) (1,226)
Dividends paid (6,761) (6,413)
------- -------
Net cash (used) provided by financing activities (10,405) 1,812
Effect of exchange rate changes on cash flows (1,676) (363)
------- -------
Increase in cash and cash equivalents 4,603 5,168
Cash and cash equivalents at beginning of period 32,530 23,986
------- -------
Cash and cash equivalents at end of period $37,133 $29,154
======= =======
</TABLE>
[FN]
See accompanying notes.
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<PAGE>
Notes to Consolidated Financial Statements:
1. Summary of Significant Accounting Policies
------------------------------------------
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. They do not include all information and
footnotes required by generally accepted accounting principles
for complete financial statements. For additional
information, please refer to the consolidated financial
statements and footnotes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997. In
the opinion of management, all adjustments, including normal
recurring accruals considered necessary for a fair
presentation, have been included. Operating results for the
six-month period ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1998.
2. Non-recurring Charge
--------------------
As announced on July 6, 1998, the Company's Board of Directors
accepted the request for early retirement of Theodore E.
Martin, president and chief executive officer. A special
Board committee will oversee the search for a new president
and chief executive officer.
In recognition of the results Mr. Martin delivered for Barnes
Group stockholders, effectively increasing the market value of
the Company by $280 million over his three year tenure as
president and CEO, the Board approved a retirement package
that includes the accelerated payment and vesting of
retirement and other benefits. The package resulted in a one-
time charge against second quarter 1998 earnings of $12.9
million. The after-tax impact of this retirement package is
$7.7 million or $.38 per common share
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<PAGE>
3. Other Comprehensive Income
--------------------------
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income". This Statement establishes
standards for reporting and displaying comprehensive income
and its components in a full-set of financial statements. For
interim reporting, the Statement requires the disclosure of
total comprehensive income for the periods presented. The
Statement is effective for fiscal periods beginning after
December 15, 1997.
Comprehensive income is defined as "the change in equity of a
business enterprise during a period from transactions and
other events and circumstances from non-owner sources". This
would include net income and "other comprehensive income"
but exclude the sale and repurchase of stock and distribution
of dividends. The only adjustment to stockholder's equity
that the Company has that qualifies as an item of "other
comprehensive income" is foreign currency translation
adjustments. The effect of foreign currency translation
adjustments on comprehensive income is as follows:
<TABLE>
Statement of Comprehensive Income
(Dollars in thousands)
(Unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1998 1997 1998 1997
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net income $ 4,646 $ 10,714 $ 16,487 $ 20,832
Other comprehensive
loss, net of tax (2,802) (7) (3,297) (1,705)
-------- -------- -------- --------
Comprehensive income $ 1,844 $ 10,707 $ 13,190 $ 19,127
======== ======== ======== ========
</TABLE>
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<PAGE>
4. Segment Disclosure
------------------
Effective January 1, 1998, management responsibility for
Raymond Distribution was transferred from the Associated
Spring Group to the Bowman Distribution Group. Raymond is
engaged in the distribution of industrial products and
standard stock wire and flat springs manufactured primarily by
Associated Spring. The transfer of Raymond to the Bowman
Group will enhance synergy in the Company's distribution
operations. All references to prior year segment data have
been restated to reflect this transfer.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131,
"Disclosure About Segments of an Enterprise and Related
Information". The Statement is effective for the Company's
1998 annual financial statements and interim periods beginning
in the second year of application. Although management has
not completed the review of the new Standard, it does not
anticipate that its adoption will have a significant effect on
the Company's reporting segments.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
---------------------
The Company's second quarter 1998 sales were up 2% to $169.2
million compared to $165.9 million in 1997. Operating income was
$6.9 million versus $17.5 million for the comparable 1997 quarter.
The second quarter 1998 operating income, before the one-time
charge related to Mr. Martin's early retirement package, was $19.8
million, a 13% increase over the prior year's second quarter. The
operating margin, excluding the non-recurring charge, improved to
11.7% compared to 10.5% in 1997's second quarter. The 1998 second
quarter results reflect year-over-year sales gains at both
Associated Spring and Barnes Aerospace and higher operating income
in all three business segments.
The Company's 1998 first half sales were $338.1 million, up 4% from
$324.0 million in 1997 reflecting sales gains at both Associated
Spring and Barnes Aerospace. First half 1998 operating income was
$26.2 million compared to the $34.3 million reported in 1997.
-9-
<PAGE>
Operating income, before the non-recurring charge, was $39.1
million in 1998, an increase of 14.2% over the comparable 1997
period. The operating margin, excluding the non-recurring charge,
increased to 11.6% versus 10.6% in 1997. All three business
segments contributed to the improved operating income.
Segment Review-Sales and Operating Income
------------------------------------------
Associated Spring segment sales for the second quarter and six
months ending June 30, 1998 increased slightly over the comparable
1997 periods. Sales for the 1998 second quarter and first half
were $69.3 million and $137.8 million, respectively. The sales
gains were due to the strength in the North American and Mexican
markets, offset in part by a decline in the Asia market place. The
increase in the Group's operating income was significantly higher
than the increase in sales for both second quarter and year-to-date
1998 periods due in large part to the Group's Mexican operation.
The Mexican operation reported significant year-over-year
improvement due in part to the resolution of the 1997 operating
issues which negatively impacted the first half 1997 results. The
Asian economic crisis had an adverse impact on the Group's
Singapore operation as a large telecommunications customer and
several other customers reduced orders in the second quarter. The
North American General Motors strike, which was settled in late
July, did not significantly impact second quarter 1998 sales. The
magnitude of the strike's effect on second half results should be
minor due to the anticipated increase in production by General
Motors to meet its customers pent-up demand.
Bowman Distribution's second quarter 1998 segment sales decreased
5% to $63.5 million and first half 1998 sales decreased slightly to
$130.0 million from the comparable 1997 periods. The sales
declines are a result of lower volume in North America.
Significant operating income gains were reported in the second
quarter and first six months of 1998 over the comparable prior year
periods, the result of aggressive cost management.
Barnes Aerospace segment sales for the second quarter of 1998 were
$40.5 million, up 18% while the first six months sales improved 22%
to $78.2 million over strong 1997 levels. Significant gains in
sales and operating income were reported in both the original
equipment manufacture and overhaul and repair businesses, a result
of the strong commercial aviation engine and airframe markets.
-10-
<PAGE>
Non-Operating Income/Expense
----------------------------
Other income in the second quarter and first half of 1998 was
higher than 1997 due to the increase in both the equity income from
the Company's investment in its NASCO joint venture and net foreign
exchange transaction gains. Other expenses in 1997 reflect a small
net foreign exchange translation loss. Interest expense in 1998
compared to 1997 decreased due to lower borrowing levels as well as
marginally lower interest rates.
Income Taxes
------------
The Company's effective tax rate for both 1998 and 1997 was 37.5%.
Net Income and Net Income Per Share
-----------------------------------
Consolidated net income for the second quarter of 1998 and 1997 was
$4.6 million and $10.7 million, respectively. Basic and diluted
earnings per share for the 1998 second quarter were $.23 compared
to 1997's basic earnings per share of $.53 and diluted earnings per
share of $.52. Without the non-recurring charge related to Mr.
Martin's early retirement, net income for the second quarter 1998
was $12.4 million, or basic earnings per share of $.61, a 15%
increase over 1997's second quarter.
Consolidated net income for the first half of 1998 and 1997 was
$16.5 million and $20.8 million, respectively. Basic and diluted
earnings per share for the first six months of 1998 were $.82 and
$.81 compared to 1997's basic and diluted earnings per share of
$1.03 and $1.01, respectively. Without the non-recurring charge,
net income for the first half of 1998 was $24.2 million, or $1.20
per share, a 17% increase over the first half of 1997.
There were no adjustments to net income for the purpose of
computing income available to common stockholders for 1998 and
1997. For the purpose of computing diluted earnings per share, the
weighted average number of shares outstanding for the second
quarters of 1998 and 1997 were increased by 339,811 and 431,404,
respectively, and for the first six months of 1998 and 1997 were
increased 360,763 and 422,660, respectively, representing the
potential dilutive effects of stock-based incentive plans.
-11-
<PAGE>
Financial Condition
-------------------
Cash Flows
----------
Net cash generated by operating activities in the first six months
of 1998 was $33.4 million, compared to $21.9 million in 1997. This
1998 increase in operating cash flows was due to improved operating
results and working capital management. The $7.7 million charge to
net income for Mr. Martin's early retirement had no effect on
operating cash flows for the six month period ended June 30, 1998,
since it was offset by a corresponding liability. Mr. Martin's
early retirement charge includes components for pension benefits,
which will be paid out over a long-term period, and stock options,
which are a non-cash charge. Approximately $2.6 million of the
non-recurring charge will be paid by December 31, 1998.
Net cash used for investing activities during the first six months
of 1998 was $16.7 million compared to $18.2 million in 1997's first
half. The decrease in cash used in 1998 compared to 1997 was due
to lower capital spending. This reduction comes after five years
of heavy investment by all three operating Groups to expand
capacity and improve productivity, quality and customer service.
Net cash used by financing activities was $10.4 million in the
first half of 1998 compared to $1.8 million provided in 1997's
first half. The higher usage of cash in 1998 was due to the
increase in the Board of Director approved repurchase of common
stock and the decrease in the proceeds from the exercise of stock
option. Additional borrowings to support normal first half 1997
short-term working capital also impacted the period-over-period
comparison.
Liquidity and Capital Resources
-------------------------------
During 1998 and 1997, the Company's long-term debt was comprised,
in part, of borrowings under its short-term bank lines of credit
backed by its long-term revolving credit agreement. At June 30,
1998, the company classified as long-term debt $6.5 million of
borrowings under its lines of credit and $6.2 million of the
current portion of its 9.47% long-term Notes. 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
intends to continue this cost effective method of long-term
financing.
-12-
<PAGE>
The Company maintains substantial bank borrowing facilities to
supplement internal cash generation. At June 30, 1998, the Company
had $150.0 million of borrowing capacity under its long-term
revolving credit agreement of which none was borrowed. The Company
had $7.0 million in borrowings under uncommitted short-term bank
credit lines at June 30, 1998. The interest rate on these
borrowings was 5.84%. The Company believes its credit facilities,
coupled with cash generated from operations, are adequate for its
anticipated future requirements.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 10 Retirement Agreement with President and CEO,
dated July 6, 1998
Exhibit 27 Financial Data Schedule, June 30, 1998
(b) Reports on Form 8-K
No reports on Form 8-K, Item 5, Other Events, were filed
during the quarter ended June 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Barnes Group Inc.
(Registrant)
Date August 13, 1998 By /s/ Terry M. Murphy
--------------- -------------------------------------
Terry M. Murphy
Senior Vice President, Finance
(the principal financial officer)
Date August 13, 1998 By /s/ Francis C. Boyle, Jr.
--------------- -------------------------------------
Francis C. Boyle, Jr.
Vice President, Controller
(the principal accounting officer)
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<PAGE>
EXHIBIT 10
RETIREMENT AGREEMENT
--------------------
This Retirement Agreement (the "Agreement") is entered
into by Theodore E. Martin (the "Employee") and Barnes Group
Inc., a Delaware corporation (the "Company") (collectively, the
"Parties"), in consideration of the respective agreements and
promises of the Parties contained in this Agreement. The Parties
acknowledge that the terms and conditions of this Agreement have
been voluntarily agreed to and that such terms are intended to be
final and binding.
1. Retirement. (a) It is hereby agreed that
----------
Employee will retire on a date mutually agreeable to the Parties,
but in no event later than December 15, 1998 (the "Retirement
Date"). Employee agrees that, effective as of the Retirement
Date, Employee will resign from his positions as President and
Chief Executive Officer and as an employee and a director of the
Company and, as applicable, as an employee, officer and director
of each of the Company's subsidiaries. Employee further agrees
to execute any documents as reasonably requested by the Company
to properly reflect such retirement. Employee understands and
agrees that, from and after the Retirement Date, he will no
longer be authorized to incur any expenses, obligations or
liabilities on behalf of the Company.
(b) Employee agrees that, for the period
beginning on the date of this Agreement and expiring on the
Retirement Date, Employee shall: (i) continue to hold the titles
of President and Chief Executive Officer of the Company; (ii)
continue to serve as a director of the Company; and (iii) to the
extent requested by the Company's Board of Directors or its
designee, (a) assist in the management of the Company, (b) assist
in the search and recruitment of a successor and (c) if a
successor is named prior to the Retirement Date, cooperate with
the successor until the Retirement Date in facilitating a smooth
transition of leadership.
2. Retirement Benefits. Subject to this Agreement
-------------------
becoming effective in accordance with Section 12, and in
consideration for acceptance of the terms contained in this
Agreement and the release of claims contained in Section 3, the
Company agrees to provide Employee with the compensation and
benefits set forth in paragraphs (a) through (n) of this Section
2 (the "Retirement Benefits"):
(a) The Company shall continue to pay to Employee
his base salary, at the rate in effect on the Retirement Date,
which is $47,084 per month (the "Base Salary"), from the
Retirement Date until August 21, 2001 (the "Continuation Period"),
which shall not be reduced by any compensation received by Employee
from any other employment (including self-employment). In the
event Employee dies prior to August 21, 2001, the Employee's
spouse, or if the Employee's spouse dies prior to August 21, 2001,
the Employee's designated beneficiary (which may be a trust
established by Employee), shall be entitled to continue to receive
the payments to which Employee would have been entitled under this
paragraph (a) until August 21, 2001.
<PAGE>
(b) The Company shall pay to Employee a short
term incentive award in respect of 1998, which shall be equal to
$847,512 (150% of the Base Salary) (the "Annual Bonus"). The
amount and payment of the Annual Bonus shall not be contingent
upon the attainment of any performance goals. The Annual Bonus
in respect of 1998 shall be paid at the same time as annual
bonuses are paid to the Company's other senior executives in
respect of 1998 (the "1998 Bonus Payment Date"). In the event
Employee dies prior to the 1998 Bonus Payment Date, the Employee's
spouse, or if the Employee's spouse dies prior to the 1998 Bonus
Payment Date, the Employee's designated beneficiary (which may be
a trust established by Employee), shall be entitled to receive the
payment to which Employee would have been entitled under this
paragraph (b).
(c) On January 5, 1999, and on or before the fifth
(5th) day of each calendar month through and including August 2001,
the Company shall pay to Employee an amount equal to $70,626
(one-twelfth (1/12) of the Annual Bonus); PROVIDED, HOWEVER, that
the payment in respect of August 2001 shall be $47,843 (21/31 of
$70,626). In the event Employee dies prior to August 21, 2001, the
Employee's spouse, or if the Employee's spouse dies prior to August
21, 2001, the Employee's designated beneficiary (which may be a
trust established by Employee), shall be entitled to continue to
receive the payments to which Employee would have been entitled
under this paragraph (c) until August 21, 2001.
(d) During the Continuation Period, the Company
shall continue Employee's and his spouse's participation in and
coverage under the Company's medical and dental plans in which
the Employee and his spouse participated immediately prior to the
Retirement Date, subject to Employee's or his spouse's, as the
case may be, payment of all applicable employee contributions or
premiums at the rate in effect from time to time for the
Company's active employees.
(e) Following the Continuation Period, the
Employee and his spouse shall be eligible for that health
insurance coverage, if any, generally provided by the Company to
senior executives retiring on the last day of the Continuation
Period and their spouses. Employee's and his spouse's
eligibility shall be determined as if Employee continued in
employment with the Company through the end of the Continuation
Period.
(f) The Company shall continue to pay all
premiums on Employee's life insurance policy issued under the
Company's Officer Enhanced Life Insurance Program (the "Life
Insurance Program") until the Employee's sixty-fifth (65th)
birthday. The Company shall provide Employee an income tax
gross-up equal to the product of (1) 35% plus the applicable
state income rate and (2) the Employee's taxable income in
respect of these premiums.
(g) The Company shall pay to Employee within ten
(10) days after the Retirement Date an amount in cash equal to
$1,305,420 in satisfaction of all of his outstanding performance
units under the Company's 1996 Long Term Incentive Plan.
(h) In satisfaction of any benefits payable to
Employee under the Company's Supplemental Senior Officer
Retirement Plan (the "SORP"), Supplemental Executive Retirement
Plan (the "SERP") and Retirement Benefit Equalization Plan, the
Company shall pay
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<PAGE>
to Employee, beginning September 1, 2001, a
monthly lifetime benefit under the SORP of $33,576.10 and a
monthly lifetime benefit under the SERP of $4,977.03. In the
event Employee dies after September 1, 2001, and is survived by
his spouse, Employee's spouse shall be entitled to receive a
monthly lifetime benefit under the SORP of $16,788.05 commencing
on the first day of the month following the Employee's death. No
benefit is payable to Employee's spouse under the SERP. In lieu
of the form of payment specified in this paragraph (h) in respect
of the SORP, Employee may elect to receive an actuarially
equivalent benefit payable in any of the optional forms of
benefit provided under the SORP. Any such election must be
irrevocable and made prior to September 1, 2000. In the event
Employee dies prior to September 1, 2001, and is survived by his
spouse, Employee's spouse shall be entitled to receive a monthly
lifetime benefit, beginning September 1, 2001, equal to
$16,788.05. Actuarial equivalence for purposes of this paragraph
(h) shall be determined in accordance with the provisions of the
SORP as in effect on the date of this Agreement.
(i) Within ten (10) days after the Retirement
Date, the Company shall (1) transfer to Employee the title of
the Company-provided automobile being utilized by the Employee as
of the Retirement Date and (2) provide Employee an income tax
gross-up equal to the product of (x) 35% plus the applicable
state income tax rate and (y) the value of the car includible as
taxable income by Employee. The Company shall be responsible for
any sales tax imposed on the transfer of title.
(j) On or before December 15, 1998, the Company
shall offer to purchase Employee's primary residence at a price
established by a third party appraiser selected by Employee and
reasonably acceptable to the Company. The Company shall, in
accordance with the Company's policy, reimburse Employee for the
costs of relocating Employee and his spouse to any location
within the forty-eight contiguous states. The Company shall
provide Employee an income tax gross-up equal to the product of
(1) 35% plus the applicable state income tax rate and (2)
Employee's taxable income in respect of the Company's purchase of
Employee's residence and relocation of Employee and his spouse.
(k) During the Continuation Period, the Company
shall provide Employee with financial planning services in
accordance with the Company's policy as in effect from time to
time for the Company's active employees, but, in no event, on
terms less favorable than under the Company's policy as in effect
on the date of this Agreement. The annual cost to the Company
shall not exceed $5,000. The Company shall provide Employee an
income tax gross-up equal to the product of (1) 35% plus the
applicable state income tax rate and (2) Employee's taxable
income in respect of the financial planning services.
(l) All outstanding stock options held by the
Employee shall become vested as of the Retirement Date. In
accordance with the Company's amended and restated 1991 Stock
Incentive Plan, Employee shall have five (5) years from the
Retirement Date within which to exercise the options; PROVIDED,
HOWEVER, that if the 1991 Stock Incentive Plan is amended to
provide for a longer post-employment exercise period, Employee
shall be allowed to exercise his stock options for that longer
period which shall be deemed to have commenced on the Retirement
Date.
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<PAGE>
(m) In respect of all incentive stock units granted
to the Employee, the Company shall pay to the Employee an amount
equal to the product of (1) 125,199 and (2) the greater of (i)
the closing per share price of the Company's common stock on the
Retirement Date and (ii) $30. The Company shall pay such amount
in cash within ten (10) days after the Retirement Date. In addition,
on January 15, 1999, the Company shall pay to the Employee an amount
equal to the product of (1) 96,000 and (2) the aggregate per share
cash dividends paid to the Company's shareholders in the third and
fourth quarters of 1998.
(n) The Company shall reimburse Employee for his
attorney's fees in connection with negotiating this Agreement,
subject to a maximum amount of $1,000. The Company shall provide
Employee an income tax gross-up equal to the product of (1) 35%
plus the applicable state income tax rate and (2) the amount of
reimbursement.
The Retirement Benefits shall be paid or provided
subject to the withholding of any taxes or other amounts required
by law to be withheld.
Any gross-up payments under Sections 1(f), (i), (j),
(k) and (n) shall be payable on or before January 15 of the year
following the year for which the income is includible in the
Employee's taxable income.
It is mutually agreed that a portion of the Retirement
Benefits provided to Employee under this Section 2 exceed what he
is already entitled to under the Company's plans, policies and
practices.
3. Release of Claims. In consideration for the
-----------------
Retirement Benefits, the sufficiency of which is acknowledged
hereby, the Employee, with the intention of binding himself and
his heirs, executors, administrators and assigns, does hereby
release, remise, acquit and forever discharge the Company and its
present and former officers, directors, executives, agents,
attorneys, employees, affiliated companies, subsidiaries,
successors, predecessors and assigns (collectively the "Released
Parties"), of and from any and all claims, actions, causes of
action, complaints, charges, demands, rights, damages, debts,
sums of money, accounts, financial obligations, suits, expenses,
attorneys' fees and liabilities of whatever kind or nature in
law, equity or otherwise, whether accrued, absolute, contingent,
unliquidated or otherwise and whether now known or unknown,
suspected or unsuspected, which the Employee, individually or as
a member of a class, now has, owns or holds, or has at any time
heretofore had, owned or held, against any Released Party arising
out of or in any way connected with the Employee's employment
relationship with the Company, its subsidiaries, predecessors or
affiliated entities, or the termination thereof, including
without limitation, any claims for severance or vacation
benefits, unpaid wages, salary or incentive payment, breach of
contract, wrongful discharge, impairment of economic opportunity,
defamation, intentional infliction of emotional harm or other
tort, all applicable state and local labor and employment laws
(including all laws concerning unlawful and unfair labor and
employment practices) or employment discrimination under any
applicable federal, state or local statute, provision, order or
regulation including, but not limited to, any claim under Title
VII of the Civil Rights Act of 1964 ("Title VII"), Civil Rights
Act of 1988, Fair labor Standards Act, Americans with
Disabilities Act, Employee Retirement Income Security Act,
- 4 -
<PAGE>
the Federal Age Discrimination in Employment Act ("ADEA") and any
similar or analogous state statute, including without limitation
Connecticut's Human Rights Law, excepting only:
(a) those obligations of the Company under this
Agreement;
(b) any rights to indemnification the Employee
may have under applicable corporate law, the
by-laws or certificate of incorporation of any
Released Party or as an insured under any
Director's and Officer's liability insurance
policy now or previously in force; and
(c) any claims for benefits under any Company
employee benefit plans (within the meaning of
Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended).
The Employee acknowledges and agrees that this
Agreement is not to be construed in any way as an admission of
any liability whatsoever by any Released Party under Title VII,
ADEA or any other federal or state statute or the principals of
common law, any such liability having been expressly denied.
The Employee acknowledges and agrees that he has
not, with respect to any transaction or state of facts existing
prior to the date of this Agreement, filed any complaints,
charges or lawsuits against any of the Released Parties with any
governmental agency or any court or tribunal.
4. Press Releases; Confidentiality of Agreement.
--------------------------------------------
Except as may be required by applicable law, the Parties shall
mutually agree on the form of any press release relating to
Employee's retirement from the Company. Other than with respect
to information provided in any such press release or required to
be disclosed by court order, the Employee agrees not to disclose
the terms of this Agreement to any person or entity, other than
the Employee's immediate family and financial or legal advisors
who agree to be bound by the confidentiality provisions of this
Agreement.
5. Return of Company Property. Employee agrees to
--------------------------
return to the Company all documents, files, and other property of
any kind belonging to the Company by no later than the Retirement
Date.
6. Non-Solicitation; Non-Discouragement of Business.
Until August 21, 2001, Employee shall not, directly or
indirectly, employ, attempt to employ or solicit for employment,
any person who currently is an employee of the Company, its
subsidiaries or affiliates; PROVIDED, HOWEVER, that the preceding
clause shall not apply with respect to Employee's two sons,
Kenneth Martin and Michael Martin. Employee further agrees that,
until August 21, 2001, he shall not discourage, or attempt to
discourage, any person, firm, corporation or business entity from
doing business with the Company or otherwise interfere with the
business relationships between the Company and any person, firm,
corporation or other business entity.
7. Non-Disparagement. Employee agrees that he will
-----------------
not make or publish any disparaging statements (whether written
or oral) regarding the Company or its subsidiaries,
- 5 -
<PAGE>
affiliates, directors, officers or employees. The Company agrees
that it shall use its best efforts to ensure that its directors and
officers do not make or publish any disparaging statements
(whether written or oral) regarding the Employee or any member of
his immediate family. Within five (5) days of the date of this
Agreement, the Company shall inform its officers and directors of
the Company's obligation under this Section 7.
8. Non-Competition. By and in consideration of the
---------------
Retirement Benefits and as an inducement to the Company to enter
into this Agreement with Employee, Employee agrees that until
August 21, 2001, Employee shall not directly or indirectly become
engaged, concerned or interested in or be affiliated with any
other business (a "Competing Business") competing in any respect
with any material business of the Company or any of its
subsidiaries as of the date of this Agreement; PROVIDED, HOWEVER,
that nothing contained in this Agreement shall preclude the
holding (directly or through nominees) for investment of
securities of any such Competing Business which are listed on any
recognized securities exchange or are otherwise traded publicly
so long as not more than one percent (1%) of any issue of such
securities of any one company shall be so held. Employee
acknowledges that the non-competition provisions contained in
this Agreement are reasonable and necessary, in view of the
nature of the Company and Employee's knowledge thereof, in order
to protect the legitimate interests of the Company.
9. Non-Disclosure. The Parties agree that Employee
--------------
has obtained knowledge of confidential information regarding the
business and affairs of the Company. It is therefore agreed that
Employee shall respect and protect the confidentiality of all
confidential information pertaining to the Company and its
subsidiaries, and Employee represents and agrees that he has not
and will not appropriate for his own use, disclose to any third
party, or authorize anyone else to disclose, unless authorized by
the Company in writing, any secret, confidential, proprietary or
financial information concerning the operations, future plans,
methods of doing business, or financial condition of the Company
or its subsidiaries or affiliates, any customer lists, customer
files or other information relating to the customers of the
Company or its subsidiaries or affiliates, or any lists of the
Company's shareholders that he obtained as a result of his
employment with the Company and which is not otherwise publicly
available (unless it became publicly available in violation of
this Section 9 or any other agreement of Employee). This Section
9 shall not apply to information required to be disclosed by
court order provided that the Employee shall notify the Company
prior to the disclosure of any information required to be
disclosed by court order.
10. Review Period. The Employee represents that he
-------------
has carefully read and fully understands the terms of this
Agreement, that he has been given not less than twenty-one (21)
days to consider this Agreement, that he has been advised to
seek, and has had the opportunity to seek, the advice and
assistance of counsel with regard to this Agreement, and that he
knowingly and voluntarily, of his own free will, without any
duress, being fully informed and after due deliberate thought and
action, accepts the terms of and executes the same as his own
free act. If Employee executes this Agreement prior to the
expiration of the twenty-one day period, Employee acknowledges
that he has done so voluntarily and knowingly.
11. Revocation. Employee acknowledges and understands
----------
that this Agreement may be revoked by him within seven (7) days
of signing it and shall not be effective until the period during
which Employee may revoke this Agreement has expired without
Employee having
- 6 -
<PAGE>
revoked this Agreement. Revocation shall be made
by sending a written notice of revocation to Thomas O. Barnes,
Chairman, at Barnes Group Inc., 123 Main Street, Bristol,
Connecticut 06011-0489. For this revocation to be effective,
written notice must be received no later than the close of
business of the seventh (7th) day after Employee signs this
Agreement. If Employee revokes this Agreement, it shall not be
effective or enforceable and Employee will not receive or be
entitled to receive any of the Retirement Benefits provided for
in this Agreement. This Agreement shall be final and binding on
the eighth (8th) day after it has been executed and delivered to
the Company.
12. Notices. All notices and communications provided
-------
for in this Agreement shall be in writing and shall be deemed to
have been duly given when personally delivered or sent by
certified mail, return receipt requested, postage prepaid; if to
Employee, addressed to him at his most recent address as provided
to the Company in writing, and if to the Company, addressed to
Thomas O. Barnes, Chairman, at Barnes Group Inc., 123 Main
Street, Bristol, Connecticut 06011-0489, or to such other address
as any party may have furnished to any other in accordance
herewith. All notices and communications shall be deemed to have
been received on the date of delivery thereof or on the third
business day after the mailing thereof, except that notice of
change of address shall be effective only upon receipt.
13. Breach of Representation. As a further material
------------------------
inducement to the Company to enter into this Agreement, Employee
agrees that in the event Employee breaches this Agreement or it
is discovered that any representation made in this Agreement was
false when made, all further payment or provision of the
Retirement Benefits, other than the benefit to which Employee
would be entitled under the SORP and SERP in the absence of this
Agreement based on his service and compensation through the
Retirement Date, shall cease.
14. Complete Agreement. The Parties acknowledge and
------------------
agree that this Agreement constitutes the complete agreement
between them and that no oral modification of this Agreement is
permissible. The Parties further acknowledge and agree that this
Agreement and the terms contained herein supersede all previous
contracts and agreements between the Parties, and that all
previous contracts and agreements between the Parties, other than
contracts and agreements under which Employee has a vested right,
shall become null and void upon execution of this Agreement.
15. Counterparts. This Agreement may be executed in
------------
several counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the
same instrument.
16. Successors. This Agreement shall be binding upon
----------
any and all successors and assigns of Employee and the Company.
- 7 -
<PAGE>
17. Governing Law. Except for issues or matters as to
-------------
which federal law is applicable, this Agreement shall be governed
by and construed and enforced in accordance with the laws of the
State of Connecticut without giving effect to the conflicts of
law principles thereof.
BARNES GROUP INC.
By: /s/ Thomas O. Barnes
------------------------
Thomas O. Barnes
Chairman
STATE OF CONNECTICUT )
) SS.
COUNTY OF HARTFORD )
-----------
On this 6 day of July , 1998, before me
---- ---------
personally appeared Thomas O. Barnes, to me known to be the
person who executed this Agreement and acknowledged that he
executed the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal in the Country and State aforesaid,
the day and year first above written.
Notary Public
My Commission Expires: 06/30/01 /s/ Wilma D. Hart
By: /s/ Theodore E. Martin
--------------------------
Theodore E. Martin
STATE OF CONNECTICUT )
) SS.
COUNTY OF HARTFORD )
-----------
On this 6 day of July , 1998, before me
---- ---------
personally appeared Theodore E. Martin, to me known to be the
person described in and who executed this Agreement and acknowledged
that he executed the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal in the Country and State aforesaid,
the day and year first above written.
Notary Public
My Commission Expires: 06/30/01 /s/ Wilma D. Hart
27279.10 (NY04)
- 8 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Barnes Group Inc. at June 30, 1998, and the
related consolidated statement of income for the six months ended June 30,
1998, and is qualified in its entirty by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 37,133
<SECURITIES> 0
<RECEIVABLES> 95,834
<ALLOWANCES> 2,851
<INVENTORY> 68,661
<CURRENT-ASSETS> 216,424
<PP&E> 346,639
<DEPRECIATION> 210,728
<TOTAL-ASSETS> 424,074
<CURRENT-LIABILITIES> 97,445
<BONDS> 60,749
0
0
<COMMON> 220
<OTHER-SE> 185,767
<TOTAL-LIABILITY-AND-EQUITY> 424,074
<SALES> 338,067
<TOTAL-REVENUES> 338,067
<CGS> 223,559
<TOTAL-COSTS> 223,559
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 215
<INTEREST-EXPENSE> 2,054
<INCOME-PRETAX> 26,379
<INCOME-TAX> 9,892
<INCOME-CONTINUING> 16,487
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,487
<EPS-PRIMARY> .82<F1>
<EPS-DILUTED> .81<F1>
<FN>
<F1>Basic and diluted earnings per share calculated in accordance with
Statement of Financial Accccounting Standards No. 128.
</FN>
</TABLE>
