<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-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 September 30, 1999
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
November 8, 1999 - 19,014,259
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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BARNES GROUP INC.
FORM 10-Q INDEX
For the Quarterly period ended September 30, 1999
DESCRIPTION PAGES
- ----------- -----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Income
for the nine months and three months
ended September 30, 1999 and 1998 3
Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998 4-5
Consolidated Statements of Cash Flows
for the nine months ended September 30,
1999 and 1998 6
Notes to Consolidated Financial
Statements 7-10
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11-18
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 19
Signatures 19
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
-------- -------- -------- --------
Net sales $154,043 $158,262 $472,574 $496,329
Cost of sales 103,665 107,503 320,485 331,062
Selling and admin-
istrative expenses 36,973 33,836 111,326 122,110
-------- -------- -------- --------
140,638 141,339 431,811 453,172
-------- -------- -------- --------
Operating income 13,405 16,923 40,763 43,157
Other income 1,431 1,374 5,255 4,270
Interest expense 1,617 1,045 3,530 3,099
Other expenses 516 172 1,204 869
-------- -------- -------- --------
Income before income
taxes 12,703 17,080 41,284 43,459
Income taxes 3,811 6,405 14,243 16,297
-------- -------- -------- --------
Net income $ 8,892 $ 10,675 $ 27,041 $ 27,162
======== ======== ======== ========
Per common share:
Net income - basic $ .46 $ .53 $ 1.38 $ 1.35
- diluted .45 .52 1.36 1.33
Dividends .19 .18 .56 .51
Average common shares
outstanding 19,347,665 20,094,652 19,560,942 20,163,193
See accompanying notes.
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BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS September 30, December 31,
1999 1998
----------- -----------
(Unaudited)
Current assets
Cash and cash equivalents $ 39,057 $ 40,206
Short-term investments -- 2,566
Accounts receivable, less allowances
(1999-$2,838; 1998-$2,413) 100,034 82,809
Inventories
Finished goods 36,448 34,784
Work-in-process 13,584 15,309
Raw materials and supplies 14,007 14,311
-------- --------
64,039 64,404
Deferred income taxes and prepaid
expenses 18,056 17,243
-------- --------
Total current assets 221,186 207,228
Deferred income taxes 24,499 25,136
Property, plant and equipment 367,776 350,793
Less accumulated depreciation 220,089 211,546
-------- --------
147,687 139,247
Goodwill 88,733 18,224
Other assets 35,821 29,069
-------- --------
Total assets $517,926 $418,904
======== ========
See accompanying notes.
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BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY September 30, December 31,
1999 1998
------------ -----------
(Unaudited)
Current liabilities
Notes payable $ 22,293 $ 6,766
Accounts payable 45,433 38,439
Accrued liabilities 46,541 52,934
Guaranteed ESOP obligation-current -- 2,205
-------- --------
Total current liabilities 114,267 100,344
Long-term debt 140,000 51,000
Accrued retirement benefits 67,064 68,129
Other liabilities 11,191 10,757
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 49,896 49,231
Treasury stock at cost,
1999-2,994,996 shares
1998-2,202,417 shares (60,536) (42,893)
Retained earnings 220,411 204,364
Accumulated other comprehensive income (24,587) (20,043)
Guaranteed ESOP obligation -- (2,205)
-------- --------
Total stockholders' equity 185,404 188,674
-------- --------
Total liabilities and stockholders'
equity $517,926 $418,904
======== ========
See accompanying notes.
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BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months ended September 30, 1999 and 1998
(Dollars in thousands)
(Unaudited)
1999 1998
------- -------
Operating activities:
Net income $27,041 $27,162
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 22,821 20,913
Gain on sale of property, plant and
equipment (506) (159)
Changes in assets and liabilities:
Accounts receivable (9,851) 72
Inventories 4,286 (5,585)
Accounts payable 5,265 4,649
Accrued liabilities (11,419) 5,333
Deferred income taxes 996 288
Other (5,265) 5,098
------- -------
Net cash provided by operating activities 33,368 57,771
Investing activities:
Proceeds from sale of property, plant
and equipment 1,920 2,310
Capital expenditures (19,832) (25,681)
Acquisition of Nitrogen Business Unit (91,949) --
Redemption of short-term investment 2,566 --
Other (1,480) (1,357)
------- -------
Net cash used by investing activities (108,775) (24,728)
Financing activities:
Net increase in notes payable 15,407 231
Proceeds from the issuance of long-term debt 89,000 --
Proceeds from the issuance of common stock 1,238 3,178
Common stock repurchases (18,756) (11,487)
Dividends paid (10,953) (10,375)
------- -------
Net cash provided (used) by financing activities 75,936 (18,453)
Effect of exchange rate changes on cash flows (1,678) (2,324)
------- -------
(Decrease) increase in cash and cash equivalents (1,149) 12,266
Cash and cash equivalents at beginning of period 40,206 32,530
------- -------
Cash and cash equivalents at end of period $39,057 $44,796
======= =======
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, 1998. In
the opinion of management, all adjustments, including normal
recurring accruals considered necessary for a fair
presentation, have been included. Operating results for the
nine-month period ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1999.
2. Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost.
Depreciation is recorded over estimated useful lives ranging
from 20 to 50 years for buildings and 3 to 17 years for
machinery and equipment. The straight-line method of
depreciation was adopted for all property, plant and equipment
placed into service after March 31, 1999. For property, plant
and equipment placed into service prior to April 1, 1999,
depreciation is provided using accelerated methods. The
change in accounting principle was made to reflect
improvements in the design and durability of machinery and
equipment. Management believes that the straight-line method
results in a better matching of revenues and costs. In
addition, the new method is prevalent in the industries in
which the Company operates. The effect of this change on net
income for the third quarter and nine-month period was $126
thousand and $196 thousand, respectively.
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<PAGE>
Notes to Consolidated Financial Statements Continued:
3. Comprehensive Income
--------------------
Comprehensive income includes all changes in equity during a
period except those resulting from the investment by and
distributions to owners. For the Company, comprehensive
income includes net income and foreign currency translation
adjustments. Foreign currency translation adjustments result
from the foreign operations' assets and liabilities being
translated at the period-end exchange rates and revenues and
expenses being translated at average rates of exchange. The
resulting translation gains and losses are reflected in
accumulated other comprehensive income within stockholders'
equity.
Statement of Comprehensive Income
(Dollars in thousands)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net income $ 8,892 $ 10,675 $ 27,041 $ 27,162
Other comprehensive
loss (80) (1,345) (4,544) (4,642)
-------- -------- -------- --------
Comprehensive income $ 8,812 $ 9,330 $ 22,497 $ 22,520
======== ======== ======== ========
4. Acquisition of the Nitrogen Gas Springs Business
-----------------------------------------------
On August 30, 1999, the Company purchased substantially all of
the assets and liabilities of the nitrogen gas spring business
(Nitrogen Business Unit) of the Teledyne Fluid Systems
Division of Teledyne Industries, Inc. pursuant to an Asset
Purchase and Sale Agreement dated as of July 27, 1999. The
acquisition of the Nitrogen Business Unit was recorded using
the purchase method of accounting and will be included in the
Associated Spring business segment. The $89.7 million
purchase price has been allocated to tangible and intangible
assets and liabilities of the Nitrogen Business Unit based
upon estimates of their respective values. The resulting
goodwill will be amortized over 40 years. The funds used to
purchase the assets and liabilities were initially borrowed
under the Company's $150 million revolving credit agreement.
On November 12, 1999, the Company financed a portion of the
acquisition through the issuance of $70 million of long-term
private placement debt. The debt ranges in maturity from
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<PAGE>
Notes to Consolidated Financial Statements Continued:
eight to eleven years at an average annual interest rate of
7.75%. The issuance of the long-term debt and the usage of
the Company's long-term revolving credit agreement will result
in both higher interest expense and higher debt to
capitalization ratios in the future. Additionally, the
consolidation of the Nitrogen Business Unit into the Company
will reduce the Company's effective tax rate as a result of
the associated income being taxed at lower foreign tax rates,
as well as, the result of certain foreign tax planning
strategies.
5. Information on Business Segments
--------------------------------
The Company evaluates the performance of its reportable
segments based on operating profit of the respective
businesses. Segment operating profit was modified to follow
the accounting policies described in the summary of
significant accounting policies footnote included in the
Company's 1998 Annual Report, as well as allocating all
corporate office administrative expenses to the segments,
exclusive of the costs associated with the accelerated
retirement package for the former president and chief
executive officer.
-9-
<PAGE>
Notes to Consolidated Financial Statements Continued:
The following tables set forth information about the Company's
operations by its three reportable business segments:
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- --------- --------
(Dollars in thousands)
Revenues:
Bowman Distribution $ 57,744 $ 60,068 $176,738 $190,055
Associated Spring 70,911 62,090 205,720 199,880
Barnes Aerospace 28,523 38,739 99,211 116,977
Intersegment sales (3,135) (2,635) (9,095) (10,583)
-------- -------- -------- --------
Total revenue $154,043 $158,262 $472,574 $496,329
======== ======== ======== ========
Operating profit:
Bowman Distribution $ 3,860 $ 7,744 $ 11,443 $ 26,621
Associated Spring 8,397 6,793 24,378 21,573
Barnes Aerospace 1,829 3,133 7,644 10,307
Former CEO retirement
package -- -- -- (12,905)
-------- -------- -------- --------
Total operating profit 14,086 17,670 43,465 45,596
Interest income 358 429 801 1,127
Interest expense 1,617 1,045 3,530 3,099
Other income(expense) (124) 26 548 (165)
-------- -------- -------- --------
Income before
income taxes $ 12,703 $ 17,080 $ 41,284 $ 43,459
======== ======== ======== ========
-10-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
---------------------
The Company's third quarter 1999 sales were $154.0 million, down 3%
from $158.3 million in 1998. Operating income was $13.4 million
versus $16.9 million for the comparable 1998 quarter. Contributing
to the decline in operating income was increased selling and
administrative (SG&A) expenses related to Bowman operations in the
U.S., and personnel related costs and SG&A costs of the newly
acquired Nitrogen Business Unit.
The third quarter 1999 performance reflects sales and profit
declines at Barnes Aerospace and Bowman Distribution. However, in
the third quarter of 1999, Associated Spring reported a 14% and 24%
increase in sales and operating profit, respectively, over the prior
year.
The Company's 1999 first nine months sales were $472.6 million, down
5% from $496.3 million in 1998. The 1999 year-to-date operating
income was $40.8 million versus $43.2 million reported in 1998. The
1998 year-to-date results include a $12.9 million charge related to
the accelerated retirement package of the Company's former president
and chief executive officer. The 1999 results reflect year-over-
year sales and operating profit declines at Barnes Aerospace and
Bowman Distribution. These sales and operating profit declines were
partially offset by Associated Spring, which recorded a 3% and 13%
year-over-year improvement in sales and operating profit.
Segment Review-Sales and Operating Profit
------------------------------------------
Associated Spring segment sales for the third quarter and nine
months ending September 30, 1999 increased 14% and 3% versus the
comparable 1998 periods. Sales for the 1999 third quarter and first
nine months were $70.9 million and $205.7 million, respectively.
The third quarter and year-to-date 1999 operating profit increased
to $8.4 million and $24.4 million, respectively, a 24% and 13%
improvement over prior year. The improved results are largely
attributable to the increase in sales volume and profit from the
newly acquired Nitrogen Business Unit, strong performances at
several of Associated Spring's U.S. plants, stabilization of
international economies, and cost management at Associated Spring's
headquarters.
Bowman Distribution third quarter and year-to-date 1999 segment
sales were $57.7 million and $176.7 million, a 4% and 7% decline
from the comparative 1998 periods. Operating profit in 1999 also
declined in both the third quarter and full year compared to 1998.
The sales and profit shortfalls were due to shipment delays
resulting from a planned warehouse shutdown initiated in the first
quarter to install a new warehouse management system at the
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<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations Continued
Elizabethtown, Kentucky facility. In the second quarter of 1999,
the implementation encountered unanticipated operational as well as
software problems during the system installation resulting in
shipment delays and added cost. Although year-over-year sales are
down in the third quarter, the trend improved as Bowman continued to
improve customer service levels by reducing shipping delays and
backlog. However, the final implementation of the business system
is scheduled for the fourth quarter of 1999 during which time
additional shipment delays may occur.
Barnes Aerospace third quarter 1999 segment sales were $28.5 million
as compared to $38.7 million in 1998 and the year-to-date 1999
segment sales were $99.2 million as compared to $117.0 million in
1998. The shortfall of operating profit, in both the third quarter
and first nine months in 1999, is a direct result of the sales
volume decline. The majority of the 1999 sales and operating profit
declines occurred at Barnes Aerospace's original equipment
manufacturing facilities, the result of significant rescheduling by
its customers and a general downturn in the aerospace market.
Non-Operating Income/Expense
----------------------------
Other income for the first nine months of 1999 increased over 1998
reflecting a gain on the sale of an Associated Spring facility and
net foreign exchange transaction gains mainly resulting from the
Brazil currency devaluation in the early part of 1999. Partially
offsetting the increase in other income was reduced joint venture
equity income.
Interest expense and other expense increased in both the third
quarter and first nine months as a result of the acquisition of the
Nitrogen Business Unit. Specifically, interest expense increased as
a result of the increased borrowings used to fund the acquisition.
Other expense increased as a result of additional amortization of
goodwill associated with the acquisition.
Income Taxes
------------
The Company's effective tax rate was 34.5% for the first nine months
of 1999 as compared to 37.5% in 1998. The lower rate in 1999 was
due to lower state taxes, higher foreign income with tax rates lower
than the U.S. statutory tax rate, as well as foreign tax strategies
associated with the acquisition of the Nitrogen Business Unit.
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<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations Continued
Net Income and Net Income Per Share
-----------------------------------
Consolidated net income for the third quarter of 1999 and 1998 was
$8.9 million and $10.7 million, respectively. Basic and diluted
earnings per share for the 1999 third quarter were $.46 and $.45
compared to 1998's basic and diluted earnings per share of $.53 and
$.52.
Consolidated net income for the first nine months of 1999 and 1998
was $27.0 million and $27.2 million, respectively. Basic and
diluted earnings per share for the first nine months of 1999 were
$1.38 and $1.36 compared to 1998's basic and diluted earnings per
share of $1.35 and $1.33. The 1998 year-to-date earnings included
an after-tax charge of $7.7 million, or $.38 per share related to
the accelerated retirement package of the Company's former president
and chief executive officer.
There were no adjustments to net income for the purpose of computing
income available to common stockholders for 1999 and 1998. For the
purpose of computing diluted earnings per share, the weighted
average number of shares outstanding for the third quarter of 1999
and 1998 were increased by 235,628 and 292,807 shares, respectively,
and for the first nine months of 1999 and 1998 were increased
235,941 and 338,142 shares, respectively, representing the potential
dilutive effects of stock-based incentive plans.
Financial Condition
-------------------
Cash Flows
----------
Net cash generated by operating activities in the first nine months
of 1999 was $33.4 million, compared to $57.8 million in 1998. This
decrease in operating cash flows is primarily related to the decline
in the Company's operating results as well as the cash payments of
$7.4 million made in 1999 for the early retirement package for the
former president and chief executive officer which was expensed and
accrued in 1998.
Net cash used for investing activities during the first nine months
of 1999 was $108.8 million compared to $24.7 million in 1998's first
nine months. The increase in cash used in 1999 compared to 1998 is
due to the purchase of the Nitrogen Business Unit, which is
partially offset by lower capital spending. The lower level of
capital spending follows five years of heavy investment by all three
operating Groups to expand capacity and improve productivity,
quality and customer service.
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<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations Continued
Net cash generated by financing activities was $75.9 million in the
first nine months of 1999 as compared to cash usage of $18.5 million
in 1998's first nine months. The increase in cash primarily relates
to the issuance of long-term debt to fund the purchase of the
Nitrogen Business Unit.
Liquidity and Capital Resources
-------------------------------
During 1999 and 1998, 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 September 30, 1999,
the Company classified as long-term debt $6.1 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.
On November 12, 1999, the Company financed a portion of the Nitrogen
Business Unit acquisition through the issuance of $70 million of
private placement Senior Notes (the Notes). The Notes, placed with
seven insurance companies, range in maturity from eight to eleven
years and bear an average annual interest rate of 7.75%. The
balance of the acquisition purchase price is financed through
borrowings under the Company's long-term revolving credit agreement.
The issuance of the Notes and the usage of the Company's long-term
revolving credit agreement will result in both higher interest
expense and higher debt to capitalization ratios in the future.
On September 2, 1999, Barnes Sweden Holding Company AB, a wholly-
owned subsidiary of the Company, entered into a three year, $70
million cross-currency exchange agreement. In effect, the agreement
allows Barnes Sweden Holding Company AB to convert U.S. dollar
denominated interest and principal liabilities into Swedish Krona
denominated liabilities at a fixed interest rate during the three-
year period. This agreement matures on October 2, 2002. This cross-
currency exchange agreement is viewed by the Company as a risk
management tool and is not used for speculative or trading purposes.
The overall objective is to reduce the exposure associated with
currency fluctuations between the U.S. dollar and the Swedish Krona.
The Company maintains substantial bank borrowing facilities to
supplement internal cash generation. At September 30, 1999, the
Company had $150.0 million of borrowing capacity under its long-term
revolving credit agreement of which $102 million was borrowed at an
interest rate of 5.68%. Additionally, the Company had $12.5 million
in borrowings under uncommitted short-term bank credit lines at an
interest rate of 5.96%. The Company believes its credit facilities,
including the new Notes, coupled with cash generated from operations
are adequate for its anticipated future requirements.
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<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations Continued
Year 2000 Readiness
--------------------
Background
----------
When the Year 2000 (Y2K) arrives, computer software may not be able
to distinguish between the year 1900 and 2000, and as a result, date-
based information may not be processed accurately. This situation
has never been experienced, so no one is quite sure of the
consequences or how to completely prevent business disruptions.
General Approach
----------------
The Company's intention is to be fully Y2K ready with all of its
critical business systems, equipment and facilities, as well as
critical third party business relationships by the Year 2000. The
process of addressing Y2K readiness relating to Associated Spring's
JBA Business System, Barnes Aerospace's Fourth Shift Business System
and Bowman Distribution's ASI Business System began in early 1997.
The Company established a primary Y2K project team led by its chief
financial officer and its information technology (IT) directors.
With the assistance of a third party consultant, the Company is
using a multi-phase approach to manage the Y2K readiness project
involving assessment of the problem, remediation and testing. The
Company completed its Y2K readiness project at both its Associated
Spring and Barnes Aerospace businesses in the third quarter of 1999.
At Bowman Distribution, the implementation of a warehouse management
system, a module of the ASI enterprise management system,
encountered unanticipated operational as well as software
difficulties in the second quarter of 1999 which caused a delay in
the final implementation until December of this year.
Assessment
----------
In this phase, the Company identifies its critical business systems,
equipment and facilities, and critical third party business
relationships, and assesses the Y2K impact on each one to determine
the relative risks of possible Y2K failures. Based on the risk
assessments, priorities are set, resources are allocated and the
plan for the next phase, remediation, is established. The
assessment of all the Company's critical business systems, equipment
and facilities are complete.
The Company has been assessing its Y2K risks related to critical
business relationships with third parties at all of the operations
via ongoing communication with its critical customers and suppliers.
As part of the process, the Company has requested written assurances
from these customers and suppliers that they have Y2K readiness
-15-
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations Continued
programs in place, as well as an affirmation that they will be
compliant when necessary. Responses to these inquiries continue to
be gathered and reviewed. Further analysis, including site visits,
is being conducted as necessary.
In addition, as new IT systems are implemented, they are being
assessed as to their Y2K impact on the readiness of the Company's
critical systems.
Remediation
-----------
This phase involves the conversion, modification, or replacement of
systems that are not Y2K ready, and the implementation and
integration of new Y2K ready systems. It also involves efforts to
foster Y2K readiness of third parties with which the Company has
critical business relationships. This phase is by far the most
complicated, time consuming and costly of the Y2K project. The
remediation or implementation of critical systems for Barnes
Aerospace and Associated Spring was completed in the second quarter
of 1999. For Bowman Distribution, remediation is expected to be
completed for the U.S. operations in November and the Canada
operation by mid-December 1999 with the new system implementation.
The monitoring of the readiness of our critical business
relationships with customers and suppliers will continue throughout
1999. At the end of the third quarter, Associated Spring's
responses from its most significant customers and raw material
suppliers indicate that they will be Y2K compliant by December 31,
1999. Barnes Aerospace has had similar affirmative responses from a
high percentage of its critical customers and supply base.
Important to Bowman Distribution is the sourcing of product from a
wide range of suppliers on a timely basis. Bowman has surveyed its
most significant suppliers having received affirmative responses in
a majority of the cases. The Company has contacted other service
providers, including banks, insurance companies and payroll
providers, and has received positive confirmation relating to their
Y2K readiness. Despite these efforts and confirmations, the Company
can provide no assurance that customer and supplier Y2K compliance
plans have been or will be successfully completed.
Testing
-------
During this phase, the testing, verification and validation of the
performance, functionality and integration of new, replaced and
converted systems will be conducted. Both Associated Spring and
Barnes Aerospace completed the testing phase in the third quarter of
1999. Bowman Distribution expects to complete its testing phase in
parallel with the new system implementation by the end of December,
1999. The fourth quarter will also be used to resolve unanticipated
activities including possible vendor modifications.
-16-
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations Continued
Contingency Plans
-----------------
The Company has developed contingency plans to address the most
likely worst-case scenarios for all its operations as well as the
potential impact resulting from critical business relationships not
being Y2K ready. Both Associated Spring and Barnes Aerospace have
developed contingency plans as of the third quarter of 1999.
Management considers the timing of the implementation of the Bowman
Distribution ASI enterprise management system to be a risk area for
the Company. As a result, a parallel effort is underway to complete
Y2K compliance on the existing legacy system by December 17, 1999.
Cost
----
The total expenses specifically associated with the Company becoming
Y2K ready are not expected to be material. Because the Company has
been in the continuous process of upgrading and modifying existing
IT systems as well as adding new systems in the ordinary course of
doing business, Y2K readiness was incorporated into the overall
strategy to improve and upgrade IT systems. With the implementation
of the Bowman ASI enterprise management system in 1999, the Company
will have completed a process begun in 1995 of upgrading all of its
critical application software. The costs specific to addressing the
Y2K readiness project are those directly related to upgrading
existing systems to be Y2K ready and costs related to outside
consultants assisting with the Y2K project. These costs have been
expensed as they have been incurred and totaled approximately $0.6
million in 1998 and are expected to total approximately $2.0 million
in 1999, approximately $0.8 million over the Company's budgeted Y2K
expenditures for 1999. However, a significant portion of the
Company's overall IT expense of approximately $11.5 million in 1998
and the estimated $13.0 million in 1999 is either directly or
indirectly included to address Y2K readiness either through software
remediation or implementation. In addition, capitalized IT related
hardware and software expenditures totaled $12.0 million in 1998 and
are expected to be $10.5 million in 1999, approximately $2.6 million
over the Company's budget.
Risks
-----
Y2K readiness encompasses a number of factors, which the Company
cannot completely control, including its critical business
relationships with third party suppliers and customers. Although
the Company is taking steps to minimize the potential adverse
effects of the Y2K issue, any failure by the Company, its major
vendors, other material service providers, or its principal
customers to address this issue on an adequate and timely basis
could have a material adverse effect on the Company's business,
results of operations, cash flow and financial condition.
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<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations Continued
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 and interest rate fluctuations, regulatory
changes and technological changes (including Y2K issues), all of
which may affect the Company's operations, products and markets.
-18-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27 Financial Data Schedule, September 30, 1999
(b) Reports on Form 8-K
A report on Form 8-K dated August 9, 1999 was filed with
the commission on August 11, 1999. This report includes
information under Item 5 concerning the July 28, 1999
announcement of the Company's agreement to acquire the
nitrogen gas springs business of Teledyne Fluid Systems, a
business of Allegheny Teledyne Incorporated.
A report on Form 8-K dated September 13, 1999 was filed
with the commission on September 14, 1999. This report
includes information under Item 2 concerning the
announcement of the Company's acquisition of the nitrogen
gas springs business of Teledyne Fluid Systems, a business
of Allegheny Teledyne Incorporated, dated August 30, 1999.
A report on Form 8-K/A dated November 12, 1999 was filed
with the commission on November 12, 1999. This report
includes information under Item 2 regarding the refinancing
of a portion of the funds needed and Item 7 concerning the
audited financial statements and pro forma financial
information related to the Company's acquisition of the
nitrogen gas springs business of Teledyne Fluid Systems, a
business of Allegheny Teledyne Incorporated, dated August
30, 1999.
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 November 15, 1999 By /s/ Francis C. Boyle, Jr.
----------------- -------------------------------------
Francis C. Boyle, Jr.
Vice President, Controller
(the principal financial officer)
Date November 15, 1999 By /s/ John J. Locher
----------------- -------------------------------------
John J. Locher
Vice President, Treasurer
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Barnes Group Inc. at September 30, 1999, and the
related consolidated statement of income for the nine months ended September 30,
1999, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 39,057
<SECURITIES> 0
<RECEIVABLES> 102,872
<ALLOWANCES> 2,838
<INVENTORY> 64,039
<CURRENT-ASSETS> 221,186
<PP&E> 367,776
<DEPRECIATION> 220,089
<TOTAL-ASSETS> 517,926
<CURRENT-LIABILITIES> 114,267
<BONDS> 140,000
0
0
<COMMON> 220
<OTHER-SE> 185,184
<TOTAL-LIABILITY-AND-EQUITY> 517,926
<SALES> 472,574
<TOTAL-REVENUES> 472,574
<CGS> 320,485
<TOTAL-COSTS> 320,485
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 616
<INTEREST-EXPENSE> 3,530
<INCOME-PRETAX> 41,284
<INCOME-TAX> 14,243
<INCOME-CONTINUING> 27,041
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,041
<EPS-BASIC> 1.38<F1>
<EPS-DILUTED> 1.36<F1>
<FN>
<F1> Basic and diluted earnings per share calculated in accordance with
Statement of Financial Accounting Standards No. 128.
</FN>
</TABLE>
