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 March 31, 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
May 12, 1999 - 19,568,400
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
--- ---
-1-
<PAGE>
<TABLE>
BARNES GROUP INC.
FORM 10-Q INDEX
For the Quarterly period ended March 31, 1999
<CAPTION>
DESCRIPTION PAGES
----------- -----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements
of Income for the three months ended
March 31, 1999 and 1998 3
Consolidated Balance Sheets as
of March 31, 1999 and December 31, 1998 4-5
Consolidated Statements of Cash Flows
for the three months ended March 31,
1999 and 1998 6
Notes to Consolidated Financial
Statements 7-8
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-14
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to Vote of
Security Holders 15
ITEM 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
-2-
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 1999 and 1998
(Dollars in thousands, except per share data)
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net sales $162,248 $168,916
Cost of sales 109,540 111,358
Selling and administrative expenses 37,883 38,178
-------- --------
147,423 149,536
-------- --------
Operating income 14,825 19,380
Other income 2,418 1,196
Interest expense 1,012 1,125
Other expenses 412 505
-------- --------
Income before income taxes 15,819 18,946
Income taxes 5,853 7,105
-------- --------
Net income $ 9,966 $ 11,841
======== ========
Per common share:
Net income:
Basic $ .50 $ .59
Diluted .50 .58
Dividends .18 .17
Average common shares outstanding 19,763,158 20,173,149
<FN>
See accompanying notes.
</TABLE>
-3-
<PAGE>
<TABLE>
BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
ASSETS March 31, December 31,
1999 1998
-------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 40,261 $ 40,206
Short-term investments 2,566 2,566
Accounts receivable, less allowances
(1999-$2,558; 1998-$2,413) 88,931 82,809
Inventories
Finished goods 33,952 34,784
Work-in-process 15,791 15,309
Raw materials and supplies 12,940 14,311
-------- --------
62,683 64,404
Deferred income taxes and prepaid
expenses 19,222 17,243
-------- --------
Total current assets 213,663 207,228
Deferred income taxes 24,826 25,136
Property, plant and equipment 347,822 350,793
Less accumulated depreciation 212,468 211,546
-------- --------
135,354 139,247
Goodwill 18,087 18,224
Other assets 28,152 29,069
-------- --------
Total assets $420,082 $418,904
======== ========
<FN>
See accompanying notes.
</TABLE>
-4-
<PAGE>
<TABLE>
BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31,
1999 1998
--------- -----------
<S> <C> <C>
Current liabilities
Notes payable $ 16,784 $ 6,766
Accounts payable 40,200 38,439
Accrued liabilities 45,365 52,934
Guaranteed ESOP obligation-current 1,484 2,205
-------- --------
Total current liabilities 103,833 100,344
Long-term debt 51,000 51,000
Accrued retirement benefits 67,899 68,129
Other liabilities 10,191 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 49,098 49,231
Treasury stock at cost,
1999-2,365,944 shares
1998-2,202,417 shares (46,585) (42,893)
Retained earnings 210,822 204,364
Accumulated other comprehensive income (24,912) (20,043)
Guaranteed ESOP obligation (1,484) (2,205)
-------- --------
Total stockholders' equity 187,159 188,674
-------- --------
Total liabilities and stockholders'
equity $420,082 $418,904
======== ========
<FN>
See accompanying notes.
</TABLE>
-5-
<PAGE>
<TABLE>
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1999 and 1998
(Dollars in thousands)
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Operating Activities:
Net income $ 9,966 $11,841
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 7,412 7,110
Loss on sale of property, plant
and equipment 110 3
Changes in assets and liabilities:
Accounts receivable (6,706) (6,609)
Inventories 744 (4,252)
Accounts payable 2,085 6,702
Accrued liabilities (7,112) (1,877)
Deferred income taxes 108 1,772
Other (2,501) (169)
------- -------
Net Cash Provided by Operating Activities 4,106 14,521
Investing Activities:
Proceeds from sale of property, plant
and equipment 140 70
Capital expenditures (5,180) (8,832)
Other (452) (473)
------- -------
Net Cash Used by Investing Activities (5,492) (9,235)
Financing Activities:
Net increase in notes payable 10,364 6,395
Proceeds from the issuance of common stock 268 1,669
Common stock repurchases (4,121) (1,560)
Dividends paid (3,557) (3,373)
------- -------
Net Cash Provided by Financing Activities 2,954 3,131
Effect of exchange rate changes on cash flows (1,513) (518)
------- -------
Increase in cash and cash equivalents 55 7,899
Cash and cash equivalents at beginning of period 40,206 32,530
------- -------
Cash and cash equivalents at end of period $40,261 $40,429
======= =======
<FN>
See accompanying notes.
</TABLE>
-6-
<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 three-month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected
for the year ending December 31, 1999.
2. 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 operation's 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.
The effect of translation losses reduced comprehensive
Income by $4.9 million in the first quarter of 1999 and by
$0.5 million in the comparative 1998 period.
-7-
<PAGE>
Notes to Consolidated Financial Statements Continued:
3. 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.
<TABLE>
The following tables set forth information about the
Company's operations by its three reportable business
segments:
<CAPTION>
For the three months ended March 31, 1999 1998
(Dollars in thousands) -------- --------
<S> <C> <C>
Revenues
Bowman Distribution $ 59,995 $ 66,530
Associated Spring 66,299 68,481
Barnes Aerospace 38,981 37,719
Intersegment sales (3,027) (3,814)
-------- --------
Total revenue $162,248 $168,916
======== ========
Operating profit
Bowman Distribution $ 4,855 $ 9,735
Associated Spring 6,924 7,197
Barnes Aerospace 3,676 3,186
-------- --------
Total operating profit 15,455 20,118
Interest income 271 359
Interest expense 1,012 1,125
Other income (expense) 1,105 (406)
-------- --------
Income before income taxes $ 15,819 $ 18,946
======== ========
</TABLE>
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
---------------------
The Company's first quarter 1999 consolidated sales were $162.2
million, down 3.9% from $168.9 million last year. Operating income
in 1999 was $14.8 million in the first quarter compared to $19.4
million in the comparable 1998 period. Operating income margin in
1999 was 9.1%, compared to 11.5% in the prior year's first quarter.
These results reflect period-over-period sales and earnings
declines in the Bowman Distribution and Associated Spring business
segments, offset in part by the growth in sales and earnings at
the Barnes Aerospace business segment. Consolidated cost of sales
as a percentage of sales were 67.5% in 1999 versus 65.9% in 1998.
The rate of decrease in 1999's cost of sales was lower than the
decrease in sales due to the fixed nature of certain costs. In
addition, there were higher levels of expenses in 1999 relating to
the implementation of business systems at Bowman Distribution.
Selling and administrative expenses were approximately 23% of sales
in the first quarters of both years.
Segment Review-Sales and Operating Profit
-----------------------------------------
Bowman Distribution segment sales in the first three months of 1999
decreased 9.8% to $60.0 million versus $66.5 million in 1998. The
decline in sales was due in large part to shipment delays caused by
a planned warehouse shutdown to install new business systems at its
main distribution center in North America. Operating profits in
1999's first quarter declined compared to 1998's first quarter due
to the sales declines and to the additional costs related to
systems conversions.
Associated Spring's segment sales for first quarter 1999 decreased
3.2% compared to last year. Sales were $66.3 million
versus $68.5 million in 1998. Operating profit declined at
approximately the same rate. The major factors that contributed to
the sales and operating profit declines quarter-over-quarter, were
the affect on the Singapore operation of the Asian economic
slowdown and the softening of sales in certain of Associated
Spring's industrial markets.
-9-
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations Continued:
Barnes Aerospace segment first quarter 1999 sales of $39.0 million,
improved 3% over a strong 1998 first quarter. Significant sales
gains were reported in both the original equipment manufacture and
overhaul and repair businesses. This is a result of the currently
strong commercial aviation engine and airframe markets. Operating
income for the group also improved over 15% from the very solid
1998 first quarter results.
Non-Operating Income/Expense
----------------------------
In 1999 and 1998 other income includes $0.6 million and $0.7
million from the Company's share of its investment in NASCO. In
addition, a net foreign exchange gain of $1.3 million was
recognized in 1999 as compared to a net foreign exchange loss of
$0.2 million in 1998, which is reflected in other expenses.
Income Taxes
------------
The Company's effective tax rate for the first quarter 1999 was
37.0% compared to 37.5% in 1998's first quarter due in part to
implementing tax reduction strategies and lower state taxes.
Net Income and Net Income Per Share
-----------------------------------
Consolidated net income for the first quarters of 1999 and 1998 was
$10.0 million and $11.8 million. Basic earnings per share for the
1999 first quarter was $.50 compared to 1998's $.59 per share. On
a diluted basis, earnings per share were $.50 in 1999 and $.58 in
1998. There were no adjustments to net income for the purpose of
computing income available to common stockholders for the first
quarters of 1999 and 1998. For purpose of computing dilutive
earnings per share, the weighted average number of shares
outstanding were increased 208,259 and 387,716 for the first
quarters of 1999 and 1998,respectively, representing the potential
dilutive effects of stock-based incentive plans.
-10-
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations Continued:
Financial Condition
-------------------
Cash Flows
----------
Net cash generated by operating activities in the first three
months of 1999 was $4.1 million compared to a very strong $14.5
million for the first quarter of 1998. First quarter 1999 cash
provided by operating activities was impacted by lower net income
and by cash payments of $6.5 million to the former President and
CEO related to an early retirement package expensed in 1998.
Net cash used by investing activities in the first quarter of 1999
was $5.5 million compared to $9.2 million in 1998. The decrease
was primarily the result of lower capital expenditures. Both the
Associated Spring and Barnes Aerospace groups reported reduced
expenditures, while Bowman increased expenditures period over
period.
Net cash provided by financing activities was $3.0 million in the
first quarter of 1999 and $3.1 million in 1998's first quarter.
The first quarter 1999's higher borrowings were required to
repurchase higher levels of Company common stock and support
incremental operating activity requirements.
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 March 31,
1999, the Company classified as long-term debt $3.6 million of
borrowings under its revolving credit agreement 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 approach of long-
term financing.
-11-
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations Continued:
The Company maintains substantial bank borrowing facilities to
supplement internal cash generation. At March 31, 1999, the
company had $150.0 million of borrowing capacity under its long-
term revolving credit agreement of which $12.5 million was
borrowed. The Company had $6.5 million in borrowings under
uncommitted short-term bank credit lines at March 31, 1999. The
interest rate on this borrowing was 5.14%. The Company believes its
credit facilities coupled with cash generated from operations are
adequate for its anticipated future requirements.
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 and critical third party business
relationships by the Year 2000. The process of addressing Y2K
readiness began in early 1997 at each of the Company's three
business segments. 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 is on target to substantially
complete its Y2K readiness project by the end of the third quarter
of 1999, with the fourth quarter reserved for final testing at
Bowman and addressing any other unforeseen issues.
Assessment
----------
In this phase, the Company identifies its critical business systems
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 the Company's
-12-
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations Continued:
systems are complete, although the monitoring of the readiness of
our critical business relationships with suppliers and customers is
a continuous process. In addition, as new IT systems come on line,
they will be 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
completion of remediation or implementation of critical systems for
Barnes Aerospace and Associated Spring was substantially completed
during the first quarter of 1999. For Bowman Distribution,
remediation is expected to be completed by the end of the third
quarter of 1999. Required for success of this phase is the
implementation of the Bowman Distribution enterprise management
system. Because it is not practical to modify Bowman's existing
system to be Y2K ready, every effort is being made to ensure that
the new enterprise system will be fully operational and Y2K
compliant by the end of the third quarter of 1999.
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 Aerospace and Associated
Spring are well into the testing phase, the completion of which is
planned by the end of the third quarter of 1999. Bowman
Distribution expects to complete its testing phase during the
beginning of the fourth quarter. The fourth quarter will also be
used to resolve unanticipated activities including possible vendor
modifications.
Contingency Plans
-----------------
The Company is developing contingency plans concurrent with the
remediation and testing phases. When the Y2K readiness risks have
been determined, contingency plans will be finalized to deal with
the most likely worst-case scenarios. This phase will be
substantially complete by the end of the third quarter of 1999,
with follow-up to occur in the fourth quarter.
-13-
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations Continued:
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 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 $1.0 million in 1999. However, a significant
portion of the Company's overall IT expense of approximately $11.5
million in 1998 and the estimated $12.0 in 1999 is either directly
or indirectly used to addressing 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 $8.0 million in 1999.
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.
Forward-Looking Statements
--------------------------
The Company cautions readers that certain factors may effect 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.
-14-
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
-------------------------------------------------
(a) The Annual Meeting of the registrant's stockholders was
held on April 14, 1999. Proxies for the meeting were
solicited pursuant to Regulation 14 A.
(c) (1) The following directors were elected:
<TABLE>
<CAPTION>
Votes in Votes For Terms
Director Favor Withheld Expiring
-------- -------- -------- --------
<S> <C> <C> <C>
William S. Bristow, Jr. 17,664,123 577,609 2002
Robert J. Callander 17,632,030 609,702 2002
Edmund M. Carpenter 17,465,209 776,523 2002
</TABLE>
(2) The stockholders approved the selection of
PricewaterhouseCoopers LLP as the Company's independent
accountants for 1999. The proposal was adopted as
17,882,885 shares voted for, 260,823 shares voted against
and 98,024 shares abstained.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit
Exhibit 27 Financial Data Schedule, March 31, 1999
(b) Reports on Form 8-K
No reports on Form 8-K, Item 5, Other Events, were filed
during the quarter ended March 31, 1999.
-15-
<PAGE>
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 May 14, 1999 By /s/ Terry M. Murphy
------------ -------------------------------------
Terry M. Murphy
Senior Vice President, Finance
(the principal financial officer)
Date May 14, 1999 By /s/ Francis C. Boyle, Jr.
------------ -------------------------------------
Francis C. Boyle, Jr.
Vice President, Controller
(the principal accounting officer)
-16-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Barnes Group Inc. at March 31, 1999, and the
related consolidated statement of income for the three months ended March 31,
1999, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 40,261
<SECURITIES> 2,566
<RECEIVABLES> 91,489
<ALLOWANCES> 2,558
<INVENTORY> 62,683
<CURRENT-ASSETS> 213,663
<PP&E> 347,822
<DEPRECIATION> 212,468
<TOTAL-ASSETS> 420,082
<CURRENT-LIABILITIES> 103,833
<BONDS> 51,000
0
0
<COMMON> 220
<OTHER-SE> 186,939
<TOTAL-LIABILITY-AND-EQUITY> 420,820
<SALES> 162,248
<TOTAL-REVENUES> 162,248
<CGS> 109,540
<TOTAL-COSTS> 109,540
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 314
<INTEREST-EXPENSE> 1,012
<INCOME-PRETAX> 15,819
<INCOME-TAX> 5,853
<INCOME-CONTINUING> 9,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,966
<EPS-PRIMARY> .50<F1>
<EPS-DILUTED> .50<F1>
<FN>
<F1> Basic and diluted earnings per share calculated in accordance with
Statement of Financial Accounting Standards No. 128.
</FN>
</TABLE>
