<PAGE>
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, 2000
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 8, 2000 - 18,664,993
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 June 30, 2000
DESCRIPTION PAGES
----------- -----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Income
for the three months and six months
ended June 30, 2000 and 1999 3
Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999 4-5
Consolidated Statements of Cash Flows
for the six months ended June 30,
2000 and 1999 6
Notes to Consolidated Financial
Statements 7-10
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11-14
ITEM 3. Quantitative and Qualitative Disclosure
About Market Risk 15
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 15
Signatures 16
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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 Six months ended
June 30, June 30,
-------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net sales $188,465 $156,283 $361,472 $318,531
Cost of sales 122,847 107,280 239,165 216,820
Selling and admin-
istrative expenses 49,418 36,470 90,388 74,353
-------- -------- -------- --------
172,265 143,750 329,553 291,173
-------- -------- -------- --------
Operating income 16,200 12,533 31,919 27,358
Other income 1,100 1,406 2,496 3,824
Interest expense 3,464 901 6,242 1,913
Other expenses 1,022 276 1,736 688
-------- -------- -------- --------
Income before income
taxes 12,814 12,762 26,437 28,581
Income taxes 3,708 4,579 7,931 10,432
-------- -------- -------- --------
Net income $ 9,106 $ 8,183 $ 18,506 $ 18,149
======== ======== ======== ========
Per common share:
Net income
Basic $ .49 $ .42 $ 1.00 $ .92
Diluted .49 .41 .99 .91
Dividends .20 .19 .39 .37
Average common shares
outstanding
Basic 18,454,001 19,576,567 18,526,290 19,669,347
Diluted 18,640,858 19,840,504 18,701,533 19,905,445
See accompanying notes.
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BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS June 30, December 31,
2000 1999
-------- -----------
(Unaudited)
Current assets
Cash and cash equivalents $ 42,602 $ 43,632
Accounts receivable, less allowances
(2000-$3,878; 1999-$3,329) 114,631 91,701
Inventories
Finished goods 57,366 39,573
Work-in-process 14,342 12,861
Raw materials and supplies 12,401 13,917
-------- --------
84,109 66,351
Deferred income taxes and prepaid
expenses 17,824 17,501
-------- --------
Total current assets 259,166 219,185
Deferred income taxes 23,345 23,797
Property, plant and equipment 380,622 368,191
Less accumulated depreciation 231,108 223,086
-------- --------
149,514 145,105
Goodwill 133,818 88,562
Other assets 47,927 39,633
-------- --------
Total assets $613,770 $516,282
======== ========
See accompanying notes.
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BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31,
2000 1999
--------- -----------
(Unaudited)
Current liabilities
Notes payable $ 35,461 $ 12,136
Accounts payable 59,030 57,458
Accrued liabilities 50,658 46,426
-------- --------
Total current liabilities 145,149 116,020
Long-term debt 200,000 140,000
Accrued retirement benefits 68,200 66,973
Other liabilities 12,642 12,675
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 50,092 49,786
Treasury stock at cost
2000-3,580,447 shares
1999-3,187,242 shares (69,827) (63,893)
Retained earnings 229,643 218,388
Accumulated other comprehensive income (22,349) (23,887)
-------- --------
Total stockholders' equity 187,779 180,614
-------- --------
Total liabilities and stockholders'
equity $613,770 $516,282
======== ========
See accompanying notes.
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BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months ended June 30, 2000 and 1999
(Dollars in thousands)
(Unaudited)
2000 1999
------- -------
Operating activities:
Net income $18,506 $18,149
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 17,231 15,433
Loss (gain) on sale of property, plant and
equipment 26 (576)
Changes in assets and liabilities:
Accounts receivable (13,746) (8,835)
Inventories (7,135) 2,484
Accounts payable (3,737) 4,479
Accrued liabilities (1,101) (12,595)
Deferred income taxes 541 612
Other (5,282) (3,505)
------- -------
Net cash provided by operating activities 5,303 15,646
Investing activities:
Proceeds from sale of property, plant
and equipment 297 1,096
Capital expenditures (11,516) (12,076)
Acquisition of Curtis Industries, Inc. (62,580) --
Redemption of short-term investment -- 1,503
Other (1,010) (773)
------- -------
Net cash used by investing activities (74,809) (10,250)
Financing activities:
Net increase in notes payable 23,338 4,124
Proceeds from the issuance of long-term debt 60,000 --
Proceeds from the issuance of common stock 901 946
Common stock repurchases (7,136) (7,817)
Dividends paid (7,223) (7,274)
------- -------
Net cash provided (used) by financing activities 69,880 (10,021)
Effect of exchange rate changes on cash flows (1,404) (1,535)
------- -------
Decrease in cash and cash equivalents (1,030) (6,160)
Cash and cash equivalents at beginning of period 43,632 40,206
------- -------
Cash and cash equivalents at end of period $42,602 $34,046
======= =======
See accompanying notes.
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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, 1999. 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, 2000 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 2000.
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 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 Six months ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net income $ 9,106 $ 8,183 $ 18,506 $ 18,149
Other comprehensive
gain (loss) 2,590 405 1,538 (4,464)
-------- -------- -------- --------
Comprehensive income $ 11,696 $ 8,588 $ 20,044 $ 13,685
======== ======== ======== ========
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Notes to Consolidated Financial Statements Continued:
3. Stock Plans
-----------
All U.S. salaried and non-union hourly employees are eligible
to participate in the Company's Guaranteed Stock Plan (GSP).
The GSP provides for the investment of employer and employee
contributions in the Company's common stock. The Company
guarantees a minimum rate of return on certain GSP assets.
This guarantee will only become a liability for the Company
if, and to the extent, the value of the related Company stock
does not cover the guaranteed asset value on the day an
employee withdraws from the plan. At December 31, 1999 and
June 30, 2000, the Company's guarantee was $2.3 million based
on the Company's stock closing price of $16.31 per share at
those dates. Based on the August 8, 2000 closing price of
$19.56, the guarantee would have been $0.6 million.
4. Acquisition of Curtis Industries, Inc.
--------------------------------------
On May 10, 2000, the Company purchased substantially all of
the assets and liabilities of Curtis Industries, Inc.
(Curtis), pursuant to an Asset Purchase and Sale Agreement
dated April 27, 2000. The acquisition of Curtis, a
distributor of maintenance, repair and operating supplies and
high quality security products, was recorded using the
purchase method of accounting and is included in the Barnes
Distribution business segment. The $62.6 million acquisition
cost has been allocated to tangible and intangible assets and
liabilities of the Curtis business based upon estimates of
their respective fair market values. The resulting goodwill
will be amortized over 40 years.
The funds used to purchase Curtis were borrowed under the
Company's $150 million revolving credit facility. The Company
plans to refinance the purchase through the private placement
of long-term notes. The increase in debt will result in both
higher interest expense and higher debt-to-capitalization
ratios.
The following table reflects the operating results of the
Company for the six months ended June 30, 2000 and 1999 on a
pro forma basis, which gives effect to the acquisition of
Curtis as if it had occurred on January 1, 1999. The pro
forma results are not necessarily indicative of the operating
results that would have occurred if the acquisition had been
effective January 1, 1999, nor are they intended to be
indicative of results that may occur in the future. The
underlying pro forma information includes the amortization
expense associated with the assets acquired, the Company's
financing arrangements and certain purchase accounting
adjustments.
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Notes to Consolidated Financial Statements Continued:
Pro Forma Financial Data
Curtis Industries, Inc. Acquisition
(Dollars in thousands, except per share data)
(Unaudited)
Six Months ended June 30, 2000 1999
-------- --------
Net sales $389,153 $360,091
Income before income taxes 26,092 28,768
Net income 18,264 18,261
Per common share - basic $ .99 $ .93
- diluted .98 .92
On a pro forma basis, the acquisition, would have been dilutive
to earnings per share by $0.01, for the first half of 2000.
However, the Company expects that with the synergy savings
Curtis will have with Bowman Distribution, the acquisition
will be accretive to earnings during the twelve-month post-
acquisition period.
5. Subsequent Event
----------------
On August 4, 2000, the Company announced that it had signed a
definitive agreement to acquire substantially all the
manufacturing assets of Kratz-Wilde Machine Company (Kratz-
Wilde) and Apex Manufacturing Inc. (Apex) from Aviation Sales
Company. Kratz-Wilde/Apex fabricate and machine intricate
aerospace components for jet engines and auxiliary power
units. They generated sales in 1999 of $44 million. The
purchase price is $41 million, subject to adjustment. The
acquisition is expected to be finalized by the end of the
third quarter of 2000 and will be included in the Barnes
Aerospace business segment. The Company plans to finance the
purchase under its $150.0 million long-term revolving credit
facility. The increase in debt will result in both higher
interest expense and higher debt-to-capitalization ratios.
6. Future Accounting Changes
-------------------------
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
effective January 1, 2001. The standard requires that the
Company recognize derivatives on the balance sheet at fair
value. Management believes that adoption of this standard
will not have a material impact on the Company's financial
position, results of operations or cash flows.
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Notes to Consolidated Financial Statements Continued:
7. Information on Business Segments
--------------------------------
Barnes Distribution's segment assets were impacted by the
$62.6 million acquisition of Curtis. See note 4 above.
Additionally, the following tables set forth information about
the Company's operations by its three reportable business
segments:
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- --------- --------
(Dollars in thousands)
(Unaudited)
Revenues:
Associated Spring $ 86,152 $ 68,510 $172,465 $134,809
Barnes Distribution 75,366 58,999 136,453 118,994
Barnes Aerospace 30,387 31,708 59,677 70,689
Intersegment sales (3,440) (2,934) (7,123) (5,961)
-------- -------- -------- --------
Total revenues $188,465 $156,283 $361,472 $318,531
======== ======== ======== ========
Operating profit:
Associated Spring $ 12,508 $ 9,057 $ 24,844 $ 15,981
Barnes Distribution 2,344 2,728 5,258 7,583
Barnes Aerospace 1,899 2,139 3,008 5,815
-------- -------- -------- --------
Total operating profit 16,751 13,924 33,110 29,379
Interest income 273 172 549 443
Interest expense 3,464 901 6,242 1,913
Other income(expense) (746) (433) (980) 672
-------- -------- -------- --------
Income before income
taxes $ 12,814 $ 12,762 $ 26,437 $ 28,581
======== ======== ======== ========
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
---------------------
The second quarter 2000 sales were $188.5 million, the highest
quarterly sales in the Company's history, up 21% from $156.3
million in 1999. This was the second consecutive quarter of record
sales, reflecting strong demand in most of the Company's markets as
well as the sales from recent acquisitions. The Company's 2000
first half sales were $361.5 million, up 14% from $318.5 million in
1999.
Second quarter operating income was up 29% to $16.2 million
compared to $12.5 million in the comparative 1999 period.
Operating margins improved in the second quarter to 8.6% from 8.0%
in 1999. The second quarter 2000 results reflects very strong
sales and earnings performance by the Associated Spring business
segment, offset in part by lower earnings at Barnes Distribution
and lower sales and earnings at Barnes Aerospace.
The 2000 year-to-date operating income was $31.9 million, up 17%
from $27.4 million reported in 1999. Operating margins improved in
the first six months to 8.8% from 8.6% in 1999. The first half
2000 performance reflects period-over-period sales and earnings
improvements at Associated Spring, offset in part by an earnings
decline at Barnes Distribution and sales and earnings declines at
Barnes Aerospace.
Lower pension expense in the first half and second quarter of 2000
contributed $2.3 million and $1.6 million of incremental operating
income over the comparable 1999 periods. Of the increase in
selling and administrative expenses in 2000, $9.3 million and $11.3
million are attributable to newly acquired units in the second
quarter and first six months, respectively.
Segment Review-Sales and Operating Profit
------------------------------------------
Associated Spring sales for the 2000 second quarter and first half
were $86.2 million and $172.5 million, up 26% and 28%, reflecting
strong demand from the telecommunications, electronics and
transportation sectors. The nitrogen gas springs product line,
acquired in August 1999, contributed $12.9 million and $25.9
million in sales for the quarter and first six months of 2000. The
second quarter and year-to-date 2000 operating profits also
increased substantially to $12.5 million and $24.8 million, a 38%
and 56% improvement over the comparable 1999 periods. This
operating profit increase was largely a result of the higher sales
volume.
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Management's Discussion and Analysis of Financial
Condition and Results of Operations Continued:
Barnes Distribution's second quarter and year-to-date 2000 segment
sales were $75.4 million and $136.5 million, an increase of 28% and
15% over the comparative 1999 periods. The acquisition of Curtis,
in May 2000, contributed $15.3 million in sales for the second
quarter and first half. However, segment operating profits in 2000
declined in both the second quarter and first half as compared to
1999, reflecting the continued higher cost associated with a new
business management and information system implemented in 1999 in
North America.
Barnes Aerospace's second quarter 2000 segment sales were $30.4
million as compared to $31.7 million in 1999 and year-to-date 2000
segment sales were $59.7 million as compared to $70.7 million in
1999. The sales decline continues to reflect the current conditions
in the commercial jet engine market. However, the trend of
increased orders for the second consecutive quarter indicates the
beginning of a recovery in the market. Orders were up 75% in the
second quarter to $35 million from the average 1999 quarterly
orders of $20 million, resulting in backlog increasing to $90
million at June 30, 2000 as compared to $80 million at December 31,
1999. Operating income also declined from the comparative 1999
periods, a direct result of the sales decline. Effective expense
controls helped to offset some of the impact of lower sales volume.
Non-Operating Income/Expense
----------------------------
Other income for the first half of 2000 decreased from 1999, partly
because of the 1999 the gain on the sale of a closed Associated
Spring facility, and lower net foreign exchange transaction gains.
The increase in other expenses in 2000 as compared to 1999 was
largely attributable to higher goodwill amortization, a result of
two acquisitions. Interest expense also increased substantially
due to the debt service on acquisition-related debt.
Income Taxes
------------
The Company's effective tax rate was 30.0% in 2000 compared to
36.5% in 1999. The lower rate in 2000 was due to lower state
taxes, a higher percentage of foreign income with tax rates lower
than the U.S. statutory tax rate, and foreign tax benefits related
to the acquisition of the nitrogen gas springs business.
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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 second quarter of 2000 and 1999 was
$9.1 million and $8.2 million, respectively. Basic and diluted
earnings per share for the 2000 second quarter were $.49 compared
to 1999's basic and diluted earnings per share of $.42 and $.41.
Consolidated net income for the first half of 2000 and 1999 was
$18.5 million and $18.1 million, respectively. Basic and diluted
earnings per share for the first six months of 2000 were $1.00 and
$.99 compared to 1999's basic and diluted earnings per share of
$.92 and $.91.
For the purposes of computing diluted earnings per share, the
weighted average number of shares outstanding was increased for the
potential dilutive effects of stock-based incentive plans. There
were no adjustments to net income for the purpose of computing
income available to common stockholders for 2000 or 1999.
Financial Condition
-------------------
Cash Flows
----------
Net cash generated by operating activities in the first six months
of 2000 was $5.3 million, compared to $15.6 million in 1999. In the
first half of 2000 operating cash flow was negatively impacted by
higher investments in operating assets and liabilities, which were
used to support a higher level of business activity. During the
first half of 1999, operating cash flow was negatively impacted by
cash payments of $7.0 million related to the early retirement
package for the Company's former president, which was expensed and
accrued in 1998. These cash payments are reflected in the decrease
in 1999's accrued liabilities.
Net cash used for investing activities during the first six months
of 2000 was $74.8 million compared to $10.3 million in the first
half of 1999. The increase in cash used in 2000 compared to 1999
was primarily due to the acquisition of Curtis.
Net cash provided by financing activities was $69.9 million in the
first half of 2000 compared to cash usage of $10.0 million in the
first half of 1999. The increase in 2000 is due primarily to the
issuance of additional long-term debt to fund the acquisition of
Curtis. In addition, an increase in notes payable was used to
finance the investment in operating assets and liabilities.
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Management's Discussion and Analysis of Financial
Condition and Results of Operations Continued:
Liquidity and Capital Resources
-------------------------------
At June 30, 2000, the Company classified as long-term debt $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 this amount on a long-term basis.
The Company maintains substantial bank borrowing facilities to
supplement internal cash generation. At June 30, 2000, the Company
had $150.0 million of borrowing capacity under its long-term
revolving credit agreement of which $112.0 million was borrowed.
The funds used to purchase Curtis were borrowed under this
agreement. The Company plans to refinance this purchase through the
private placement of long-term notes.
As described in the Notes to Consolidated Financial Statements, on
August 4, 2000, the Company announced that it had signed a
definitive agreement to acquire the manufacturing assets of the
Kratz-Wilde/Apex businesses of Aviation Sales Company.
At June 30, 2000, the Company had $7.0 million in borrowings under
uncommitted short-term bank credit lines at an interest rate of
7.51%. The Company anticipates floating additional long-term notes
through a private placement to refinance the Curtis acquisition.
The Kratz-Wilde/Apex acquisition will be financed under the $150.0
million long-term revolving credit facility. The Company believes
its credit facilities coupled with cash generated from operations
are adequate to finance its anticipated future requirements.
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 actual 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, as defined in the
Public Securities Litigation and Reform Act of 1995. Some
factors that could cause actual results to vary materially from
those anticipated in forward-looking statements include changes
in worldwide economic and political conditions, currency and
interest rate fluctuations, regulatory and technological changes,
and changes in market demand for the types of products and
services produced and sold by the Company.
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Management's Discussion and Analysis of Financial
Condition and Results of Operations Continued:
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes in the Company's exposure to
market risk during the first half of 2000. 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, 1999.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27 Financial Data Schedule, June 30, 2000
(b) Reports on Form 8-K
A report on Form 8-K dated April 27, 2000 was filed with
the Commission on April 28, 2000. This report includes
information under Item 5 concerning the April 27, 2000
announcement of the Company's agreement to acquire Curtis
Industries, Inc. a subsidiary of Paragon Corporate
Holdings, Inc., a privately held company.
A report on Form 8-K dated May 10, 2000 was filed with the
Commission on May 19, 2000. This report includes
information under Item 2, Acquisition or Disposition of
Assets, concerning the April 27, 2000 announcement of the
Company's agreement to acquire Curtis Industries, Inc. and
subsequent acquisition on May 10, 2000.
-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 August 14, 2000 By /s/ William C. Denninger
--------------- -------------------------------------
William C. Denninger
Senior Vice President, Finance
and Chief Financial Officer
(the principal financial officer)
Date August 14, 2000 By /s/ Francis C. Boyle, Jr.
--------------- -------------------------------------
Francis C. Boyle, Jr.
Vice President, Controller
(the principal accounting officer)
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