<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 September 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
November 10, 2000 - 18,633,046
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, 2000
DESCRIPTION PAGES
----------- -----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Income
for the three months and nine months
ended September 30, 2000 and 1999 3
Condensed Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 4-5
Consolidated Statements of Cash Flows
for the nine months ended September 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 14
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 15
Signatures 15
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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 Nine months ended
September 30, September 30,
-------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net sales $190,570 $154,043 $552,041 $472,574
Cost of sales 123,550 103,665 362,715 320,485
Selling and admin-
istrative expenses 50,058 37,043 140,471 110,820
-------- -------- -------- --------
173,608 140,708 503,186 431,305
-------- -------- -------- --------
Operating income 16,962 13,335 48,855 41,269
Other income 973 1,364 3,350 4,400
Interest expense 4,008 1,617 10,250 3,530
Other expenses 1,151 379 2,742 855
-------- -------- -------- --------
Income before income
Taxes 12,776 12,703 39,213 41,284
Income taxes 3,441 3,811 11,372 14,243
-------- -------- -------- --------
Net income $ 9,335 $ 8,892 $ 27,841 $ 27,041
======== ======== ======== ========
Per common share:
Net income
Basic $ .50 $ .46 $ 1.50 $ 1.38
Diluted .49 .45 1.48 1.36
Dividends .20 .19 .59 .56
Average common shares
outstanding
Basic 18,601,009 19,347,665 18,551,378 19,560,942
Diluted 18,870,208 19,583,293 18,759,413 19,796,883
See accompanying notes.
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BARNES GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS September 30, December 31,
2000 1999
------------ -----------
(Unaudited)
Current assets
Cash and cash equivalents $ 44,808 $ 43,632
Accounts receivable, less allowances
(2000-$3,945; 1999-$3,329) 122,033 91,701
Inventories
Finished goods 57,874 39,573
Work-in-process 20,888 12,861
Raw materials and supplies 15,578 13,917
-------- --------
94,340 66,351
Deferred income taxes and prepaid
expenses 19,546 17,501
-------- --------
Total current assets 280,727 219,185
Deferred income taxes 22,713 23,797
Property, plant and equipment 403,735 368,191
Less accumulated depreciation 238,400 223,086
-------- --------
165,335 145,105
Goodwill 147,578 88,562
Other assets 56,280 39,633
-------- --------
Total assets $672,633 $516,282
======== ========
See accompanying notes.
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BARNES GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY September 30, December 31,
2000 1999
------------ -----------
(Unaudited)
Current liabilities
Notes payable $ 41,262 $ 12,136
Accounts payable 57,312 57,458
Accrued liabilities 64,513 46,426
-------- --------
Total current liabilities 163,087 116,020
Long-term debt 230,000 140,000
Accrued retirement benefits 67,944 66,973
Other liabilities 11,626 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 51,305 49,786
Treasury stock at cost
2000-3,391,823 shares
1999-3,187,242 shares (67,914) (63,893)
Retained earnings 235,174 218,388
Accumulated other comprehensive income (18,809) (23,887)
-------- --------
Total stockholders' equity 199,976 180,614
-------- --------
Total liabilities and stockholders'
equity $672,633 $516,282
======== ========
See accompanying notes.
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BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months ended September 30, 2000 and 1999
(Dollars in thousands)
(Unaudited)
2000 1999
------- -------
Operating activities:
Net income $27,841 $27,041
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 26,196 22,821
Gain on sale of property, plant and
equipment (2,255) (506)
Changes in assets and liabilities:
Accounts receivable (13,920) (9,851)
Inventories (4,704) 4,286
Accounts payable (7,672) 5,265
Accrued liabilities 6,228 (11,419)
Deferred income taxes 1,248 996
Other (10,540) (5,265)
------- -------
Net cash provided by operating activities 22,422 33,368
Investing activities:
Proceeds from sale of property, plant
and equipment 2,736 1,920
Capital expenditures (19,800) (19,832)
Business acquisitions (104,655) (91,949)
Redemption of short-term investment -- 2,566
Other (1,767) (1,480)
------- -------
Net cash used by investing activities (123,486) (108,775)
Financing activities:
Net increase in notes payable 29,165 15,407
Proceeds from the issuance of long-term debt 90,000 89,000
Proceeds from the issuance of common stock 3,645 1,238
Common stock repurchases (8,073) (18,756)
Dividends paid (10,952) (10,953)
------- -------
Net cash provided by financing activities 103,785 75,936
Effect of exchange rate changes on cash flows (1,545) (1,678)
------- -------
Increase (decrease) in cash and cash equivalents 1,176 (1,149)
Cash and cash equivalents at beginning of period 43,632 40,206
------- -------
Cash and cash equivalents at end of period $44,808 $39,057
======= =======
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 in the United States 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 nine-month period
ended September 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 Nine months ended
September 30, September 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net income $ 9,335 $ 8,892 $ 27,841 $ 27,041
Other comprehensive
gain (loss) 3,540 (80) 5,078 (4,544)
-------- -------- -------- --------
Comprehensive income $ 12,875 $ 8,812 $ 32,919 $ 22,497
======== ======== ======== ========
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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 the
Company's guarantee was $2.3 million based on the Company's
stock closing price of $16.31 per share. Based on the
September 29, 2000 closing price of $18.38, the guarantee
was $1.0 million.
4. Acquisitions
------------
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 $63.3 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 of $52.7 million will be amortized
over 40 years.
On September 7, 2000, the Company purchased substantially
all the manufacturing assets and liabilities of Kratz-Wilde
Machine Company (Kratz-Wilde) and Apex Manufacturing Inc.
(Apex) from Aviation Sales Company pursuant to an Asset
Purchase and Sale Agreement dated August 3, 2000. Kratz-
Wilde/Apex fabricates and machines intricate aerospace
components for jet engines and auxiliary power units and is
included in the Barnes Aerospace business segment. The
acquisition was recorded using the purchase method of
accounting. The $41.4 million acquisition cost has been
allocated to tangible and intangible assets and liabilities
of Kratz-Wilde/Apex based upon estimates of their respective
fair market values. The resulting goodwill of $8.6 million
will be amortized over 40 years.
The funds used to purchase Curtis and Kratz-Wilde/Apex were
borrowed under the Company's $150 million revolving credit
facility. The Company is currently working on the issuance
of $60.0 million of long-term notes to refinance a portion
of the borrowings under the revolving credit facility. The
new debt will result in higher interest expense.
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Notes to Consolidated Financial Statements Continued:
The following table reflects the operating results of the
Company for the nine months ended September 30, 2000 and
1999 on a pro forma basis, which gives effect to the
acquisition of Curtis and Kratz-Wilde/Apex as if they 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.
Pro Forma Financial Data
Curtis and Kratz-Wilde/Apex Acquisitions
(Dollars in thousands, except per share data)
(Unaudited)
Nine Months ended September 30, 2000 1999
-------- --------
Net sales $610,661 $569,410
Income before income taxes 38,316 42,191
Net income 27,194 27,636
Per common share - basic $ 1.47 $ 1.41
- diluted 1.45 1.39
On a pro forma basis, the acquisitions would have been
dilutive to earnings per share by $0.03, for the first nine
months of 2000. The Company expects that, with anticipated
synergies realized, the acquisitions will be accretive to
earnings during their twelve-month post-acquisition periods.
5. 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, as amended. 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 consolidated financial position, results
of operations or cash flows.
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Notes to Consolidated Financial Statements Continued:
6. Information on Business Segments
--------------------------------
Segment assets were impacted by the May 2000 $63.3 million
acquisition of Curtis (Barnes Distribution segment) and the
September 2000 $41.4 million acquisition of Kratz-Wilde/Apex
(Barnes Aerospace segment). See note 4 above.
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,
------------------- -------------------
2000 1999 2000 1999
-------- -------- --------- --------
(Dollars in thousands)
(Unaudited)
Revenues:
Associated Spring $ 79,891 $ 70,911 $252,356 $205,720
Barnes Distribution 79,162 57,744 215,615 176,738
Barnes Aerospace 34,719 28,523 94,396 99,211
Intersegment sales (3,202) (3,135) (10,326) (9,095)
-------- -------- -------- --------
Total revenues $190,570 $154,043 $552,041 $472,574
======== ======== ======== ========
Operating profit:
Associated Spring $ 11,550 $ 8,397 $ 36,394 $ 24,378
Barnes Distribution 2,742 3,860 8,000 11,443
Barnes Aerospace 3,183 1,829 6,191 7,644
-------- -------- -------- --------
Total operating profit 17,475 14,086 50,585 43,465
Interest income 258 358 807 801
Interest expense 4,008 1,617 10,250 3,530
Other income(expense) (949) (124) (1,929) 548
-------- -------- -------- --------
Income before income
taxes $ 12,776 $ 12,703 $ 39,213 $ 41,284
======== ======== ======== ========
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
---------------------
Net sales for the third quarter of 2000 were a record $190.6
million, up 24% from net sales of $154.0 in 1999. This is the
third consecutive quarter of record sales, reflecting both
internal sales growth and the Company's three recent
acquisitions. The Company's sales for the first nine months were
$552.0 million, up 17% from $472.6 million in 1999.
Third quarter operating income was up 27% to $17.0 million
compared to $13.3 million in the comparative 1999 period.
Operating margins improved in the quarter to 8.9% from 8.7% in
1999. The third quarter 2000 results reflect strong sales
performance by all three business segments and very strong
earnings performance by the Associated Spring and Barnes
Aerospace business segments, offset in part by lower earnings at
Barnes Distribution.
The year-to-date operating income was $48.9 million, up 18% from
$41.3 million reported in 1999. Operating margins improved in
the first nine months to 8.8% from 8.7% in 1999. Year-to-date
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 third quarter and first nine months
contributed $1.4 million and $3.7 million of incremental
operating income over the comparable 1999 periods. Of the
increase in selling and administrative expenses in 2000 over
1999, $11.5 million and $22.7 million in the third quarter and
first nine months are attributable to newly acquired units.
Included in both the current quarter and first nine months of
2000, is a gain of $2.2 million related to the sale of a
corporate asset and $1.7 million of one-time consolidation costs
related to the Curtis acquisition.
Segment Review-Sales and Operating Profit
------------------------------------------
Associated Spring sales for the third quarter and year-to-date
were $79.9 million and $252.4 million, up 13% and 23% over the
comparable 1999 periods, reflecting strong foreign demand for the
Company's products. The nitrogen gas springs product line,
acquired in August 1999, contributed $6.0 million and $31.6
million in incremental sales for the quarter and first nine
months of 2000. The segment's third quarter and year-to-date 2000
operating profits also increased substantially to $11.6 million
and $36.4 million, improving 38% and 49% 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 third quarter and year-to-date sales were
$79.2 million and $215.6 million, an increase of 37% and 22% over
the comparative 1999 periods. The acquisition of Curtis, in May
2000, contributed $21.0 million in sales for the third quarter
and $37.2 million year-to-date. However, segment operating
profits in the third quarter declined largely as a result of one-
time consolidation costs of $1.7 million related to the Curtis
acquisition. On a year-to-date basis, operating profits
declined, reflecting one-time consolidation costs and the higher
costs associated with a new business management and information
system implemented in 1999 in North America.
Barnes Aerospace's third quarter sales were $34.7 million, up 22%
as compared to 1999 and year-to-date 2000 sales were $94.4
million, down 5% as compared to $99.2 million in 1999. The
acquisition of Kratz-Wilde/Apex added $3.0 million in sales to
the current periods. The third quarter sales increase and the
trend of increased orders for the third consecutive quarter
indicate the beginning of a recovery in the commercial jet engine
market. Excluding the impact of the acquisition of Kratz-
Wilde/Apex, orders during the third quarter were $44.2 million
and backlog rose by $12.0 million to $101.6 million at September
30, 2000. Segment operating profit for the third quarter
improved significantly over last year's third quarter, primarily
resulting from the increased sales volume. Year-to-date
operating profit, however, was lower than last year due to the
impact of year-to-date lower sales volume, which is directly
related to the shortfall of sales in the first quarter. The
acquisition of Kratz-Wilde/Apex had no material impact on
operating profit in the current periods.
Non-Operating Income/Expense
----------------------------
Other income for the first nine months of 2000 decreased from
1999 due to lower net foreign exchange transaction gains. The
increase in other expenses in 2000 as compared to 1999 was
attributable to higher goodwill amortization, a result of three
acquisitions. Interest expense also increased substantially due
to the debt service on acquisition-related debt.
Income Taxes
------------
The Company's effective tax rate was 29.0% in 2000 compared to
34.5% 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 third quarter of 2000 and 1999
was $9.3 million and $8.9 million, respectively. Basic and
diluted earnings per share for the 2000 third quarter were $.50
and $.49, compared to 1999's basic and diluted earnings per share
of $.46 and $.45. Consolidated net income year-to-date 2000 and
1999 was $27.8 million and $27.0 million. Basic and diluted
earnings per share for the first nine months of 2000 were $1.50
and $1.48 compared to 1999's basic and diluted earnings per share
of $1.38 and $1.36.
For the purpose 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 nine
months of 2000 was $22.4 million, compared to $33.4 million in
1999. The year-to-date 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 three-quarters of 1999,
operating cash flow was negatively impacted by cash payments of
$7.4 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 1999's accrued
liabilities.
Net cash used for investing activities during the first nine
months of 2000 was $123.5 million compared to $108.8 million in
the first three-quarters of 1999. The significant cash usage in
both periods reflects the acquisitions of Curtis and Kratz-
Wilde/Apex in 2000 and the nitrogen gas springs business in 1999.
Net cash provided by financing activities was $103.8 million in
the first nine months of 2000 compared to $75.9 million in 1999.
Both periods include the increase in long-term debt to fund
acquisitions. The 2000 increase in notes payable was used to
finance the incremental 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
-------------------------------
The Company maintains substantial bank borrowing facilities to
supplement internal cash generation. At September 30, 2000, the
Company had $150.0 million of borrowing capacity under its long-
term revolving credit facility of which all was borrowed. The
funds used to purchase Curtis and Kratz-Wilde/Apex were borrowed
under this agreement. The Company is currently working on the
issuance of $60.0 million of long-term notes to refinance a
portion of the borrowing under the revolving credit facility. The
new debt will result in higher interest expense.
At September 30, 2000, the Company had $8.0 million in borrowings
under uncommitted short-term bank credit lines at an interest
rate of 7.41%. 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, changes in market demand
for the types of products, services produced and sold by the
Company and projected synergies of acquisitions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At September 30, 2000, the result of a hypothetical 1% increase
in the average cost of the Company's variable-rate debt would
reduce pretax profit of the Company by $1.7 million on an annual
basis. 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.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27 Financial Data Schedule, September 30, 2000
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended September 30, 2000.
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 14, 2000 By /s/ William C. Denninger
----------------- -------------------------------------
William C. Denninger
Senior Vice President, Finance
and Chief Financial Officer
(the principal financial officer)
Date November 14, 2000 By /s/ Francis C. Boyle, Jr.
----------------- -------------------------------------
Francis C. Boyle, Jr.
Vice President, Controller
(the principal accounting officer)
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