UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 1-4801
coverpagelogoa06a04a01a01a17.jpg
BARNES GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0247840 
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 
  
123 Main Street   
Bristol   
Connecticut 06010 
(Address of Principal Executive Offices) (Zip Code) 
(860) 583-7070
Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share B New York Stock Exchange

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  ¨ 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x   No  ¨ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):    
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
  Emerging growth company
  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).YesNo

The registrant had outstanding 50,619,74450,442,459 shares of common stock as of July 24, 2019.April 22, 2020.


Barnes Group Inc.
Index to Form 10-Q
For the Quarterly Period Ended June 30, 2019March 31, 2020
 
  Page
Part I.FINANCIAL INFORMATION 
   
Item 1.
 
 
 
 
 
 
   
Item 2.
   
Item 3.
   
Item 4.
   
Part II.OTHER INFORMATION 
   
Item 1.
Item 1A.
   
Item 2.
   
Item 6.
   
 
 


This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. See “FORWARD-LOOKING STATEMENTS” under Part I - Item 2 “Management's Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q.



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 June 30, Six months ended June 30,Three Months Ended
March 31,
2019 2018 2019 20182020 2019
Net sales$371,669
 $375,315
 $748,360
 $741,975
$330,671
 $376,692
          
Cost of sales238,306
 237,608
 482,949
 474,742
208,248
 244,643
Selling and administrative expenses76,406
 73,828
 157,804
 146,721
73,110
 81,400
314,712
 311,436
 640,753
 621,463
281,358
 326,043
Operating income56,957
 63,879
 107,607
 120,512
49,313
 50,649
          
Interest expense5,399
 4,133
 10,512
 8,025
4,324
 5,113
Other expense (income), net1,712
 947
 3,519
 2,710
1,594
 1,806
Income before income taxes49,846
 58,799
 93,576
 109,777
43,395
 43,730
Income taxes12,230
 9,370
 21,968
 21,530
13,662
 9,738
Net income$37,616
 $49,429
 $71,608
 $88,247
$29,733
 $33,992
          
Per common share:          
Basic$0.73
 $0.94
 $1.39
 $1.66
$0.58
 $0.66
Diluted0.73
 0.93
 1.38
 1.65
0.58
 0.65
          
Weighted average common shares outstanding:          
Basic51,251,149
 52,581,804
 51,454,844
 53,055,980
51,061,132
 51,660,804
Diluted51,743,483
 53,135,742
 51,965,343
 53,608,447
51,501,857
 52,189,465

See accompanying notes.



BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
 Three months ended June 30, Six months ended June 30,
 2019 2018 2019 2018
Net income$37,616
 $49,429
 $71,608
 $88,247
Other comprehensive income (loss), net of tax       
Unrealized (loss) gain on hedging activities, net of tax (1)(1,225) 415
 (1,793) 811
Foreign currency translation adjustments, net of tax (2)4,001
 (65,360) (5,224) (38,407)
Defined benefit pension and other postretirement benefits, net of tax (3)1,922
 3,025
 3,537
 6,189
Total other comprehensive income (loss), net of tax4,698
 (61,920) (3,480) (31,407)
Total comprehensive income (loss)$42,314
 $(12,491) $68,128
 $56,840
 Three Months Ended
March 31,
 
 2020 2019 
Net income$29,733
 $33,992
 
Other comprehensive (loss) income, net of tax    
Unrealized loss on hedging activities, net of tax (1)(2,337) (568) 
Foreign currency translation adjustments, net of tax (2)(36,333) (9,225) 
Defined benefit pension and other postretirement benefits, net of tax (3)4,481
 1,615
 
Total other comprehensive loss, net of tax(34,189) (8,178) 
Total comprehensive (loss) income$(4,456) $25,814
 

(1) Net of tax of $(380)$(823) and $131$(175) for the three months ended June 30,March 31, 2020 and 2019, and 2018, respectively, and $(555) and $279 for the six months ended June 30, 2019 and 2018, respectively.

(2) Net of tax of $67$(66) and $(324)$(100) for the three months ended June 30,March 31, 2020 and 2019, and 2018, respectively, and $(33) and $(162) for the six months ended June 30, 2019 and 2018, respectively.

(3) Net of tax of $569$810 and $806$540 for the three months ended June 30,March 31, 2020 and 2019, and 2018, respectively, and $1,109 and $2,063 for the six months ended June 30, 2019 and 2018, respectively.

See accompanying notes.
 


BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
June 30, 2019 December 31, 2018March 31, 2020 December 31, 2019
Assets      
Current assets      
Cash and cash equivalents$94,870
 $100,719
$112,827
 $93,805
Accounts receivable, less allowances (2019 - $4,535; 2018 - $5,010)371,644
 382,253
Accounts receivable, less allowances (2020 - $5,899; 2019 - $5,197)335,409
 348,974
Inventories259,685
 265,990
240,951
 232,706
Prepaid expenses and other current assets68,125
 57,184
67,404
 67,532
Assets held for sale
 21,373
Total current assets794,324
 806,146
756,591
 764,390
      
Deferred income taxes19,255
 20,474
18,474
 21,235
      
Property, plant and equipment870,110
 853,497
834,313
 840,640
Less accumulated depreciation(499,902) (482,966)(485,390) (484,037)
370,208
 370,531
348,923
 356,603
      
Goodwill951,450
 955,524
920,202
 933,022
Other intangible assets, net607,391
 636,538
563,692
 581,116
Other assets52,607
 19,757
59,723
 53,924
Assets held for sale
 28,045
Total assets$2,795,235
 $2,808,970
$2,667,605
 $2,738,335
      
Liabilities and Stockholders' Equity      
Current liabilities      
Notes and overdrafts payable$27,143
 $2,137
$28,314
 $7,724
Accounts payable132,018
 143,419
116,065
 118,509
Accrued liabilities210,980
 206,782
205,264
 209,992
Long-term debt - current3,505
 5,522
1,926
 2,034
Liabilities held for sale
 4,616
Total current liabilities373,646
 357,860
351,569
 342,875
      
Long-term debt889,087
 936,357
783,424
 825,017
Accrued retirement benefits99,591
 104,302
90,689
 93,358
Deferred income taxes103,158
 106,559
85,313
 88,408
Long-term tax liability66,012
 72,961
66,012
 66,012
Other liabilities52,356
 27,875
45,638
 45,148
Liabilities held for sale
 6,989
      
Commitments and contingencies (Note 17)

 

Commitments and contingencies (Note 16)

 

Stockholders' equity      
Common stock - par value $0.01 per share
Authorized: 150,000,000 shares
Issued: at par value (2019 - 63,436,075 shares; 2018 - 63,367,133 shares)
634
 634
Common stock - par value $0.01 per share
Authorized: 150,000,000 shares
Issued: at par value (2020 - 63,889,861 shares; 2019 - 63,872,756 shares)
639
 639
Additional paid-in capital478,142
 470,818
492,025
 489,282
Treasury stock, at cost (2019 - 12,936,925 shares; 2018 - 12,033,580 shares)(492,201) (441,668)
Treasury stock, at cost (2020 - 13,448,609 shares; 2019 - 13,051,256 shares)(513,708) (498,074)
Retained earnings1,418,790
 1,363,772
1,510,688
 1,489,176
Accumulated other non-owner changes to equity(193,980) (190,500)(244,684) (210,495)
Total stockholders' equity1,211,385
 1,203,056
1,244,960
 1,270,528
Total liabilities and stockholders' equity$2,795,235
 $2,808,970
$2,667,605
 $2,738,335

See accompanying notes.


BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six months ended June 30,Three Months Ended
March 31,
2019 20182020 2019
Operating activities:      
Net income$71,608
 $88,247
$29,733
 $33,992
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization50,251
 47,070
23,617
 25,100
(Gain) loss on disposition of property, plant and equipment(38) 52
(123) 91
Stock compensation expense6,294
 5,469
2,552
 3,021
Changes in assets and liabilities:   
Seeger divestiture charges6,620
 
Changes in assets and liabilities, net of the effects of divestitures:   
Accounts receivable11,691
 (22,623)9,592
 4,345
Inventories5,639
 (23,057)(12,788) 7,300
Prepaid expenses and other current assets(11,927) (9,905)(3,227) (2,670)
Accounts payable(10,355) 5,282
1,328
 (9,179)
Accrued liabilities(3,843) 12,595
(7,885) (4,708)
Deferred income taxes(1,706) (6,492)462
 (872)
Long-term retirement benefits(2,682) (725)(3,518) (3,428)
Long-term tax liability(6,949) (7,465)
Other172
 133
821
 68
Net cash provided by operating activities108,155
 88,581
47,184
 53,060
      
Investing activities:      
Proceeds from disposition of property, plant and equipment173
 478
185
 322
Proceeds from the sale of businesses, net of cash sold36,879
 
Investment in restricted cash(6,621) 
Capital expenditures(25,434) (24,335)(11,912) (13,738)
Revenue sharing program payments
 (5,800)
Other
 (1,000)
Net cash used in investing activities(25,261) (30,657)
Net cash provided (used) in investing activities18,531
 (13,416)
      
Financing activities:      
Net change in other borrowings25,012
 16,795
20,775
 20,903
Payments on long-term debt(222,322) (313,512)(83,521) (152,195)
Proceeds from the issuance of long-term debt175,918
 353,089
50,000
 102,990
Proceeds from the issuance of common stock1,169
 435
183
 986
Common stock repurchases(50,347) (118,115)(15,550) 
Dividends paid(16,303) (15,795)(8,133) (8,217)
Withholding taxes paid on stock issuances(186) (175)(84) (80)
Other(1,715) (2,550)(7,252) (1,340)
Net cash used in financing activities(88,774) (79,828)(43,582) (36,953)
      
Effect of exchange rate changes on cash flows31
 (2,924)(3,111) 97
Decrease in cash and cash equivalents(5,849) (24,828)
Increase in cash and cash equivalents19,022
 2,788
Cash and cash equivalents at beginning of period100,719
 145,290
93,805
 100,719
Cash and cash equivalents at end of period$94,870
 $120,462
$112,827
 $103,507


See accompanying notes.


BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts included in the notes are stated in thousands except per share data)
(Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated balance sheet and the related unaudited consolidated statements of income, comprehensive income and cash flows 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. The consolidated financial statements do not include all information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. The balance sheet as of December 31, 20182019 has been derived from the 20182019 financial statements of Barnes Group Inc. (the “Company”). For additional information, please refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.2019. In the opinion of management, all adjustments, including normal recurring accruals considered necessary for a fair statement of the results, have been included. Operating results for the six-monththree-month period ended June 30, 2019March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. Certain reclassifications have been made to prior year amounts to conform to current year presentation.2020.

2. AcquisitionsDivestiture

In the third quarter of 2018,On December 20, 2019, the Company acquiredentered into a Share Purchase and Transfer Agreement ("SPA") with the Kajo Neukirchen Group ("KNG") to sell the Seeger business, consisting of partnership interests and shares, respectively, of Seeger-Orbis GmbH & Co. OHG and Seeger-Orbis Mechanical Components (Tianjin) Co., Ltd. (“Seeger”) for 42,500 Euros, subject to certain adjustments. The Company classified the assets and liabilities of Seeger, which operated within the Industrial Gas Springs Group Holdings Limited (“IGS”) and insegment, as "held for sale" on the fourth quarterConsolidated Balance Sheet as of 2018,December 31, 2019. Pursuant to the required accounting guidance, the Company acquired Gimatic S.r.l ("Gimatic"). The following table reflectsallocated $15,000 of goodwill from the unaudited pro forma operating results (the "Pro Forma Results")Engineered Components reporting unit to Seeger based on the estimated relative fair values of the Company forbusiness to be disposed of and the three and six months ended June 30, 2018, which give effect to the acquisitions of Gimatic and IGS as if they had occurred on January 1, 2017. The Pro Forma Results are based on assumptions that the Company believes are reasonable under the circumstances. The Pro Forma Results are not necessarily indicativeportion of the operating resultsreporting unit that would have occurred if the acquisitions had been effective January 1, 2017, nor are they intended towill be indicativeretained. The Company subsequently recorded an impairment charge of results that may occur in the future. The underlying Pro Forma Results include the historical financial results of the Company and the acquired entities adjusted for certain items including amortization expense associated with the assets acquired and the Company’s expense related to financing arrangements, with the related tax effects. The Pro Forma Results do not include the effects of any synergies or cost reduction initiatives$5,600 related to the acquisitions.goodwill that was allocated to Seeger. The impairment charge was recorded within Selling and Administrative expenses on the Consolidated Statements of Income in the period ended December 31, 2019.
 (Unaudited Pro Forma)
 Three months ended
June 30, 2018
Six months ended
June 30, 2018
Net Sales$395,259
$781,821
Net Income49,919
87,213

The Seeger assets and liabilities held for sale were comprised of the following as of December 31, 2019:
Assets 
Accounts receivable, less allowance of $152$6,844
Inventories13,727
Prepaid expenses and other current assets802
  Current assets held for sale21,373
  
Property, plant and equipment, net17,701
Other intangible assets, net590
Goodwill9,400
Other assets354
  Non-current assets held for sale28,045
  
Liabilities 
Accounts payable$2,961
Accrued liabilities1,655
  Current liabilities held for sale4,616
  
Accrued retirement benefits5,788
Other liabilities1,201
  Non-current liabilities held for sale6,989


The Company completed the sale of the Seeger business to KNG effective February 1, 2020. Gross proceeds received were 39,634 Euros ($43,732). The Company yielded net cash proceeds of $36,879 after consideration of cash sold and transaction


costs. The final amount of proceeds from the sale is subject to post-closing adjustments. Resulting tax charges of $4,211 were recognized in the first quarter of 2020 following the completion of the sale. Divestiture charges of $2,409 resulted from the completion of the sale and were recorded within Selling and Administrative expenses on the Consolidated Statements of Income in the quarter ended March 31, 2020.

The Company utilized the proceeds from the sale to reduce debt under the Amended Credit Facility. Pursuant to the SPA, 6,000 Euros ($6,626) of the proceeds were placed in escrow and will be released pro-ratably through 2024, pending any potential settlement of claims. Cash related to a pending claim would remain in escrow until a final determination of the claim has been made. The Company has recorded the $6,626 of restricted cash in other assets as of March 31, 2020.

3. Recent Accounting Standards

The Financial Accounting Standards Board ("FASB") establishes changes to accounting principles under U.S. GAAP through the use of Accounting Standards Updates ("ASUs") to the FASB's Accounting Standards Codification. The Company evaluates the applicability and potential impacts of recent ASUs on its Consolidated Financial Statements and related disclosures.

Recently Adopted Accounting Standards

In February 2016, the FASB amended its guidance related to lease accounting. The amended guidance required lessees to recognize a majority of their leases on the balance sheet as a right-of-use ("ROU") asset and a lease liability. Lessees are permitted to make an accounting policy election to not recognize an asset and liability for leases with a term of twelve months or less. Lease expense will be recorded in a manner similar to current accounting, with leases being classified as either finance or operating in nature. The guidance iswas effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption was permitted.

The Company adopted the new standard using the modified retrospective approach on January 1, 2019. The Company's adoption included lease codification improvements that were issued by the FASB through March 2019. The Company elected an available transition method that uses the effective date of the amended guidance as the date of initial application. The FASB made available several practical expedients in adopting the amended lease accounting guidance. The Company elected the


package of practical expedients permitted under the transition guidance within the amended guidance, which among other things, allowed registrants to carry forward historical lease classification. The Company elected the practical expedient that allows the combination of both lease and non-lease components as a single component and account for it as a lease for all classes of underlying assets. The Company elected not to apply the amended guidance to short term leases with an initial term of 12 months or less. The Company recognizes those lease payments in the Consolidated Statements of Income on a straight-line basis over the lease term. The Company elected to use a single discount rate for a portfolio of leases with reasonably similar characteristics.

The most significant impact of the guidance was the recognition of ROU assets and related lease liabilities for operating leases on the Consolidated Balance Sheet. The Company recognized ROU assets and related lease liabilities of $31,724 and $32,579 respectively, related to operating lease commitments, as of January 1, 2019. The operating lease ROU asset represents the lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received. The amended guidance did not have a material impact on the Company's cash flows or results of operations. See Note 14 of the Consolidated Financial Statements.

In May 2014, the FASB amended its guidance related to revenue recognition. The amended guidance established a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance, including industry-specific guidance. The amended guidance clarified that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the amended guidance, an entity (1) identifies the contract(s) with a customer; (2) identifies the performance obligations in the contract; (3) determines the transaction price; (4) allocates the transaction price to the contract’s performance obligations; and (5) recognizes revenue when (or as) the entity satisfies a performance obligation. The amended guidance applied to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. Companies had the option of using either a full retrospective or modified retrospective approach to the amended guidance.

The Company adopted the amended guidance, Accounting Standard Codification 606, Revenue from Contracts with Customers (“ASC 606”), and related amendments, using the modified retrospective approach on January 1, 2018, at which time it became effective for the Company. The Company recognized the cumulative effect of initially applying the new revenue standard to all contracts that were not completed on the date of adoption as an adjustment to the opening balance of retained earnings.

A majority of revenue continues to be recognized when products are shipped. Under the amended guidance, however, a certain portion of our businesses with customized products or contracts in which we perform work on customer-owned assets require the use of an "over time" recognition model as certain of these contracts meet one or more of the criteria established in the amended guidance. Revenue recognition on contracts requiring over time accounting recognition created unbilled receivables (contract assets) and reduced inventory on the Company’s Consolidated Balance Sheet. Adoption of the amended guidance also resulted in the recognition of customer advances for which the Company has received an unconditional right to payment. Since the related performance obligations have not been satisfied, however, the Company recognized these customer advances as trade receivables, with a corresponding contract liability of equal amount. Under the previous guidance, the Company recognized customer advances when payment was received. See Note 4 of the Consolidated Financial Statements.

In AugustJune 2016, the FASB amended its guidance related to the Statement of Cash Flows.credit losses on financial instruments. The amended guidance clarifies howrequires the use of a methodology of estimation that reflects expected credit losses on certain cash receipts and cash payments should be presentedtypes of financial instruments, including trade receivables, as a replacement to the current methodology, which estimates losses based on incurred credit losses. This expected credit loss methodology requires that the statementCompany consider a broader range of cash flows.information when estimating credit losses on receivables. The amended guidance was effective for annual periods beginning after December 15, 2017fiscal years, and interim periods within those fiscal years.years, beginning after December 15, 2019. The Company adopted this amended guidance and applicable FASB updates related to the guidance during the first quarter of 20182020 and the adoptionit did not have ana material impact on its Statement of Cash Flows.the Company's Consolidated Financial Statements.

In January 2017, the FASB amended its guidance related to goodwill impairment testing. The amended guidance simplifiessimplified the subsequent measurement of goodwill, eliminating Step 2 from the goodwill impairment test. Under the amended guidance, companies should perform their annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. Companies would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, assuming the loss recognized does not exceed the total amount of goodwill for the reporting unit. The amended guidance was effective for fiscal years beginning after December 15, 2019. Early adoption was permitted. The Company elected to early adopt this amended guidance during the second quarter of 2018 in connection with its annual goodwill impairment testing and it did not have an impact on the Company's Consolidated Financial Statements.

In MarchAugust 2017, the FASB amended its guidance related to the presentation of pension and other postretirement benefit costs.hedge accounting. The amended guidance requiresmade more financial and nonfinancial hedging strategies eligible for hedge accounting, amends presentation and disclosure requirements and changes the bifurcationassessment of net periodic benefit cost for pensioneffectiveness. The guidance also more closely aligned hedge accounting with management strategies, simplifies application and other postretirement plans. The service cost componentincreases the transparency of expense requires presentation with other employee compensation costs in operating income, consistent with the earlier guidance. The other components of expense, however, are reported separately outside of operating


income.hedging. The amended guidance also allows only the service cost component of net benefit cost to be eligible for capitalization. The guidance was effective for annual periods beginning after December 15, 2017 andJanuary 1, 2019, with early adoption permitted in any interim periods within that reporting period. The Company adopted the amended guidance on a retrospective basis during the first quarter of 2018January 1, 2019 and it did not have a material impact on its results of operations.the Consolidated Financial Statements, however it did result in amendments to certain disclosures required pursuant to the earlier guidance. See Note 1210 of the Consolidated Financial Statements for additional disclosure related to pension and postretirement benefit costs.

In February 2018, the FASB issued guidance related to the impacts of the tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”). The guidance permits the reclassification of certain income tax effects of the Act from Accumulated Other Comprehensive Income to Retained Earnings (stranded tax effects). The stranded tax effects resulted from the December 31, 2017 remeasurement of deferred income taxes that was recorded through the Consolidated Statements of Income, with no corresponding adjustment to Accumulated Other Comprehensive Income having been initially recognized. The guidance is effective for annual periods beginning after December 15, 2018, and interim periods within that reporting period. Early adoption was permitted. The Company elected to early adopt this amended guidance during the first quarter of 2018 using specific identification and as a result reclassified $19,331 from Accumulated Other Comprehensive Income to Retained Earnings on the Consolidated Balance Sheets. This reclassification relates only to the change in the U.S. Corporate income tax rate.Statements.

In August 2018, the FASB issued new guidance related to a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by a vendor (for example, a service contract). Pursuant to the new guidance, customers apply the same criteria for capitalizing implementation costs in a hosting arrangement as they would for an arrangement that has a software license. The new guidance iswas effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption was permitted, including adoption in any interim period for which financial statements have not been issued. The FASB provided the option of applying the guidance retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company elected to early


adopt this guidance, prospectively, during the third quarter of 2018, and it did not have a material impact on the Consolidated Financial Statements.

In August 2017, the FASB amended its guidance related to hedge accounting. The amended guidance makes more financial and nonfinancial hedging strategies eligible for hedge accounting, amends presentation and disclosure requirements and changes the assessment of effectiveness. The guidance also more closely aligns hedge accounting with management strategies, simplifies application and increases the transparency of hedging. The amended guidance is effective January 1, 2019, with early adoption permitted in any interim period. The Company adopted the amended guidance on January 1, 2019 and it did not have a material impact on the Consolidated Financial Statements, however it did result in amendments to certain disclosures required pursuant to the earlier guidance. See Note 10 of the Consolidated Financial Statements.

Recently Issued Accounting Standards

In August 2018, the FASB amended its guidance related to disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amended requirements serve to remove, add and otherwise clarify certain existing disclosures. The amended guidance is effective for fiscal years ending after December 15, 2020. The guidance requires application on a retrospective basis to all periods presented. The Companyadoption of this amended guidance is currently evaluating thenot expected to have a material impact that the guidance may have on the disclosuresCompany's Consolidated Financial Statements.

In December 2019, the FASB amended its guidance related to income taxes. The amended guidance simplifies the accounting for income taxes, eliminating certain exceptions to the general income tax principles, in an effort to reduce the cost and complexity of application. The amended guidance is effective for annual periods beginning after December 15, 2020, and interim periods within itsthose reporting periods. Early adoption is permitted in any interim or annual period. The guidance requires application on either a prospective, retrospective or modified retrospective basis, contingent on the income tax exception being applied. The adoption of this amended guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.

4. Revenue

The Company is a global provider of highly engineered products, differentiated industrial technologies, and innovative solutions, serving a wide range of end markets and customers. Its specialized products and services are used in far-reaching applications including aerospace, transportation, manufacturing, automation, healthcare, and packaging. The Company accounts for revenue in accordance with ASC 606, which it adopted on January 1, 2018, using the modified retrospective approach. Note 3 of the Consolidated Financial Statements further discusses this adoption.

Revenue is recognized by the Company when control of the product or solution is transferred to the customer. Control is generally transferred when products are shipped or delivered to customers, title is transferred, and the significant risks and rewards of ownership have transferred, and the Company has rights to payment and rewards of ownership pass to the customer. Customer acceptance may also be a factor in determining whether control of the product has transferred. Although revenue is generally transferred at a point in time, a certain portion of businesses with customized products or contracts in which the Company performs work on customer-owned assets requires the use of an over time recognition model as certain contracts meet one or more of the established criteria pursuant to ASC 606.the accounting guidance. Also, service revenue is recognized as control transfers, which is concurrent with the services being performed.



The following table presents the Company's revenue disaggregated by products and services, and geographic regions, by segment:
 Three months ended
June 30, 2019
 Six months ended
June 30, 2019
 Industrial Aerospace Total Company Industrial Aerospace Total Company
Product and Services           
Engineered Components Products$65,539
 $
 $65,539
 $135,223
 $
 $135,223
Molding Solutions Products105,902
 
 105,902
 212,697
 
 212,697
Force & Motion Control Products47,454
 
 47,454
 99,070
 
 99,070
Automation Products14,509
 
 14,509
 28,916
 
 28,916
Aerospace Original Equipment Manufacturer Products
 93,884
 93,884
 
 181,822
 181,822
Aerospace Aftermarket Product and Services
 44,381
 44,381
 
 90,632
 90,632
 $233,404
 $138,265
 $371,669
 $475,906

$272,454
 $748,360
            
Geographic Regions (A)
           
Americas$87,146
 $102,127
 $189,273
 $185,434
 $198,271
 $383,705
Europe89,650
 23,390
 113,040
 184,080
 47,714
 231,794
Asia55,469
 12,203
 67,672
 104,411
 24,607
 129,018
Other1,139
 545
 1,684
 1,981
 1,862
 3,843
 $233,404
 $138,265
 $371,669
 $475,906
 $272,454
 $748,360


Three months ended
June 30, 2018
 Six months ended
June 30, 2018
Three Months Ended
March 31, 2020
Industrial Aerospace Total Company Industrial Aerospace Total CompanyIndustrial Aerospace Total Company
Product and Services                
Engineered Components Products$73,364
 $
 $73,364
 $150,454
 $
 $150,454
$47,707
 $
 $47,707
Molding Solutions Products125,938
 
 125,938
 245,037
 
 245,037
97,406
 
 97,406
Force & Motion Control Products50,275
 
 50,275
 100,047
 
 100,047
39,791
 
 39,791
Automation Products
 
 
 
 
 
14,196
 
 14,196
Aerospace Original Equipment Manufacturer Products
 84,527
 84,527
 
 165,223
 165,223

 81,706
 81,706
Aerospace Aftermarket Product and Services
 41,211
 41,211
 
 81,214
 81,214

 49,865
 49,865
$249,577
 $125,738
 $375,315
 $495,538
 $246,437
 $741,975
$199,100
 $131,571
 $330,671
                
Geographic Regions (A)
                
Americas$93,326
 $92,449
 $185,775
 $189,320
 $178,426
 $367,746
$80,644
 $92,578
 $173,222
Europe92,414
 22,740
 115,154
 187,127
 47,407
 234,534
81,864
 25,163
 107,027
Asia63,043
 9,850
 72,893
 117,382
 18,765
 136,147
35,493
 11,696
 47,189
Other794
 699
 1,493
 1,709
 1,839
 3,548
Rest of World1,099
 2,134
 3,233
$249,577
 $125,738
 $375,315
 $495,538
 $246,437
 $741,975
$199,100
 $131,571
 $330,671

 Three Months Ended
March 31, 2019
 Industrial Aerospace Total Company
Product and Services     
Engineered Components Products$69,684
 $
 $69,684
Molding Solutions Products106,793
 
 106,793
Force & Motion Control Products51,617
 
 51,617
Automation Products14,408
 
 14,408
Aerospace Original Equipment Manufacturer Products
 87,939
 87,939
Aerospace Aftermarket Product and Services
 46,251
 46,251
 $242,502
 $134,190
 $376,692
      
Geographic Regions (A)
     
Americas$98,288
 $96,144
 $194,432
Europe94,430
 24,324
 118,754
Asia48,942
 12,404
 61,346
Rest of World842
 1,318
 2,160
 $242,502
 $134,190
 $376,692

(A) Sales by geographic region are based on the location to which the product is shipped.



Revenue from productsgoods and services transferred to customers at a point in time accounted for approximately 85 percent and approximately 90 percent of revenue for both the three month period ended March 31, 2020 and six month periods ended June 30, 2019.2019, respectively. A majority of revenue within the Industrial segment and Aerospace OEM business, along with a portion of revenue within the Aerospace Aftermarket business, is recognized at a point in time, primarily when the product or solution is shipped to the customer. A portion of revenue within the Aerospace Aftermarket business is also recognized when product is shipped.

Revenue from products and services transferred to customers over time accounted for approximately 15 percent and approximately 10 percent of revenue for both the three month period ended March 31, 2020 and six month periods ended June 30, 2019.2019, respectively. The Company recognizes revenue over time in instances where a contract supports a continual transfer of control to the customer.


Substantially all of our revenue in the Aerospace maintenance repair and overhaul business and a portion of the Engineered Components Products, Molding Solutions Products and Aerospace Original Equipment Manufacturer Products is recognized over time. Within the Molding Solution businessesSolutions and Aerospace Aftermarket business,businesses, this continual transfer of control to the customer results from repair and refurbishment work performed on customer controlled assets. With other contracts, this continual transfer of control to the customer is supported by clauses in the contract where we deliver products that do not have an alternative use and requires an enforceable right to payment of costs incurred (plus a reasonable profit) or the Company has a contractual right to complete any work in process and receive full contract price.

Performance Obligations. A performance obligation represents a promise within a contract to provide a distinct good or service to the customer. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectibility of consideration is probable. Transaction price reflects the amount of consideration which the Company expects to be entitled in exchange for transferred goods or services. A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized as the performance obligation is satisfied.

The majority of our revenues are from contracts that are less than one year, however certain Aerospace OEM and Industrial Molding Solutions business contracts extend beyond one year. In the Industrial segment, customers are typically with OEMs or suppliers to OEMs and, in some businesses, with distributors. In the Aerospace segment, customers include commercial airlines, OEMs and other aircraft and military parts and service providers.

To determineA performance obligation represents a promise within a contract to provide a distinct good or service to the proper revenue recognition method for contracts, the Company uses judgment to evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. Contracts within the Aerospace OEM and Engineered Components businesses typically have contracts that are combined as the customer may issue multiple purchase orders at or near the same point in time under the terms of a long term agreement.

customer. Revenue is recognized in an over time model based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company utilizes the cost-to-cost measure of progress for over time contracts as we believe this measure best depicts the transfer of control to the customer, which occurs as we incur costs on contracts.

Contract Estimates. Due to the nature of the work performed in completing certain performance obligations, the estimation of both total revenue and cost at completion (the process described above) includes a number of variables and requires significant judgment.

Estimating total contract revenue may require judgment as certain contracts contain pricing discount structures, rebates, early payment discounts, or other provisions that can impact transaction price. The Company generally estimates variable consideration utilizing the expected value methodology as multiple inputs are considered and weighed, such as customer history, customer forecast communications, economic outlooks, and industry data. In certain circumstances where a particular outcome is probable, we utilize the most likely amount to which we expect to be entitled. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

Estimating the total expected costs related to contracts also requires significant judgment. The Aerospace OEM business has an Estimate at Completion (EAC) process in which management reviews the progress and execution of our performance obligations for significant contracts with revenue recognized under an over time model. As part of this process, management reviews information including, but not limited to, performance under the contract, progress towards completion, identified risks and opportunities, sourcing determinations and related changes in estimates of costs to be incurred. These considerations include management's judgment about the ability and cost to achieve technical requirements and other contract requirements. Management makes assumptions and estimates regarding labor efficiency, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g., to estimate increases in wages and


prices for materials and related support cost allocations), execution by our subcontractors and overhead cost rates, among other variables.

The Company generally utilizes the portfolio approach to estimate the amount of revenue to recognize for certain other contracts which require over time revenue recognition. Such contracts are grouped together either by revenue stream, customer or product. Each portfolio of contracts is grouped together based on having similar characteristics. The portfolio approach is utilized only when the result of the accounting is not expected to be materially different than if applied to individual contracts.

Adjustments to net sales, cost of sales and the related impact to operating income are recognized as necessary in the period they become known. Revenue recognized from performance obligations satisfied in previous periods was not material in both the three and six months ended June 30,March 31, 2020 and 2019.

Contract Balances. The timing of revenue recognition, invoicing and cash collections affect accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheets.

Unbilled Receivables (Contract Assets) - Pursuant to the over time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized when 1) the cost-to-cost method is applied and 2) such revenue exceeds the amount invoiced to the customer. Unbilled receivables are included within prepaid expenses and other current assets on the Consolidated Balance SheetSheets as of June 30, 2019March 31, 2020 and December 31, 2018.2019.

Customer Advances and Deposits (Contract Liabilities) - The Company may receive a customer advance or deposit, or have an unconditional right to receive a customer advance, prior to revenue being recognized. Certain contracts within the Molding Solutions businesses,business, for example, may require such advances. Since the performance obligations related to such advances may not have been satisfied, a contract liability is established. An offsetting asset of equal amount is recorded as an account receivable until the advance is collected. Advances and deposits are included within accrued liabilities on the Consolidated Balance Sheets until the respective revenue is recognized. Advance payments are not considered a significant financing component as they are generally received less than one year before the customer solution is completed.

These assets and liabilities are reported on the Consolidated Balance SheetSheets on an individual contract basis at the end of each reporting period.

Net contract liabilities consisted of the following:
June 30, 2019 December 31, 2018 $ Change % ChangeMarch 31, 2020 December 31, 2019 $ Change % Change
Unbilled receivables (contract assets)$20,657
 $11,844
 $8,813
 74 %$26,301
 $22,444
 $3,857
 17 %
Contract liabilities(59,833) (57,522) (2,311) 4 %(51,086) (55,076) 3,990
 (7)%
Net contract liabilities$(39,176) $(45,678) $6,502
 (14)%$(24,785) $(32,632) $7,847
 (24)%

Contract liabilities balances at June 30, 2019March 31, 2020 and December 31, 20182019 include $18,179$14,064 and $15,348,$16,971, respectively, of customer advances for which the Company has an unconditional right to collect payment. Accounts receivable, as presented on the Consolidated Balance Sheet, includes corresponding balances at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.

Changes in the net contract liabilities balance during the six-monththree-month period ended June 30, 2019March 31, 2020 were impacted by a $2,311 increase$3,990 decrease in contract liabilities, driven primarily by new customer advances and deposits, partially offset by revenue recognized in the current period.period, partially offset by new customer advances and deposits. Adding to this net contract liability decrease was a $8,813$3,857 increase in contract assets, driven primarily by contract progress (i.e.unbilled(i.e. unbilled receivable), partially offset by earlier contract progress being invoiced to the customer.



The Company recognized approximately 20% and 55%40% of the revenue related to the contract liability balance as of December 31, 20182019 during the three and six months ended June 30, 2019, respectively,March 31, 2020, primarily representing revenue from the sale of molds and hot runners within the Molding Solutions business.

Contract Costs. The Company may incur costs to fulfill a contract. Costs are incurred to develop, design and manufacture tooling to produce a customer’s customized product in conjunction with certain of its contracts, primarily in the Aerospace OEM business. For certain contracts, control related to this tooling remains with the Company. The tooling may be deemed recoverable over the life of the related customer contract (oftentimes a long-term agreement). The Company therefore capitalizes these tooling costs and amortizes them over the shorter of the tooling life or the duration of the long-term


agreement. The Company may also incur costs related to the development of product designs (molds or hot runner systems) within its Molding Solutions businesses. Control of the design may be retained by the Company and deemed recoverable over the contract to build the systems or mold, therefore this design work cost is capitalized and amortized to cost of sales when the related revenue is recognized. Amortization related to these capitalized costs to fulfill a contract were $3,662 and $7,096 in the three and six month periods ended June 30, 2019, respectively, and $3,956 and $7,942 in the three and six month periods ended June 30, 2018, respectively.

Capitalized costs, net of amortization, to fulfill a contract balances were as follows:

 June 30, 2019December 31, 2018
Tooling$5,732
$6,155
Design costs2,416
2,285
Other
5
 $8,148
$8,445


Remaining Performance Obligations. The Company has elected to disclose remaining performance obligations only for contracts with an original duration of greater than one year. Such remaining performance obligations represent the transaction price of firm orders for which work has not been performed and, for Aerospace, excludes projections of components and assemblies that Aerospace OEM customers anticipate purchasing in the future under existing programs, which represent orders that are beyond lead time and do not represent performance obligations pursuant to ASC 606.accounting guidance. As of June 30, 2019,March 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $235,039.$207,343. The Company expects to recognize revenue on approximately 75% of the remaining performance obligations over the next 12 months, with the remainder being recognized within 24 months.

5. Stockholders' Equity

A schedule of consolidated changes in equity for the sixthree months ended June 30, 2019March 31, 2020 is as follows (shares in thousands):
 Common
Stock
(Number of
Shares)
 Common
Stock
(Amount)
 Additional
Paid-In
Capital
 Treasury
Stock
(Number of
Shares)
 Treasury
Stock (Amount)
 Retained
Earnings
 Accumulated
Other
Non-Owner
Changes to
Equity
 Total
Stockholders’
Equity
 Common
Stock
(Number of
Shares)
 Common
Stock
(Amount)
 Additional
Paid-In
Capital
 Treasury
Stock
(Number of
Shares)
 Treasury
Stock (Amount)
 Retained
Earnings
 Accumulated
Other
Non-Owner
Changes to
Equity
 Total
Stockholders’
Equity
December 31, 2018 63,367
 $634
 $470,818
 12,034
 $(441,668) $1,363,772
 $(190,500) $1,203,056
Comprehensive income 
 
 
 
 
 33,992
 (8,178) 25,814
Dividends declared ($0.16 per share)
 
 
 
 
 
 (8,217) 
 (8,217)
Employee stock plans 51
 
 4,039
 1
 (80) (109) 
 3,850
March 31, 2019 63,418
 $634
 $474,857
 12,035
 $(441,748) $1,389,438
 $(198,678) $1,224,503
December 31, 2019 63,873
 $639
 $489,282
 13,051
 $(498,074) $1,489,176
 $(210,495) $1,270,528
Comprehensive income 
 
 
 
 
 37,616
 4,698
 42,314
 
 
 
 
 
 29,733
 (34,189) (4,456)
Dividends declared ($0.16 per share)
 
 
 
 
 
 (8,086) 
 (8,086) 
 
 
 
 
 (8,133) 
 (8,133)
Common stock repurchases 
 
 
 900
 (50,347) 
 
 (50,347) 
 
 
 396
 (15,550) 
 
 (15,550)
Employee stock plans 18
 
 3,285
 2
 (106) (178) 
 3,001
 17
 
 2,743
 2
 (84) (88) 
 2,571
June 30, 2019 63,436
 $634
 $478,142
 12,937
 $(492,201) $1,418,790
 $(193,980) $1,211,385
March 31, 2020 63,890
 $639
 $492,025
 13,449
 $(513,708) $1,510,688
 $(244,684) $1,244,960

A schedule of consolidated changes in equity for the sixthree months ended June 30, 2018March 31, 2019 is as follows (shares in thousands):


  Common
Stock
(Number of
Shares)
 Common
Stock
(Amount)
 Additional
Paid-In
Capital
 Treasury
Stock
(Number of
Shares)
 Treasury
Stock (Amount)
 Retained
Earnings
 Accumulated
Other
Non-Owner
Changes to
Equity
 Total
Stockholders’
Equity
December 31, 2017 63,034
 $630
 $457,365
 9,656
 $(297,998) $1,206,723
 $(106,399) $1,260,321
Comprehensive income 
 
 
 
 
 38,818
 30,513
 69,331
Dividends declared ($0.14 per share) 
 
 
 
 
 (7,453) 
 (7,453)
Common stock repurchases 
 
 
 533
 (33,541) 
 
 (33,541)
Reclassification pursuant to
accounting guidance related to
U.S. Tax Reform (Note 3)

 
 
 
 
 
 19,331
 (19,331) 
Cumulative effect of change in accounting guidance related to Revenue (Note 3) 
 
 
 
 
 4,295
 
 4,295
Employee stock plans 20
 1
 2,874
 1
 (68) (174) 
 2,633
March 31, 2018 63,054
 $631
 $460,239
 10,190
 $(331,607) $1,261,540
 $(95,217) $1,295,586
Comprehensive income 
 
 
 
 
 49,429
 (61,920) (12,491)
Dividends declared ($0.16 per share) 
 
 
 
 
 (8,342) 
 (8,342)
Common stock repurchases 
 
 
 1,422
 (84,574) 
 
 (84,574)
Employee stock plans 13
 
 3,078
 2
 (107) 13
 
 2,984
June 30, 2018 63,067
 $631
 $463,317
 11,614
 $(416,288) $1,302,640
 $(157,137) $1,193,163
  Common
Stock
(Number of
Shares)
 Common
Stock
(Amount)
 Additional
Paid-In
Capital
 Treasury
Stock
(Number of
Shares)
 Treasury
Stock (Amount)
 Retained
Earnings
 Accumulated
Other
Non-Owner
Changes to
Equity
 Total
Stockholders’
Equity
December 31, 2018 63,367
 $634
 $470,818
 12,034
 $(441,668) $1,363,772
 $(190,500) $1,203,056
Comprehensive income 
 
 
 
 
 33,992
 (8,178) 25,814
Dividends declared ($0.16 per share) 
 
 
 
 
 (8,217) 
 (8,217)
Employee stock plans 51
 
 4,039
 1
 (80) (109) 
 3,850
March 31, 2019 63,418
 $634
 $474,857
 12,035
 $(441,748) $1,389,438
 $(198,678) $1,224,503


6. Net Income Per Common Share

For the purpose of computing diluted net income per common share, the weighted-average number of common shares outstanding is increased for the potential dilutive effects of stock-based incentive plans. For the purpose of computing diluted net income per common share, the weighted-average number of common shares outstanding was increased by 492,334440,725 and 553,938528,661 for the three month periods ended June 30,March 31, 2020 and 2019, and 2018, respectively, and by 510,499 and 552,467 for the six month periods ended June 30, 2019 and 2018, respectively, to account for the potential dilutive effect of stock-based incentive plans. There were no adjustments to net income for the purposes of computing income available to common stockholders for the periods.

The calculation of weighted-average diluted shares outstanding excludes all shares that would have been anti-dilutive. During the three month periods ended June 30,March 31, 2020 and 2019, and 2018, the Company excluded 316,824325,670 and 139,307 stock awards, respectively, from the calculation of weighted-average diluted shares outstanding as the stock awards were considered anti-dilutive. During the six month periods ended June 30, 2019 and 2018, the Company excluded 313,575 and 146,607221,201 stock awards, respectively, from the calculation of weighted-average diluted shares outstanding as the stock awards were considered anti-dilutive.

The Company granted 120,585102,500 stock options, 93,99279,994 restricted stock unit awards and 88,40281,283 performance share awards ("PSAs") in February 20192020 as part of its annual grant awards. All of the stock options and the restricted stock unit awards vest upon meeting certain service conditions. The restricted stock unit awards are included in basic weighted-average common


shares outstanding as they contain nonforfeitable rights to dividend payments. The PSAs are part of the long-term Performance Share Award Program and are based on performance goals that are driven by a combination of independently measured metrics (depending on the grant year) with each metric being weighted equally. The metrics for awards granted in 20192020 include the Company’s total shareholder return (“TSR”), return on invested capital (“ROIC”) and operating income before depreciation and amortization growth ("EBITDA growth"). The TSR and EBITDA growth metrics are designed to assess the long-term Company performance relative to the performance of companies included in the Russell 2000 Index over a three -year performance period. ROIC is designed to assess the Company's performance compared to pre-established Company targets over a three -year performance period. The participants can earn from zero0 to 250% of the target award and the award includes a forfeitable right to dividend equivalents, which are not included in the aggregate target award numbers. The fair value of the TSR was determined using a Monte Carlo valuation method as the award contains a market condition.

7. Inventories

The components of inventories consisted of:
June 30, 2019 December 31, 2018March 31, 2020 December 31, 2019
Finished goods$80,125

$87,779
$71,244

$69,594
Work-in-process98,954
 98,426
92,624
 88,196
Raw material and supplies80,606
 79,785
77,083
 74,916
$259,685

$265,990
$240,951

$232,706


8. Goodwill and Other Intangible Assets

Goodwill:
The following table sets forth the change in the carrying amount of goodwill for each reportable segment and for the Company as of and for the period ended June 30, 2019:March 31, 2020:
 Industrial Aerospace Total Company
January 1, 2019$924,738
 $30,786
 $955,524
Acquisition related681
 
 681
Foreign currency translation(4,755) 
 (4,755)
June 30, 2019$920,664
 $30,786
 $951,450
 Industrial Aerospace Total Company
January 1, 2020$902,236
 $30,786
 $933,022
Foreign currency translation(12,820) 
 (12,820)
March 31, 2020$889,416
 $30,786
 $920,202


In the second quarter of 2019, management performed its annual impairment testing of goodwill and determined that there was no goodwill impairment.

Other Intangible Assets:
Other intangible assets consisted of:
 June 30, 2019 December 31, 2018 March 31, 2020 December 31, 2019
Range of
Life -Years
 Gross Amount Accumulated Amortization Gross Amount Accumulated Amortization
Range of
Life -Years
 Gross Amount Accumulated Amortization Gross Amount Accumulated Amortization
Amortized intangible assets:                  
Revenue sharing programs (RSPs)Up to 30 $299,500
 $(128,900) $299,500
 $(121,957)
Component repair programs (CRPs)Up to 30 111,839
 (24,555) 111,839
 (21,895)
Revenue Sharing Programs (RSPs)Up to 30 $299,500
 $(138,889) $299,500
 $(135,466)
Component Repair Programs (CRPs)Up to 30 111,839
 (28,585) 111,839
 (27,270)
Customer relationships10-16 338,366
 (89,506) 338,366
 (79,439)10-16 338,366
 (103,779) 338,366
 (98,953)
Patents and technology4-10 125,852
 (65,974) 125,852
 (59,205)4-11 123,433
 (70,419) 123,433
 (68,188)
Trademarks/trade names10-30 11,950
 (10,927) 11,950
 (10,731)10-30 10,949
 (10,216) 10,949
 (10,145)
OtherUp to 15 7,296
 (3,776) 7,296
 (3,551)Up to 15 10,746
 (4,191) 10,746
 (4,014)
 894,803
 (323,638) 894,803
 (296,778) 894,833
 (356,079) 894,833
 (344,036)
Unamortized intangible assets:                
Trade names 55,670
 
 55,670
 
 55,670
 
 55,670
 
Foreign currency translation (19,444) 
 (17,157) 
 (30,732) 
 (25,351) 
Other intangible assets $931,029
 $(323,638) $933,316
 $(296,778) $919,771
 $(356,079) $925,152
 $(344,036)




Estimated amortization of intangible assets for future periods is as follows: 2019 - $53,000; 2020 - $50,000;$46,000; 2021 - $50,000; 2022- $49,000; 2022 - $49,000 and 2023 - $48,000.

In the second quarter of 2019, management performed its annual impairment testing of its trade names, indefinite-lived intangible assets. Based on this assessment, there were no impairments.$48,000 and 2024 - $46,000.

9. Debt

The Company's debt agreements contain financial covenants that require the maintenance of interest coverage and leverage ratios. The Company is in compliance with its financial covenants as of June 30, 2019, and continues to monitor its future compliance based on current and anticipated future economic conditions.



Long-term debt and notes and overdrafts payable at June 30, 2019March 31, 2020 and December 31, 20182019 consisted of:
June 30, 2019 December 31, 2018March 31, 2020 December 31, 2019
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Revolving credit agreement$784,628
 $805,464
 $831,016
 $828,800
$679,079
 $673,294
 $720,379
 $737,816
3.97% Senior Notes100,000
 104,198
 100,000
 100,185
100,000
 110,993
 100,000
 104,151
Borrowings under lines of credit and overdrafts27,143
 27,143
 2,137
 2,137
28,314
 28,314
 7,724
 7,724
Finance leases7,440
 7,617
 10,216
 10,503
5,915
 6,028
 6,266
 6,515
Other foreign bank borrowings524
 528
 647
 651
356
 358
 406
 410
919,735
 944,950
 944,016
 942,276
813,664
 818,987
 834,775
 856,616
Less current maturities(30,648)   (7,659)  (30,240)   (9,758)  
Long-term debt$889,087
   $936,357
  $783,424
   $825,017
  

In February 2017, the Company and certain of its subsidiaries entered into the fourth amendment of its fifth amended and restated revolving credit agreement (the “Amended Credit Agreement”) and retained Bank of America, N.A as the Administrative Agent for the lenders. The Amended Credit Agreement increased the facility from $750,000 to $850,000 and extends the maturity date from September 2018 to February 2022. The Amended Credit Agreement also increases the existingprevious
accordion feature from $250,000, allowing the Company to now request additional borrowings of up to $350,000. The Company may exercise the accordion feature upon request to the Administrative Agent as long as an event of default has not occurred or is not continuing. The borrowing availability of $850,000, pursuant to the terms of the Amended Credit Agreement, allows for multi-currency borrowing which includes euro,Euro, British pound sterling or Swiss franc borrowing, up to $600,000.
In September 2018, the Company and one of its wholly owned subsidiaries entered into a Sale and Purchase Agreement to acquire Gimatic. See Note 2 of the Consolidated Financial Statements. In conjunction with the Acquisition, the Company requested additional borrowings of $150,000 that was provided for under the existing accordion feature. The Administrative Agent for the lenders approved the Company's access to the accordion feature and on October 19, 2018 the lenders formally committed the capital to fund such feature, resulting in the execution of the fifth amendment to the Amended Credit Agreement (the "Fifth Amendment"). The Fifth Amendment, effective October 19, 2018, thereby increased the borrowing availability of the existing facility to $1,000,000. The Company may also request access to the residual $200,000 of the accordion feature. Depending on the Company’s consolidated leverage ratio, and at the election of the Company, borrowings under the Amended Credit Agreement will bear interest at either LIBOR plus a margin of between 1.10% and 1.70% or the base rate, as defined in the Amended Credit Agreement, plus a margin of 0.10% to 0.70%. Multi-currency borrowings, pursuant to the Amended Credit Agreement, bear interest at their respective interbank offered rate (i.e. Euribor) or 0.00% (higher of the two rates) plus a margin of between 1.10% and 1.70%. The Company paid fees and expenses of $529 in the fourth quarter of 2018 in conjunction with executing the Fifth Amendment; such fees have been deferred within Other Assets on the accompanying Consolidated Balance Sheets and are being amortized into interest expense on the accompanying Consolidated Statements of Income through its maturity.

Borrowings and availability under the Amended Credit Agreement were $784,628$679,079 and $215,372,$320,921, respectively, at June 30, 2019March 31, 2020 and $831,016$720,379 and $168,984,$279,621, respectively, at December 31, 2018.2019, subject to covenants in the Company's revolving debt agreements. The borrowing capacity under the Amended Credit Agreement was limited by the Senior Debt Ratio (defined below) to $294,190 as of March 31, 2020. The average interest rate on these borrowings was 2.06%1.44% and 1.99%1.76% on June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. Borrowings included Euro-denominated borrowings of 492,680456,490 Euros ($560,128)504,079) at June 30, 2019March 31, 2020 and 470,350504,690 Euros ($538,316)565,379) at December 31, 2018.2019. The fair value of the borrowings is based on observable Level 2 inputs. The borrowings were valued using discounted cash flows based upon the Company's estimated interest costs for similar types of borrowings. In the first quarter of 2019, and the second quarter of 2018, the Company borrowed 44,100 Euros ($49,506) and 179,000 Euros ($208,589), respectively, under the Amended Credit Facility through an international subsidiary. The proceeds were distributed to the parent companyParent Company and subsequently used to pay down U.S. borrowings under the Amended Credit Agreement.

In October 2014, the Company entered into a Note Purchase Agreement (“Note Purchase Agreement”), among the Company and New York Life Insurance Company, New York Life Insurance and Annuity Corporation and New York Life Insurance and Annuity Corporation Institutionally Owned Life Insurance Separate Account, as purchasers, for the issuance of $100,000 aggregate principal amount of 3.97% Senior Notes due October 17, 2024 (the “3.97% Senior Notes”).

The 3.97% Senior Notes are senior unsecured obligations of the Company and pay interest semi-annually on April 17 and October 17 of each year at an annual rate of 3.97%. The 3.97% Senior Notes will mature on October 17, 2024 unless earlier prepaid in accordance with their terms. Subject to certain conditions, the Company may, at its option, prepay all or any part of


the 3.97% Senior Notes in an amount equal to 100% of the principal amount of the 3.97% Senior Notes so prepaid, plus any accrued and unpaid interest to the date of prepayment, plus the Make-Whole Amount, as defined in the Note Purchase


Agreement, with respect to such principal amount being prepaid. The fair value of the 3.97% Senior Notes was determined using the USU.S. Treasury yield and a long-term credit spread for similar types of borrowings, which represent Level 2 observable inputs.
The Company's borrowing capacity remains limited by various debt covenants in the Amended Credit Agreement and the Note Purchase Agreement (the "Agreements"). The Agreements require the Company to maintain a ratio of Consolidated Senior Debt, as defined, to Consolidated EBITDA, as defined, of not more than 3.25 times ("Senior Debt Ratio"), a ratio of Consolidated Total Debt, as defined, to Consolidated EBITDA of not more than 3.75 times ("Total Debt Ratio") and a ratio of Consolidated EBITDA to Consolidated Cash Interest Expense, as defined, of not less than 4.25, in each case at the end of each fiscal quarter; provided that the debt to EBITDA ratios are permitted to increase for a period of four fiscal quarters after the closing of certain permitted acquisitions. A permitted acquisition is defined as an acquisition exceeding $150,000, for which the acquisition of Gimatic qualifies.on October 31, 2018 qualified. With the completion of a permitted acquisition, the Senior Debt Ratio cannot exceed 3.50 times and the Total Debt Ratio cannot exceed 4.25 times. The increased ratios arewere allowed for a period of four fiscal quarters subsequent to the close of the permitted acquisition.acquisition and therefore expired in the fourth quarter of 2019. At March 31, 2020, the Company was in compliance with all covenants under the Agreements and continues to monitor its future compliance based on current and future economic conditions.

In addition, the Company has available approximately $87,000$81,000 in uncommitted short-term bank credit lines ("Credit Lines") and overdraft facilities. The Credit Lines are accessed locally and are available primarily within the U.S., Europe and Asia. The Credit Lines are subject to the applicable borrowing rates within each respective country and vary between jurisdictions (i.e. LIBOR, Euribor, etc.). Under the Credit Lines, $26,900$27,900 was borrowed at June 30, 2019 at an interest rate of 3.16% and $2,041 was borrowed at DecemberMarch 31, 20182020 at an average interest rate of 0.17%1.05% and $7,700 was borrowed at December 31, 2019 at an average interest rate of 2.38%. The Company had also borrowed $243$414 and $96$24 under the overdraft facilities at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. Repayments under the Credit Lines are due within one month after being borrowed. Repayments of the overdrafts are generally due within two days after being borrowed. The carrying amounts of the Credit Lines and overdrafts approximate fair value due to the short maturities of these financial instruments.

The Company also has several finance leases under which $7,440$5,915 and $10,216$6,266 was outstanding at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. The fair value of the finance leases are based on observable Level 2 inputs. These instruments were valued using discounted cash flows based upon the Company's estimated interest costs for similar types of borrowings.

At June 30, 2019March 31, 2020 and December 31, 2018,2019, the Company also had other foreign bank borrowings of $524$356 and $647,$406, respectively. The fair value of the other foreign bank borrowings iswas based on observable Level 2 inputs. These instruments were valued using discounted cash flows based upon the Company's estimated interest costs for similar types of borrowings.

10. Derivatives

The Company has manufacturing and sales facilities around the world and thus makes investments and conducts business transactions denominated in various currencies. The Company is also exposed to fluctuations in interest rates and commodity price changes. These financial exposures are monitored and managed by the Company as an integral part of its risk management program.

Financial instruments have been used by the Company to hedge its exposure to fluctuations in interest rates. The Company entered into an interest rate swap agreement (the "Swap") on April 28, 2017, with one1 bank, which converts the interest on the first $100,000 of the Company's one-month LIBOR-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 1.92% plus the borrowing spread. The Swap expires on January 31, 2022 and is accounted for as a cash flow hedge.

The Company also uses financial instruments to hedge its exposures to fluctuations in foreign currency exchange rates. The Company has various contracts outstanding which primarily hedge recognized assets or liabilities and anticipated transactions in various currencies including the Euro, British pound sterling, U.S. dollar, Canadian dollar, Japanese yen, Singapore dollar, Korean won, Swedish kroner, Chinese renminbi, Mexican peso, Hong Kong dollar and Swiss franc. Certain foreign currency derivative instruments are treated as cash flow hedges of forecasted transactions. All foreign exchange contracts are due within two years.

The Company does not use derivatives for speculative or trading purposes or to manage commodity exposures. Changes in the fair market value of derivatives that qualify as cash flow hedges are recorded to accumulated other non-owner changes to equity. Amounts recorded to accumulated other non-owner changes to equity are reclassified to earnings in a manner that


matches the earnings impact of the hedged transaction. Amounts related to contracts that are not designated as hedges are recorded directly to earnings.

The Company's policy for classifying cash flows from derivatives is to report the cash flows consistent with the underlying hedged item. Other financing cash flows during the first halfthree months of 20192020 and 2018,2019, as presented on the Consolidated Statements of


Cash Flows, include $1,635$7,212 and $2,464,$1,299, respectively, of net cash payments related to the settlement of foreign currency hedges related to intercompany financing.

The following table sets forth the fair value amounts of derivative instruments held by the Company:
Derivative Assets Derivative LiabilitiesDerivative Assets Derivative Liabilities
 Fair Value  Fair Value Fair Value  Fair Value
Balance Sheet LocationJune 30, 2019December 31, 2018 Balance Sheet LocationJune 30, 2019December 31, 2018Balance Sheet LocationMarch 31, 2020December 31, 2019 Balance Sheet LocationMarch 31, 2020December 31, 2019
Derivatives designated as hedging instruments:          
Interest rate contractsOther assets$
$1,412
 Other liabilities$(778)$
Other assets$
$
 Other liabilities$(3,042)$(820)
Foreign exchange contractsPrepaid expenses and other current assets

 Accrued liabilities(416)(258)Prepaid expenses and other current assets
700
 Accrued liabilities(635)
Total derivatives designated as hedging instruments 
1,412
 (1,194)(258) 
700
 (3,677)(820)
        
Derivatives not designated as hedging instruments:        
Foreign exchange contractsPrepaid expenses and other current assets309
1,105
 Accrued liabilities(87)(90)Prepaid expenses and other current assets6
1,375
 Accrued liabilities(846)(1)
Total derivatives not designated as hedging instruments 309
1,105
 (87)(90) 6
1,375
 (846)(1)
        
Total derivatives $309
$2,517
 $(1,281)$(348) $6
$2,075
 $(4,523)$(821)


The following table sets forth the effect of hedge accounting on accumulated other comprehensive (loss) income for the three and six month periods ended June 30, 2019March 31, 2020 and 2018:2019:

Amount of (Loss) Gain Recognized in Accumulated Other Comprehensive (Loss) Income on DerivativeLocation of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into IncomeAmount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into IncomeAmount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss) on DerivativeLocation of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into IncomeAmount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income
Three months ended June 30, Six months ended
June 30,
Three months ended June 30, Six months ended
June 30,
Three Months Ended
March 31,
 Three Months Ended
March 31,
Derivatives in Hedging Relationships2019 2018 2019 20182019 2018 2019 20182020 2019 2020 2019
Derivatives in Cash Flow Hedging Relationships:                      
Interest rate contracts$(1,182) $452
 $(1,670) $1,686
Interest expense$139
 $(332) $281
 $(414)$(1,694) $(487) Interest expense$(61) $142
Foreign exchange contracts(43) (37) (123) (875)Net sales(252) (306) (589) (533)(643) (81) Net sales(523) (337)
Total$(1,225) $415
 $(1,793) $811
 $(113) $(638) $(308) $(947)$(2,337) $(568) $(584) $(195)




The following table sets forth the effect of hedge accounting on the consolidated statements of income for the three-month periods ended June 30, 2019March 31, 2020 and 2018:



2019:

 Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships
 Three months ended June 30,
 2019 2018
 Net sales Interest expense Net sales Interest expense
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of hedges are recorded$371,669
 $5,399
 $375,315
 $4,133
The effects of hedging:       
  Gain (Loss) on cash flow hedging relationships       
     Interest rate contracts       
Amount of (loss) reclassified from accumulated other comprehensive income (loss) into income
 139
 
 (332)
     Foreign exchange contracts       
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income(252) 
 (306) 


The following table sets forth the effect of hedge accounting on the consolidated statements of income for the six-month periods ended June 30, 2019 and 2018:
Location and Amount of Gain (Loss) Recognized in Income on Hedging RelationshipsLocation and Amount of Gain (Loss) Recognized in Income on Hedging Relationships
Six months ended
June 30,
Three Months Ended
March 31,
2019 20182020 2019
Net sales Interest expense Net sales Interest expenseNet sales Interest expense Net sales Interest expense
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of hedges are recorded$748,360
 $10,512
 $741,975
 $8,025
$330,671
 $4,324
 $376,692
 $5,113
The effects of hedging:              
Gain (Loss) on cash flow hedging relationships              
Interest rate contracts              
Amount of (loss) reclassified from accumulated other comprehensive income (loss) into income
 281
 
 (414)
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income  (61)   142
Foreign exchange contracts              
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income(589) 
 (533) 
(523)   (337) 



The following table sets forth the effect of derivatives not designated as hedging instruments on the consolidated statements of income for the three and six-monththree-month periods ended June 30, 2019March 31, 2020 and 2018:2019:
Location of Gain (Loss) Recognized in Income on Derivative
Amount of Gain (Loss) Recognized in Income on Derivative(A)
Location of Gain (Loss) Recognized in Income on Derivative
Amount of Gain (Loss) Recognized in Income on Derivative(A)
Three months ended June 30, Six months ended June 30,Three Months Ended
March 31,
Derivatives Not Designated as Hedging Instruments2019 2018 2019 20182020 2019
Foreign exchange contractsOther expense (income), net$299
 $(1,506) $(3,519) $(7,598)Other expense (income), net$(12,195) $(3,819)


(A) Such amounts were substantially offset by the net (gain) loss recorded on the underlying hedged asset or liability, also recorded in other expense (income), net.




11. Fair Value Measurements

The provisions of the accounting standard for fair value define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard classifies the inputs used to measure fair value into the following hierarchy:

Level 1Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

Level 3Unobservable inputs for the asset or liability.

The following table provides the assets and liabilities reported at fair value and measured on a recurring basis:

    Fair Value Measurements Using
Description Total 
Quoted Prices in Active Markets for
Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
June 30, 2019        
Asset derivatives $309
 $
 $309
 $
Liability derivatives (1,281) 
 (1,281) 
Bank acceptances 15,281
 
 15,281
 
Rabbi trust assets 2,784
 2,784
 
 
Total $17,093
 $2,784
 $14,309
 $
         
December 31, 2018        
Asset derivatives $2,517
 $
 $2,517
 $
Liability derivatives (348) 
 (348) 
Bank acceptances 17,698
 
 17,698
 
Rabbi trust assets 2,457
 2,457
 
 
Total $22,324

$2,457
 $19,867
 $


    Fair Value Measurements Using
Description Total 
Quoted Prices in Active Markets for
Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
March 31, 2020        
Asset derivatives $6
 $
 $6
 $
Liability derivatives (4,523) 
 (4,523) 
Bank acceptances 12,911
 
 12,911
 
Rabbi trust assets 2,507
 2,507
 
 
Total $10,901
 $2,507
 $8,394
 $
         
December 31, 2019        
Asset derivatives $2,075
 $
 $2,075
 $
Liability derivatives (821) 
 (821) 
Bank acceptances 14,460
 
 14,460
 
Rabbi trust assets 2,947
 2,947
 
 
Total $18,661

$2,947
 $15,714
 $


The derivative contracts are valued using observable current market information as of the reporting date such as the prevailing LIBOR-based interest rates and foreign currency spot and forward rates. Bank acceptances represent financial instruments accepted from certain ChineseChina-based customers in lieu of cash paid on receivables, generally range from three to six months in maturity and are guaranteed by banks. The carrying amounts of the bank acceptances, which are included within prepaid expenses and other current assets, approximate fair value due to their short maturities. The fair values of rabbi trust assets are based on quoted market prices from various financial exchanges.















12. Pension and Other Postretirement Benefits

Pension and other postretirement benefits expenses consisted of the following:
Three months ended June 30, Six months ended June 30,Three Months Ended
March 31,
Pensions2019 2018 2019 20182020 2019
Service cost$1,275
 $1,398
 $2,708
 $2,988
$1,649
 $1,433
Interest cost4,572
 4,383
 9,108
 8,692
3,817
 4,536
Expected return on plan assets(7,349) (7,383) (14,427) (14,777)(7,393) (7,078)
Amortization of prior service cost98
 140
 201
 281
80
 103
Amortization of actuarial losses2,285
 3,029
 4,443
 5,840
3,339
 2,158
Settlement loss247
 
 247
 
Net periodic benefit cost$1,128
 $1,567
 $2,280
 $3,024
$1,492
 $1,152

Three months ended June 30, Six months ended June 30,Three Months Ended
March 31,
Other Postretirement Benefits2019 2018 2019 20182020 2019
Service cost$16
 $18
 $35
 $42
$22
 $19
Interest cost333
 337
 673
 681
264
 340
Amortization of prior service cost7
 5
 13
 10
7
 6
Amortization of actuarial (gains) losses(3) 126
 7
 286
Amortization of actuarial losses23
 10
Net periodic benefit cost$353
 $486
 $728
 $1,019
$316
 $375


The service cost component of net periodic benefit cost is included within cost of sales and selling and administrative expenses. The components of net periodic benefit cost other than the service cost component are included in Other Income (Expense) on the Consolidated Statements of Income.
The Company now expects to contribute approximately $20,000 to its various defined benefit pension plans in 2019, including approximately $15,000 of discretionary contributions to its U.S. Qualified pension plans.

13. Income Taxes

The Company's effective tax rate for the first halfquarter of 20192020 was 23.5%31.5% compared with 19.6%22.3% in the first halfquarter of 20182019 and 19.9%23.4% for the full year 2018.2019. The increase in the first halfquarter of 20192020 effective tax rate from the full year 20182019 rate is primarily due to the absencerecognition of adjustmentstax expense related to certain international valuation reserves and final adjustments resulting from the impactcompleted sale of the Tax CutsSeeger business during the first quarter of 2020 ($4,211), partially offset by a benefit related to a refund of withholding taxes that were previously paid and Jobs Act (the “Act”), combined withincluded in tax expense in prior years and a decrease inreduction of the excessstatutory tax benefit on stock awards.rate at one of our international operations.

The Aerospace and Industrial Segments have a number of multi-year tax holidays in both Singapore and China. These holidays are subject to the Company meeting certain commitments in the respective jurisdictions. Aerospace was granted an income tax holiday for operations recently established in Malaysia. The Company anticipates the holiday beginning during the second half of 2020. The holiday will remain effective for ten years.

14. Leases

The Company maintains leases of certain manufacturing, distribution and assembly facilities, office space, land, machinery and equipment. Leases generally have remaining terms of one year to ten years. Leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheets. The Company recognizes lease expense for minimum lease payments on a straight line basis over the term of the lease. Certain leases include options to renew or terminate. Renewal options are exercisable per the discretion of the Company and vary based on the nature of each lease, with renewal periods generally ranging from one year to five years. The term of the lease includes renewal periods only if the Company is reasonably certain that it will exercise the renewal option. When determining if a renewal option is reasonably certain of being exercised, the Company considers several factors, including but not limited to, the cost of moving to another location, the cost of disruption to operations, whether the purpose or location of the leased asset is unique and the contractual terms associated with extending the lease.

Certain leases provide the option to purchase the leased property and are therefore evaluated for finance lease consideration. Right-of-use ("ROU") assets and lease liabilities related to finance leases were not material as of June 30, 2019. The


depreciable life of leased assets are limited by the expected term of the lease, unless there is a transfer of title or purchase option and the Company believes it is reasonably certain of exercise.

Lease agreements generally do not contain any material residual value guarantees or materially restrictive covenants and the Company does not sublease to any third parties. The Company does not have any material leases that have been signed but not commenced.

Contracts are evaluated at inception to determine whether they contain a lease, where the Company obtains the right to control an identified asset. The following table sets forth the classification of ROU assets and lease liabilities on the Consolidated Balance Sheets:

     
Operating Leases Classification June 30, 2019
Leased Assets    
      ROU assets Other assets $34,428
     
Lease Liabilities    
      Current lease liability Accrued liabilities 11,045
      Long term lease liability Other liabilities 24,186
    $35,231


Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The operating lease ROU assets represent the lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received. The Company's real estate leases, which are comprised primarily of manufacturing, distribution and assembly facilities, represent a majority of the lease liability. A significant portion of lease payments are fixed, although an immaterial portion of payments are variable in nature. Variable lease payments vary based on changes in facts and circumstances related to the use of the ROU and are recorded as incurred. The Company uses an incremental borrowing rate based on rates available at commencement in determining the present value of future payments.

The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. The Company applies a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

Operating lease costs during the three and six months ended June 30, 2019 were $3,889 and $7,832, respectively, and were included within cost of sales and selling and administrative expenses. Operating lease costs include short-term and variable leases costs, which were immaterial during the period.

Future minimum lease payments under non-cancellable leases as of June 30, 2019 were as follows:
   
  Operating Leases
2019 $6,590
2020 10,823
2021 8,213
2022 4,013
2023 2,761
After 2023 8,054
Total lease payments $40,454
Less: Interest 5,223
Present value of lease payments $35,231

Minimum rental commitments under non-cancellable leases as of December 31, 2018 for years 2019 through 2023 were $11,931, $8,322, $5,888, $2,898 and $2,064, respectively, and $7,659 thereafter.


Lease Term and Discount RateJune 30, 2019
Weighted-average remaining lease term (years)
         Operating leases6.0
Weighted-average discount rate
         Operating leases3.96%
   
Other Information Six months ended
June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities  
         Operating cash flows from operating leases $6,770
Leased assets obtained in exchange for new operating lease liabilities $8,690


15. Changes in Accumulated Other Comprehensive Income (Loss) by Component

The following tables set forth the changes in accumulated other comprehensive income (loss), net of tax, by component for the sixthree month periods ended June 30, 2019March 31, 2020 and 2018:2019:


 Gains and Losses on Cash Flow Hedges Pension and Other Postretirement Benefit Items Foreign Currency Items Total
January 1, 2019$834
 $(138,690) $(52,644) $(190,500)
Other comprehensive loss before reclassifications(2,038) (265) (5,224) (7,527)
Amounts reclassified from accumulated other comprehensive income to the consolidated statements of income245
 3,802
 
 4,047
Net current-period other comprehensive (loss) income(1,793) 3,537
 (5,224) (3,480)
June 30, 2019$(959) $(135,153) $(57,868) $(193,980)
 Gains and Losses on Cash Flow Hedges Pension and Other Postretirement Benefit Items Foreign Currency Items Total
January 1, 2020$(115) $(144,047) $(66,333) $(210,495)
Other comprehensive income (loss) before reclassifications(2,879) 1,842
 (36,333) (37,370)
Amounts reclassified from accumulated other comprehensive income to the consolidated statements of income542
 2,639
 
 3,181
Net current-period other comprehensive income (loss)(2,337) 4,481
 (36,333) (34,189)
March 31, 2020$(2,452) $(139,566) $(102,666) $(244,684)



Gains and Losses on Cash Flow Hedges Pension and Other Postretirement Benefit Items Foreign Currency Items TotalGains and Losses on Cash Flow Hedges Pension and Other Postretirement Benefit Items Foreign Currency Items Total
January 1, 2018$72
 $(103,844) $(2,627) $(106,399)
January 1, 2019$834
 $(138,690) $(52,644) $(190,500)
Other comprehensive income (loss) before reclassifications79
 1,293
 (38,407) (37,035)(723) (122) (9,225) (10,070)
Amounts reclassified from accumulated other comprehensive income to the consolidated statements of income732
 4,896
 
 5,628
155
 1,737
 
 1,892
Net current-period other comprehensive income (loss)811
 6,189
 (38,407) (31,407)(568) 1,615
 (9,225) (8,178)
Amounts reclassified from accumulated other comprehensive income to retained earnings (A)

 (19,331) 
 (19,331)
June 30, 2018$883
 $(116,986) $(41,034) $(157,137)
March 31, 2019$266
 $(137,075) $(61,869) $(198,678)


(A) This amount represents the reclassification of stranded tax effects resulting from the Act, as permitted by amended guidance issued by the FASB in February 2018. See Note 3.

The following tables set forth the reclassifications out of accumulated other comprehensive income (loss) by component for the three and six month periods ended June 30, 2019March 31, 2020 and 2018:



2019:
Details about Accumulated Other Comprehensive Income (Loss) Components Amount Reclassified from Accumulated Other Comprehensive Income (Loss)Affected Line Item in the Consolidated Statements of Income Amount Reclassified from Accumulated Other Comprehensive Income (Loss)Affected Line Item in the Consolidated Statements of Income
 Three months ended June 30, 2019 Three months ended June 30, 2018   Three Months Ended
March 31, 2020
 Three Months Ended
March 31, 2019
  
Gains and losses on cash flow hedges          
Interest rate contracts $139
 $(332) Interest expense $(61) $142
 Interest expense
Foreign exchange contracts (252) (306) Net sales (523) (337) Net sales
 (113) (638) Total before tax (584) (195) Total before tax
 22
 146
 Tax benefit 42
 40
 Tax benefit
 (91) (492) Net of tax (542) (155) Net of tax
          
Pension and other postretirement benefit items          
Amortization of prior-service costs $(105) $(145) (A) $(87) $(109) (A)
Amortization of actuarial losses (2,282) (3,155) (A) (3,362) (2,168) (A)
Settlement loss (247) 
 (A)
 (2,634) (3,300) Total before tax (3,449) (2,277) Total before tax
 569
 806
 Tax benefit 810
 540
 Tax benefit
 (2,065) (2,494) Net of tax (2,639) (1,737) Net of tax
          
Total reclassifications in the period $(2,156) $(2,986)  $(3,181) $(1,892) 

(A) These accumulated other comprehensive income (loss) components are included within the computation of net periodic Pension and Other Postretirement Benefits cost. See Note 12.

Details about Accumulated Other Comprehensive Income (Loss) Components Amount Reclassified from Accumulated Other Comprehensive Income (Loss)Affected Line Item in the Consolidated Statements of Income
  Six months ended June 30, 2019 Six months ended June 30, 2018  
Gains and losses on cash flow hedges      
Interest rate contracts $281
 $(414) Interest expense
Foreign exchange contracts (589) (533) Net sales
  (308) (947) Total before tax
  63
 215
 Tax benefit
  (245) (732) Net of tax
       
Pension and other postretirement benefit items      
Amortization of prior-service costs $(214) $(291) (A)
Amortization of actuarial losses (4,450) (6,126) (A)
Settlement loss (247) 
 (A)
  (4,911) (6,417) Total before tax
  1,109
 1,521
 Tax benefit
  (3,802) (4,896) Net of tax
       
Total reclassifications in the period $(4,047) $(5,628)  

(A) These accumulated other comprehensive income (loss) components are included within the computation of net periodic Pension and Other Postretirement Benefits cost. See Note 12.





16.15. Information on Business Segments

The Company is organized based upon the nature of its products and services and reports under two2 global business segments: Industrial and Aerospace. Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The Company has not aggregated operating segments for purposes of identifying these two2 reportable segments.

Industrial is a global provider of highly-engineered, high-quality precision components, products and systems for critical applications serving a diverse customer base in end-markets such as transportation, industrial equipment, automation, personal care, packaging, electronics, and medical devices. Focused on innovative custom solutions, Industrial participates in the design phase of components and assemblies whereby customers receive the benefits of application and systems engineering, new product development, testing and evaluation, and the manufacturing of final products. Products are sold primarily through its direct sales force and global distribution channels. Industrial's Molding Solutions business designs and manufactures customized hot runner systems, advanced mold cavity sensors and process control systems, and precision high cavitation mold assemblies - collectively, the enabling technologies for many complex injection molding applications. The Force & Motion Control business provides innovative cost effective force and motion control solutions for a wide range of metal forming and other industrial markets. The Automation business designs and develops robotic grippers, advanced end-of-arm tooling systems, sensors and other automation components for intelligent robotic handling solutions and industrial automation applications. Industrial's Engineered Components business manufactures and supplies precision mechanical products used in transportation and industrial applications, including mechanical springs, and high-precision punched and fine-blanked components and retention rings.components.

Aerospace is a global manufacturer of complex fabricated and precision machined components and assemblies for turbine engines, nacelles and structures for both commercial and military aircraft. The Aerospace aftermarket business provides aircraft engine component MRO services, including services performed under our Component Repair Programs (“CRPs”), for many of the world’s major turbine engine manufacturers, commercial airlines and the military. The Aerospace aftermarket activities also include the manufacture and delivery of aerospace aftermarket spare parts, including revenue sharing programsRevenue Sharing Programs (“RSPs”) under which the Company receives an exclusive right to supply designated aftermarket parts over the life of specific aircraft engine programs.
The following tables set forth information about the Company's operations by its two2 reportable segments:
 Three months ended June 30, Six months ended June 30,
 2019 2018 2019 2018
Net sales       
Industrial$233,404
 $249,577
 $475,906
 $495,544
Aerospace138,265
 125,739
 272,454
 246,437
Intersegment sales
 (1) 
 (6)
Total net sales$371,669
 $375,315
 $748,360
 $741,975
        
Operating profit       
Industrial$27,430
 $38,316
 $48,931

$70,694
Aerospace29,527
 25,563
 58,676
 49,818
Total operating profit56,957
 63,879
 107,607
 120,512
Interest expense5,399
 4,133
 10,512
 8,025
Other expense (income), net1,712
 947
 3,519
 2,710
Income before income taxes$49,846
 $58,799
 $93,576
 $109,777

 Three Months Ended
March 31,
 2020 2019
Net sales   
Industrial$199,100
 $242,502
Aerospace131,571
 134,190
Intersegment sales
 
Total net sales$330,671
 $376,692
    
Operating profit   
Industrial$17,924
 $21,502
Aerospace31,389
 29,147
Total operating profit49,313
 50,649
Interest expense4,324
 5,113
Other expense (income), net1,594
 1,806
Income before income taxes$43,395
 $43,730


June 30, 2019 December 31, 2018March 31, 2020 December 31, 2019
Assets      
Industrial$1,940,216
 $1,962,362
$1,789,094
 $1,879,258
Aerospace709,580
 692,584
706,104
 704,318
Other (A)
145,439
 154,024
172,407
 154,759
Total assets$2,795,235
 $2,808,970
$2,667,605
 $2,738,335

(A) "Other" assets include corporate-controlled assets, the majority of which are cash and cash equivalents.
 
17.16. Commitments and Contingencies

Product Warranties

The Company provides product warranties in connection with the sale of certain products. From time to time, the Company is subject to customer claims with respect to product warranties. The Company accrues its estimated exposure for warranty claims at the time of sale based upon the length of the warranty period, historical experience and other related information known to the Company. Liabilities related to product warranties and extended warranties were not material as of June 30, 2019March 31, 2020 and December 31, 2018.2019.

Litigation
 
The Company is subject to litigation from time to time in the ordinary course of business and various other suits, proceedings and claims are pending involving the Company and its subsidiaries. The Company records a loss contingency liability when a loss is considered probable and the amount can be reasonably estimated. While it is not possible to determine the ultimate disposition of each of these proceedings and whether they will be resolved consistent with the Company's beliefs, the Company expects that the outcome of such proceedings, individually or in the aggregate, will not have a material adverse effect on financial condition or results of operations.


With respect to the unaudited consolidated financial information of Barnes Group Inc. for the three months period ended March 31, 2020 and six month periods ended June 30, 2019, and 2018, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated July 26, 2019April 27, 2020 appearing herein, states that they did not audit and they do not express an opinion on that unaudited consolidated financial information. Accordingly, the degree of reliance on their report should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended, for their report on the unaudited consolidated financial information because that report is not a “report” or a “part” of the registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Securities Act of 1933, as amended.





Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Barnes Group Inc.:

Results of Review of Interim Financial Information

We have reviewed the accompanying consolidatedbalance sheetof Barnes Group Inc.and its subsidiaries(the (the “Company”) as of June 30, 2019,March 31, 2020, and the related consolidated statements of income, and of comprehensive income, for the three-month and six-monthperiods ended June 30, 2019 and 2018and the consolidated statement of cash flows for thesix-month three-month periods ended June 30,March 31, 2020 and 2019, and 2018,including the related notes (collectively referred to as the “interim financial information”). information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial informationforit to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidatedbalance sheet of the Company as of December 31, 2018,2019, and the related consolidated statements of income, of comprehensive income, of changes in stockholders’ equity, and of cash flows for the year then ended (not presented herein), and in our report dated February 25, 2019,24, 2020, which includeda paragraph describing a change in the manner of accounting for leases in the 2019 financial statements and revenue in the 2018 financial statements, we expressed an unqualified opinion on those consolidated financial statements.In our opinion, the information set forth in the accompanying consolidated balance sheet information as ofDecember 31, 2018,2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ PricewaterhouseCoopers LLP 

Hartford, Connecticut
 
July 26, 2019April 27, 2020 




Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

Please refer to the Overview in the Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.2019. The Annual Report on Form 10-K and other documents related to the Company are located on the Company's website: www.bginc.com.

RESULTS OF OPERATIONS

Net Sales
 Three months ended June 30, Six months ended June 30,
(in millions)2019 2018 Change 2019 2018 Change
Industrial$233.4
 $249.6
 $(16.2) (6.5)% $475.9
 $495.5
 $(19.6) (4.0)%
Aerospace138.3
 125.7
 12.5
 10.0 % 272.5
 246.4
 26.0
 10.6 %
Total$371.7
 $375.3
 $(3.6) (1.0)% $748.4
 $742.0
 $6.4
 0.9 %
First Quarter Highlights

The Company reported net sales of $371.7$330.7 million in the secondfirst quarter of 2019,2020, a decrease of $3.6$46.0 million or 1.0%12.2%, from the secondfirst quarter of 2018.2019. Organic sales decreased by $14.7$31.2 million, or 3.9%8.3%, including a decreasedecreases of $27.2$28.6 at Industrial partially offset by an increase of $12.5and $2.6 at Aerospace. The decrease at Industrial was drivenCompany completed the sale of its Seeger business on February 1, 2020, reducing sales by organic sales declines within the each of the Industrial business units, largely due to lower global auto production rates and delays in automotive model change releases, reflecting uncertainty related to current and proposed tariffs announced by the United States and China governments and potential changes in regulatory requirements. Acquired businesses contributed incremental sales of $18.3$10.3 million in the Industrial segment during the secondfirst quarter of 2019.2020 relative to the prior year period (see below). The strengthening of the U.S. dollar against foreign currencies decreased net sales within the Industrial segment by approximately $7.3$4.5 million. Operating margins, however, improved from 13.4% to 14.9% during the period, largely a result of favorable productivity, the absence of short-term purchase accounting adjustments related to the acquisition of Gimatic and a higher mix of sales volumes from the Aerospace segment.

The increase at Aerospace was driven primarily by sales growthCompany completed the sale of the Seeger business effective February 1, 2020. Gross proceeds received were 39.6 million Euros ($43.7 million). The Company yielded net cash proceeds of $36.9 million after consideration of cash sold and transaction costs. The final amount of proceeds from the sale is subject to post-closing adjustments. Resulting tax charges of $4.2 million were recognized in the first quarter of 2020, following the completion of the sale. See Note 2 within the spare partsConsolidated Financial Statements for further discussion.

Impact of Coronavirus

In December 2019, an outbreak of a novel strain of coronavirus (“COVID-19”) began in Wuhan, China, and was subsequently declared a pandemic by the World Health Organization. The outbreak and a continued spread of COVID-19 has resulted in a substantial curtailment of business activities worldwide and is causing weakened economic conditions, both in the United States and abroad. As part of growing efforts to contain the spread of COVID-19, a number of state, local and foreign governments have imposed various restrictions on the conduct of business and travel. The Company's global manufacturing operations of essential systems and components continues at reduced levels, with minimal plant closures. As a result of the COVID-19 pandemic and in support of continuing its manufacturing efforts, the Company has undertaken a number of steps to protect its employees, suppliers and customers. The Company’s global supply chain management team continues to monitor and manage its ability to operate effectively, however, to date, the Company has not experienced any significant disruptions within its supply chain. Ongoing communications with the Company's suppliers to identify and mitigate risk and to manage inventory levels will continue. Notwithstanding the Company's continued operations, COVID-19 has begun to have and may have further negative impacts on its operations, customers and supply chain even after the preventative and precautionary measures being taken.

The Company maintains sufficient liquidity and will continue to evaluate ways to enhance its liquidity position as it navigates through the disrupted business environment that has resulted from COVID-19. As of March 31, 2020, the Company held $112.8 million in cash and cash equivalents and had $320.9 million of undrawn borrowing capacity under its $1,000.0 million Amended Credit Facility, subject to covenants in the Company's revolving debt agreements. The Company remained in compliance with all covenants under its revolving Credit Agreement, which matures in February 2022, as of March 31, 2020. At this time, the Company has not drawn on its debt agreements as it believes the availability of those funds are not at risk given the strength of the underlying bank syndicate. The Company does not currently anticipate requiring any additional debt facilities, nor does it anticipate a material change in the terms or covenants pertaining to its current facilities. Given the current environment, the Company is closely monitoring its cash generation, usage and preservation including the management of working capital to generate cash. To better align costs with the current business environment, the Company has taken several actions which include temporary reductions in compensation for salaried employees including Company officers and Board directors, employee furloughs and reductions in discretionary expenses. As well, management has now suspended share repurchase activity. See additional discussion regarding liquidity within “Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”.

Entering 2020, automotive, tool and die, and personal care and packaging end markets were experiencing lingering softness. Given the onset of the COVID-19 outbreak, sales pressure increased further within these markets. Medical end markets are expected to remain favorable. Aerospace end markets remained strong entering 2020, however the Company currently anticipates growing sales pressure within OEM as certain aircraft programs have been delayed as a result of COVID-19. Within


the aftermarket business, whereas continued growth on newer, more technologically advanced engine platforms contributed to increased salesbusinesses, aircraft are being removed from service and utilization is reduced. See additional discussion regarding the anticipated financial impact of COVID-19 within the original equipment manufacturing business.“Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Outlooks”.

RESULTS OF OPERATIONS

Net Sales
 Three Months Ended
March 31,
(in millions)2020 2019 Change
Industrial$199.1
 $242.5
 $(43.4) (17.9)%
Aerospace131.6
 134.2
 (2.6) (2.0)%
Total$330.7
 $376.7
 $(46.0) (12.2)%

The Company reported net sales of $748.4$330.7 million in the first halfquarter of 2019, an increase2020, a decrease of $6.4$46.0 million or 0.9%12.2%, from the first halfquarter of 2018.2019. Organic sales decreased by $10.0$31.2 million, as a decreaseor 8.3%, including decreases of $36.0 million$28.6 at Industrial was partially offset by an increase of $26.0 millionand $2.6 at Aerospace. The decrease at Industrial was driven by organic sales declines within the eachseveral of the Industrial business units, again, due partially to lower global auto production rates and delayscontinued softness in automotive model change releases. Acquired businesses contributed incremental sales of $36.2 millionend markets, reflecting global uncertainty, and potential changes in regulatory requirements related to personal care and packaging markets, partially offset by increased volumes within medical end markets. The Automation business experienced slight growth during the current period. Sales at Industrial segment during the first halfquarter of 2019.2019 also included a $2.6 million commercial settlement attributed to a patent-related matter. The Company completed the sale of its Seeger business on February 1, 2020, reducing sales by $10.3 million during the first quarter of 2020 relative to the prior year period. The decrease at Aerospace was driven by a decline in sales within the original equipment manufacturing business ("OEM"), partially offset by sales growth within the aftermarket businesses. The decline in OEM sales was attributed to the 737 Max aircraft, following a suspension of production by Boeing. The strengthening of the U.S. dollar against foreign currencies decreased net sales within the Industrial segment by approximately $19.8$4.5 million.

The increaseimpacts of the COVID-19 outbreak also began to impact sales during the first quarter of 2020. Beginning late in the first quarter, Industrial and Aerospace business units began to experience the negative impact on demand for certain products and services due to COVID-19's disruption of global manufacturing and consumer spending. Much of the Company's global manufacturing of essential systems and components continues at Aerospace was driven primarily by sales growthreduced levels, however the current situation is very dynamic, and visibility of future operations is challenged. See additional discussion related to the anticipated financial impacts of COVID-19 within the aftermarket businesses, whereas continued growthsegment outlooks below. See discussion related to COVID-19's risk on newer, more technologically advanced engine platforms contributed to increased salesthe Company's Consolidated Financial Statements within the original equipment manufacturing business.Part II, Item 1A.

Expenses and Operating Income
Three months ended June 30, Six months ended June 30,Three Months Ended
March 31,
(in millions)2019 2018 Change 2019 2018 Change2020 2019 Change
Cost of sales$238.3
 $237.6
 $0.7
 0.3 % $482.9
 $474.7
 $8.2
 1.7 %$208.2
 $244.6
 $(36.4) (14.9)%
% sales64.1% 63.3% 
 
 64.5% 64.0%    63.0% 64.9% 
 
Gross profit (1)
$133.4
 $137.7
 $(4.3) (3.2)% $265.4
 $267.2
 $(1.8) (0.7)%$122.4
 $132.0
 $(9.6) (7.3)%
% sales35.9% 36.7% 
 
 35.5% 36.0%    37.0% 35.1% 
 
Selling and administrative expenses$76.4
 $73.8
 $2.6
 3.5 % $157.8
 $146.7
 $11.1
 7.6 %$73.1
 $81.4
 $(8.3) (10.2)%
% sales20.6% 19.7%     21.1% 19.8%    22.1% 21.6%    
Operating income$57.0
 $63.9
 $(6.9) (10.8)% $107.6
 $120.5
 $(12.9) (10.7)%$49.3
 $50.6
 $(1.3) (2.6)%
% sales15.3% 17.0%     14.4% 16.2%    14.9% 13.4%    

(1) Sales less cost of sales.



Cost of sales in the secondfirst quarter of 2019 increased 0.3%2020 decreased 14.9% from the 20182019 period, while gross profit margin decreasedincreased from 36.7%35.1% in the 20182019 period to 35.9%37.0% in the 20192020 period. Gross margins improved at Aerospaceboth Industrial and declined at Industrial.Aerospace. At Industrial, gross marginprofit decreased during the 2019 period, primarily as a result of the reduced profit impact of lower profit contributionsales volumes. Gross margin at Industrial, however, increased during the 2020 period, driven primarily by the absence of organic sales volumes within the Molding Solutions businesses and $1.4$4.0 million of short-term purchase accounting


adjustments related to the acquisition of Gimatic.Gimatic and favorable productivity. Within Aerospace, improvement in gross profit relates primarily to organic growthincreased volumes within each of the businesses. Increased volumes in the maintenance overhaul and repair and spare parts businesses, in particular, contributed to the increased gross profit and improvement in gross margin improvement during the secondfirst quarter of 2019.2020. Selling and administrative expenses in the secondfirst quarter of 2019 increased 3.5%2020 decreased 10.2% from the 20182019 period due to the absence of costs related to workforce reductions during the acquisition of Gimatic, primarily the2019 period, lower amortization of acquired intangible assets.certain intangibles related to earlier acquisitions and a reduction in employee related costs (including lower incentive compensation), partially offset by $2.4 million of divestiture charges related to the completion of the Seeger sale. As a percentage of sales, selling and administrative costs increased slightly from 19.7%21.6% in the second quarter of 2018 to 20.6% in the 2019 period. Operating income in the secondfirst quarter of 2019 decreased 10.8% to $57.0 million from the second quarter of 2018 and operating income margin decreased from 17.0% to 15.3%, primarily driven by the items at Industrial noted above.

Cost of sales22.1% in the first half of 2019 increased 1.7% from the 2018 period, while gross profit margin decreased from 36.0% in the 2018 period to 35.5% in the 2019 period. Gross margins improved at Aerospace and declined at Industrial. At Industrial, the gross margin decrease during the first half of 2019 was primarily a result of a lower profit contribution of organic sales volumes within the Molding Solutions businesses, $5.4 million of short-term purchase accounting adjustments related to the acquisition of Gimatic and unfavorable productivity. Within Aerospace, improvement in gross profit relates primarily to organic growth within each of the businesses. Increased volumes in the maintenance overhaul and repair and spare parts businesses, in particular, contributed to the gross margin improvement during the first half of 2019. Selling and administrative expenses in the first half of 2019 increased 7.6% from the 2018 period, due to costs related to the acquisition of Gimatic, primarily the amortization of acquired intangible assets, and increased costs associated with a first quarter workforce reduction at Industrial. As a percentage of sales, selling and administrative costs increased from 19.8% in the first half of 2018 to 21.1% in the 20192020 period. Operating income in the first halfquarter of 2020 decreased by 2.6% to $49.3 million compared with the first quarter of 2019, decreased 10.7% to $107.6 million from the first half of 2018 andhowever operating income margin decreasedincreased from 16.2%13.4% to 14.4%14.9%, primarily driven primarily by the itemsbenefits to Cost of Sales at Industrial noted above.above and a higher mix of sales volumes from the Aerospace segment.

Interest expense
Interest expense increaseddecreased by $1.3 million in the second quarter of 2019 and by $2.5$0.8 million in the first halfquarter of 2019,2020 as compared with the prior year periods. The increase in both periods wasperiod, primarily a result of increaseddecreased average borrowings partially offset byand lower average interest rates.

Other expense (income), net
Other expense (income), net in the secondfirst quarter of 20192020 was $1.7$1.6 million compared to $0.9 million in the second quarter of 2018. Foreign currency losses of $1.0 million in the second quarter of 2019 compared with foreign currency losses of $0.2 million in the second quarter of 2018. Other expense (income), net in the first half of 2019 was $3.5 million compared to $2.7$1.8 million in the first halfquarter of 2018. Foreign currency losses of $2.1 million2019. Other expense (income) in the first half of 2019 compared withcurrent period included a foreign currency lossesgain of $0.8$0.3 million inand the first half2019 period included a foreign currency loss of 2018.$1.1 million.

Income Taxes
The Company's effective tax rate for the first halfquarter of 20192020 was 23.5%31.5% compared with 19.6%22.3% in the first halfquarter of 20182019 and 19.9%23.4% for the full year 2018.2019. The increase in the first halfquarter of 20192020 effective tax rate from the full year 20182019 rate is primarily due to the absencerecognition of adjustmentstax expense related to certain international valuation reserves and final adjustments resulting from the impactcompleted sale of the Tax CutsSeeger business during the first quarter of 2020 ($4.2 million), partially offset by a benefit related to a refund of withholding taxes that were previously paid and Jobs Act (the “Act”), combined withincluded in tax expense in prior years and a decrease inreduction of the excessstatutory tax benefit on stock awards.rate at one of our international operations.

The Aerospace and Industrial Segments have a number of multi-year tax holidays in both Singapore and China. These holidays are subject to the Company meeting certain commitments in the respective jurisdictions.














Aerospace was granted an income tax holiday for operations recently established in Malaysia. The Company anticipates the holiday beginning during the second half of 2020. The holiday will remain effective for ten years.

Income and Income per Share
Three months ended June 30, Six months ended June 30,Three Months Ended
March 31,
(in millions, except per share)2019 2018 Change 2019 2018 Change2020 2019 Change
Net income$37.6
 $49.4
 $(11.8) (23.9)% $71.6
 $88.2
 $(16.6) (18.9)%$29.7
 $34.0
 $(4.3) (12.5)%
Net income per common share:                      
Basic$0.73
 $0.94
 $(0.21) (22.3)% $1.39
 $1.66
 $(0.27) (16.3)%$0.58
 $0.66
 $(0.08) (12.1)%
Diluted0.73
 0.93
 (0.20) (21.5)% 1.38
 1.65
 (0.27) (16.4)%0.58
 0.65
 (0.07) (10.8)%
Weighted average common shares outstanding:                      
Basic51.3
 52.6
 (1.3) (2.5)% 51.5
 53.1
 (1.6) (3.0)%51.1
 51.7
 (0.6) (1.2)%
Diluted51.7
 53.1
 (1.4) (2.6)% 52.0
 53.6
 (1.6) (3.1)%51.5
 52.2
 (0.7) (1.3)%

Basic and diluted net income per common share decreased for the three and six month periodsperiod as compared to the 2018 periods.2019. The decreases were due to decreasesthe decrease in net income for the periodsperiod and were partially offset by the impact of reductions in both basic and diluted weighted average common shares outstanding which decreased due to the repurchase of 2,292,100900,000 and 900,000396,000 shares during 20182019 and the first half of 2019,2020, respectively, as part of the Company's publicly announced Repurchase Program. The impact of the repurchased shares was partially offset by the issuance of additional shares for employee stock plans.
  







Financial Performance by Business Segment

Industrial
Three months ended June 30, Six months ended June 30,Three Months Ended
March 31,
(in millions)2019 2018 Change 2019 2018 Change2020 2019 Change
Sales$233.4
 $249.6
 $(16.2) (6.5)% $475.9
 $495.5
 $(19.6) (4.0)%$199.1
 $242.5
 $(43.4) (17.9)%
Operating profit27.4
 38.3
 (10.9) (28.4)% 48.9
 70.7
 (21.8) (30.8)%17.9
 21.5
 (3.6) (16.6)%
Operating margin11.8% 15.4%     10.3% 14.3%    9.0% 8.9%    

Sales at Industrial were $233.4$199.1 million in the secondfirst quarter of 2019,2020, a $16.2$43.4 million, or 6.5%17.9% decrease from the secondfirst quarter of 2018.2019. Organic sales decreased by $27.2$28.6 million, or 10.9%11.8%, during the 20192020 period, driven by declines in sales within each of the businesses.businesses, with the exception of Automation. Softness in automotive end markets continued to decreasenegatively impact sales volumes, largely due to lower global auto production rates and delays in automotive model change releases, reflecting uncertainty relatedongoing global trade uncertainty. Sales within the personal care and packaging markets continued to currentbe impacted by proposed environmental regulations affecting product and proposed tariffs announced by the United Statespackaging composition and China governments and potential changes in regulatory requirements.disposability. Increased volumes within the medical end market, however, partially offset the automotive, personal care and packaging related declines within Molding Solutions. Acquired businesses contributed incrementalvolume declines. Sales during the first quarter of 2019 also included a $2.6 million commercial settlement of a patent-related matter. The Company completed the sale of its Seeger business on February 1, 2020, reducing sales of $18.3by $10.3 million during the secondfirst quarter of 2019, whereas foreign2020 relative to the prior year period. Beginning in February 2020, Industrial began to experience further softness in China end markets resulting from the negative impacts of the COVID-19 pandemic, with softness expanding into European and North American markets in March 2020. See additional discussion below and within Part II, Item 1A. Foreign currency decreased sales by approximately $7.3$4.5 million as the U.S. dollar strengthened against foreign currencies. During the first half of 2019, this segment reported sales of $475.9 million, a 4.0% decrease from the first half of 2018. Organic sales decreased by $36.0 million, or 7.3%, during the 2019 period, primarily a result of declines in sales within each of the businesses, partially offset by a favorable $2.6 million commercial settlement of a patent-related matter. The sales decline in the six month period was also driven largely by the softness in automotive end markets. Acquired businesses contributed incremental sales of $36.2million during the first half of 2019, whereas foreign currency decreased sales by approximately $19.8 million as the U.S. dollar strengthened against foreign currencies.

Operating profit in the secondfirst quarter of 20192020 at Industrial was $27.4$17.9 million, a decrease of $10.9$3.6 million from the secondfirst quarter of 2018.2019. Operating profit was negatively impacted primarily by the lower profit contribution of declining organic sales volumes across each of the businesses as described above, and $1.4$2.4 million of short-term purchase accounting adjustmentsdivestiture charges related to the acquisitioncompletion of Gimatic. Operating margin decreased from 15.4% in the 2018 periodSeeger sale. Favorable productivity, including the absence of costs related to 11.8% inworkforce reductions during the 2019 period, primarily aslower amortization of certain intangibles related to earlier acquisitions and a resultreduction in employee related costs (including lower incentive compensation) partially offset the profit impact of these items. Operating profit in thelower volumes within Industrial. The first halfquarter of 2019 at Industrial was $48.9 million, a decrease of $21.8 million from the first half of 2018, also driven by the lower profit contribution of organic sales, $5.4included $4.0 million of short-term purchase accounting adjustments related to the acquisition of Gimatic and unfavorable productivity, primarily driven by costs associated with workforce reduction actions. Thethe operating profit benefit of the first quarter$2.6 million commercial settlement was partially offset by the workforce reduction costs.settlement. Operating margin decreasedincreased from 14.3% in the 2018 period to 10.3%8.9% in the 2019 period to 9.0% in the 2020 period, primarily as a result of these items.


the net benefits described above.

Outlook: In Industrial, management isremains focused on generating organic sales growth through the introduction of new products and services and by leveraging the benefits of its diversified products and global industrial end-markets.end-markets, however the onset of the COVID-19 pandemic has presented new challenges for the Company. Our ability to generate sales growth is subject to economic conditions inrecent disruptions within the global markets served by all of our businesses. Entering 2020, automotive, tool and die, and personal care and packaging end markets were experiencing lingering softness. Given the onset of COVID-19, sales pressure increased further within these markets. Markets in China have recently begun to indicate signs of recovery, however European and North American markets continue to remain challenged given ongoing restrictions on business and travel. Several automotive plants, including plants operated by certain of our more significant customers, experienced closures during the first quarter. General industrial end markets reflect indications of further softening from restricted levels of investment and capital expenditures. Orders within these end markets have continued to decline throughout the first quarter and into the second quarter as a result of the COVID-19 disruption, with further sales deterioration anticipated throughout the second quarter. These markets are expected to recover slowly as the global economic environment improves. Medical end markets are expected to remain favorable. For overall industrial end-markets, the manufacturing Purchasing Managers' Index ("PMI") remains above 50has reflected the impacts of COVID-19. PMI in both North America however PMIand Europe has continued to weaken during the first six months of 2019. PMI in Europe and China have declinedfurther deteriorated since December 31, 2019, to below 50 within both regions as of June 30, 2019, indicativeMarch 31, 2020. PMI in China declined to nearly 40 through February 2020, however it has gradually recovered through March, returning to 50 as of slowing economies.March 31, 2020. Global forecasted production for light vehicles has continued to decline within the Europe, China and North America markets throughout the first halfquarter of 2019.2020. Within our Molding Solutions businesses,business, the global medical market remains healthy, while the automotive hot runner market continued to softenremains soft given the delay in model launches by automotive original equipment manufacturers.manufacturers, further intensified by the impacts of COVID-19. Proposed environmental regulations affecting product and packaging composition and disposability may continue to impact sales within these end markets. Overall industrial end-markets may also be impacted by uncertainty related to current and proposed tariffs announced by the United States and the China governments, and potential changesalthough developments in regulatory requirements.this area have been muted given the global shift in focus to combating COVID-19. As noted above, our first halfthree months of sales were negatively


impacted by $19.8$4.5 million from fluctuations in foreign currencies. To the extent that the U.S. dollar fluctuates relative to other foreign currencies, our sales may continue to be impacted by foreign currency relative to the prior year periods. The relative impact on operating profit is not expected to be as significant as the impact on sales as most of our businesses have expenses primarily denominated in local currencies, where their revenues reside, however operating margins may be impacted. TheAlthough the Company's near-term focus remains on the preservation of cash and liquidity given the disruption caused by COVID-19, the Company also remains focused long term on sales growth through acquisition and expanding geographic reach. Strategic investments in new technologies, manufacturing processes and product development are expected to provide incremental benefits over the long term.term and management continues to evaluate such opportunities.

Given the recent pressures on sales growth resulting from COVID-19, the Company is focused on the proactive management of costs as it takes action to mitigate the impacts on operating profit. While management also remains focused on strategic investments and new product and process introductions in the long term, driving productivity by leveraging the Barnes Enterprise System in the short-term is a strategic initiative. Operating profit is largely dependent onanticipated to be impacted by changes in sales volumesvolume noted above, mix and mixpricing, and the levels of short term investments made within each of the businesses in the segment. Management continues to focus on improving profitability and expanding margins through leveraging organic sales growth, acquisitions, pricing initiatives, global sourcing, productivity and the evaluation of customer programs, driven by the Barnes Enterprise System.Industrial businesses. Operating profit may also be impacted by enactment of or changes in tariffs, trade agreements and trade policies that may affect the cost and/or availability of goods, including aluminum and steel. In particular, current and proposed tariffs announced by the United States government could further increase prices of raw materials or other supplies which we will attempt to offset through mitigation actions. We continue to evaluate market conditions and remain proactive in managing costs. Costs associated with new product and process introductions, restructuring and other cost initiatives, strategic investments and the integration of acquisitions may negatively impact operating profit.

Aerospace
Three months ended June 30, Six months ended June 30,Three Months Ended
March 31,
(in millions)2019 2018 Change 2019 2018 Change2020 2019 Change
Sales$138.3
 $125.7
 $12.5
 10.0% $272.5
 $246.4
 $26.0
 10.6%$131.6
 $134.2
 $(2.6) (2.0)%
Operating profit29.5
 25.6
 4.0
 15.5% 58.7
 49.8
 8.9
 17.8%31.4
 29.1
 2.2
 7.7 %
Operating margin21.4% 20.3%     21.5% 20.2%    23.9% 21.7%    

The Aerospace segment reported sales of $138.3$131.6 million in the secondfirst quarter of 2019,2020, a 10.0% increase2.0% decrease from the secondfirst quarter of 2018. Sales increased2019. A sales decrease within all of the AerospaceOEM business was partially offset by increases within the aftermarket businesses. The original equipment manufacturing ("OEM") business continueddecline in OEM sales was attributed to benefit from the ramp737 Max aircraft, following a suspension of newer, more technologically advanced engine programs. The sales increase reflects increased volume generatedproduction by these platforms.Boeing. Sales within the aftermarket repair and overhaul ("MRO") and spare parts businesses increased during the secondfirst quarter of 20192020 as airline traffic and aircraft utilization remained strong in the first quarter, with additional volumes being obtained largely from existing customers. Beginning in late March 2020, Aerospace began to experience demand softness resulting from the negative impacts of the COVID-19 pandemic and a resultant decline in aircraft utilization and the removal of aircraft from service by certain airlines. See additional discussion below and within Part II, Item 1A. Sales within the segment are largely denominated in U.S. dollars and therefore were not significantly impacted by changes in foreign currency. During the first half of 2019, the Aerospace segment reported sales of $272.5 million, a 10.6% increase from the first half of 2018, also driven by growth within each of the Aerospace businesses. Growth during the first half of 2019 also resulted from sales in newer engine programs within OEM and additional volume from existing customers within the aftermarket businesses.

Operating profit at Aerospace in the secondfirst quarter of 2020 increased 7.7% from the first quarter of 2019 increased 15.5% from the second quarter of 2018 to $29.5$31.4 million. The operating profit increase resulted from the profit impact of the increased volumes at bothwithin the OEM and aftermarket businesses, as discussed above. Operating margin increased from 20.3%21.7% in the 20182019 period to 21.4%23.9% in the 20192020 period primarily as a result of these items. Operating profit instrength within the first half of 2019 increased 17.8% from the first half of 2018 to $58.7 million, also driven by higher sales volumes across theMRO and spare parts businesses.

Outlook: Sales in the Aerospace OEM business are based on the general state of the aerospace market driven by the worldwide economy and are supported by its order backlog through participation in certain strategic commercial and military engine and airframe programs. OverWith the next several years,onset of the Company expects sustained strength inCOVID-19 pandemic, previously strong aerospace end markets have recently come under increased pressure. The OEM business is anticipated to experience challenges from declining aircraft demand for new engines, driven by commercial aircraftand production levels.cuts at Boeing and Airbus. The Company anticipates further shifts induration and depth of the production mix from legacy engine programs to several new engine programs.aerospace disruptions are not determinable at this time. Backlog at OEM was $790.8$703.1 million at June 30, 2019,March 31, 2020, a decrease of 6.4%12.2% since


December 31, 2018,2019, at which time backlog was $845.1 million.$800.7 million, with a significant portion of this decline resulting from changes in General Electric's ("GE") production schedules for aircraft engines. If the COVID-19 pandemic continues to have a material impact on the airline and aviation industry, including our more significant OEM customers, it could materially affect our Aerospace business and results of operations. Backlog decreasedmay decline further as Aerospace customers continued to adjust orders based on their requirements. The Company believes that this activity represents normal order management and does not represent a loss of planned production.changing aircraft production schedules. Approximately 50%45% of OEM backlog is expectedcurrently scheduled to ship in the next 12 months. The Aerospace OEM business may also be impacted by changes in the content levels on certain platforms, changes in customer sourcing decisions, adjustments to customer inventory levels, commodity availability and pricing, vendor sourcing capacity and the use of alternate materials. Additional impacts may include changes in production schedules of specific engine and airframe programs,the redesign of parts, quantity of parts per engine, cost schedules agreed to under contract with the engine manufacturers, as well as the pursuit and duration of new programs.



In the Aerospace aftermarket business, the COVID-19 pandemic is also impacting previously strong aerospace end markets. Significantly reduced aircraft utilization, increased levels of aircraft being removed from service, and reduced airline profitability are expected to impact our business on a go forward basis. Sales in the Aerospace aftermarket business may also be impacted by fluctuations in end-market demand, early aircraft retirements, inventory management and changes in customer sourcing, deferred or limited maintenance activity during engine shop visits and the use of surplus (used) material during the engine repair and overhaul process. End markets are expected to grow based on the long term underlying fundamentals of the aerospace industry. Management continues to believebelieves that its Aerospace aftermarket business iscontinues to be competitively positioned based on well-established long-term customer relationships, including maintenance and repair contracts in the MRO business and long-term Revenue Sharing Programs ("RSPs") and Component Repair Programs ("CRPs"), expanded capabilities and current capacity levels.. The MRO business may also be potentially impacted by airlines that closely manage their aftermarket costs as engine performance and quality improves. Fluctuations in fuel costs and their impact on airline profitability and behaviors within the aerospace industry could also impact levels and frequency of aircraft maintenance and overhaul activities, and airlines' decisions on maintaining, deferring or canceling new aircraft purchases, in part based on the economics associated with new fuel efficient technologies.

ManagementGiven the recent pressures on sales growth resulting from COVID-19, the Company is focused on growingthe proactive management of costs as it takes action to mitigate an anticipated deterioration of operating profit at Aerospace primarily through leveraging organic sales growth,profit. Management also remains focused on strategic investments and new product and process introductions, andintroductions. Maintaining productivity driven bythrough the application of the Barnes Enterprise System.System continues as a key initiative. Operating profit is expected to be affected by the impact of the changes in sales volume noted above, mix and pricing, particularly as they relate to the highly profitable aftermarket RSP spare parts business, and investments made in each of its businesses. Operating profits may also be impacted by potential changes in tariffs, trade agreements and trade policies that may affect the cost and/or availability of goods. Costs associated with new product and process introductions, the physical transfer of work to other global regions, additional productivity initiatives and restructuring activities may also negatively impact operating profit.

LIQUIDITY AND CAPITAL RESOURCES

Management assesses the Company's liquidity in terms of its overall ability to generate cash to fund its operating and investing activities. Of particular importance in the management of liquidity are cash flows generated from operating activities, capital expenditure levels, dividends, capital stock transactions, effective utilization of surplus cash positions overseas and adequate lines of credit. The Company maintains sufficient liquidity and will continue to evaluate ways to enhance its liquidity position as it navigates through the disrupted business environment that has resulted from COVID-19.

The Company believes that its ability to generate cash from operations in excess of its internal operating needs is one of its financial strengths. Management continues to focus on cash flow and working capital management, and anticipates that operating activities in 20192020 will generate sufficient cash to fund operations. TheGiven the recent global market disruptions caused by the COVID-19 pandemic, the Company is closely monitorsmonitoring its cash generation, usage and preservation including the management of working capital to generate cash. The Company does not currently anticipate requiring any additional debt facilities, nor does it anticipate a material change in the terms or covenants pertaining to its current facilities. See additional discussion regarding currently available debt facilities below. To better align costs with the current business environment, the Company has taken several actions which include temporary reductions in compensation for salaried employees including Company officers and Board directors, employee furloughs and reductions in discretionary expenses. The Company continues to invest within its businesses, with its estimate of 2020 capital spending being lowered to approximately $45 million.

In February 2017, the Company and certain of its subsidiaries entered into the fourth amendment of its fifth amended and restated revolving credit agreement (the “Amended Credit Agreement”) and retained Bank of America, N.A. as the Administrative Agent for the lenders. The Amended Credit Agreement increased the facility from $750.0 million to $850.0 million and extends the maturity date from September 2018 to February 2022. The Amended Credit Agreement also increases the existing accordion feature from $250.0 million, allowing the Company to now request additional borrowings of up to $350.0 million. The Company may exercise the accordion feature upon request to the Administrative Agent as long as an event of default has not occurred or is not continuing. The borrowing availability of $850.0 million, pursuant to the terms of the Amended Credit Agreement, allows for multi-currency borrowing which includes euro,Euro, British pound sterling or Swiss franc borrowing, up to $600.0 million. In September 2018, the Company and one of its wholly owned subsidiaries entered into a Sale and Purchase Agreement to acquire Gimatic S.r.l. See Note 2 of the Consolidated Financial Statements. In conjunction with the Acquisition, the Company requested additional borrowings of $150.0 million that was provided for under the existing accordion feature. The Administrative Agent for the lenders has approved the Company's access to the accordion feature and on October 19, 2018 the lenders formally committed the capital to fund such feature, resulting in the execution of the fifth amendment to the Amended Credit Agreement (the "Fifth Amendment"). The Fifth Amendment, effective October 19, 2018, thereby increased the borrowing availability of the existing facility to $1,000.0 million. The Company may also request access to the residual $200.0 million of the accordion feature. Depending on the Company’s consolidated leverage ratio, and at the election of the Company, borrowings under the Amended Credit Agreement will bear interest at either LIBOR plus a margin of between 1.10% and 1.70% or the base rate, as defined in


the Amended Credit Agreement, plus a margin of 0.10% to 0.70%.


Multi-currency borrowings, pursuant to the Amended Credit Agreement, bear interest at their respective interbank offered rate (i.e. Euribor) or 0.00% (higher of the two rates) plus a margin of between 1.10% and 1.70%.

In October 2014, the Company entered into a Note Purchase Agreement (“Note Purchase Agreement”), among the Company and New York Life Insurance Company, New York Life Insurance and Annuity Corporation and New York Life Insurance and Annuity Corporation Institutionally Owned Life Insurance Separate Account, as purchasers, for the issuance of $100.0 million aggregate principal amount of 3.97% senior notes due October 17, 2024 (the “3.97% Senior Notes”). The 3.97% Senior Notes are senior unsecured obligations of the Company and pay interest semi-annually on April 17 and October 17 of each year at an annual rate of 3.97%. The 3.97% Senior Notes will mature on October 17, 2024 unless earlier prepaid in accordance with their terms. Subject to certain conditions, the Company may, at its option, prepay all or any part of the 3.97% Senior Notes in an amount equal to 100% of the principal amount of the 3.97% Senior Notes so prepaid, plus any accrued and unpaid interest to the date of prepayment, plus the Make-Whole Amount, as defined in the Note Purchase Agreement, with respect to such principal amount being prepaid. The Note Purchase Agreement contains customary affirmative and negative covenants that are similar to the covenants required under the Amended Credit Agreement, as discussed below. At June 30, 2019,March 31, 2020, the Company was in compliance with all covenants under the Note Purchase Agreement.

The Company's borrowing capacity remainsis limited by various debt covenants in the Amended Credit Agreement and the Note Purchase Agreement (the "Agreements"). The Agreements require the Company to maintain a ratio of Consolidated Senior Debt, as defined, to Consolidated EBITDA, as defined, of not more than 3.25 times ("Senior Debt Ratio"), a ratio of Consolidated Total Debt, as defined, to Consolidated EBITDA of not more than 3.75 times ("Total Debt Ratio") and a ratio of Consolidated EBITDA to Consolidated Cash Interest Expense, as defined, of not less than 4.25, in each case at the end of each fiscal quarter; provided that the debt to EBITDA ratios are permitted to increase for a period of four fiscal quarters after the closing of certain permitted acquisitions. A permitted acquisition is defined as an acquisition exceeding $150.0 million, for which the acquisition of Gimatic qualifies.qualified. With the completion of a permitted acquisition, the Senior Debt Ratio cannot exceed 3.50 times and the Total Debt Ratio cannot exceed 4.25 times. The increased ratios are allowed for a period of four fiscal quarters subsequent to the close of the permitted acquisition.acquisition and therefore expired in the fourth quarter of 2019. At June 30, 2019,March 31, 2020, the Company was in compliance with all covenants under the Agreements. The Company's most restrictive financial covenant is the Senior Debt Ratio, which with a permitted acquisition, requires the Company to maintain a ratio of Consolidated Senior Debt to Consolidated EBITDA of not more than 3.503.25 times at June 30, 2019.March 31, 2020. The actual ratio at June 30, 2019March 31, 2020 was 2.662.39 times, as defined.

During the first halfthree months of 2019,2020, the Company repurchased 0.90.4 million shares of the Company's stock under the publicly announced Repurchase Program, at a cost of $50.3$15.6 million. See "Part II - Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds". Management has now suspended share repurchase activity as a result of the COVID-19 pandemic. Given the uncertainty of the current business environment at this time, the Company does not have an expected timeframe as to when share repurchases will resume.

Operating cash flow may be supplemented with external borrowings to meet near-term business expansion needs and the Company's current financial commitments. The Company has assessed its credit facilities in conjunction with the Amended Credit Facility and currently expects that its bank syndicate, comprised of 14 banks, will continue to support its Amended Credit Agreement which matures in February 2022. At June 30, 2019,March 31, 2020, the Company had $215.4$320.9 million unused and available for borrowings under its $1,000.0 million Amended Credit Facility, subject to covenants in the Company's revolving debt agreements. At June 30, 2019,March 31, 2020, additional borrowings of $548.1$464.6 million of Total Debt including $289.1$294.2 million of Senior Debt would have been allowed under the financial covenants. The Company intends to use borrowings under its Amended Credit Facility to support the Company's ongoing growth initiatives.initiatives, however the probability of an acquisition or divestiture in the near-term is unlikely given the current business environment. Nonetheless, the Company continues to analyze potential acquisition targets and end markets that meet our strategic criteria with an emphasis on proprietary, highly-engineered industrial technologies. The Company believes its credit facilities and access to capital markets, coupled with cash generated from operations, are adequate for its anticipated future requirements. At this time, the Company has not drawn on its debt agreements as a result of COVID-19, as it believes the availability of those funds are not at risk given the strength of the underlying bank syndicate. The Company maintains communication with its bank syndicate as it continues to monitor its cash requirements.

The Company had $26.9$27.9 million in borrowings under short-term bank credit lines at June 30, 2019.March 31, 2020.

The Company entered into an interest rate swap agreement (the "Swap") on April 28, 2017, with one bank, which converts the interest on the first $100.0 million of the Company's one-month LIBOR-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 1.92% plus the borrowing spread. The swap expires on January 31, 2022. At June 30,March 31,


2020 and December 31, 2019, the Company's total borrowings were comprised of approximately 23%25% fixed rate debt and 77% variable rate debt. At December 31, 2018, the Company's total borrowings were comprised of approximately 22% fixed rate debt and 78%75% variable rate debt.

The United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”), announced its intent to phase out the use of LIBOR by the end of 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, identified the Secured Overnight Financing Rate (“SOFR”) as its preferred benchmark alternative to U.S. dollar LIBOR. Published by the Federal Reserve Bank of New York, SOFR represents a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is calculated based on directly observable U.S. Treasury-backed repurchase transactions. The Company’s Amended Credit Agreement and corresponding interest rate Swap are tied to LIBOR, with both maturing in early 2022, as noted above. The Company is evaluating the potential impact of the replacement of LIBOR, but does not anticipate a material impact on our business, financial condition, results of operations and cash flows.

The Company completed the sale of the Seeger business to KNG effective February 1, 2020. Gross proceeds received were 39.6 million Euros ($43.7 million). The Company yielded net cash proceeds of $36.9 million after consideration of cash sold and transaction costs. The final amount of proceeds from the sale is subject to post-closing adjustments. Resulting tax charges of $4.2 million were recognized in the first quarter of 2020 following the completion of the sale. The Company utilized the proceeds from the sale to reduce debt under the Amended Credit Facility.

At June 30, 2019,March 31, 2020, the Company held $94.9$112.8 million in cash and cash equivalents, the majority of which was held by foreign subsidiaries. These amounts have no material regulatory or contractual restrictions and are expected to primarily fund international investments.

TheIn 2019, the Company now expects to contribute approximately $20.0 million to its various defined benefit pension plans in 2019, including approximatelycontributed $15.0 million of discretionary contributions to its U.S Qualified pension plans. The Company currently does not plan to make any additional discretionary contributions to its U.S. Qualified pension plans.



Any future acquisitions areplans, however approximately $4.4 million is expected to be financed through internal cash, borrowingsmade into its U.S. Non-qualified and equity, or a combination thereof. Additionally, we may from time to time seek to retire or repurchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, under a Rule 10b5-1 trading plan, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.international pension plans throughout 2020.

Cash Flow
Six months ended June 30,Three Months Ended
March 31,
(in millions)2019 2018 Change2020 2019 Change
Operating activities$108.2
 $88.6
 $19.6
$47.2
 $53.1
 $(5.9)
Investing activities(25.3) (30.7) 5.4
18.5
 (13.4) 31.9
Financing activities(88.8) (79.8) (8.9)(43.6) (37.0) (6.6)
Exchange rate effect
 (2.9) 3.0
(3.1) 0.1
 (3.2)
Decrease in cash$(5.8) $(24.8) $19.0
Increase in cash$19.0
 $2.8
 $16.2

Operating activities provided $108.2$47.2 million in the first sixthree months of 20192020 compared to $88.6$53.1 million in the first sixthree months of 2018.2019. Operating cash flows in the 2019 period included cash generated by working capital of $7.0$2.5 million as compared with a use of $40.4$1.9 million in the 2018 period. The changes to working capital2020 period, which was driven by growth in the 2018 period include a use of $9.3 million (included within accounts receivable) related to additional rights to payment and customer advances which were offset by a corresponding $9.3 million increase in accrued liabilities. Cash from operating activities during the 2018 period includes a use of $6.9 million for the first payment required related to the transition tax.inventory.

Investing activities used $25.3 million and $30.7generated $18.5 million in the first sixthree months of 20192020 and 2018, respectively.used $13.4 million in the first three months of 2019. Net cash proceeds of $36.9 million, less $6.6 million which is classified as restricted cash (recorded within other assets on the Consolidated Balance Sheet as of March 31, 2020), from the sale of the Seeger business are included in investing activities for the 2020 period. See Note 2 of the Consolidated Financial Statements. Investing activities in the 20192020 period also included capital expenditures of $25.4$11.9 million compared to $24.3$13.7 million in the 20182019 period. The Company expects capital spending in 20192020 to approximate $60$45 million. Investing activities for the first six months of 2018 also included a $5.8 million participation fee payment related to the aftermarket Revenue Sharing Programs and a payment of $1.0 million, reflected in Other Investing activities, related to a separate Aerospace agreement.

Financing activities in the first sixthree months of 20192020 included a net decrease in borrowings of $21.4$12.7 million compared to an increase of $56.4$28.3 million in the comparable 20182019 period. In 2019, and 2018, the Company borrowed 44.1 million Euros ($49.5 million) and 179.0 million Euros ($208.6 million), respectively, under the Amended Credit Facility through an international subsidiary. The proceeds were distributed to the Parent Company and subsequently used to pay down U.S. borrowings under the Amended Credit Agreement. During the first sixthree months of 2019 and 2018,2020, the Company repurchased 0.90.4 million shares and 2.0 million shares, respectively, of the Company's stock at a cost of $50.3 million and $118.1 million, respectively.$15.6 million. There were no repurchases under the Repurchase Program during the first three months of 2019. Total cash used to pay dividends increased to $16.3was $8.1 million in the 20192020 period from $15.8compared to $8.2 million in the 20182019 period. Other financing cash flows during the first sixthree months of 20192020 and 2018 2019


include $1.6$7.2 million and $2.5$1.3 million, respectively, of net cash payments resulting from the settlement of foreign currency hedges related to intercompany financing.

The Company maintains borrowing facilities with banks to supplement internal cash generation. At June 30, 2019, $784.6March 31, 2020, $679.1 million was borrowed at an average interest rate of 2.06%1.44% under the Company's $1,000.0 million Amended Credit Facility which matures in February 2022. In addition, as of June 30, 2019,March 31, 2020, the Company had $26.9$27.9 million in borrowings under short-term bank credit lines. At June 30, 2019,March 31, 2020, the Company's total borrowings were comprised of 23%25% fixed rate debt and 77%75% variable rate debt. The interest payments on $100.0 million of the variable rate interest debt have been converted into payment of fixed interest plus the borrowing spread under the terms of the respective interest rate swap that was executed in April 2017.

Debt Covenants

As noted above, borrowing capacity is limited by various debt covenants in the Company's debt agreements. Following is a reconciliation of Consolidated EBITDA, a key metric in the debt covenants, to the Company's net income (in millions):


Four fiscal quarters ended June 30, 2019Four fiscal quarters ended March 31, 2020
Net income$149.5
$154.1
Add back:  
Interest expense19.3
19.8
Income taxes41.7
52.4
Depreciation and amortization97.4
97.6
Adjustment for non-cash stock based compensation13.0
12.5
Adjustment for acquired businesses6.9
Amortization of Gimatic and IGS acquisition inventory step-up11.0
Amortization of Gimatic acquisition inventory step-up(1.9)
Due diligence and transaction expenses6.4
4.0
Non-cash impairment charge (see Note 2)5.6
Other adjustments0.2
(3.2)
Consolidated EBITDA, as defined$345.4
Consolidated EBITDA, as defined within the Amended Credit Agreement$340.9
  
Consolidated Senior Debt, as defined, as of June 30, 2019$919.7
Consolidated Senior Debt, as defined, as of March 31, 2020$813.7
Ratio of Consolidated Senior Debt to Consolidated EBITDA2.66
2.39
Maximum3.50
3.25
Consolidated Total Debt, as defined, as of June 30, 2019$919.7
Consolidated Total Debt, as defined, as of March 31, 2020$813.7
Ratio of Consolidated Total Debt to Consolidated EBITDA2.66
2.39
Maximum4.25
3.75
Consolidated Cash Interest Expense, as defined, as of June 30, 2019$23.6
Consolidated Cash Interest Expense, as defined, as of March 31, 2020$19.8
Ratio of Consolidated EBITDA to Consolidated Cash Interest Expense14.65
17.18
Minimum4.25
4.25

The Amended Credit Agreement allows for certain adjustments within the calculation of the financial covenants. The adjustment for acquired businesses reflects the unaudited pre-acquisition operations of IGS and Gimatic for the periods July 1, 2018 through July 23, 2018 and October 31, 2018, respectively. Other adjustments include net gains on the saleconsist primarily of assets, changes in accounting and restructuring charges as permitted under the Amended Credit Agreement. The Company's financial covenants are measured as of the end of each fiscal quarter. At June 30, 2019,March 31, 2020, additional borrowings of $548.1$464.6 million of Total Debt including $289.1$294.2 million of Senior Debt would have been allowed under the covenants. Senior Debt includes primarily the borrowings under the Amended Credit Facility, the 3.97% Senior Notes and the borrowings under the lines of credit. The Company's unused committed credit facilities at June 30, 2019March 31, 2020 were $215.4 million.$320.9 million; however, the borrowing capacity was limited by the debt covenants to $294.2 million at March 31, 2020.










OTHER MATTERS

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting policies are disclosed in Note 1 of the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.2019. The most significant areas involving management judgments and estimates are described in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.2019. Actual results could differ from those estimates. There have been no material changes to such judgments and estimates.

Critical Accounting Policies

Goodwill and Indefinite-Lived Intangible Assets: Goodwill and indefinite-lived intangible assets are subject to impairment testing annually or earlier if an event or change in circumstances indicates that the fair value of a reporting unit has been reduced below its carrying value. Management completes their annual impairment assessments during the second quarter of each year as of April 1. The Company adopted the amended guidance related to goodwill impairment testing during the second quarter of 2018, in conjunction with its annual assessment. See Note 3 of the Consolidated Financial Statements. The Company utilizes the option to first assess qualitative factors to determine whether it is necessary to perform the Step 1 quantitative goodwill impairment test in accordance with the applicable accounting standards. Under the qualitative assessment,


management considers relevant events and circumstances including but not limited to macroeconomic conditions, industry and market considerations, overall unit performance and events directly affecting a unit. If the Company determines that the Step 1 quantitative impairment test is required, management estimates the fair value of the reporting unit primarily using the income approach, which reflects management’s cash flow projections, and also evaluates the fair value using the market approach. Inherent in management’s development of cash flow projections are assumptions and estimates, including those related to future earnings and growth and the weighted average cost of capital. The Company compares the fair value of the reporting unit with the carrying value of the reporting unit. If the fair values were to fall below the carrying values, the Company would recognize a non-cash impairment charge to income from operations for the amount by which the carrying amount of any reporting unit exceeds the reporting unit’s fair value, assuming the loss recognized does not exceed the total amount of goodwill for the reporting unit. Based on our second quarter assessment, the estimated fair value of the Automation reporting unit, which represents the October 2018 acquisition of Gimatic, exceeded its carrying value while the estimated fair value of each of the remaining reporting units significantly exceeded their carrying values. There was no goodwill impairment at any reporting units. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates can change in future periods as a result of both Company-specific and overall economic conditions. Management’s quantitative assessment includes a review of the potential impacts of current and projected market conditions from a market participant’s perspective on reporting units’ projected cash flows, growth rates and cost of capital to assess the likelihood of whether the fair value would be less than the carrying value. The Company also completed its annual impairment testing of its trade names, indefinite-lived intangible assets, in the second quarter of 2019 and determined that there were no impairments.

EBITDA

EBITDAEarnings before interest expense, income taxes, and depreciation and amortization ("EBITDA") for the first halfquarter of 20192020 was $154.3$71.3 million compared to $164.9$73.9 million in the first halfquarter of 2018.2019. EBITDA is a measurement not in accordance with accounting principles generally accepted in the United States of Americaaccounting principles (“GAAP”). The Company defines EBITDA as net income plus interest expense, income taxes, and depreciation and amortization which the Company incurs in the normal course of business. The Company does not intend EBITDA to represent cash flows from operations as defined by GAAP, and the reader should not consider it as an alternative to net income, net cash provided by operating activities or any other items calculated in accordance with GAAP, or as an indicator of the Company's operating performance. The Company's definition of EBITDA may not be comparable with EBITDA as defined by other companies. Accordingly, the measurement has limitations depending on its use. The Company believes EBITDA is commonly used by financial analysts and others in the industries in which the Company operates and, thus, provides useful information to investors. Accordingly, the calculation has limitations depending on its use.

Following is a reconciliation of EBITDA to the Company's net income (in millions):
Six months ended June 30,Three Months Ended
March 31,
2019 20182020 2019
Net income$71.6
 $88.2
$29.7
 $34.0
Add back:      
Interest expense10.5
 8.0
4.3
 5.1
Income taxes22.0
 21.5
13.7
 9.7
Depreciation and amortization50.3
 47.1
23.6
 25.1
EBITDA$154.3
 $164.9
$71.3
 $73.9

FORWARD-LOOKING STATEMENTS

Certain of the statements in this quarterly report contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements often address our expected future operating and financial performance and financial condition, and often contain words such as "anticipate," "believe," "expect," "plan," "estimate," "project," and similar terms. These forward-looking statements do not constitute guarantees of future performance and are subject to a variety of risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements. These include, among others: difficulty maintaining relationships with employees, including unionized employees, customers, distributors, suppliers, business partners or governmental entities; failure to successfully negotiate collective bargaining agreements or potential strikes, work stoppages or other similar events; difficulties leveraging market opportunities; changes in market demand for our products and services; rapid technological and market change; the ability to protect and avoid infringing upon intellectual property rights; introduction or development of new products or transfer of work; higher risks in global operations and markets; the impact of intense competition; acts of terrorism, cybersecurity


attacks or intrusions that could adversely impact our businesses; the impacts of the COVID-19 pandemic on our business, including on demand, supply chains, operations and our ability to maintain sufficient liquidity throughout the unknown duration and severity of the crisis; uncertainties relating to conditions in financial markets; currency fluctuations and foreign currency exposure; future financial performance of the industries or customers that we serve; our dependence upon revenues and earnings from a small number of significant customers; a major loss of customers; inability to realize expected sales or profits from existing backlog due to a range of factors, including changes in customer sourcing decisions, material changes, production schedules and volumes of specific programs; the impact of government budget and funding decisions, including any potential adverse effects associated with a U.S.decisions; government shutdown;tariffs, trade agreements and trade policies; the impact of new or revised tax laws and regulations; the adoption of laws, directives or regulations that impact the materials processed by our products or their end markets; changes in raw material or product prices and availability; integration of acquired businesses; restructuring costs or savings; the continuing impact of prior acquisitions and divestitures, including the ongoing impactdivestitures;


integration of the acquisition of Gimatic, including integration efforts;acquired businesses; and any other future strategic actions, including acquisitions, divestitures, restructurings, or strategic business realignments, and our ability to achieve the financial and operational targets set in connection with any such actions; the outcome of pending and future legal, governmental, or regulatory proceedings and contingenciescontingencies; product liabilities and uninsured claims; product liabilities; future repurchases of common stock; future levels of indebtedness; and numerous other matters of a global, regional or national scale, including those of a political, economic, business, competitive, environmental, regulatory and public health nature; government tariffs, trade agreements and trade policies;nature (including the COVID-19 pandemic); and other risks and uncertainties described in documents filed with or furnished to the Securities and Exchange Commission ("SEC") by the Company, including, among others, those in the Management's Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors sections of the Company's filings. The Company assumes no obligation to update its forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For discussion of the Company’s exposure to market risk, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019.

Item 4. Controls and Procedures

Management, including the Company's President and Chief Executive Officer and Senior Vice President, Finance and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based upon, and as of the date of, our evaluation, the President and Chief Executive Officer and Senior Vice President, Finance and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects and designed to provide reasonable assurance that information required to be disclosed in the reports the Company files and submits under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported as and when required and (ii) is accumulated and communicated to the Company's management, including our President and Chief Executive Officer and Senior Vice President, Finance and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the Company's secondfirst fiscal quarter of 20192020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.







PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to litigation from time to time in the ordinary course of business and various other suits, proceedings and claims are pending against us and our subsidiaries. While it is not possible to determine the ultimate disposition of each of these proceedings and whether they will be resolved consistent with our beliefs, we expect that the outcome of these proceedings, individually or in the aggregate, will not have a material adverse effect on our consolidated financial position, cash flows or results of operations.

Item 1A. Risk Factors

The following represents a material change in our Risk Factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

The widespread outbreak of an illness or any other communicable disease, or any other public health crisis could adversely affect our business, results of operations and financial condition.
The COVID-19 pandemic (“COVID-19”) has negatively impacted the global economy, disrupted global supply chains and created significant volatility, uncertainty and disruption within financial markets. COVID-19 has adversely affected, and poses risks to, our business, including our operational and financial performance. The extent to which COVID-19 impacts our performance depends on numerous evolving factors, many of which are highly uncertain, including, among other things, the duration and spread of COVID-19, its severity, and the actions taken in response to it; the effect on our customers and customer demand for our products and services; our ability to sell and provide our products and services, including as a result of travel restrictions and “shelter in place” orders; the ability of our customers to pay for our products and services; and any closures of our offices and facilities as well as those of our customers and suppliers.Customers may also decelerate decision making, delay planned work or seek to terminate existing agreements. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition.
Additionally, COVID-19 has had a material impact on the air travel and aviation industries. Several countries, including the United States, have taken steps to restrict air travel, and many companies have adopted policies prohibiting non-essential business travel by their employees. Even in the absence of formal restrictions and prohibitions, contagious illness and fear of contagion could adversely affect travel behavior. Current travel restrictions, as well as expected changes in the propensity for the general public to travel by air as a result of COVID-19, has caused reductions in demand for commercial aircraft. If COVID-19 continues to have a material impact on the airline and aviation industry, including on General Electric, which accounted for approximately 20% of our total sales and 55% of Aerospace’s net sales in 2019, and our other large customers, it could materially affect the business and results of operations of our Aerospace business.
To the extent COVID-19 or any worsening of the global business and economic environment as a result thereof adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2019.





Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer Purchases of Equity Securities

Period








(a)
Total Number of Shares (or Units) Purchased
 
(b)
Average Price Paid Per Share (or Unit)








(c)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs








(d)
Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(2)
April 1-30, 2019 1,093
 $54.70
 
 5,000,000
May 1-31, 2019 900,052
 $55.94
 900,000
 4,100,000
June 1-30, 2019 794
 $54.66
 
 4,100,000
Total 901,939
(1) 
$55.94
 900,000
  
Period








(a)
Total Number of Shares (or Units) Purchased
 
(b)
Average Price Paid Per Share (or Unit)








(c)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs








(d)
Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(2)
January 1-31, 2020 938
 $64.64
 
 4,100,000
February 1-29, 2020 223
 $65.07
 
 4,100,000
March 1-31, 2020 396,192
 $39.27
 396,000
 3,704,000
Total 397,353
(1) 
$39.35
 396,000
  

(1)Other than 900,000396,000 shares purchased induring the secondfirst quarter of 2019,2020, which were purchased as part of the Company's 2011Repurchase Program (defined below), all acquisitions of equity securities during the second quarter of 2019 were the result of the operation of the terms of the Company's stockholder-approved equity compensation plans and the terms of the equity rights granted pursuant to those plans to pay for the related income tax upon issuance of shares. The purchase price of a share of stock used for tax withholding is the market price on the date of issuance.

(2)At March 31, 2019, 1.5 million shares of common stock had not been purchased under the publicly announced Repurchase Program (the “Program”). On April 25, 2019, the Board of Directors of the Company increased the number of shares authorized for repurchase under the Program by 3.5 million shares of common stock (5.0 million authorized, in total). The Program permits open market purchases, purchases under a Rule 10b5-1 trading plan and privately negotiated transactions.







Item 6. Exhibits
Exhibit 10.1
Exhibit 10.2
Exhibit 15
Exhibit 31.1
Exhibit 31.2
Exhibit 32
Exhibit 101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Exhibit 101.SCHXBRL Taxonomy Extension Schema Document.
Exhibit 101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
Exhibit 101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
Exhibit 101.LABXBRL Taxonomy Extension Label Linkbase Document.
Exhibit 101.PREXBRL Taxonomy Extension Presentation Linkbase Document.



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  Barnes Group Inc.
  (Registrant)
   
Date:July 26, 2019April 27, 2020/s/    CHRISTOPHER J. STEPHENS, JR.
  
Christopher J. Stephens, Jr.
Senior Vice President, Finance
Chief Financial Officer
(Principal Financial Officer)
   
Date:July 26, 2019April 27, 2020/s/    MARIAN ACKER
  
Marian Acker
Vice President, Controller
(Principal Accounting Officer)






EXHIBIT INDEX
Barnes Group Inc.
Quarterly Report on Form 10-Q
For the Quarter ended June 30, 2019March 31, 2020
Exhibit No. Description Reference
10.1Filed with this report.
10.2Filed with this report.
15  Filed with this report.
31.1  Filed with this report.
31.2  Filed with this report.
32  Furnished with this report.
Exhibit 101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. Filed with this report.
Exhibit 101.SCH XBRL Taxonomy Extension Schema Document. Filed with this report.
Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. Filed with this report.
Exhibit 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. Filed with this report.
Exhibit 101.LAB XBRL Taxonomy Extension Label Linkbase Document. Filed with this report.
Exhibit 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. Filed with this report.



















4038