UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM l0-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2001
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For transition period from
--------------------
to
--------------------
Commission File Number 1-4801
BARNES GROUP INC.
(a Delaware Corporation)
I.R.S. Employer Identification No. 06-0247840
123 Main Street, Bristol, Connecticut 06010
Telephone Number (860) 583-7070
Number of common shares outstanding at
May 10, 2001 - 18,480,646
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
-1-
BARNES GROUP INC.
FORM 10-Q INDEX
For the Quarterly period ended March 31, 2001
DESCRIPTION PAGES
- ----------- -----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements
of Income for the three months ended
March 31, 2001 and 2000 3
Consolidated Balance Sheets as
of March 31, 2001 and December 31, 2000 4-5
Consolidated Statements of Cash Flows
for the three months ended March 31,
2001 and 2000 6
Notes to Consolidated Financial
Statements 7-10
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10-13
ITEM 3. Quantitative and Qualitative Disclosure
About Market Risk 14
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to Vote of
Security Holders 14
ITEM 6. Exhibits and Reports on Form 8-K 15
Signatures 15
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 2001 and 2000
(Dollars in thousands, except per share data)
(Unaudited)
2001 2000
-------- --------
Net sales $199,250 $173,007
Cost of sales 132,562 116,318
Selling and administrative expenses 52,935 40,933
-------- --------
185,497 157,251
-------- --------
Operating income 13,753 15,756
Other income 1,405 1,318
Interest expense 4,233 2,778
Other expenses 1,173 673
-------- --------
Income before income taxes 9,752 13,623
Income taxes 2,438 4,223
-------- --------
Net income $ 7,314 $ 9,400
======== ========
Per common share:
Net income:
Basic $ .39 $ .51
Diluted .39 .50
Dividend .20 .19
Average common shares outstanding
Basic 18,620,760 18,598,578
Diluted 18,937,924 18,753,019
See accompanying notes.
-3-
BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS March 31, December 31,
2001 2000
--------- ------------
(Unaudited)
Current assets
Cash and cash equivalents $ 31,180 $ 23,303
Accounts receivable, less allowances
(2001-$2,610; 2000-$2,720) 117,950 107,434
Inventories
Finished goods 51,155 59,665
Work-in-process 18,540 13,605
Raw materials and supplies 12,905 15,244
-------- --------
82,600 88,514
Deferred income taxes and prepaid
expenses 20,812 22,097
-------- --------
Total current assets 252,542 241,348
Deferred income taxes 14,135 15,010
Property, plant and equipment 402,595 400,319
Less accumulated depreciation 239,852 236,553
-------- --------
162,743 163,766
Goodwill 155,673 155,667
Other assets 53,003 61,150
-------- --------
Total assets $638,096 $636,941
======== ========
See accompanying notes.
-4-
BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31,
2001 2000
--------- ------------
(Unaudited)
Current liabilities
Notes payable $ 8,990 $ 6,896
Accounts payable 63,118 59,767
Accrued liabilities 53,388 60,183
-------- --------
Total current liabilities 125,496 126,846
Long-term debt 230,000 230,000
Accrued retirement benefits 68,326 67,686
Other liabilities 10,138 11,076
Stockholders' equity
Common stock-par value $0.01 per share
Authorized: 60,000,000 shares
Issued: 22,037,769 shares
stated at par value 220 220
Additional paid-in capital 51,885 51,845
Treasury stock at cost,
2001-3,388,965 shares
2000-3,430,411 shares (69,638) (69,181)
Retained earnings 242,849 239,266
Accumulated other comprehensive income (21,180) (20,817)
-------- --------
Total stockholders' equity 204,136 201,333
-------- --------
Total liabilities and stockholders'
equity $638,096 $636,941
======== ========
See accompanying notes.
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BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 2001 and 2000
(Dollars in thousands)
(Unaudited)
2001 2000
------- -------
Operating Activities:
Net income $ 7,314 $ 9,400
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 9,615 8,304
Gain on sale of property,
plant and equipment (82) (36)
Changes in assets and liabilities:
Accounts receivable (12,049) (14,950)
Inventories 4,957 (2,298)
Accounts payable 3,886 (2,076)
Accrued liabilities (8,985) (600)
Deferred income taxes 1,757 58
Other (3,143) (2,592)
------- -------
Net Cash Provided (Used) by Operating Activities 3,270 (4,790)
Investing Activities:
Proceeds from sale of property, plant
and equipment 66 166
Capital expenditures (5,832) (6,120)
Other (1,746) (382)
------- -------
Net Cash Used by Investing Activities (7,512) (6,336)
Financing Activities:
Net increase in notes payable 1,964 21,793
Proceeds from the issuance of common stock 606 334
Common stock repurchases (1,014) (6,582)
Dividends paid (3,730) (3,534)
Proceeds from sale of debt swap 13,766 --
------- -------
Net Cash Provided by Financing Activities 11,592 12,011
Effect of exchange rate changes on cash flows 527 (644)
------- -------
Increase in cash and cash equivalents 7,877 241
Cash and cash equivalents at beginning of period 23,303 43,632
------- -------
Cash and cash equivalents at end of period $31,180 $43,873
======= =======
See accompanying notes.
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Notes to Consolidated Financial Statements:
1. Summary of Significant Accounting Policies
------------------------------------------
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. They do not include all information and
footnotes required by generally accepted accounting
principles for complete financial statements. For
additional information, please refer to the consolidated
financial statements and footnotes included in the Company's
Annual Report on Form 10-K for the year ended December 31,
2000. In the opinion of management, all adjustments,
including normal recurring accruals considered necessary for
a fair presentation, have been included. Operating results
for the three-month period ended March 31, 2001 are not
necessarily indicative of the results that may be expected
for the year ending December 31, 2001.
The Company's policy for classifying cash flows from
derivatives is to report the cash flows consistent with the
underlying item.
2. Accounting Change
-----------------
The Company adopted Statement of Financial Accounting
Standards No. 133 (FAS 133), "Accounting for Derivative
Instruments and Hedging Activities", as amended, on January
1, 2001. The standard requires that all derivative
instruments be recorded on the balance sheet at fair value.
The accounting for changes in the fair value depends on
how the derivative is used and designated. In accordance
with the transition provisions of FAS 133, the Company
recorded a $0.4 million gain which was entirely offset by a
loss recorded on the re-measurement of underlying balance
sheet items. There was no transition adjustment to other
comprehensive income.
The Company is exposed to fluctuations in interest rates,
foreign currency exchange rates and commodity price changes.
These financial exposures are monitored and managed by the
Company as an integral part of its risk management program.
The Company uses financial instruments to mitigate
fluctuations in its cost of debt and to hedge its exposure
to fluctuations in interest rates and foreign currency
exchange rates. The Company does not use derivatives to
manage commodity exposures or for speculative or trading
purposes.
-7-
Notes to Consolidated Financial Statements Continued:
Interest Rate Exposures: The Company's long-term debt
portfolio consists of fixed rate and variable rate
instruments and is managed to mitigate fluctuations in
interest rates. Interest rate fluctuations result in
changes in the market value of the Company's fixed rate
debt. As part of managing its debt portfolio, the Company
maintains an interest rate exchange agreement to convert a
portion of its 9.47% fixed rate Senior Notes to variable
rate debt. This interest rate contract is a fair value
hedge, which is effective in offsetting fluctuations in the
fair value of the hedged portion of the debt instrument.
The gains and losses on the interest rate contract are
recorded to earnings and are offset by gains and losses
recorded on the re-measurement of the underlying debt.
In March 2001, the Company sold its $70 million cross-
currency debt swap. The accumulated adjustment to the
carrying value of the debt will be recognized in accordance
with terms of the underlying debt.
Foreign Currency Exposures: The Company has manufacturing,
sales and distribution facilities around the world and thus
makes investments and conducts business transactions
denominated in various currencies. Foreign currency
commitment and transaction exposures are managed at the
operating units as an integral part of their businesses in
accordance with corporate policy that addresses acceptable
levels of foreign currency risk. The Company uses
foreign currency forward exchange contracts to hedge these
risks. These contracts qualify as fair value hedges of
unrecognized firm commitments or cash flow hedges of
anticipated transactions. The Company does not hedge its
foreign currency net investment exposure.
At March 31, 2001, the fair value of derivatives held by the
Company was a net asset of $0.2 million. During the quarter
ended March 31, 2001, gains or losses related to the hedge
ineffectiveness were immaterial.
-8-
Notes to Consolidated Financial Statements Continued:
3. Comprehensive Income
--------------------
Comprehensive income includes all changes in equity during a
period except those resulting from the investment by, and
distributions to, owners. For the Company, comprehensive
income includes net income, foreign currency translation
adjustments, and deferred gains and losses related to
certain derivative instruments. The resulting gains and
losses are reflected in accumulated other comprehensive
income within stockholders' equity. The net effect reduced
comprehensive income by $0.4 million in the first quarter of
2001 and by $1.1 million in the comparative 2000 period.
4. Information on Business Segments
--------------------------------
The following tables set forth information about the
Company's operations by its three reportable business
segments:
For the three months ended March 31, 2001 2000
(Dollars in thousands) -------- --------
Revenues
Associated Spring $ 75,993 $ 86,313
Barnes Aerospace 46,890 29,290
Barnes Distribution 79,407 61,087
Intersegment sales (3,040) (3,683)
-------- --------
Total revenue $199,250 $173,007
======== ========
Operating profit
Associated Spring $ 7,168 $ 12,336
Barnes Aerospace 3,927 1,109
Barnes Distribution 2,951 2,914
-------- --------
Total operating profit 14,046 16,359
Interest income 160 276
Interest expense 4,233 2,778
Other income (expense) (221) (234)
-------- --------
Income before income taxes $ 9,752 $ 13,623
======== ========
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Notes to Consolidated Financial Statements Continued:
5. Stock Plans
-----------
Most U.S. salaried and non-union hourly employees are
eligible to participate in the Company's Guaranteed Stock
Plan (GSP). The GSP provides for the investment of employer
and employee contributions in the Company's common stock.
The Company guarantees a minimum rate of return on certain
GSP assets. This guarantee will only become a liability for
the Company if, and to the extent that, the value of the
related Company stock does not cover the guaranteed asset
value on the day an employee withdraws from the plan. At
March 31, 2001, the Company's guarantee was $0.7 million
based on the Company's March 31, 2001 stock closing price of
$19.00 per share. This compares to a guarantee of $0.4
million at December 31, 2000 when the closing price per share
was $19.88.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
---------------------
Net sales for the first quarter 2001 were a record $199.3
million, up 15.2% from $173.0 million last year. Net sales
growth in the first quarter reflected the Company's recent
acquisitions and a sharp increase in sales at Barnes Aerospace,
which more than offset a decline in the transportation and
electronics related sales at Associated Spring.
First quarter 2001 operating income was $13.8 million compared to
$15.8 million in the comparable 2000 period. These results
reflect period-over-period sales and earnings growth in the
Barnes Aerospace and Barnes Distribution segments and sharply
lower sales and earnings in Associated Spring. Operating income
margin was 6.9% compared to 9.1% a year ago. Although gross
margin improved to 33.5% compared to 32.8% a year ago, it was
more than offset by higher selling and administrative expenses as
a percentage of sales. This increase in selling and
administrative expenses reflects both a strategic investment in
sales and marketing for the purpose of stimulating sales growth
as well as a shift in the Barnes Group's overall sales mix to
Barnes Distribution, reflecting the May 2000 acquisition of
Curtis Industries, which maintains a higher level of selling
expense than do the manufacturing businesses.
-10-
Management's Discussion and Analysis of Financial Condition and
Results of Operations Continued:
Segment Review - Sales and Operating Profit
-------------------------------------------
Associated Spring's sales for first quarter 2001 were $76.0
million, down 12.0% from $86.3 million a year ago. Sales during
the quarter were negatively impacted by the industry-wide
slowdown in the domestic transportation sector. In addition the
electronics market, which has been a focus for sales growth at
Associated Spring, experienced weakness in the first quarter.
This was partially offset by continued strong growth of the
company's nitrogen gas spring products business. Operating
profit for the segment decreased to $7.2 million in the first
quarter of 2001 compared to $12.3 million for the same period a
year ago, reflecting the sales volume decline and severance costs
incurred as a result of cost containment measures undertaken
during the most recent quarter.
Barnes Aerospace's first quarter 2001 sales were $46.9 million,
up 60.1% from $29.3 million in 2000. Organic sales grew 21.2%,
reflecting penetration of new accounts and sales of new products
to existing customers, while sales from the Kratz-Wilde/Apex
business, acquired in September 2000, totaled $11.4 million in
the first quarter of 2001. Orders were $60.2 million for the
quarter and order backlog increased to a record $157.1 million
from $144.9 million at December 31, 2000. First quarter 2001
operating profit of $3.9 million increased from the $1.1 million
profit reported last year, primarily as a result of the higher
sales volume, as well as a solid contribution from the Kratz-
Wilde/Apex acquisition.
Barnes Distribution's sales in the first three months of 2001
were $79.4 million, up 30.0% from $61.1 million in 2000. This
included sales of $21.0 million from Curtis Industries, which
Barnes Group acquired in May 2000. Operating profit for the
first quarter 2001 was $3.0 million, up from $2.9 million a year
ago. Operating profit improved on the higher sales volume and
aggressive expense controls, partially offset by lower sales and
operating profit from Barnes Distribution's Raymond division.
Non-Operating Income/Expense
----------------------------
Higher other income for the first quarter 2001 compared to 2000
resulted from foreign exchange transaction gains of $0.9 million
compared to $0.2 million. This increase was partially offset by
lower income from the Company's NASCO joint venture.
-11-
Management's Discussion and Analysis of Financial Condition and
Results of Operations Continued:
The increase in other expenses in 2001 compared to 2000 was
largely attributable to higher goodwill amortization, a result of
two acquisitions made in 2000. Interest expense also increased
substantially due to the debt service on acquisition-related
debt.
Income Taxes
------------
The Company's effective tax rate for first quarter 2001 was 25.0%
compared to 31.0% in 2000's first quarter. The lower rate in
2001 is due to a higher percentage of foreign income in
jurisdictions with tax rates lower than the U.S. statutory tax
rate.
Net Income and Net Income Per Share
-----------------------------------
Consolidated net income for the first quarter of 2001 and 2000
was $7.3 million and $9.4 million, respectively. Basic and
diluted earnings per share for the first quarter of 2001 were
$.39 compared to 2000's basic and diluted earnings per share of
$.51 and $.50, respectively. For the purposes of computing
diluted earnings per share, the weighted average number of shares
outstanding was increased for the potential dilutive effects of
stock-based incentive plans.
Financial Condition
-------------------
Cash Flows
----------
Net cash provided by operating activities in the first three
months of 2001 was $3.3 million compared to net cash used by
operating activities of $4.8 million in 2000's first quarter. In
the first quarter of 2001 operating cash flow was positively
impacted by improvements in working capital. Management
continues to stress the need for more efficient utilization of
assets, the impact of which was partially realized in the first
quarter with the reduction of inventory and increase in payables.
Net cash used by investing activities in the first quarter of
2001 was $7.5 million compared to $6.3 million in 2000. The
overall increase in 2001's investing activities was due in part
to a small bolt-on acquisition made in the first quarter, funds
for which are included in other investing activities.
-12-
Management's Discussion and Analysis of Financial Condition and
Results of Operations Continued:
Net cash provided by financing activities was $11.6 million in
the first three months of 2001 compared to $12.0 million in the
comparable period of 2000. In 2001, proceeds from the sale of a
cross-currency debt swap combined with cash generated by
operating activities were used in part to fund capital
expenditures, pay dividends and repurchase the Company's stock.
In 2000, higher borrowings were used to finance incremental
operating activity requirements, dividends and stock repurchases.
Liquidity and Capital Resources
-------------------------------
At March 31, 2001, the Company classified as long-term debt $3.1
million of the current portion of its 9.47% long-term notes. The
Company has both the intent and the ability, through its
revolving credit agreement, to refinance this amount on a long-
term basis.
The Company maintains substantial bank borrowing facilities to
supplement internal cash generation. At March 31, 2001, the
Company had $150.0 million of borrowing capacity under its long-
term revolving credit agreement of which $70.0 million was
borrowed.
The Company had $2.5 million in borrowings under uncommitted
short-term bank credit lines at March 31, 2001. The interest
rate on this borrowing was 6.19%. The Company believes its credit
facilities coupled with cash generated from operations are
adequate to finance its anticipated future requirements.
Forward-Looking Statements
--------------------------
The Company cautions readers that certain factors may affect
the Company's results for future fiscal periods. These
factors involve risks and uncertainties that could cause
actual results to differ materially from those expressed or
implied in any forward-looking statements made on behalf of
the Company. For this purpose, any statement other than one
of historical fact may be considered a forward-looking
statement, as defined in the Public Securities Litigation and
Reform Act of 1995. Some factors that could cause actual
results to vary materially from those anticipated in forward-
looking statements include changes in worldwide economic and
political conditions, currency and interest rate fluctuations,
regulatory and technological changes, changes in market demand
for the types of products and services produced and sold by
the Company and the inability to realize projected synergies
of acquisitions.
-13-
Item 3. Quantitative and Qualitative Disclosure About Market
Risk
At March 31, 2001, the result of a hypothetical 1% increase in
the average cost of the Company's variable-rate debt would
reduce pretax profit of the Company by $0.8 million on an
annual basis. For additional information, please refer to the
consolidated financial statements and footnotes included in
the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
-------------------------------------------------
(a) The Annual Meeting of the Company's stockholders was
held on April 12, 2001. Proxies for the meeting were
solicited pursuant to Regulation 14 A.
(c) (1) The following directors were elected:
Votes in Votes For Terms
Director Favor Withheld Expiring
-------- ----- -------- --------
John W. Alden 16,160,101 618,114 2004
George T. Carpenter 16,171,630 606,585 2004
Frank E. Grzelecki 16,238,243 539,972 2004
(2) The stockholders approved the Barnes Group Inc.
Performance-Linked Bonus Plan for Selected Executive
Officers. The proposal was adopted as 15,348,973
shares voted for, 1,223,190 shares voted against,
206,052 shares abstained and 1,832,111 shares did not
vote.
(3) The stockholders approved the selection of
PricewaterhouseCoopers LLP as the Company's
independent accountants for 2001. The proposal was
adopted as 16,511,716 shares voted for, 175,114
shares voted against and 91,385 shares abstained.
-14-
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
No reports on Form 8-K , Item 5, Other Events, were
filed during the quarter ended March 31, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Barnes Group Inc.
(Registrant)
Date May 14, 2001 By /S/ William C. Denninger
------------ -------------------------------------
William C. Denninger
Senior Vice President, Finance
and Chief Financial Officer
(the principal financial officer)
Date May 14, 2001 By /s/ Francis C. Boyle, Jr.
------------ -------------------------------------
Francis C. Boyle, Jr.
Vice President, Controller
(the principal accounting officer)
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