UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM lO-Q (Mark One) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1994 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 (203) 583-7070 Number of common shares outstanding at August 2, 1994 - 6,357,065 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 --- --- PART I. FINANCIAL INFORMATION Item 1. Financial Statements BARNES GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data) (Unaudited) Three months ended Six months ended June 30 June 30 ------------------ ----------------- 1994 1993 1994 1993 -------- -------- -------- -------- Net sales $143,157 $127,534 $285,259 $254,530 Cost of sales 91,770 80,432 182,472 161,577 Selling and admin- istrative expenses 41,763 40,342 84,365 81,331 Plant closings and restructurings -- -- -- 3,400 -------- -------- -------- -------- 133,533 120,774 266,837 246,308 -------- -------- -------- -------- Operating income 9,624 6,760 18,422 8,222 Other income 1,142 825 2,263 1,846 Interest expense 1,296 1,290 2,676 2,581 Other expenses 743 963 1,124 1,642 -------- -------- -------- -------- Income before income taxes 8,727 5,332 16,885 5,845 Income taxes 3,204 2,425 6,467 2,620 -------- -------- -------- -------- Net income $ 5,523 $ 2,907 $ 10,418 $ 3,225 ======== ======== ======== ======== Per common share: Net Income $ .87 $ .47 $ 1.65 $ .52 Dividends .35 .35 .70 .70 Average common shares outstanding 6,327,109 6,238,915 6,311,701 6,231,979 <FN> See accompanying notes. -1- BARNES GROUP INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited) ASSETS June 30, December 31, 1994 1993 -------- ----------- Current assets Cash and cash equivalents $ 16,650 $ 24,129 Accounts receivable, less allowances (1994 - $2,508; 1993 - $2,217) 92,661 77,651 Inventories Finished goods 27,732 25,527 Work-in-process 13,922 17,117 Raw materials and supplies 7,798 7,847 -------- -------- 49,452 50,491 Deferred income taxes and prepaid expenses 16,741 16,469 -------- -------- Total current assets 175,504 168,740 Deferred income taxes 22,767 22,277 Property, plant and equipment 267,599 256,606 Less accumulated depreciation 160,724 153,563 -------- -------- 106,875 103,043 Goodwill, net 20,907 21,201 Other assets 17,438 18,035 -------- -------- $343,491 $333,296 ======== ======== <FN> See accompanying notes. -2- BARNES GROUP INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31, 1994 1993 -------- ------------ Current liabilities Notes and overdrafts payable $ 7,849 $ 10,553 Accounts payable 31,516 27,165 Accrued liabilities 43,079 42,003 Guaranteed ESOP obligation - current 2,088 2,008 -------- -------- Total current liabilities 84,532 81,729 Long-term debt 70,000 70,000 Guaranteed ESOP obligation 10,946 12,011 Deferred income taxes and other liabilities 11,652 12,369 Accrued retirement benefits 66,368 65,338 Stockholders' equity Common stock - par value $1.00 per share Authorized: 20,000,000 shares Issued: 7,345,923 shares stated at 15,737 15,737 Additional paid-in capital 28,129 28,745 Retained earnings 113,756 107,668 Foreign currency translation adjustments (7,153) (6,464) Treasury stock at cost, 1994 - 990,873 shares 1993 - 1,052,440 shares (37,442) (39,818) -------- -------- 113,027 105,868 Guaranteed ESOP obligation (13,034) (14,019) -------- -------- 99,993 91,849 -------- -------- $343,491 $333,296 ======== ======== <FN> See accompanying notes. -3- BARNES GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months ended June 30, 1994 and 1993 (Dollars in thousands) (Unaudited) 1994 1993 -------- -------- Operating Activities Net income $ 10,418 $ 3,225 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 12,351 12,259 Gain on sale of property, plant and equipment (149) (176) Translation losses 597 834 Changes in assets and liabilities: Accounts receivable (14,588) (5,962) Inventories 969 (3,252) Accounts payable and accrued liabilities 4,022 3,144 Deferred income taxes 625 139 Other liabilities and assets (42) (2,290) -------- -------- Net Cash Provided by Operating Activities 14,203 7,921 Investing Activities Proceeds from sale of property, plant and equipment 1,338 2,484 Capital expenditures (14,886) (12,090) Other (1,252) (1,694) -------- -------- Net Cash Used by Investing Activities (14,800) (11,300) Financing Activities Net decrease in notes and overdrafts payable (2,704) (4,099) Proceeds from the issuance of common stock 1,522 675 Dividends paid (4,419) (4,363) -------- -------- Net Cash Used by Financing Activities (5,601) (7,787) Effect of exchange rate changes on cash flows (1,281) (852) -------- -------- Decrease in cash and cash equivalents (7,479) (12,018) Cash and cash equivalents at beginning of period 24,129 39,068 -------- -------- Cash and cash equivalents at end of period $ 16,650 $ 27,050 ======== ======== <FN> See accompanying notes. -4- Notes to Condensed Consolidated Financial Statements: 1. Summary of Significant Accounting Policies The accompanying unaudited condensed 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, 1993. In the opinion of management, all adjustments, including normal recurring accruals considered necessary for a fair presentation, have been included. All material, non-recurring accruals and adjustments are disclosed below. Operating results for the six-month period ended June 30, 1994 are not necessarily indicative of the results that may be expected for the year ending December 31, 1994. 2. Plant closings and restructurings In the first quarter of 1993, the company took a pre-tax charge of $3.4 million, or 33 cents per share, related to a consolidation in its Aerospace business segment. The consolidation involved moving the Central Metals Products division from a leased facility in East Windsor, CT to owned space at the Windsor Manufacturing division in Windsor, CT and an associated reduction in the workforce. The charge also provided for a reduction in employment at its Jet Die fabrication unit. 3. Contingency In December, 1991, the company was notified by McDonnell Douglas Corporation that they was terminating for default an $8.2 million contract with the company's Flameco division. In the fourth quarter of 1992, the company wrote off $4.0 million of net assets related to this contract. The company believes it has legitimate defenses to the default claim. While no reasonable estimate of possible loss or range of loss can be made at this time, management believes that it is unlikely that the ultimate resolution of this dispute will have a material effect on future results of operations of the company. In management's opinion, the ultimate resolution of this dispute, regardless of the outcome, will not have a material effect on the financial position of the company. 4. Income Taxes The Company's first half of 1994 effective tax rate was 38% compared to 45% for the first six months of 1993. The percentage of foreign losses, for which there are no tax benefits, to consolidated income before income taxes was significantly smaller in 1994 than 1993, resulting in a lower effective tax rate in 1994. In addition, the effective tax rate -5- was positively impacted in 1994 by the higher level of income in certain foreign tax jurisdictions where the tax rate is lower than the U.S. federal statutory income tax rate. Item 2. Management's Discussion and Analysis Sales ----- The company's 1994 first half sales were $285.3 million, up 12% from $254.5 million in 1993. Second quarter 1994 sales were also up 12% to $143.2 million from the 1993 level of $127.5 million. These results reflect continued sales gains at Associated Spring and improvements in Bowman Distribution. Associated Spring's 1994 first half sales increased 16% to $137.3 million from $118.0 million in 1993. Second quarter sales were $69.8 million, up 15% from a year ago. Growth was driven by increased penetration of a strong automotive market and by significant increases in sales to industrial markets, particularly electronics. Bowman Distribution's 1994 sales were up 12% for both the first half and second quarter over the same 1993 periods. First half sales in 1994 were $108.9 million versus $96.8 million in 1993, and $54.6 million in the second quarter of 1994 versus $48.7 million in the second quarter of 1993. The 1994 sales gains were a result of steady improvement in the Bowman U.S. industrial maintenance supply business. Barnes Aerospace 1994 first half sales were $39.3 million, down 3% from 1993 sales of $40.3 million. For the second quarter of 1994, sales of $18.8 million were slightly ahead of last year. Barnes Aerospace sales continue to be impacted by soft commercial and military markets. Operating Income ---------------- Operating income in 1994 improved substantially over the same 1993 periods. Operating income for the first half of 1993 included a first quarter charge of $3.4 million for the consolidation of the Aerospace machining business. After removing the effect of this charge, operating income for the first half of 1994 increased 59%, to $18.4 million from $11.6 million in 1993. For the second quarter of 1994, operating income of $9.6 million rose 42% from the prior year level. Associated Spring sales volume increase, as well as cost reductions and productivity improvements, contributed substantially to the increase in operating income. Bowman Distribution's operating income also improved, the result of higher sales and expense reductions. Barnes Aerospace, despite slightly lower sales, reported a significantly reduced operating loss for both the first half and second quarter when compared to the comparable 1993 period. This is attributed to the consolidation of manufacturing facilities, workforce reductions and improvements in manufacturing efficiencies. Of its three businesses, only Advanced Fabrications reported a year over year decline in results. Significant efforts are being made to improve the performance of this business. -6- Selling and administrative expenses, expressed as a ratio to sales, decreased when compared to 1993, a result of the increased sales volume in 1994 combined with strong expense controls. Non-operating Income/Expense ---------------------------- Other income increased in the first half of 1994 when compared to 1993 primarily due to higher equity income from NASCO, the company's joint venture. The decrease in other expenses in 1994 compared to 1993 was due to lower foreign exchange losses. Cash Flows ---------- In the first half of 1994, operating activities provided $14.2 million of net cash flow. Strong earnings, adjusted for depreciation and amortization, and a increase in accounts payable and accrued liabilities more than offset an increase in accounts receivable. The increase in accounts receivable resulted from sales growth at Associated Spring and Bowman Distribution. Net cash provided by operating activities was substantially higher then in the same 1993 period, due primarily to higher earnings. Net cash used by investing activities in 1994 was $3.5 million higher then in 1993 due primarily to higher capital expenditures. Associated Spring's strategy to boost productivity and product quality through the acquisition of state-of-the-art equipment and technology is the main driver of the capital expenditure increase. Net cash used by financing activities in the first half of 1994 was $5.6 million compared to $7.8 million in 1993. In both years, cash was used to reduce notes and overdrafts payable and to fund dividend payments. Liquidity and Capital Resources ------------------------------- The company's liquidity, measured in terms of working capital, increased $4.0 million to $91.0 million at June 30, 1994 from the December 31, 1993 level. The current ratio approximated 2.1 at June 30, 1994 and December 31, 1993. The ratio of interest bearing debt to total capitalization was down slightly to 29.0% at June 30, 1994 from 30.5% at December 31, 1993. For this purpose, total capitalization is defined as total interest- bearing debt, plus deferred income taxes and other long-term liabilities, accrued retirement benefits and stockholders' equity excluding the guaranteed ESOP obligation. The company maintains substantial bank borrowing facilities to supplement internal cash generation. At June 30, 1994, the company had $100.0 million of borrowing capacity available under its revolving credit agreement. -7- In addition, the company maintains approximately $200.0 million in uncommitted short-term bank credit lines, of which $30.8 million was borrowed at June 30, 1994. The company believes these credit facilities coupled with cash generated from operations are adequate for its anticipated future requirements. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- One report on Form 8-K, Item 4, Change in Certifying Accountants, was filed during the quarter ended June 30, 1994. The report was dated April 11, 1994 and addressed the selection of Price Waterhouse by stockholders as the new certifying accountants at the April 6, 1994 Annual Meeting. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Barnes Group Inc. (Registrant) Date August 8, 1994 By John E. Besser --------------- --------------------------- John E. Besser Senior Vice President Finance and Law Date August 8, 1994 By George J. Crowley --------------- --------------------------- George J. Crowley Vice President, Controller -8-