UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM l0-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For transition period from
--------------------
to
--------------------
Commission File Number 1-4801
BARNES GROUP INC.
(a Delaware Corporation)
I.R.S. Employer Identification No. 06-0247840
123 Main Street, Bristol, Connecticut 06010
Telephone Number (860) 583-7070
Number of common shares outstanding at
August 5, 1998 - 20,095,983
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 June 30, 1998
DESCRIPTION PAGES
----------- -----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Income
for the six months and second quarter
ended June 30, 1998 and 1997 3
Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997 4-5
Consolidated Statements of Cash Flows
for the six months ended June 30,
1998 and 1997 6
Notes to Consolidated Financial
Statements 7-9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-13
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 13
Signatures 13
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
-------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
Net sales $169,151 $165,867 $338,067 $324,000
Cost of sales 112,201 111,243 223,559 214,189
Selling and admin-
istrative expenses 50,096 37,141 88,274 75,524
-------- -------- -------- --------
162,297 148,384 311,833 289,713
-------- -------- -------- --------
Operating income 6,854 17,483 26,234 34,287
Other income 1,700 1,202 2,896 2,122
Interest expense 929 1,237 2,054 2,525
Other expenses 192 306 697 553
-------- -------- -------- --------
Income before income
taxes 7,433 17,142 26,379 33,331
Income taxes 2,787 6,428 9,892 12,499
-------- -------- -------- --------
Net income $ 4,646 $ 10,714 $ 16,487 $ 20,832
======== ======== ======== ========
Per common share:
Net income - basic $ .23 $ .53 $ .82 $ 1.03
- diluted .23 .52 .81 1.01
Dividends .17 .17 .33 .32
Average common shares
outstanding 20,222,640 20,307,821 20,198,031 20,197,220
[FN]
See accompanying notes.
-3-
BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS June 30, December 31,
1998 1997
-------- -----------
(Unaudited)
Current assets
Cash and cash equivalents $ 37,133 $ 32,530
Accounts receivable, less allowances
(1998-$2,851; 1997-$3,061) 92,983 91,757
Inventories
Finished goods 34,040 30,519
Work-in-process 18,879 17,369
Raw materials and supplies 15,742 13,194
-------- --------
68,661 61,082
Deferred income taxes and prepaid
expenses 17,647 17,648
-------- --------
Total current assets 216,424 203,017
Deferred income taxes 24,810 24,083
Property, plant and equipment 346,639 334,836
Less accumulated depreciation 210,728 201,006
-------- --------
135,911 133,830
Goodwill 18,499 18,773
Other assets 28,430 28,275
-------- --------
Total assets $424,074 $407,978
======== ========
[FN]
See accompanying notes.
-4-
BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
Current liabilities
Notes payable $ 2,619 $ 2,437
Accounts payable 42,127 37,776
Accrued liabilities 49,843 46,966
Guaranteed ESOP obligation-current 2,856 2,746
-------- --------
Total current liabilities 97,445 89,925
Long-term debt 60,000 60,000
Guaranteed ESOP obligation 749 2,205
Accrued retirement benefits 69,411 67,486
Other liabilities 10,482 7,503
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 48,175 47,007
Retained earnings 193,505 183,857
Accumulated other comprehensive income (19,138) (15,841)
Treasury stock at cost,
1998-1,885,159 shares
1997-1,875,111 shares (33,170) (29,433)
Guaranteed ESOP obligation (3,605) (4,951)
-------- --------
Total stockholders' equity 185,987 180,859
-------- --------
Total liabilities and stockholders'
equity $424,074 $407,978
======== ========
[FN]
See accompanying notes.
-5-
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1998 and 1997
(Dollars in thousands)
(Unaudited)
1998 1997
Operating activities: ------- -------
Net income $16,487 $20,832
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 14,091 13,906
Gain on sale of property, plant
and equipment (98) (305)
Changes in assets and liabilities:
Accounts receivable (1,876) (11,935)
Inventories (7,956) (1,929)
Accounts payable 4,532 7,652
Accrued liabilities 3,077 (5,006)
Deferred income taxes (937) 463
Other 6,086 (1,803)
------- -------
Net cash provided by operating activities 33,406 21,875
Investing activities:
Proceeds from sale of property, plant
and equipment 423 1,295
Capital expenditures (16,332) (19,212)
Other (813) (239)
------- -------
Net cash used by investing activities (16,722) (18,156)
Financing activities:
Net increase in notes payable 260 4,012
Proceeds from the issuance of common stock 2,747 5,439
Common stock repurchases (6,651) (1,226)
Dividends paid (6,761) (6,413)
------- -------
Net cash (used) provided by financing activities (10,405) 1,812
Effect of exchange rate changes on cash flows (1,676) (363)
------- -------
Increase in cash and cash equivalents 4,603 5,168
Cash and cash equivalents at beginning of period 32,530 23,986
------- -------
Cash and cash equivalents at end of period $37,133 $29,154
======= =======
[FN]
See accompanying notes.
-6-
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, 1997. In
the opinion of management, all adjustments, including normal
recurring accruals considered necessary for a fair
presentation, have been included. Operating results for the
six-month period ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1998.
2. Non-recurring Charge
--------------------
As announced on July 6, 1998, the Company's Board of Directors
accepted the request for early retirement of Theodore E.
Martin, president and chief executive officer. A special
Board committee will oversee the search for a new president
and chief executive officer.
In recognition of the results Mr. Martin delivered for Barnes
Group stockholders, effectively increasing the market value of
the Company by $280 million over his three year tenure as
president and CEO, the Board approved a retirement package
that includes the accelerated payment and vesting of
retirement and other benefits. The package resulted in a one-
time charge against second quarter 1998 earnings of $12.9
million. The after-tax impact of this retirement package is
$7.7 million or $.38 per common share
-7-
3. Other Comprehensive Income
--------------------------
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income". This Statement establishes
standards for reporting and displaying comprehensive income
and its components in a full-set of financial statements. For
interim reporting, the Statement requires the disclosure of
total comprehensive income for the periods presented. The
Statement is effective for fiscal periods beginning after
December 15, 1997.
Comprehensive income is defined as "the change in equity of a
business enterprise during a period from transactions and
other events and circumstances from non-owner sources". This
would include net income and "other comprehensive income"
but exclude the sale and repurchase of stock and distribution
of dividends. The only adjustment to stockholder's equity
that the Company has that qualifies as an item of "other
comprehensive income" is foreign currency translation
adjustments. The effect of foreign currency translation
adjustments on comprehensive income is as follows:
Statement of Comprehensive Income
(Dollars in thousands)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1998 1997 1998 1997
-------- -------- --------- --------
Net income $ 4,646 $ 10,714 $ 16,487 $ 20,832
Other comprehensive
loss, net of tax (2,802) (7) (3,297) (1,705)
-------- -------- -------- --------
Comprehensive income $ 1,844 $ 10,707 $ 13,190 $ 19,127
======== ======== ======== ========
-8-
4. Segment Disclosure
------------------
Effective January 1, 1998, management responsibility for
Raymond Distribution was transferred from the Associated
Spring Group to the Bowman Distribution Group. Raymond is
engaged in the distribution of industrial products and
standard stock wire and flat springs manufactured primarily by
Associated Spring. The transfer of Raymond to the Bowman
Group will enhance synergy in the Company's distribution
operations. All references to prior year segment data have
been restated to reflect this transfer.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131,
"Disclosure About Segments of an Enterprise and Related
Information". The Statement is effective for the Company's
1998 annual financial statements and interim periods beginning
in the second year of application. Although management has
not completed the review of the new Standard, it does not
anticipate that its adoption will have a significant effect on
the Company's reporting segments.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
---------------------
The Company's second quarter 1998 sales were up 2% to $169.2
million compared to $165.9 million in 1997. Operating income was
$6.9 million versus $17.5 million for the comparable 1997 quarter.
The second quarter 1998 operating income, before the one-time
charge related to Mr. Martin's early retirement package, was $19.8
million, a 13% increase over the prior year's second quarter. The
operating margin, excluding the non-recurring charge, improved to
11.7% compared to 10.5% in 1997's second quarter. The 1998 second
quarter results reflect year-over-year sales gains at both
Associated Spring and Barnes Aerospace and higher operating income
in all three business segments.
The Company's 1998 first half sales were $338.1 million, up 4% from
$324.0 million in 1997 reflecting sales gains at both Associated
Spring and Barnes Aerospace. First half 1998 operating income was
$26.2 million compared to the $34.3 million reported in 1997.
-9-
Operating income, before the non-recurring charge, was $39.1
million in 1998, an increase of 14.2% over the comparable 1997
period. The operating margin, excluding the non-recurring charge,
increased to 11.6% versus 10.6% in 1997. All three business
segments contributed to the improved operating income.
Segment Review-Sales and Operating Income
------------------------------------------
Associated Spring segment sales for the second quarter and six
months ending June 30, 1998 increased slightly over the comparable
1997 periods. Sales for the 1998 second quarter and first half
were $69.3 million and $137.8 million, respectively. The sales
gains were due to the strength in the North American and Mexican
markets, offset in part by a decline in the Asia market place. The
increase in the Group's operating income was significantly higher
than the increase in sales for both second quarter and year-to-date
1998 periods due in large part to the Group's Mexican operation.
The Mexican operation reported significant year-over-year
improvement due in part to the resolution of the 1997 operating
issues which negatively impacted the first half 1997 results. The
Asian economic crisis had an adverse impact on the Group's
Singapore operation as a large telecommunications customer and
several other customers reduced orders in the second quarter. The
North American General Motors strike, which was settled in late
July, did not significantly impact second quarter 1998 sales. The
magnitude of the strike's effect on second half results should be
minor due to the anticipated increase in production by General
Motors to meet its customers pent-up demand.
Bowman Distribution's second quarter 1998 segment sales decreased
5% to $63.5 million and first half 1998 sales decreased slightly to
$130.0 million from the comparable 1997 periods. The sales
declines are a result of lower volume in North America.
Significant operating income gains were reported in the second
quarter and first six months of 1998 over the comparable prior year
periods, the result of aggressive cost management.
Barnes Aerospace segment sales for the second quarter of 1998 were
$40.5 million, up 18% while the first six months sales improved 22%
to $78.2 million over strong 1997 levels. Significant gains in
sales and operating income were reported in both the original
equipment manufacture and overhaul and repair businesses, a result
of the strong commercial aviation engine and airframe markets.
-10-
Non-Operating Income/Expense
----------------------------
Other income in the second quarter and first half of 1998 was
higher than 1997 due to the increase in both the equity income from
the Company's investment in its NASCO joint venture and net foreign
exchange transaction gains. Other expenses in 1997 reflect a small
net foreign exchange translation loss. Interest expense in 1998
compared to 1997 decreased due to lower borrowing levels as well as
marginally lower interest rates.
Income Taxes
------------
The Company's effective tax rate for both 1998 and 1997 was 37.5%.
Net Income and Net Income Per Share
-----------------------------------
Consolidated net income for the second quarter of 1998 and 1997 was
$4.6 million and $10.7 million, respectively. Basic and diluted
earnings per share for the 1998 second quarter were $.23 compared
to 1997's basic earnings per share of $.53 and diluted earnings per
share of $.52. Without the non-recurring charge related to Mr.
Martin's early retirement, net income for the second quarter 1998
was $12.4 million, or basic earnings per share of $.61, a 15%
increase over 1997's second quarter.
Consolidated net income for the first half of 1998 and 1997 was
$16.5 million and $20.8 million, respectively. Basic and diluted
earnings per share for the first six months of 1998 were $.82 and
$.81 compared to 1997's basic and diluted earnings per share of
$1.03 and $1.01, respectively. Without the non-recurring charge,
net income for the first half of 1998 was $24.2 million, or $1.20
per share, a 17% increase over the first half of 1997.
There were no adjustments to net income for the purpose of
computing income available to common stockholders for 1998 and
1997. For the purpose of computing diluted earnings per share, the
weighted average number of shares outstanding for the second
quarters of 1998 and 1997 were increased by 339,811 and 431,404,
respectively, and for the first six months of 1998 and 1997 were
increased 360,763 and 422,660, respectively, representing the
potential dilutive effects of stock-based incentive plans.
-11-
Financial Condition
-------------------
Cash Flows
----------
Net cash generated by operating activities in the first six months
of 1998 was $33.4 million, compared to $21.9 million in 1997. This
1998 increase in operating cash flows was due to improved operating
results and working capital management. The $7.7 million charge to
net income for Mr. Martin's early retirement had no effect on
operating cash flows for the six month period ended June 30, 1998,
since it was offset by a corresponding liability. Mr. Martin's
early retirement charge includes components for pension benefits,
which will be paid out over a long-term period, and stock options,
which are a non-cash charge. Approximately $2.6 million of the
non-recurring charge will be paid by December 31, 1998.
Net cash used for investing activities during the first six months
of 1998 was $16.7 million compared to $18.2 million in 1997's first
half. The decrease in cash used in 1998 compared to 1997 was due
to lower capital spending. This reduction comes after five years
of heavy investment by all three operating Groups to expand
capacity and improve productivity, quality and customer service.
Net cash used by financing activities was $10.4 million in the
first half of 1998 compared to $1.8 million provided in 1997's
first half. The higher usage of cash in 1998 was due to the
increase in the Board of Director approved repurchase of common
stock and the decrease in the proceeds from the exercise of stock
option. Additional borrowings to support normal first half 1997
short-term working capital also impacted the period-over-period
comparison.
Liquidity and Capital Resources
-------------------------------
During 1998 and 1997, the Company's long-term debt was comprised,
in part, of borrowings under its short-term bank lines of credit
backed by its long-term revolving credit agreement. At June 30,
1998, the company classified as long-term debt $6.5 million of
borrowings under its lines of credit and $6.2 million of the
current portion of its 9.47% long-term Notes. The Company has both
the intent and the ability, through its revolving credit agreement,
to refinance these amounts on a long-term basis. The Company
intends to continue this cost effective method of long-term
financing.
-12-
The Company maintains substantial bank borrowing facilities to
supplement internal cash generation. At June 30, 1998, the Company
had $150.0 million of borrowing capacity under its long-term
revolving credit agreement of which none was borrowed. The Company
had $7.0 million in borrowings under uncommitted short-term bank
credit lines at June 30, 1998. The interest rate on these
borrowings was 5.84%. The Company believes its 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
--------------------------------
(a) Exhibits
Exhibit 10 Retirement Agreement with President and CEO,
dated July 6, 1998
Exhibit 27 Financial Data Schedule, June 30, 1998
(b) Reports on Form 8-K
No reports on Form 8-K, Item 5, Other Events, were filed
during the quarter ended June 30, 1998.
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 13, 1998 By /s/ Terry M. Murphy
--------------- -------------------------------------
Terry M. Murphy
Senior Vice President, Finance
(the principal financial officer)
Date August 13, 1998 By /s/ Francis C. Boyle, Jr.
--------------- -------------------------------------
Francis C. Boyle, Jr.
Vice President, Controller
(the principal accounting officer)
-13-