-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VB7qXzV+o2rVzJkjfB2HFuhoa0MvMoHcWvT/+/Wweu0lrslobVql4hQmQgTpavMt It9NNmEXzoM5tJeHAkBJBA== 0000009984-99-000005.txt : 19990518 0000009984-99-000005.hdr.sgml : 19990518 ACCESSION NUMBER: 0000009984-99-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARNES GROUP INC CENTRAL INDEX KEY: 0000009984 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 060247840 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04801 FILM NUMBER: 99625432 BUSINESS ADDRESS: STREET 1: 123 MAIN ST CITY: BRISTOL STATE: CT ZIP: 06011 BUSINESS PHONE: 2035837070 FORMER COMPANY: FORMER CONFORMED NAME: ASSOCIATED SPRING CORP DATE OF NAME CHANGE: 19760518 10-Q 1 BARNES GROUP INC. FORM 10-Q MARCH 31, 1999 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, 1999 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 12, 1999 - 19,568,400 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, 1999
DESCRIPTION PAGES ----------- ----- PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Statements of Income for the three months ended March 31, 1999 and 1998 3 Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 4-5 Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998 6 Notes to Consolidated Financial Statements 7-8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-14 PART II. OTHER INFORMATION ITEM 4. Submission of Matters to Vote of Security Holders 15 ITEM 6. Exhibits and Reports on Form 8-K 15 Signatures 16
-2- PART I. FINANCIAL INFORMATION Item 1. Financial Statements BARNES GROUP INC. CONSOLIDATED STATEMENTS OF INCOME Three months ended March 31, 1999 and 1998 (Dollars in thousands, except per share data)
1999 1998 -------- -------- Net sales $162,248 $168,916 Cost of sales 109,540 111,358 Selling and administrative expenses 37,883 38,178 -------- -------- 147,423 149,536 -------- -------- Operating income 14,825 19,380 Other income 2,418 1,196 Interest expense 1,012 1,125 Other expenses 412 505 -------- -------- Income before income taxes 15,819 18,946 Income taxes 5,853 7,105 -------- -------- Net income $ 9,966 $ 11,841 ======== ======== Per common share: Net income: Basic $ .50 $ .59 Diluted .50 .58 Dividends .18 .17 Average common shares outstanding 19,763,158 20,173,149 See accompanying notes.
-3- BARNES GROUP INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
ASSETS March 31, December 31, 1999 1998 -------- ----------- Current assets Cash and cash equivalents $ 40,261 $ 40,206 Short-term investments 2,566 2,566 Accounts receivable, less allowances (1999-$2,558; 1998-$2,413) 88,931 82,809 Inventories Finished goods 33,952 34,784 Work-in-process 15,791 15,309 Raw materials and supplies 12,940 14,311 -------- -------- 62,683 64,404 Deferred income taxes and prepaid expenses 19,222 17,243 -------- -------- Total current assets 213,663 207,228 Deferred income taxes 24,826 25,136 Property, plant and equipment 347,822 350,793 Less accumulated depreciation 212,468 211,546 -------- -------- 135,354 139,247 Goodwill 18,087 18,224 Other assets 28,152 29,069 -------- -------- Total assets $420,082 $418,904 ======== ======== See accompanying notes.
-4- BARNES GROUP INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31, 1999 1998 --------- ----------- Current liabilities Notes payable $ 16,784 $ 6,766 Accounts payable 40,200 38,439 Accrued liabilities 45,365 52,934 Guaranteed ESOP obligation-current 1,484 2,205 -------- -------- Total current liabilities 103,833 100,344 Long-term debt 51,000 51,000 Accrued retirement benefits 67,899 68,129 Other liabilities 10,191 10,757 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 49,098 49,231 Treasury stock at cost, 1999-2,365,944 shares 1998-2,202,417 shares (46,585) (42,893) Retained earnings 210,822 204,364 Accumulated other comprehensive income (24,912) (20,043) Guaranteed ESOP obligation (1,484) (2,205) -------- -------- Total stockholders' equity 187,159 188,674 -------- -------- Total liabilities and stockholders' equity $420,082 $418,904 ======== ======== See accompanying notes.
-5- BARNES GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended March 31, 1999 and 1998 (Dollars in thousands)
1999 1998 ------- ------- Operating Activities: Net income $ 9,966 $11,841 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 7,412 7,110 Loss on sale of property, plant and equipment 110 3 Changes in assets and liabilities: Accounts receivable (6,706) (6,609) Inventories 744 (4,252) Accounts payable 2,085 6,702 Accrued liabilities (7,112) (1,877) Deferred income taxes 108 1,772 Other (2,501) (169) ------- ------- Net Cash Provided by Operating Activities 4,106 14,521 Investing Activities: Proceeds from sale of property, plant and equipment 140 70 Capital expenditures (5,180) (8,832) Other (452) (473) ------- ------- Net Cash Used by Investing Activities (5,492) (9,235) Financing Activities: Net increase in notes payable 10,364 6,395 Proceeds from the issuance of common stock 268 1,669 Common stock repurchases (4,121) (1,560) Dividends paid (3,557) (3,373) ------- ------- Net Cash Provided by Financing Activities 2,954 3,131 Effect of exchange rate changes on cash flows (1,513) (518) ------- ------- Increase in cash and cash equivalents 55 7,899 Cash and cash equivalents at beginning of period 40,206 32,530 ------- ------- Cash and cash equivalents at end of period $40,261 $40,429 ======= ======= 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, 1998. 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, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. 2. Comprehensive Income -------------------- Comprehensive income includes all changes in equity during a period except those resulting from the investment by and distributions to owners. For the Company, comprehensive income includes net income and foreign currency translation adjustments. Foreign currency translation adjustments result from the foreign operation's assets and liabilities being translated at the period-end exchange rates and revenues and expenses being translated at average rates of exchange. The resulting translation gains and losses are reflected in accumulated other comprehensive income within stockholders' equity. The effect of translation losses reduced comprehensive Income by $4.9 million in the first quarter of 1999 and by $0.5 million in the comparative 1998 period. -7- Notes to Consolidated Financial Statements Continued: 3. Information on Business Segments -------------------------------- The Company evaluates the performance of its reportable segments based on operating profit of the respective businesses. Segment operating profit was modified to follow the accounting policies described in the summary of significant accounting policies footnote included in the Company's 1998 Annual Report, as well as, allocating all corporate office administrative expenses to the 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, 1999 1998 (Dollars in thousands) -------- -------- Revenues Bowman Distribution $ 59,995 $ 66,530 Associated Spring 66,299 68,481 Barnes Aerospace 38,981 37,719 Intersegment sales (3,027) (3,814) -------- -------- Total revenue $162,248 $168,916 ======== ======== Operating profit Bowman Distribution $ 4,855 $ 9,735 Associated Spring 6,924 7,197 Barnes Aerospace 3,676 3,186 -------- -------- Total operating profit 15,455 20,118 Interest income 271 359 Interest expense 1,012 1,125 Other income (expense) 1,105 (406) -------- -------- Income before income taxes $ 15,819 $ 18,946 ======== ========
-8- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations --------------------- The Company's first quarter 1999 consolidated sales were $162.2 million, down 3.9% from $168.9 million last year. Operating income in 1999 was $14.8 million in the first quarter compared to $19.4 million in the comparable 1998 period. Operating income margin in 1999 was 9.1%, compared to 11.5% in the prior year's first quarter. These results reflect period-over-period sales and earnings declines in the Bowman Distribution and Associated Spring business segments, offset in part by the growth in sales and earnings at the Barnes Aerospace business segment. Consolidated cost of sales as a percentage of sales were 67.5% in 1999 versus 65.9% in 1998. The rate of decrease in 1999's cost of sales was lower than the decrease in sales due to the fixed nature of certain costs. In addition, there were higher levels of expenses in 1999 relating to the implementation of business systems at Bowman Distribution. Selling and administrative expenses were approximately 23% of sales in the first quarters of both years. Segment Review-Sales and Operating Profit ----------------------------------------- Bowman Distribution segment sales in the first three months of 1999 decreased 9.8% to $60.0 million versus $66.5 million in 1998. The decline in sales was due in large part to shipment delays caused by a planned warehouse shutdown to install new business systems at its main distribution center in North America. Operating profits in 1999's first quarter declined compared to 1998's first quarter due to the sales declines and to the additional costs related to systems conversions. Associated Spring's segment sales for first quarter 1999 decreased 3.2% compared to last year. Sales were $66.3 million versus $68.5 million in 1998. Operating profit declined at approximately the same rate. The major factors that contributed to the sales and operating profit declines quarter-over-quarter, were the affect on the Singapore operation of the Asian economic slowdown and the softening of sales in certain of Associated Spring's industrial markets. -9- Management's Discussion and Analysis of Financial Condition and Results of Operations Continued: Barnes Aerospace segment first quarter 1999 sales of $39.0 million, improved 3% over a strong 1998 first quarter. Significant sales gains were reported in both the original equipment manufacture and overhaul and repair businesses. This is a result of the currently strong commercial aviation engine and airframe markets. Operating income for the group also improved over 15% from the very solid 1998 first quarter results. Non-Operating Income/Expense ---------------------------- In 1999 and 1998 other income includes $0.6 million and $0.7 million from the Company's share of its investment in NASCO. In addition, a net foreign exchange gain of $1.3 million was recognized in 1999 as compared to a net foreign exchange loss of $0.2 million in 1998, which is reflected in other expenses. Income Taxes ------------ The Company's effective tax rate for the first quarter 1999 was 37.0% compared to 37.5% in 1998's first quarter due in part to implementing tax reduction strategies and lower state taxes. Net Income and Net Income Per Share ----------------------------------- Consolidated net income for the first quarters of 1999 and 1998 was $10.0 million and $11.8 million. Basic earnings per share for the 1999 first quarter was $.50 compared to 1998's $.59 per share. On a diluted basis, earnings per share were $.50 in 1999 and $.58 in 1998. There were no adjustments to net income for the purpose of computing income available to common stockholders for the first quarters of 1999 and 1998. For purpose of computing dilutive earnings per share, the weighted average number of shares outstanding were increased 208,259 and 387,716 for the first quarters of 1999 and 1998,respectively, representing the potential dilutive effects of stock-based incentive plans. -10- Management's Discussion and Analysis of Financial Condition and Results of Operations Continued: Financial Condition ------------------- Cash Flows ---------- Net cash generated by operating activities in the first three months of 1999 was $4.1 million compared to a very strong $14.5 million for the first quarter of 1998. First quarter 1999 cash provided by operating activities was impacted by lower net income and by cash payments of $6.5 million to the former President and CEO related to an early retirement package expensed in 1998. Net cash used by investing activities in the first quarter of 1999 was $5.5 million compared to $9.2 million in 1998. The decrease was primarily the result of lower capital expenditures. Both the Associated Spring and Barnes Aerospace groups reported reduced expenditures, while Bowman increased expenditures period over period. Net cash provided by financing activities was $3.0 million in the first quarter of 1999 and $3.1 million in 1998's first quarter. The first quarter 1999's higher borrowings were required to repurchase higher levels of Company common stock and support incremental operating activity requirements. Liquidity and Capital Resources ------------------------------- During 1999 and 1998, 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 March 31, 1999, the Company classified as long-term debt $3.6 million of borrowings under its revolving credit agreement 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 approach of long- term financing. -11- Management's Discussion and Analysis of Financial Condition and Results of Operations Continued: The Company maintains substantial bank borrowing facilities to supplement internal cash generation. At March 31, 1999, the company had $150.0 million of borrowing capacity under its long- term revolving credit agreement of which $12.5 million was borrowed. The Company had $6.5 million in borrowings under uncommitted short-term bank credit lines at March 31, 1999. The interest rate on this borrowing was 5.14%. The Company believes its credit facilities coupled with cash generated from operations are adequate for its anticipated future requirements. Year 2000 Readiness -------------------- Background ---------- When the Year 2000 (Y2K) arrives, computer software may not be able to distinguish between the year 1900 and 2000, and as a result, date-based information may not be processed accurately. This situation has never been experienced, so no one is quite sure of the consequences or how to completely prevent business disruptions. General Approach ---------------- The Company's intention is to be fully Y2K ready with all of its critical business systems and critical third party business relationships by the Year 2000. The process of addressing Y2K readiness began in early 1997 at each of the Company's three business segments. The Company established a primary Y2K project team led by its chief financial officer and its information technology (IT) directors. With the assistance of a third party consultant, the Company is using a multi-phase approach to manage the Y2K readiness project involving assessment of the problem, remediation and testing. The Company is on target to substantially complete its Y2K readiness project by the end of the third quarter of 1999, with the fourth quarter reserved for final testing at Bowman and addressing any other unforeseen issues. Assessment ---------- In this phase, the Company identifies its critical business systems and critical third party business relationships, and assesses the Y2K impact on each one to determine the relative risks of possible Y2K failures. Based on the risk assessments, priorities are set, resources are allocated and the plan for the next phase, remediation, is established. The assessment of the Company's -12- Management's Discussion and Analysis of Financial Condition and Results of Operations Continued: systems are complete, although the monitoring of the readiness of our critical business relationships with suppliers and customers is a continuous process. In addition, as new IT systems come on line, they will be assessed as to their Y2K impact on the readiness of the Company's critical systems. Remediation ----------- This phase involves the conversion, modification, or replacement of systems that are not Y2K ready, and the implementation and integration of new Y2K ready systems. It also involves efforts to foster Y2K readiness of third parties with which the Company has critical business relationships. This phase is by far the most complicated, time consuming and costly of the Y2K project. The completion of remediation or implementation of critical systems for Barnes Aerospace and Associated Spring was substantially completed during the first quarter of 1999. For Bowman Distribution, remediation is expected to be completed by the end of the third quarter of 1999. Required for success of this phase is the implementation of the Bowman Distribution enterprise management system. Because it is not practical to modify Bowman's existing system to be Y2K ready, every effort is being made to ensure that the new enterprise system will be fully operational and Y2K compliant by the end of the third quarter of 1999. Testing ------- During this phase, the testing, verification and validation of the performance, functionality and integration of new, replaced and converted systems will be conducted. Both Aerospace and Associated Spring are well into the testing phase, the completion of which is planned by the end of the third quarter of 1999. Bowman Distribution expects to complete its testing phase during the beginning of the fourth quarter. The fourth quarter will also be used to resolve unanticipated activities including possible vendor modifications. Contingency Plans ----------------- The Company is developing contingency plans concurrent with the remediation and testing phases. When the Y2K readiness risks have been determined, contingency plans will be finalized to deal with the most likely worst-case scenarios. This phase will be substantially complete by the end of the third quarter of 1999, with follow-up to occur in the fourth quarter. -13- Management's Discussion and Analysis of Financial Condition and Results of Operations Continued: Cost ---- The total expenses specifically associated with the Company becoming Y2K ready are not expected to be material. Because the Company has been in the continuous process of upgrading and modifying existing IT systems as well as adding new systems in the ordinary course of doing business, Y2K readiness was incorporated into the overall strategy to improve and upgrade IT systems. With the implementation of the Bowman enterprise management system in 1999, the Company will have completed a process begun in 1995 of upgrading all of its critical application software. The costs specific to addressing the Y2K readiness project are those directly related to upgrading existing systems to be Y2K ready and costs related to outside consultants assisting with the Y2K project. These costs have been expensed as they have been incurred and totaled approximately $0.6 million in 1998 and are expected to total approximately $1.0 million in 1999. However, a significant portion of the Company's overall IT expense of approximately $11.5 million in 1998 and the estimated $12.0 in 1999 is either directly or indirectly used to addressing Y2K readiness either through software remediation or implementation. In addition, capitalized IT related hardware and software expenditures totaled $12.0 million in 1998 and are expected to be $8.0 million in 1999. Risks ----- Y2K readiness encompasses a number of factors, which the Company cannot completely control, including its critical business relationships with third party suppliers and customers. Although the Company is taking steps to minimize the potential adverse effects of the Y2K issue, any failure by the Company, its major vendors, other material service providers, or its principal customers to address this issue on an adequate and timely basis could have a material adverse effect on the Company's business, results of operations, cash flow and financial condition. Forward-Looking Statements -------------------------- The Company cautions readers that certain factors may effect the Company's results for future fiscal periods. These factors involve risks and uncertainties that could cause future 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. Some important factors that could cause actual results to vary materially from those anticipated in forward-looking statements include economic volatility, currency and interest rate fluctuations, regulatory changes and technological changes (including Y2K issues), all of which may affect the Company's operations, products and markets. -14- PART II. OTHER INFORMATION Item 4. Submission of Matters to Vote of Security Holders ------------------------------------------------- (a) The Annual Meeting of the registrant's stockholders was held on April 14, 1999. 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 -------- -------- -------- -------- William S. Bristow, Jr. 17,664,123 577,609 2002 Robert J. Callander 17,632,030 609,702 2002 Edmund M. Carpenter 17,465,209 776,523 2002
(2) The stockholders approved the selection of PricewaterhouseCoopers LLP as the Company's independent accountants for 1999. The proposal was adopted as 17,882,885 shares voted for, 260,823 shares voted against and 98,024 shares abstained. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibit Exhibit 27 Financial Data Schedule, March 31, 1999 (b) Reports on Form 8-K No reports on Form 8-K, Item 5, Other Events, were filed during the quarter ended March 31, 1999. -15- 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, 1999 By /s/ Terry M. Murphy ------------ ------------------------------------- Terry M. Murphy Senior Vice President, Finance (the principal financial officer) Date May 14, 1999 By /s/ Francis C. Boyle, Jr. ------------ ------------------------------------- Francis C. Boyle, Jr. Vice President, Controller (the principal accounting officer) -16- EX-27 2
5 This schedule contains summary financial information extracted from the consolidated balance sheet of Barnes Group Inc. at March 31, 1999, and the related consolidated statement of income for the three months ended March 31, 1999, and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 40,261 2,566 91,489 2,558 62,683 213,663 347,822 212,468 420,082 103,833 51,000 0 0 220 186,939 420,820 162,248 162,248 109,540 109,540 0 314 1,012 15,819 5,853 9,966 0 0 0 9,966 .50 .50 Basic and diluted earnings per share calculated in accordance with Statement of Financial Accounting Standards No. 128.
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