-----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, CJyCQAUUm2AnGyzo/aVSK3EZ/GGJVHq0y4BdKz5TYHChAqghS1fTng2ZJpw8Ey5h /QczOgEcEXVHbyj/I1VUBg== 0000009984-01-500021.txt : 20020410 0000009984-01-500021.hdr.sgml : 20020410 ACCESSION NUMBER: 0000009984-01-500021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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: 1934 Act SEC FILE NUMBER: 001-04801 FILM NUMBER: 1790270 BUSINESS ADDRESS: STREET 1: 123 MAIN ST CITY: BRISTOL STATE: CT ZIP: 06010 BUSINESS PHONE: 2035837070 MAIL ADDRESS: STREET 1: 123 MAIN ST CITY: BRISTOL STATE: CT ZIP: 06010 FORMER COMPANY: FORMER CONFORMED NAME: ASSOCIATED SPRING CORP DATE OF NAME CHANGE: 19760518 10-Q 1 e10q01q3.txt BARNES GROUP INC. 10Q 3RD QTR 9/30/2001 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 September 30, 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 November 12, 2001 18,411,213 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 September 30, 2001 DESCRIPTION PAGES - ----------- ----- PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Statements of Income for the three months ended and nine months ended September 30, 2001 and 2000 3 Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000 4-5 Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 6 Notes to Consolidated Financial Statements 7-11 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-16 ITEM 3. Quantitative and Qualitative Disclosure About Market Risk 16 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K 17 Signatures 17 -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 Nine months ended September 30, September 30, -------------------- ------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Net sales $186,500 $190,570 $585,214 $552,041 Cost of sales 125,178 123,550 391,630 362,715 Selling and admin- istrative expenses 49,702 50,058 154,771 140,471 -------- -------- -------- -------- 174,880 173,608 546,401 503,186 -------- -------- -------- -------- Operating income 11,620 16,962 38,813 48,855 Other income 958 973 3,699 3,350 Interest expense 3,848 4,008 12,567 10,250 Other expenses 1,127 1,151 3,429 2,742 -------- -------- -------- -------- Income before income taxes 7,603 12,776 26,516 39,213 Income taxes 1,901 3,441 6,629 11,372 -------- -------- -------- -------- Net income $ 5,702 $ 9,335 $ 19,887 $ 27,841 ======== ======== ======== ======== Per common share: Net income Basic $ .31 $ .50 $ 1.07 $ 1.50 Diluted .30 .49 1.05 1.48 Dividends .20 .20 .60 .59 Average common shares outstanding Basic 18,481,546 18,601,009 18,536,308 18,551,378 Diluted 18,998,071 18,870,208 18,949,447 18,759,413 See accompanying notes. -3- BARNES GROUP INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) ASSETS September 30, December 31, 2001 2000 --------- ------------ (Unaudited) Current assets Cash and cash equivalents $ 37,934 $ 23,303 Accounts receivable, less allowances (2001-$3,246; 2000-$2,720) 115,839 107,434 Inventories Finished goods 48,877 59,665 Work-in-process 15,909 13,605 Raw materials and supplies 16,661 15,244 -------- -------- 81,447 88,514 Deferred income taxes and prepaid expenses 25,939 22,097 -------- -------- Total current assets 261,159 241,348 Deferred income taxes 7,635 15,010 Property, plant and equipment 407,562 400,319 Less accumulated depreciation 252,042 236,553 -------- -------- 155,520 163,766 Goodwill 161,877 155,667 Other assets 62,379 61,150 -------- -------- Total assets $648,570 $636,941 ======== ======== See accompanying notes. -4- BARNES GROUP INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY September 30, December 31, 2001 2000 --------- ------------ (Unaudited) Current liabilities Notes payable $ 5,082 $ 6,896 Accounts payable 70,581 59,767 Accrued liabilities 61,313 60,183 Current portion long-term debt 1,459 -- -------- -------- Total current liabilities 138,435 126,846 Long-term debt 232,021 230,000 Accrued retirement benefits 67,253 67,686 Other liabilities 10,329 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 54,680 51,845 Treasury stock at cost, 2001-3,625,512 shares 2000-3,430,411 shares (76,724) (69,181) Retained earnings 247,868 239,266 Accumulated other comprehensive income (25,512) (20,817) -------- -------- Total stockholders' equity 200,532 201,333 -------- -------- Total liabilities and stockholders' equity $648,570 $636,941 ======== ======== See accompanying notes. -5- BARNES GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months ended September 30, 2001 and 2000 (Dollars in thousands) (Unaudited) 2001 2000 ------- ------- Operating Activities: Net income $19,887 $27,841 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 28,067 26,196 Loss (gain) on sale of property, plant and equipment 100 (2,255) Changes in assets and liabilities: Accounts receivable (10,689) (13,920) Inventories 299 (4,704) Accounts payable 11,385 (7,672) Accrued liabilities (2,642) 6,228 Deferred income taxes 9,160 1,248 Other (13,751) (10,540) ------- ------- Net Cash Provided by Operating Activities 41,816 22,422 Investing Activities: Proceeds from sale of property, plant and equipment 378 2,736 Capital expenditures (15,981) (19,800) Business acquisitions (43)(104,655) Other (3,987) (1,767) ------- ------- Net Cash Used by Investing Activities (19,633)(123,486) Financing Activities: Net (decrease) increase in notes payable (2,002) 29,165 Payments on long-term debt (25,000) -- Proceeds from the issuance of long-term debt 24,900 90,000 Proceeds from the issuance of common stock 2,322 3,645 Common stock repurchases (8,214) (8,073) Dividends paid (11,128) (10,952) Proceeds from sale of debt swap 13,766 -- ------- ------- Net Cash (Used) Provided by Financing Activities (5,356) 103,785 Effect of exchange rate changes on cash flows (2,196) (1,545) ------- ------- Increase in cash and cash equivalents 14,631 1,176 Cash and cash equivalents at beginning of period 23,303 43,632 ------- ------- Cash and cash equivalents at end of period $37,934 $44,808 ======= ======= See accompanying notes. -6- Notes to Consolidated Financial Statements: 1. Summary of Significant Accounting Policies ------------------------------------------ The accompanying unaudited condensed consolidated balance sheet and consolidated statements of 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 December 31, 2000 balance sheet was derived from audited financial statements. The financial statements 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 nine-month period ended September 30, 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 instrument. 2. Accounting Change ----------------- The Company adopted Statement of Financial Accounting Standards No. 133 (SFAS 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 SFAS 133, the Company recorded a $0.4 million gain on January 1, 2001, 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 reduce 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 reduce the overall cost of borrowing and 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, in July 2001, the Company entered into an interest rate exchange agreement to convert its 9.34% fixed rate 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 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 is being amortized 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 certain of 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 September 30, 2001, the fair value of derivatives held by the Company was a net asset of $2.4 million. During the nine months ended September 30, 2001, gains or losses related to hedge ineffectiveness were immaterial. 3. Comprehensive Income -------------------- Comprehensive income includes all changes in equity during a period except those resulting from the investment by and distributions to stockholders. 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. -8- Notes to Consolidated Financial Statements Continued: Statement of Comprehensive Income (Dollars in thousands) (Unaudited) Three months ended Nine months ended September 30, September 30, ------------------- ------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Net income $ 5,702 $ 9,335 $ 19,887 $ 27,841 Unrealized losses on hedging activities (1,493) -- (1,057) -- Foreign currency translation adjustment (2,832) 3,540 (3,638) 5,078 -------- -------- -------- -------- Comprehensive income $ 1,377 $ 12,875 $ 15,192 $ 32,919 ======== ======== ======== ======== 4. Debt and Commitments --------------------- On July 2, 2001, the Company borrowed Yen 3.0 billion, under its term loan facility with The Development Bank of Singapore Limited. The term loan is payable in semi-annual installments of Yen 87.3 million beginning December 1, 2001 with a balloon payment of Yen 2,214.3 million due June 30, 2006. The borrowing has a stated interest rate of 2.15%. In connection with the Yen borrowing, the Company entered into a series of forward currency exchange contracts, a form of derivative, that effectively convert the Yen principal payments to Singapore Dollar payments. The cost of the forward contracts is included in interest expense using the effective interest rate method. Accordingly, the effective interest rate of the borrowing is 5.5%. Proceeds from this borrowing were used, in part, to repay borrowings under the Company's revolving credit agreement. 5. Stock Plans ----------- Most U.S. salaried and non-union hourly employees are eligible to participate in the Company's 401(K) plan. Effective April 1, 2001, the 401(K) plan, previously called the Barnes Group Inc. Guaranteed Stock Plan (GSP), was amended and renamed the Retirement Savings Plan (RSP). The RSP continues to provide for the investment of employer and employee contributions in the Company's common stock and also provides other investment alternatives for employee contributions. Employee contributions to the RSP for investment in the Company's common stock after March 31, 2001 are no longer guaranteed a minimum rate of return. However, the Company continues to guarantee a minimum rate of return on certain -9- Notes to Consolidated Financial Statements Continued: pre-April 1, 2001 assets of the plan. This guarantee will become a liability for the Company only if, and to the extent that, the value of the related Company stock does not cover the guaranteed asset value when an employee withdraws from the plan. At September 30, 2001, the Company's guarantee was $0.2 million based on the Company's September 28, 2001 closing stock price of $21.30 per share. 6. Information on Business Segments -------------------------------- The following tables set forth information about the Company's operations by its three reportable business segments: Three months ended Nine months ended September 30, September 30, ------------------- ------------------- 2001 2000 2001 2000 -------- -------- --------- -------- (Dollars in thousands) (Unaudited) Revenues: Associated Spring $ 65,164 $ 79,891 $215,916 $252,356 Barnes Aerospace 50,455 34,719 147,519 94,396 Barnes Distribution 72,979 79,162 229,387 215,615 Intersegment sales (2,098) (3,202) (7,608) (10,326) -------- -------- -------- -------- Total revenues $186,500 $190,570 $585,214 $552,041 ======== ======== ======== ======== Operating profit: Associated Spring $ 5,219 $ 11,550 $ 20,558 $ 36,394 Barnes Aerospace 5,006 3,183 12,872 6,191 Barnes Distribution 1,468 2,742 6,287 8,000 -------- -------- -------- -------- Total operating profit 11,693 17,475 39,717 50,585 Interest income 222 258 665 807 Interest expense (3,848) (4,008) (12,567) (10,250) Other expense (464) (949) (1,299) (1,929) -------- -------- -------- -------- Income before income taxes $ 7,603 $ 12,776 $ 26,516 $ 39,213 ======== ======== ======== ======== -10- Notes to Consolidated Financial Statements Continued: 7. New Accounting Standards ------------------------ In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS 141 requires companies to account for acquisitions entered into after June 30, 2001 using the purchase method and establishes criteria to be used in determining whether acquired intangible assets are to be recorded separately from goodwill. SFAS 142 sets forth the accounting for goodwill and other intangible assets related to business combinations. Goodwill and other intangible assets with indefinite lives will no longer be amortized and instead will be evaluated annually for impairment by comparing the carrying value to the fair value at the reporting unit level. Intangible assets with definitive lives will be amortized over their useful lives. SFAS 142 is effective January 1, 2002 for the Company. Management is in the process of analyzing and assessing the impact of the adoption of these statements. The Company expects that adoption of SFAS 142 will have a favorable impact on net income due to the elimination of goodwill amortization; however, the actual effect on the Company's consolidated results of operations and financial position is not determinable at this time. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which will be effective January 1, 2002 for the Company. The Company is currently reviewing the provisions of SFAS No. 144 to determine the standard's impact upon adoption. 8. Subsequent events ----------------- On November 5, 2001, the Company announced that it had acquired certain assets of Forward Industries, LLC. Forward Industries designs and manufactures nitrogen gas springs that are used in the appliance, automotive, heating and cooling, and electrical industries. The purchase price was approximately $2.5 million. This bolt-on acquisition will be integrated with the Company's existing nitrogen gas spring business. -11- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations --------------------- Net sales for the third quarter 2001 were $186.5 million, down two percent from $190.6 million in 2000. The decline in the third quarter net sales reflected the impact of weak economic conditions on Associated Spring and Barnes Distribution, which was largely offset by the strong sales growth at Barnes Aerospace. The Company's first nine months sales were $585.2 million, up 6.0% from $552.0 million in 2000. Net sales growth in the year-to-date period reflected the sharp rise in sales at Barnes Aerospace and sales from the Company's recent acquisitions. This was partially offset by a decline in the transportation and telecommunications related sales at Associated Spring and the adverse impact on Barnes Distribution of economic conditions in the manufacturing and heavy industrial sectors. Third quarter operating income was $11.6 million, compared with $17.0 million in the corresponding 2000 period. The 2001 year-to-date operating income was $38.8 million, compared with $48.9 million in 2000. These results reflect lower earnings in the Barnes Distribution segment and sharply lower sales and earnings in the Associated Spring segment, partially offset by period-over-period sales and earnings growth in the Barnes Aerospace segment. Operating income margin for the third quarter was 6.2% compared to 8.9% a year ago. This decrease reflects a lower gross margin of 32.9% compared with 35.2% a year ago, primarily due to the shift in the overall sales mix away from the higher gross margin Barnes Distribution business as well as the impact of lower sales volume on Associated Spring's gross margin. Total selling and administrative expenses for the quarter were relatively consistent with the prior year in total and as a percentage of sales. The selling expense component increased as a percentage of sales reflecting a continued strategic investment in sales and marketing for the purpose of stimulating sales growth in new businesses and new customers. The administrative expense component decreased in total reflecting consolidation-driven cost synergies realized at Barnes Distribution as well as cost reductions at Associated Spring. These cost reductions were offset in part by additional costs at Barnes Aerospace. Also included in the 2000 third quarter was a gain of $2.2 million related to the sale of a corporate asset and $1.7 million of one-time consolidation costs in Barnes Distribution. -12- Management's Discussion and Analysis of Financial Condition and Results of Operations Continued: While the tragic events of September 11 have created a roadblock for the stalled domestic economy, management believes that the cost reduction and other actions that Associated Spring and Barnes Distribution have executed over the past year will enable them to effectively manage through the current economic conditions. In addition, Barnes Aerospace is taking the appropriate actions necessary to address near-term disruptions in the commercial aircraft market. Segment Review - Sales and Operating Profit ------------------------------------------- Associated Spring sales for the 2001 third quarter and year- to-date were $65.2 million and $215.9 million, respectively, down 18.4% and 14.4% from the comparable 2000 periods. Sales at Associated Spring continue to be impacted by lower production rates in the domestic transportation market and slow sales of telecommunications and electronics products. The segment's third quarter and year-to-date 2001 operating profit also decreased substantially to $5.2 million and $20.6 million, respectively, a 54.8% and 43.5% decrease from the comparable 2000 periods. This decrease in operating profits reflects the sales volume decline partly offset by reductions in operating costs. Barnes Aerospace reached record sales and operating profits in the 2001 third quarter. Net sales for the third quarter and year-to-date 2001 were $50.5 million and $147.5 million, respectively, up 45.3% and 56.3%, from the comparable 2000 periods. Organic sales were $38.4 million in the third quarter, up 20.9%, reflecting new customer development and increased sales to existing customers. Sales from the Kratz- Wilde/Apex business totaled $12.1 million in the third quarter, up from $3.0 million a year ago, following the acquisition of this business in September 2000. Orders were $52.6 million for the third quarter and order backlog increased to a record $168.5 million from $144.9 million at December 31, 2000. Segment operating profit of $5.0 million for the 2001 third quarter increased 57.3% from last year while year-to-date operating profit of $12.9 million more than doubled from the comparable 2000 period. Operating profit increased as a result of the higher sales volume and the Kratz-Wilde/Apex acquisition, partially offset by higher engineering and R&D expenses related to a large number of new products put into production during the third quarter. Barnes Distribution third quarter 2001 segment sales were $73.0 million, down 7.8% from the third quarter of 2000, as the distribution business continues to be negatively impacted by the recession in the manufacturing and industrial sectors. For the year-to-date period, segment sales were $229.4 million, an increase of 6.4% from the -13- Management's Discussion and Analysis of Financial Condition and Results of Operations Continued: 2000 period. The year-to-date increase reflects incremental sales from the May 2000 Curtis acquisition. Operating profit for the third quarter and year-to-date periods decreased to $1.5 million and $6.3 million, respectively. Operating profits declined as a result of the lower sales from Barnes Distribution's organic businesses, particularly at the Raymond division, partially offset by cost synergies achieved through the Curtis acquisition. Non-Operating Income/Expense ---------------------------- Higher other income for the first nine months of 2001 compared to 2000 resulted from incremental foreign exchange transaction gains of $1.4 million. This increase was partially offset by lower income from the Company's NASCO joint venture. The increase in other expenses in the first nine months of 2001 compared to 2000 was largely attributable to higher goodwill amortization, a result of the two acquisitions made in 2000. Interest expense for the year-to-date period also increased substantially due to the debt service on acquisition-related debt. Interest expense in the third quarter was down slightly from the prior year as a result of lower average interest rates and lower borrowings. Income Taxes ------------ The Company's effective tax rate for first nine months of 2001 was 25.0% compared to 29.0% in 2000. The lower rate in 2001 is primarily 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 third quarter of 2001 and 2000 was $5.7 million and $9.3 million, respectively. Basic and diluted earnings per share for the third quarter of 2001 were $.31 and $.30, respectively, compared with basic and diluted earnings per share of $.50 and $.49, respectively, for the third quarter 2000. 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. -14- Management's Discussion and Analysis of Financial Condition and Results of Operations Continued: Financial Condition ------------------- Cash Flows ---------- Operating activities are the principal source of cash flow for the Company, generating $41.8 million in the first nine months of 2001, compared with $22.4 million in 2000. The significant increase in operating cash flow was due primarily to continued improvements in working capital. Management continues to stress the need for aggressive asset management and was effective in actively reducing overall working capital levels during the first nine months of 2001. Investing activities used $19.6 million in the first nine months of 2001, compared with $123.5 million for the comparable period in 2000. The cash used in 2000 includes $104.7 million for the acquisitions of Curtis and Kratz- Wilde/Apex. In 2001, funds used for a small bolt-on acquisition were offset in large part by a purchase price adjustment received in 2001 on the Kratz-Wilde/Apex acquisition. Capital expenditures were reduced in 2001 in response to the economic downturn. Net cash used by financing activities was $5.4 million in the first nine months of 2001, compared with net cash provided by financing activities of $103.8 million in the comparable period of 2000. Cash generated from the sale of a cross-currency debt swap is included in 2001. The proceeds from this sale, combined with strong operating cash flow, were used in part to fund capital expenditures, pay dividends and repurchase the Company's stock. In 2000, the increase in borrowings reflected the issuance of additional long-term debt to fund the acquisitions of Curtis and Kratz- Wilde/Apex as well as to supplement cash generated by operating activities to finance capital expenditures, dividends and stock repurchases. Liquidity and Capital Resources ------------------------------- At September 30, 2001, the Company classified as long-term debt $8.0 million of borrowings under lines of credit. 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 September 30, 2001, the Company had $150.0 million of borrowing capacity under its long-term revolving credit agreement of which -15- Management's Discussion and Analysis of Financial Condition and Results of Operations Continued: $35.0 million was borrowed. This borrowing facility expires in December 2002. Management intends to negotiate a new revolving credit agreement in the first quarter of 2002. The Company had $12.5 million in borrowings under uncommitted short-term bank credit lines at September 30, 2001. The interest rate on these borrowings averaged 4.01%. 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 and the timeliness and effectiveness of the Company's response to such changes, 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, the Company's success in identifying and attracting customers in new markets, the Company's ability to develop new and enhanced products to meet customers' needs, the Company's ability to integrate newly acquired businesses, and to realize projected synergies of acquisitions on schedule. Item 3. Quantitative and Qualitative Disclosure About Market Risk At September 30, 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 $1.1 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. -16- PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits Exhibit 10.1 Barnes Group Inc. Executive Deferred Compensation Plan. (b) No reports on Form 8-K were filed during the quarter ended September 30, 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 November 15, 2001 By /s/ William C. Denninger ----------------- ------------------------------------- William C. Denninger Senior Vice President, Finance and Chief Financial Officer (the principal financial officer) Date November 15, 2001 By /s/ Francis C. Boyle, Jr. ----------------- ------------------------------------- Francis C. Boyle, Jr. Vice President, Controller (the principal accounting officer) -17- EX-10 3 exh10q301.txt BARNES GROUP INC. EXHIBIT 10.1 EXHIBIT 10.1 BARNES GROUP INC. EXECUTIVE DEFERRED COMPENSATION PLAN As Adopted Effective May 10, 2000 BARNES GROUP INC. EXECUTIVE DEFERRED COMPENSATION PLAN Table of Contents SECTION PAGE ------- ---- 1 Definitions 1 2 Administration 3 3 Participation 5 4 Allocations 5 5 Vesting 6 6 Individual Investment Accounts 6 7 Benefits 7 8 Hardship Withdrawals 9 9 Amendment and Termination 9 10 Miscellaneous Provisions 9 BARNES GROUP INC. EXECUTIVE DEFERRED COMPENSATION PLAN W I T N E S S E T H WHEREAS, Barnes Group Inc. (the "Company") wishes to establish and adopt a deferred compensation plan that will provide deferred compensation benefits to certain executives; and WHEREAS, the Company intends that this deferred compensation plan be (i) a nonqualified deferred compensation plan for purposes of Section 401(a) of the Internal Revenue Code of 1986, as amended, and (ii) an unfunded plan which is maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended; NOW, THEREFORE, effective as of May 10, 2000, the Company hereby establishes the Barnes Group Inc. Executive Deferred Compensation Plan. 1.0 DEFINITIONS 1.1 "Administrative Committee" shall mean the committee appointed by the CEO to administer the Plan in accordance with Section 2.1 below. 1.2 "Administrative Committee Discretionary Distribution" shall mean a distribution of a portion or all of a Participant's Individual Investment Account in the sole discretion of the Administrative Committee pursuant to Section 7 below. 1.3 "Beneficiary" shall mean the person(s) designated in writing by a Participant to be entitled to receive a Death Benefit under Section 7.2 below in the event of the Participant's death. 1.4 "Benefit" shall mean the benefit payable in cash or in kind, as determined in the sole discretion of the Administrative Committee, to a Participant or Beneficiary in accordance with Section 7 below. 1.5 "Benefit Distribution Election" shall mean the election by a Participant of a Benefit distribution option or options in accordance with Section 7.3(b) below. 1 1.6 "Board" shall mean the Board of Directors of the Company. 1.7 "CEO" shall mean the Chief Executive Officer of the Company. 1.8 "Claimant" shall mean a person making a claim in accordance with Section 2.7 below. 1.9 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. 1.10 "Company" shall mean Barnes Group Inc., a Delaware corporation. 1.11 "Compensation" shall mean the amount set forth for each Participant on Exhibit A attached hereto and incorporated herein by reference. 1.12 "Death Benefit" shall mean a Benefit payable in cash or in kind, as determined in the sole discretion of the Administrative Committee, to a Beneficiary in accordance with Section 7.2 below. 1.13 "Deferral Allocation" shall mean an allocation by the Company to a Participant's Individual Investment Account in accordance with Section 4.1 below. 1.14 "Effective Date" shall mean May 10, 2000. 1.15 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.16 "Executive" shall mean an employee of the Company who is a member of a select group of the Company's management or highly compensated employees. 1.17 "Final Valuation" shall mean the fair market value of a Participant's Individual Investment Account as of the date or dates of distribution pursuant to Section 7 below. 1.18 "Individual Investment Account" shall mean a notional investment account established and maintained for each Participant in accordance with Section 6 below. 1.19 "Investment Selection" shall mean a selection by the Participant of one or more actual investment alternatives identified by the Administrative Committee, in which his or her Deferral Allocations or amounts already allocated to such Participant's Individual Investment Account shall be deemed invested in accordance with Section 6 below. 2 1.20 "Participant" shall mean an Executive who is a participant in the Plan. 1.21 "Plan" shall mean the Barnes Group Inc. Executive Deferred Compensation Plan. 1.22 "Plan Year" shall mean a calendar year. 1.23 "Subsidiary" shall mean a corporation of which the Company owns more than 50 percent of such corporation's common stock or any other business entity in which the Company directly or indirectly has an ownership interest of more than 50 percent. 1.24 "Treasury Regulation" shall mean the regulations promulgated by the United States Department of the Treasury under the Code, as amended from time to time. 1.25 "Unforeseen Emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant or Beneficiary and that would result in severe financial hardship to the individual if early withdrawal were not permitted. 2.0 ADMINISTRATION 2.1 Administrative Committee. The CEO shall appoint an Administrative Committee which shall consist of such number of persons as shall from time to time be determined by the CEO; provided, that such number of persons shall not be less than two. Members of the Administrative Committee shall (i) not be the CEO or participants in the Plan, (ii) serve at the pleasure of the CEO and (iii) serve without compensation unless otherwise directed by the CEO. Any member of the Administrative Committee may resign by giving notice thereof to the Company and to the Administrative Committee and such resignation shall become effective at delivery or at any later date specified therein. 2.2 Plan Administration. The Administrative Committee shall be charged with overseeing the operation and administration of the Plan, including making determinations with respect to investment alternatives, payment of benefits and deciding any dispute arising under the Plan. The Administrative Committee shall have all the powers necessary to discharge its duties under the Plan, including by way of example but not by way of limitation, the power to hire consultants for the Plan and the power to interpret or construe the Plan. The Administrative Committee may delegate to any agent such duties and powers, both ministerial and discretionary, as it deems appropriate; provided, however, that all disputes arising under the Plan shall be determined by the Administrative Committee. In exercising any discretion, the Administrative Committee shall have 3 sole, absolute and discretionary authority, final and binding on all Participants and all other parties to the maximum extent allowed by law. A majority of the Administrative Committee then in office shall constitute a quorum for the transaction of business. Any determination of the Administrative Committee shall be made by a majority of the members then in office and such determination shall be final. If there are only two members and they are unable to agree, any action required of the Administrative Committee shall be decided by the CEO, whose decision shall be final. 2.3 Administration Expenses. The members of the Administrative Committee shall be reimbursed by the Company for any necessary expenditures incurred in the discharge of their duties as members of the Administrative Committee. The compensation, if any, of all agents, counsel or other persons retained or employed by the Administrative Committee shall be subject to the approval of the Company and shall be paid by the Company. 2.4 Liability. The members of the Administrative Committee and the Company shall be entitled to rely upon all valuations, certificates and reports furnished by any trustee, insurer, actuary, accountant or physician selected by the Administrative Committee and approved by the Company, and upon all opinions given by any legal counsel selected by the Administrative Committee and approved by the Company or selected by the Company, and the members of the Administrative Committee and the Company shall be fully protected with respect to any action taken or suffered by their having relied in good faith upon such trustee, insurer, actuary, accountant, physician or counsel and all action so taken or suffered shall be conclusive upon each of them and upon all Participants and former Participants and their Beneficiaries and all other persons. 2.5 Self-Interest. No member of the Administrative Committee shall have any right to vote or decide upon any matter relating solely to himself or herself, or solely to any of his or her rights or benefits under the Plan, unless such member is the only member of the Administrative Committee. 2.6 Records. The Administrative Committee shall keep or cause to be kept a record of all of its proceedings and shall keep or cause to be kept such other records and data as may be necessary for the administration of the Plan and to determine the amount of all Benefits payable hereunder. 2.7 Claims and Claims Review. All claims by a Participant or Beneficiary for Benefits shall be directed to and determined by the Administrative Committee and shall be in writing. Any denial by the Administrative Committee of a claim for Benefits shall be delivered in writing to the Participant or Beneficiary, as the case may be, and shall set forth the specific reasons for the denial and the specific provisions of this Plan being relied upon. The Administrative Committee shall afford a 4 reasonable opportunity to the Participant or Beneficiary, as the case may be, for a review of the decision denying a claim and shall further allow (but not require for purposes of exhaustion of remedies) an appeal to the Administrative Committee of the decision within sixty (60) days after written notification by the Administrative Committee that the claim has been denied. 2.8 Failure to Comply. Failure on the part of any Participant or Beneficiary to comply with the Administrative Committee's request for information shall be sufficient grounds for delay in the payment of Benefits until such information is received. 3.0 PARTICIPATION 3.1 Eligibility. Each Executive shall be eligible to participate in the Plan. 3.2 Participation. An Executive shall participate in the Plan only if such Executive has been selected by the CEO, in the exercise of his or her sole discretion, for participation in the Plan. 3.3 Termination of Participation. An Executive who has become a Participant shall remain a Participant until the earlier of (i) the date the Executive is notified in writing by the CEO or Administrative Committee that he or she no longer is a Participant or (ii) the date the entire amount of such Participant's Benefit is distributed. An Executive who has been terminated as a Participant shall continue to be entitled to (x) receive Benefits in accordance with Section 7 below and (y) to change his or her Investment Selections in accordance with Section 6 below. 3.4 Waiver of Participation. An Executive may waive participation in the Plan with respect to any Plan Year by executing a written waiver of participation and providing it to the Company prior to the beginning of such Plan Year. 4.0 ALLOCATIONS 4.1 Deferral Allocations. A Participant may elect in a written notification to the Company to defer a percentage of his or her Compensation or a specific dollar amount from his or her Compensation; provided, however, that the Company receives such written notification prior to the end of first 6 months of the year with respect to such Compensation, or as otherwise acceptable to the Committee. For purposes of this Section 4.1, only Compensation earned by the Participant after the date the Participant elects to defer shall be subject to deferral. Deferral Allocations shall be allocated by the Company to the Participant's Individual Investment Account. 5 5.0 VESTING 5.1 Vesting of Deferral Allocations. Each Participant shall be at all times 100 percent vested in his or her Individual Investment Account with respect to all Deferral Allocations and income thereon shall be allocated by the Company to the Participant's Individual Investment Account. 6.0 INDIVIDUAL INVESTMENT ACCOUNTS 6.1 Individual Investment Accounts. The Administrative Committee shall establish and maintain (or cause to be maintained) an Individual Investment Account for each Participant. A Participant's Individual Investment Account shall record and reflect such Participant's Deferral Allocations and the Participant's income and expenses, and realized and unrealized gains and losses with respect to the hypothetical investments relating to such Participant's Individual Investment Account. Participants' Individual Investment Accounts shall be established by the Company for bookkeeping purposes only. 6.2 Valuation. The Administrative Committee shall determine the fair market value of the hypothetical investments with respect to each Participant's Individual Investment Account as of the last day of each calendar quarter, and a statement of such fair market value shall be promptly provided to the Participant. In addition, the Administrative Committee shall make a Final Valuation of the fair market value of the hypothetical investments with respect to each Participant's Individual Investment Account as of the date or dates of distribution of the Participant's Benefit. 6.3 Investment Selection. The Participant shall have the right to make Investment Selections with respect to Deferral Allocations and income thereon allocated to such Participant's Individual Investment Account. At the time a Participant elects to make Deferral Allocations in accordance with Section 4.1, he or she shall make a written Investment Selection or Selections with respect to all amounts to be deferred. If the Participant does not make an Investment Selection, then the Investment Selection to be used with respect to such Deferral Allocations shall be a mutual fund designated by the Administrative Committee at the start of each Plan Year. 6.4 Right to Change Investment Selections. A Participant shall have the right to change his or her Investment Selections with respect to amounts already deferred and allocated to such Participant's Individual Investment Account. The Participant shall notify the Administrative Committee in writing of a change in the Investment Selection. Such new investment shall become effective as soon as practicable following the date the Administrative Committee receives the notice of a change in the Investment Selection. 6 7.0 BENEFITS 7.1 In General. On the date that a Participant's employment with the Company terminates due to retirement, death or due to any other termination of employment, the Participant or Beneficiary shall be entitled to receive from the Company a Benefit as described in this Section 7 based on the Final Valuation determined in accordance with Section 6.2 above. 7.2 Designation of Beneficiary. All Participants shall, in writing, designate a Beneficiary. In the event of the Participant's death prior to the termination of the Participant's employment, the Company shall pay to the Beneficiary a Death Benefit in an amount equal to the balance recorded and reflected in the Participant's Individual Investment Account and based on the Final Valuation. A Participant may change his or her Beneficiary in accordance with procedures established by the Administrative Committee. 7.3. Termination of Participant's Employment. (a) Benefit. Subject to Section 7.3(c) below, if a Participant's employment terminates for any reason other than due to death, including without limitation retirement, the Company shall pay a Benefit to the Participant in an amount equal to the balance reflected and recorded in the Participant's Individual Investment Account and based on the Final Valuation. The Benefit shall be paid in accordance with the Benefit Distribution Election made by the Participant in accordance with Section 7.3(b) below. (b) Benefit Distribution Election. At the time a Participant elects to make Deferral Allocations in accordance with Section 4.1 above, he or she shall make a written Benefit Distribution Election and shall elect one or a combination of the following two Benefit distribution options in the event of a termination of his or her employment other than due to death: (1) a lump sum payment, payable within 90 days following the date of the termination of the Participant's employment; or (2) equal annual installments for not less than one year nor more than 20 years, with the first payment commencing on the first day of the third calendar month following the date of the termination of the Participant's employment. (c) Subsequent Employment or Reemployment. If a Participant's employment terminates for any reason and during the 90-day period following the date of the termination of the Participant's employment the Participant becomes reemployed by the Company or 7 becomes an employee of any Subsidiary, Section 7.3(a) above (to the extent that a distribution of Benefits has not been made) shall not apply and the Administrative Committee, in its sole discretion, shall cause the Company to maintain the Participant's Individual Investment Account. 7.4 Change in Benefit Distribution Election. With respect to a Participant who wishes to change his or her Benefit Distribution Election made in accordance with Section 7.3(b) above subsequent to delivering the written notification electing to make Deferral Allocations in accordance with Section 4.1 above, the Administrative Committee shall establish procedures to permit or deny the Participant from making such change; provided, however, that the Administrative Committee shall take into account the written positions of both the Internal Revenue Service and the federal courts with respect to whether a taxable event occurs as a result of a change in a Participant's Benefit Distribution Election. 7.5 Mandatory Lump Sum Payment. Notwithstanding anything contained in the Plan to the contrary, if the Final Valuation of a Participant's Individual Investment Account as of the date of the termination of the Participant's employment (as determined in accordance with Section 7.3 above), is below $25,000, then the Benefit shall be paid in a lump sum irrespective of the Participant's Benefit Distribution Election. 7.6 Tax Withholding. The Company has the right to withhold taxes from any payment made in accordance with this Plan or make such other provisions as it deems necessary or appropriate to satisfy its obligations to withhold federal, state, local or foreign income or other taxes incurred by reason of Benefit payments or an Administrative Committee Discretionary Distribution in accordance with this Plan. In lieu thereof, the Company shall have the right, to the extent permitted by law, to withhold the amount of any such taxes from any other amounts payable by the Company to the Participant upon such terms and conditions as the Administrative Committee shall prescribe. The Company shall have the right to require a Participant, former Participant or Beneficiary who has received a Benefit or an Administrative Committee Discretionary Distribution under the Plan to reimburse the Company for any taxes subsequently required to be withheld or otherwise deducted or paid by the Company with respect to such Benefit or Administrative Committee Discretionary Distribution previously paid to such Participant, former Participant or Beneficiary. 7.7 Spendthrift Provision. No Benefit payable under this Plan shall be subject in any manner by the Participant or Beneficiary or creditors of any Participant or Beneficiary to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment. 8 7.8 Participants' Status as General Creditors. Participants shall have the status of general unsecured creditors of the Company. The obligations of the Company to pay Benefits under the Plan constitute a mere promise by the Company to make such Benefit payments. 8.0 HARDSHIP WITHDRAWALS 8.1 Hardship Withdrawals. In an event of an Unforeseen Emergency, a Participant may withdraw from his or her Individual Investment Account an amount (i) equal to or less than the aggregate of all Deferral Allocations and (ii) necessary to meet the Unforeseen Emergency. The Administrative Committee shall establish procedures to effect such withdrawals. In addition, the withdrawal shall be subject to the rules and conditions contained in Treasury Regulation Sections 1.457-2(h)(4) and (5); provided, however, that such rules and conditions are consistent with the Plan. 9.0 AMENDMENT AND TERMINATION 9.1 Amendment. The Company may amend the Plan at any time and from time to time and any amendment may have retroactive effect, including, without limitation, amendments to the amount of contributions; provided, however, that no amendment shall (i) reduce the value of a Participant's Individual Investment Account or (ii) change the form or timing of payment of the Benefit with respect to Deferral Allocations allocated prior to the date of amendment. 9.2 Termination. While the Plan is intended to be permanent, the Company may at any time terminate the Plan. Written notice of such termination, setting forth the date and terms thereof, shall be given to the Administrative Committee. Upon a termination of the Plan, whether in writing or in operation, or upon a complete discontinuance of allocations thereunder, (i) the Administrative Committee shall remain in existence and (ii) all of the provisions of the Plan shall remain in full force to the extent not inconsistent with the termination, so long as Individual Investment Accounts remain unpaid. 10.0 MISCELLANEOUS PROVISIONS 10.1 Construction. All questions pertaining to the construction, regulation, validity and effect of the provisions of the Plan shall be determined by the Administrative Committee in accordance with the laws of the State of Delaware without reference to principles of conflict of laws, except as such laws may be preempted by ERISA or other federal law. 9 10.2 Limitation of Rights. The establishment and maintenance of the Plan shall not be deemed to constitute a contract of employment between the Company and any Executive, and nothing herein contained shall be deemed to give to any Executive the right to be retained in the employ of the Company or any Subsidiary or to interfere with the right of the Company or any Subsidiary to discharge any Executive at any time. 10.3 Return of Contributions or Benefits. Any Benefit, Death Benefit or Administrative Committee Discretionary Distribution paid by the Company under a mistake in fact, shall be immediately returned to the Company. 10.4 Severability. If a court of competent jurisdiction holds any provision of the Plan to be invalid or unenforceable, the remaining provisions of the Plan shall continue to be fully effective. 10.5 Representations. The Company does not represent or guarantee that any particular federal or state income, payroll, personal property or other tax consequence will result from participation in the Plan. A Participant should consult with professional tax advisors to determine the tax consequences of his or her participation. 10.6 Successor Companies. Any business entity which succeeds to all or substantially all of the business or assets of the Company may, by resolution of its board of directors (or like controlling body), adopt the Plan and shall thereupon succeed to such rights and assume such obligations hereunder as such business entity and the Company shall have agreed upon in writing. 10 HeaderA will print on Pages 2-. FooterA will print on Pages 2-. NYFS09...:\77\54877\0004\1760\PLN0097R.140 -----END PRIVACY-ENHANCED MESSAGE-----