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-