-----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, Ws9kQvW44M81xK5P1u2zYU+RmbBhgs+zeyNju0fNilukXYmtcR25NwuWGO7bCZ2W keFj8ExC6ruxqVsqASTArA== 0000914039-98-000071.txt : 19980312 0000914039-98-000071.hdr.sgml : 19980312 ACCESSION NUMBER: 0000914039-98-000071 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980311 SROS: NONE 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-K SEC ACT: SEC FILE NUMBER: 001-04801 FILM NUMBER: 98563859 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-K 1 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR _____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-4801 BARNES GROUP INC. (Exact name of registrant as specified in its charter) DELAWARE 06-0247840 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 123 MAIN STREET, BRISTOL, CONNECTICUT 06011-0489 - ------------------------------------- ---------- (Address of Principal Executive Office) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (860) 583-7070 -------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, $0.01 Par Value New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE 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 __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. _____ The aggregate market value of the registrant's voting stock held by non-affiliates amounted to $509,179,001 as of January 31, 1998. The registrant had outstanding 20,165,505 shares of common stock as of January 31, 1998. DOCUMENTS INCORPORATED BY REFERENCE: Parts I and II incorporate information by reference from the registrant's 1997 Annual Report to Stockholders. Part III incorporates information by reference from the registrant's Proxy Statement dated March 11, 1998. 2 PART I Item 1. Business. The Company was organized as a Delaware corporation in 1925. The Company is in three businesses: Bowman Distribution, a distributor of consumable repair and replacement products for industrial, heavy equipment, and transportation maintenance markets; Associated Spring, a manufacturer and distributor of custom-made springs and other close-tolerance engineered metal components; and Barnes Aerospace, a manufacturer of precision machined and fabricated assemblies for the aircraft and aerospace industries and a refurbisher of jet engine components.* Bowman Distribution. Bowman Distribution is engaged in distributing in the United States, Canada, the United Kingdom and France, a variety of replacement parts and other products, including fasteners and special purpose hardware, automotive parts, automotive specialties and accessories, general purpose electric and gas welding supplies, industrial maintenance supplies, and industrial aerosols such as adhesives, lubricants, and sealants. The products sold by Bowman Distribution are generally not manufactured by the Company, but are obtained from a number of outside suppliers. The vast majority of the products are repackaged and sold under Bowman's labels. Sales by Bowman Distribution in the United States and Canada are primarily to industrial and food processing plants, chemical and petrochemical process industries, contractors, new-car dealers, garages, service stations, operators of vehicle fleets, railroads, electric utilities and airline ground maintenance facilities. Associated Spring. Associated Spring manufactures and distributes a wide variety of custom metal parts for mechanical purposes. It is equipped to produce practically every type of spring requiring precision engineering, as well as an extensive variety of precision metal components and assemblies. Its products range in size from fine hairsprings for instruments to large springs for heavy machinery, and its output of a given metal part may vary in amount from a few units to several million. Associated Spring does not produce leaf springs or bed springs. Associated Spring's custom metal parts are sold in the United States and through the Company's foreign subsidiaries to manufacturers in many industries, chiefly for use as components in their own products. Custom metal parts are sold primarily - ------------------ *As used in this annual report, "Company" refers to the registrant and its consolidated subsidiaries except where the context requires otherwise, and "Associated Spring," "Barnes Aerospace," and "Bowman Distribution" refer to the above-defined businesses, but not to separate corporate entities. 1 3 through Associated Spring's sales employees. In view of the diversity of functions which Associated Spring's custom metal parts perform, Associated Spring's output is characterized by little standardization, with the major portion being manufactured to customer specifications. The automotive and automotive parts industries constitute Associated Spring's largest single custom metal parts market. Other important outlets include manufacturers of industrial and textile machinery, motors, generators, electronic equipment, aircraft, diesel and other internal combustion engines, household appliances and fixtures, hardware, office equipment, agricultural equipment, railroad equipment, general machinery and scientific instruments. The Associated Spring Distribution division is engaged in the distribution of industrial products to the tool and die market, of which die springs manufactured primarily by Associated Spring are the principal item. It also distributes certain standard parts manufactured by Associated Spring consisting primarily of stock wire and flat springs which are sold under the Company's SPEC registered trademark. Associated Spring also has manufacturing operations in Brazil, Canada, Mexico and Singapore, and distribution operations in the United Kingdom and France. The Company has retained a minority interest of 15% in its former subsidiary in Argentina. The Company is a partner in a joint venture corporation in the United States with NHK Spring Co., Ltd. of Japan. The joint venture corporation, NHK-Associated Spring Suspension Components Inc. ("NASCO"), has a manufacturing facility in Bowling Green, Kentucky. It manufactures and sells hot-wound coil springs for automotive suspension systems and counterbalance torque bars for trunk lids. Barnes Group owns a minority interest of 45% in NASCO. Barnes Aerospace. Barnes Aerospace is engaged in the advanced fabrication and precision machining of components for jet engines and airframes as well as the repair and overhaul of jet engine components. The Original Equipment Manufacture (OEM) and overhaul and repair businesses constitute the Barnes Aerospace group. The OEM division consists of three facilities located at Windsor, Connecticut, Lansing, Michigan and Ogden, Utah. The Windsor plant manufactures machined and fabricated parts as well as assemblies. It specializes in the machining of difficult-to-process aircraft engine superalloys. Manufacturing processes include computer numerically controlled machining, electrical discharge machining, laser drilling, creep-feed grinding and automated deburring. Customers include gas turbine engine manufacturers for commercial and military jets as well as land-based turbines. The Lansing and Ogden plants specialize in hot forming and fabricating titanium and other high-temperature alloys 2 4 such as hastelloy and inconel for use in precision details and assemblies for aircraft engine and airframe applications. They utilize advanced manufacturing processes including superplastic forming and diffusion bonding. The overhaul and repair business, which maintains facilities in Windsor, Connecticut and Singapore, specialize in refurbishing jet engine components. Electron beam welding and plasma spray are two of the major processes used by this business. Customers include approximately 30 airlines and engine overhaul businesses worldwide and the U.S. military. Segment Analysis. The analysis of the Company's revenue from sales to unaffiliated customers, operating income and identifiable assets by industry segments and geographic areas appearing on pages 29 and 30 of the Company's 1997 Annual Report to Stockholders, included as Exhibit 13 to this report, is incorporated by reference. Competition. The Company competes with many other companies, large and small, engaged in the manufacture and sale of custom metal parts (including aerospace components). The Company believes Associated Spring is the largest domestic manufacturer of precision springs used for mechanical purposes. The Company also faces active competition in the products sold by Bowman Distribution. The principal methods of competition for the Company's three businesses include service, quality, price, reliability of supply, and also, in the case of Associated Spring and Barnes Aerospace, technology and design. Backlog. The backlog of the Company's orders believed to be firm amounted to $185,336,000 at the end of 1997, as compared with $151,142,000 at the end of 1996. Of the 1997 year-end backlog, $131,427,000 is attributable to the Barnes Aerospace Group and all of the balance is attributable to the Associated Spring Group. $29,487,000 of Barnes Aerospace's backlog is not expected to be shipped in 1998. Substantially all of the remainder of the Company's backlog is expected to be shipped during 1998. Raw Materials and Customers. None of the Company's divisions or groups are dependent upon any single source for any of their principal raw materials or products for resale, and all such materials and products are readily available. No one customer accounted for more than 10% of total sales in 1997. Automotive manufacturers and manufacturers of electronic products are important customers of Associated Spring. Sales by Barnes Aerospace to two domestic jet engine manufacturers accounted for approximately 53% of its business. Bowman Distribution is not dependent on any one or a few customers for a significant portion of its sales. Research and Development. Although most of the products manufactured by the Company are custom parts made to the customers' specifications, the Company is engaged in continuing efforts aimed at discovering and implementing new knowledge that is useful in developing new products or services or improving significantly existing 3 5 products or services. The Company spent approximately $3,625,000 on its research and development activities in 1997, as compared to expenditures of approximately $3,957,000 in 1996 and $3,087,000 in 1995. There were no significant customer-sponsored research and development activities. Patents and Trademarks. Patents, licenses, franchises and concessions are not material to any of the Company's businesses. Employees. As of the date of this report, the Company employs approximately 3,900 people, 670 of which are union employees. The Company considers its relations with its employees to be good. Environmental Laws. Compliance with federal, state, and local laws which have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment has not had a material effect and is not expected to have a material effect upon the capital expenditures, earnings, or competitive position of the Company. Item 2. Properties. The Company and its Canadian subsidiary operate 12 manufacturing plants and 14 warehouses at various locations throughout the United States and Canada, of which all of the plants and 6 of the warehouses are owned and the others are leased. Of the properties which are owned, none are subject to any encumbrance. The Company's other foreign subsidiaries own or lease plant or warehouse facilities in the countries where their operations are conducted. The listing of the facility locations of each of the Company's businesses contained in the Directory of Operations, which appears on page 34 of the 1997 Annual Report to Stockholders included as Exhibit 13 to this report, is incorporated by reference. The Company believes that its owned and leased properties have been adequately maintained, are in satisfactory operating condition, are suitable and adequate for the business activities conducted therein, and have productive capacities sufficient to meet current needs. Item 3. Legal Proceedings. There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party, or of which any of their property is the subject. 4 6 Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted during the fourth quarter of 1997 to a vote of security holders. The following information is included in accordance with the provisions of Item 401(b) of Regulation S-K: Executive Officers of the Company*
Age as of Executive Officer Position December 31, 1997 - ----------------- -------- ----------------- Theodore E. Martin President and Chief Executive Officer 58 (since 1995) Cedric D. Beckett Vice President, Barnes Group Inc. and President, 33 Barnes Aerospace (since 1997) Francis C. Boyle, Jr. Vice President, Controller (since 1997) 47 Leonard M. Carlucci Vice President, Barnes Group Inc. (since 1994) 51 and President, Bowman Distribution (since 1995) Ali A. Fadel Vice President, Barnes Group Inc. and President, 42 Associated Spring (since 1994) William V. Grickis, Jr. Vice President, General Counsel and Secretary 47 (since 1997) John J. Locher Vice President, Treasurer (since 1992) 53 Terry M. Murphy Senior Vice President, Finance 49 (since 1997) James A. Paynter Senior Vice President, Human Resources (since 57 1997)
* All officers are elected by the Board of Directors and serve an indefinite term at the discretion of the Board. 5 7 Except for Messrs. Beckett, Grickis, Murphy and Paynter, each of the Company's executive officers has been employed by the Company or its subsidiaries in an executive or managerial capacity for at least the past five years. Each officer holds office until his successor is chosen and qualified or otherwise as provided in the By-Laws. No family relationships exist among the executive officers of the Company. Mr. Beckett joined the Company as Operations Analyst in June 1994; was promoted to Director, Operations, for Windsor Manufacturing in December 1994; and became Acting President of that unit in April 1995. In July 1995, he was named President, Windsor Manufacturing. He was thereafter promoted to President, Barnes Aerospace, OEM and Fabrications, in August 1997; and in November 1997, he was elected to the position of Vice President, Barnes Group Inc. and President, Barnes Aerospace. Prior to joining the Company, Mr. Beckett held various positions at the Hamilton Standard Division of United Technologies Corporation. Mr. Grickis joined the Company as Vice President, General Counsel in February 1997, and was elected Secretary in October 1997. Prior to joining the Company Mr. Grickis was Corporate Counsel and Assistant Secretary of Loctite Corporation, a multinational manufacturer and marketer of specialty chemical adhesives and sealants. Mr. Murphy joined the Company as Senior Vice President, Finance in September 1997. Prior to joining the Company Mr. Murphy was Vice President and Chief Financial Officer for Kysor Industrial Corporation, a major manufacturer of refrigeration equipment and transportation components. Mr. Paynter joined the Company as Senior Vice President, Human Resources in May 1997. Prior to joining the Company Mr. Paynter was Senior Vice President of Human Resources for Grimes Aerospace Company, a major manufacturer of airframe products. 6 8 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters. The information regarding the Company's common stock contained on pages 25 and 26 of the Company's 1997 Annual Report to Stockholders is incorporated by reference. As of January 31, 1998, the Company's common stock was held by 3,828 stockholders of record. The Company's common stock is traded on the New York Stock Exchange. Item 6. Selected Financial Data. The selected financial data for the last six years contained on pages 32 and 33 of the Company's 1997 Annual Report to Stockholders is incorporated by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The financial review and management's analysis thereof appearing on pages 13 through 16 of the Company's 1997 Annual Report to Stockholders are incorporated by reference. Item 8. Financial Statements and Supplementary Data. The financial statements and report of independent accountants appearing on pages 17 through 30 of the Company's 1997 Annual Report to Stockholders are incorporated by reference. See also the report of independent accountants included on page 13 below pursuant to Item 302(a) of Regulation S-K. The material under "Quarterly Data" on page 31 of the Company's 1997 Annual Report to Stockholders is also incorporated by reference. Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure. None. 7 9 PART III Item 10. Directors and Executive Officers of the Company. The material under "Election of Directors" on pages 1 through 4 of the Company's Proxy Statement dated March 11, 1998 is incorporated by reference. See also "Executive Officers of the Company," included above pursuant to Item 401(b) of Regulation S-K. Item 11. Executive Compensation. The information under "Compensation of Directors" appearing on page 4 and the information under "Report of the Compensation Committee," "Compensation," "Stock Options," "Long-Term Incentive Awards," "Pension Plans," and "Change-In-Control Agreements" appearing on pages 6 through 13 of the Company's Proxy Statement dated March 11, 1998, is incorporated by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information concerning this item appearing on pages 5 and 6 of the Company's Proxy Statement dated March 11, 1998, is incorporated by reference. Item 13. Certain Relationships and Related Transactions. None. 8 10 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) The report of Price Waterhouse LLP, independent accountants, and the following financial statements and financial statement schedules are filed as part of this report:
Reference ------------------------------------------- Annual Report Form 10-K to Stockholders (page) (page) Report of independent accountants 13 30 Consolidated balance sheets at December 31, 1997 and 1996 18 Consolidated statements of income for the years ended December 17 31, 1997, 1996 and 1995 Consolidated statements of changes in stockholders' equity for 20 the years ended December 31, 1997, 1996 and 1995 Consolidated statements of cash flows for the years ended 19 December 31, 1997, 1996 and 1995 Notes to consolidated financial statements 21-30 Supplementary information 31 Quarterly data (unaudited) Consolidated schedule for the years ended December 31, 1997, 14 1996 and 1995: Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or notes thereto. 9 11 The consolidated financial statements listed in the above index which are included in the Annual Report to Stockholders of Barnes Group Inc. for the year ended December 31, 1997, are hereby incorporated by reference. With the exception of the pages listed in the above index and in Items 1, 2, 5, 6, 7 and 8, the 1997 Annual Report to Stockholders is not to be deemed filed as part of this report. (b) No reports on Form 8-K were filed during the last quarter of the period covered by this report. (c) The Exhibits required by Item 601 of Regulation S-K are filed as Exhibits to this Annual Report and indexed at pages 15 through 17 of this report. 10 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 20, 1998 BARNES GROUP INC. By /s/ Theodore E. Martin ------------------------------------- Theodore E. Martin President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of the above date by the following persons on behalf of the Company in the capacities indicated. /s/ Theodore E. Martin - ------------------------------------------ Theodore E. Martin President and Chief Executive Officer (principal executive officer) and Director /s/ Terry M. Murphy - ------------------------------------------ Terry M. Murphy Senior Vice President, Finance (principal financial officer) /s/ Francis C. Boyle, Jr. - ------------------------------------------ Francis C. Boyle, Jr. (principal accounting officer) /s/ Thomas O. Barnes - ------------------------------------------ Thomas O. Barnes Director 11 13 /s/ Gary G. Benanav - ------------------------------------------ Gary G. Benanav Director /s/ William S. Bristow, Jr. - ------------------------------------------ William S. Bristow, Jr. Director /s/ Robert J. Callander - ------------------------------------------ Robert J. Callander Director /s/ George T. Carpenter - ------------------------------------------ George T. Carpenter Director /s/ Donna R. Ecton - ------------------------------------------ Donna R. Ecton Director /s/ Robert W. Fiondella - ------------------------------------------ Robert W. Fiondella Director /s/ Frank E. Grzelecki - ------------------------------------------ Frank E. Grzelecki Director /s/ Marcel P. Joseph - ------------------------------------------ Marcel P. Joseph Director 12 14 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Barnes Group Inc. Our audits of the consolidated financial statements for the years ended December 31, 1997, 1996 and 1995 referred to in our report dated January 21, 1998 appearing on page 30 of the 1997 Annual Report to Stockholders of Barnes Group Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule for the years ended December 31, 1997, 1996 and 1995 listed in Item 14(a) of this Form 10-K. In our opinion this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP Hartford, Connecticut January 21, 1998 13 15 BARNES GROUP INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 1997, 1996 and 1995 (in thousands)
Provision Balance at charged to Balance beginning costs and at end of of year expenses Deductions(1) year ------- -------- ------------- ---- 1997 Allowance for $3,158 $1,232 $1,329 $3,061 doubtful accounts 1996 Allowance for $3,635 $ 545 $1,022 $3,158 doubtful accounts 1995 Allowance for $3,222 $1,577 $1,164 $3,635 doubtful accounts
- ------------------ (1) Write-offs, net of recoveries 14 16 EXHIBIT INDEX Barnes Group Inc. Annual Report on Form 10-K for the year ended December 31, 1997
Exhibit No. Description Reference - ----------- ----------- --------- 3.1 Restated Certificate of Incorporation. Filed with this report. 3.2 Amended and Restated By-Laws. Filed with this report. 4.1 Revolving Credit Agreement dated as of Incorporated by referenced to Exhibit 4.1 to December 1, 1991 among the Company and the Company's report on Form 10-K for the several commercial banks. year ended December 31, 1996. 4.2 Sixth Amendment to Credit Agreement set Filed with this report. forth in Exhibit 4.1 dated as of December 1, 1997. 4.3 Rights Agreement dated as of December 10, Incorporated by reference to Exhibit 1 to 1996, between the Company and ChaseMellon the Company's report on Form 8-A filed on Shareholder Services, L.L.C. December 20, 1996. 4.4 Note Agreement dated as of September 16, Incorporated by reference to Exhibit 4.8 to 1991, among the Company and several the Company's report on Form 10-K for the insurance companies. year ended December 31, 1996. 4.5 Note Purchase Agreement dated as of Incorporated by reference to Exhibit 4.9 to December 1, 1995, between the Company and the Company's report on Form 10-K for the several insurance companies. year ended December 31, 1995. 10.1 The Company's Management Incentive Incorporated by reference to Exhibit 10.1 to Compensation Plan. the Company's report on Form 10-K for the year ended December 31, 1995.
15 17
Exhibit No. Description Reference - ----------- ----------- --------- 10.2 The Company's Long Term Incorporated by reference to Exhibit 10.2 to Incentive Plan the Company's report on Form 10-K for the year ended December 31, 1995. 10.3 The Company's Retirement Benefit Incorporated by reference to Exhibit 10.3 to Equalization Plan. the Company's report on Form 10-K for the year ended December 31, 1995. 10.4 The Company's Supplemental Executive Incorporated by reference to Exhibit 10.4 to Retirement Plan. the Company's report on Form 10-K for the year ended December 31, 1995. 10.5 The Company's 1981 Stock Incentive Plan. Incorporated by reference to Exhibit 10.5 to the Company's report on Form 10-K for the year ended December 31, 1996. 10.6 The Company's 1991 Stock Incentive Plan, as Incorporated by reference to Exhibit 10.6 to amended February 21, 1997. the Company's report on Form 10-K for the year ended December 31, 1996. 10.7 The Company's Non-Employee Director Incorporated by reference to Exhibit 10.7 to Deferred Stock Plan. the Company's report on Form 10-K for the year ended December 31, 1994. 10.8 The Company's Amended and Restated Incorporated by reference to Exhibit 10.8 to Directors' Deferred Compensation Plan. the Company's report on Form 10-K for the year ended December 31, 1996. 10.9 Consulting Agreement dated as of April 1, Incorporated by reference to Exhibit 10.9 to 1994 between the Company and Wallace Barnes. the Company's report on Form 10-K for the year ended December 31, 1994.
16 18
Exhibit No. Description Reference - ----------- ----------- --------- 10.10 Addendum to Consulting Agreement set forth Incorporated by reference to Exhibit 10.10 in Exhibit 10.9 dated as of May 22, 1995. to the Company's report on Form 10-K for the year ended December 31, 1995. 10.11 The Company's Officer Enhanced Life Incorporated by reference to Exhibit 10.11 Insurance Program. to the Company's report on Form 10-K for the year ended December 31, 1993. 10.12 The Company's Enhanced Life Insurance Incorporated by reference to Exhibit 10.12 Program. to the Company's report on Form 10-K for the year ended December 31, 1993. 10.13 The Company's Supplemental Senior Officer Incorporated by reference to Exhibit 10.13 Retirement Plan. to the Company's report on Form 10-K for the year ended December 31, 1996. 10.14 The Company's Executive Officer Severance Filed with this report. Agreement. 13 Portions of the 1997 Annual Report to Filed with this report. Stockholders 21 List of Subsidiaries. Filed with this report. 23 Consent of Independent Accountants. Filed with this report. 27 Financial Data Schedule. Filed with this report.
The Company agrees to furnish to the Commission, upon request, a copy of each instrument with respect to which there are outstanding issues of unregistered long-term debt of the Company and its subsidiaries the authorized principal amount of which does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. Except for Exhibit 13, which will be furnished free of charge, and Exhibits 21 and 23, which are included herein, copies of exhibits referred to above will be furnished at a cost of twenty cents per page to security holders who make a written request to the Secretary, Barnes Group Inc., Executive Office, 123 Main Street, P.O. Box 489, Bristol, Connecticut 06011-0489. 17 EX-3.1 2 EX-3.1 1 Exhibit 3.1 RESTATED CERTIFICATE OF INCORPORATION OF BARNES GROUP INC. ----------- Barnes Group Inc., having filed its original Certificate of Incorporation with the Secretary of State of the State of Delaware on January 30, 1925 under the name of Associated Spring Corporation of Delaware, thereby forming a corporation under and pursuant to the provisions of the General Corporation Law of the State of Delaware, does hereby restate its Certificate of Incorporation and certify as follows: FIRST: The name of this corporation is BARNES GROUP INC. SECOND: Its principal office in the State of Delaware is located at No. 1209 Orange Street, in the City of Wilmington, County of New Castle. The name and address of its resident agent is The Corporation Trust Company, No. 1209 Orange Street, Wilmington, Delaware. THIRD: The nature of the business or objects or purposes proposed to be transacted, promoted or carried on are:- (a) To deal in, purchase, manufacture, hold, own, sell or otherwise dispose of, repair, exchange, import and export, all kinds and varieties of springs and spring beds, wire and wire rope, rivets, screws, bolts, nuts, shanks, and other wares manufactured from metals or alloys, either alone or in combination with leather, paper, wood or other substance; all kinds and varieties of articles composed wholly or in part of metal, leather, paper, wood or other substance; plates made of any kind of metal or alloy by rolling or otherwise manufacturing the same; (b) To purchase, produce, manufacture, lease, and sell all kinds of stock, tools, machinery, machine supplies, engineering appliances, engineering accessories, goods, wares, and merchandise, necessary or incidental to the manufacture, purchase, sale, storage or repair of the articles hereinbefore mentioned in clause (a); (c) To produce, manufacture, purchase, sell and deal in manufacturers' and mill supplies, engines, boilers, machinery, tools, machine shops, electrical supplies and appliances, foundry and factory supplies and hardware of all kinds; and generally to produce, manufacture, buy, sell, exchange and deal in all or any of the above specified products or by-products thereof, and all materials used in the production thereof; (d) To acquire, buy, hold, mortgage, lease, sell, exchange and convey, for the purpose of carrying on the business of the 2 corporation, any and all property, both real and personal and any interest therein; (e) To purchase or otherwise acquire, hold, operate under, own, sell, give and receive licenses under, and otherwise deal in patents, patent rights or privileges, inventions, improvements or secret processes, trade marks and trade names, whether or not in any way relating to any of the business aforesaid; (f) To purchase, subscribe for, or otherwise acquire and hold for investment, or otherwise, or to use, sell, assign, transfer, mortgage, pledge, or otherwise dispose of, any shares of stock, bonds, securities, or other obligations or evidences of indebtedness of this corporation or of any other corporation or association, firm, or individual, or of any government, or of any subdivision thereof, and to aid in any manner any such corporation, association, firm, individual, government or any subdivision thereof, whose shares of stock, bonds, or other obligations are held by this corporation, and to do any other act or thing permitted by law for the preservation, protection, improvement, or enhancement of the value of such shares of stock, bonds, securities, or other obligations, and while the owner thereof to exercise all the rights, powers and privileges of ownership, including the right to vote thereon, so far as the same may be permitted by law; (g) To borrow money and from time to time to make and issue promissory notes, bills of exchange, bonds, debentures, and other obligations and evidences of indebtedness of all kinds, secured or unsecured, of the corporation for moneys borrowed or in payment for property acquired, or for any of the other objects or purposes of the corporation, or for any of the objects of its business; to secure the same by mortgage or mortgages, or deed or deeds of trust, or pledge, or other lien upon any or all of the property, rights, privileges, or franchises of the corporation wheresoever situated, acquired, or to be acquired; to sell, pledge, or otherwise dispose of any or all debentures, or other bonds, notes and other obligations, in such manner and upon such terms as the Board of Directors may deem judicious, and to guarantee the payment of any dividends upon stocks, or the principal or interest upon bonds, or the contracts or other obligations of any corporation, association, firm, or individual, so far as the same may be permitted by law; (h) To conduct its business, so far as permitted by law, in the State of Delaware and other states of the United States and in the territories and District of Columbia, and all dependencies and colonies or possessions of the United States and in foreign countries, and for and in connection with such business to acquire, hold, possess, purchase, lease, sell, mortgage and convey real and personal property, or any interest therein, and to maintain offices and agencies either within or anywhere without the State of Delaware; (i) To carry on all or any part of the foregoing objects as principal, factor, agent, contractor or otherwise, either alone or 2 3 in connection with, any person, firm, association, or corporation, in any part of the world, and in general to do any and all things and to exercise any and all such powers as may be incidental to the conduct of the business of the corporation, and in pursuance thereof to exercise all the powers conferred upon the corporation by the General Corporation Law of the State of Delaware, or any other law that may be now or hereinafter applicable to the corporation. The foregoing clauses shall be construed both as objects and powers, and it is hereby expressly provided that the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the powers of this corporation. FOURTH: The total number of shares of all classes of stock which the corporation shall have authority to issue is 63,000,000 shares, consisting of 3,000,000 shares of preferred stock of the par value of $.01 per share and 60,000,000 shares of common stock of the par value of $.01 per share. Shares of preferred stock may be issued from time to time in one or more series, as may be determined from time to time by the Board of Directors, each of said series to be distinctly designated. All shares of any one series of preferred stock shall be alike in every particular, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative. The Board of Directors is hereby authorized to fix the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued series of preferred shares, and any other powers, designations, preferences and relative, participating, optional or other rights of such series, and any qualifications, limitations, or restrictions on any of the rights of such series, and the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. Subject to any rights and privileges granted to the holders of preferred stock by resolution of the Board of Directors pursuant to the provisions of this Article FOURTH, the holders of common stock shall exercise one vote in respect of each share of stock held by them on all matters voted upon by the stockholders; shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors; shall be entitled, upon liquidation or dissolution, to receive all the assets of the corporation, tangible and intangible, of whatever kind available for distribution, remaining after payment of the liquidation preferences granted to any shares of preferred stock, ratably in proportion to the number of shares of common stock held by them; and shall have such other rights and privileges as may be allowed to them by the laws of the State of Delaware. 3 4 The amount of the authorized stock of the corporation of any class or classes may be increased or decreased by the affirmative vote of the holders of a majority of the stock of the corporation entitled to vote. No holder or owner of any shares of stock of the corporation of any class, now or hereafter authorized, at any time shall be entitled as of right, by reason of the holding or ownership of such stock, to subscribe to additional shares of stock (or to obligations convertible into stock) of any class, now or hereafter authorized, which may at any time be issued and disposed of by the corporation. The corporation, from time to time, may issue and dispose of the shares of its stock of any class, now or hereafter authorized, and for such purpose may grant rights or options to subscribe for, purchase or otherwise acquire any shares of such stock, to such person or persons, in such amounts, for such consideration, and on such terms, as the Board of Directors lawfully may determine. At the discretion of the Board of Directors, any distribution to the stockholders upon the liquidation, dissolution or winding up of the corporation may be in whole or in part in securities or property and the determination of the Board of Directors as to the value of such securities or other property shall be conclusive. So far as permitted by law, the corporation may acquire or purchase, out of surplus, shares of any class of the outstanding stock of the corporation in such amounts and for such consideration as the Board of Directors may determine. The corporation from time to time may sell or otherwise dispose of treasury stock held by the corporation (that is to say, stock issued and thereafter acquired by the corporation) to such person or persons and in such amounts and for such consideration as the Board of Directors may determine, and no holder or owner of shares of the stock of the corporation at any time shall be entitled as of right, by reason of the holding or ownership of such stock, to acquire any part thereof. In accordance with this Article FOURTH, the Board of Directors has designated certain shares of preferred stock into a series with the voting powers, preferences, rights, qualifications, limitations and restrictions set forth in the Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of the corporation filed with the Secretary of State of the State of Delaware on July 25, 1986 which is attached hereto as Exhibit A. FIFTH: The number of shares with which the corporation will commence business is ten (10) shares of capital stock, which shares are without nominal or par value. SIXTH: The corporation is to have perpetual existence. SEVENTH: The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever. EIGHTH: The Directors of the corporation need not be 4 5 stockholders thereof. NINTH: In furtherance, and not in limitation of the powers conferred by statute, the Board of Directors, subject to the provisions of this Certificate of Incorporation, is expressly authorized: (a) To make and alter the by-laws of the corporation. (b) To fix the amount to be reserved as working capital over and above its capital stock paid in. (c) From time to time to determine whether and to what extent, and at what times and places, and under what conditions and regulations, the accounts and books of the corporation (other than the stock ledger), or any of them, shall be open to inspection of stockholders; and no stockholder shall have any right of inspecting any account, book or document of the corporation except as conferred by statute, unless authorized by a resolution of the stockholders or the Board of Directors. (d) If the by-laws so provide, to designate three or more of its number to constitute an executive committee, which committee shall, to the extent provided in the by-laws of the corporation, have and exercise any or all of the powers of the Board of Directors in the management of the business and affairs of the corporation and have power to cause the seal of the corporation to be affixed to all papers which may require it. (e) Pursuant to the affirmative vote of the holders of at least two-thirds of the shares of capital stock then issued and outstanding, given at a stockholders' meeting duly called for that purpose, the board of Directors shall have power and authority to mortgage, sell, lease or exchange all of the property and assets of the corporation, including its good will and its corporate franchises, upon such terms and conditions as the Board of Directors deem expedient and for the best interests of the corporation. (f) Both stockholders and directors shall have power, if the by-laws so provide, to hold their meetings, and to have one or more offices within or without the State of Delaware, and to keep the books of the corporation (subject to the provisions of the statutes), outside of the State of Delaware at such places as may be from time to time designated by the Board of Directors. (g) Subject to the provisions of this Certificate of Incorporation, the corporation may in its by-laws confer powers upon its directors in addition to the foregoing, and in addition to the powers and authorities expressly conferred upon them by statute. TENTH: In so far as the same is not contrary to the laws of the State of Delaware, in case the corporation enters into contracts or transacts business with one or more of its Directors, or with any firm of which one or more of its Directors are members, or with any 5 6 association or other corporation of which one or more of its Directors are directors or officers, such contract or transaction shall not be invalidated or in any wise affected by the fact that such Director or Directors were or may be adversely interested therein, even though the vote of the Director or Directors having such adverse interest shall have been necessary to obligate the corporation upon such contract or transaction, and even though the fact of such adverse interest may not have been disclosed prior to the time when the corporation became obligated thereon; no such Director or Directors shall be liable to the corporation or to any stockholder or creditor thereof or by reason of any such contract or transaction, nor shall such Director or Directors be accountable for any gains or profits realized thereon. ELEVENTH: Notwithstanding the provisions of paragraph (a) of Article NINTH of this Certificate of Incorporation and any provision of the By-Laws of the corporation, no amendment to this Certificate of Incorporation or to the By-Laws shall amend, alter, change or repeal any of the provisions of Sections 2, 3, 8 or 9 of Article II of the By-Laws or of this Article ELEVENTH unless adopted by the affirmative vote of the holders of not less than two-thirds of the outstanding shares of stock of the corporation entitled to vote in elections of directors, considered for purposes of this Article ELEVENTH as one class. TWELFTH: 1. In addition to the affirmative vote required by law, the terms of any other Article of this Restated Certificate of Incorporation or otherwise, the approval or authorization of any Business Combination (as hereinafter defined) with any Interested Person (as hereinafter defined) shall require the affirmative vote of the holders of not less than 70 percent of the corporation's Voting Stock (as hereinafter defined); provided that such 70 percent voting requirement shall not be applicable if both of the following conditions are met: (a) The cash per share, if any, plus the fair market value (as determined by a majority of the Continuing Directors) of any other consideration to be received per share by the holders of shares of any class of the corporation's capital stock in conjunction with a Business Combination is not less than the greater of (with appropriate adjustments for any recapitalizations, stock splits, stock dividends and like distributions): (i) the highest price per share (including any and all brokerage, soliciting dealer's or other fees or taxes) paid by the Interested Person to acquire any such shares of the corporation's capital stock during the period beginning two years prior to such Interested Person's acquisition of sufficient shares to become an Interested Person and ending immediately prior to the vote of the stockholders upon such Business Combination involving such Interested Person; or (ii) an amount per share at least equal to the Market Price per share of such shares of the corporation's capital stock immediately prior to the announcement of such Business Combination involving such Interested Person plus a percentage of such Market Price equal to the highest percentage of premium over the then Market Price paid by the Interested Person (including any and all 6 7 brokerage, soliciting dealer's or other fees or taxes) to acquire any such shares of capital stock during the period beginning two years prior to such Interested Person's acquisition of sufficient shares to become an Interested Person and ending immediately prior to the vote by stockholders upon such Business Combination. (b) After such Interested Person's acquisition of such shares which caused it to become an Interested Person but before the consummation of any Business Combination: (i) such Interested Person has received no benefit directly or indirectly (except proportionately as a stockholder) of any loans, advances, guarantees, pledges or other financial assistance or tax credits or other tax advantages provided by the corporation; and (ii) such Interested Person has made no major changes in the corporation's business or capital structure; and (iii) there has been no reduction in the rate of dividends payable on any class of the corporation's capital stock except as may have been approved by a majority of the Continuing Directors; and (iv) such Interested Person has not acquired directly or indirectly any additional newly issued or treasury shares of the corporation's capital stock from the corporation except as a result of a pro rata stock dividend or stock split; and (v) unless otherwise decided by a majority of Continuing Directors, a proxy statement responsive to the requirements of the Securities Exchange Act of 1934, as amended, is mailed to all holders of Voting Stock at least thirty days prior to the vote by stockholders upon such Business Combination for the purpose of soliciting stockholder approval of such Business Combination. Such proxy statement shall contain recommendations in a prominent place, if any have been furnished in writing by the Continuing Directors or any of them, as to the advisability (or inadvisability) of the Business Combination and, if deemed advisable by a majority of the Continuing Directors, an opinion of a reputable investment banking firm as to the fairness (or lack of fairness) of the terms of such Business Combination from the point of view of the holders of Voting Stock other than the Interested Person (such investment banking firm is to be selected by a majority of the Continuing Directors, furnished with all information it reasonably requests and paid a reasonable fee for its services upon receipt by the corporation of such opinion); and (vi) the consideration offered to the corporation's stockholders for the consummation of the Business Combination shall be consideration of the same type and kind paid by the Interested Person in the acquisition of Voting Stock by the Interested Person which caused it to become an Interested Person. 2. Notwithstanding any other provisions of this Article, the 70 7 8 percent voting requirement shall not apply if the Continuing Directors have by an affirmative vote of at least 66 2/3 percent approved the Business Combination. 3. As used in this Article: (a) Business Combination means (i) any merger or consolidation of the corporation or any subsidiary (for the purposes of this section 3, subsidiary means any company in which the corporation owns directly or indirectly a majority of any class of equity security) with or into an Interested Person, (ii) any merger or consolidation of an Interested Person with or into the corporation or any subsidiary, (iii) any sale, lease, exchange, transfer or other disposition, including without limitation a mortgage or any other security device, in one transaction or a series of transactions, of all or any Substantial Part (as hereinafter defined) of the assets either of the corporation or of any subsidiary (including without limitation any voting securities of a subsidiary) to an Interested Person, (iv) any sale, lease, exchange, transfer or other disposition in one transaction or a series of transactions, of all or any Substantial Part of the assets of an Interested Person to the corporation or a subsidiary, (v) the issuance or transfer of any securities (other than by way of pro rata distribution to all stockholders) of the corporation or a subsidiary to an Interested Person, (vi) any reclassification of securities (including without limitation a reverse stock split), recapitalization, reorganization, merger or consolidation that would have the effect of increasing the voting power of an Interested Person, (vii) any liquidation or dissolution of the corporation or any subsidiary, and (viii) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Business Combination. (b) Continuing Director means a person who (i) has been a member of the corporation's Board of Directors since January 1, 1983; or (ii) was a director of the corporation prior to the time that such Interested Person acquired ownership of sufficient Voting Stock to become an Interested Person and who continues to serve as a director after such Interested Person became an Interested Person; or (iii) was a director who has been recommended to directly succeed a Continuing Director or to join the Board of Directors by a majority of the remaining Continuing Directors. (c) Interested Person means any individual, corporation, partnership or other person or entity (including any group composed of persons and any of their Affiliates or Associates acting pursuant to an agreement, arrangement or understanding to acquire, hold, vote or dispose of any of the corporation's Voting Stock) which, together with its Affiliates and Associates, at any time Beneficially Owns in the aggregate 5 percent or more of the Voting 8 9 Stock of the corporation or any subsidiary, and any Affiliate or Associate of any such individual, corporation, partnership or other person or entity. Further and without limitation, any shares of Voting Stock of the corporation or a subsidiary that any Interested Person has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise, shall be deemed beneficially owned by such Interested Person. The terms Affiliates, Associates, and Beneficially Owns as used herein have the meanings set forth as of January 1, 1983 in Regulations 12B and 13D under the Securities Exchange Act of 1934. (d) Market Price means (i) the last sale price of the relevant class of the corporation's capital stock as reported on the composite tape of a national securities exchange on the relevant date, or (ii) if such class of capital stock is not so listed and reported on a national securities exchange, the highest closing asked quotation with respect to a share of such stock during the 30 day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotation System or any system then in use, or (iii) if such class of capital stock is not so listed or quoted, that fair market value determined in good faith by a majority of the Continuing Directors. (e) Substantial Part means the lesser of (i) $10,000,000 or (ii) 10 percent or more of the book value of the total assets of the corporation in question as of the end of its most recent fiscal year ending prior to the time the determination is being made. (f) Voting Stock means all outstanding shares of capital stock of the corporation or another corporation entitled to vote generally in the election of directors and each reference to a proportion of shares of Voting Stock shall refer to such proportion of the votes entitled to be case by holders of shares of Voting Stock. 4. The provisions of this Article TWELFTH shall also apply to a Business Combination with any individual, corporation, partnership or other person or entity which had been an Interested Person, notwithstanding that such individual, corporation, partnership or other person or entity has reduced its stockholdings below 5 percent of the Voting Stock of the corporation. 5. A majority of the Continuing Directors shall have the power and authority to construe and apply any and all of the terms and provisions of this Article TWELFTH on the basis of information known to them after reasonable inquiry. 6. No amendment to this Restated Certificate of Incorporation shall amend, alter, change or repeal any of the provisions of this Article TWELFTH, unless such amendment shall receive the affirmative vote of the holders of not less than 70 percent of the corporation's Voting Stock; provided that if two-thirds of the Continuing Directors vote to recommend the amendment to the stockholders, such amendment shall only require the affirmative vote of the holders of a majority of the corporation's Voting Stock. 9 10 7. Nothing in this Article TWELFTH shall be deemed or construed to relieve any Interested Person from any fiduciary or other obligation imposed by law. THIRTEENTH: No action required to be taken or which may be taken at any annual or special meeting of stockholders may be taken by consent in writing without a meeting of stockholders. No amendment to this Certificate of Incorporation or to the By-Laws shall amend, alter, change or repeal any provision of this Article THIRTEENTH unless adopted by the affirmative vote of the holders of not less than two-thirds of the outstanding shares of stock of the corporation entitled to vote in elections of directors, considered for purposes of this Article THIRTEENTH as one class. FOURTEENTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent authorized by the General Corporation Law of the State of Delaware, as so amended. Any repeal or modification of this Article shall not adversely affect any right or protection of a director of the Corporation existing hereunder with respect to any act or omission occurring prior to or at the time of such repeal or modification. This Restated Certificate of Incorporation was duly adopted by the Board of Directors of the corporation in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware. It only restates and integrates and does not further amend the provisions of the corporation's existing Restated Certificate of Incorporation as heretofore amended or supplemented. There is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation. 10 11 IN WITNESS WHEREOF, Barnes Group Inc. has caused this Restated Certificate of Incorporation to be signed in its corporate name this 17th day of October, 1997. BARNES GROUP INC. By /s/ Theodore E. Martin ----------------------------------- Theodore E. Martin President and Chief Executive Officer 11 EX-3.2 3 EX-3.2 1 Exhibit 3.2 BARNES GROUP INC. AMENDED AND RESTATED BY-LAWS (as of October 17, 1997) 2 TABLE OF CONTENTS ARTICLE I MEETINGS OF STOCKHOLDERS................................................................. 1 Section 1. Annual Meetings......................................................................... 1 Section 2. Special Meetings........................................................................ 1 Section 3. Place of Meetings....................................................................... 1 Section 4. Notice of Meetings...................................................................... 1 Section 5. Quorom.................................................................................. 1 Section 6. Voting.................................................................................. 2 Section 7. Nominations............................................................................. 2 Section 8. Proposals............................................................................... 3 ARTICLE II BOARD OF DIRECTORS...................................................................... 4 Section 1. General Powers.......................................................................... 5 Section 2. Number, Classification, Term of Office, and Qualifications.............................. 5 Section 3. Election of Directors................................................................... 5 Section 4. Term of Office for Directors Elected to Newly Created Directorships..................... 5 Section 5. Time of Meetings, Notices, etc.......................................................... 5 Section 6. Quorum and Manner of Acting............................................................. 6 Section 7. Resignations............................................................................ 7 Section 8. Removal of Directors.................................................................... 7 Section 9. Vacancies and Newly Created Directorships............................................... 7 Section 10. Committees.............................................................................. 7 ARTICLE III OFFICERS............................................................................... 7 Section 1. Number, Appointment, Term of Office and Qualifications.................................. 7 Section 2. The President and Vice Presidents....................................................... 8 ARTICLE IV REIMBURSEMENT AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES.................................................... 8 Section 1. Reimbursement........................................................................... 8 Section 2. Indemnification......................................................................... 9 ARTICLE V SHARES AND THEIR TRANSFER................................................................ 11 ARTICLE VI FISCAL YEAR............................................................................. 11 ARTICLE VII AMENDMENTS............................................................................. 11
i 3 BARNES GROUP INC. (the "Corporation") AMENDED AND RESTATED BY-LAWS (as of October 17, 1997) ------- ARTICLE I MEETINGS OF STOCKHOLDERS SECTION 1. Annual Meetings. The annual meeting of the stockholders of the Corporation for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on such date or time as may be designated by the Board of Directors. SECTION 2. Special Meetings. Special meetings of the stockholders may be called at any time by the Chairman of the Board, the President or the Board of Directors. SECTION 3. Place of Meetings. All meetings of the stockholders shall be held at such place, within or without the State of Delaware, as may be designated by the Board of Directors and specified in the notice to be given to the stockholders in the manner provided in Section 4 of this Article I. SECTION 4. Notice of Meetings. Except as otherwise provided by law, notice of each meeting of the stockholders, whether annual or special, shall be given to each stockholder of record entitled to vote thereat, not less than ten days before the day on which the meeting is to be held, by delivering a written or printed notice thereof to the stockholder personally or by posting such notice in a postage prepaid envelope addressed to the stockholder at the stockholder's last known post-office address. Except as otherwise provided by law, no publication of any notice of a meeting of the stockholders shall be required. Every notice of a special meeting of stockholders, besides stating the time and place of the meeting, shall state briefly the objects thereof, and no business other than that specified in such notice shall be presented at such meeting, except with the unanimous consent in writing of the holders of all the outstanding shares of the Corporation entitled to vote thereon. Nevertheless, notice of any meeting shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy; and if any stockholder shall waive notice of any meeting in person or by attorney thereunto authorized in writing, notice thereof need not be given to him. Notice of any adjourned meeting of stockholders shall not be required to be given. SECTION 5. Quorum. At each meeting of stockholders, the holders of record of a majority of the shares 4 outstanding and entitled to vote at such meeting, present in person or represented by proxy, shall be necessary and sufficient to constitute a quorum for the transaction of business. In the absence of a quorum, a majority in interest of the stockholders entitled to vote who or which are present in person or represented by proxy at the meeting or, if no such stockholder is present or represented, any officer entitled to preside or act as secretary of such meeting, may adjourn the meeting from time to time. At any such adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at the meeting as originally called. SECTION 6. Voting. Unless otherwise provided in the Certificate of Incorporation or these By-Laws, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of stock held by such stockholder. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, at all meetings of the stockholders, all matters shall be decided by the vote of a majority in interest of the stockholders present in person or represented by proxy and entitled to vote, a quorum being present. SECTION 7. Nominations. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Certificate of Incorporation. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 7 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 7. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation: (a) in the case of an annual meeting, not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting is mailed or such public disclosure of the date of the annual meeting is made, whichever first occurs; and (b) in the case of a special meeting of stockholders called for the purposes of electing directors, not later than the close of business on the 10th day following the day on which notice of the date of the special meeting is mailed or public disclosure of the date of the special meeting is made, whichever first occurs. 2 5 To be in proper written form, a stockholder's notice to the Secretary must set forth: (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 7. If the Chairman of the Board of Directors or such other authorized representative of the Corporation presiding over the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman of the Board of Directors or such other authorized representative shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. SECTION 8. Proposals. No business may be transacted at an annual meeting of stockholders, other than business that is (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 8 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 8. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 3 6 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is a called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting is mailed or such public disclosure of the date of the annual meeting is made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 8; provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 8 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of the Board of Directors or such other authorized representative of the Corporation presiding over an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman of the Board of Directors or such other authorized representative shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. ARTICLE II BOARD OF DIRECTORS 4 7 SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors shall have the authority to fix the compensation of the members thereof. SECTION 2. Number, Classification, Term of Office, and Qualifications. The number of directors to constitute the whole Board of Directors shall be nine, but such number may from time to time be increased, or diminished to not less than three, by resolution adopted by the Board of Directors. The Board of Directors shall be divided into three classes as nearly equal in number as may be, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1970, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. At each annual meeting of stockholders after 1970, successors to the directors whose terms shall then expire shall be elected to hold office for terms expiring at the third succeeding annual meeting, except that any director elected to a directorship newly created since the last annual meeting shall hold office for the same term as the other directors of the class to which such director has been assigned. When the number of directors is changed, any newly created directorships or any decrease in directorships shall be so assigned among the classes by the Board of Directors as to make all classes as nearly equal in number as may be. Each director shall continue in office until his successor shall have been elected and qualified or until his death or until his resignation or removal in the manner hereinafter provided. No director need be a stockholder, nor a resident of the State of Delaware. SECTION 3. Election of Directors. At each meeting of the stockholders for the election of directors, the directors shall be elected by a plurality of the votes given at such election. SECTION 4. Term of Office for Directors Elected to Newly Created Directorships. In furtherance of Sections 2 and 9 of this Article II, any director elected to a directorship newly created since the last annual meeting shall be elected to serve the term of the class to which such director is assigned; provided, however that the stockholders of the Corporation shall be afforded the opportunity to ratify and approve the election of that director to the director's assigned class at the next succeeding annual meeting of stockholders. If the election of the director is so ratified and approved, the director shall serve out the remainder of the director's term without further stockholder ratification or approval. Any director elected by stockholders to a directorship newly created at an annual meeting of stockholders at which such director is elected shall serve out the term of the class to which such director is assigned without further stockholder ratification or approval. SECTION 5. Time of Meetings, Notices, etc. 5 8 There shall be an organizational meeting of the Board of Directors for the election of officers and for the transaction of such other business as may properly come before the meeting on the date of the annual meeting of stockholders or as soon as practicable thereafter upon the notice hereinafter provided for a special meeting of the Board of Directors. The directors may, however, without notice, hold the organizational meeting in the city where the annual meeting of stockholders is held and immediately following such annual meeting of stockholders. At the organizational meeting, the directors shall elect one of the directors as Chairman of the Board of Directors. The Chairman of the Board of Directors may, but need not, be an officer or other employee of the Corporation. The Chairman of the Board of Directors, or in the absence of the Chairman of the Board of Directors, any other director selected by those directors attending the meeting, shall preside at all meetings of the Board of Directors. The Chairman of the Board of Directors, or in the absence of the Chairman of the Board of Directors, the President of the Company, shall preside at all meetings of the stockholders. The Chairman of the Board of Directors may be removed as Chairman of the Board of Directors at any time by the Board of Directors. The Board of Directors may provide by resolution for the holding of regular meetings and may fix the time of holding such meetings. Such regular meetings of the Board of Directors may be held without notice. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors, the President or any three directors. Unless otherwise specified in the notice or waiver of notice thereof, each meeting of the Board of Directors shall be held at the office of the Corporation in Bristol, Connecticut. Notice of each special meeting (a) shall be mailed to each director, addressed to the director at the director's residence or usual place of business, at least seven days before the day on which the meeting is to be held or (b) shall be sent to the director by telecopy (if confirmed) or shall be telephoned or delivered to the director personally, in any such case, not later than three days before the day on which the meeting is to be held, unless the Chairman of the Board of Directors or the President determines that circumstances require that a meeting be held on shorter notice. Notice of any meeting need not be given to any director, however, if waived by that director in writing. Any meeting of the Board of Directors shall be a legal meeting without any notice thereof having been given if all the directors shall be present thereat. SECTION 6. Quorum and Manner of Acting. A majority of the directors at the time in office (but not less than one-third of the number necessary to constitute the whole Board of Directors) at a meeting duly assembled shall be necessary and sufficient to constitute a quorum for the transaction of business, subject, however, to the provisions of Section 9 of this Article II. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, the act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, a majority of the directors present at any meeting may adjourn the meeting from time to time until a quorum is available and present. Notice of any adjourned meeting need not be given. 6 9 SECTION 7. Resignations. Any director may resign at any time by giving written notice to the Chairman of the Board, the President or the Secretary. Such resignation shall take effect at the time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 8. Removal of Directors. Any director may be removed at any time for cause, at a meeting of stockholders called for the purpose, by the affirmative vote of the holders of not less than two-thirds of the outstanding shares of stock of the Corporation entitled to vote in elections of directors, considered for the purposes of this Section 8 as one class. SECTION 9. Vacancies and Newly Created Directorships. Any vacancy occurring among the directors by death, resignation, removal or otherwise and any newly created directorships may be filled by a majority of the directors then in office, though less than a quorum, or, in the event such directors are unable to act, by the stockholders. Each director elected to fill a vacancy shall hold office for the unexpired term in respect of which such vacancy occurred. Each director elected to a newly created directorship shall hold office until the next annual meeting of stockholders. SECTION 10. Committees. The Board of Directors, by resolution or resolutions passed by a majority of the whole Board of Directors, may appoint such committees of the Board of Directors as the Board of Directors may determine. Such committees shall have the powers delegated thereto by the Board of Directors. Unless otherwise provided in a resolution of the Board of Directors, each committee of the Board of Directors may fix its own rules of procedure and may meet at such place or places and at such time or times as the committee from time to time shall determine. Each such committee shall cause its proceedings to be recorded, and the minutes of committee meetings shall be distributed to the Board of Directors. ARTICLE III OFFICERS SECTION 1. Number, Appointment, Term of Office and Qualifications. The officers of the Corporation shall be the President and any Vice President or other person determined by the Board of Directors to be an "executive officer" under the rules of the U.S. Securities and Exchange Commission. Each officer shall be appointed by the Board of Directors and shall hold office until a successor shall have been duly appointed and qualified or until death or until earlier resignation or removal. Any officer may be removed either with or without cause by a vote of a majority of the directors then 7 10 in office at any meeting of the Board of Directors at which a quorum is present. SECTION 2. The President and Vice Presidents. The President, subject to the instructions of the Board of Directors and the committees of the Board of Directors, shall have general charge of the business, affairs and property of the Corporation and control over its several officers. The President shall perform such other duties as from time to time may be assigned by the Board of Directors, or any committee of the Board of Directors. At the request of the President or, in his absence or disability, a Vice President designated by the President (or in the absence of such designation, a Vice President designated by the Board of Directors) shall perform all the duties of the President, and when so acting, that Vice President shall have all the powers of, and be subject to all restrictions upon, the President. Any Vice President shall perform such other duties as from time to time may be assigned to that Vice President or to Vice Presidents generally by the Board of Directors, any committee of the Board of Directors or the President. ARTICLE IV REIMBURSEMENT AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES SECTION 1. Reimbursement. Each director and officer of the Corporation shall be entitled to reimbursement for his reasonable expenses incurred in connection with his attention to the affairs of the Corporation, including attendance at meetings. Each employee of the Corporation other than an officer shall be entitled to such reimbursement for that employee's reasonable expenses incurred in connection with his attention to the affairs of the Corporation in accordance with applicable policy of the Corporation or as the Board of Directors or any person designated by it may authorize. 8 11 SECTION 2. Indemnification. (a) Each person who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he/she, or a person of whom he/she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action or inaction in an official capacity or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the laws of Delaware, as the same exist or may hereafter be amended, against all costs, charges, expenses, liabilities and losses (including attorneys' fees, judgments, fines, employee benefit plan excise taxes or penalties and amounts paid or to be paid in settlement reasonably incurred or suffered by such person in connection therewith) and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his/her heirs, executors and administrators; provided, however, that, except as provided in subdivision (b) of this Section 2, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board. The right to indemnification conferred in this Section 2 shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his/her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to any employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this subdivision (a) or otherwise. The Corporation may, by action of the Board, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. (b) If a claim under subdivision (a) of this Section 2 is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any 9 12 such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has failed to meet a standard of conduct which makes it permissible under the Delaware law for the Corporation to indemnify the claimant for the amount claimed. Neither the failure of the Corporation (including the Board, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he/she has met such standard of conduct, nor an actual determination by the Corporation (including the Board, independent legal counsel, or its stockholders) that the claimant has not met such standard of conduct, shall be a defense to the action or create a presumption that the claimant has failed to meet such standard of conduct. (c) The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section 2 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-Laws, agreement, vote of stockholders or disinterested directors or otherwise. (d) The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under Delaware law. (e) To the extent that any director, officer, employee or agent of the Corporation is by reason of such position, or a position with another entity at the request of the Corporation, a witness in any action, suit or proceeding, he shall be indemnified against all costs and expenses actually and reasonably incurred by him or on his behalf in connection therewith. (f) The Corporation may enter into agreements with any director, officer, employee or agent of the Corporation providing for indemnification to the full extent permitted by Delaware law. (g) For purposes of this Section 2, the term "Board" shall mean the Board of Directors of the Corporation or, to the extent permitted by the laws of Delaware, as the same exist or may hereafter be amended, its Executive Committee. On vote of the Board, the Corporation may assent to the adoption of this Article V by any subsidiary, whether or not wholly owned. (h) The rights provided by this Section 2 shall not be available with respect to any claim asserted against the director, officer, employee or agent which 10 13 is based on matters which antedate the adoption of this Section 2; any such claim will be governed by the By-Laws in effect prior to April 2, 1987. (i) If any provision of this Section 2 shall for any reason be determined to be invalid, the remaining provisions hereof shall not be affected thereby but shall remain in full force and effect. ARTICLE V SHARES AND THEIR TRANSFER Certificates for stock of the Corporation shall be issued in the form and bear the signatures required by Delaware law and otherwise shall be as set forth in any applicable resolutions or other action of the Board of Directors. The Corporation and its transfer agents and registrars, if any, shall be entitled to treat the holder of record of any share or shares of stock as the absolute owner thereof for all purposes, except as otherwise expressly provided by the statutes of the State of Delaware. The Board of Directors may make any such policies, rules and regulations as it may deem expedient or advisable concerning the issuance, replacement, transfer and registration of certificates for shares of stock of the Corporation. The Board of Directors may fix in advance a date, determined in accordance with applicable law, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting of stockholders or entitled to consent to corporate action in writing without a meeting or entitled to receive payment of any dividend or distribution or to any allotment of rights or to exercise the rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action. ARTICLE VI FISCAL YEAR The fiscal year of the Corporation shall be fixed, and shall be subject to change, by the Board of Directors. ARTICLE VII AMENDMENTS Except as otherwise provided by law or the Certificate of Incorporation, the power to amend, alter or repeal these By-Laws and adopt new By-Laws may be exercised by the Board of Directors or by the affirmative vote of the holders of record of a majority of the outstanding shares of stock of the Corporation entitled to vote. 11 EX-4.2 4 EX-4.2 1 Exhibit 4.2 SIXTH AMENDMENT TO CREDIT AGREEMENT THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of December 1, 1997, by and between BARNES GROUP INC. (the "Borrower"), the Lenders parties to the Credit Agreement (as defined below) from time to time (the "Lenders'), and MELLON BANK, N.A., a national banking association, as Agent (in such capacity, the "Agent"). WHEREAS, the Agent, the Lenders and the Borrower are parties to a certain Credit Agreement dated as of December 1, 1991 (as amended, the "Credit Agreement"); and WHEREAS, the Borrower has requested that the Lenders extend the Revolving Credit Maturity Date for a period of one year; WHEREAS, the Agent, the Lenders and the Borrower desire to amend the Credit Agreement as set forth herein; and WHEREAS, all words and terms used in this Amendment which are defined in the Credit Agreement are used herein with the same meanings unless otherwise defined herein or required by the context; NOW, THEREFORE, in consideration of the foregoing premises and intending to be legally bound, the Agent, the Lenders and the Borrower hereby agree as follows: Section 1. Extension of Revolving Credit Maturity Date. Pursuant to Section 2.03 of the Credit Agreement and as requested by the Borrower in a letter to the Agent dated November 10, 1997, the Lenders and the Agent hereby agree to extend the Revolving Credit Maturity Date for a period of one year. On and after December 6, 1997 (the "Effective Date"), as provided in Section 2.03 of the Credit Agreement, the Revolving Credit Maturity Date shall be December 6, 2002, as such date may be further extended by the Lenders pursuant to Section 2.03 of the Credit Agreement. Section 2. Conditions. The obligation of the Agent and the Lenders to extend the Revolving Credit Maturity Date shall be subject to satisfaction by the Borrower of the following conditions precedent: (a) The Agent shall have received (with a copy for each Lender) the following documents dated as of the date of the issuance of the Amendment (the "Closing Date") and in form and substance satisfactory to the Lenders: 1 2 (i) An executed counterpart of this Amendment; (ii) A certificate signed by a duly authorized officer of the Borrower stating that (A) the representations and warranties contained in Article III of the Credit Agreement (except for Section 3.06 which continues to be true as of the date set forth therein) are correct on and as of the Closing Date and as though made on and as of the Closing Date and (B) no Event of Default and no event, act or omission which, with the giving of notice or the lapse of time or both, would constitute such an Event of Default has occurred and is continuing or would result from the execution and delivery of the Amendment. (b) The Agent shall have received (with a copy for each Lender) such other approvals, certificates, opinions or documents, in form and substance satisfactory to the Lenders, as the Lenders may reasonably request. Section 3. Effect of Amendment. The Credit Agreement, as amended by this Amendment, is in all respects ratified, approved and confirmed and shall, as so amended, remain in full force and effect. From and after the date hereof, all references in any document or instrument to the Credit Agreement shall mean and include the Credit Agreement, as amended by this Amendment. Section 4. Governing Law. This Amendment shall be governed by and shall be interpreted and enforced in accordance with the laws of the State of New York. Section 5. Counterparts. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original, and all of which counterparts, taken together, shall constitute but one and the same Amendment. Section 6. Expenses. The Borrower shall reimburse the Lenders for all costs and expenses (including fees and expenses of counsel to the Agent) incurred in connection with this Amendment. 2 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized. BARNES GROUP INC. By: \s\ David J. Sinder -------------------------- Title: Director of Operations -------------------------- MELLON BANK, N.A., individually and as Agent By: \s\ John Paul Marotta -------------------------- Title: Assistant Vice President -------------------------- FLEET NATIONAL BANK By: \s\ Jeff Lynch -------------------------- Title: Vice President -------------------------- THE CHASE MANHATTAN BANK By: \s\Carol Ulmer -------------------------- Title: Vice President -------------------------- THE FIRST NATIONAL BANK OF CHICAGO By: \s\ Tom Dow -------------------------- Title: Corporate Banking Officer -------------------------- KEYBANK NATIONAL ASSOCIATION By: Karen A. Lee -------------------------- Title: Vice President -------------------------- BANKBOSTON By: \s\ Harvey Thayer -------------------------- Title: Director -------------------------- 3 EX-10.14 5 EX-10.14 1 EXHIBIT 10.14 SEVERANCE AGREEMENT THIS AGREEMENT, dated __________, is made by and between Barnes Group, Inc., a Delaware corporation (the "Company"), and ____________ (the "Executive"). WHEREAS, the Company considers it essential to the best interests of its shareholders to foster the continued employment of key management personnel; and WHEREAS, the Board recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders; and WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. Defined Terms. The definitions of capitalized terms used in this Agreement are provided in the last Section hereof. 2. Term of Agreement. The Term of this Agreement shall commence on the date hereof and shall continue in effect through December 31, 1999; provided, however, that commencing on January 1, 1999 and each January 1 thereafter, the Term shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend the Term; and further provided, however, that if a Change in Control shall have occurred during the Term, the Term shall expire no earlier than twenty-four (24) months beyond the month in which such Change in Control occurred. 2 3. Company's Covenants Summarized. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 9.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall have been a termination of the Executive's employment with the Company following a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 4. The Executive's Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change of Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason. 5. Compensation Other Than Severance Payments. 5.1 Following a Change in Control and during the Term, during any period that the Executive fails to perform the Executive's full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive's full salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period, until the Executive's employment is terminated by the Company for Disability; provided, however, that the amounts received under this Section 5.1 shall be reduced by any amounts received by the Executive with respect to the same period of time under any long term disability plan of the Company. 2 3 5.2 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason. 5.3 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive's normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason. 5.4 Upon a Change in Control which occurs during the Term, (A) the Company shall, within five (5) days after such Change in Control, pay to the Executive a lump sum cash amount equal to the product of (i) the target award to which the Executive would have been entitled under each of the Company's incentive compensation plans, other than an award of the type described in Section 5.4(B) or 5.4(C) hereof (such target award to be determined pursuant to the provisions of each such plan or, if no such provisions exist in the case of any such plan, as determined by the Compensation Committee of the Board, as constituted immediately prior to the Change in Control, in its sole discretion), in respect of the year in which such Change in Control occurs and (ii) a fraction, the numerator of which shall be the number of months (including fractions thereof) from the first day of the year in which the Change in Control occurs to the 3 4 date on which the Change in Control occurs, and the denominator of which shall be twelve (12); (B) all options held by the Executive to acquire Company stock shall immediately become vested and exercisable in full, and all restrictions on restricted Company stock and other Company stock-based awards held by the Executive shall immediately lapse; and (C) the Company shall, within five (5) days after such Change in Control, pay to the Executive a lump sum cash amount equal to the product of (i) the target award to which the Executive would have been entitled for the then uncompleted cycle under the Company's Long Term Incentive Plan, regardless of whether the Executive is vested in such award, and (ii) a fraction, the numerator of which shall be the number of months (including fractions thereof) from the first day of the cycle in which the Change in Control occurs to the date on which the Change in Control occurs, and the denominator of which shall be the total of months in the cycle. 6. Severance Payments. 6.1 Subject to Section 6.2 hereof, if the Executive's employment is terminated following a Change in Control and during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, then the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6.1 ("Severance Payments"), in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. Notwithstanding the foregoing, the Executive shall not be eligible to receive any payment or benefit provided for in this Section 6.1 unless the Executive shall have executed a release (substantially in the form of Exhibit A hereto) in favor of the Company and others set forth on said Exhibit A, relating to all claims or liabilities of any kind relating to the Executive's employment and termination of employment with the Company. (A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive, the Company shall pay to the Executive within five (5) days of such termination of employment an amount, in 4 5 cash, equal to [3][2] times the sum of (i) the Executive's base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (ii) the highest of (a) the average annual bonus earned by the Executive in respect of the three fiscal years ending immediately prior to the fiscal year in which occurs the Date of Termination, (b) the average annual bonus earned by the Executive in respect of the three fiscal years ending immediately prior to the fiscal year in which occurs the Change in Control or (c) the target bonus in respect of the fiscal year in which occurs the Date of Termination. (B) For the [thirty-six (36)][twenty-four (24)] month period immediately following the Date of Termination, the Company shall cause the Executive to continue to participate in all employee pension and welfare benefit plans (including, but not limited to, the Company's executive life insurance plan) in which the Executive was participating immediately prior to the Date of Termination (or, if more favorable to the Executive, immediately prior to the Change in Control) and to continue to receive such other benefits and perquisites as the Executive was receiving immediately prior to the Date of Termination (or, if more favorable to the Executive, immediately prior to the Change in Control); provided, however, that neither the Company nor any affiliate shall be required by virtue of this Section 6.1(B) to grant stock options or other stock-based awards to the Executive during such period. To the extent such participation in any such plan is barred or otherwise not feasible, the Company shall arrange to provide substantially similar benefits to the Executive (and, if applicable, the Executive's dependents) outside such plan. Benefits otherwise receivable by the Executive pursuant to this Section 6.1 (B) shall be reduced to the extent benefits of the same type are received by or made available to the Executive during the [thirty-six (36)][twenty-four (24)] month period following the Executive's termination of employment (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive). If the Severance Payments shall be 5 6 decreased pursuant to Section 6.2 hereof, and the Section 6.1(B) benefits are thereafter reduced pursuant to the immediately preceding sentence, the Company shall, no later than five (5) business days following such reduction, pay to the Executive in cash the maximum amount which can be paid to the Executive without being, or causing any other payment to be, nondeductible by reason of section 280G of the Code. (C) Within five (5) days of such termination of employment, the Company shall pay to the Executive a lump sum cash amount (the "Pro-Rata Bonus") equal to the product of (i) the target award to which the Executive would have been entitled under each of the Company's incentive compensation plans, other than an award of the type described in Section 5.4(B) or 5.4(C) hereof (such target award to be determined pursuant to the provisions of each such plan or, if no such provisions exist in the case of any such plan, as determined by the Board in its sole discretion), in respect of the year in which such termination occurs and (ii) a fraction, the numerator of which shall be the number of months (including fractions thereof) from the first day of the year during which such termination occurs to the date on which such termination occurs, and the denominator of which shall be twelve (12); provided, however, that if such termination of employment occurs during the same year in which the Change in Control occurs, the Pro Rata Bonus shall be offset by any payments received by the Executive pursuant to Section 5.4(A) hereof. 6.2 (A) Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by the Executive in connection with a Change in Control or the termination of the Executive's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments and benefits, including the Severance Payments, being hereinafter called "Total Payments") would be subject (in whole or part), to the Excise Tax, then, the cash Severance Payments shall first be reduced, and the other payments 6 7 and benefits hereunder shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax, but only if (A) is greater than or equal to (B), where (A) equals the reduced amount of such Total Payments minus the aggregate amount of federal, state and local income taxes on such reduced Total Payments and (B) equals the unreduced amount of such Total Payments minus the sum of (1) the aggregate amount of federal, state and local income taxes on such Total Payments and (2) the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments; provided, however, that the Executive may elect to have the other payments and benefits hereunder reduced (or eliminated) prior to any reduction of the cash Severance Payments. (B) For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a "payment" within the meaning of section 280G(b) of the Code shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm (the "Auditor") which was, immediately prior to the Change in Control, the Company's independent auditor, does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code (including by reason of section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the opinion of Tax Counsel, constitutes reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. (C) At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the 7 8 basis for such calculations including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement). If the Executive objects to the Company's calculations, the Company shall pay to the Executive such portion of the Severance Payments (up to 100% thereof) as the Executive reasonably determines is necessary to result in the proper application of subsection A of this Section 6.2. 6.3 The payments provided in subsections (A), (C) of Section 6.1 hereof shall be made not later than the fifth day following the Date of Termination; provided, however, that if the amounts of such payments, and the limitation on such payments set forth in Section 6.2 hereof, cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). 7. Termination Procedures and Compensation During Dispute. 7.1 Notice of Termination. After a Change in Control and during the Term, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in 8 9 reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 Date of Termination. "Date of Termination," with respect to any purported termination of the Executive's employment after a Change in Control and during the Term, shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 7.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the earlier of (i) the date on which the Term ends or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator; provided, however, that the Date of Termination shall be extended by a notice of dispute given by the Executive only if 9 10 such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence. 7.4 Compensation During Dispute. If a purported termination occurs following a Change in Control and during the Term and the Date of Termination is extended in accordance with Section 7.3 hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement. 8. No Mitigation. The Company agrees that, if the Executive's employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof or Section 7.4 hereof. Further, the amount of any payment or benefit provided for in this Agreement (other than Section 6.1(B) hereof) shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. 9. Successors; Binding Agreement. 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this 10 11 Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 10. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive's signature on the final page hereof and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt: To the Company: Barnes Group, Inc. 123 Main Street P.O. Box 489 Bristol, CT 06011-0489 Attention: ---------------------- ---------------------- 11 12 11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party; provided, however, that this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive's employment with the Company only in the event that the Executive's employment with the Company is terminated on or following a Change in Control, by the Company other than for Cause or by the Executive for Good Reason. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Connecticut. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof) shall survive such expiration. 12. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 13. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 12 13 14. Settlement of Disputes; Arbitration. 14.1 All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. 14.2 Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Hartford, Connecticut in accordance with the rules of the American Arbitration Association then in effect; provided, however, that the evidentiary standards set forth in this Agreement shall apply. The arbitrator shall have the authority to require that the Company reimburse the Executive for the payment of all or any portion of the legal fees and expenses incurred by the Executive in connection with such dispute or controversy. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 15. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below: (A) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. (B) "Auditor" shall have the meaning set forth in Section 6.2 hereof. 13 14 (C) "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code. (D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act. (E) "Board" shall mean the Board of Directors of the Company. (F) "Cause" for termination by the Company of the Executive's employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, (ii) the engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise or (iii) the Executive's conviction for the commission of (a) a felony or (b) any other crime involving moral turpitude. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company. (G) A "Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (I) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing 25% or more of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner 14 15 in connection with a transaction described in clause (i) of paragraph (III) below; or (II) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (III) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly 15 16 from the Company or its Affiliates) representing 25% or more of the combined voting power of the Company's then outstanding securities; or (IV) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. (H) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (I) "Company" shall mean Barnes Group, Inc. and, except in determining under Section 15(E) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. (J) "Date of Termination" shall have the meaning set forth in Section 7.2 hereof. (K) "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties. (L) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. 16 17 (M) "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code. (N) "Executive" shall mean the individual named in the first paragraph of this Agreement. (O) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent) after any Change in Control, of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (I) or (IV) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (I) the assignment to the Executive of any duties inconsistent with the Executive's status as an executive officer of the Company or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control; (II) a reduction by the Company in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (III) the relocation of the Executive's principal place of employment to a location more than 50 miles from the Executive's principal place of employment immediately prior to the Change in Control or the Company's requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations; (IV) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1 hereof; for 17 18 purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. (P) "Notice of Termination" shall have the meaning set forth in Section 7.1 hereof. (Q) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) any member of the Barnes family (by blood or marriage) or any entity for the benefit of, or controlled by, a member of the Barnes family (by blood or marriage), (ii) the Company or any of its subsidiaries, (iii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iv) an underwriter temporarily holding securities pursuant to an offering of such securities, or (v) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company. (R) "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (iii) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of 18 19 either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates); or (iv) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (S) "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees. (T) "Severance Payments" shall have the meaning set forth in Section 6.1 hereof. (U) "Tax Counsel" shall have the meaning set forth in Section 6.2 hereof. (V) "Term" shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein). 19 20 (W) "Total Payments" shall mean those payments so described in Section 6.2 hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. BARNES GROUP, INC. By: ------------------------------- Name: Title: ------------------------------- EXECUTIVE Address: ------------------------------- ------------------------------- ------------------------------- (Please print carefully) 20 21 EXHIBIT A - COMPLETE AND PERMANENT RELEASE TO: __________________ (the "Executive") DATE: _________________ The Executive is hereby offered severance payments and benefits in accordance with and subject to the terms of the Severance Agreement between the Executive and the Company (the "Agreement") dated as of October 17, 1997, in consideration of the Executive's execution and return of this Complete and Permanent Release (the "Release"). The Executive's severance payments and benefits pursuant to the Agreement will commence ten (10) business days after the execution and return to the Company of this Release, but no sooner than the Termination Date, provided that the Executive has not revoked this Release as hereinafter described. The Executive has seven (7) calendar days from the date that the Executive signs this Release to revoke this Release by giving written notice of the Executive's intent to do so to the Company. This Release shall not become effective or enforceable until this seven (7) day period has expired. If the Executive revokes this Release, the Executive will not receive the severance payments and benefits described in the Agreement. By signing below, the Executive agrees that execution of this Release operates to, and hereby does, release the Company, its subsidiaries and affiliates, its (and its subsidiaries' and affiliates') present or former employees, officers, directors, shareholders, representatives and agents (the "Released Parties") from all claims or demands (the "Claims") the Executive has had, presently has or may have, based on the Executive's employment with the Company or the termination of that employment, including any rights or claims the Executive may have based on any facts or events, whether known or unknown by the Executive, including, without limitation, a release of any rights or claims the Executive may have based on the Civil Rights Act of 1966, as amended; the Civil Rights Act of 1991, as amended; the Age Discrimination in Employment Act of 1967, as amended; Title VII of the Civil Rights Act of 1964, as amended; the Americans with Disabilities Act of 1990; the Equal Pay Act of 1963; any and 21 22 all laws of any state concerning wages, employment and discharge; any state or local municipality fair employment statutes or laws; or any other law, rule, regulation or ordinance pertaining to employment, terms and conditions of employment, or termination of employment; provided, however, that execution of this Release shall not adversely affect (i) the Executive's rights to receive benefits under the employee benefit plans and arrangements of the Company, following termination of the Executive's employment; (ii) the Executive's rights under the Agreement; or (3) the Executive's rights to indemnification under applicable law, the Certificate of Incorporation or by-laws of the Company or any agreement between the Executive and the Company. The Executive is advised to consult with an attorney before signing the Release. The Executive has twenty-one (21) calendar days from the date of the Release, as set forth above, in which to sign and return this Release to the Company. For the Company: - ----------------------- - ----------------------- - ----------------------- ACCEPTED THIS ____ DAY OF ___________, 19___ - ----------------------- Executive 22 EX-13 6 EX-13 1 EXHIBIT - 13 [BARNES GROUP INC LOGO] TECHNOLOGY AND SERVICE: ADDING VALUE THROUGH INNOVATION BARNES GROUP INC. 1997 ANNUAL REPORT 2 BARNES GROUP CORPORATE PROFILE Founded in 1857 in Bristol, Connecticut, Barnes Group is a diversified international company with three businesses serving a range of industrial and transportation markets worldwide. INSIDE Financial Highlights......... ....................................3 Stockholder Letter........... ....................................4 The Year in Review: Bowman Distribution....... ....................................6 Barnes Aerospace.......... ....................................8 Associated Spring......... ...................................10 Five-Year Operating Results ...............................................12 Management's Discussion and Analysis ....................................................13 A Continuing Salute to Our Employees................ ...................................13 Consolidated Financial Statements......... ...................................17 Notes to Consolidated Financial Statements ............................................21 Quarterly Data............... ...................................31 Selected Financial Data...... ...................................32 Directory of Operations...... ...................................34 Directors and Officers, Stockholders' Information.... ...................................35 ASSOCIATED SPRING For nearly a century and a half, Associated Spring has been one of the world's leading precision spring manufacturers. Today, more than 90 percent of its business is built on providing highly engineered custom solutions for a range of transportation and industrial applications, including precision stampings and assemblies designed to meet the exacting requirements of durable goods manufacturers. Key markets range from automotive, farm equipment, and construction machinery to home appliances, electronics, and telecommunications. As a high-technology company, Associated Spring has built on its basic strengths with advanced automated systems and research facilities, highly specialized capabilities and services, and a talented team of scientists, engineers, and manufacturing professionals. Quality is at the heart of everything Associated Spring does, as typified by the cover photo, which depicts the inspection of a part for a high-voltage electrical contact at the group's Center For Advanced Research. BOWMAN DISTRIBUTION Bowman Distribution has been an industry leader in the distribution of maintenance, repair and operating (MRO) supplies since 1927. It is one of the world's largest MRO distributors and has grown into an international logistical management services business, serving thousands of customers in North America and Europe. Bowman uses innovative methods to solve customer issues. It has excelled over the years by focusing on three areas: inventory management services, technical support programs, and superior quality products -- all tailored to customer needs. Its primary goal is to help customers maximize their MRO performance to support continued productivity improvement. Bowman does this by managing and controlling the basic logistical costs using the latest technology, such as the developing global management information network shown on the cover. BARNES AEROSPACE Barnes Aerospace is a worldwide producer of machined and fabricated components and assemblies for aircraft engine and airframe builders. It provides engine component overhaul and repair services for most of the world's major commercial airlines and the military. Barnes Aerospace has earned an international reputation both for serving the original equipment manufacture and overhaul and repair markets. The group manufactures complex components for the compressor, combustor, and turbine sections of jet engines. It also produces hot-formed parts from titanium and other high temperature materials for ducting, bulkheads, exhaust nozzles, and fairings. Barnes Aerospace uses the most advanced process control and production techniques available for machining, forming, fabricating, and joining exotic materials. Its quality and continuous improvement programs, as shown in the cover photo, are essential to meeting customer expectations. 2 3 FINANCIAL HIGHLIGHTS - BARNES GROUP INC.
(Dollars in thousands, except per share data) YEARS ENDED DECEMBER 31, 1997 1996 1995 - ------------------------ ---- ---- ---- Net sales $642,660 $594,989 $592,509 Operating income 65,766 55,316 48,804 Net income 40,423 32,568 27,484 Net income per share Basic 2.00 1.63 1.40 Diluted 1.96 1.61 1.38 Capital expenditures 33,398 33,892 35,820 Stockholders' equity at year-end 180,859 157,164 128,841 Return on average equity 23.4% 22.8% 22.6% Total market value of stock at year-end $458,700 $399,835 $235,970 Closing market price per share 22 3/4 20 12 Dividends paid per share .65 .60 .53 Total return (stock price appreciation plus dividends) 17% 72% (1%)
All per share data adjusted for 3-for-1 stock split, effective April, 1997. [NET SALES BAR GRAPH OF BARNES GROUP INC.] [NET INCOME BAR GRAPH OF BARNES GROUP INC.] [TOTAL MARKET VALUE OF STOCK BAR GRAPH OF BARNES GROUP INC.] [TOTAL RETURN ON STOCK BAR GRAPH OF BARNES GROUP INC.] 3 4 FROM THEODORE E. MARTIN, PRESIDENT AND CEO A MESSAGE TO OUR STOCKHOLDERS By any measure, Barnes Group had another outstanding year in 1997. The company continued its momentum that began in 1994, setting new records in net income and earnings per share for the third consecutive year, and new highs in sales for the fourth successive year. Net income for 1997 rose 24 percent to a record $40.4 million, from $32.6 million a year ago. On a basic earnings per share basis, earnings for the year climbed to a new high of $2.00 per share, up 23 percent from $1.63 in 1996. [PICTURE OF THEODORE E. MARTIN] THEODORE E. MARTIN PRESIDENT AND CHIEF EXECUTIVE OFFICER Diluted earnings per share, calculated according to the new Statement of Financial Accounting Standards No. 128, was $1.96 per share in 1997, versus $1.61 per share in 1996. Operating income for 1997 increased 19 percent to $65.8 million, and stockholders' equity at year-end grew 15 percent to $180.9 million. Sales for the year totaled $643 million, up 8 percent from $595 million in 1996. Fourth quarter 1997 earnings also established a new record for the quarter, as the company turned in double-digit gains in both sales and profits. It was the seventh successive quarter of record-breaking earnings. Contributing to the year's overall performance were foreign exchange gains of $1.8 million for the full year, of which $1.1 million occurred in the fourth quarter. Our stockholders continued to reap the rewards of the company's strong performance in 1997. The company's stock price over the year increased 14 percent, closing at $22.75 per share, compared with $20 per share at the end of 1996. In April 1997, our stockholders approved an increase in the company's authorized common shares from 20 million to 60 million and a 3-for-1 stock split, which is reflected in all per share data. We also raised the quarterly cash dividend 11 percent to 16.7 cents per share in the second quarter of 1997, the third increase in the last three years. The dividend, combined with our stock price appreciation, provided a total annual return of 17 percent. The total market value of our company rose 15 percent to $459 million, from $400 million at the end of 1996. For each of the past three years, Barnes Group has posted record financial results with meaningful growth in income and earnings per share. This orderly progression of increased year-over-year results did not happen by chance. It has been the direct result of nearly 3,900 employees working and pulling together to meet our plan for making Barnes Group a top-tier performer for the long term. This has been the blueprint behind the company's record of steady improvement, one that we expect to continue in 1998 and well into the next century. Our record-breaking performance in 1997 was driven by exceptionally strong earnings growth in our Bowman Distribution and Barnes Aerospace businesses, and a respectable performance from Associated Spring. We are especially pleased with the accomplishments of Bowman's North American business, and with the strong, positive strides made by our aerospace group for the fourth consecutive year. Bowman continued its strong profit growth in North America and Europe in 1997. It increased penetration of targeted markets, such as railroads, aerospace companies and manufacturing plants; further developed large multilocation maintenance, repair and operating supplies customers, and continued to reduce operating costs. As a result, Bowman's operating income in 1997 increased for the fourth consecutive year, up 22 percent from a strong 1996 performance. Sales were $220 million, compared with $213 million the previous year. Bowman's gains were also due to a highly successful program for increasing its product mix through new supplier partnerships and alliances, which are providing customers with the right innovative solutions for their particular needs. In addition, it continued to make good progress in its transition to a logistics management operation, with increasingly strong gains in the integrated supply business. This type of operation is enabling large companies to 4 5 adopt a unified approach to their professional maintenance and supply needs, using Bowman as a single-source supplier. A new global management information network is also being developed to improve Bowman's linkage with its customers worldwide. Barnes Aerospace increased its momentum in 1997, turning in significant sales and profits from all of its operations. Buoyed by the sharp upturn in the aerospace market, sales were $137 million, up 33 percent from $103 million in 1996. Operating income climbed dramatically to $14.4 million, up 172 percent from $5.3 million in the prior year. Strong gains were made in the group's precision machining, advanced fabrications and overhaul and repair businesses, as Barnes Aerospace expanded services to aircraft and airframe builders for both commercial airlines and the military. Backlog at year-end reached a record high $131 million, up 27 percent from $103 million in 1996. Under the direction of Cedric D. Beckett, the company's newest vice president and president of Barnes Aerospace, the group completed an important move in 1997, integrating its separate businesses serving the Original Equipment Manufacture (OEM) markets. The OEM operation now includes precision machining and material fabrication, which together are creating a synergy that will lead to further cost savings and productivity. The overhaul and repair business continues to operate separately reporting to Beckett. Associated Spring had sales of $287 million in 1997, up from $280 million the year before. Operating income was $43.0 million, compared with $45.8 million in 1996. The lower income was due partly to softer sales in the electronics and telecommunications markets, and to operating issues in Mexico which were resolved. The group made significant improvements in both its U.S. and Mexico operations in the second half of the year and is poised to capitalize on new growth opportunities in 1998. During the past year, Associated Spring continued to make gains in its automotive-related operations, including its NASCO joint venture, and increased business with Japanese "transplants" in the U.S. It also continued to penetrate the European market, winning new business from several major automotive manufacturers in Germany and Sweden, and it established an office in China to expand its business along the Pacific Rim. The group's distribution business also turned in higher sales and profits from its expanding business for die springs and Stock Precision Engineered Components, particularly in Europe. Our main strategies in 1997 continued to focus on investing in the latest technology and the best people, enabling us to sustain our momentum and respond better to the needs of our customers. To this end, we made important senior management changes at the Executive Office, filling the top positions in Finance, Law and Human Resources. We also elected two new directors, Frank E. Grzelecki, vice chairman of Handy & Harman, and Robert W. Fiondella, chairman, president and CEO of Phoenix Home Life Mutual Insurance Company. As we look to the future, we are confident that our strategy for growth is on target. Our goal remains to continue our global expansion in Europe and Asia, and to further intensify our focus on building profitable sales, improving productivity and reducing costs in all three of our businesses. These efforts will include launching new products and expanding our existing products and services. We firmly believe the company is on track to become one of the leading service-focused companies in distribution and manufacturing worldwide. /s/ Theodore E. Martin Theodore E. Martin President and Chief Executive Officer By order of the Board of Directors February 20, 1998 5 6 BOWMAN DISTRIBUTION: THE YEAR IN REVIEW [PICTURE OF LI-FEN JOU] LI-FEN JOU, INFORMATION CENTER ANALYST AT BOWMAN GROUP HEADQUARTERS IN CLEVELAND, OHIO, EXAMINES A SUPPLY CHAIN PLANNING PYRAMID, ONE OF THE KEY ELEMENTS IN BOWMAN'S NEW WORLDWIDE INFORMATION NETWORK. DESIGNED TO MEET THE CHANGING MRO NEEDS OF ITS CUSTOMERS AND SUPPLIERS INTO THE NEXT CENTURY, THE SYSTEM WILL PROVIDE IMPROVEMENTS IN COMMUNICATIONS, COSTS, PRODUCTIVITY AND ON-TIME DELIVERY THROUGHOUT THE SUPPLY CHAIN. [PICTURE OF LEORNARD M. CARLUCI] LEONARD M. CARLUCCI PRESIDENT, BOWMAN DISTRIBUTION During the past year, Bowman Distribution continued its pivotal role as an essential player in helping the company become a top-tier performer for the long term. In 1997, Bowman moved closer to its strategic goal of becoming the most efficient provider of logistical management services both to targeted markets and to maintenance, repair and operating supplies (MRO) customers on a global basis. 1997 PERFORMANCE Bowman's strategy requires a strong and increasing emphasis on service, cost, and technology. This strategy provided the direction for continued growth in 1997. Sales for the group were $220 million, up from $213 million in 1996. Operating income increased strongly for the fourth consecutive year, advancing 22 percent to $26.7 million, from $22.0 million a year ago. The increase in sales and profits was due to gains made in penetrating large, multilocation MRO customers in targeted transportation, industrial and utilities markets in the U.S., Canada and Europe. Further impetus was provided by Bowman's North American operations, which continued to reduce distribution costs and upgrade both its sales and service account teams. In its European operations, Bowman continued to improve the profit picture, especially in the United Kingdom, reflecting gains in sales and productivity and lower operating expenses. Productivity gains in the U.K. were driven by the full implementation of upgraded systems including bar code scanners to help reduce inventory, error rates, and order processing time. Bowman's primary business focus over the past two years has been to differentiate itself from its competitors by becoming a logistics management operation with a strong emphasis on integrated supply. Because of this approach, Bowman is increasing its high-volume, multiple-location customers, such as Union Pacific Railroad, Grumman Northrop, Federal Express, and Waste Management. During 1997, Bowman continued to build a strong and successful track record in integrated supply. For a growing number of large, multi-location accounts, Bowman is setting up and staffing the customer's own in-house maintenance department. In other accounts, the level of service may consist simply of delivering the product to the loading dock. 6 7 In all cases, Bowman provides a flexible mix of systems, products and services tailored to meet individual customers' needs. The move to selling large accounts has created the need for greater teamwork, with more sophisticated sales and service people working together to build each account. At one large account, where hundreds of suppliers were formerly utilized, a move toward integrated supply resulted in Bowman expanding product offerings and increasing the number of customer locations from six to ultimately over 100 throughout the U.S. This requires account management at the corporate level of the customer and coordination of the entire sales organization by sales management to set up the locations. In addition, product sourcing, inventory and logistics planning are all part of the successful implementation to ensure accelerated sales growth with this key account. This logistics management program is focused on creating a partnership that allows both the customer and Bowman to benefit from the economics of a large account relationship. The goal is to reduce the number of required vendors, provide overall cost reductions for the customer, and improve product quality and service. The past year was also marked by a significant increase in Bowman's product line. Through supplier partnerships and alliances, approximately one million parts are now available to customers. It is all part of a strategy to provide Bowman's customers with innovative solutions to their particular needs. This "bread-basket" approach allows customers to choose the right product mix or system configuration for maximizing their MRO performance. In response to growing market demands worldwide, Bowman has embarked on a major upgrade of its management information system. This investment will enable it to become one of the few MRO suppliers capable of networking information worldwide to its distributors and customers in the U.S., Canada and Europe. Once completed, this new system will meet Bowman's future needs as it expands into additional world markets and strengthens its position as a global, world-class business. MARKET OPPORTUNITIES Bowman is fast becoming the supplier of choice for companies seeking a unified approach to their MRO needs. As major corporations continue their drive to focus on core competencies and productivity, the need to outsource MRO and logistical activities will create significant opportunities for Bowman on a worldwide scale. [BAR GRAPH OF NET SALES OF BOWMAN] [BAR GRAPH OF OPERATING INCOME OF BOWMAN] [PICTURE OF BOWMAN'S RESOURCE PLANNING TEAM] BOWMAN HAS EXTENDED ITS TEAM APPROACH TO EVERY ASPECT OF ITS BUSINESS, FROM SELLING AND SERVICING LARGE, MULTIPLE-LOCATION ACCOUNTS, TO THE DEVELOPMENT OF A NEW STATE-OF-THE-ART GLOBAL MANAGEMENT INFORMATION NETWORK. A CRITICAL PART OF THIS NETWORK INVOLVES SUPPLY CHAIN PLANNING FOR BOWMAN'S MAJOR PRODUCT GROUPS IN THE AREAS OF FORECASTING, INVENTORY PLANNING AND DISTRIBUTION REQUIREMENT PLANNING. HERE, A RESOURCE PLANNING PROJECT TEAM, LED BY MANAGER LOU DIFRANCESCO (CENTER) AND INCLUDING PAM BRITTON (FRONT) AND VIKKI SUTTON, WORKS ON A FORECASTING MODEL FOR BOWMAN'S HIGH-STRENGTH FASTENER LINE. THE TEAM'S GOAL IS TO ENHANCE BOWMAN'S ABILITY TO HAVE THE RIGHT PRODUCT IN THE RIGHT PLACE AT THE RIGHT TIME. THE ADVANCED SYSTEM UPGRADES THE GROUP'S MIS CAPABILITIES, ENABLING BOWMAN TO BECOME MORE RESPONSIVE, EFFICIENT AND COMPETITIVE INTO THE NEW MILLENIUM. THIS TECHNOLOGY ADDS GREAT SPEED TO EVERYTHING FROM PURCHASING TO ORDER PROCESSING, AND PROVIDES BOWMAN WITH THE TIMELY INFORMATION NEEDED FOR LONG-TERM GROWTH AND PRODUCTIVITY GAINS. 7 8 BARNES AEROSPACE: THE YEAR IN REVIEW [PICTURE OF LEE ALBERT] LEE ALBERT, PROCESS ENGINEER AT BARNES AEROSPACE'S OVERHAUL AND REPAIR FACILITY IN EAST GRANBY, CONNECTICUT, EXAMINES THE FRONT INNER FLANGE THICKNESS ON A PRATT & WHITNEY JT9D TURBINE EXHAUST CASE. THIS IS THE LATEST IN A SERIES OF OUTER SHELL REPAIRS APPROVED BY P&W FOR THE GROUP'S OVERHAUL AND REPAIR UNIT. DEVELOPING NEW REPAIR PROCESSES IS ESSENTIAL TO BARNES AEROSPACE'S GROWTH AS A LEADING PROVIDER OF ENGINE COMPONENT REPAIRS FOR THE WORLD'S AIRLINES. [PICTURE OF CEDRIC D. BECKETT] CEDRIC D. BECKETT PRESIDENT, BARNES AEROSPACE The entire Barnes Aerospace business has capitalized on the strong upturn in the commercial aviation market for both engines and airframes. Sales for the group were $137 million in 1997, up 33 percent from $103 million in the previous year, and operating income increased 172 percent to $14.4 million, from $5.3 million a year ago. 1997 PERFORMANCE Barnes Aerospace experienced robust growth in 1997, expanding its service to aircraft engine and airframe builders for commercial airlines and the military at five locations -- four in the U.S. and one in Singapore. Shipments increased more than 30 percent during the year, as demand for the group's capabilities continued to surge. Backlog at year-end reached a record high $131 million, versus $103 million in 1996. For the fourth consecutive year, the aerospace group made solid gains in sales and profits. Significant progress was made by the group's engine component overhaul and repair business in serving the world's major airlines, and by its Original Equipment Manufacture (OEM) units which increased penetration of such major customers as Boeing, Allied Signal and Rolls Royce with both machined components and fabricated assemblies. The group's precision machining unit in Windsor, Connecticut, also continued to make significant gains in penetrating the market for high-thrust, lightweight aircraft engines, 8 9 particularly the GE 90 engine, which powers the new wide-body Boeing 777. CREATING SYNERGY In 1997, the aerospace group began the integration of its three separate businesses serving two distinct market segments -- OEM and overhaul and repair - -- to create a synergy for enhancing future growth and productivity opportunities. The OEM businesses include precision machining and advanced fabrications operations in Windsor, Connecticut; Ogden, Utah; and Lansing, Michigan. Overhaul and repair includes plants in East Granby, Connecticut, and Singapore. The integration of the group's OEM businesses will eliminate duplication of services and operations previously offered independently, and will result in increased cost savings in operations. The ultimate strategic objective of the integration is to offer airframe and engine customers one source for kits, modules and assemblies. [BAR GRAPH OF NET SALES OF BARNES AEROSPACE] [BAR GRAPH OF OPERATING INCOME OF BARNES ACCOUNTING] Barnes Aerospace expects major benefits to come from combining this synergy with its continuing emphasis on research and development, which together will give the group a unique and distinguished position in the aerospace industry. These elements are the key to advancing technology and improving both manufacturing costs and productivity. This is particularly true in its fabrications units where many parts and assemblies made from titanium and other high-temperature metals are being produced for the first time. Further investment is being made in the group's Research and Development Center in Windsor, which serves both the OEM and overhaul and repair units. The center helps aerospace customers with their engine and airframe component designs and materials selection, and analyzes the various metals used by the group to improve product quality and reliability. MARKET OPPORTUNITIES The aviation industry is on an upward trend. With the aerospace manufacturing sector recovering and the maintenance, repair and overhaul sector moving quickly to outsourcing, Barnes Aerospace has many ongoing, long-range customer projects in progress around the world. The response it has received from the aerospace marketplace and customers alike validates the group's focus on quality improvements, shortened delivery times and cost reduction. The Goal Of Barnes Aerospace is to meet the aerospace industry's demand for complex components, while continuing to advance its entire production process and enhance the capabilities of its people. This focus on challenging traditional ways of doing business will continue to provide increases in new orders and repeat business for the entire aerospace group. TEAMWORK AT BARNES AEROSPACE'S PRECISION MACHINING DIVISION IN WINDSOR, CONNECTICUT, PLAYED A CRUCIAL ROLE IN THE DEVELOPMENT AND SUCCESS OF INDIVIDUAL PRODUCT FAMILY CELLS ON THE FACTORY FLOOR, AND LED TO GREATER PRODUCTIVITY, LOWER COSTS AND FASTER CUSTOMER RESPONSE. PICTURED BELOW, IS A BEARING HOUSING CELL, ONE OF A DOZEN PRODUCT CELLS NOW IN OPERATION AT WINDSOR. HERE, MACHINISTS EDGAR MALDONADO (LEFT) AND STANLEY WIECEK (RIGHT), ALONG WITH PAM MICHAELS, INVENTORY CONTROL SUPERVISOR, WORK TOGETHER ON THE FINAL PHASE OF TURNING THE REAR STUB SHAFT FOR A ROLLS ROYCE ENGINE. THE WORK IN THIS CELL IS BEING DONE ON A 4-AXIS OKUMA LATHE, ONE OF MANY HIGH-TECHNOLOGY PROCESSES EMPLOYED BY OUR AEROSPACE GROUP TO MAINTAIN ITS HIGH STANDARDS OF QUALITY AND SERVICE. [PICTURE OF EDGAR MALDONADO, STANLEY WIECEK, AND PAM MICHAELS] 9 10 Associated Spring: The Year In Review [PICTURE OF DENNIS MARTIN] DENNIS MARTIN, SENIOR LABORATORY TECHNICIAN AT ASSOCIATED SPRING'S CENTER FOR ADVANCED RESEARCH IN BRISTOL, CONNECTICUT, PERFORMS CLOSE-UP INSPECTION ON THE CONFIGURATION OF A BATTERY CONTACT SPRING USED IN PAGERS TO ENSURE THE STRINGENT QUALITY AND RELIABILITY STANDARDS SET BY THE CUSTOMER. MARTIN SET UP THE COMPUTER-CONTROLLED WIRE-FORMING MACHINE TO MAKE THE PART AND THEN TRANSFERRED THE TOOLING AND PROGRAMMING TO THE MILWAUKEE PLANT FOR PRODUCTION. [PICTURE OF ALI A. FADEL] ALI A. FADEL PRESIDENT, ASSOCIATED SPRING Associated Spring continued to strengthen its technology and service in 1997, paving the way for increased growth in key industrial and transportation markets. While setting a new high in sales for the sixth consecutive year, its profits were slightly lower in 1997, due to softer sales in the electronics and telecommunications markets, and to operating issues at its Mexico facility early in the year that have since been resolved. 1997 PERFORMANCE Net sales for the group were $287 million in 1997, up from $280 million in the previous year. Operating income for 1997 totaled $43.0 million, compared with $45.8 million in 1996. A number of Associated Spring's U.S. operations performed well, particularly in the second half of 1997. Some of the group's operations experienced strong gains in all market segments and in developing new manufacturing systems to enhance future productivity and profit levels. Strong performances were also turned in by operations serving the industrial sector. These facilities currently supply parts to companies in the durable goods sector, especially those in transportation, home appliances, farm and construction machinery, and electrical and residential products. Associated Spring's distribution business turned in gains in both sales and profits. Strong gains were achieved in expanding the distribution of die springs and Stock Precision Engineered Components (SPEC), particularly in Europe, where it now has 12 locations, including new distributorships in Finland and Hungary. The entire distribution business, including SPEC, was moved from Associated Spring to Bowman Distribution beginning in 1998 to maximize synergies in the company's distribution operations. In addition, Associated Spring's NASCO joint venture in Kentucky, which serves Japanese automotive "transplants" in the U.S., also reported profit gains in 1997. 10 11 Transportation continues to be Associated Spring's largest single market, accounting for about 60 percent of its total business. Associated Spring presently manufactures more than one million parts a day for domestic passenger cars and trucks built by the "Big Three" and by Japanese "transplants" in the U.S. Today, a typical American car is likely to contain more than 100 precision-engineered components built by Associated Spring -- everything from engine valve springs and fuel injection components to brake and suspension stampings. In addition, Associated Spring has increased its penetration of the European spring market, providing components to major European automakers in Germany, Austria, Hungary, and Sweden. In September, Associated Spring officially dedicated a major addition at its Milwaukee facility that has nearly tripled the plant size to 77,000 square feet. The additional capacity will mean increased growth for both existing products, such as starter and torque coil springs, and for new products serving the fast-growing industrial, telecommunications, medical components and residential products markets. In 1997, Associated Spring marked its entry into mainland China, with a sales and engineering office in Tianjin. The group expects to put a full production facility in China for metal fabrications, high-speed stamping, and injection molding by mid-1999, providing a major boost to our spring business in Asia. Continuing its focus on total quality, Associated Spring achieved QS/ISO 9000 certification at two additional operations in 1997. QS 9000 for the automotive industry and ISO 9000 for others, represents a new and improved way of doing business, and sets a high standard of excellence. Associated Spring began its goal to certify each of its manufacturing operations and its Center For Advanced Research (CFAR) in these world-quality system standards in mid-1994. To date, five operations have achieved certification, three in North America and two in Latin America, as well as the Advanced Program Engineering groups. MARKET OPPORTUNITIES Associated Spring is continuing to make solid gains expanding its industrial customer base, particularly in the electronics and telecommunications markets. The business will expand in these and other markets that best benefit from its intensive use of technology. In 1998, Associated Spring plans to continue to build upon its strengths, investing in advanced systems, state-of-the-art facilities, and technological expertise. [BAR GRAPH OF NET SALES OF ASSOCIATED SPRING] [BAR GRAPH OF OPERATING INCOME OF ASSOCIATED SPRING] AS ASSOCIATED SPRING CONTINUES TO STRENGTHEN ITS ADVANCED TECHNOLOGICAL CAPABILITIES, IT IS PLACING A MAJOR EMPHASIS ON AUTOMATING ITS KEY MANUFACTURING OPERATIONS WORLDWIDE. AT ITS BRISTOL, CONNECTICUT PLANT, A TEAM OF ENGINEERS HAS WORKED WITH THE GROUP'S CENTER FOR ADVANCED RESEARCH (CFAR) TO DEVELOP AN AUTOMATIC HEAT SET MACHINE THAT HAS TRANSFORMED THE WAY TRANSMISSION WASHERS ARE FORMED FOR THE AUTOMOTIVE INDUSTRY. AT LEFT IN ABOVE PHOTO, MICHAEL MCGINTY, PROCESS ENGINEER AT BRISTOL, WHO SPECIALIZES IN AUTOMATION AND CONTROLS, AND PAULO COIT, QUALITY ENGINEER, EXAMINE A PART PRODUCED BY ONE OF 11 NEW HEAT SET MACHINES NOW IN OPERATION AT BRISTOL. THE TWO, ALONG WITH OTHER TEAM MEMBERS, ESTABLISHED THE PRODUCTION EQUIPMENT AND QUALITY SPECIFICATIONS FOR THE MACHINES, WHILE CFAR ENGINEERS HELPED DEVELOP THE PROCESS SPECIFICATIONS. THIS INTERNAL TEAMWORK WAS CARRIED THROUGH TO THE MANUFACTURER, ABACUS AUTOMATION, WHICH BECAME PART OF THE PRODUCTION TEAM AT BRISTOL AND WORKED TOGETHER TO BUILD THE MACHINES. 11 12 FIVE-YEAR OPERATING RESULTS - BARNES GROUP INC.
BOWMAN DISTRIBUTION (Dollars in millions) 1997 1996 1995 1994 1993 ------ ------ ------ ------ ------ Net sales $220.0 $213.4 $217.0 $215.1 $193.2 Operating income 26.7 22.0 17.4 12.6 6.7 Identifiable assets (average for the year) 78.1 76.1 82.6 83.4 82.2 Capital expenditures 6.6 2.9 3.6 4.3 5.6 Depreciation expense 3.8 3.7 4.1 3.1 2.9 Yardsticks of profitability: Operating margin 12.1% 10.3% 8.0% 5.9% 3.5% Return on average assets 34.2% 28.9% 21.1% 15.1% 8.2%
BARNES AEROSPACE (Dollars in millions) 1997 1996 1995 1994 1993 ------ ------ ------ ------ ------ Net sales $136.6 $103.1 $ 97.3 $ 82.3 $ 77.0 Operating income (loss) 14.4 5.3 5.0 (1.8) (7.9) Identifiable assets (average for the year) 96.2 91.6 86.3 87.8 96.4 Capital expenditures 7.9 9.4 7.8 3.7 5.4 Depreciation expense 7.1 7.0 7.2 7.5 8.0 Order backlog (at year-end) 131.4 103.4 54.4 53.6 55.7 Yardsticks of profitability Operating margin 10.5% 5.1% 5.1% (2.2%) (10.3%) Return on average assets 15.0% 5.8% 5.8% (2.1%) (2.1%)
ASSOCIATED SPRING (Dollars in millions) 1997 1996 1995 1994 1993 ------ ------ ------ ------ ------ Net sales $287.1 $279.5 $279.0 $272.4 $233.0 Operating income 43.0 45.8 42.6 41.7 27.1 Identifiable assets (average for the year) 180.5 169.1 152.5 134.5 115.3 Capital expenditures 18.7 21.5 24.2 23.7 11.1 Depreciation expense 14.3 13.0 11.6 9.0 7.7 Order backlog (at year-end) 53.9 47.8 56.7 54.5 46.9 Yardsticks of profitability: Operating margin 15.0% 16.4% 15.3% 15.3% 11.6% Return on average assets 23.8% 27.1% 27.9% 31.0% 23.5%
12 13 Management's Discussion And Analysis - Barnes Group Inc. A CONTINUING SALUTE TO OUR EMPLOYEES Once again this year, we are using the financial section to salute a representative number of employees throughout the company whose contributions in 1997 enabled us to achieve record earnings for the third consecutive year. Because of their efforts and those of so many others, our momentum has accelerated in each of the past four years, as we aim to become a top-tier performer for the long term. Carm Buonerba Bowman Distribution Concord, Ontario Michael Utschig Associated Spring Farmington, Connecticut Lonel Douglas Barnes Aerospace East Granby, Connecticut OUR BUSINESS Barnes Group is a worldwide manufacturer of precision metal parts and an industrial maintenance logistics company with three business segments. The Bowman Distribution segment provides maintenance, repair, operating and production services and supplies to industrial and transportation markets. The Barnes Aerospace segment manufactures precision components and assemblies for commercial and military aircraft and provides overhaul and repair services for large commercial aircraft engines. The Associated Spring segment is a manufacturer of assemblies, high precision springs, wireforms and stampings for the transportation, industrial, electronics and telecommunications markets. Through these three businesses, Barnes Group works with its customers' organizations to help them realize the benefits of Barnes Group's manufacturing capabilities and logistics management to enhance the customer's competitiveness and responsiveness. RESULTS OF OPERATIONS For 1997, Barnes Group reported record sales and earnings for the third consecutive year. Sales were up 8% to $643 million compared to $595 million in 1996 and $593 million in 1995. The increase in 1997 sales reflects growth at all three business segments, particularly at Barnes Aerospace, where sales increased 33%. In 1996, sales were up from 1995 primarily as a result of improvement at Barnes Aerospace. Barnes Group continues to generate excellent profit gains. Operating income increased for the fifth consecutive year, up 19% in 1997 to $65.8 million compared to $55.3 million in 1996. The 1997 profit growth was driven by higher sales volume, improved productivity and continued cost reductions at Barnes Aerospace and Bowman Distribution. This was partially offset by Associated Spring, which was impacted by softer sales to the electronics and telecommunications markets, by increased fixed costs related to the Milwaukee plant expansion and by operating issues in Mexico. Operating income in 1996 increased 13% over the $48.8 million reported in 1995, reflecting solid gains at all three business segments. Operating margin has steadily increased to 10.2% in 1997 from the 9.3% and 8.2% reported in 1996 and 1995, respectively. This reflects higher sales volume and lower selling and administrative expenses, partially offset by increased cost of sales. In the past three years, the company has reduced selling and administrative expenses by $15.7 million as sales increased by $73.5 million. This focus on cost management is a key component of Barnes Group's future operating strategy. Lower selling and administrative expenses are driven in large part by Bowman Distribution's ongoing efforts to reduce its operating expenses. In 1997, cost of sales as a percentage of sales increased to 66.4% compared to 64.7% in 1996 and 64.5% in 1995. This is a result of a change in the revenue mix among our three businesses, lower margins associated with new products and larger customers at Bowman Distribution, and slightly higher fixed costs at Associated Spring. SEGMENT REVIEW -- SALES AND OPERATING INCOME Bowman Distribution segment sales for 1997 were $220 million compared to $213 million in 1996 and $217 million in 1995. Bowman North America continues to effectively implement its strategy of penetrating targeted markets, such as railroad, aerospace, public utilities and waste management companies and integrated supply customers to which Bowman provides the support needed to maintain their operating facilities. In Europe, Bowman's sales were flat, as management strategically downsized its van-based sales force in an effort to eliminate low margin business. Bowman's operating income in 1997 of $26.7 million increased $4.7 million, or 22%, from 1996. The 1996 level of $22.0 million increased $4.6 million, or 26%, from 1995. The gains in operating income reflect volume increases, improved supply chain management and lower operating expenses in both North America and Europe. Continued productivity improvements and cost reductions are crucial to Bowman's strategy where competitive pricing is a key to success. 13 14 Management's Discussion And Analysis - Barnes Group Inc. Arturo Mendoza Associated Spring Mexico City, Mexico Kevin Brooks Associated Spring Milwaukee, Wisconsin Dennis Houle Barnes Aerospace Windsor, Connecticut Bridgette ByField Executive Office Bristol, Connecticut Barnes Aerospace segment sales were $137 million in 1997, up 33% from 1996, which followed an increase of 6% from 1995. In 1997, sales improved in all three aerospace businesses: precision machining, overhaul and repair and advanced fabrications on the strength of the commercial aviation market for engines and airframes. Sales growth in 1996 was driven primarily by the overhaul and repair business. Barnes Aerospace operating income increased 172% to $14.4 million in 1997 compared to $5.3 million in 1996. In 1995, the group reported operating income of $5.0 million. The increase in profits for 1997 reflects higher sales volume, improved pricing and significant productivity gains. To further increase productivity while enhancing customer support, Barnes Aerospace consolidated its separate businesses serving the Original Equipment Manufacture (OEM) markets. The OEM operation now incorporates the precision machining and advanced fabrications operations. This integration is expected to leverage resources and result in a more effective organization. Associated Spring segment sales for 1997 were $287 million, up 3% from 1996. Sales in 1996 of $280 million were up slightly from 1995. This segment reported operating income of $43.0 million in 1997 compared to $45.8 million in 1996 and $42.6 million in 1995. Sales from manufacturing operations rose slightly, while profits declined, reflecting some softness in its electronics and telecommunications markets. Additionally, profits were impacted by the increased fixed costs related to the expansion at the Milwaukee facility and operating issues at the manufacturing facility in Mexico in early 1997. The issues in Mexico were resolved and significant improvement was reported in the second half of 1997 at this operation. The Associated Spring distribution business, which markets die springs and precision stock springs, reported both sales and profit growth. Strong gains were achieved in Europe where there are now 12 locations. Effective January 1998, this distribution business was transferred to the Bowman segment to maximize synergies in distribution operations. NON-OPERATING INCOME/EXPENSE Other income was $6.0 million in 1997, $4.1 million in 1996 and $4.4 million in 1995. In 1997, 1996 and 1995, other income included $1.8 million, $1.6 million and $1.9 million, respectively, from the company's investment in NASCO, a company jointly owned with NHK Spring Co., Ltd. of Japan. The 1997 increase in NASCO profits reflects higher sales volume, the direct result of a capacity expansion completed in 1996. Foreign exchange gains, another component of other income, were $2.1 million in 1997. This compares to losses in 1996 and 1995 which are included in other expenses for those years. Additionally, interest income of $1.2 million was generated in 1997 and 1996, and $1.4 million in 1995. Interest expense was $4.9 million in 1997 compared to $5.0 million in 1996 and $5.3 million in 1995. These results reflect comparable borrowing levels and interest rates in 1997 and 1996. For further information on interest expense, see Note 5 of the Notes to Consolidated Financial Statements on page 22. Other expenses were $2.4 million in 1997 compared to $2.1 million in 1996 and $2.5 million in 1995. Included in 1996 and 1995 are foreign exchange and translation losses of $0.8 million and $1.1 million, respectively. INCOME TAXES The company's effective income tax rate has declined steadily over the last four years. The company's effective tax rate was 37.3% in 1997 compared with 37.7% in 1996 and 39.5% in 1995. The lower rate in 1997 was due in part to lower foreign losses without tax benefit and higher foreign income with tax rates lower than the U.S. statutory tax rate. For further discussion of income taxes, see Note 6 of the Notes to Consolidated Financial Statements on page 23. NET INCOME AND NET INCOME PER SHARE Consolidated net income was $40.4 million in 1997, $32.6 million in 1996 and $27.5 million in 1995. On a basic earnings per share basis, income for 1997 was $2.00, compared to $1.63 in 1996 and $1.40 in 1995. Diluted earnings per share, calculated in accordance with the newly issued Statement of Financial 14 15 Michael Fishleigh Bowman Distribution Concord, Ontario Holly Bunn Associated Spring Bristol, Connecticut Andre Luis Goncalves Associated Spring Campinas, Brazil Peggie Canada Bowman Distribution Rockford, Illinois Accounting Standards No. 128, shows the same positive trend as basic earnings per share, increasing from $1.38 in 1995 to $1.61 in 1996 to $1.96 in 1997. This marks the third consecutive year of record earnings. In April 1997, stockholders approved an increase in authorized common shares from 20 million to 60 million and a 3-for-1 stock split. All per share data reflects the stock split. INFLATION Management believes that inflation during the 1995-1997 period did not have a material impact on the company's historical financial statements. LIQUIDITY AND CAPITAL RESOURCES The company's ability to generate cash from operations in excess of its internal operating needs is one of its leading financial strengths. In 1997, management intensified its efforts on working capital management, which contributed significantly to the increase in the cash provided by operating activities. Management will continue to manage liquidity aggressively and anticipates that operating activities in 1998 will provide sufficient cash flows to take advantage of opportunities for internal business expansion and to meet all of the company's financial commitments. Management assesses the company's liquidity in terms of its overall ability to generate cash to fund its operating and investing activities. Of particular importance in the management of liquidity are cash flows generated from operating activities, capital expenditure levels, dividends, capital stock transactions, effective utilization of surplus cash positions overseas and adequate bank lines of credit. Operating activities are the principal source of cash flow for the company, generating a record $71.6 million of cash flow in 1997 compared to $45.8 million in 1996 and $47.3 million in 1995. During the past three years, operating activities provided approximately $165 million in cash which the company used, in part, to pay dividends to stockholders, reduce financing debt, repurchase shares and fund significant investments in plant and equipment. Within operating activities, continued emphasis on asset management eliminated the need for additional investment in working capital in 1997 during a period of increasing sales. This contrasts with 1996, where significant additional working capital was invested to support the sales growth. Investing activities used cash of $34.2 million in 1997 compared with $32.2 million in 1996 and $36.6 million in 1995. Capital expenditures in 1997 were $33.4 million versus $33.9 million in 1996 and $35.8 million in 1995. During the past three years the company has invested over $103 million in new plant, equipment and systems improvements. The focus of these investments is to support business growth and to improve productivity and quality. The company expects 1998 capital spending to continue at a strong pace. In 1997, the company's financing activities used cash of $26.6 million compared to $6.9 million in 1996 and $13.8 million in 1995. The higher usage of cash in 1997 was due to a $10.0 million reduction in long-term debt and the repurchase of $10.7 million of the company's stock. Cash dividends increased to $0.65 per share in 1997. As a result, total cash dividends paid to stockholders increased to $13.2 million. The company has and will continue to utilize cash from non-U.S. subsidiaries to fund international cash requirements when it is cost effective to do so. The repatriation of certain cash balances to the U.S. could have adverse tax consequences; however, those balances are generally available to fund ordinary business needs outside the U.S. To supplement internal cash generation, the company maintains substantial bank borrowing facilities. At December 31, 1997, the company had $150 million of borrowing capacity available under a revolving credit agreement that expires in 2002. During 1997, the company used a portion of the free cash flow generated by its U.S. operations to reduce its long-term debt position from $70 million to $60 million. The long-term debt is comprised, in part, of borrowings under its short-term bank credit lines backed by its long-term revolving credit agreement. 15 16 MANAGEMENT'S DISCUSSION AND ANALYSIS - BARNES GROUP INC. Mak Wah Weng Associated Spring Singapore Manjit Grewal Associated Spring Burlington, Ontario Holly LeBlanc Executive Office Bristol, Connecticut Chan Chaturia Barnes Aerospace Windsor, Connecticut The company considers this a cost effective way to manage its long-term financing needs. The company believes its bank credit facilities coupled with cash generated from operations are adequate for its anticipated future requirements. YEAR 2000 CONVERSION The company recognizes the need to ensure that its systems, applications and computerized equipment will recognize and process transactions for the year 2000 and beyond. In continuing efforts to become more productive and competitive, the company continues to implement management, financial and operational systems throughout the businesses. As part of these implementation processes, the company is managing the risks and the costs associated with the Year 2000 issue. More specifically, Bowman Distribution is in the process of implementing a comprehensive distribution system, which will be utilized worldwide to meet its growing market demands for superior customer service. This system will be compliant with Year 2000 requirements. Barnes Aerospace is in the process of implementing a fully integrated management and manufacturing information system in its advanced fabrications business. This system, which is currently operational in its precision machining business, is Year 2000 compliant. Associated Spring is also in the process of implementing a management and manufacturing information system at all locations. This project began in 1995 and as of December 1997, the system has been implemented at all but two locations. This system will be compliant with Year 2000 requirements. These projects are designed to address the company's operating and business information needs while simultaneously addressing the Year 2000 issue for the majority of the company's critical management, financial and operating systems. In addition, the company's other computer systems and applications are being reviewed and, where appropriate, detailed plans have been, or are being developed and implemented on a schedule intended to permit the company's computer systems to continue to function properly. The costs specific to the Year 2000 issue are not expected to have a material impact on future operating results, financial position or cash flows of the company. Management expects that all projects related to the Year 2000 will be completed on a timely basis; however, if such modifications and conversions are not completed on time, or if the company's suppliers and customers do not address this issue successfully, the Year 2000 issue could have a material impact on the operations and financial condition of the company. FUTURE ACCOUNTING CHANGES In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This standard requires that the company disclose total comprehensive income, which includes net income and other transactions which bypass the income statement. In 1997, the Financial Accounting Standards Board also issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." This standard establishes new requirements for reporting segment information. Under the provisions of these standards the company is not required to, and will not adopt these new standards until 1998. These standards will not impact the company's financial position, results of operations or cash flows. 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 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 fluctuations, regulatory changes and technological changes (including Year 2000 issues), all of which may affect the company's operations, products and markets. (See the company's annual report on Form 10-K for more information about the factors that could affect future results.) 16 17 CONSOLIDATED STATEMENTS OF INCOME - BARNES GROUP INC. Zaya Oshana Executive Office Bristol, Connecticut Janice Fisher Associated Spring Milwaukee, Wisconsin George Bernier Barnes Aerospace East Granby, Connecticut Catherine Lee Associated Spring Farmington, Connecticut
(Dollars in thousands, except per share data) Years Ended December 31, 1997 1996 1995 ----------- ----------- ----------- Net sales $ 642,660 $ 594,989 $ 592,509 Cost of sales 426,550 384,722 382,150 Selling and administrative expenses 150,344 154,951 161,555 ----------- ----------- ----------- 576,894 539,673 543,705 ----------- ----------- ----------- Operating income 65,766 55,316 48,804 Other income 5,969 4,095 4,373 Interest expense 4,864 4,981 5,274 Other expenses 2,369 2,120 2,453 ----------- ----------- ----------- Income before income taxes 64,502 52,310 45,450 Income taxes 24,079 19,742 17,966 ----------- ----------- ----------- Net income $ 40,423 $ 32,568 $ 27,484 =========== =========== =========== Per common share: Net income: Basic $ 2.00 $ 1.63 $ 1.40 Diluted 1.96 1.61 1.38 Dividends 0.65 0.60 0.53 Average common shares outstanding 20,236,884 19,923,987 19,640,013
See accompanying notes. 17 18 CONSOLIDATED BALANCE SHEETS - BARNES GROUP INC. Seow Kee Chong Barnes Aerospace Singapore Elizabeth Jocham Bowman Distribution Edison, New Jersey Tyroon Ataw Bowman Distribution Concord, Ontario Claudemir Goncalves Martins Associated Spring Campinas, Brazil
(Dollars in thousands) December 31, 1997 1996 --------- --------- ASSETS Current assets Cash and cash equivalents $ 32,530 $ 23,986 Accounts receivable, less allowances (1997 - $3,061; 1996 - $3,158) 91,757 88,060 Inventories 61,082 64,942 Deferred income taxes 10,966 9,772 Prepaid expenses 6,682 3,538 --------- --------- Total current assets 203,017 190,298 Deferred income taxes 24,083 23,575 Property, plant and equipment 133,830 131,071 Goodwill 18,773 19,441 Other assets 28,275 25,571 --------- --------- Total assets $ 407,978 $ 389,956 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable $ 2,437 $ 1,767 Accounts payable 37,776 30,363 Accrued liabilities 46,966 46,152 Guaranteed ESOP obligation-current 2,746 2,540 --------- --------- Total current liabilities 89,925 80,822 Long-term debt 60,000 70,000 Guaranteed ESOP obligation 2,205 4,951 Accrued retirement benefits 67,486 69,085 Other liabilities 7,503 7,934 Stockholders' equity Common stock - par value $.01 per share Authorized: 60,000,000 shares Issued: 22,037,769 shares at par value 220 15,737 Additional paid-in capital 47,007 28,347 Retained earnings 183,857 156,698 Foreign currency translation adjustments (15,841) (10,087) Treasury stock at cost (1997 - 1,875,111 shares; 1996 - 2,046,009 shares) (29,433) (26,040) Guaranteed ESOP obligation (4,951) (7,491) --------- --------- Total stockholders' equity 180,859 157,164 --------- --------- Total liabilities and stockholders' equity $ 407,978 $ 389,956 ========= =========
See accompanying notes. 18 19 CONSOLIDATED STATEMENTS OF CASH FLOWS - BARNES GROUP INC. Edward Edgar, Jr. Bowman Distribution Edison, New Jersey Heather Gibson Associated Spring Burlington, Ontario Noyace Daniel Associated Spring Southfield, Michigan Corlisa Edwards Associated Spring Glen Ellyn, Illinois
(Dollars in thousands) Years Ended December 31, 1997 1996 1995 -------- -------- -------- OPERATING ACTIVITIES: Net income $ 40,423 $ 32,568 $ 27,484 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 28,123 26,626 26,750 Loss (gain) on sale of property, plant and equipment 735 (528) (268) Translation losses 237 427 290 Changes in assets and liabilities: Accounts receivable (4,786) (2,321) 365 Inventories 3,150 (9,971) (6,073) Accounts payable 8,036 (1,548) 794 Accrued liabilities 781 2,797 (2,664) Deferred income taxes (1,215) 564 3,479 Other (3,844) (2,810) (2,862) -------- -------- -------- Net cash provided by operating activities 71,640 45,804 47,295 INVESTING ACTIVITIES: Proceeds from sale of property, plant and equipment 1,442 2,361 1,301 Capital expenditures (33,398) (33,892) (35,820) Other (2,266) (706) (2,057) -------- -------- -------- Net cash used by investing activities (34,222) (32,237) (36,576) FINANCING ACTIVITIES: Net increase (decrease) in notes payable 813 1,322 (7,389) Payments on long-term debt (10,000) -- -- Proceeds from the issuance of common stock 6,476 4,907 5,849 Common stock repurchases (10,673) (1,197) (1,746) Dividends paid (13,187) (11,967) (10,491) -------- -------- -------- Net cash used by financing activities (26,571) (6,935) (13,777) Effect of exchange rate changes on cash flows (2,303) (514) (1,097) -------- -------- -------- Increase (decrease) in cash and cash equivalents 8,544 6,118 (4,155) Cash and cash equivalents at beginning of year 23,986 17,868 22,023 -------- -------- -------- Cash and cash equivalents at end of year $ 32,530 $ 23,986 $ 17,868 ======== ======== ========
See accompanying notes. 19 20 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - BARNES GROUP INC.
Foreign Additional Currency Guaranteed Common Paid-In Retained Translation Treasury ESOP Stockholders (Dollars in thousands) Stock Capital Earnings Adjustments Stock Obligation Equity --------- --------- --------- ----------- --------- --------- --------- January 1, 1995 $ 15,737 $ 27,772 $ 118,938 $ (8,715) $ (34,582) $ (12,011) $ 107,139 Net income 27,484 27,484 Dividends paid (10,491) (10,491) Common stock repurchases (1,746) (1,746) Employee stock plans (412) 6,475 6,063 Guaranteed ESOP obligation 2,172 2,172 Income tax benefits on unallocated ESOP dividends 161 161 Translation adjustments (1,941) (1,941) --------- --------- --------- ----------- --------- --------- --------- December 31, 1995 15,737 27,360 136,092 (10,656) (29,853) (9,839) 128,841 Net income 32,568 32,568 Dividends paid (11,967) (11,967) Common stock repurchases (1,197) (1,197) Employee stock plans 987 (134) 5,010 5,863 Guaranteed ESOP obligation 2,348 2,348 Income tax benefits on unallocated ESOP dividends 139 139 Translation adjustments 569 569 --------- --------- --------- ----------- --------- --------- --------- December 31, 1996 15,737 28,347 156,698 (10,087) (26,040) (7,491) 157,164 Net income 40,423 40,423 Reduction in par value (15,517) 15,517 -- Dividends paid (13,187) (10,673) (13,187) Common stock repurchases 7,280 (10,673) Employee stock plans 3,143 (181) 2,540 10,242 Guaranteed ESOP obligation 2,540 Income tax benefits on unallocated ESOP dividends 104 104 Translation adjustments (5,754) (5,754) --------- --------- --------- ----------- --------- --------- --------- December 31, 1997 $ 220 $ 47,007 $ 183,857 $ (15,841) $ (29,433) $ (4,951) $ 180,859 ========= ========= ========= =========== ========= ========= =========
See accompanying notes. 20 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - BARNES GROUP INC. Ed Guthrie Associated Spring Burlington, Ontario Valerie Rose Associated Spring Glen Ellyn, Illinois Kathryn Browne Barnes Aerospace Windsor, Connecticut Dave Imm Bowman Distribution Corsham, United Kingdom (All dollar amounts included in the notes are stated in thousands except per share data and the tables in Note 13.) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL: The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONSOLIDATION: The accompanying consolidated financial statements include the accounts of the company and all of its subsidiaries. Intercompany transactions and account balances have been eliminated. The company accounts for its 45% investment in the common stock of NASCO, an automotive suspension spring company jointly owned with NHK Spring Co., Ltd. of Japan, under the equity method. Other income in the accompanying income statements includes $1,763, $1,550 and $1,897 for the years 1997, 1996 and 1995, respectively, of income from the company's investment in NASCO. The company received dividends from NASCO totaling $596 and $709 in 1997 and 1996, respectively. REVENUE RECOGNITION: Sales and related cost of sales are recognized when products are shipped to customers. CASH AND CASH EQUIVALENTS: All highly liquid investments purchased with an original maturity of three months or less are cash equivalents and are carried at fair market value. INVENTORIES: Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) method was used to accumulate the cost of all U.S. inventories which represent 75% of total inventories. The cost of foreign subsidiary inventories was determined using the first-in, first-out (FIFO) method. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at cost. Depreciation is provided using accelerated methods over estimated useful lives ranging generally from 20 to 50 years for buildings and 3 to 17 years for machinery and equipment. Maintenance and repairs charged to expense were $16,536, $16,179 and $15,396 in 1997, 1996 and 1995, respectively. GOODWILL: Goodwill represents the excess purchase price over the net assets of companies acquired in business combinations. Goodwill acquired since 1970 is being amortized on a straight-line basis over 40 years; similar investments for businesses acquired prior to 1970 (approximately $5,200) are not being amortized. On a periodic basis, the company estimates future undiscounted cash flows of the businesses to which goodwill relates to ensure that the carrying value of goodwill has not been impaired. Accumulated amortization was $8,842 and $8,175 at December 31, 1997 and 1996, respectively. FOREIGN CURRENCY TRANSLATION: Assets and liabilities of foreign operations, except those in countries with high rates of inflation, are translated at year-end rates of exchange; revenue and expenses are translated at average annual rates of exchange. The resulting translation gains and losses are reflected in foreign currency translation adjustments within stockholders' equity. For operations in countries that have high rates of inflation, translation gains and losses are included in net income. These translation effects, along with foreign currency transactions, generated a net gain of $2,095 in 1997 and net losses of $826 and $1,078 in 1996 and 1995, respectively. STOCK-BASED COMPENSATION: The company applies APB Opinion 25 to account for stock-based compensation. The FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," (SFAS 123) effective for years beginning after December 15, 1995. Under the provisions of this accounting standard, the company is not required to change its method of accounting for stock-based compensation. Had the company adopted SFAS 123, the impact on net income and income per share would not have been significant. STOCK SPLIT: On April 2, 1997, the stockholders approved an amendment to the company's Restated Certificate of Incorporation providing for an increase in the number of authorized common shares from 20 million to 60 million and a reduction in the par value of common and preferred stock from $1.00 to $.01 per share. This enabled the company to effect a 3-for-1 stock split for stockholders of record on April 3, 1997. All references to shares and per-share amounts in the consolidated financial statements and accompanying notes have been adjusted retroactively for the 3-for-1 stock split, unless otherwise noted. NET INCOME PER COMMON SHARE: Earnings per share is computed in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share." Basic earnings per share is based on the weighted average number of common shares outstanding during the year. Diluted earnings per share reflects the assumed exercise and conversion of all securities. Shares held by the Employee Stock Ownership Plan (ESOP) are considered outstanding for both basic and diluted earnings per share. There are no adjustments to net income for purposes of computing income available to common stockholders for the years ended December 31, 1997, 1996 and 1995. For purposes of computing dilutive earnings per share, the weighted average number of shares outstanding were increased by 419,433, 277,077 and 233,565 for 1997, 1996 and 1995, respectively, representing the potential dilutive effects of stock-based plans. 21 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - BARNES GROUP INC. Daniel Dufeu Bowman Distribution Voisins LeBretonneaux, France Michelle Shuckerow Bowman Distribution Cromwell, Connecticut Roger Yap Associated Spring Singapore William Koss Associated Spring Glen Ellyn, Illinois 2. INVENTORIES Inventories at December 31, consisted of:
1997 1996 ------- ------- Finished goods $30,519 $30,285 Work-in-process 17,369 17,730 Raw materials and supplies 13,194 16,927 ------- ------- $61,082 $64,942 ======= =======
Inventories valued by the LIFO method aggregated $45,661 and $46,056 at December 31, 1997 and 1996, respectively. If LIFO inventories had been valued using the FIFO method, they would have been $13,744 and $13,348 higher at those dates. 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, consisted of:
1997 1996 -------- -------- Land $ 3,782 $ 4,577 Buildings 65,610 64,336 Machinery and equipment 265,444 251,691 -------- -------- 334,836 320,604 Less accumulated depreciation 201,006 189,533 -------- -------- $133,830 $131,071 ======== ========
4. ACCRUED LIABILITIES Accrued liabilities at December 31, consisted of:
1997 1996 ------- ------- Payroll and other compensation $17,006 $15,188 Postretirement/ postemployment benefits 6,047 6,465 Vacation pay 4,621 4,521 Accrued income taxes 2,872 6,688 Pension and profit sharing 3,163 2,102 Other 13,257 11,188 ------- ------- $46,966 $46,152 ======= =======
5. DEBT AND COMMITMENTS Long-term debt at December 31, consisted of:
1997 1996 ------------------------ ------- CARRYING FAIR Carrying AMOUNT VALUE Amount ------- ------- ------- 9.47% Notes $24,615 $25,771 $30,769 7.13% Notes 25,000 25,192 25,000 Borrowings under lines of credit 3,385 3,385 7,231 Industrial Revenue Bond 7,000 7,000 7,000 ------- ------- ------- $60,000 $61,348 $70,000 ======= ======= =======
The 9.47% Notes are payable in thirteen semi-annual payments of $3,077 which began on September 16, 1995, while the 7.13% Notes are payable in four equal installments of $6,250 beginning on December 5, 2002. The fair values of these notes are determined using discounted cash flows based upon the company's estimated current interest cost for similar types of borrowings. The carrying values of other long-term debt, notes payable and the guaranteed ESOP obligation approximate their fair market value. 22 23 Jocelyn Carlson Executive Office Bristol, Connecticut Richmond Cursiter Bowman Distribution Corsham, United Kingdom Gene Little Bowman Distribution Rockford, Illinois Thomas Manayathara Associated Spring Farmington, Connecticut The company has a revolving credit agreement with six banks that allows borrowings up to $150,000 under notes due December 6, 2002. A commitment fee of .115% per annum is paid on the unused portion of the commitments. The company had no borrowings under this agreement at December 31, 1997 and 1996. The company has available approximately $90,000 in short-term bank credit lines, of which $3,400 and $7,500 were in use at December 31, 1997 and 1996, respectively. The interest rate on these borrowings was 5.9% and 5.7% at December 31, 1997 and 1996. The Industrial Revenue Bond, due in 2008, has a variable interest rate. The interest rate on this borrowing was 4.5% at December 31, 1997 and 1996. At December 31, 1997, the company classified $3,385 of borrowings under its lines of credit and $6,154 of its 9.47% Notes due within one year as long-term debt. 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 had outstanding an interest rate swap, a form of derivative, which effectively converted $12,300 of its fixed rate 9.47% Notes to floating rate debt with interest equal to LIBOR plus 83 basis points. The effective interestrate on the floating rate portion was 6.9% and 6.4% at December 31, 1997 and 1996, respectively. This swap decreases as the Notes are repaid. The fair value of the swap is determined based upon current market prices and was $851 at December 31, 1997. The company does not use derivatives for trading purposes. The company guaranteed $8,100 of letters of credit, bank borrowings and capital lease obligations related to its 45% investment in NASCO. In addition, the company had other outstanding letters of credit totaling $3,990. Certain of the company's debt arrangements contain requirements as to maintenance of minimum levels of working capital and net worth, and place certain restrictions on dividend payments and acquisitions of the company's common stock. Under the most restrictive covenant in any agreement, $58,048 was available for dividends or acquisitions of common stock at December 31, 1997. Interest paid was $5,554, $5,736 and $5,661 in 1997, 1996 and 1995, respectively. Interest capitalized was $472, $527 and $214 in 1997, 1996 and 1995, respectively, and is being depreciated over the lives of the related fixed assets. 6. INCOME TAXES The components of income before income taxes and the provision for income taxes follow:
1997 1996 1995 -------- -------- -------- Income before income taxes: U.S. $ 49,517 $ 37,957 $ 31,722 International 14,985 14,353 13,728 -------- -------- -------- $ 64,502 $ 52,310 $ 45,450 ======== ======== ======== Income tax provision: Current: U.S. - federal $ 16,339 $ 12,451 $ 7,668 U.S. - state 4,050 3,045 1,363 International 4,905 3,682 5,456 -------- -------- -------- 25,294 19,178 14,487 -------- -------- -------- Deferred: U.S. - federal (821) (388) 2,479 U.S. - state (217) (105) 1,056 International (177) 1,057 (56) -------- -------- -------- (1,215) 564 3,479 -------- -------- -------- $ 24,079 $ 19,742 $ 17,966 ======== ======== ========
23 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - BARNES GROUP INC. Paulo Coit Associated Spring Bristol, Connecticut Tuck Martin Bowman Distribution Elizabethtown, Kentucky Christine Sych Barnes Aerospace East Granby, Connecticut Neil McCallum Bowman Distribution Concord, Ontario Deferred income tax assets and liabilities at December 31, consist of the tax effects of temporary differences related to the following:
Assets Liabilities ------------------------ ---------------------- 1997 1996 1997 1996 -------- -------- ------- ------- Allowance for doubtful accounts $ 1,139 $ 1,108 $ -- $ -- Depreciation and amortization (6,492) (7,083) 2,680 2,450 Inventory valuation 4,418 4,143 529 1,382 Postretirement/postemployment costs 27,771 28,510 (331) (467) Tax loss carryforwards 9,988 9,329 -- -- Other 5,954 4,770 1,709 1,260 -------- -------- ------- ------- 42,778 40,777 4,587 4,625 Valuation allowance (7,729) (7,430) -- -- -------- -------- ------- ------- $ 35,049 $ 33,347 $ 4,587 $ 4,625 ======== ======== ======= ======= Current deferred income taxes $ 10,966 $ 9,772 $ 850 $ 1,379 Noncurrent deferred income taxes 24,083 23,575 3,737 3,246 -------- -------- ------- ------- $ 35,049 $ 33,347 $ 4,587 $ 4,625 ======== ======== ======= =======
A portion of the deferred income tax assets can be realized through carrybacks and reversals of existing taxable temporary differences with the remainder, net of the valuation allowance, dependent on future income. Management believes that sufficient income will be earned in the future to realize the remaining net deferred income tax assets. The tax loss carryforwards have remaining carryforward periods ranging from five years to unlimited. The company has not recognized deferred income taxes on $89,349 of undistributed earnings of its international subsidiaries since such earnings are considered to be reinvested indefinitely. If the earnings were distributed in the form of dividends, the company would be subject, in certain cases, to both U.S. income taxes and foreign withholding taxes. Determination of the amount of this unrecognized deferred income tax liability is not practicable. A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate follows:
1997 1996 1995 ---- ---- ---- U.S. federal statutory income tax rate 35.0% 35.0% 35.0% State taxes (net of federal benefit) 3.9 3.6 3.5 Foreign losses without tax benefit 0.6 1.6 2.7 Foreign tax rates (1.5) (2.5) (1.6) NASCO equity income (0.6) (0.6) (1.0) Other (0.1) 0.6 0.9 ---- ---- ---- Consolidated effective income tax rate 37.3% 37.7% 39.5% ==== ==== ====
Income taxes paid, net of refunds, were $25,337, $17,825 and $13,269 in 1997, 1996 and 1995, respectively. 24 25 Denise Bradley Bowman Distribution Edison, New Jersey Ricardo Mohr Associated Spring Mexico City, Mexico Mark Baker Associated Spring Burlington, Ontario George Naseef Associated Spring Glen Ellyn, Illinois 7. COMMON STOCK In 1997, 1996 and 1995, 566,077, 389,418 and 503,337 shares of common stock were issued from treasury for the exercise of stock options, purchases by the Employee Stock Purchase Plan and various other incentive awards. In 1997, 1996 and 1995, the company acquired 395,179, 61,812 and 126,708 shares of the company's common stock at a cost of $10,673, $1,197 and $1,746, respectively. These acquired shares were placed in treasury. On April 2, 1997, the stockholders approved an amendment to the company's Restated Certificate of Incorporation providing for an increase in the number of authorized common shares from 20 million to 60 million and a reduction in the par value of common and preferred stock from $1.00 to $.01 per share. This enabled the company to effect a 3-for-1 stock split for stockholders of record on April 3, 1997. All references to shares and per-share amounts in the consolidated financial statements and accompanying notes have been adjusted retroactively for the 3-for-1 stock split. Stockholders' equity at December 31, 1997, reflects the effect of the stock split and change in par value per share. These changes reduced the common stock account by $15,517 and increased the additional paid-in capital account by a like amount. In December 1996, the company adopted a new stockholder rights plan. Under the new plan, each share of common stock contains one right (Right) that entitles the holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock for two hundred dollars. The Rights generally will not become exercisable unless and until, among other things, any person or group acquires beneficial ownership of 35% or more of the outstanding stock. The new Rights are generally redeemable at $.01 per Right at any time until 10 days following a public announcement that a 35% or greater position in the company's common stock has been acquired and will expire, unless earlier redeemed or exchanged, on December 23, 2006. If, following the acquisition by a person or group of 35% or more of the outstanding shares of the company's common stock, the company is acquired in a merger or other business combination or 50% or more of the company's assets or earning power is sold or transferred, each outstanding Right becomes exercisable for common stock or other securities of the acquiring entity having a value of twice the exercise price of the Right. 8. PREFERRED STOCK At December 31, 1997 and 1996, the company had 3,000,000 shares of preferred stock authorized, none of which were outstanding. As discussed in Note 7, the par value of preferred stock was reduced from $1.00 to $.01 per share in 1997. 9. STOCK PLANS All U.S. salaried and non-union hourly employees are eligible to participate in the company's Guaranteed Stock Plan (GSP). The GSP provides for the investment of employer and employee contributions in the company's common stock. The company guarantees a minimum rate of return on certain GSP assets. The GSP is a leveraged ESOP. In 1989, the GSP purchased 1,737,930 shares of the company's common stock at a cost of $21,000 using the proceeds of a loan guaranteed by the company. These shares are held in trust and are issued to employees' accounts in the GSP as the loan is repaid. Principal and interest on the GSP loan are being paid in quarterly installments through 1999. The loan bears interest based on LIBOR. At December 31, 1997 the interest rate was 6.5%. Interest of $387, $538 and $747 was incurred in 1997, 1996 and 1995, respectively. Contributions and certain dividends received are used in part by the GSP to service its debt. Contributions include both employee contributions up to a maximum of 10% of eligible pay and company contributions. The company contributions are equal to the amount required by the GSP to pay the principal and interest due under the GSP loan plus that required to purchase any additional shares required to be allocated to participant accounts, less the sum of participant contributions and dividends received by the GSP. The GSP used $1,781, $1,642 and $1,459 of company dividends for debt service in 1997, 1996 and 1995, respectively. The company expenses all cash contributions made to the GSP. Cash contributions in 1996 and 1995 resulted in compensation cost of $1,666 and $2,019, respectively, and in income of $498 in 1997. As of December 31, 1997, the GSP held 3,201,772 shares of the company's common stock, of which 318,476 shares were unallocated. For financial statement purposes, the company reflects its guarantee of the GSP's debt as a liability with a like amount reflected as a reduction of stockholders' equity. 25 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - BARNES GROUP INC. Philip Laux Associated Spring Glen Ellyn, Illinois Fran Lamprey Bowman Distribution Cromwell, Connecticut Carlos Perez Associated Spring Bristol, Connecticut Karen Tharpe Bowman Distribution Elizabethtown, Kentucky The company has an Employee Stock Purchase Plan (ESPP) under which eligible employees may elect to have up to 10% of base compensation deducted from payroll for the purchase of the company's common stock at 85% of market value on the date of purchase. The maximum number of shares which may be purchased under the ESPP is 2,025,000. During 1997, 46,600 shares (53,535 and 63,036 shares in 1996 and 1995, respectively) were purchased. As of December 31, 1997, 565,478 shares may be purchased in the future. The 1991 Barnes Group Stock Incentive Plan (1991 Plan) authorizes the granting of incentives to executive officers and other key employees in the form of stock options, stock appreciation rights, incentive stock rights and performance unit awards. A predecessor plan that provided for similar incentives expired in 1991. Options granted under that plan continue to be exercisable and any options which terminate without being exercised become available for grant under the 1991 Plan. A maximum of 2,650,029 common shares are subject to issuance under this plan after December 31, 1997. Compensation cost related to these plans was $1,150 and $904 in 1997 and 1996, respectively. No amount was recorded in 1995. Data relating to options granted under these plans follow:
1997 1996 1995 ----------------------------------------------------------------------------------- AVERAGE Average Average NUMBER EXERCISE Number Exercise Number Exercise OF SHARES PRICE of Shares Price of Shares Price --------- --------- --------- --------- --------- --------- Outstanding, January 1 1,088,991 $ 10.98 1,501,068 $ 10.91 1,933,662 $ 10.54 Granted 441,190 $ 22.96 69,450 $ 15.65 237,300 $ 13.36 Exercised 505,113 $ 10.79 327,636 $ 11.30 438,138 $ 10.67 Cancelled 45,624 $ 18.44 153,891 $ 11.67 231,756 $ 10.75 ------- --------- --------- --------- --------- --------- Outstanding, December 31, 979,444 $ 16.13 1,088,991 $ 10.98 1,501,068 $ 10.91 ======= ========= ========= ========= ========= ========= Exercisable, December 31, 478,680 $ 10.77 217,020 $ 10.25 427,200 $ 10.76 ======= ========= ========= ========= ========= =========
As of December 31, 1997 there were 1,345,013 shares available for future grant (1,750,890 at December 31, 1996). The following table summarizes information about stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------- ------------------------- RANGE OF AVERAGE AVERAGE AVERAGE EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE PRICES OF SHARES LIFE PRICE OF SHARES PRICE ------ ----------------------------------------- ------------------------- $ 7 TO $11 414,555 5.4 YEARS $10.03 393,861 $ 10.08 $12 TO $14 134,469 7.1 YEARS $13.27 73,719 $ 13.15 $19 TO $23 358,470 9.2 YEARS $22.28 11,100 $ 19.50 $24 TO $30 71,950 9.7 YEARS $26.01 -- $ -- ============ ======= ========= ====== ======= ========
Incentive Stock Rights entitle the holder to receive shares of the company's common stock without payment, after the lapse of the incentive period and certain units are subject to the satisfaction of established performance goals. Additionally, holders are credited with dividend equivalents, which are converted into additional incentive stock units, based on dividends paid on outstanding shares. All units granted have a five-year incentive period. In 1997, 4,500 units were granted, 5,811 units were credited to holders for dividend equivalents and no units were forfeited. As of December 31, 1997, there were 325,572 units outstanding. Under the Non-Employee Director Deferred Stock Plan each non-employee director is awarded 6,000 shares of the company's common stock upon retirement. There were 12,000 shares issued under this plan in 1997 and 6,000 in 1996. No shares were issued in 1995. As of December 31, 1997, 54,000 shares were reserved for issuance under this plan. Total shares reserved for issuance under all stock plans aggregated 3,269,507 at December 31, 1997. 26 27 Eduardo Mariscal Associated Spring Mexico City, Mexico JoAnn Calcinari Bowman Distribution-Raymond Bristol, Connecticut Brian Tomczak Associated Spring Milwaukee, Wisconsin Jim Higdon Bowman Distribution Elizabethtown, Kentucky 10. PENSION PLANS The company has noncontributory defined benefit pension plans covering a majority of its worldwide employees at Associated Spring, Bowman Distribution and its Executive Office. Plan benefits for salaried and non-union hourly employees are based on years of service and average salary. Plans covering union hourly employees provide benefits based on years of service. The company funds U.S. pension costs in accordance with the Employee Retirement Income Security Act of 1974 (ERISA). Plan assets consist primarily of common stocks and fixed income investments. Pension (income) expense consisted of the following:
1997 1996 1995 -------- -------- -------- Service cost $ 5,384 $ 5,591 $ 4,836 Interest cost 16,668 15,839 15,907 Actual return on plan assets (43,726) (34,906) (43,256) Net amortization and deferral 21,442 13,981 22,960 -------- -------- -------- $ (232) $ 505 $ 447 ======== ======== ========
The funded status of the plans at December 31, is set forth below:
1997 1996 -------- -------- Plan assets at fair value $299,632 $271,450 Actuarial present value of benefit obligations: Vested benefits 195,120 187,728 Nonvested benefits 14,910 13,713 -------- -------- Accumulated benefit obligations 210,030 201,441 Additional benefits based on projected -------- -------- future salary increases 23,922 20,840 -------- -------- Projected benefit obligations 233,952 222,281 -------- -------- Plan assets greater than projected benefit obligations $ 65,680 $ 49,169 ======== ========
The following is a reconciliation to the net pension asset recognized in the accompanying balance sheets:
1997 1996 -------- -------- Plan assets greater than projected benefit obligations $ 65,680 $ 49,169 Adjustments for unrecognized: Net gains (56,091) (39,387) Prior service costs 5,934 6,843 Net asset at transition (5,765) (7,505) -------- -------- (55,922) (40,049) -------- -------- Net pension asset $ 9,758 $ 9,120 ======== ========
Significant assumptions used in determining pension expense and the funded status of the plans were:
1997 1996 1995 ---- ---- ---- Weighted average discount rate 7.50% 7.75% 7.25% Increase in compensation 5.25% 5.25% 5.25% Long-term rate of return on plan assets 9.00% 9.00% 9.00%
The company has a defined contribution plan covering employees of Barnes Aerospace and field sales employees of Bowman Distribution's U.S. operation. Company contributions under this plan are based primarily on the performance of the business units and employee compensation. Total expense amounted to $2,593, $1,735 and $1,748 in 1997, 1996 and 1995, respectively. 27 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - BARNES GROUP INC. Kalil Diah Volante Associated Spring Campinas, Brazil Lim Mun Cheong Associated Spring Singapore Ken Wright Bowman Distribution Cromwell, Connecticut Sheila Rippy Bowman Distribution Rockford, Illinois 11. POSTRETIREMENT HEALTHCARE AND LIFE INSURANCE BENEFITS The company provides certain medical, dental and life insurance benefits for a majority of its retired employees in the U.S. and Canada. It is the company's practice to fund these benefits as incurred. Postretirement benefit expense consisted of the following:
1997 1996 1995 ------- ------- ------- Service cost $ 506 $ 660 $ 679 Interest cost 4,320 4,782 5,594 Net amortization (1,422) (1,150) (158) ------- ------- ------- $ 3,404 $ 4,292 $ 6,115 ======= ======= =======
The amounts included in the accompanying balance sheets at December 31, were as follows:
1997 1996 1995 ------- -------- -------- Accumulated benefit obligations: Retirees $46,928 $ 46,283 $ 57,160 Employees eligible to retire 4,067 5,283 6,904 Employees not eligible to retire 8,988 10,464 13,654 Unrecognized prior service cost 8,376 9,799 1,021 Unrecognized net gain (loss) 245 (1,331) (7,339) ------- -------- -------- $68,604 $ 70,498 $ 71,400 ======= ======== ========
Postretirement benefit obligations included in: Accrued liabilities $5,076 $5,273 $5,673 Accrued retirement benefits 63,528 65,225 65,727 ------- -------- -------- $68,604 $70,498 $71,400 ======= ======== ========
Cash payments made in 1997, 1996 and 1995 for postretirement benefits were $5,298, $5,194 and $5,210, respectively. The company's accumulated benefit obligations take into account certain cost-sharing provisions. The annual assumed rate of increase in the cost of covered benefits (i.e., healthcare cost trend rate) is assumed to be 8.0% for 1997, 7.0% for 1998, with a further reduction to 5.0% by the year 2001. A one percentage point increase in the assumed healthcare cost trend rate would increase the accumulated benefit obligations by approximately $1,991 at December 31, 1997, and would have increased the 1997 aggregate of the service and interest cost components of postretirement benefit expense by approximately $156. Discount rates of 7.50%, 7.75% and 7.25% were used in determining the accumulated benefit obligation at December 31, 1997, 1996 and 1995, respectively. 12. LEASES The company has various noncancellable operating leases for buildings, office space and equipment. Capital leases were not significant. Rent expense was $7,178, $6,268 and $5,866 for 1997, 1996 and 1995, respectively. During 1997, both Associated Spring headquarters and Bowman Distribution headquarters relocated to new facilities under operating leases. Minimum rental commitments under noncancellable leases in years 1998 through 2002 are $5,124, $3,824, $3,376, $3,111, $2,633 and $11,623 thereafter. 28 29 13. INFORMATION ON BUSINESS SEGMENTS The company operates three businesses: BOWMAN DISTRIBUTION: distributes fast-moving, consumable repair and replacement products for industrial, heavy equipment and transportation maintenance markets. Bowman Distribution's operations and markets are located primarily in the U.S. Other important locations include Canada and Europe. BARNES AEROSPACE: manufactures precision machined parts and fabricated assemblies, and refurbishes jet engine components for the aircraft and aerospace industries. Barnes Aerospace's operations and markets are located primarily in the U.S., Europe and Asia. ASSOCIATED SPRING: manufactures and distributes custom-made springs and other close-tolerance engineered metal components, principally for the transportation, electronics and industrial markets. Associated Spring's custom metal parts are sold in the U.S. and through its international subsidiaries. International manufacturing operations are located in Brazil, Canada, Mexico and Singapore. The automotive and automotive parts industries constitute Associated Spring's largest market. Sales between the business segments and between the geographic areas are accounted for on the same basis as sales to unaffiliated customers. Operating income includes net sales less cost of sales and selling and administrative expenses. Other income and expenses are not included in operating income. Corporate assets consist of cash and cash equivalents, deferred income taxes, other assets, transportation and office equipment and the Executive Office building. Included in the 1997 identifiable international assets are the assets of manufacturing facilities in Singapore ($30,005), Brazil ($16,378), Canada ($19,610) and Mexico ($9,968) and distribution facilities in Canada ($13,697), U.K. ($16,095) and France ($7,314). Associated Spring's operation in Singapore was an important contributor to the company's international operating income during each of the three years presented. The following tables set forth information about the company's operations by its three business segments and by geographic area. OPERATIONS BY BUSINESS SEGMENT
Net Sales Operating Income ---------------------------- ------------------------ (Dollars in millions) 1997 1996 1995 1997 1996 1995 ------ ------ ------ ---- ---- ---- Bowman Distribution $220.0 $213.4 $217.0 $26.7 $22.0 $17.4 Barnes Aerospace 136.6 103.1 97.3 14.4 5.3 5.0 Associated Spring 287.1 279.5 279.0 43.0 45.8 42.6 Intersegment sales (1.0) (1.0) (0.8) -- -- -- ------ ------ ------ ---- ---- ---- $642.7 $595.0 $592.5 84.1 73.1 65.0 ====== ====== ====== Corporate expenses (18.3) (17.8) (16.2) ----- ----- ----- Operating income $65.8 $55.3 $48.8 ===== ===== =====
Identifiable Assets Capital Expenditures Depreciation Expense ----------------------------- -------------------------- ---------------------------- (Dollars in millions) 1997 1996 1995 1997 1996 1995 1997 1996 1995 - --------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- Bowman Distribution $ 83.2 $ 73.0 $ 79.2 $ 6.6 $ 2.9 $ 3.6 $ 3.8 $ 3.7 $ 4.1 Barnes Aerospace 96.2 96.1 87.0 7.9 9.4 7.8 7.1 7.0 7.2 Associated Spring 183.2 177.8 160.3 18.7 21.5 24.2 14.3 13.0 11.6 Corporate 45.4 43.1 35.0 0.2 0.1 0.2 0.2 0.3 0.3 ---------------------------------------------------------------------------------------------------- $ 408.0 $ 390.0 $ 361.5 $ 33.4 $ 33.9 $ 35.8 $ 25.4 $ 24.0 $ 23.2 ====================================================================================================
29 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - BARNES GROUP INC. OPERATIONS BY GEOGRAPHIC AREA
Net Sales Operating Income --------------------------------------- ------------------------------------- 1997 1996 1995 1997 1996 1995 --------- --------- --------- --------- --------- --------- (Dollars in millions) $ 515.0 $ 466.4 $ 463.4 $ 71.6 $ 59.5 $ 51.3 Domestic 139.5 138.8 137.9 12.5 13.6 13.7 International (11.8) (10.2) (8.8) -- -- -- --------- --------- --------- --------- --------- --------- Sales between geographic areas $ 642.7 $ 595.0 $ 592.5 $ 84.1 $ 73.1 $ 65.0 ========= ========= ========= ========= ========= =========
Identifiable Assets ------------------------------------- (Dollars in millions) 1997 1996 1995 --------- --------- --------- Domestic $ 249.4 $ 239.8 $ 227.5 International 113.2 107.1 99.0 Corporate 45.4 43.1 35.0 ------------------------------------- $ 408.0 $ 390.0 $ 361.5 =====================================
REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF BARNES GROUP INC. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Barnes Group Inc. and its subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /S/PRICE WATERHOUSE LLP Hartford, Connecticut January 21, 1998 30 31 QUARTERLY DATA (UNAUDITED) - BARNES GROUP INC.
First Second Third Fourth Full (Dollars in millions, except per share data) Quarter Quarter Quarter Quarter Year ------------ ------------ ------------ ------------ ------------ 1997 Net sales $ 158.1 $ 165.9 $ 158.5 $ 160.2 $ 642.7 Gross profit(1) 55.2 54.6 53.2 53.1 216.1 Operating income 16.8 17.5 16.1 15.4 65.8 Net income 10.1 10.7 10.1 9.5 40.4 Per Common Share:(2) Net income: Basic 0.50 0.53 0.50 0.47 2.00 Diluted 0.49 0.52 0.49 0.46 1.96 Dividends 0.15 0.17 0.16 0.17 0.65 Market prices (high-low) $24.92-19.79 $29.88-22.88 $30.38-27.00 $29.25-22.75 $30.38-19.79 1996 Net sales $ 150.1 $ 152.6 $ 147.1 $ 145.2 $ 595.0 Gross profit(1) 52.9 53.7 52.2 51.5 210.3 Operating income 11.2 14.4 14.7 15.0 55.3 Net income 6.6 8.7 8.7 8.6 32.6 Per Common Share:(2) Net income: Basic 0.34 0.43 0.44 0.42 1.63 Diluted 0.33 0.43 0.43 0.42 1.61 Dividends 0.15 0.15 0.15 0.15 0.60 Market prices (high-low) $ 15.08-11.67 $17.29-14.92 $17.04-15.42 $20.67-16.54 $20.67-11.67
(1) Sales minus cost of sales. (2) All per share data has been adjusted for the 3-for-1 stock split. 31 32 SELECTED FINANCIAL DATA - BARNES GROUP INC.
1997 1996 1995 -------- -------- -------- PER COMMON SHARE (1) (2) Income (loss) -------- -------- -------- Continuing operations $ 2.00 $ 1.63 $ 1.40 -------- -------- -------- Effect of accounting changes -- -- -- -------- -------- -------- Net income (loss) Basic 2.00 1.63 1.40 -------- -------- -------- Diluted 1.96 1.61 1.38 -------- -------- -------- Dividends paid .65 .60 .53 -------- -------- -------- Stockholders' equity (at year-end) 8.97 7.86 6.55 -------- -------- -------- Stock price (at year-end) 22.75 20.00 12.00 ======== ======== ======== FOR THE YEAR (in thousands) Net sales $642,660 $594,989 $592,509 -------- -------- -------- Operating income 65,766 55,316 48,804 -------- -------- -------- As a percent of sales 10.2% 9.3% 8.2% -------- -------- -------- Income from continuing operations before income taxes and effect of accounting changes $ 64,502 $ 52,310 $ 45,450 -------- -------- -------- Income taxes 24,079 19,742 17,966 -------- -------- -------- Income from continuing operations before effect of accounting changes 40,423 32,568 27,484 -------- -------- -------- As a percent of average stockholders' equity 23.4% 22.8% 22.6% -------- -------- -------- Effect of accounting changes $ -- $ -- $ -- -------- -------- -------- Net income (loss) 40,423 32,568 27,484 -------- -------- -------- Depreciation and amortization 28,123 26,626 26,750 -------- -------- -------- Capital expenditures 33,398 33,892 35,820 -------- -------- -------- Average common shares outstanding - basic 20,237 19,924 19,640 ======== ======== ======== YEAR-END FINANCIAL POSITION (in thousands) Working capital $113,092 $109,476 $ 95,280 -------- -------- -------- Current ratio 2.3 to 1 2.4 to 1 2.2 to 1 -------- -------- -------- Property, plant and equipment $133,830 $131,071 $122,870 -------- -------- -------- Total assets 407,978 389,956 361,549 -------- -------- -------- Long-term debt 60,000 70,000 70,000 -------- -------- -------- Guaranteed ESOP obligation - long term portion 2,205 4,951 7,491 -------- -------- -------- Stockholders' equity 180,859 157,164 128,841 -------- -------- -------- Debt as a percent of total capitalization(6) 27.1% 33.5% 38.4% ======== ======== ======== YEAR-END STATISTICS Employees 3,872 3,761 3,880
32 33
1994 1993 (3) 1992(4)(5) --------- -------- --------- $ 1.07 $ .23 $ .31 --------- -------- --------- -- -- (2.19) --------- -------- --------- 1.07 .23 (1.87) --------- -------- --------- 1.06 .23 (1.87) --------- -------- --------- .48 .47 .47 --------- -------- --------- 5.55 4.86 5.01 --------- -------- --------- 12.67 10.42 10.17 ========= ======== ========= $ 569,197 $502,292 $ 529,073 --------- -------- --------- 36,649 12,538 7,259 --------- -------- --------- 6.4% 2.5% 1.4% --------- -------- --------- $ 33,922 $ 8,391 $ 7,671 --------- -------- --------- 13,606 4,008 1,838 --------- -------- --------- 20,316 4,383 5,833 --------- -------- --------- 20.3% 4.7% 5.8% --------- -------- --------- $ -- $ -- $ (40,695) --------- -------- --------- 20,316 4,383 (34,862) --------- -------- --------- 23,733 23,094 23,741 --------- -------- --------- 31,848 22,216 16,238 --------- -------- --------- 19,061 18,750 18,607 ========= ======== ========= $ 88,325 $ 87,011 $ 93,500 --------- -------- --------- 2.0 to 1 2.1 to 1 2.0 to 1 --------- -------- --------- $ 112,569 $103,043 $ 104,437 --------- -------- --------- 351,956 333,296 348,346 --------- -------- --------- 70,000 70,000 70,000 --------- -------- --------- 9,839 12,011 14,019 --------- -------- --------- 107,139 91,849 93,575 --------- -------- --------- 45.6% 50.7% 51.9% ========= ======== ========= 4,181 4,357 4,051
(1) All per share data, other than earnings per common share, are based on common shares outstanding at the end of each year. Earnings per common share are based on weighted average common shares outstanding during each year. (2) All per share data has been adjusted for the 3-for-1 stock split effective April, 1997. (3) Includes a $3.4 million pretax, $2.0 million after-tax charge ($.11 per share) against income related to the plant consolidation and work-force reduction at Barnes Aerospace and a $1.5 million charge without tax benefit ($.08 per share) for a plant consolidation at Associated Spring's Mexico operations. (4) Includes a $17.8 million pretax, $10.7 million after-tax charge ($.58 per share) against income related to the costs of plant closings at Associated Spring, Barnes Aerospace charges on a terminated contract and restructuring of Bowman's U.S. sales organization. These charges were partially offset by a $5.0 million pretax gain, $3.7 million after-tax ($.20 per share) from the sale of Bowman's Pioneer division. (5) Barnes Group adopted three new accounting standards in 1992 retroactive to the beginning of the year. Included is a one-time $39.7 million after-tax charge ($2.14 per share) to comply with SFAS 106 and 112, both of which change the accounting for certain postretirement and postemployment benefits to the accrual method and an additional $1.0 million income tax charge ($.05 per share) for SFAS 109, which changed income tax accounting. (6) Debt includes all interest-bearing debt including the guaranteed ESOP obligation, and total capitalization includes interest-bearing debt and stockholders' equity. 33 34 BARNES GROUP AROUND THE WORLD [GRAPHIC OMITTED] BARNES GROUP INC. Headquarters - - BRISTOL, CONNECTICUT BOWMAN DISTRIBUTION Headquarters 1 CLEVELAND, OHIO Distribution Operations United States 2 ANAHEIM, CALIFORNIA 3 BAKERSFIELD, CALIFORNIA 4 NORCROSS, GEORGIA 5 ROCKFORD, ILLINOIS 6 ELIZABETHTOWN, KENTUCKY 7 EDISON, NEW JERSEY 8 COLUMBUS, OHIO 9 ARLINGTON, TEXAS 10 HOUSTON, TEXAS 11 AUBURN, WASHINGTON Canada 12 CONCORD, ONTARIO 13 EDMONTON, ALBERTA 14 MONCTON, NEW BRUNSWICK United Kingdom 15 CORSHAM France 16 VOISINS LE BRETONNEUX Raymond Distribution United States 17 MAUMEE, OHIO 18 CERRITOS, CALIFORNIA 19 YPSILANTI, MICHIGAN 20 ARLINGTON, TEXAS 21 NEW BERLIN, WISCONSIN United Kingdom 22 EVESHAM France 23 MONTIGNY BARNES AEROSPACE Headquarters 1 WINDSOR, CONNECTICUT Manufacturing Plants United States 2 EAST GRANBY, CONNECTICUT 3 WINDSOR, CONNECTICUT 4 LANSING, MICHIGAN 5 OGDEN, UTAH Asia 6 REPUBLIC OF SINGAPORE ASSOCIATED SPRING Headquarters 1 FARMINGTON, CONNECTICUT Manufacturing Plants North America 2 BRISTOL, CONNECTICUT 3 SALINE, MICHIGAN 4 SYRACUSE, NEW YORK 5 ARDEN, NORTH CAROLINA 6 CORRY, PENNSYLVANIA 7 DALLAS, TEXAS 8 MILWAUKEE, WISCONSIN 9 BURLINGTON, ONTARIO, CANADA 10 MEXICO CITY, MEXICO South America 11 CAMPINAS, BRAZIL Asia 12 REPUBLIC OF SINGAPORE 34 35 DIRECTORS *THOMAS O. BARNES CHAIRMAN OF THE BOARD *-++GARY G. BENANAV CHAIRMAN AND CHIEF EXECUTIVE OFFICER New York Life International, Inc. EXECUTIVE VICE PRESIDENT New York Life Insurance Company New York, New York *-WILLIAM S. BRISTOW, JR. PRESIDENT W.S. Bristow & Associates, Inc. Rollinsford, New Hampshire *++ROBERT J. CALLANDER EXECUTIVE IN RESIDENCE Columbia University School of Business RETIRED VICE CHAIRMAN Chemical Banking Corporation New York, New York *-++GEORGE T. CARPENTER PRESIDENT The S. Carpenter Construction Company Bristol, Connecticut - -++DONNA R. ECTON CHIEF OPERATING OFFICER PETsMART, Inc. Phoenix, Arizona - -ROBERT W. FIONDELLA CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER Phoenix Home Life Mutual Insurance Company Hartford, Connecticut ++FRANK E. GRZELECKI VICE CHAIRMAN Handy & Harman Rye, New York - -++MARCEL P. JOSEPH FORMER CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER Augat Inc. Mansfield, Massachusetts *THEODORE E. MARTIN PRESIDENT AND CHIEF EXECUTIVE OFFICER OFFICERS EXECUTIVE OFFICE THEODORE E. MARTIN President and Chief Executive Officer TERRY M. MURPHY Senior Vice President, Finance JAMES A. PAYNTER Senior Vice President, Human Resources WILLIAM V. GRICKIS, JR. Vice President, General Counsel and Secretary JOHN J. LOCHER Vice President, Treasurer FRANCIS C. BOYLE, JR. Vice President, Controller OPERATIONS ALI A. FADEL Vice President, Barnes Group Inc., and President, Associated Spring LEONARD M. CARLUCCI Vice President, Barnes Group Inc., and President, Bowman Distribution CEDRIC D. BECKETT Vice President, Barnes Group Inc., and President, Barnes Aerospace STOCKHOLDERS' INFORMATION TRANSFER AGENT AND REGISTRAR ChaseMellon Shareholder Services, L.L.C. Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 Phone: 1-800-288-9541 (Continental U.S. only) or 1-201-329-8660 For Hearing Impaired 1-800-231-5469 USE THE ABOVE ADDRESS AND PHONE NUMBERS FOR INFORMATION ON THE FOLLOWING SERVICES: STOCKHOLDER INQUIRIES/ADDRESS CHANGES/ CONSOLIDATIONS LOST CERTIFICATES/REPLACEMENTS CERTIFICATE TRANSFERS: All certificates should be sent certified or registered mail. DIVIDEND INVESTMENT/STOCKHOLDER INVESTMENT PLANS: Dividends on Barnes Group common stock may be automatically invested in additional shares. HAND DELIVERIES: ChaseMellon Shareholder Services, L.L.C. 120 Broadway, 13th Floor New York, NY 10271 STOCK EXCHANGE New York Stock Exchange Stock Trading Symbol: B Listed on the S&P Small Cap 600 Index INDEPENDENT ACCOUNTANTS Price Waterhouse LLP One Financial Plaza Hartford, CT 06103 ANNUAL MEETING Barnes Group Inc. annual meeting of stockholders will be held at 10:30 a.m., Wednesday, April 8, 1998, at Associated Spring Group Headquarters, Farmington, CT. INVESTOR INFORMATION Barnes Group welcomes inquiries from stockholders, analysts and prospective investors. Quarterly reports, 10-K's and other information on the company are available on request. Please note that the company is no longer required to provide quarterly reports to stockholders. Those wishing to receive this information can obtain it over the Internet or by requesting it from the company at the phone or fax numbers listed below. Contact: Robert D. Lipira (for investor relations) or Holly V. LeBlanc (for stockholder relations) Barnes Group Inc. 123 Main St., P.O. Box 489 Bristol, CT 06011-0489 Phone: 1-860-583-7070 Fax: 1-860-589-3507 COMMUNICATION For additional information on the company, call our Fax-on-Demand Service at 1-800-311-4606. For press releases on the Internet, address http://www.businesswire.com/cnn * Member of Executive Committee - - Member of Audit Committee ++ Member of Compensation Committee Design: Susan Brier, The WriteDesign Company, LLC / Printing: Universal Press 35 36 BARNES GROUP INC [LOGO] EX-21 7 EX-21 1 EXHIBIT 21 BARNES GROUP INC. LIST OF SUBSIDIARIES Operating Subsidiaries of the Company:
Jurisdiction of Name Incorporation ---- ------------- Associated Spring-Asia PTE. LTD. Singapore Associated Spring SPEC Limited United Kingdom Barnes Group (Bermuda) Limited Bermuda Barnes Group Canada Inc. Canada Barnes Group Holding B.V. Netherlands Bowman Distribution Europe Limited United Kingdom Bowman Distribution France S.A. France Resortes Mecanicos, S.A. Mexico Ressorts SPEC, EURL France Stumpp & Schuele do Brasil Industria e Brazil Comercio Limitada Windsor Airmotive Asia PTE. LTD. Singapore
Associated Spring SPEC Limited is wholly-owned by Bowman Distribution Europe Limited. Ressorts SPEC, EURL is wholly-owned by Bowman Distribution France S.A. Windsor Airmotive Asia PTE. LTD. is wholly-owned by Barnes Group Canada Inc. Associated Spring-Asia PTE. LTD. and Stumpp & Schuele do Brasil Industria e Comercio Limitada are wholly-owned by Barnes Group (Bermuda) Limited. Resortes Mecanicos, S.A. is owned by Barnes Group (Bermuda) Limited (20%), Barnes Group Canada Inc. (40%), and Associated Spring-Asia PTE. LTD. (40%). Barnes Group Canada Inc., Bowman Distribution Europe Limited, and Bowman Distribution France S.A. are wholly-owned by Barnes Group Holding B.V. Barnes Group (Bermuda) Limited and Barnes Group Holding B.V. are wholly-owned by Barnes Group Inc. The Company's consolidated financial statements include all of the above-named subsidiaries. For a statement of the principles of consolidation applicable to these subsidiaries, see Note 1 of the Notes to Consolidated Financial Statements on page 21 of the 1997 Annual Report to Stockholders. EX-23 8 EX-23 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 2-56437, pertaining to the Employee Stock Purchase Plan; No. 2-91285, pertaining to the 1981 Stock Incentive Plan; Nos. 33-20932 and 33-30229, pertaining to the Guaranteed Stock Plan; and the registration statements filed on July 18, 1994, No. 33-91758 and May 16, 1997, No. 33-27339, pertaining to the 1991 Barnes Group Stock Incentive Plan) of Barnes Group Inc. of our report dated January 21, 1998 appearing on page 30 of the Annual Report to Stockholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 13 of this Form 10-K. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP Hartford, Connecticut March 10, 1998 EX-27 9 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF BARNES GROUP INC. AS OF DECEMBER 31, 1997, THE RELATED CONSOLIDATED STATEMENT OF INCOME, NOTE 3 TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE II OF FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS, NOTE AND SCHEDULE. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 32,530 0 94,818 3,061 61,082 203,017 334,836 201,006 407,978 89,925 62,205 0 0 220 180,639 407,978 642,660 642,660 426,550 426,550 0 1,232 4,864 64,502 24,079 40,423 0 0 0 40,423 2.00 1.96
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