10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

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 incorporation or organization)	(I.R.S. Employer Identification No.)
123 Main Street, Bristol, Connecticut	06010
(Address of Principal Executive Offices)	(Zip Code)

(860) 583-7070

Registrant’s telephone number, including area code

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 whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The registrant had outstanding 54,710,748 shares of common stock as of October 26, 2010.

Barnes Group Inc.

Index to Form 10-Q

For the Quarterly Period Ended September 30, 2010

		Page
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Income for the three months and nine months ended September 30, 2010 and 2009		3
	Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009		4
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009		5
	Notes to Consolidated Financial Statements		6
	Report of Independent Registered Public Accounting Firm		15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		24
Item 4.	Controls and Procedures		24
Part II.	OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		25
Item 6.	Exhibits		25
	Signatures		26
	Exhibit Index		27

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BARNES GROUP INC.

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(Unaudited)

	Three months ended September 30,					Nine months ended September 30,
	2010		2009			2010		2009
Net sales	$	289,901	$	260,339		$	849,930	$	777,690
Cost of sales		184,989		170,491			540,833		503,369
Selling and administrative expenses		80,079		75,291			240,915		225,161
		265,068		245,782			781,748		728,530
Operating income		24,833		14,557			68,182		49,160
Other income		56		1,545			290		4,205
Interest expense		5,177		5,293			15,273		17,234
Other expenses		829		293			2,451		1,558
Income before income taxes		18,883		10,516			50,748		34,573
Income taxes (benefit)		3,779		(373	)		8,992		1,778
Net income	$	15,104	$	10,889		$	41,756	$	32,795
Per common share:
Net income:
Basic	$	.27	$	.20		$	.75	$	.61
Diluted		.27		.20			.75		.61
Dividends		.08		.08			.24		.40
Weighted average common shares outstanding:
Basic		55,346,517		54,257,791			55,428,865		53,462,672
Diluted		55,839,970		54,563,199			56,048,170		53,710,453

See accompanying notes.

3

BARNES GROUP INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

	September 30, 2010			December 31, 2009
Assets
Current assets
Cash and cash equivalents	$	23,724		$	17,427
Accounts receivable, less allowances (2010–$4,949; 2009–$5,915)		189,693			160,269
Inventories		211,902			190,792
Deferred income taxes		9,040			23,630
Prepaid expenses and other current assets		14,577			10,562
Total current assets		448,936			402,680
Deferred income taxes		40,344			30,650
Property, plant and equipment		635,788			645,318
Less accumulated depreciation		(416,033	)		(420,355	)
		219,755			224,963
Goodwill		381,421			373,564
Other intangible assets, net		294,193			303,689
Other assets		18,964			16,444
Total assets	$	1,403,613		$	1,351,990
Liabilities and Stockholders’ Equity
Current liabilities
Notes and overdrafts payable	$	8,012		$	4,595
Accounts payable		97,014			85,588
Accrued liabilities		80,189			73,538
Long-term debt – current		107,322			25,567
Total current liabilities		292,537			189,288
Long-term debt		241,679			321,306
Accrued retirement benefits		106,100			118,693
Other liabilities		36,894			37,990
Commitments and contingencies (Note 13)
Stockholders’ equity
Common stock – par value $0.01 per share Authorized: 150,000,000 shares Issued: at par value (2010–56,358,931 shares; 2009–55,974,051 shares)		564			560
Additional paid-in capital		279,111			270,784
Treasury stock, at cost (2010–1,682,427 shares; 2009–1,181,579 shares)		(25,139	)		(15,839	)
Retained earnings		507,139			478,704
Accumulated other comprehensive income (loss)		(35,272	)		(49,496	)
Total stockholders’ equity		726,403			684,713
Total liabilities and stockholders’ equity	$	1,403,613		$	1,351,990

See accompanying notes.

4

BARNES GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Nine months ended September 30,
	2010			2009
Operating activities:
Net income	$	41,756		$	32,795
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		38,988			38,558
Amortization of convertible debt discount		4,251			4,558
Loss on disposition of property, plant and equipment		253			813
Gain on repurchases of convertible notes		—			(3,773	)
Stock compensation expense		5,619			3,279
Withholding taxes paid on stock issuances		(287	)		(610	)
Changes in assets and liabilities:
Accounts receivable		(27,671	)		14,694
Inventories		(19,492	)		50,757
Prepaid expenses and other current assets		(5,420	)		4,378
Accounts payable		11,359			4,615
Accrued liabilities		5,906			(3,054	)
Deferred income taxes		4,469			(2,741	)
Long-term retirement benefits		(12,155	)		(16,503	)
Other		(579	)		(2,030	)
Net cash provided by operating activities		46,997			125,736
Investing activities:
Proceeds from disposition of property, plant and equipment		1,384			981
Capital expenditures		(22,463	)		(24,847	)
Other		(2,393	)		(1,737	)
Net cash used by investing activities		(23,472	)		(25,603	)
Financing activities:
Net change in other borrowings		3,384			(4,861	)
Payments on long-term debt		(243,658	)		(181,242	)
Proceeds from the issuance of long-term debt		241,667			94,900
Proceeds from the issuance of common stock		3,871			5,621
Common stock repurchases		(9,014	)		(314	)
Dividends paid		(13,159	)		(21,220	)
Other		(160	)		(797	)
Net cash used by financing activities		(17,069	)		(107,913	)
Effect of exchange rate changes on cash flows		(159	)		1,043
Increase (decrease) in cash and cash equivalents		6,297			(6,737	)
Cash and cash equivalents at beginning of period		17,427			20,958
Cash and cash equivalents at end of period	$	23,724		$	14,221

Supplemental disclosure of cash flow information:

Non-cash financing activities in 2009 include a stock contribution to the Company’s pension plans of 737,463 treasury shares ($9,816) and the repurchase of certain convertible notes using 1,154,265 treasury shares ($17,019).

See accompanying notes.

5

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All dollar amounts included in the notes are stated in thousands except per share data.)

1. Summary of Significant Accounting Policies

The accompanying unaudited consolidated balance sheet and the related unaudited consolidated statements of income and cash flows have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The consolidated financial statements do not include all information and notes required by generally accepted accounting principles for complete financial statements. The balance sheet as of December 31, 2009 has been derived from the 2009 financial statements of Barnes Group Inc. (the “Company”). For additional information, please refer to the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. In the opinion of management, all adjustments, including normal recurring accruals considered necessary for a fair presentation, have been included. Operating results for the three- and nine-month periods ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

2. Net Income Per Common Share

For the purpose of computing diluted net income per share, the weighted-average number of shares outstanding is increased for the potential dilutive effects of stock-based incentive plans and convertible senior subordinated notes. For the purpose of computing diluted net income per share, the weighted average number of shares outstanding was increased by 493,453 and 305,408 for the three-month periods ended September 30, 2010 and 2009, respectively, and 619,305 and 247,781 for the nine-month periods ended September 30, 2010 and 2009, respectively, to account for the potential dilutive effects of stock-based incentive plans. There were no adjustments to net income for the purposes of computing income available to common stockholders for those periods.

The calculation of weighted average diluted shares outstanding excludes all shares that would have been anti-dilutive. During the three-month periods ended September 30, 2010 and 2009, the Company excluded 2,340,018 and 2,887,027 options, respectively, from the calculation of weighted average diluted shares outstanding as the stock options would have been anti-dilutive. During the nine-month periods ended September 30, 2010 and 2009, the Company excluded 1,969,091 and 4,014,717 options, respectively, from the calculation of weighted average diluted shares outstanding as the stock options would have been anti-dilutive.

The Company granted 519,200 stock options, 260,417 restricted stock unit awards, and 101,100 performance unit plan awards in February 2010 as part of its annual grant awards. Of the 260,417 restricted stock unit awards, 1,600 vest upon satisfying established performance goals and 258,817 vest upon meeting certain service conditions. All of the restricted stock unit awards that vest upon meeting certain service conditions are included in basic average common shares outstanding as they contain nonforfeitable rights to dividend payments. The performance unit plan awards are denominated in units with each unit being equivalent in value to one share of the Company’s common stock and are payable in cash. The performance unit plan awards vest upon satisfying established performance goals and are not included in either basic or diluted average common shares outstanding as these awards will be settled in cash.

The 3.75% convertible senior subordinated notes due in August 2025 (the “3.75% Convertible Notes”) are convertible, under certain circumstances, into a combination of cash and common stock of the Company. The conversion price as of September 30, 2010 was approximately $20.62 per share of common stock. The dilutive effect of the notes is determined based on the average closing price of the Company’s stock for the last 30 trading days of the quarter as compared to the conversion price of the notes. Under the net share settlement method, there were no potential shares issuable under the notes as the notes would have been anti-dilutive for the three-month and nine-month periods ended September 30, 2010 and 2009.

The 3.375% convertible senior subordinated notes due in March 2027 (the “3.375% Convertible Notes”) are convertible, under certain circumstances, into a combination of cash and common stock of the Company. The conversion price as of September 30, 2010 was approximately $28.31 per share of common stock. The dilutive effect of the notes is determined based on the average closing price of the Company’s stock for the last 30 trading days of the quarter as compared to the conversion price of the notes. Under the net share settlement method, there were no potential shares issuable under the notes as the notes would have been anti-dilutive for the three-month and nine-month periods ended September 30, 2010 and 2009.

6

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

(All dollar amounts included in the notes are stated in thousands except per share data.)

3. Comprehensive Income

Comprehensive income includes all changes in equity during a period except those resulting from the investments by, and distributions to, stockholders. For the Company, comprehensive income for the period includes net income and other non-owner changes to equity, net of taxes.

Statements of Comprehensive Income

(Unaudited)

For the three months ended September 30,	2010			2009
Net income	$	15,104		$	10,889
Unrealized gain on hedging activities, net of tax of $232 and $115, respectively		422			313
Foreign currency translation adjustments, net of tax of $3,039 and $1,849, respectively		40,310			19,400
Defined benefit pension and other postretirement plans, net of tax of $159 and $159, respectively		(66	)		504
Comprehensive income	$	55,770		$	31,106
For the nine months ended September 30,	2010			2009
Net income	$	41,756		$	32,795
Unrealized gain on hedging activities, net of tax of $581 and $175, respectively		970			162
Foreign currency translation adjustments, net of tax of $1,117 and $2,523, respectively		11,764			29,418
Defined benefit pension and other postretirement plans, net of tax of $479 and $444, respectively		1,490			(30	)
Comprehensive income	$	55,980		$	62,345

4. Inventories

The components of inventories consisted of:

	September 30, 2010		December 31, 2009
Finished goods	$	121,517	$	105,541
Work-in-process		59,008		56,853
Raw material and supplies		31,377		28,398
	$	211,902	$	190,792

7

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

(All dollar amounts included in the notes are stated in thousands except per share data.)

5. Goodwill and Other Intangible Assets

Goodwill:

The following table sets forth the change in the carrying amount of goodwill for each reportable segment and for the Company for the period ended September 30, 2010:

	Logistics and Manufacturing Services			Precision Components			Total Company
January 1, 2010	$	166,400		$	207,164		$	373,564
Goodwill adjustments		—			(50	)		(50	)
Foreign currency translation		(1,632	)		9,539			7,907
September 30, 2010	$	164,768		$	216,653		$	381,421

In the second quarter of 2010, management performed its annual impairment testing. Based on this assessment, there was no goodwill impairment.

Other Intangible Assets:

Other intangible assets consisted of:

			September 30, 2010					December 31, 2009
	Range of Life -Years		Gross Amount		Accumulated Amortization			Gross Amount		Accumulated Amortization
Amortized intangible assets:
Revenue sharing programs		Up to 30	$	293,700	$	(34,191	)	$	293,700	$	(28,578	)
Customer lists/relationships		10		28,578		(17,180	)		28,578		(15,024	)
Patents, trademarks/trade names		5-30		22,746		(11,622	)		22,746		(10,093	)
Other		Up to 15		10,405		(2,858	)		10,405		(2,393	)
				355,429		(65,851	)		355,429		(56,088	)
Foreign currency translation				4,615		—			4,348		—
Other intangible assets			$	360,044	$	(65,851	)	$	359,777	$	(56,088	)

Amortization of intangible assets is expected to increase from approximately $13,000 in 2010 to $16,000 in 2014.

6. Business Reorganizations

In the third quarter of 2009, the Company authorized the restructuring of certain operations of the Precision Components segment by moving the operations of two facilities, Burlington, Ontario, Canada (the “Burlington Facility”) and Monterrey, Mexico (the “Monterrey Facility”). The assets and related work of these facilities have been substantially transferred to other Precision Components facilities in the United States to create a more cost effective manufacturing footprint. The movement of operations for the Burlington Facility was substantially completed in the first quarter of 2010. The movement of assets at the previously idled Monterrey Facility was completed by December 31, 2009. The Company recorded restructuring and related costs of $4,904 in 2009 related to these actions which included $2,140 of employee termination costs, $1,107 of asset write-downs, $487 of equipment transfer costs, $970 of facility use termination costs and $200 of pension curtailment costs. The Company recorded $1,309 related to equipment transfer expenses and other related costs in the first nine months of 2010 and is substantially complete as of September 30, 2010. The Company also expects to incur costs related to the 2009 and prior actions of up to $4,000 related to pension costs, in large part due to the accelerated recognition of actuarial losses, which may be incurred in 2010 or later. In addition, during 2009, the Company implemented other workforce reduction actions at Precision Components and recorded severance expense of $3,358 primarily in the second quarter of 2009. Costs related to the 2009 actions are primarily recorded in selling and administrative expenses in the accompanying consolidated statements of income.

8

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

(All dollar amounts included in the notes are stated in thousands except per share data.)

The following table sets forth the change in the liability for the 2009 employee termination actions at Precision Components:

January 1, 2010	$	3,337
Severance expense, net		(366	)
Payments		(2,713	)
Foreign currency translation		(11	)
September 30, 2010	$	247

The remaining balances are primarily expected to be paid in 2010.

In 2008, the Company implemented certain right-sizing actions, including workforce reductions and plant consolidations, at both business segments. As a result of these actions, the Company recorded an additional $2,448 of costs in 2009 at Precision Components related to transfer of work and facility exits, $1,186 of which was recorded in the first nine months of 2009. These costs are primarily recorded in selling and administrative expenses in the accompanying consolidated statements of income. As of December 31, 2009, the Company had recorded a liability of $167 at Precision Components related to 2008 actions. These actions were substantially complete as of December 31, 2009.

The following table sets forth the change in the liability for 2008 employee termination actions at Logistics and Manufacturing Services:

January 1, 2010	$	1,467
Severance expense, net		(372	)
Payments		(850	)
Foreign currency translation		(135	)
September 30, 2010	$	110

The remaining balances are primarily expected to be paid in 2010.

7. Debt

The Company’s debt agreements contain financial covenants that require the maintenance of interest coverage and leverage ratios, and minimum levels of net worth. The Company is in compliance with its debt covenants as of September 30, 2010, and closely monitors its future compliance based on current and anticipated future economic conditions.

The 3.75% Convertible Notes are subject to redemption at their par value at any time, at the option of the Company, on or after February 7, 2011. The note holders may also require the Company to redeem some or all of the Notes at their par value on February 1^st of 2011, 2016 and 2021. As such, the Company has classified the balance of the 3.75% Convertible Notes of $91,397 ($92,500 par value) and the related deferred tax balances as current in the accompanying consolidated balance sheets as of September 30, 2010. However, if any of the 3.75% Convertible Notes are redeemed on February 1, 2011, the Company intends to finance the redemption through the use of its available credit facilities which expire in September 2012.

The 3.375% Convertible Notes are subject to redemption at their par value at any time, at the option of the Company, on or after March 20, 2014. The note holders may also require the Company to redeem some or all of the Notes at their par value on March 15^th of 2014, 2017 and 2022.

The 3.75% Convertible Notes and the 3.375% Convertible Notes are also eligible for conversion upon meeting certain conditions as provided in the respective indenture agreements. The eligibility for conversion is determined quarterly. During the third quarter of 2010, neither the 3.75% Convertible Notes nor the 3.375% Convertible Notes were eligible for conversion. During the fourth quarter of 2010, neither of the Convertible Notes will be eligible for conversion.

In January 2010, the Company and Wells Fargo Bank, N.A. entered into an amendment to the Company’s $35,000 unsecured credit agreement dated July 1, 2009 which reduced the interest rate applicable to the Eurocurrency loans from the London Interbank Offered Rate (“LIBOR”) plus 4.25% to LIBOR plus 2.75%. The interest rate for the base rate loans was unchanged. All other provisions of this credit agreement continued in full force and effect. In August 2010, the Company repaid the outstanding borrowings under this facility primarily with borrowings from the revolving credit agreement which resulted in the accelerated amortization of the unamortized deferred debt issuance costs.

9

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

(All dollar amounts included in the notes are stated in thousands except per share data.)

8. Derivatives

The Company has manufacturing, sales and distribution facilities around the world and thus makes investments and conducts business transactions denominated in various currencies. The Company is also exposed to fluctuations in interest rates and commodity price changes. These financial exposures are monitored and managed by the Company as an integral part of its risk management program.

The Company uses financial instruments to hedge its exposures to fluctuations in interest rates. The Company currently has two, three-year interest rate swap agreements expiring in March 2011 which together convert the interest on the first $100,000 of the Company’s one-month LIBOR-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 2.947% plus the borrowing spread which is accounted for as a cash flow hedge.

The Company also uses financial instruments to hedge its exposures to fluctuations in foreign currency exchange rates. The Company has various contracts outstanding which primarily hedge recognized assets or liabilities, and anticipated transactions in various currencies including the British pound sterling, Canadian dollar, Euro, Singapore dollar, Swedish krona and Swiss franc. Certain foreign currency derivative instruments are treated as cash flow hedges of forecasted transactions. All foreign exchange contracts are due within one year.

Net investment hedges have been used by the Company to mitigate exposure to foreign currency volatility on its future return on capital however the Company did not have any net investment hedges outstanding for any periods presented.

The Company does not use derivatives for speculative or trading purposes or to manage commodity exposures.

The following table sets forth the fair value amounts of derivative instruments held by the Company.

	September 30, 2010					December 31, 2009
	Asset Derivatives		Liability Derivatives			Asset Derivatives		Liability Derivatives
Derivatives designated as hedging instruments:
Interest rate contracts	$	—	$	(1,344	)	$	—	$	(2,700	)
Foreign exchange contracts		252		—			—		(147	)
		252		(1,344	)		—		(2,847	)
Derivatives not designated as hedging instruments:
Foreign exchange contracts		2,368		(34	)		1		(1,636	)
Total derivatives	$	2,620	$	(1,378	)	$	1	$	(4,483	)

Asset derivatives are recorded in Prepaid expenses and other current assets in the accompanying Consolidated Balance Sheets. Liability derivatives related to interest rate contracts and foreign exchange contracts are recorded in Other liabilities and Accrued liabilities, respectively, in the accompanying Consolidated Balance Sheets.

The following table sets forth the gain (loss) recorded in other comprehensive income, net of tax, for the three- and nine-month periods ended September 30, 2010 and 2009 for derivatives held by the Company.

	Three months ended September 30,				Nine months ended September 30,
Derivatives designated as hedging instruments:	2010		2009		2010		2009
Cash flow hedges:
Interest rate contracts	$	319	$	188	$	841	$	287
Foreign exchange contracts		103		125		129		(125	)
	$	422	$	313	$	970	$	162

10

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

(All dollar amounts included in the notes are stated in thousands except per share data.)

Amounts included within accumulated other comprehensive income (loss) that were reclassified to income during the three- and nine-month periods ended September 30, 2010 resulted in a fixed rate of interest of 2.947% plus the borrowing spread for the first $100,000 of one-month LIBOR borrowings. The amounts reclassified for the foreign exchange contracts were not material. Additionally, there were no amounts recognized in income for hedge ineffectiveness during the three- or nine-month periods ended September 30, 2010.

The following table sets forth the gain (loss) recorded in other income (expense) in the consolidated statements of income for the three- and nine-month periods ended September 30, 2010 and 2009 for derivatives held by the Company. Such amounts were substantially offset by gains (losses) recorded on the underlying hedged asset or liability.

	Three months  ended September 30,				Nine months  ended September 30,
Derivatives not designated as hedging instruments:	2010		2009		2010		2009
Non-designated hedges:
Foreign exchange contracts	$	4,153	$	2,786	$	3,969	$	2,438

9. Fair Value Measurements

The provisions of the accounting standard for fair value define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard classifies the inputs used to measure fair value into the following hierarchy:

Level 1	Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2	Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability
Level 3	Unobservable inputs for the asset or liability

The following table provides the financial assets (liabilities) reported at fair value and measured on a recurring basis:

				Fair Value Measurements Using
Description	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
September 30, 2010
Foreign exchange contracts	$	2,586		$	—	$	2,586		$	—
Interest rate contracts		(1,344	)		—		(1,344	)		—
Rabbi trust assets		1,234			1,234		—			—
	$	2,476		$	1,234	$	1,242		$	—
December 31, 2009
Foreign exchange contracts	$	(1,782	)	$	—	$	(1,782	)	$	—
Interest rate contracts		(2,700	)		—		(2,700	)		—
Rabbi trust assets		1,431			1,431		—			—
	$	(3,051	)	$	1,431	$	(4,482	)	$	—

The fair value for the foreign exchange and interest rate contracts are valued with a discounted cash flow model using observable current market information as of the reporting date such as the prevailing LIBOR-based and U.S. treasury interest rates and foreign currency spot and forward rates. The fair values of rabbi trust assets are based on quoted market prices from various financial exchanges.

11

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

(All dollar amounts included in the notes are stated in thousands except per share data.)

As disclosed within the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, the fair values of the 3.75% Convertible Notes and 3.375% Convertibles Notes were approximately $96,570 and $50,573, respectively. As of September 30, 2010, the fair values of the 3.75% Convertible Notes and the 3.375% Convertible Notes were approximately $95,100 and $54,199, respectively.

10. Pension and Other Postretirement Benefits

Pension and other postretirement benefits expenses consisted of the following:

Pensions	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009
Service cost	$	1,502		$	1,582		$	4,608		$	4,994
Interest cost		5,697			5,718			17,086			16,843
Expected return on plan assets		(7,703	)		(7,693	)		(23,068	)		(22,767	)
Amortization of prior service cost		239			236			697			709
Recognized losses		614			503			1,837			1,401
Curtailment loss		—			200			—			200
Net periodic benefit cost	$	349		$	546		$	1,160		$	1,380
Other Postretirement Benefits	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009
Service cost	$	85		$	119		$	272		$	349
Interest cost		786			902			2,418			2,645
Amortization of prior service cost		(236	)		(190	)		(727	)		(559	)
Recognized losses		88			52			303			152
Curtailment gain		—			—			(987	)		—
Net periodic benefit cost	$	723		$	883		$	1,279		$	2,587

The Company recorded a curtailment gain in one of its Other Postretirement Benefit Plans during the first quarter of 2010 in connection with the closure of a facility within the Precision Components segment.

11. Income Taxes

The Company’s effective tax rate for the first nine months of 2010 was 17.7%, an increase from a rate of 16.4% used for the first half of 2010. In 2009, the Company’s effective tax rate was 5.1% in the first nine months of the year and 2.4% for the full year. The increase in the 2010 effective tax rate from the full year 2009 was primarily driven by the projected shift in the mix of income to higher-taxing jurisdictions and the impact of the expected repatriation of a portion of current year foreign earnings to the U.S.

The Company’s aerospace aftermarket business within the Logistics and Manufacturing Services segment has been awarded a two-year extension of Pioneer Status by the Republic of Singapore’s Ministry of Trade and Industry for certain of its Revenue Sharing Programs. The Pioneer tax status is now awarded for periods of seven to nine years from the effective dates and is scheduled to begin to expire in late 2012. The multi-year Pioneer tax status provides tax benefits in exchange for capital investment and employment commitments for the production of certain engine components for original equipment manufacturers and the spare parts market.

12

BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

(All dollar amounts included in the notes are stated in thousands except per share data.)

12. Information on Business Segments

The following table sets forth information about the Company’s operations by its two reportable business segments:

	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009
Net sales
Logistics and Manufacturing Services	$	138,937		$	131,309		$	412,679		$	410,546
Precision Components		154,012			130,041			446,397			371,560
Intersegment sales		(3,048	)		(1,011	)		(9,146	)		(4,416	)
Total net sales	$	289,901		$	260,339		$	849,930		$	777,690
Operating profit
Logistics and Manufacturing Services	$	10,799		$	11,871		$	29,296		$	38,777
Precision Components		14,034			2,686			38,886			10,383
Total operating profit		24,833			14,557			68,182			49,160
Interest income		56			54			211			371
Interest expense		(5,177	)		(5,293	)		(15,273	)		(17,234	)
Other income (expense), net		(829	)		1,198			(2,372	)		2,276
Income before income taxes	$	18,883		$	10,516		$	50,748		$	34,573

13. Commitments and Contingencies

Product Warranties

The Company provides product warranties in connection with the sale of products. From time to time, the Company is subject to customer claims with respect to product warranties. Product warranty liabilities were not significant as of September 30, 2010 and December 31, 2009.

The Company was named in a lawsuit arising out of an alleged breach of contract and implied warranty by a customer of Toolcom Suppliers Limited (“Toolcom”), a division of the Logistics and Manufacturing Services segment, related to the sale of certain products prior to the Company’s 2005 acquisition of Toolcom. The plaintiff filed the lawsuit in civil court in Scotland and asserted that certain products sold were not fit for a particular use and claims approximately 5,500 pounds sterling (approximately $8,700) in damages, plus interest at the statutory rate of 8% per annum and costs. The court found that Toolcom was in breach of contract and implied warranty, and ordered Toolcom to pay a portion of the plaintiff’s attorneys’ fees. The court has not made determinations as to causation and damages and the Company intends to vigorously defend its position with respect to causation and damages. The Company cannot make a reasonable estimate of loss at this time; accordingly, no liability beyond the Company’s estimate of the attorneys’ fees it was ordered to pay has been recorded.

Income Taxes

In connection with an Internal Revenue Service (“IRS”) audit for the tax years 2000 through 2002, the IRS proposed adjustments to these tax years of approximately $16,500, plus a potential penalty of 20% of the tax assessment plus interest. The adjustment relates to the federal taxation of foreign income of certain foreign subsidiaries. The Company filed an administrative protest of these adjustments. In the third quarter of 2009, the Company was informed that its protest was denied and a tax assessment was received from the Appeals Office of the IRS. In November 2009, the Company filed a petition against the IRS in the U.S. Tax Court contesting the tax assessment received. The Company continues to believe its tax position on the issues raised by the IRS is correct and the Company plans to continue to take appropriate actions to vigorously defend its position. The Company believes it will prevail on this issue. Any additional impact on the Company’s liability for income taxes cannot presently be determined, but the Company continues to believe it is adequately provided for and the outcome will not have a material impact on its results of operations, financial position or cash flows.

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BARNES GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

(All dollar amounts included in the notes are stated in thousands except per share data.)

14. Accounting Changes

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-6 “Improving Disclosures about Fair Value Measurements”. This update requires interim disclosures regarding significant transfers in and out of Level 1 and Level 2 fair value measurements. Additionally, this ASU requires disclosure for each class of assets and liabilities and disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements. These disclosures are required for fair value measurements that fall in either Level 2 or Level 3. Further, the ASU requires separate presentation of Level 3 activity for the fair value measurements. The Company adopted the provisions of this update in the first quarter of 2010, with the exception of the separate presentation in the Level 3 activity rollforward, which is not effective until fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years.

With respect to the unaudited consolidated financial information of Barnes Group Inc. for the three-month and nine-month periods ended September 30, 2010 and 2009, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated October 29, 2010 appearing herein, states that they did not audit and they do not express an opinion on that unaudited consolidated financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended, for their report on the unaudited consolidated financial information because that report is not a “report” or a “part” of the registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Securities Act of 1933, as amended.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Barnes Group Inc.:

We have reviewed the accompanying consolidated balance sheet of Barnes Group Inc. and its subsidiaries as of September 30, 2010, and the related consolidated statements of income for the three-month and nine-month periods ended September 30, 2010 and September 30, 2009 and the consolidated statements of cash flows for the nine-month periods ended September 30, 2010 and September 30, 2009. This interim financial information is the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2009, and the related consolidated statements of income, of changes in stockholders’ equity and of cash flows for the year then ended (not presented herein), and in our report dated February 22, 2010 (which included an explanatory paragraph with respect to the Company’s change in the manner of accounting for uncertain tax positions and certain convertible debt instruments), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2009, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/S/    PRICEWATERHOUSECOOPERS LLP        

PricewaterhouseCoopers LLP

Hartford, Connecticut

October 29, 2010

15

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

Please refer to the Overview found in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The Annual Report on Form 10-K and other documents related to the Company are located on the Company’s website: www.bginc.com.

Third Quarter 2010 Highlights

In the third quarter of 2010, sales grew 11.4% from the third quarter of 2009 to $289.9 million primarily as a result of organic sales growth within both business segments. Operating income increased 70.6% to $24.8 million primarily as a result of the profit impact of the higher sales volume, lower cost structures and the absence of prior year restructuring costs. Net income improved 38.7% to $15.1 million.

The Company’s business segments are largely dependant on the states of the end-markets served. In the Logistics and Manufacturing Services segment, the end-markets of the distribution businesses, particularly in North America, showed improvements while the aerospace aftermarket business reflected slight improvements in demand despite the continued deferred maintenance trend. At Precision Components, the industrial manufacturing businesses continue to be positively impacted by improvements in the transportation and industrial end-markets while demand in the aerospace original equipment manufacturing business remains lower than 2009.

RESULTS OF OPERATIONS

Sales

	Three months ended September 30,											Nine months ended September 30,
(in millions)	2010			2009			Change					2010			2009			Change
Logistics and Manufacturing Services	$	138.9		$	131.3		$	7.6		5.8	%	$	412.7		$	410.5		$	2.1		0.5	%
Precision Components		154.0			130.0			24.0		18.4	%		446.4			371.6			74.8		20.1	%
Intersegment sales		(3.0	)		(1.0	)		(2.0	)	NM			(9.1	)		(4.4	)		(4.7	)	NM
Total	$	289.9		$	260.3		$	29.6		11.4	%	$	849.9		$	777.7		$	72.2		9.3	%

The Company reported net sales of $289.9 million in the third quarter of 2010, an increase of $29.6 million or 11.4% from the third quarter of 2009. The sales increase reflected $32.3 million of organic sales growth which included $9.1 million at Logistics and Manufacturing Services and $25.2 million at Precision Components. The strengthening of the U.S. dollar against foreign currencies as compared to the same period in 2009, primarily in Europe, decreased net sales by approximately $2.7 million in the third quarter of 2010.

Sales for the nine-month period ended September 30, 2010 were $849.9 million, an increase of $72.2 million or 9.3% from the nine-month period ended September 30, 2009. The sales increase reflected $69.4 million of organic sales growth primarily at Precision Components. The weakening of the U.S. dollar against foreign currencies as compared to the same period in 2009, primarily in Canada and Brazil, increased net sales by approximately $2.8 million in the first nine months of 2010.

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Expenses and Operating Income

	Three months ended September 30,										Nine months ended September 30,
(in millions)	2010			2009			Change				2010			2009			Change
Cost of sales	$	185.0		$	170.5		$	14.5	8.5	%	$	540.8		$	503.4		$	37.5	7.4	%
% of sales		63.8	%		65.5	%						63.6	%		64.7	%
Gross profit		104.9			89.8			15.1	16.8	%		309.1			274.3			34.8	12.7	%
% of sales		36.2	%		34.5	%						36.4	%		35.3	%
Selling and administrative expenses		80.1			75.3			4.8	6.4	%		240.9			225.2			15.8	7.0	%
% of sales		27.6	%		28.9	%						28.3	%		29.0	%
Operating income		24.8			14.6			10.3	70.6	%		68.2			49.2			19.0	38.7	%
% of sales		8.6	%		5.6	%						8.0	%		6.3	%

Cost of sales in the third quarter of 2010 increased 8.5% from the 2009 period primarily as a result of increased sales. The increase in cost of sales was less than the increase in sales resulting in an improvement in gross profit margin of 1.7 percentage points to 36.2%. Selling and administrative expenses in the third quarter of 2010 increased 6.4% from the third quarter of 2009 as a result of the increase in sales as well as higher employee related costs, including employee incentive compensation. Selling and administrative expenses in the third quarter of 2009 included $3.4 million primarily related to employee terminations costs and asset write-downs at Precision Components. Costs of sales and selling and administrative expenses were also impacted by the lower cost structures resulting from previous actions. As a result, operating income margin increased from 5.6% in the third quarter of 2009 to 8.6% in the third quarter of 2010.

Cost of sales in the first nine months of 2010 increased 7.4% from the 2009 period. The increase in cost of sales was lower than the increase in sales which resulted in an improvement in gross profit margin of 1.1 percentage points to 36.4%. Selling and administrative expenses in the first nine months of 2010 increased 7.0% from the 2009 period. The increases in cost of sales and selling and administrative expenses were primarily driven by the increase in sales offset in part by the impact of lower cost structures. As a result, operating income in the first nine months of 2010 increased 38.7% from the first nine months of 2009 and operating margin increased from 6.3% to 8.0%.

Other Income/Expense

Net other income (expenses) decreased $2.0 million in the third quarter of 2010 compared to the same period of 2009 primarily as a result of a $1.5 million gain on the repurchase of certain convertible notes recorded in the third quarter of 2009. Interest expense decreased slightly in the third quarter of 2010.

For the nine-month period ended September 30, 2010, net other income (expenses) decreased $4.8 million compared to the first nine months of 2009 primarily as a result of a $3.8 million gain on the repurchase of convertible notes recorded in 2009. Interest expense decreased $2.0 million in the first nine months of 2010 primarily as a result of lower borrowings compared to the 2009 period.

Income Taxes

The Company’s effective tax rate for the first nine months of 2010 was 17.7%, an increase from a rate of 16.4% used for the first half of 2010. In 2009, the Company’s effective tax rate was 5.1% in the first nine months of the year and 2.4% for the full year. The increase in the 2010 effective tax rate from the full year 2009 was primarily driven by the projected shift in the mix of income to higher-taxing jurisdictions and the impact of the expected repatriation of a portion of current year foreign earnings to the U.S.

In connection with an IRS audit for the tax years 2000 through 2002, the IRS proposed adjustments to these tax years of approximately $16.5 million, plus a potential penalty of 20% of the tax assessment plus interest. The adjustment relates to the federal taxation of foreign income of certain foreign subsidiaries. The Company filed an administrative protest of these adjustments. In the third quarter of 2009, the Company was informed that its protest was denied and a tax assessment was received from the Appeals Office of the IRS. In November 2009, the Company filed a petition against the IRS in the U.S. Tax Court contesting the tax assessment received. The Company continues to believe its tax position on the issues raised by

17

the IRS is correct and the Company plans to continue to take appropriate actions to vigorously defend its position. The Company believes it will prevail on this issue. Any additional impact on the Company’s liability for income taxes cannot presently be determined, but the Company continues to believe it is adequately provided for and the outcome will not have a material impact on its results of operations, financial position or cash flows.

Net Income and Net Income per Share

(in millions, except per share data)	Three months ended September 30,								Nine months ended September 30,
	2010		2009		Change				2010		2009		Change
Net income	$	15.1	$	10.9	$	4.2	38.7	%	$	41.8	$	32.8	$	9.0	27.3	%
Net income per common share:
Basic		.27		.20		.07	35.0	%		.75		.61		.14	23.0	%
Diluted		.27		.20		.07	35.0	%		.75		.61		.14	23.0	%
Weighted average common shares outstanding:
Basic		55.3		54.3		1.1	2.0	%		55.4		53.5		2.0	3.7	%
Diluted		55.8		54.6		1.3	2.3	%		56.0		53.7		2.3	4.4	%

In the third quarter of 2010, basic and diluted net income per common share increased 35.0% as compared to the third quarter of 2009, and in the first nine months of 2010 increased 23.0% as compared to the first nine months of 2009. The increases were directly attributable to the increases in net income in both periods. Basic weighted average shares outstanding increased primarily as a result of shares issued for employee stock plans and 1,154,265 shares of treasury stock used to repurchase certain of the Company’s convertible notes in August 2009 offset in part by the repurchase of 483,527 shares under the Company’s publicly announced repurchase program during the first nine months of 2010. Diluted weighted average shares outstanding increased as a result of the increase in basic weighted average shares outstanding and an increase in the dilutive effect of potentially issuable shares under the employee stock plans which was driven by an increase in the Company’s stock price.

Financial Performance by Business Segment

Logistics and Manufacturing Services

	Three months ended September 30,											Nine months ended September 30,
(in millions)	2010			2009			Change					2010			2009			Change
Sales	$	138.9		$	131.3		$	7.6		5.8	%	$	412.7		$	410.5		$	2.1		0.5	%
Operating profit		10.8			11.9			(1.1	)	(9.0	)%		29.3			38.8			(9.5	)	(24.5	)%
Operating margin		7.8	%		9.0	%							7.1	%		9.4	%

Logistics and Manufacturing Services recorded sales of $138.9 million in the third quarter of 2010, a 5.8% increase from the third quarter of 2009, and $412.7 million in the first nine months of 2010, a 0.5% increase from the first nine months of 2009. The increases in the third quarter and first nine months of 2010 were primarily a result of organic sales growth of $9.1 million and $1.4 million, respectively. The higher organic sales in 2010 were largely the result of end-market improvements in the distribution businesses primarily in North America. Additionally, despite recent positive demand trends in the aerospace aftermarket business and expanded capabilities in the third quarter of 2010 as compared to 2009 which resulted in organic sales growth, the year-to-date sales for this business in 2010 have been negatively impacted as compared to the 2009 period by overall lower aircraft utilization and a trend of deferred maintenance. Foreign currency translation had a negative impact on sales in the third quarter of 2010 of $1.5 million and a positive impact of $0.8 million on sales for the first nine months of 2010.

Operating profit at Logistics and Manufacturing Services decreased 9.0% to $10.8 million in the third quarter of 2010 from the third quarter of 2009 and operating profit in the first nine months of 2010 decreased 24.5% to $29.3 million. During 2010, investments were made in the distribution businesses to expand the sales force and improve future productivity resulting in additional costs. Operating profit was also negatively impacted by higher product and freight costs which were partially offset through higher selling prices and lower cost structures resulting from previous actions. During the first nine months of 2010, operating profit was negatively impacted primarily by lower sales volumes in the higher margin aerospace aftermarket business.

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Outlook: Organic sales levels in the distribution businesses of the Logistics and Manufacturing Services segment are largely dependent upon the economy in the regions served, the retention of its customers and continuation of existing sales volumes to such customers, and the effectiveness and size of its sales force. Near-term economic conditions remain uncertain and customers continue to manage costs and inventory levels. Management believes future sales growth will result from improvements in economic and end-market conditions, and investments in market penetration activities and sales force productivity initiatives. Near-term sales levels in the aerospace aftermarket business are expected to continue reflecting recent trends towards improving maintenance, repair and overhaul activity. Management further believes its aerospace aftermarket business is favorably positioned based on strong customer relationships including long-term maintenance and repair contracts in the overhaul and repair business, expected improvement in demand in the aftermarket businesses, expanded capabilities and current capacity levels.

Operating profit at Logistics and Manufacturing Services is expected to continue to be affected by the profit impact of the changes in sales volume, pricing pressures and investments made in each of its businesses. Profitability in the distribution businesses is expected to be favorably impacted by structural changes and other cost control efforts. The highly profitable aftermarket RSPs will continue to be impacted by the management fees payable to the customer which generally increase in the fourth or later years of each program. These and other similar fees are deducted from sales and temper sales growth of the aftermarket RSPs and operating margin.

Precision Components

	Three months ended September 30,										Nine months ended September 30,
(in millions)	2010			2009			Change				2010			2009			Change
Sales	$	154.0		$	130.0		$	24.0	18.4	%	$	446.4		$	371.6		$	74.8	20.1	%
Operating profit		14.0			2.7			11.3	NM			38.9			10.4			28.5	NM
Operating margin		9.1	%		2.1	%						8.7	%		2.8	%

Sales at Precision Components were $154.0 million in the third quarter of 2010, an 18.4% increase from the third quarter of 2009, and $446.4 million in the first nine months of 2010, a 20.1% increase from the first nine months of 2009. Sales increases in both periods resulted primarily from organic sales increases of $25.2 million in the third quarter of 2010 and $72.8 million in the first nine months of 2010 which resulted mainly from increases in the industrial manufacturing businesses in North America and Europe and from improvements in the transportation industry, including automotive. Sales in the aerospace OEM business were relatively flat in the 2010 periods as compared to the 2009 periods. The impact of foreign currency translation decreased sales approximately $1.2 million in the third quarter of 2010 and increased sales approximately $2.0 million in the first nine months of 2010.

Operating profit in the third quarter of 2010 at Precision Components was $14.0 million compared to $2.7 million in the third quarter of 2009, and $38.9 million in the first nine months of 2010 compared to $10.4 million in the comparable 2009 period. Operating profit improvements in 2010 were due primarily to the profit impact of higher sales levels in 2010, lower cost structures resulting from previous restructuring actions and lean initiatives. These improvements were offset by higher personnel costs given higher demand and costs associated with new product introductions. Additionally, the 2009 third quarter results included a $3.4 million restructuring charge primarily for employee termination costs and asset write-downs associated with moving the operations of two facilities.

Outlook: In the industrial manufacturing businesses, management is focused on generating organic sales growth by leveraging the benefits of the diversified products and industrial end markets in which its businesses have a global presence as well as gaining market share and introducing new products. Sales growth in the global markets served by these businesses is expected to remain uncertain due to economic conditions. However, increased order activity in certain end markets, including transportation, may provide incremental benefits in the near-term. Sales in the aerospace OEM business are driven by its commercial engine order backlog through its participation in certain strategic engine programs. Backlog in this business was $361.9 million at September 30, 2010, of which approximately 65% is expected to be shipped in the next 12 months. In the near-term, the aerospace OEM business may be impacted by adjustments of customer inventory levels including insourcing trends, changes in production schedules of specific engine programs, and the general state of the aerospace market driven by the worldwide economy. Management believes that strong long-term aerospace industry fundamentals remain which, together with the pursuit of new programs and increased content levels on certain platforms is expected to drive future sales growth in this business.

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Operating profit is largely dependant on the sales volumes within all businesses of the segment. Management expects a favorable impact on profitability from the cost actions taken in these businesses which resulted in lower, more competitive cost structures. Management continues to focus on improving profitability through organic sales growth, pricing initiatives in part to mitigate raw material pricing pressures, and productivity and process improvements such as lean. Costs associated with personnel, new product introductions and commodity price increases may negatively impact operating profit.

LIQUIDITY AND CAPITAL RESOURCES

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 lines of credit.

The Company’s ability to generate cash from operations in excess of its internal operating needs is one of its financial strengths. Management continues to focus on cash flow and working capital management, and anticipates that operating activities in 2010 will continue to generate adequate cash. The Company closely monitors its cash generation, usage and preservation including the management of working capital to generate cash.

The Company’s 3.75% Convertible Notes are subject to redemption at their par value at any time, at the option of the Company, on or after February 7, 2011. The note holders may also require the Company to redeem some or all of the Notes on February 1^st of 2011, 2016 and 2021. As such, the balance of these notes of $91.4 million ($92.5 million par value) is classified as current in the accompanying balance sheet as of September 30, 2010. However, if any of the 3.75% Convertible Notes are redeemed on February 1, 2011, the Company intends to finance the redemption through the use of its available credit facilities. The Company’s 3.375% Convertible Notes are subject to redemption at their par value at any time, at the option of the Company, on or after March 20, 2014. The note holders may also require the Company to redeem some or all of the Notes on March 15^th of 2014, 2017 and 2022.

Operating cash flow may be supplemented with external borrowings to meet near-term organic business expansion needs and the Company’s current financial commitments. The credit markets have presented companies with significant challenges in maintaining or expanding credit facilities. The Company has assessed its credit facilities and currently expects that its bank syndicate, comprised of 15 banks, will continue to support the $400.0 million credit facility which matures in September 2012. At September 30, 2010, the Company has $209.8 million of unused and available for borrowings under its $400.0 million credit facility, subject to covenants in the Company’s debt agreements. The Company believes its credit facilities, coupled with cash generated from operations, are adequate for its anticipated future requirements.

The Company closely monitors compliance with its various debt covenants. The Company’s most restrictive financial covenant (the “Debt Ratio”) requires the Company to maintain a ratio of Consolidated Total Debt to adjusted earnings before interest expense, income taxes, and depreciation and amortization (“Adjusted EBITDA”) as defined in the amended and restated revolving credit agreement of not more than 3.75 times at September 30, 2010. The actual ratio at September 30, 2010 was 2.83 times.

Any future acquisitions are expected to be financed through internal cash, borrowings and equity, or a combination thereof. Additionally, we may from time to time seek to retire or repurchase our outstanding debt through cash purchases and / or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

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Cash Flow

	Nine months ended September 30,
(in millions)	2010			2009			Change
Operating activities	$	47.0		$	125.7		$	(78.7	)
Investing activities		(23.5	)		(25.6	)		2.1
Financing activities		(17.1	)		(107.9	)		90.8
Exchange rate effect		(0.2	)		1.0			(1.2	)
Increase (decrease) in cash	$	6.3		$	(6.7	)	$	13.0

Operating activities provided $47.0 million in cash in the first nine months of 2010 compared to $125.7 million provided in the first nine months of 2009. The lower operating cash flows in 2010 were primarily driven by higher investments in working capital in the 2010 period, specifically in inventory and accounts receivable compared to the significant reductions in the 2009 period. The increase in inventory resulted primarily from higher anticipated customer demand while the increase in accounts receivable resulted primarily from higher sales levels.

Investing activities in the first nine months of 2010 primarily consisted of capital expenditures of $22.5 million compared to $24.8 million in the 2009 period. The Company expects capital spending in 2010 to be approximately $30 million.

Cash from financing activities in the first nine months of 2010 included a net increase in borrowings of $1.4 million compared to a decrease of $91.2 million in the comparable 2009 period. The cash generated from operations in the 2010 period was used primarily for capital expenditures, dividends and common stock repurchases. The cash generated from operations in the 2009 period along with the use of cash on hand were used for capital expenditures, dividends and debt reduction. The 2010 period reflected the third quarter repayment of the outstanding borrowings under the Wells Fargo credit agreement primarily with borrowings under the revolving credit agreement. The 2009 period reflected the purchase of $34.7 million par value of convertible notes at a discounted price of $28.7 million. These purchases were funded with borrowings under the revolving credit lines. Total cash used to pay dividends decreased in the first nine months of 2010 by $8.1 million from the comparable 2009 period to $13.2 million due to a decrease in the cash dividends per share from $.40 per share in the first nine months of 2009 to $.24 per share in the first nine months of 2010. During the nine months ended September 30, 2010, the Company repurchased 0.5 million shares of the Company’s stock at a cost of $9.0 million under the terms of its publicly announced repurchase program. Additionally, we may from time to time decide to repurchase additional shares under the program. There are a maximum of 2.0 million shares that may be repurchased under the existing program.

At September 30, 2010, the Company held $23.7 million in cash and cash equivalents, the majority of which are held outside of the U.S. In general, the repatriation of cash to the U.S. would have adverse tax consequences and the balances remain outside the U.S. to fund future international investments. However, the Company expects to repatriate a portion of current year foreign earnings to the U.S. in 2010.

The Company maintains borrowing facilities with banks to supplement internal cash generation. At September 30, 2010, $190.2 million was borrowed at an average interest rate of 1.06% under the Company’s $400.0 million revolving credit facility which matures in September 2012. As of September 30, 2010, the Company had borrowed $5.5 million under its short-term bank credit lines. The Company’s total borrowings at September 30, 2010 were comprised of approximately 46% fixed rate debt and approximately 54% variable rate debt. The interest payments on approximately 50% of the variable rate debt have been converted into payments of fixed rate interest plus the borrowing spread under the terms of the respective interest rate swap agreements.

21

Debt Covenants

Borrowing capacity is limited by various debt covenants in the Company’s debt agreements. As of September 30, 2010 the most restrictive borrowing capacity covenant in any agreement requires the Company to maintain a maximum ratio of Consolidated Total Debt to Adjusted EBITDA, as defined in the amended and restated revolving credit agreement, of not more than 3.75 times for the four fiscal quarters then ending. Following is a reconciliation of Adjusted EBITDA, as defined, to the Company’s net income (in millions):

	Four fiscal quarters ended September 30, 2010
Net income	$	48.0
Add back:
Interest expense		20.6
Income taxes		8.2
Depreciation and amortization		51.9
Other adjustments		0.6
Adjusted EBITDA, as defined	$	129.3
Consolidated Total Debt, as defined, as of September 30, 2010	$	366.0
Ratio of Consolidated Total Debt to Adjusted EBITDA		2.83

Other adjustments primarily represent losses on the sale of assets. Consolidated Total Debt excludes the debt discount related to the convertible notes. The Company’s financial covenants are measured as of the end of each fiscal quarter. At September 30, 2010, additional borrowings of $118.9 million would have been allowed under the covenants.

OTHER MATTERS

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. Significant accounting policies are disclosed in Note 1 of the Notes to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The most significant areas involving management judgments and estimates are described in Management’s Discussion and Analysis of Financial Conditions and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. There have been no material changes to such judgments and estimates other than the following update related to business acquisitions and goodwill. Actual results could differ from those estimates.

Business Acquisitions and Goodwill: The Company has $381.4 million of goodwill recorded as of September 30, 2010. Goodwill is subject to impairment testing annually or earlier testing if an event or change in circumstances indicates that the fair value of a reporting unit has been reduced below its carrying value. Management completes their annual impairment assessment during the second quarter of each year. In the second quarter of 2010, management performed its annual impairment testing and concluded that the fair value of each reporting unit exceeded its carrying value. Based on this assessment, there was no goodwill impairment through June 30, 2010. Additionally, there were no events or change in circumstances which indicated that the fair value of any reporting unit had been reduced below its carrying value in the third quarter of 2010.

Management estimates the fair value of each reporting unit using the income approach, which reflects management’s cash flow projections, and/or the market approach in accordance with current accounting standards. Management believes the cash flow projections utilized and/or market multiples are consistent with the expectations of market participants. Inherent in management’s development of cash flow projections are assumptions and estimates, including those related to future earnings and growth and the weighted average cost of capital. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates can change in future periods as a result of both Company-specific and overall economic conditions. The Barnes Distribution reporting unit, which is part of the Logistics and Manufacturing Services segment, has approximately $150 million of goodwill. Management concluded in its second quarter impairment

22

assessment that the estimated fair value of the Barnes Distribution reporting unit was in excess of its carrying value. The Barnes Distribution reporting unit’s cash flows are significantly impacted by the economy in the regions served, the retention of its customers, the cost and inventory level management initiatives of its customers, continuation of existing sales volume and effectiveness and size of its sale force. Management expects future operating improvements to result from improving end-market conditions, further market penetration, sales force productivity initiatives and the expected benefits of prior restructuring actions. If future operating performance does not meet expectations or one or more of the key assumptions change or are not met, there can be no assurance that the fair value of the reporting unit will continue to exceed its carrying value which could potentially result in a non-cash impairment charge to income from operations.

EBITDA

EBITDA for the first nine months of 2010 were $105.1 million compared to $90.4 million in the first nine months of 2009. EBITDA is a measurement not in accordance with generally accepted accounting principles (“GAAP”). The Company defines EBITDA as net income plus interest expense, income taxes and depreciation and amortization which the Company incurs in the normal course of business. The Company does not intend EBITDA to represent cash flows from operations as defined by GAAP, and the reader should not consider it as an alternative to net income, net cash provided by operating activities or any other items calculated in accordance with GAAP, or as an indicator of the Company’s operating performance. The Company’s definition of EBITDA may not be comparable with EBITDA as defined by other companies or in the Company’s amended and restated revolving credit agreement. Accordingly, the measurement has limitations depending on its use. The Company believes EBITDA is commonly used by financial analysts and others in the industries in which the Company operates and, thus, provides useful information to investors.

Following is a reconciliation of EBITDA to the Company’s net income (in millions):

	Nine months ended September 30,
	2010		2009
Net income	$	41.8	$	32.8
Add back:
Interest expense		15.3		17.2
Income taxes		9.0		1.8
Depreciation and amortization		39.0		38.6
EBITDA	$	105.1	$	90.4

Forward-looking Statements

Certain of the statements in this quarterly report, including those with respect to our outlook for each of our business segments above, may contain certain forward-looking statements as defined in the Private Securities Litigation and Reform Act of 1995. Forward-looking statements are made based upon management’s good faith expectations and beliefs concerning future developments and their potential effect upon the Company and can be identified by the use of words such as “anticipated,” “believe,” “expect,” “plans,” “strategy,” “estimate,” “project,” and other words of similar meaning in connection with a discussion of future operating or financial performance. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements. The risks and uncertainties, which are described in our periodic filings with the Securities and Exchange Commission, include, among others, uncertainties arising from the behavior of financial markets; future financial performance of the industries or customers that we serve; changes in market demand for our products and services; success of integration of acquired businesses; introduction of new products or transfer of work; changes in raw material prices and availability; foreign currency exposure; our dependence upon revenues and earnings from a small number of significant customers; uninsured claims; and numerous other matters of global, regional or national scale, including those of a political, economic, business, competitive, environmental, regulatory and public health nature. The Company assumes no obligation to update our forward-looking statements.

23

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no significant change in the Company’s exposure to market risk during the first nine months of 2010. For discussion of the Company’s exposure to market risk, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Item 4. Controls and Procedures

Management, including the Company’s President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon, and as of the date of, that evaluation, the President and Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported as and when required and (ii) is accumulated and communicated to the Company’s management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the Company’s third fiscal quarter of 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

24

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer Purchases of Equity Securities

Period	(a) Total Number of Shares (or Units) Purchased			(b) Average Price Paid Per Share (or Unit)		(c) Total Number  of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (2)
July 1-31, 2010		—		$	—		—		2,297,717
August 1-31, 2010		300,768		$	17.13		288,561		2,009,156
September 1-30, 2010		—		$	—		—		2,009,156
Total		300,768	(1)	$	17.13		288,561

⁽¹⁾Other than the 288,561 shares purchased in the third quarter of 2010 which were purchased as part of the Company’s publicly announced plans, all acquisitions of equity securities during the third quarter of 2010 were the result of the operation of the terms of the Company’s stockholder-approved equity compensation plans and the terms of the equity rights granted pursuant to those plans to pay for the related income tax upon issuance of shares. The purchase price of a share of stock used for tax withholding is the market price on the date of issuance.

⁽²⁾The program was publicly announced on May 8, 2008 authorizing repurchase of up to 5.0 million shares of the Company’s common stock.

Item 6. Exhibits

(a) Exhibits
Exhibit 10.1	Barnes Group Inc. Executive Separation Pay Plan as Amended and Restated Effective January 1, 2011.
Exhibit 15	Letter regarding unaudited interim financial information.
Exhibit 31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32	Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
Exhibit 101.INS	XBRL Instance Document.
Exhibit 101.SCH	XBRL Taxonomy Extension Schema Document.
Exhibit 101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
Exhibit 101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
Exhibit 101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

25

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Barnes Group Inc.
	(Registrant)
Date: October 29, 2010	/S/    CHRISTOPHER J. STEPHENS, JR.
	Christopher J. Stephens, Jr. Senior Vice President, Finance Chief Financial Officer (the principal Financial Officer)
Date: October 29, 2010	/S/     MARIAN ACKER
	Marian Acker Vice President, Controller (the principal Accounting Officer)

26

EXHIBIT INDEX

Barnes Group Inc.

Quarterly Report on Form 10-Q

For Quarter ended September 30, 2010

Exhibit     No.	Description	Reference
10.1	Barnes Group Inc. Executive Separation Pay Plan as Amended and Restated Effective January 1, 2011.	Filed with this report.
15	Letter regarding unaudited interim financial information.	Filed with this report.
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed with this report.
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed with this report.
32	Certification pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Furnished with this report.
101.INS	XBRL Instance Document.	Furnished with this report.
101.SCH	XBRL Taxonomy Extension Schema Document.	Furnished with this report.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.	Furnished with this report.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.	Furnished with this report.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.	Furnished with this report.

27

EX-10.1

EXHIBIT 10.1

Final – Approved 9-17-2010

by Benefits Committee

BARNES GROUP INC. EXECUTIVE SEPARATION PAY PLAN

As Amended and Restated Effective January 1, 2011

Preamble

The Barnes Group Inc. Executive Separation Pay Plan (the “Plan”) was amended in December 2007 and was further amended and restated effective December 31, 2008 to respond to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the Treasury Regulations and official guidance thereunder. Any provision of the Plan as so amended and restated to the contrary notwithstanding, if any provision of the Plan as so amended and restated would change the time or form of payment of any amount that is payable under the Plan as in effect before December 31, 2008, such provision shall “apply only to amounts that would not otherwise be payable in 2008” within the meaning of paragraph ..02 of §3 of IRS Notice 2006-79 as modified by Section 3.01(B)(1) of IRS Notice 2007-86, and shall be administered, interpreted and construed accordingly.

1. Purpose. The purpose of the Plan is to provide appropriate benefits to eligible executives of Barnes Group Inc. (the “Company”) whose employment is terminated by the Company.

2. Covered Employees. Full-time salaried employees of the Company who are employed in the United States in salary grades 24 and above, and full-time salaried employees of the Company who are employed in the United States in salary grades 18 through 23 who have at least six months of service, are covered by the Plan. A person is considered to be a full-time employee if the person is regularly scheduled to work at least 30 hours per week.

3. Payment of Benefits. An employee covered under the Plan is entitled to receive benefits under the Plan if s/he has an “involuntary Separation from Service” within the meaning of Treasury Regulation section 1.409A-1(n)(1) and such involuntary Separation from Service is without Cause; provided, however, that no benefits will be paid under the Plan if:

1

Final – Approved 9-17-2010

by Benefits Committee

(a) the termination action is determined by the Company to be based on misconduct of any type including, but not limited to, violation of any Company rules or policies, or activity which results in the conviction of a felony; or

(b) the termination is the result of the sale of the stock or substantially all of the assets of a business unit of the Company and the employee is offered employment by the purchaser, within 30 days after the closing of the sale, in a position that is at least comparable to, and for compensation and benefits that are, in the aggregate, at least substantially equivalent to, the employee’s position, compensation and benefits with the Company prior to the sale; or

(c) the employee is a party on December 31, 2008 to a severance agreement with the Company relating to Separation from Service after a “Change in Control” of the Company as defined in the agreement (a “Severance Agreement”), or is an executive officer of the Company hired after that date, and the Separation from Service is both (i) a Separation from Service within two years following a “Change in Control”, and (ii) either an involuntary Separation from Service (within the meaning of Treasury Regulation section 1.409A-1(n)(1)) by the Company other than for “Cause” or “Disability”, or a Separation from Service by the employee for “Good Reason”, as such terms in quotation marks are defined in the form of Severance Agreement as amended December 31, 2008.

For the avoidance of doubt, the exclusion set forth in this clause (c) shall apply even if the Change in Control referred to in subclause (i) hereof does not occur during the term of the Severance Agreement, and even if no severance benefits are payable pursuant to the Severance Agreement in respect of the Separation from Service and, in the case of an executive officer hired after December 31, 2008, even if the employee is not party to a Severance Agreement.

2

Final – Approved 9-17-2010

by Benefits Committee

For purposes of this Plan, (A) a “Separation from Service” means a “separation from service with the employer” within the meaning of Treasury Regulation section 1.409A-1(h), where the “employer” means the Company and all corporations and trades or businesses with which the Company would be considered a single employer under Section 414(b) or Section 414(c) of the Code (as determined in accordance with the first sentence of Treasury Regulation section 1.409A-1(b)(3)); and (B) “Cause” means misconduct or activity described in (a) above, serious dereliction of duty, or grossly negligent or reckless conduct in connection with one’s employment. An employee who is entitled to receive benefits under the Plan in accordance with Section 2 and the foregoing provisions of this Section 3 is hereinafter sometimes referred to as a “terminated employee”.

4. Severance Pay.

4.1 A terminated employee who is entitled to receive benefits under this Plan is eligible to receive severance pay based on the following schedule:

(a) Grades 18-20: four months of base salary plus an additional two weeks of base salary for each year of service over five years up to a maximum total payment of six months of base salary.

(b) Grades 21-23: seven months of base salary.

(c) Grades 24 and above, except for the President and Chief Executive Officer: twelve months of base salary.

3

Final – Approved 9-17-2010

by Benefits Committee

The minimum severance pay benefit payable under this Plan shall be one month’s base salary or the amount of accrued vacation, whichever is greater, and shall be paid within thirty days after the terminated employee’s Separation from Service. For purposes of the Plan, “base salary” means the employee’s base salary in effect immediately prior to the employee’s Separation from Service, and any severance payment shall be calculated on the basis of the employee’s salary grade immediately prior to the employee’s Separation from Service.

4.2 Subject to the other provisions of this Section 4 and Section 8.5 below, payment shall be made on the terminated employee’s regularly scheduled payroll payment dates as if no Separation from Service had occurred and he/she had continued as an employee, commencing with the next regularly scheduled payroll payment date after the date on which the terminated employee’s Separation from Service occurs, and continuing on each regularly scheduled payroll payment date thereafter until full payment has been made in accordance with Section 4.1 above, and will be subject to normal deductions for items such as income taxes, Social Security, and Medicare. For the avoidance of doubt, (a) “regularly scheduled payroll payment dates” means the payroll payment dates per the payroll schedule applicable to the terminated employee immediately prior to the employee’s Separation from Service, and (b) subject to the other provisions of this Section 4 and Section 8.5 below, the amount payable on each such regularly scheduled payment date is the amount of base salary that would have been paid to the terminated employee on that date if no Separation from Service had occurred and the terminated employee had been an employee of the Company on that date, but in no event shall the aggregate payments exceed the severance pay benefit determined in accordance with Section 4.1 above, nor shall payments be made more than twelve calendar months after the calendar month in which an employee’s Separation from Service occurs.

4

Final – Approved 9-17-2010

by Benefits Committee

4.3 In no event will more than the minimum severance pay benefit (including but not limited to benefits payable pursuant to Section 6 below) be paid or provided unless the terminated employee executes after Separation from Service a release of any claims against the Company in a form approved by the Company’s General Counsel, the executed release is delivered to the Company within 50 days after the Separation from Service or within such lesser period after the Separation from Service as the Company’s General Counsel may require, and the release becomes irrevocable within 60 days after the Separation from Service or within such lesser period after the Separation from Service as the Company’s General Counsel may require. Any severance pay benefits in excess of the minimum severance pay benefit (including but not limited to benefits payable pursuant to Section 6 below) that, in the absence of this Section 4.3, would be paid or provided pursuant to Section 4.2 above or Section 6 below before the release becomes irrevocable shall be paid or provided after the release becomes irrevocable and within 74 days after the Separation from Service.

4.4 The Company may at any time provide in advance of any date after the employee’s Separation from Service occurs that any severance pay benefit payable to the terminated employee pursuant to Section 4.2 above or Section 6 below on or after that date will be forfeited unless on or before that date, (a) the terminated employee executes a second release of claims’ against the Company and delivers such second release to the Company, and (b) such second release of claims becomes irrevocable.

5

Final – Approved 9-17-2010

by Benefits Committee

4.5 Severance pay for a terminated employee who was in any of salary grades 18 through 26 shall cease on the date that such terminated employee begins other employment, including but not limited to work for another party. The terminated employee shall promptly notify the Company in writing when he/she commences such employment.

4.6 Severance pay for a terminated employee who was in any of salary grades 27 and above shall not cease on the date that such terminated employee begins other employment, including but not limited to work for another party, but shall continue throughout the entire severance period.

5. Accrued Vacation. A terminated employee who executes a release of claims in a form approved by the Company’s General Counsel shall be paid for any unused vacation or paid time off that he/she has accrued in accordance with Company policy prior to the Separation from Service. Payment for such accrued unused vacation or paid time off shall be made in a lump sum, net of normal deductions for items such as income taxes, Social Security and Medicare, within thirty days after the employee’s Separation from Service.

6. Other Benefits.

6.1 A person may continue participation in the Company’s medical and dental plans, in accordance with the terms of the applicable plans, for the period during which he/she receives severance payments. In addition, a person may continue participation in the health care reimbursement account portion of his/her flexible benefits plan, in accordance with the terms of such plan, using pre-tax dollars

6

Final – Approved 9-17-2010

by Benefits Committee

from such severance payments, for the period during which he/she receives severance payments, but not later than the end of the calendar year in which Separation from Service occurs. If severance payments cease prior to the end of any month, coverage will continue until the end of the last month during which the person receives any severance payments. Subject to Section 4.3 and Section 4.4 above and to Section 8.5 below, if immediately prior to the Separation from Service the terminated employee was a participant in the Company’s Enhanced Life Insurance Program (“ELIP”) or Senior Executive Enhanced Life Insurance Program (“SEELIP”) who had not yet attained age fifty-five (55) and at least ten (10) years of service with the Company and/or an “Affiliate” (as defined in the ELIP and SEELIP), then until the end of the calendar quarter in which the last severance payment is made to the terminated employee pursuant to Section 4 hereof, such terminated employee shall receive the same benefits, if any, under the ELIP or SEELIP as in effect immediately prior to Separation from Service (whichever program, if any, applied to the terminated employee immediately prior to such employee’s Separation from Service), at the same times, that the terminated employee would have received if the ELIP and SEELIP as in effect immediately prior to Separation from Service had remained in effect and no Separation from Service had occurred and the terminated employee had continued to be actively employed and to receive his or her base salary until the last day of the calendar quarter in which the last severance payment is made to such terminated employee pursuant to Section 4 above; provided that, notwithstanding anything herein to the contrary, the Company may reduce the benefits payable

7

Final – Approved 9-17-2010

by Benefits Committee

pursuant to this sentence at any time, and, provided further, that in no event shall any benefits be paid or provided pursuant to this sentence after the calendar quarter in which the last severance payment is made to the terminated employee pursuant to Section 4 hereof. If prior to the Separation from Service the terminated employee was a participant in the ELIP or SEELIP who had attained age fifty-five (55) and at least ten (10) years of service with the Company and/or an “Affiliate” (as defined in the ELIP and SEELIP), then after the Separation from Service the terminated employee’s entitlement to any benefits under the ELIP or SEELIP shall be determined in accordance with the ELIP or SEELIP (whichever program, if any, applied to the terminated employee immediately prior to such employee’s Separation from Service). Notwithstanding anything to the contrary herein, the Company reserves the right to discontinue or change the terms (including but not limited to the carrier) of any employee benefit plan, including without limitation the ELIP and the SEELIP. After severance payments cease, medical and dental coverage and the health care reimbursement account may be continued under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), as required by law and as provided in such plans. No person will be eligible for benefits under the short term disability and/or long term disability plans if they become disabled while receiving severance payments. Except as provided above, all other coverages cease upon Separation from Service in accordance with the applicable plan documents, subject to any conversion or portability rights under such plans. Within the meaning of Treasury Regulation section 1.409A-3(i)(l)(iv), the amount of any expenses eligible for reimbursement,

8

Final – Approved 9-17-2010

by Benefits Committee

or in-kind benefits provided, pursuant to this Section 6.1 or otherwise during a terminated employee’s taxable year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, pursuant to this Section 6.1 or otherwise in any other taxable year.

6.2 Except to facilitate benefit continuation as provided in Section 6.1 hereof, a person’s status as an employee shall cease upon the termination of employment date and not continue during the period in which severance payments are made absent an agreement with the Company to the contrary. Without limiting the foregoing, employment shall be terminated for purposes of the Retirement Savings Plan, any applicable pension or profit-sharing plan, stock option plans, and for all other purposes upon the termination of employment date.

6.3 The right of a terminated employee to any series of installment payments, including without limitation severance payments and taxable benefits, that are to be paid or provided under this Plan, which right is eligible to be treated as a right to a series of separate payments under Treasury Regulation section 1.409A-2(b)(2)(iii), including in particular but not limited to the right of a terminated employee to the series of severance payments under Section 4 and benefits (including without limitation ELIP and SEELIP benefits) under Section 6.1, shall be treated as a right to a series of separate payments for purposes of Section 409A of the Code, including without limitation for purposes of the short-term deferral rule set forth in Treasury Regulation section 1.409A-1(b)(4).

9

Final – Approved 9-17-2010

by Benefits Committee

7. Administration.

7.1 Benefits Committee. The Plan is administered by the Benefits Committee appointed by the Company’s Board of Directors (the “Committee”). The Committee may promulgate rules or regulations for the administration of the Plan. The Committee shall, in its sole discretion, interpret and construe the Plan’s terms and conditions, and determine an individual’s eligibility for benefits. Any interpretations, constructions or determinations made by the Committee in good faith shall be final and binding on all concerned.

7.2 Claims Procedure. If any person believes that he/she is not receiving any benefits to which he/she is entitled under the Plan, the person, after reviewing the matter with the human resource representative serving the person’s place of work, may file a written claim with the Director, Leadership and Development. Barnes Group Inc., 123 Main Street, Bristol, Connecticut 06010, or such other person designated by the Benefits Committee, who shall respond to such claim in writing within 45 days after its receipt. If any claim is denied, the claimant may appeal such denial in writing to the Benefits Committee, c/o Barnes Group Inc., 123 Main Street, Bristol, Connecticut 06010. Any such appeal must be filed within 60 days after the denial of the claim. The Benefits Committee shall notify the claimant of its decision in writing within 60 days after receiving the appeal.

8. Other Provisions.

8.1 This Plan may be amended or terminated at any time and in any respect by the vote of a majority of the members of the Benefits Committee or by the unanimous written consent of the members of the Benefits Committee.

10

Final – Approved 9-17-2010

by Benefits Committee

8.2 The benefits to be provided under this Plan shall not be funded and shall be paid out of the general assets of the Company.

8.3 For purposes of determining:

(a) an employee’s eligibility under Section 2 of the Plan;

(b) the schedule of severance pay payments under Section 4 of the Plan; and

(c) the period of continuation of other benefits described in Section 6 of the Plan, only service since the employee’s last date of hire with the Company shall be counted.

8.4 The Plan shall be construed, administered and enforced under the laws of the State of Connecticut except to the extent such laws are preempted by federal law.

8.5 Any provision of this Plan to the contrary notwithstanding, (a) no “distributions” (within the meaning of Treasury Regulation section 1.409A-1(c)(3)(v)) of deferred compensation that is subject to Section 409A of the Code may be made pursuant to this Plan to a “specified employee” (within the meaning of Treasury Regulation section 1.409A-1(i))(“Specified Employee”) due to a Separation from Service before the date that is six months after the date of such Specified Employee’s Separation from Service (or, if earlier than the end of the six month period, the date of his or her death); and (b) any distribution that, but for the preceding clause (a), would be made before the date that is six months after the date of the Specified Employee’s Separation from Service shall be paid on the first day of the seventh month following the date of his or her Separation from Service (or, if earlier, within 14 days after the date of his or her death). For the avoidance of doubt, the preceding sentence shall apply to any amount or benefit

11

Final – Approved 9-17-2010

by Benefits Committee

(and only to any amount or benefit) to be paid or provided pursuant to this Plan to which Code Section 409A(a)(2)(B)(i) (relating to Specified Employees) applies, and shall not apply to any amount or benefit to be paid or provided pursuant to this Plan if and to the extent that such amount or benefit is not subject to Section 409A of the Code as a result of Treasury Regulation section 1.409A-1(a)(4) (relating to welfare benefits), Treasury Regulation Section 1.409A-1(b)(4) (relating to short-term deferrals), Treasury Regulation Section 1.409A-1(b)(9) (relating to separation pay plans), or otherwise.

8.6 If at any time during the 12-month period ending on any “specified employee identification date”, which shall be December 31, a person who participates in or has any legally binding right, contingent or otherwise, under this Plan (a “Plan Participant”), is in Salary Grade 20 or above or meets the requirements of Code section 416(i)(1)(A)(ii) or (iii) (applied in accordance with the Treasury Regulations thereunder and disregarding Code Section 416(i)(5)), then the Plan Participant shall be treated as a Specified Employee for purposes of Section 8.5 above for the entire 12-month period beginning on the “specified employee effective date”, which shall be the January 1 that immediately follows such specified employee identification date, unless the Board of Directors of the Company (the “Board of Directors”) or its Compensation and Management Development Committee (the “CMDC”) at any time prescribes a different method of identifying service providers who will be subject to the six month delay required by Section 409A(a)(2)(B)(i) of the Code (the “Six Month Delay”) in accordance with Treasury Regulation section 1.409A-1(i) or the transition rules

12

Final – Approved 9-17-2010

by Benefits Committee

and official guidance under Code Section 409A (a “Different Identification Method”) or elects a different specified employee identification date or specified employee effective date or makes any other election that may be made in accordance with Treasury Regulation section 1.409A-1(i) or the transition rules and official guidance under Code Section 409A (a “Different Election”), in which case whether the Plan Participant shall be treated as a Specified Employee shall be determined in accordance with any such Different Identification Method so prescribed and any such Different Election so made by the Board of Directors or the CMDC, By participating or continuing to participate in this Plan or accepting any legally binding right or benefit under this Plan, each Plan Participant irrevocably (a) consents to any such Different Identification Method that the Board of Directors or CMDC may prescribe at any time and any such Different Election that the Board of Directors or CMDC may make at any time for purposes of identifying the service providers who will be subject to the Six Month Delay with respect to payments under this Plan, and (b) agrees that the Plan Participant’s consent to any such Different Identification Method or Different Election shall be as effective as if such Different Identification Method or Different Election were fully set forth herein, and (c) waives any right he or she may have to consent to the Different Identification Method or Different Election in question if for any reason the Plan Participant’s consent to such Different Identification Method or Different Election is not legally effective.

13

Final – Approved 9-17-2010

by Benefits Committee

        8.7 Any payments that may be made and benefits that may be provided pursuant to this Plan are intended to qualify for an exclusion from Section 409A of the Code (including without limitation the exclusion for certain welfare benefits under Treasury Regulation section 1.409A-1(a)(5), the exclusion for short-term deferrals under Treasury Regulation section 1.409A-1(b)(4), and the exclusions for separation pay plans under Treasury Regulation section 1.409A-1(b)(9)) and/or are intended to meet the requirements of Section 409A(a)(2), (3) and (4) of the Code, so that none of the payments that may be made and benefits that may be provided pursuant to this Plan will be includible in any Plan Participant’s federal gross income pursuant to Section 409A(a)(1)(A) of the Code. This Plan and any agreement or instrument issued under this Plan shall be administered, interpreted and construed to carry out such intentions and any provision of this Plan or any such agreement or instrument that cannot be so administered, interpreted and construed shall to that extent be disregarded. However, the Company does not represent, warrant or guarantee that any payments that may be made and benefits that may be provided pursuant to this Plan will not be ineludible in any Plan Participant’s federal gross income pursuant to Section 409A(a)(l)(A) of the Code; nor does the Company make any other representation, warranty or guaranty to any Plan Participant as to the tax consequences of this Plan or of participation in this Plan.

Effective: May 1, 1992

Revised: April 5, 2000

June 29, 2006

August 29, 2006

December 30, 2007

December 31, 2007

December 31, 2008

January 1, 2011

14

Final – Approved 9-17-2010

by Benefits Committee

BARNES GROUP INC.

By:

Its:

Date:

15

EX-15

EXHIBIT 15

October 29, 2010

Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549

Commissioners:

We are aware that our report dated October 29, 2010 on our review of interim financial information of Barnes Group Inc. for the three-month and nine-month periods ended September 30, 2010 and September 30, 2009 and included in the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2010 is incorporated by reference in its Registration Statement on Form S-8 (Nos. 002-56437, 333-27339, 333-88518, 333-133597, 333-140922, 333-150741, 333-154701 and 333-166975) and S-3 (No. 333-168438).

Very truly yours,

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Hartford, Connecticut

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Gregory F. Milzcik, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2010 of Barnes Group Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 29, 2010

/S/    GREGORY F. MILZCIK

Gregory F. Milzcik

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Christopher J. Stephens, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2010 of Barnes Group Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 29, 2010

/S/    CHRISTOPHER J. STEPHENS, JR.

Christopher J. Stephens, Jr.

Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Barnes Group Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/    GREGORY F. MILZCIK	/S/    CHRISTOPHER J. STEPHENS, JR.
Gregory F. Milzcik President and Chief Executive Officer October 29, 2010	Christopher J. Stephens, Jr. Chief Financial Officer October 29, 2010