UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172023 | | | | | |
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¨ | 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)
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| Delaware | | | | 06-0247840 |
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Delaware | | | | 06-0247840 |
| (State of incorporation) | | | (I.R.S. Employer Identification No.) |
123 Main Street Bristol, Connecticut | | | |
| Bristol | | | |
| Connecticut | | | 06010 |
| (Address of Principal Executive Office) | | | (Zip Code) |
(860) 583-7070
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | | Trading Symbol | | Name of Each Exchange on Which Registered |
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Title of each class | | Name of each exchange on which registered |
Common Stock, par value $0.01 Par Valueper share | | B | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x¨ No ¨x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant: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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filerx | ☒ | Accelerated filero | ☐ |
Non-accelerated filero | ☐ | Smaller reporting companyo | ☐ |
| | Emerging growth company¨
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨☐No x
The aggregate market value of the voting stock (Common Stock) held by non-affiliates of the registrant as of the close of business on June 30, 20172023 was approximately $2,914,055,542$2,054,055,778 based on the closing price of the Common Stock on the New York Stock Exchange on that date. The registrant does not have any non-voting common equity.
The registrant had outstanding 53,234,40150,696,516 shares of common stock as of February 14, 2018.21, 2024.
Documents Incorporated by Reference
Portions of the registrant’s definitive proxy statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on May 4, 20183, 2024 are incorporated by reference into Part III.
Barnes Group Inc.
Index to Form 10-K
Year Ended December 31, 20172023
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| Part I | | |
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Part I | | |
| Item 1. | | |
| Item 1A. | | |
| Item 1B. | | |
Item 2.1C. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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| Part II | | |
| Item 5. | | |
| Item 6. | | |
| Item 7. | | |
| Item 7A. | | |
| Item 8. | | |
| Item 9. | | |
| Item 9A. | | |
| Item 9B. | | |
| Item 9C. | | |
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| Part III | | |
| Item 10. | | |
| Items 11-14. | | |
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| Part IV | | |
| Item 15. | | |
| Item 16. | |
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FORWARD-LOOKING STATEMENTS
This Annual Report may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements often address our expected future operating and financial performance and financial condition, and often contain words such as "anticipate," "believe," "expect," "plan," "estimate," "project," "continue," "will," "should," "may," and similar terms. These forward-looking statements do not constitute guarantees of future performance and are subject to a variety of risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements. These risks and uncertainties include, among others: difficulty maintaining relationships with employees,the Company’s ability to manage economic, business and geopolitical conditions, including unionized employees, customers, distributors, suppliers,rising interest rates, global price inflation and shortages impacting the availability of materials; the duration and severity of unforeseen events such as an epidemic or a pandemic, including their impacts across our business partners or governmental entities;on demand, supply chains, operations and liquidity; failure to successfully negotiate collective bargaining agreements or potential strikes, work stoppages or other similar events; difficulties leveraging market opportunities; changes in market demand for our products and services; rapid technological and market change; the ability to protect and avoid infringing upon intellectual property rights;
challenges associated with the introduction or development of new products or transfer of work; higher risks in global operations and markets; the impact of intense competition; the physical and operational risks from natural disasters, severe weather events, and climate change which may limit accessibility to sufficient water resources, outbreaks of contagious diseases and other adverse public health developments; acts of war, terrorism cybersecurity attacks or intrusions that could adversely impact our businesses; uncertainties relatingand other international conflicts; the failure to conditions in financial markets;achieve anticipated cost savings and benefits associated with workforce reductions and restructuring actions; currency fluctuations and foreign currency exposure; future financial performance of the industries or customers that we serve;impacts from goodwill impairment and related charges; our dependence upon revenues and earnings from a small number of significant customers; a major loss of customers; inability to realize expected sales or profits from existing backlog due to a range of factors, including changes in customer sourcing decisions, material changes, production schedules and volumes of specific programs; the impact of government budget and funding decisions; our ability to successfully integrate and achieve anticipated synergies associated with recently announced and future acquisitions, including the acquisition of MB Aerospace; government-imposed sanctions, tariffs, trade agreements and trade policies; changes or uncertainties in laws, regulations, rates, policies or interpretations that impact the Company’s business operations or tax status, including those that address climate change, environmental, health and safety matters, and the materials processed by our products or their end markets; fluctuations in the pricing or availability of newraw materials, freight, transportation, energy, utilities and other items required by our operations; labor shortages or revised tax lawsother business interruptions at transportation centers, shipping ports, our suppliers’ facilities or our facilities; disruptions in information technology systems, including as a result of cybersecurity attacks or data security breaches; the ability to hire and regulations; changes in raw material or product pricesretain senior management and availability; integration of acquired businesses; restructuring costs or
savings;qualified personnel; the continuing impact of prior acquisitions and divestitures;divestitures, and any otherongoing and future strategic actions, including acquisitions, divestitures, restructurings, or strategic business realignments, and our ability to achieve the financial and operational targets set in connection with any such actions; the ability to achieve social and environmental performance goals; the outcome of pending and future legal,litigation and governmental proceedings; the impact of actual, potential or regulatory proceedings and contingenciesalleged defects or failures of our products or third-party products within which our products are integrated, including product liabilities, product recall costs and uninsured claims; product liabilities; future repurchases of common stock; future levels of indebtedness; and numerous other mattersthe impact of a global, regional or national scale, including those of a political, economic, business, competitive, environmental, regulatory and public health nature;shareholder activism; and other risks and uncertainties described in this Annual Report.documents filed with or furnished to the Securities and Exchange Commission ("SEC") by the Company, including, among others, those in the Management's Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors sections of the Company's filings. The Company assumes no obligation to update its forward-looking statements.
PART I
Item 1. Business
BARNES GROUP INC. (1)
Barnes Group Inc. (the “Company” or "Barnes") is a global provider of highly engineered products, differentiated industrialleverages world-class manufacturing capabilities and market-leading engineering to develop advanced processes, automation solutions, and applied technologies for industries ranging from aerospace and innovative solutions, serving a wide range of end markets and customers. Its specialized products and services are used in far-reaching applications including aerospace, transportation, manufacturing, healthcaremedical & personal care to mobility and packaging. The Company’s skilled and dedicated employees around the globe are committed to the highest performance standards and achieving consistent, sustainable profitable growth.
Our Strategy
The Company’s strategy outlineshas evolved to focus on three critical priorities to unlock the actionsfull potential of Barnes’ enterprise value:
Drive Core Business Execution through “Top Line, Bottom Line & Pipeline Growth.” We drive Top Line growth by identifying business activities that we are executingstrengthen our direct connection with customers to achieveincrease bookings and effectively convert these into revenue. We drive Bottom Line growth by leveraging each Top Line growth opportunity using commercial excellence combined with operational productivity to generate improved profitability. This improved profitability funds future pipeline investments. We drive Pipeline growth by re-investing into product line innovation and intimate customer engagement to increase the vibrancy and attractiveness of Barnes to existing and future customers.
Scale our vision.Aerospace Business. We made significant progress on this priority in 2023 by completing the acquisition of MB Aerospace (as defined below) in the third quarter. On a combined basis, Barnes Aerospace is now a truly global aerospace business with an expanded geographic reach, diverse capabilities, and offerings to serve markets and customers across the world. Our strategyteam has been working to integrate the organizations to drive profitable growth, maximize value, and scale the business. Additionally, Aerospace is comprisedmaking steady progress to increase capacity and capabilities to secure our ability to grow across our aerospace end markets with all customers.
Integrate, Consolidate & Rationalize our Industrial Business. We integrate our businesses, product lines, go-to-market strategies and processes to deliver improved effectiveness by leveraging the broad capabilities of four pillars:the Company with each customer globally. We consolidate, including through the multi-phase facility consolidation projects already underway at Barnes, to improve facility utilization, better leverage manufacturing operations, and improve efficiency across the organization. We rationalize by carefully & comprehensively evaluating all operational costs and investments to focus expenditures on driving Return on Invested Capital in the most impactful manner.
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1. | Build a World-class Company Focused on High Margin, High Growth Businesses - We pro-actively manage our business portfolio with a focus on multiple platforms and market channels, in end-markets where projected long-term growth and favorable macro-economic trends are present. By doing so, we expect to create superior value for our key stakeholders - our shareholders, customers, employees and the communities in which we operate.
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2. | Leverage the Barnes Enterprise System (“BES”) as a Significant Competitive Advantage - BES is our integrated operating system that promotes a culture of employee engagement and empowerment and drives alignment across the organization around a common vision. BES standardizes our business processes to allow us to achieve commercial, operational and financial excellence in everything we do.
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These three strategic priorities will collectively work to drive transformational value creation for all Barnes stakeholders.
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3. | Expand and Protect Our Core Intellectual Property to Deliver Differentiated Solutions - Driven by a passion for innovation, we embrace intellectual property as a core differentiator to create proprietary products, processes and systems. Through our Global Innovation Forum, we foster an environment that generates great ideas and shares best practices across the enterprise to maximize our collective strengths and create economies of scale in the development and commercialization of new and innovative products and services.
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4. | Effectively Allocate Capital to Drive Top Quartile Total Shareholder Return - We strive to be good custodians of our shareholders’ capital and to drive maximum shareholder value. We do so by investing in our core businesses to fund profitable, organic growth and by employing a disciplined capital allocation process in the strategic acquisitions we undertake.
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Structure
The Company operates under two global business segments: IndustrialAerospace and Aerospace. The Industrial Segment includes the Molding Solutions, Nitrogen Gas Products and Engineered Components business units.Industrial. The Aerospace segment includes the original equipment manufacturerOriginal Equipment Manufacturing (“OEM”) business and the aftermarketAftermarket business, which includes maintenance repair and overhaul (“MRO”) services and the manufacture and delivery of aerospace aftermarket spare parts.
The Industrial segment includes the Molding Solutions, Automation and Motion Control Solutions ("MCS") business units. In the second quarter of 2017,January 2024, the Company completedannounced that it entered into a Share Purchase and Asset Agreement ("SPA") to sell its acquisition ofAssociated Spring and Hänggi businesses, currently included within the assets of the privately held Gammaflux L.P.MCS business ("Gammaflux"), a leading supplier of hot runner temperature and sequential valve gate control systems to the plastics industry. Gammaflux, which is headquartered in Sterling, Virginia and has offices in Illinois and Germany, provides temperature control solutions for injection molding, extrusion, blow molding, thermoforming, and other applications. Its end markets include packaging, electronics, automotive, household products, medical, and tool building. Gammaflux is being integratedunit. Entry into the SPA aligns with our strategy to rationalize our Industrial Segment, within our Molding Solutions business unit.through portfolio simplification. See Item 7 and Note 223 of the Consolidated Financial Statements.Statements for additional disclosure related to this planned divestiture.
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(1)
| (1) As used in this annual report, “Company,” “Barnes Group,” “we” and “ours” refer to the registrant and its consolidated subsidiaries except where the context requires otherwise, and “Industrial” and “Aerospace” refer to the registrant’s segments, not to separate corporate entities. |
In the third quarter of 2016, the Company, through three of its subsidiaries, completed its acquisition of the molds business of Adval Tech Holding AG and Adval Tech Holdings (Asia) Pte. Ltd. ("FOBOHA"). FOBOHA is headquartered in Haslach, Germany and operates out of manufacturing facilities located in Germany and China. FOBOHA specializes in the development and manufacture of complex plastic injection molds for packaging, medical, consumer and automotive applications. FOBOHA has been integrated into the Industrial Segment, within our Molding Solutions business unit. See Note 2 of the Consolidated Financial Statements.
In the fourth quarter of 2015, the Company completed the acquisition of privately held Priamus System Technologies AG and two of its subsidiaries (collectively, "Priamus") from Growth Finance AG. Priamus, which is headquartered in Schaffhausen, Switzerland and has direct sales and service offices in the U.S. and Germany. Priamus is a technology leader in the development of advanced process control systems for the plastic injection molding industry and services many of the world's highest quality plastic injection molders in the medical, automotive, consumer goods, electronics and packaging markets. Priamus has been integrated into the Industrial Segment, within our Molding Solutions business unit. See Note 2 of the Consolidated Financial Statements.
In the third quarter of 2015, the Company completed the acquisition of the Thermoplay business ("Thermoplay") by acquiring all of the capital stock of privately held HPE S.p.A., the parent company through which Thermoplay operates. Thermoplay’s headquarters and manufacturing facility are located in Pont-Saint-Martin in Aosta, Italy, with technical service capabilities in China, India, France, Germany, United Kingdom, Portugal, and Brazil. Thermoplay specializes in the design, development, and manufacturing of hot runner systems for plastic injection molding, primarily in the packaging, automotive, and medical end markets. Thermoplay has been integrated into the Industrial Segment, within our Molding Solutions business unit. See Note 2 of the Consolidated Financial Statements.
INDUSTRIAL
The Industrial segment is a global provider of highly-engineered, high-quality precision components, products and systems for critical applications serving a diverse customer base in end-markets such as transportation, industrial equipment, consumer products, packaging, electronics, medical devices, and energy. Focused on innovative custom solutions, Industrial participates in the design phase of components and assemblies whereby customers receive the benefits of application and systems engineering, new product development, testing and evaluation, and the manufacturing of final products. Products are sold primarily through its direct sales force and global distribution channels. Industrial's Molding Solutions businesses design and manufacture customized hot runner systems, advanced mold cavity sensors and process control systems, and precision high cavitation mold assemblies - collectively, the enabling technologies for many complex injection molding applications. Industrial's Nitrogen Gas Products business provides innovative cost effective force and motion solutions for sheet metal forming, heavy duty suspension and other selective niche markets for customers worldwide. Industrial's Engineered Components businesses manufacture and supply precision mechanical products used in transportationthis annual report, “Company,” “Barnes Group,” “we” and industrial applications, including mechanical springs, high-precision punched“our” refer to the registrant and fine-blanked componentsits consolidated subsidiaries except where the context requires otherwise, and retention rings.“Aerospace” and “Industrial” refer to the registrant’s segments, not to separate corporate entities.
Industrial competes with a broad base
Table of large and small companies engaged in the manufacture and sale of engineered products, precision molds, hot runner systems and precision components. Industrial competes on the basis of quality, service, reliability of supply, engineering and technical capability, geographic reach, product breadth, innovation, design, and price. Industrial has manufacturing, distribution and assembly operations in the United States, Brazil, China, Germany, Italy, Mexico, Singapore, Sweden, Switzerland and the United Kingdom. Industrial also has sales and service operations in the United States, Brazil, Canada, Czech Republic, China/Hong Kong, France, Germany, India, Italy, Japan, Mexico, the Netherlands, Portugal, Singapore, Slovakia, South Africa, South Korea, Spain, Switzerland, Thailand and the United Kingdom. Sales by Industrial to its three largest customers accounted for approximately 9% of its sales in 2017.Contents
AEROSPACEREPORTABLE SEGMENTS
Aerospace
Aerospace is a global manufacturer of complex fabricated and precision machinedprecision-machined components and assemblies for OEM turbine engine, airframeengines, nacelles and industrial gas turbine builders,structures for both commercial and the military.defense-related aircraft. The Aerospace aftermarketAftermarket business provides aircraft engine component MRO services, including services performed under our Component Repair Programs (“CRPs”), for many of the world’s major turbine engine manufacturers, commercial airlines and the military.defense market. The Aerospace aftermarket activitiesAftermarket business also include the manufacturemanufactures and delivery of aerospacedelivers aftermarket spare parts includingand participates in revenue sharing programs (“RSPs”) under which the Company receiveshas an exclusive right to supply designated aftermarket parts over the life of specific aircraft engine programs.
Aerospace’s OEM business supplements the leading aircraft engineoffers a comprehensive range of in-house manufacturing solutions and capabilities, including components and assemblies. The applications for these components primarily include engines, airframes and nacelles. Aerospace OEM capabilities and competes with a large number of fabrication and machining companies. CompetitionOur competitive advantage is based
mainly on value derived from quality, concurrent engineering and technical capability, product
breadth, solutions-providing new product introduction, timeliness, service and price. Aerospace’s fabrication and machining operations, with facilities in Arizona, Connecticut, Mexico,Malaysia, Michigan, Ohio, Utah, Poland, the United Kingdom and Singapore, produce critical engine, nacelle and airframe components through technologically advanced manufacturing processes.
The Aerospace aftermarketAftermarket business supplements jet engine OEMs’ maintenance, repair and overhaul capabilities, and competes with the service centers of major commercial airlines and other independent service companies for the repair and overhaul of turbine engine components. The manufacture and supply of aerospace aftermarket spare parts, including those related to the RSPs, are dependent upon the reliable and timely delivery of high-quality components. Aerospace’s aftermarketAftermarket facilities, located in Connecticut, Ohio, Singapore and Singapore,Taiwan, specialize in the repair and refurbishment of highly engineered components and assemblies such as cases, rotating life limited parts, rotating air seals, turbine shrouds, vanes and honeycomb air seals. Aerospace Aftermarket's facility in Malaysia is focused on the supply of spare parts. For additional information regarding net sales by geographic area, refer to Notes 3 and 21 of the Consolidated Financial Statements. Sales by Aerospace to its three largest customers,customer, General Electric Rolls-Royce and United Technologies Corporation,("GE"), accounted for approximately 55%,49% of its total sales in 2023. Sales to its next four largest customers in 2023 collectively accounted for approximately 15% of its total sales.
Industrial
The Industrial segment is a global provider of highly-engineered, high-quality precision components, products and systems for critical applications serving a diverse customer base in end-markets such as industrial equipment, automation, personal care, packaging, electronics, mobility and medical devices. Focused on innovative custom solutions, Industrial participates in the design phase of components and assemblies whereby customers receive the benefits of application and systems engineering, new product development, testing and evaluation, and the manufacturing of final products. Products are sold primarily through its direct sales force and global distribution channels. Industrial's Molding Solutions business designs and manufactures customized hot runner systems, advanced mold cavity sensors and process control systems, and precision high cavitation mold assemblies - collectively, the enabling technologies for many complex injection molding applications. The Automation business designs and develops robotic grippers, advanced end-of-arm tooling systems, sensors and other automation components for intelligent robotic handling solutions and industrial automation applications. The MCS business provides innovative cost-effective force and motion control solutions for a wide range of metal forming and other industrial markets and manufactures and supplies precision mechanical products used in mobility and industrial applications, including mechanical springs, and high-precision punched and fine-blanked components.
Industrial competes with a broad base of large and small companies engaged in the manufacture and sale of engineered products, precision molds, hot runner systems, robotic handling solutions and precision components. Industrial competes on the basis of quality, service, reliability of supply, engineering and technical capability, geographic reach, product breadth, innovation, design, timeliness and price. Industrial has a global presence, with manufacturing, distribution and assembly operations in the United States, China, Germany, Italy, Sweden and Switzerland, among others. Industrial also has sales and service operations in the United States, China/Hong Kong, Germany, Italy and Switzerland, among others. For additional information regarding net sales by geographic area, refer to Notes 3 and 21 of the Consolidated Financial Statements. Sales by Industrial to its five largest customers accounted for approximately 10% of its sales in 2017, respectively. Sales2023.
RESOURCES OF THE BUSINESS
Human Capital Management
Our people are one of our greatest assets. Our skilled and dedicated employees around the globe are committed to its next three largest customersthe highest performance standards and achieving consistent, sustainable profitable growth through our Top Line, Bottom Line and Pipeline Growth efforts. At December 31, 2023, the Company had approximately 6,500 employees worldwide. Approximately 25% were in 2017 collectively accounted forthe Asia-Pacific region, approximately 6% of its total sales.45% in the Europe, Middle East and Africa region and approximately 30% in the Americas region.
FINANCIAL INFORMATION
The backlogCompany maintains a global Health, Safety and Environmental Affairs ("HSE") program which focuses on employee safety throughout the enterprise. Our HSE program maintains a set of HSE standards, consistent with our commitment to worker health and safety and to environmental protection, as well as with prevailing regulatory frameworks in place around the globe. All locations are required to meet local laws and regulations, or our Company's HSE standards, whichever are more stringent. We measure and monitor results using standard protocols. These results are communicated to the senior leadership team and Board of Directors on a regular basis.
The Company’s long history is grounded in its core values and principles which have guided our ongoing transformation and growth. Our Company Values promote a culture of collaboration, empowerment, diversity and inclusion, and an environment providing opportunity, dignity and respect for all of our employees. Grounded in these values, we manage human capital through our Talent Management System ("TMS"). TMS integrates our key human resource processes and tools to facilitate talent management decisions and enables the Company to have the right people with the right skills in the right roles at the right time. TMS enhances our ability to attract and hire talented employees, as well as supports their growth, development and engagement - empowering them to perform at their very best, every day. Aligned with our vision, TMS helps accelerate the ongoing transformation of our Company, drive business performance, and support the successful execution of the Company’s orders believedgrowth strategy.
The TMS framework focuses on five key areas (pillars) - Attract, Perform, Develop, Engage and Recognize – all supported by tools and processes that our employees, managers and leaders can use to be firm at the end of 2017 was $1,039 million as compared with $886 million at the end of 2016. Of the 2017 year-end backlog, $723 million was attributable to Aerospacesupport their own professional growth and $316 million was attributable to Industrial. Approximately 62% of the Company's consolidated year-end backlog is scheduled to be shipped during 2018. The remainder of the Company’s backlog is scheduled to be shipped after 2018.
We have a global manufacturing footprint and a technical service network to service our worldwide customer base. The global economies have a significant impact on the financial results of the business as we have significant operations outside of the United States. For a summary of net sales, operating profit and long-lived assets by reportable business segment,development, as well as net sales by productleverage to make better talent management decisions that promote and servicescultivate an agile, high performance organization.
Attract – encompasses the processes and geographic area, see Note 19tools available to employees and management that support and facilitate the planning and effective recruiting, hiring and on-boarding of our employees.
Perform – highlights the processes and tools that help our employees fully leverage and utilize their skills and capabilities to perform at their best and contribute meaningfully to achieving the goals and objectives of the Consolidated Financial Statements.business.
Develop – comprises the Human Resource processes and tools that support the growth and development of our employees through on-going training, skill-building, assessment, career planning and development, and enrichment opportunities.
Engage – contains Human Resource programs and tools that support employee engagement and involvement across the Company and in the communities in which our employees work and live.
Recognize – aligned with our “pay-for-performance” philosophy, highlights Human Resource processes and programs used to recognize and reward our employees and facilitate their on-going engagement.Furthermore, our compensation programs are designed to align the compensation of our employees with the Company’s performance, and provide the proper incentives to attract, retain and motivate employees to achieve superior results for both short-term and long-term performance.
In managing our global businesses, and as part of TMS, we focus on several human capital measures and objectives including those related to the hiring, performance, succession planning and retention of our employees. We accomplish this through the effective utilization of our robust digital platforms and tools, and the ongoing commitment and engagement of the
senior leadership team – all with a view of identifying and developing the next generation workforce, the future leaders of the Company and promoting a high-performing organization.
Intellectual Property
Patents and other proprietary rights, including trade secrets, unpatented know-how such as know-how related to manufacturing processes, and continuing technological innovations, are important to our business. We own a large portfolio of patents, trademarks and trade names and are a party to certain intellectual property licenses that enhance our competitive position. While we consider them to be valuable assets, we do not believe that any of these patents, trademarks, licenses or other intellectual property rights is individually significant to the Company or either of our segments. We maintain procedures to protect our intellectual property. For a discussion of certain risks attendantrelated to the global nature of our operations and assets,Company's intellectual property, see "Part I, Item 1A. Risk Factors.Factors - Risks Related to Intellectual Property."
RAW MATERIALSRegulatory Capital Expenditures
The Company’s efforts to comply with numerous federal, state and local laws and regulations applicable to its business and products often result in capital expenditures. The Company makes capital expenditures to design and upgrade its aerospace and industrial products to comply with or exceed standards applicable to the industries we serve. The Company’s ongoing HSE compliance program also results in capital expenditures. Regulatory and HSE considerations are a part of significant capital expenditure decisions; however, expenditures during 2023 related solely to regulatory compliance were not material.
Raw Materials
The principal raw materials used to manufacture our products are various grades and forms of steel, from rolled steel bars, plates and sheets, to high-grade valve steel wires and sheets, various grades and forms (bars, sheets, forgings, castings and powders) of stainless steels, aluminum alloys, titanium alloys, copper alloys, graphite, and iron-based, nickel-based (Inconels) and cobalt-based (Hastelloys) superalloys for complex aerospace applications. Prices for steel, titanium, Inconel, Hastelloys, as well as other specialty materials, have periodically increased due to higher demand and, in some cases, reduction of the availability of materials. If this occurs,During portions of fiscal year 2023, for example, the Company experienced increased commodity and component prices and, in some instances, shortages due to supply chain disruptions, labor shortages, increased demand and other factors associated with the Russia-Ukraine war. The Company expects continued volatility in the availability of certainand prices for commodities and raw materials used by us or in products sold by us may be negatively impacted.
RESEARCH AND DEVELOPMENT
We conduct research and development activitiesthat we use in our effort to provide a continuous flow of innovative new products, processes and services to our customers. We also focus on continuing efforts aimed at discovering and implementing new knowledge that significantly improves existing products and services, and developing new applications for existing products and services. Our product development strategy is driven by product design teams and collaboration within our customers, particularly within Industrial’s Molding Solutions businesses, as well as within our Aerospace and our other Industrial businesses. Many of the products manufactured by us are custom parts made to customers’ specifications. Investmentssupply chain in research and development are important to our long-term growth, enabling us to stay ahead of changing customer and marketplace needs. We spent approximately $15 million, $13 million and $13 million in 2017, 2016 and 2015, respectively, on research and development activities.fiscal year 2024.
PATENTS AND TRADEMARKSSEASONALITY
Patents and other proprietary rights, including trade secrets and unpatented know-how, are critical to certainNo material portion of our business units. We are partyis considered to certain licenses of intellectual property and hold numerous patents, trademarks, and trade names that enhance our competitive position. The Company does not believe, however, that any of these licenses, patents, trademarks or trade names is individually significant to the Company or either of our segments. We maintain procedures to protect our intellectual property (including trade secrets, patents and trademarks). Risk factors associated with our intellectual property are discussed in Item 1A. Risk Factors.be seasonal.
EXECUTIVE OFFICERS OF THE COMPANY
For information regarding the Executive Officers of the Company, see Part III, Item 10 of this Annual Report.
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS
ComplianceWe are subject to numerous environmental, legal, and regulatory requirements related to our products and global operations. For a discussion of the risks associated with federal, state,these requirements, see "Part I - Item 1A - Risk Factors."
We are subject to laws and localregulations related to anti-corruption such as the U.S. Foreign Corrupt Practices Act, data privacy and security laws, such as well as those of other countries, which have been enacted or adopted regulating the discharge of materials into the environment or otherwiseEuropean Union's General Data Protection Regulation, and regulations relating to the protectionimport-export control. A portion of the environment has not hadour products, including defense-related products, may require governmental licenses. Additionally, our U.S. government contracts are generally subject to Federal Acquisition Regulations (“FAR”), agency-specific regulations that implement or supplement FAR, and other applicable laws and regulations which impose a material effect,broad range of requirements, many of which are unique to government contracting. These include various procurement, import and is not expected to have a material effect, upon our capital expenditures, earnings, or competitive position.export, security, disclosure of cost and pricing data, contract termination and adjustment, and audit requirements.
Our products and operations, including past and present business operations and, past and present ownership and operations of real property, and the use, sale, storage and handlingare subject to a variety of chemicals and hazardous products subject us to extensive and changing U.S. federal, state, local, and localnon-U.S. environmental, health and safety laws and regulations as well as thoseconcerning, among other things, the health and safety of other countries, pertaining toour employees; product safety, packaging and labeling; the dischargegeneration, storage, use, transportation and disposal of certain materials into the environment, enforcement, disposition(including
chemicals and hazardous materials) used in or derived from our manufacturing processes; emission or discharge of substances into the environment; and investigation and remediation of hazardous substances or materials building requirements, or otherwise relating to protection of the environment. We have experienced, and expect to continue to experience, costs to comply with environmental laws and regulations. In addition, new laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements could require us to incur costs or become subject to new or increased liabilities that could have a material adverse effect on our business, financial condition, results of operations and cash flows.
at various sites. We use and generate hazardous substances and wastes in our operations. In addition, many of our current and former properties are or have been used for industrial purposes. Accordingly, we monitor hazardous waste management and applicable environmental permitting and reporting for compliance with applicable laws at our locations in the ordinary course of our business.
Moreover, climate change and other Environmental Safety and Governance-related ("ESG") laws, regulations, treaties, and similar initiatives and programs are being adopted and implemented throughout the world, many with which we will be required to comply. We may be subjectare committed to potential material liabilities relating to any investigation and clean-up of our locations or properties where we delivered hazardous waste for handling or disposal that may be contaminated or which may have been contaminated priormaintaining compliance with ESG-related laws applicable to our purchase,operations and products. We endeavor to claims alleging personal injury.meet this commitment through our global HSE program described above, and an approach to ethical standards and strong governance that are foundational to our business.
AVAILABLE INFORMATION
Our Internet address is www.BGInc.com. OurThe Company maintains a website (www.onebarnes.com) and our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available without charge on our website as soon as reasonably practicable after they are filed with, or furnished to, the U.S. Securities and Exchange Commission ("SEC"). In addition, we have posted on our website, and will make available in print to any stockholder who makes a request, our Corporate Governance Guidelines, our Code of Business Ethics and Conduct ("Code"), and the charters of the Audit Committee, Compensation and Management Development Committee and Corporate Governance Committee (the responsibilities of which include serving as the nominating committee) of the Company’s Board of Directors. We post in the Governance section of the Investor Relations page of our website information regarding any amendment to, or waiver from, the provisions of the Code to the extent such disclosure is required. References to our website addressed in this Annual Report are provided as a convenience and do not constitute, and should not be viewed as, an incorporation by reference of the information contained on, or available through, the website. Therefore, such information should not be considered part of this Annual Report.
Item 1A. Risk Factors
Our business, financial condition, or results of operations and/or cash flows could be materially and adversely affected by any of the following risks. Please noteOur business could also be affected by additional risks that additional risksare not presently known to us may also materially impact our businessor that we currently consider to be immaterial. The below risks should be read in conjunction with Part II - Item 7 - "Management's Discussion and operations.Analysis of Financial Condition and Results of Operations."
RISKS RELATED TO OUR BUSINESSBUSINESSES AND THE INDUSTRIES WITHIN WHICH WE OPERATE
We depend on revenues and earnings from a small number of significant customers. Any bankruptcy of or loss of or cancellation, reduction or delay in purchases by these customers could harm our business. In 2017, our net Net sales to General ElectricGE and its subsidiaries in 2023 accounted for 18%21% of our total sales and approximately 55%49% of Aerospace's net sales. Aerospace's second and third largest customers, Rolls-Royce and United Technologies Corporation and their subsidiaries, accounted forApproximately 15% and 10%, respectively, of Aerospace's net sales in 2017. Approximately 6% of Aerospace's net sales in 20172023 were to its next threefour largest customers. Approximately 9%10% of Industrial's sales in 20172023 were to its threefive largest customers. Some of our success will depend on the business strength and viability of those customers. We cannot assure you that we will be able to retain our largest customers. Some of our customers may in the future reduce their purchases due to economic conditions or shift their purchases from us to our competitors, in-house or to other sources. Some of our long-term sales agreements provide that until a firm order is placed by a customer for a particular product, the customer may unilaterally reduce or discontinue its projected purchases without penalty or terminate for convenience. The loss of one or more of our largest
customers, any reduction, cancellation or delay in sales to these customers (including a reduction in aftermarket volume in our RSPs)Aerospace Aftermarket business' Revenue Sharing Programs), our inability to successfully develop relationships with new customers, or future price concessions we make to retain customers could significantly reduce our sales and profitability.
The global natureWe may not recover all of our business exposes usup-front costs related to foreign currency fluctuationsnew or existing programs. New programs may require significant up-front investments for capital equipment, engineering, inventory, design and tooling. As OEMs in the transportation and aerospace industries have looked to suppliers to bear increasing responsibility for the design, engineering and manufacture of systems and components, they have increasingly shifted the financial risk associated with those responsibilities to the suppliers as well. This trend may continue and is most evident in the area of engineering cost reimbursement. We cannot assure you that we will have adequate funds to make such up-front investments or to recover such costs from our customers as part of our product pricing or through sales volume. In such event, our profitability, liquidity and cash flows may be adversely affected. In addition, we incur costs and make capital expenditures for new program awards based upon certain estimates of production volumes and production complexity. While we attempt to recover such costs and capital expenditures by appropriately pricing our products, the prices of our products are based in part upon planned production volumes. If the actual production is significantly less than planned or significantly more complex than anticipated, we may be unable to recover such
costs. In addition, because a significant portion of our overall costs is fixed, declines in our customers’ production levels can adversely affect the level of our future revenues, debt levels and profitability.reported profits even if our up-front investments are recovered.
We have manufacturing facilities and technical service,may not realize all of the sales and distribution centers around the world, andexpected from our existing backlog or anticipated orders. At December 31, 2023, we had $1,530.2 million of order backlog, the majority of which related to Aerospace OEM customers, as compared with $1,020.3 million at the end of 2022. Of the 2023 year-end backlog, $1,257.3 million was attributable to Aerospace and $272.9 million was attributable to Industrial. Approximately 50% of the Company's consolidated year-end backlog is expected to be recognized during 2024, with the remainder scheduled to be recognized after 2024. There can be no assurances that the revenues projected in our foreignbacklog will be realized or, if realized, will result in profits. We consider backlog to be firm customer orders for future delivery. OEM customers may provide projections of components and assemblies that they anticipate purchasing in the future under existing programs. These projections may represent orders that are beyond lead time and are included in backlog when supported by a long term agreement. Our customers may have the right under certain circumstances or with certain penalties or consequences to terminate, reduce or defer firm orders that we have in backlog. If this occurs, we may be protected from certain costs and losses, but our sales will nevertheless be adversely affected. Although we strive to maintain strong relationships with our customers, there is an ongoing risk that orders may be canceled or rescheduled due to fluctuations in our customers’ business requirements.
Also, our realization of sales from new and existing programs is inherently subject to a number of important risks and uncertainties, including whether our customers execute the launch of programs on time, or at all, the number of units that our customers actually produce, the timing of production and manufacturing insourcing decisions made by our customers. In addition, until firm orders are placed, our customers may have the right to discontinue a program or replace us with another supplier at any time without penalty. Our failure to realize sales from new and existing programs could have a material adverse effect on our net sales, results of operations useand cash flows.
We face risks of cost overruns and losses on fixed-price contracts and orders in backlog. We sell certain of our products under firm, fixed-price contracts providing for a fixed price for the local currency as their functional currency. These include, among others,products regardless of the Brazilian real, British pound sterling, Canadian dollar, Chinese renminbi, Euro, Japanese yen, Korean won, Malaysian ringgit, Mexican peso, Singapore dollar, Swedish krona, Swiss francproduction or purchase costs incurred by us, which includes certain orders in backlog, some of which have long lead times. The cost of producing and Thai baht. Since our financial statements are denominateddelivering products may be adversely affected by increases in U.S. dollars, changes in currency exchange rates between the U.S. dollarcost of labor, materials, fuel, outside processing, freight, shipping, overhead and other currencies expose usfactors, including manufacturing inefficiencies. Such increased costs may result in cost overruns and losses on contracts.
Original equipment manufacturers in the aerospace and transportation industries have significant pricing leverage over suppliers and may be able to translation risk when the local currency financial statements are translated to U.S. dollars. Changes in currency exchange rates may also expose us to transaction risk. We may buy hedges in certain currencies to reduce or offset our exposure to currency exchange fluctuations; however, these transactionsachieve price reductions over time. Additionally, we may not be adequatesuccessful in our efforts to raise prices on our customers. While many of our customers permit periodic adjustments to pricing based on changes in component prices and other factors, we may bear the risk of price increases that occur between any such repricing or, effectiveif such repricing is not permitted, during the balance of the term of the particular customer contract. There is substantial and continuing pressure from OEMs in the aerospace and transportation industries, including automotive, to protectreduce the prices they pay to suppliers. We attempt to manage such downward pricing pressure, while trying to preserve our business relationships with our customers, by seeking to reduce our production costs through various measures, including purchasing raw materials and components at lower prices and implementing cost-effective process improvements. Our suppliers have periodically resisted, and in the future may resist, pressure to lower their prices and may seek to impose price increases. If we are unable to offset OEM price reductions, our profitability and cash flows could be adversely affected. In addition, OEMs have substantial leverage in setting purchasing and payment terms, including the terms of accelerated payment programs under which payments are made prior to the account due date in return for an early payment discount. OEMs can unexpectedly change their purchasing policies and/or payment practices, which could have a negative impact on our short-term working capital.
We operate in highly competitive markets. Our future growth is dependent upon our ability to bring to market competitive, and increasingly complex, new products and services that achieve market acceptance with acceptable margins. Our two global business segments compete with a number of larger and smaller companies in the markets we serve. Some of our competitors have greater financial, production, research and development, or other resources than we do. Within Aerospace, certain of our OEM customers compete with our repair and overhaul business, and some compete with us where they have the ability to manufacture the components and assemblies that we supply to them but have chosen, for capacity limitations, cost considerations or other reasons, to outsource the manufacturing to us. Our customers award business based on, among other things, price, quality, reliability of supply, service, technology and design. Our competitors’ efforts to grow market share could exert downward pressure on our product pricing and margins. Our competitors may also develop products or services, or methods of delivering those products or services, that are superior to ours. In addition, our competitors may adapt more quickly than us to new technologies or evolving customer requirements. We cannot assure you that we will be able to compete successfully with our existing or future competitors.
The industries in which we operate have been experiencing consolidation, both in our suppliers and the customers we serve. Supplier consolidation is in part attributable to OEMs more frequently awarding long-term sole source or preferred supplier contracts to the most capable suppliers in an effort to reduce the total number of suppliers. If consolidation of our existing competitors or customers occurs, we would expect the competitive pressures we face to increase, and we cannot assure you that our business, financial condition, results of operations or cash flows will not be adversely impacted as a result.
Our operations focus on highly engineered components which require extensive engineering and research and development time. Moreover, our ability to develop new products and services and to compete successfully will depend, in part, on our ability to continue to make investments of significant resources. These efforts divert resources from other potential investments in our businesses, may not lead to the development of new products or services on a timely basis, and may require us to reduce costs by such means as reducing excess capacity, improving productivity, eliminating redundancies and increasing production in low-cost countries. We have invested, and expect to continue to invest, in optimizing our manufacturing footprint in low-cost countries. We cannot assure you that we will have sufficient resources to continue to make such investments or that we will be successful in maintaining our competitive position. If we are unable to differentiate our products and services or maintain a low-cost footprint, we may lose market share or be forced to reduce prices, thereby lowering our margins.
Our competitive advantage may be adversely impacted if we cannot continue to introduce new products ahead of our competition, or if our products are rendered obsolete by other products or by new, different technologies and processes. The success of our new products will depend on a number of factors, including innovation, customer acceptance, the efficiency of our suppliers in providing materials and component parts, and the performance and quality of our products relative to those of our competitors. Additionally, we may face increased or unexpected costs associated with new product introduction, including the use of additional resources such as personnel and capital. We cannot provide assurance that we will not experience new product introduction delays in the future. As we introduce new products, we may be unable to detect and correct defects in product design. Even after introduction, new or enhanced products may not satisfy customer preferences and product failures may cause customers to reject our products. As a result, these products may not achieve market acceptance and our brand image could suffer. Any such occurrences could significantly reduce our revenues, increase our operating costs, or otherwise materially and adversely affect our business, financial condition, results of operations and cash flows.
The development of new products and services presents security risks. An increasing number of our products and services are delivered with digital capabilities and the accompanying interconnected device networks, some of which include sensors, data, and advanced computing capabilities. If we are unable to manage the lifecycle cybersecurity risk in development, deployment and operation of our digital platforms and services, the possible consequences include financial loss, reputational damage, exposure to legal claims or enforcement actions, theft of intellectual property, the diminution in the value of our investment in research, development and engineering, and increased cybersecurity protection and remediation costs, which in turn could adversely affect our business, financial condition, results of operations and cash flows.
A significant portion of the sales of certain businesses within our Industrial segment are realized from the exposuredesign, manufacture, distribution and service of highly-engineered and customized products and systems for plastic injection molding and plastics processing across a broad spectrum of applications. Sales volume is dependent upon the need for equipment used to produce plastic products, which theymay be significantly influenced by the demand for plastic products, the capital investment needs of companies in the plastic injection molding and plastics processing industries, changes in technological advances, and changes in laws or regulations such as those related to single-use plastics, product and packaging composition, and recycling. Decrease in demand for plastic products or equipment used in the production of plastic products or unfavorable developments in these industries generally could have a material adverse effect on our business, financial condition, and results of operations.
Demand for our defense-related products depends on government spending. A portion of Aerospace's sales is derived from defense markets, including single-sourced and dual-sourced sales. The defense market is largely dependent upon government budgets and is subject to governmental appropriations. Although multi-year contracts may be authorized in connection with major procurements, funds are purchased.generally appropriated on a fiscal year basis even though a program may be expected to continue for several years. Consequently, programs are often only partially funded and additional funds are committed only as further appropriations are made. We cannot assure you that maintenance of or increases in defense spending will be allocated to programs that would benefit our business. Moreover, we cannot assure you that new defense-related aircraft programs in which we participate will enter full-scale production as expected. A decrease in levels of defense spending or the government’s termination of, or failure to fully fund, one or more of the contracts for the programs in which we participate, including due to a government shutdown, could have not engaged in any speculative hedging activities. Currency fluctuationsa material adverse effect on our financial position and results of operations.
The aerospace industry is highly regulated. Complications related to aerospace regulations may adversely affect the Company. A substantial portion of our income is derived from our aerospace businesses. The aerospace industry is highly regulated in the U.S. by the Federal Aviation Administration and in other countries by similar regulatory agencies. We must be certified by these agencies and, in some cases, by individual OEMs in order to engineer, produce and service systems and components used in specific aircraft models. If material authorizations or approvals are delayed, suspended or revoked, our business could be adversely affected. In the future, new or more stringent governmental regulations may be adopted or industry oversight heightened, and we may incur significant expenses to comply with any such new regulations or heightened industry oversight.
Fluctuations in the price of jet fuel, resins, energy and other raw materials and their availability may impact our revenues and profitabilityoperating results. Fuel costs constitute a significant portion of operating expenses for companies in the future.aerospace industry. Fluctuations in fuel costs could impact levels and frequency of aircraft maintenance and overhaul activities, and airlines' decisions on maintaining, deferring or canceling new aircraft purchases, in part based on the value associated with new fuel efficient technologies. Increases in fuel prices can also increase our packaging and transportation costs. Both we and our customers purchase supplies of resins, which are oil-based components used in the manufacture of certain products, and any significant increases in resin costs could adversely impact future operating results, including as a result of customers' decisions on maintaining, deferring or canceling new programs. Weather-related events, natural disasters, political disruptions or wars involving oil-producing countries, changes in governmental policy concerning aircraft fuel production, changes in refining capacity, and other unpredictable events may result in future fuel supply shortages and fuel price increases. For example, widespread disruption to oil production, refinery operations and pipeline capacity in certain areas of the U.S. can impact the price of jet fuel significantly. Geopolitical conflicts, such as conflicts in the Middle East, an important source of oil for the U.S. and other countries where we do business, and the Russia-Ukraine war, cause prices for fuel and energy to be volatile and availability to be impacted. In addition, new laws or regulations adopted in response to climate change could increase energy and transportation costs, as well as the costs of certain raw materials and components. In recent years, the costs of certain raw materials, transportation and energy necessary for our operations and the production and distribution of our products have increased significantly. While we have implemented cost containment measures and selective price increases, as well as taken other actions to offset these inflationary pressures in our supply chain, we may not be able to completely offset all the increases in our operational costs, and there could be a material adverse effect on our financial condition or results of operations.
RISKS ASSOCIATED WITH OPERATING A GLOBAL BUSINESS AND REGULATORY RISKS
Our operations depend on our global manufacturing, sales and service facilities and information systems in various parts of the world which are subject to physical, financial, regulatory, environmental, operational and other risks that could disrupt our operations. We have a significant number of manufacturing facilities, technical service centers, and sales and distribution centers both within and outside the U.S. The global scope of our business subjects us to increased risks and uncertainties such as threats of war, terrorism and instability of governments;governments, and economic, regulatory and legal systems in countries in which we or our customers conduct business.
Customer, supplier In addition, our customers' and suppliers' facilities, as well as our own facilities, are located in areas that may be affected by natural disasters, including earthquakes, windstorms, droughts and floods, or by limited accessibility to sufficient water resources, which could cause significant physical damage and disruption to our equipment and facilities, as well as the operationsinfrastructure of those facilitiesour customers and suppliers, and, in turn, could have a material adverse effect on our business, financial condition, results of operations and cash flows. Additionally, some of our manufacturing equipment and tooling is custom-made and is not readily replaceable. Loss of such equipment or tooling could have a negative impact on our manufacturing business,capabilities and, as a result, our financial condition, results of operations and cash flows.
Although we have obtained property damage and business interruption insurance, aA major catastrophe such as an earthquake, windstorm, drought, flood or other natural disaster, at any of our sites, orinfectious disease outbreak, significant labor strikes, work stoppages, or political unrest, or any of the events described above, in any of the areas where we or our customers or key suppliers conduct operations could result in a prolonged interruption of our business. Any disruption resulting from these events could cause significant delays in the manufacture or shipment of products or the provision of repair and other services that may result in our loss of sales and customers. OurAlthough we have obtained property damage and business interruption insurance, our insurance will not cover all potential risks, and we cannot assure you that we will have adequate insurance to compensate us for all losses that result from any insured risks. Any material loss not covered by insurance could have a material adverse effect on our financial condition, results of operations and cash flows. We cannot assure you that insurance will be available in the future at a cost acceptable to us or at a cost that will not have a material adverse effect on our profitability, net income and cash flows.
The global nature of our operations and assets subjectsubjects us to additional financial and regulatory risks. We have operationsrisks in the countries in which we and assets in various parts of the world.our customers, suppliers and other business partners operate. In addition, we sell orand may in the future sell our products and services to the U.S. and foreign governments and in foreign countries. As a global business, we are subject to complex laws, regulations and regulationsother conditions in the U.S. and other countries in which we operate, and associated risks, including: U.S. imposedU.S.-imposed embargoes of sales to specific countries; foreign import controls (which may be arbitrarily imposed or enforced);controls; import regulations and duties; export regulations (which
(which require us to comply with stringent licensing regimes); reporting requirements regarding the use of "conflict" minerals mined from certain countries; anti-dumping regulations; unclaimed property laws; price and currency controls; exchange rate fluctuations; dividend remittance restrictions; expropriation of assets; war, civil uprisings and riots; government instability; government-imposed economic uncertainties, such as a prolonged U.S. federal government shutdown; government contracting requirements including cost accounting standards includingand various procurement, security and audit requirements, as well as requirements to certify to the government compliance with these requirements; the necessity of obtaining governmental approval for new and continuing products and operations; and legal systems or decrees, laws, taxes, regulations, interpretations and court decisions that are not always fully developed and that may be retroactively or arbitrarily applied. WeIn the past, we have experienced inadvertent violations ofinadvertently violated some of these regulations, including export regulations safety and environmental regulations, regulations prohibiting sales of certain products, and product labeling regulations, in the past, none of which has had or, we believe, will have a material adverse effect on our business. However, anyAny significant violations of these or other regulations in the future could result in civil or criminal sanctions, and thesuspension of production, loss of export or other licenses, which could have a material adverse effectother restrictions on our business. We are subjectoperations or damage to state unclaimed property laws in the ordinary course of business, and are currently undergoing a multi-state unclaimed property audit, the timing and outcome of which cannot be predicted, and we may incur significant professional fees in conjunction with the audit.our reputation. We may also be subject to unanticipated income taxes, excise and custom duties, import taxes, export taxes, value added taxes, or other governmental assessments, and taxes may be
impacted by changes in legislation in the tax jurisdictions in which we operate. In addition, our organizational and capital structure may limit our ability to transfer funds between countries without incurring adverse tax consequences. Any of these events could result in a loss of business or other unexpected costs that could reduce sales or profits and have a material adverse effect on our financial condition, results of operations and cash flows.
We are subject to environmental laws and regulations and the risk of environmental liabilities, violations and litigation. We are subject to a variety of U.S. federal, state, local and non-U.S. environmental, health and safety laws and regulations concerning, among other things, the health and safety of our employees, the generation, storage, use, transportation and disposal of certain materials including hazardous materials, emissions or discharges of substances into the environment, and investigation and remediation of hazardous substances or materials at various sites. Our operations involve the use, primarily in our manufacturing processes, of substances subject to these laws and regulations. Our failure to comply with these laws or regulations could result in regulatory penalties, fines, and legal liabilities; suspension of production; alteration of our manufacturing; damage to our reputation; and restrictions on our operations or sales.Furthermore, environmental laws outside of the U.S. are becoming more stringent, resulting in increased costs and compliance burdens.
In addition, certain environmental laws assess liability on current or previous owners or operators of real property for the costs of investigation, removal or remediation of hazardous substances or materials at their properties or at properties from or upon which they have disposed of hazardous substances. In addition to cleanup actions brought by governmental authorities, private parties could bring personal injury or other claims based on alleged presence of, or exposure to, hazardous substances. The ultimate cost of site cleanup and timing of future cash outflows is difficult to predict, given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations, and alternative cleanup methods.
The costs of complying with current or future environmental protection and health and safety laws and regulations, or liabilities arising from past or future releases of, or exposures to, hazardous substances, may exceed our estimates, or have a material adverse effect on our business, results of operations, financial condition, and cash flows.
Climate change, or legal, regulatory or market measures to address climate change, may materially adversely affect our financial condition and business operations. Climate change resulting from increased concentrations of greenhouse gases in the atmosphere could present risks to our future operations from natural disasters and extreme weather conditions, such as hurricanes, tornadoes, earthquakes, wildfires, droughts or flooding. Such extreme weather conditions could pose physical risks to our facilities and disrupt operation of our supply chain and may impact operational costs. The impacts of climate change on global water resources may result in water scarcity, which could in the future impact our ability to access sufficient quantities of water in certain locations and result in increased costs.
Concern over climate change will likely result in new legal or regulatory requirements designed to reduce greenhouse gas emissions and mitigate the effects of climate change. Further, our customers and the markets we serve may impose emissions reduction or other environmental standards and requirements, including plastic injection molding and plastics processing and conventional fuel-based automotive markets. As a result, we may experience increased compliance burdens and operational costs and raw material sourcing, manufacturing operations and the distribution of our products may be adversely affected. Moreover, we may not be able to timely meet these requirements due to the required level of capital investment or technological advancement. While we have been committed to continuous improvements to meet anticipated regulations and preferences, there can be no assurance that our commitments will be successful, that our products will be accepted by the market, that proposed regulations will not have a negative competitive impact or that economic returns will reflect our investments in new product development. There also continues to be a lack of consistent climate legislation, which creates economic and regulatory uncertainty. These factors may impact the demand for, or obsolescence of, certain of our products, and adversely affect our business, results of operations and financial condition.
We are committed to reducing our carbon emissions, water consumption and waste generation, which may require us to expend significant resources that could increase our operational costs. Further, there can be no assurance of the extent to which any of our commitments will be achieved, or that any future investments we make in furtherance of achieving such targets and goals will meet investor expectations or any binding or non-binding legal standards regarding sustainability performance. Moreover, we may determine that it is in the best interest of our Company and our stockholders to prioritize other business, social, governance or sustainability investments over the achievement of our current commitments based on economic, regulatory and social factors, business strategy or pressure from investors, activist groups or other stakeholders. If we are unable to meet these commitments, then we could incur adverse publicity and reaction from investors, activist groups or other stakeholders, which could adversely impact the perception of us and our products and services by current and potential customers, as well as investors, which could in turn adversely impact our business, results of operations and financial condition.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act ("FCPA") and similar worldwide anti-corruption laws and data privacy and security laws. The FCPA and similar anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business or obtaining an unfair advantage. Recent years have seen a substantial increase in the global enforcement of anti-corruption laws. Our operations outside the United States, including in developing countries, expose us to the risk of such violations. Our policies mandate compliance with these anti-corruption laws. Despite our training and compliance program, we cannot provide assurance that our internal control policies and procedures will always protect us from reckless or criminal acts committed by our employees or agents. Violations, or allegations, could damage our reputation, as well as result in substantial fines, sanctions, civil and/or criminal penalties, termination of relationships with business partners and curtailment of operations in certain jurisdictions, and as a result might materially and adversely affect our business, results of operations or financial condition.
Additionally, to conduct our operations, we regularly move data across borders, and consequently we are subject to a variety of increasingly complex and changing laws and regulations regarding privacy, data protection and data security, including those related to the collection, storage, use, transmission and protection of personal information and other customer, vendor or employee data. The interpretation and enforcement of such laws and regulations, such as the European Union’s General Data Protection Regulation, continue to develop and there is significant uncertainty with respect to how compliance with these laws and regulations may evolve and the costs and complexity of future compliance. Violations could result in substantial fines, sanctions or civil penalties, and damage to our reputation and might materially and adversely affect our business, results of operations or financial condition.
International trade policies may impact demand for our products and our competitive position. Our results could be impacted by changes in tariffs, trade agreements, sanctions or other trade restrictions imposed or agreed to by the U.S. or foreign governments. For example, a government’s adoption of “buy national” policies or imposition of trade regulations in response to war or other global crises could have a negative impact on our results of operations due to their impact on commodity pricing and supply chains. Trade restrictions, including withdrawal from or modification of existing trade agreements, negotiation of new trade agreements, and imposition of new (and retaliatory) tariffs against certain countries or covering certain products has the potential to adversely impact demand for our products, our costs, customers, suppliers and/or the U.S. or foreign economies or certain sectors thereof in which we compete, and impair our ability to expand our business by offering new technologies, products and services. It remains unclear what the U.S. federal government or foreign governments will or will not do in the future with respect to tariffs or other international trade agreements and policies. Trade restrictions, and changes in or uncertainty surrounding global trade policies, may adversely impact our competitive position, businesses, financial condition, results of operations and cash flows.
The global nature of our business exposes us to foreign currency fluctuations that have affected and may continue to affect our future revenues, debt levels and profitability. As noted above, we have manufacturing facilities and technical service centers, and sales and distribution centers around the world, and the majority of our foreign operations use the local currency as their functional currency. These include, among others, the Brazilian real, British pound sterling, Canadian dollar, Chinese renminbi, Czech koruna, Euro, Malaysian ringgit, Mexican peso, New Taiwan dollar, Polish zloty, Singaporean dollar, Swedish krona, and the Swiss franc. Since our financial statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies expose us to translation risk when the local currency financial statements are translated to U.S. dollars. Changes in currency exchange rates may also expose us to transaction risk. We may buy hedges in certain currencies to reduce or offset our exposure to currency exchange rate fluctuations; however, these transactions may not be adequate or effective to protect us against unfavorable exchange rate fluctuations. We have not engaged in any speculative hedging activities. Currency fluctuations have adversely impacted and may continue to adversely impact our revenues and profitability in the future.
RISKS RELATED TO SUPPLY AND MANUFACTURING
The ability of suppliers to deliver raw materials, parts and components and energy resources, and our ability to manufacture without disruption, could affect our results of operations. We use a wide range of materials (including steel, stainless steel, titanium, aluminum, Inconel, Hastelloys and other specialty materials) and components (including semiconductors and other electronic components) in the global production of our products, which come from numerous suppliers around the world. Our operations and those of our suppliers are subject to disruption for a variety of reasons, including transportation delays, work stoppages, labor shortages, price inflation, financial issues such as supplier bankruptcy, information technology failures, and hazards such as fire, earthquakes, flooding, droughts or other natural disasters, new laws or regulations, global economic or political events including terrorist attacks and war, and suppliers’ allocations to other purchasers. Because not all of our business arrangements provide for guaranteed supply, and some key raw materials, parts and components and energy resources may be available only from a single supplier or a limited group of suppliers, we are subject to supply and pricing risk. For example, we expect to continue to be impacted by supply chain issues due to economic, political, geopolitical and other factors largely beyond our control, increased material costs and component shortages, supply chain disruptions and delays, and cost inflation, all of which could continue or escalate in the future. The effects of climate change, including extreme weather events, long-term changes in temperature levels, water availability, supply costs impacted by increasing energy costs, or energy costs impacted by carbon prices or offsets may exacerbate these risks. Such disruptions could interrupt our ability to manufacture certain products and result in increased pricing, and could materially and adversely affect our business, financial condition, results of operations and cash flows.
Any product liability, warranty, contractual or other claims may harm our business or otherwise adversely affect our financial condition. We are exposed to potential product liability risks that are inherent in the design, manufacture and sale of our products and the products we buy from third parties and sell to our customers, and to potential warranty, contractual or other claims. Our products are complex and may contain defects, errors, or experience failures or unsatisfactory performance, due to any number of issues, including issues in materials, design, fabrication, packaging and/or use within a system or item of equipment. Further, because of the complexity of our products, defects or errors might only be detected when the products are in use. Development of new products increases complexity and adds risk to manufacturing reliability, and increases the likelihood of product defects or errors. Risks associated with product defects are exacerbated by the fact that our customers typically integrate our products into other equipment and systems. Our products may be responsible for critical functions in our customers’ products. Failure of our products to perform to specifications, or other product defects, could lead to substantial damage to the products we sell to our customers, the equipment and/or systems into which our products are integrated and to the end users of such equipment/and or systems. Such defects could give rise to warranty claims or claims under indemnification clauses in our agreements, which may range from individual customer claims to full recalls of all products in the field, and result in significant costs, including costs related to developing solutions, recalling products, inspecting, repairing or replacing defective products, writing down defective inventory, or attorney's fees and could result in the loss of sales and divert the attention of our engineering personnel from our product development efforts. In addition, defects in our products could result in failure to achieve market acceptance, a loss of participation in customer programs, a shifting of business to our competitors, and litigation or regulatory action against us, and could harm our reputation, our relationships with customers and our ability to attract new customers, as well as the perceptions of our brands. Other potential adverse impacts of product defects include shipment delays, write-offs of property, plant and equipment and intangible assets, and losses on unfavorable purchase commitments.
Moreover, the occurrence of defects may give rise to product liability claims, particularly if defects in our products or the products into which they are integrated result in personal injury or death, and could result in significant costs, expenses and losses. For example, we may be exposed to potential liability for personal injury, property damage or death as a result of the failure of an aircraft or automotive component designed, manufactured or sold by us, or the failure of an aircraft or automotive component that has been serviced by us or of the components themselves. If a product liability claim is brought against us, the cost of defending the claim could be significant, and could divert the efforts of our technical and management personnel and harm our business, even if we are successful. We may be named in product liability claims even if there is no evidence that our products caused the damage in question, and even though we may have indemnity from our customers, and such claims could result in significant costs and expenses.
We vigorously defend ourselves in connection with these matters. We cannot, however, assure you that the costs, charges and liabilities associated with these matters will not be material, or that those costs, charges and liabilities will not exceed any amounts reserved for them in our Consolidated Financial Statements. Further, while we have liability insurance for certain risks, our insurance may not cover all liabilities, including potential reputational impacts. Additionally, insurance coverage may not be available in the future on acceptable terms or at a cost acceptable to us. The above is exacerbated by the fact that our products may be used, and perform critical functions, in various high-risk applications such as aerospace, automobiles, and robotics, among others. Accordingly, defects in our products could have an adverse impact on us, on our customers and the end
users of our customers’ products. If any of these risks materialize, there could be a material adverse effect on our business, results of operations and financial condition.
RISKS RELATED TO HUMAN CAPITAL
Our future success depends, in part, on our ability to continue to attract, develop, engage and retain qualified employees. Our executive officers and key management personnel are critical to driving business performance and successfully executing the Company’s growth strategy. Because of the complex nature of many of our products and services, and our focus on technological and product innovations, we are generally dependent on an educated and highly skilled workforce, including our engineering talent and our sales professionals. We manage human capital through our Talent Management System, which is aimed at enhancing our ability to attract and hire talented employees, as well as supporting their growth, development and engagement; however, we cannot guarantee the system's effectiveness. Failure to attract, develop, engage and retain qualified employees, whether as a result of an insufficient number of qualified applicants, difficulty in recruiting new employees, or inadequate resources to train, integrate and retain qualified employees, could impair our ability to execute our business strategy, and could adversely affect our business, financial condition, results of operations or cash flows. In addition, while we aim to reduce the impact of the departure of employees, our operations or ability to execute our business strategy have been impacted and may continue to be impacted by the loss of employees, particularly when departures involve groups of employees, such as restructuring and workforce reduction actions. Such losses may adversely affect the Company through decreased employee morale, the loss of knowledge of departing employees, and the devotion of resources to reorganizing and reassigning job roles and responsibilities, and could increase the risk of claims or litigation from former employees.
Our business, financial condition, results of operations and cash flows could be adversely impacted by strikes or work stoppages. We employ approximately 6,500 people worldwide. Approximately 20% of these employees are covered by collective bargaining agreements, trade union agreements and/or national industry agreements. Although we believe that our relations with our employees and labor unions that represent our employees are good, and we have experienced no material strikes or work stoppages recently, we cannot assure you that we will not experience in the future these and other types of conflicts with labor unions, works councils, other groups representing employees or our employees generally, nor that any future negotiations with our labor unions will not result in significant increases in the cost of labor, including healthcare, pensions or other benefits. Any potential strikes or work stoppages, and the resulting adverse impact on our relationships with customers, could have a material adverse effect on our business, financial condition, results of operations or cash flows. Similarly, a protracted strike or work stoppage at any of our major customers, suppliers or other vendors could materially adversely affect our business.
RISKS RELATED TO INFORMATION TECHNOLOGY, CYBERSECURITY AND DATA PRIVACY
Any disruption or failure in the operation of our information systems, including from conversions or integrations of information technology (“IT”) or reporting systems, could have a material adverse effect on our business, financial condition, results of operations and cash flows. Our information technology ("IT")IT systems are an integral part of our business. We depend uponon our IT systems to help communicate internally and externally, processand to manage and support a variety of business processes and activities, such as processing orders, managemanaging inventory, makemaking payments, collecting accounts receivable, and collect accounts receivable. Ourstoring information. In addition, our IT systems also allow us to purchase, sell and ship products efficientlytimely and on a timely basis,efficiently, to maintain cost-effective operations, and to help provide superior service to our customers. Moreover, we use IT systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. We are currently in the process of implementingperiodically implement, upgrade and integrate IT systems, such as our enterprise resource planning ("ERP") and customer relationship management (“CRM”) platforms across certainour businesses. If we experience a problem with the functioning of our businesses, and we expect that we will need to continue to improve and further integratean important IT system as a result of the increased burden placed on our IT systems,infrastructure or a security breach or a service issue experienced by an external third party vendor that stores or processes our data, including during system upgrades and/or new system implementations, the resulting disruptions could have an adverse effect on an ongoing basis in order to effectively run our business. If we fail to successfully manage and integrate our IT systems, including these ERP platforms, it could adversely affect our business or operating results.
Further, inIncreased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted IT-related crime could pose a risk to our systems, networks, products, data and services and have a material adverse effect on our business, financial condition, results of operations and cash flows. In the ordinary course of our business, we store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our employees, in our data centers and on our networks. In addition to utilizing non-cloud environments, we also leverage cloud-based systems, where data is stored and exchanged with external third party vendors. The secure maintenance and transmission of this information is critical to our business operations. Despite our security measures, our information technologyIT systems and infrastructure, including vendor-hosted systems, may be vulnerable to attacks by hackers or breached due to
employee error, malfeasance or other disruptions. AnyThese cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to IT systems to sophisticated and targeted measures known as advanced persistent threats, directed at the Company, its products, its customers and/or its third-party service providers, including cloud providers. These threats and incidents originate from many sources globally and include malwares that take the form of computer viruses, ransomware, worms, Trojan horses, spyware, adware, scareware, rogue software, and other programs that act against the computer user. Our customers are increasingly requiring cybersecurity protections, and we have incurred and may continue to incur additional costs to comply with such breachdemands. While we deploy measures to deter, prevent, detect, respond to and mitigate these threats, including identity and access controls and vulnerability assessments, despite these efforts, cybersecurity incidents, depending on their nature and scope, could compromise our networks and the information stored there, including critical data and confidential or proprietary information (our own or that of third parties), could be accessed, altered, publicly disclosed, lost or stolen. AnySuch incidents could remain undetected for an extended period of time, and the losses arising from such access, disclosure or other loss of informationincidents could exceed our available insurance coverage for such matters. Such incidents could also disrupt our operations, impacting manufacturing production and transactional processing, and result in increased cybersecurity protection and remediation costs, legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations,theft of intellectual property, and damage our reputation, which could adversely affect our business, revenues and competitive position. Further, cybersecurity and data protection laws and regulations continue to evolve in the U.S. and worldwide. This adds compliance complexity and may increase our costs of compliance and expose us to litigation, monetary damages, regulatory enforcement actions or fines in one or more jurisdictions. In addition, as security threats continue to evolve and increase in frequency and sophistication, we will likely be required to invest in additional resources to protect the security of our IT systems.
RISKS RELATED TO INTELLECTUAL PROPERTY
We may be unable to adequately protect or enforce our intellectual property rights. Our intellectual property rights may not be sufficiently broad or otherwise may not provide us a significant competitive advantage, and patents may not be issued for pending or future patent applications owned by or licensed to us. As patents expire, we could face increased competition, which could negatively impact our business, results of operations and financial condition. Infringement of our intellectual property and other proprietary rights by a third party, or copying of our technology in countries where we do not hold patents, could result in uncompensated lost market and revenue opportunities. We cannot be certain that the measures we have implemented will prevent our intellectual property from being improperly disclosed, challenged, invalidated, or circumvented, particularly in countries where intellectual property rights are not highly developed or protected. For example, competitors may avoid infringement liability by developing non-infringing competing technologies or by effectively concealing infringement. We have spent and expect to continue to spend significant resources monitoring and enforcing our intellectual property rights and we may not be aware of or able to detect or prove infringement by third parties. Our ability to enforce our intellectual property rights is subject to litigation risks, as well as uncertainty as to the protection and enforceability of those rights in some countries. If we seek to enforce our intellectual property rights, we may be subject to claims that those rights are invalid or unenforceable, and others may seek counterclaims against us, which could have a negative impact on our business. In addition, changes in intellectual property laws or their interpretation may impact our ability to protect and assert our intellectual property rights, increase costs and uncertainties in the prosecution of patent applications and enforcement or defense of issued patents, and diminish the value of our intellectual property. If we do not protect and enforce our intellectual property rights successfully, or if they are circumvented, invalidated, or rendered obsolete by the rapid pace of technological change, it could have an adverse impact on our competitive position and our business, results of operations and financial condition.
Our employees, consultants and other parties are subject to confidentiality obligations, but this protection may be inadequate to deter or prevent misappropriation, theft, misuse, disclosure, loss or destruction of our proprietary information and/or infringement of our intellectual property. For example, employees and former employees, in particular former employees who become employees of our competitors, may misappropriate, use, publish or provide to our competitors, customers or other third parties our intellectual property, advantageous know-how or other proprietary information. Similarly, we provide access to certain of our intellectual property and other proprietary information to our direct and indirect customers and certain of our consultants who may wrongfully use or disclose such intellectual property or information. Any of these events could harm our competitive position, reduce the value of our investment in research and development and other strategic initiatives, cause us to lose business, damage our reputation, subject us to legal or regulatory proceedings, cause us to incur other loss or liability and otherwise adversely affect our business, results of operations and financial condition.
Third parties may claim that one or more of our products or services infringe their intellectual property rights. Regardless of the merit of such claims, any dispute or litigation regarding patents or other intellectual property could be costly and time-consuming to defend and resolve due to the complexity of our technology and the uncertainty of intellectual property litigation, and could divert our management and key personnel from our business operations. A claim of intellectual property infringement could force us to enter into a costly or restrictive license agreement, which might not be available under
acceptable terms or at all, require us to redesign our products, which would be costly and time-consuming, or subject us to significant damages or to an injunction against the development and sale of certain of our products or services. Our intellectual property portfolio may not be useful in asserting a counterclaim, or negotiating a license, in response to a claim of intellectual property infringement. In addition, we may face claims based on the theft or unauthorized use or disclosure of third-party trade secrets and other confidential business information. Any such incidents and claims could severely harm our business and reputation, result in significant expenses, harm our competitive position, and prevent us from selling certain products and services, all of which could have a significant adverse impact on our business, results of operations and financial condition.
RISKS RELATED TO LIQUIDITY AND OTHER RISKS
We have significant indebtedness that could affect our operations and financial condition, and our failure to meet certain financial covenants required by our debt agreements may materially and adversely affect our assets, financial position and cash flows. At December 31, 2017,2023, we had consolidated debt obligations of $532.6$1,290.8 million, representing approximately 30%49% of our total capital (indebtedness plus stockholders’ equity) as of that date. Our level of indebtedness, proportion of variable rate debt obligations and the significant debt servicing costs associated with that indebtedness may adversely affect our operations and financial condition. For example, our indebtedness could require us to dedicate a substantial portion of our cash flows from operations to payments on our debt, thereby reducing the amount of our cash flows available for working capital, capital expenditures, investments in technology and research and development, acquisitions, dividends and other general corporate purposes; limit our flexibility in planning for, or reacting to, changes in the industries in which we compete; place us at a competitive disadvantage compared to our competitors, some of whom have lower debt service obligations and greater financial resources than we do; limit our ability to borrow additional funds; or increase our vulnerability to general adverse economic and industry conditions. In addition, a majority of our debt arrangements require us to maintain certain debt and interest coverage ratios and limit our ability to incur debt, make investments or undertake certain other business activities. These requirements could limit our ability to obtain future financing and may prevent us from taking advantage of attractive business opportunities. Our ability to meet the financial covenants or requirements in our debt arrangements may be affected by events beyond our control, and we cannot assure you that we will satisfy such covenants and requirements. A breach of these covenants or our inability to comply with the restrictions could result in an event of default under our debt arrangements which, in turn, could result in an event of default under the terms of our other indebtedness. Upon the occurrence of an event of default under our debt arrangements, after the expiration of any grace periods, our lenders could elect to declare all amounts outstanding under our debt arrangements, together with accrued interest, to be immediately due and payable. If this were to happen, we cannot assure you that our assets would be sufficient to repay in full the payments due under those arrangements or our other indebtedness or that we could find alternative financing to replace that indebtedness.
Conditions in the worldwide credit markets may limit our ability to expand our credit lines beyond current bank commitments. In addition, our profitability has been and may continue to be adversely affected as a result of increases in interest rates. At December 31, 2017,2023, we and our subsidiaries had $532.6$1,290.8 million aggregate principal amount of consolidated debt obligations outstanding, of which approximately 61%33% had interest rates that float with the market (not hedged against interest rate fluctuations). A 100 basis point increase in the interest rate on the floating rate debt in effect at December 31, 20172023 would result in an approximate $3.2$4.3 million annualized increase in interest expense.
ChangesA downgrade in theour credit ratings could increase our cost of funding and/or adversely affect our access to funding. Our credit ratings are important to our cost and availability or price of materials, productscapital. The major rating agencies evaluate our credit profile and energy resourcesassign credit ratings to us. This evaluation is based on a number of factors, which include financial strength, business and financial risk, transparency with rating agencies, and timeliness of financial reporting. Further leveraging our capital structure could result in a downgrade to our credit ratings. A downgrade to our credit rating could expose us to less favorable interest rates, harm our reputation, and make our debt less attractive to lenders. As such, failure to maintain our credit ratings could adversely affect our costscost of funding and profitability. We may be adversely affectedour liquidity by limiting the access to capital markets or the availability or price of raw materials, products and energy resources, particularly related to certain manufacturing operations that utilize steel, stainless steel, titanium, Inconel, Hastelloys and other
specialty materials. The availability and pricefunding from a variety of raw materials and energy resources may be subject to curtailment or change due to, among other things, new laws or regulations, global economic or political events including strikes, terrorist attacks and war, suppliers’ allocations to other purchasers, interruptions in production by suppliers, changes in exchange rates and prevailing price levels. In some instances there are limited sources for raw materials and a limited number of primary suppliers for some of our products for resale. Although we are not dependent upon any single source for any of our principal raw materials or products for resale, and such materials and products have, historically, been readily available, we cannot assure you that such raw materials and products will continue to be readily available. Disruption in the supply of raw materials, products or energy resources or our inability to come to favorable agreements with our suppliers could impair our ability to manufacture, sell and deliver our products and require us to pay higher prices. Any increase in prices for such raw materials, products or energy resources could materially adversely affect our costs and our profitability.lenders.
We maintain pension and other postretirement benefit plans in the U.S. and certain international locations. Our costs of providing defined benefit plans are dependent upon a number of factors, such as the rates of return on the plans’ assets, exchange rate fluctuations, future governmental regulation, global fixed income and equity prices, and our required and/or voluntary contributions to the plans. Declines in the stock market, prevailing interest rates, declines in discount rates, improvements in mortality rates and rising medical costs may cause an increase in our pension and other postretirement benefit expenses in the future and result in reductions in our pension fund asset values and increases in our pension and other postretirement benefit obligations. These changes have caused and may continue to cause a significant reduction in our net worth and without sustained growth in the pension investments over time to increase the value of the plans’ assets, and depending upon the other factors listed above, we could be required to increase funding for some or all of these pension and postretirement plans.
We carry significant inventories and a loss in net realizable value could cause a decline in our net worth. At December 31, 2017, our inventories totaled $242.0 million. Inventories are valued at the lower of cost or net realizable value based on management's judgments and estimates concerning future sales levels, quantities and prices at which such inventories will be sold in the normal course of business. Accelerating the disposal process or incorrect estimates of future sales potential may necessitate future reduction to inventory values. See “Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies”.
We have significant goodwill and an impairment of our goodwill could cause a decline in our net worth. Our total assets include substantial goodwill. At December 31, 2017,2023, our goodwill totaled $690.2$1,183.6 million. The goodwill results from our prior acquisitions, representing the excess of the purchase price we paid over the net assets of the companies acquired. We assess whether there has been an impairment in the value of our goodwill during each calendar year or soonermore frequently if triggering events warrant.an event or change in circumstances indicates that the fair value of a reporting unit has been reduced below its carrying value. If future operating performance at one or more of our reporting units does not meet expectations or fair values fall due to significant stock market declines, we may be required to reflect aan incremental non-cash charge to operating results for goodwill impairment. During the year ended December 31, 2022, management recorded a non-cash goodwill impairment charge of $68.2 million related to the Automation reporting unit as the estimated fair value of the reporting unit declined below its carrying value. See Note 6 of the Consolidated Financial Statements. The Company performed its annual assessment during
the second quarter of 2023 and has continued to evaluate macro-economic conditions through December 31, 2023. Based on our subsequent assessments, there was no additional impairment of goodwill during 2023. In the event there are future adverse changes in our estimated future cash flows and/or changes in key assumptions, including but not limited to discount rates, revenue growth or margins, and/or terminal growth rates, we may be required to record additional non-cash impairment charges to Automation goodwill. The recognition of an additional impairment of a significant portion of goodwill would negatively affect our results of operations and total capitalization, the effect of which could be material. See “Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies”.Estimates.”
We may not realize all of the sales expected from our existing backlog or anticipated orders. At December 31, 2017, we had $1,039.0 million of order backlog, the majority of which related to aerospace OEM customers. There can be no assurances that the revenues projected in our backlog will be realized or, if realized, will result in profits. We consider backlog to be firm customer orders for future delivery. OEM customers may provide projections of components and assemblies that they anticipate purchasing in the future under existing programs. These projections may represent orders that are beyond lead time and are included in backlog when supported by a long term agreement. Our customers may have the right under certain circumstances or with certain penalties or consequences to terminate, reduce or defer firm orders that we have in backlog. If our customers terminate, reduce or defer firm orders, we may be protected from certain costs and losses, but our sales will nevertheless be adversely affected. Although we strive to maintain ongoing relationships with our customers, there is an ongoing risk that orders may be canceled or rescheduled due to fluctuations in our customers’ business needs or purchasing budgets.
Also, our realization of sales from new and existing programs is inherently subject to a number of important risks and uncertainties, including whether our customers execute the launch of product programs on time, or at all, the number of units that our customers actually produce, the timing of production and manufacturing insourcing decisions made by our customers. In addition, until firm orders are placed, our customers may have the right to discontinue a program or replace us with another supplier at any time without penalty. Our failure to realize sales from new and existing programs could have a material adverse effect on our net sales, results of operations and cash flows.
We may not recover all of our up-front costs related to new or existing programs. New programs may require significant up-front investments for capital equipment, engineering, inventory, design and tooling. As OEMs in the transportation and aerospace industries have looked to suppliers to bear increasing responsibility for the design, engineering and manufacture of systems and components, they have increasingly shifted the financial risk associated with those responsibilities to the suppliers as well. This trend may continue and is most evident in the area of engineering cost reimbursement. We cannot assure you that we will have adequate funds to make such up-front investments or to recover such costs from our customers as part of our product pricing. In the event that we are unable to make such investments, or to recover them through sales or direct reimbursement from our customers, our profitability, liquidity and cash flows may be adversely affected. In addition, we incur costs and make capital expenditures for new program awards based upon certain estimates of production volumes and production complexity. While we attempt to recover such costs and capital expenditures by appropriately pricing our products, the prices of our products are based in part upon planned production volumes. If the actual production is significantly less than planned or significantly more complex than anticipated, we may be unable to recover such costs. In addition, because a significant portion of our overall costs is fixed, declines in our customers’ production levels can adversely affect the level of our reported profits even if our up-front investments are recovered.
We may not realize all of the intangible assets related to the Aerospace aftermarketAftermarket businesses. We participate in aftermarket Revenue Sharing Programs ("RSPs")RSPs under which we receive an exclusive right to supply designated aftermarket parts over the life of the related aircraft engine program to our customer, General Electric ("GE").GE. As consideration, we pay participation fees, which are recorded as intangible assets and are recognized as a reduction of sales over the estimated life of the related engine programs. Our total investments in participation fees under our RSPs as of December 31, 20172023 equaled $293.7$299.5 million, all of which have been paid. At December 31, 2017,2023, the remaining unamortized balance of these participation fees was $185.6$123.4 million.
We entered into Component Repair Programs ("CRPs"),CRPs, also with GE, during 2015, 2014 and 2013. The CRPswhich provide for, among other items, the right to sell certain aftermarket component repair services for CFM56, CF6, CF34 and LM engines directly to other customers over the life of the aircraft engine program as one of a few GE licensed suppliers. In addition, the CRPs extended certain contracts under which the Company currently provides these services directly to GE. Our total investments in CRPs as of December 31, 20172023 equaled $111.8 million, all of which have been paid. At December 31, 2017,2023, the remaining unamortized balance of the CRPs was $95.3$62.3 million. We recorded the CRP payments as an intangible assetassets which isare recognized as a reduction of sales over the remaining useful life of these engine programs.
The realizability of each asset is dependent upon future revenues related to the programs' aftermarket parts and services and is subject to impairment testing if circumstances indicate that its carrying amount may not be recoverable. The potential exists that actual revenues will not meet expectations due to a change in market conditions, including, for example, the replacement of older engines with new, more fuel-efficient engines or our ability to maintain market share within the aftermarket business. A shortfall in future revenues may result in the failure to realize the net amount of the investments, which could adversely affect our financial condition and results of operations. In addition, profitability could be impacted by the amortization of the participation fees and licenses, and the expiration of the international tax incentives on these programs. See “Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies”.Estimates.”
We face riskscarry significant inventories and a loss in net realizable value could cause a decline in our net worth. At December 31, 2023, our inventories totaled $365.2 million. Inventories are valued at the lower of cost overrunsor net realizable value based on management's judgments and losses on fixed-price contracts. We sell certain of our products under firm, fixed-price contracts providing for a fixed price for the products regardless of the production or purchase costs incurred by us. The cost of producing products mayestimates concerning future sales levels, quantities and prices at which such inventories will be adversely affected by increasessold in the costnormal course of labor, materials, fuel, outside processing, overheadbusiness. Accelerating the disposal process or changes in estimates of future sales potential may necessitate future reduction to inventory values. See “Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates.”
We maintain pension and other postretirement benefit plans in the U.S. and certain international locations. Our costs of providing defined benefit plans are dependent upon a number of factors, including manufacturing inefficiencies. Increased productionsuch as the rates of return on the plans’ assets, interest rates, exchange rate fluctuations, future governmental regulation, global fixed income and equity prices, and our required and/or voluntary contributions to the plans. Declines in the stock market, prevailing interest rates, declines in discount rates, improvements in mortality rates and rising medical costs may resultcause an increase in cost overruns and losses on contracts.
The departure of existing management and key personnel, a shortage of skilled employees or a lack of qualified sales professionals could materially affect our business, operations and prospects. Our executive officers are important to the management and direction of our business. Our future success depends, in large part, on our ability to retain or replace these officerspension and other key management personnel. Although we believe we will be able to attract and retain talented personnel and replace key personnel should the need arise, our inability to do so could have a material adverse effect on our business, financial condition, results of operations or cash flows. Because of the complex nature of many of our products and services, we are generally dependent on an educated and highly skilled workforce, including, for example, our engineering talent. In addition, there are significant costs associated with the hiring and training of sales professionals. We could be adversely affected by a shortage of available skilled employees or the loss of a significant number of our sales professionals.
If we are unable to protect our intellectual property rights effectively, our financial condition and results of operations could be adversely affected. We own or are licensed under various intellectual property rights, including patents,
trademarks and trade secrets. Our intellectual property rights may not be sufficiently broad or otherwise may not provide us a significant competitive advantage, and patents may not be issued for pending or future patent applications owned by or licensed to us. In addition, the steps that we have taken to maintain and protect our intellectual property may not prevent it from being improperly disclosed, challenged, invalidated, circumvented or designed-around, particularly in countries where intellectual property rights are not highly developed or protected. In some circumstances, enforcement may not be available to us because an infringer has a dominant intellectual property position or for other business reasons, or countries may require compulsory licensing of our intellectual property. We also rely on nondisclosure and noncompetition agreements with employees, consultants and other parties to protect, in part, confidential information, trade secrets and other proprietary rights. There can be no assurance that these agreements will adequately protect these intangible assets and will not be breached, that we will have adequate remedies for any breach, or that others will not independently develop substantially equivalent proprietary information. Our failure to obtain or maintain intellectual property rights that convey competitive advantage, adequately protect our intellectual property or detect or prevent circumvention or unauthorized use of such property and the cost of enforcing our intellectual property rights could adversely impact our competitive position, financial condition and results of operations.
Any product liability, warranty, contractual or other claims in excess of insurance may adversely affect our financial condition. Our operations expose us to potential product liability risks that are inherent in the design, manufacture and sale of our products and the products we buy from third parties and sell to our customers, or to potential warranty, contractual or other claims. For example, we may be exposed to potential liability for personal injury, property damage or death as a result of the failure of an aircraft component designed, manufactured or sold by us, or the failure of an aircraft component that has been serviced by us or of the components themselves. While we have liability insurance for certain risks, our insurance may not cover all liabilities, including potential reputational impacts. Additionally, insurance coverage may not be availablepostretirement benefit expenses in the future atand result in reductions in our pension fund asset values and increases in our pension and other postretirement benefit obligations. These changes have caused and may continue to cause a cost acceptablesignificant reduction in our net worth and without sustained growth in the pension investments over time to us. Any material liability not covered by insurance or for which third-party indemnification is not available forincrease the full amountvalue of the lossplans’ assets, and depending upon the other factors listed above, we could have a material adverse effect on our financial condition, results of operations and cash flows.
From time to time, we receive product warranty claims, under which we may be required to bear costsincrease funding for some or all of inspection, repair or replacement of certain of our products. Warranty claims may range from individual customer claims to full recalls of all products in the field. We vigorously defend ourselves in connection with these matters. We cannot, however, assure you that the costs, chargespension and liabilities associated with these matters will not be material, or that those costs, charges and liabilities will not exceed any amounts reserved for them in our consolidated financial statements. postretirement plans.
Our business, financial condition, results of operations and cash flows could be adversely impacted by strikes or work stoppages. Approximately 17% of our U.S. employees are covered by collective bargaining agreements and more than 39% of our non-U.S. employees are covered by collective bargaining agreements or statutory trade union agreements. The Company has a national collective bargaining agreement (“CBA”) with certain unionized employees at the Bristol, Connecticut and Corry, Pennsylvania facilities of the Associated Spring business unit, covering approximately 300 employees. The current CBA will expire in August 2020, at which time we expect to negotiate a successor agreement. The local CBA for the Corry, Pennsylvania facility of the Associated Spring business unit will expire on June 14, 2018, and the local CBA for the Bristol, Connecticut facility of the Associated Spring business unit will expire on October 15, 2018, at which time we expect to negotiate successor agreements. We also have annual negotiations in Brazil and Mexico and, collectively, these negotiations cover approximately 300 employees in those two countries. In addition, we expect to negotiate a successor agreement to the local CBA covering approximately 250 employees in Singapore which will expire at the end of 2018. We also completed negotiations resulting in wage adjustments at four locations in our Industrial Segment, collectively, covering a total of approximately 750 employees.
Although we believe that our relations with our employees are good, we cannot assure you that we will be successful in negotiating new CBAs or that such negotiations will not result in significant increases in the cost of labor, including healthcare, pensions or other benefits. Any potential strikes or work stoppages, and the resulting adverse impact on our relationships with customers, could have a material adverse effect on our business, financial condition, results of operations or cash flows. Similarly, a protracted strike or work stoppage at any of our major customers, suppliers or other vendors could materially adversely affect our business.
Changes in taxation requirements could affect our financial results.Our products are subject to import and excise duties and/or sales or value-added taxes in many jurisdictions in which we operate. Increases in indirect taxes could affect our products’ affordability and therefore reduce our sales. We are also subject to income tax in numerous jurisdictions in which we generate revenues. Changes in tax laws, tax rates or tax rulings may have a significant adverse impact on our effective tax rate. Among other things, our tax liabilities are affected by the mix of pretax income or loss among the tax jurisdictions in which we operate and the potential repatriation of foreign earnings to the U.S. Further, during the ordinary course of business, we are subject to examination by the various tax authorities of the jurisdictions in which we operate which could result in an
unanticipated increase in taxes. On December 22, 2017 the U.S. government enacted comprehensiveAny potential changes or interpretive guidance may impact current and deferred income tax legislation commonly referred to
expense and deferred tax balances for U.S operations as well as the Tax Cuts and Jobs Act (the “Act”). The Act makes broad and complex changes to the U.S Tax Code that affect 2017 and that include, but are not limited to, requiring a one-time Transition Tax on certain unrepatriated earningspotential future repatriation of foreign subsidiariesincome. The impact of the Company (payable over eight years) and exempting foreign dividends paid to the U.S. during the year from taxation, if such earnings are included with the Transition Tax. The Act also establishes new law that will affect 2018 and beyond, including, but not limited to a reduction of the U.S. Corporate incomeany proposed changes in tax rate from 35% to 21% and a general elimination of U.S federal income taxes on dividends from foreign subsidiaries. The Company has recorded a provisional tax expense in the Consolidated Financial Statements as of December 31, 2017. The Company has not finalized its' accounting for the income tax effects related to certain sections of the Act; however we are permitted to make changes over a measurement period that should not extend beyond one year from the enactment date of the Act. Such changesregulations may adversely affect our financial condition, results of operations and cash flows. See “Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - U.S. Tax Reform”.flow.
Changes in accounting guidance could affect our financial results. New accounting guidance that may become applicable to us from time to time, or changes in the interpretations of existing guidance, could have a significant effect on our reported results for the affected periods. Adoption of new accounting guidance could have a material impact on our financial statements and may retroactively affect the accounting treatment of transactions completed before adoption. See Note 1 of the Consolidated Financial Statements.
Actions of activist stockholders could cause us to incur substantial costs, divert management’s attention and resources, and have an adverse effect on our business.From time to time, we may be subject to proposals by stockholders urging us to take certain corporate actions. Activist stockholder activity could have an adverse effect on our business as responding to proxy contests and reacting to other actions by activist stockholders can be costly and time-consuming, disrupt our operations and divert the attention of management and our employees. For example, we may be required to retain the services of various professionals to advise us on activist stockholder matters, including legal, financial, and communications advisers, the costs of which may negatively impact our future financial results. In addition, perceived uncertainties as to our future direction, strategy or leadership created as a consequence of activist stockholder initiatives may result in the loss of potential business opportunities, harm our ability to attract new investors, customers, and employees, and cause our stock price to experience periods of volatility or stagnation.
RISKS RELATED TO THE INDUSTRIES IN WHICH WE OPERATEPORTFOLIO OPTIMIZATION AND STRATEGIC INITIATIVES
We operate in highly competitive markets. We may not be able to compete effectivelyRisks associated with our competitors,portfolio optimization efforts, including as a result of restructuring, acquisitions and competitive pressures coulddivestitures, may adversely affect us. As described elsewhere in this Annual Report on Form 10-K, we have been executing a comprehensive business transformation strategy to rationalize our business, financial conditionportfolio and results of operations. Our two global business segments compete with a number of largergenerate improved growth, profitability, and smaller companiescash flow. These portfolio optimization efforts may expose us to unknown risks, liabilities and fluctuations in the markets we serve. Somequarterly results. In addition, implementation of our competitors have greater financial, production, researchportfolio optimization efforts may divert management’s attention from day-to-day business operations and development,other business concerns or other resources than we do. Within Aerospace, certainotherwise disrupt our business. Any of our OEM customers compete with our repair and overhaul business. Some of our OEM customers in the aerospace industry also compete with us where they have the ability to manufacture the components and assemblies that we supply to them but have chosen, for capacity limitations, cost considerations or other reasons, to outsource the manufacturing to us. Our customers award business based on, among other things, price, quality, reliability of supply, service, technology and design. Our competitors’ efforts to grow market share could exert downward pressure on our product pricing and margins. Our competitorsthese risks may also develop products or services, or methods of delivering those products or services that are superior to our products, services or methods. Our competitors may adapt more quickly than us to new technologies or evolving customer requirements. We cannot assure you that we will be able to compete successfully with our existing or future competitors. Our ability to compete successfully will depend, in part, on our ability to continue make investments to innovate and manufacture the types of products demanded by our customers, and to reduce costs by such means as reducing excess capacity, leveraging global purchasing, improving productivity, eliminating redundancies and increasing production in low-cost countries. We have invested, and expect to continue to invest, in increasing our manufacturing footprint in low-cost countries. We cannot assure you that we will have sufficient resources to continue to make such investments or that we will be successful in maintaining our competitive position. If we are unable to differentiate our products or maintain a low-cost footprint, we may lose market share or be forced to reduce prices, thereby lowering our margins. Any such occurrences could adversely affect our financial condition, results of operations and cash flows.
The industries in which we operate have been experiencing consolidation, both in our suppliers and the customers we serve. Supplier consolidation is in part attributableWe are subject to OEMs more frequently awarding long-term sole source or preferred supplier contractsrisks relating to the most capable suppliersacquisition of MB Aerospace. We expect to incur significant costs in an effort to reduceconnection with the total number of suppliers from whom components and systems are purchased. If consolidation of our existing competitors occurs, we would expect the competitive pressures we face to increase,integration, which may exceed those currently anticipated; and we cannot assure you thathave incurred significant additional indebtedness in connection with the acquisition, which has increased our interest expense and financial leverage. Any of the foregoing risks and uncertainties could have a material adverse effect on our business, financial condition, results of operations or cash flows will not be adversely impactedand negatively impact the value of our securities. Challenges arising from our expanded operations as a result of consolidation bythe acquisition of MB Aerospace may affect our competitorsfuture results. The acquisition of MB Aerospace greatly expanded the size and complexity of our aerospace business. Our future success depends, in part, on the ability to integrate MB Aerospace with our existing aerospace business, and to anticipate and overcome challenges arising from the expansion and integration of our operations, including challenges related to expanded global operations and new manufacturing processes and products or customers.
Original equipment manufacturers inservices, and the aerospaceassociated costs and transportation industries have significant pricing leverage over suppliers and maycomplexity. There can be no assurance that we will be able to achieve price reductions over time. Additionally,anticipate or overcome all of the challenges resulting from our expanding operations or that we will be able to successfully integrate the MB Aerospace business or realize the expected benefits of the acquisitions within the intended timeframe or at all, which may not be successful incause our effortsfuture results to raise prices on our customers. There is substantial and continuing pressure from OEMs in the transportation industries, including automotive and aerospace, to reduce the prices they pay to suppliers. We attempt to manage such downward pricing pressure, while trying to preserve our business relationships with our customers, by seeking to reduce our production costs through various measures, including purchasing raw materials and components at lower prices and implementing cost-effective process improvements. Our suppliers have periodically resisted, and in the future may resist, pressure to lower their prices and may seek to impose price increases. If we are unable to offset OEM price reductions, our profitability and cash flows could be adversely affected. In addition, OEMs have substantial leverage in setting purchasing
Our restructuring and payment terms, including the terms of accelerated payment programs under which payments are made prior to the account due
date in return for an early payment discount. OEMs can unexpectedly change their purchasing policies or payment practices, which could have a negative impact on our short-term working capital.
Demand for our defense-related products depends on government spending. A portion of Aerospace's sales is derived from the military market, including single-sourced and dual-sourced sales. The military market is largely dependent upon government budgets and is subject to governmental appropriations. Although multi-year contracts may be authorized in connection with major procurements, funds are generally appropriated on a fiscal year basis even though a program may be expected to continue for several years. Consequently, programs are often only partially funded and additional funds are committed only as further appropriations are made. We cannot assure you that maintenance of or increases in defense spending will be allocated to programs that would benefit our business. Moreover, we cannot assure you that new military aircraft programs in which we participate will enter full-scale production as expected. A decrease in levels of defense spending or the government’s termination of, or failure to fully fund, one or more of the contracts for the programs in which we participate could have a material adverse effect on our financial position and results of operations.
The aerospace industry is highly regulated. Complications related to aerospace regulations may adversely affect the Company. A substantial portion of our income is derived from our aerospace businesses. The aerospace industry is highly regulated in the U.S. by the Federal Aviation Administration, or FAA, and in other countries by similar regulatory agencies. We must be certified by these agencies and, in some cases, by individual OEMs in order to engineer and service systems and components used in specific aircraft models. If material authorizations or approvals were delayed, revoked or suspended, our business could be adversely affected. New or more stringent governmental regulations may be adopted, or industry oversight heightened, in the future, and we may incur significant expenses to comply with any new regulations or any heightened industry oversight.
Fluctuations in jet fuel and other energy prices may impact our operating results. Fuel costs constitute a significant portion of operating expenses for companies in the aerospace industry. Fluctuations in fuel costs could impact levels and frequency of aircraft maintenance and overhaul activities, and airlines' decisions on maintaining, deferring or canceling new aircraft purchases, in part based on the value associated with new fuel efficient technologies. Widespread disruption to oil production, refinery operations and pipeline capacity in certain areas of the U.S. can impact the price of jet fuel significantly. Conflicts in the Middle East, an important source of oil for the U.S. and other countries where we do business, cause prices for fuel to be volatile. Because we and many of our customers are in the aerospace industry, these fluctuations could have a material adverse effect on our financial condition or results of operations.
Our products and services may be rendered obsolete by new products, technologies and processes. Our manufacturing operations focus on highly engineered components which require extensive engineering and research and development time. Our competitive advantage may be adversely impacted if we cannot continue to introduce new products ahead of our competition, or if our products are rendered obsolete by other products or by new, different technologies and processes. The success of our new products will depend on a number of factors, including innovation, customer acceptance, the efficiency of our suppliers in providing materials and component parts, and the performance and quality of our products relative to those of our competitors. We cannot predict the level of market acceptance or the amount of market share our new products will achieve. Additionally, we may face increased or unexpected costs associated with new product introduction, including the use of additional resources such as personnel and capital. We cannot assure that we will not experience new product introduction delays in the future.
RISKS RELATED TO RESTRUCTURING, ACQUISITIONS, JOINT VENTURES AND DIVESTITURES
Our restructuringintegration actions could have long-term adverse effects on our business. From time to time,As we have implementedimplement restructuring activities across our businesses to adjust our cost structure, and we may engage in similar restructuring activities in the future. We may not achieve expected cost savings from workforce reductions or restructuring activities and actual charges, costs and adjustments due to these actions may vary materially from our estimates. In addition, our consolidation and integration activities may not provide the expected benefits. Our ability to realize anticipated cost savings, synergies and revenue enhancements may be affected by a number of factors, including the following: our ability to effectively eliminate duplicative back office overhead and overlapping sales personnel, rationalize manufacturing capacity, synchronize information technologyIT systems, consolidate warehousing and other facilities and shift production to more economical facilities; significant cash and non-cash integration and implementation costs or charges in order to achieve those cost savings, which could offset any such savings and other synergies resulting from our acquisitions or divestitures;savings; and our ability to avoid labor disruption in connection with these activities. In addition, delays in implementing planned restructuring, consolidation or integration activities or other productivity improvements may diminish the expected operational or financial benefits. See Note 8 of the Consolidated Financial Statements.
Our acquisition and other strategic initiatives, some of which may be outside the industries in which we currently operate, may not be successful. We have made a number of acquisitions in the past, including most recently the acquisitions of the Gammaflux and FOBOHA businesses, and we anticipate that we may, from time to time, acquire additional businesses, assets or securities of companies, and enter into joint ventures and other strategic
relationships that we believe would provide a strategic fit with our businesses. These activities expose the Company to a number of risks and uncertainties, the occurrence of any of which could materially adversely affect our business, cash flows, financial condition and results of operations. A portion of the industries that we serve are mature industries. As a result, our future growth may depend in part on the successful acquisition and integration of acquired businesses into our existing operations. On the other hand, if we acquire a company that operates in an industry that is different from the ones in which we currently operate, our lack of experience with that company's industry could have a material adverse impact on our ability to manage that business and realize the benefits of that acquisition. We may not be able to identify and successfully negotiate suitable acquisitions, obtain financing for future acquisitions on satisfactory terms, negotiate reasonable terms, properly perform due diligence and determine all the significant risks associated with a particular acquisition, avoid diversion of our management's attention from other important business activities, or obtain regulatory approvals or otherwise complete acquisitions in the future.
We could have difficulties integrating acquired businesses with our existing operations. Difficulties of integration can includeoperations, including coordinating and consolidating separate systems, integrating the management of the acquired business, retaining market acceptance of acquired products and services, maintaining employee morale and retaining key employees, and implementing our enterprise resource planning systems and operational procedures and disciplines. Any such difficulties may make it more difficult to maintain relationships with employees, customers, business partners and suppliers. In addition, even if integration is successful, the financial performance of acquired businessbusinesses may not be as expected and there can be no assurance that we will realize anticipated benefits from our acquisitions. We cannot assure you that we will effectively assimilate the business or product offerings of acquired companies into our business or product offerings or realize anticipated operational synergies. In connection with the integration of acquired operations or the conduct of our overall business strategies, we may periodically restructure our businesses and/or sell assets or portions of our business. Integrating the operations and personnel of acquired companies into our existing operationsThese activities may result in difficulties, significant expense and accounting charges, disrupt our business or divert management’s time and attention.
Acquisitions involve numerous other risks, including potential exposure to unknown liabilities of acquired companies and the possible loss of key employees and customers of the acquired business. Certain of the acquisition agreements by which we have acquired businesses require the former owners to indemnify us against certain liabilities related to the business operations before we acquired it. However, the liability of the former owners is limited and certain former owners may be unable to meet their indemnification responsibilities. We cannot assure you that these indemnification provisions will protect us fully or at all, and as a result we may face unexpected liabilities that adversely affect our financial condition. In connection with acquisitions or joint venture investments outside the U.S., we may enter into derivative contracts to purchase foreign currency in order to hedge against the risk of foreign currency fluctuations in connection with such acquisitions or joint venture investments, which subjects us to the risk of foreign currency fluctuations associated with such derivative contracts. Additionally, our final determinations and appraisals of the fair value of assets acquired and liabilities assumed in our acquisitions may vary materially from earlier estimates. We cannot assure you that the fair value of acquired businesses will remain constant.
We continually assess the strategic fit of our existing businesses and may divest or otherwise dispose of businesses that are deemed not to fit with our strategic plan or are not achieving the desired return on investment, and we cannot be certain that our business, operating results and financial condition will not be materially and adversely affected. A successful divestiture depends on various factors, including our ability to effectively transfer liabilities, contracts, facilities and employees to any purchaser, identify and separate the intellectual property to be divested from the intellectual property that we wish to retain, reduce fixed costs previously associated with the divested assets or business, and collect the proceeds from any divestitures. In addition, if customers of the divested business do not receive the same level of service from the new owners, this may adversely affect our other businesses to the extent that these customers also purchase other products offered by us. All of these efforts require varying levels of management resources, which may divert our attention from other business operations. If we do not realize the expected benefits, or synergies of any divestiture transaction, our consolidated financial position, results of operations and cash flows could be negatively impacted. In addition, divestitures of businesses involve a number of risks, including significant costs and expenses, the loss of customer relationships, and a decrease in revenues and earnings associated with the divested business. Furthermore, divestitures potentially involve significant post-closing separation activities, which could involve the expenditure of material financial resources and significant employee resources. Any divestiture may result in a dilutive impact to our future earnings if we are unable to offset the dilutive impact from the loss of revenue associated with the divestiture, as well as significant write-offs, including those related to goodwill and other intangible assets, which could have a material adverse effect on our results of operations and financial condition. In January 2024, the Company announced that it entered into a definitive agreement to sell its Associated Spring and Hänggi businesses, currently included within the MCS business unit. See Item 7 and Note 23 of the Consolidated Financial Statements for additional disclosure related to this planned divestiture.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
We maintain a data protection and cybersecurity risk management program based upon the National Institute of Standards and Technology ("NIST") Cybersecurity framework to assess, identify and manage cybersecurity risks. As part of this program, we maintain defensive network perimeter safeguards, internal mitigation and control features, continuous system and network monitoring, and contingency data protection. We also have a notification process for real-time escalation of material cyber incidents by members of our internal cybersecurity team to senior management, including our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and/or General Counsel, and the Board of Directors, in each case as appropriate.
As part of our risk management program, we periodically conduct penetration testing through an independent third-partyassessor, as well as internal user training and tabletop exercises. We also conduct self-assessments of our cybersecurity risk management program to evaluate effectiveness and alignment with NIST standards and industry best practices. In addition, we maintain processes governing interconnections with third-party systems and annually review critical vendors’ cybersecurity positions for potential risks. This process includes review of System and Organization Controls ("SOC") 1 and SOC 2 reports (as each such report is defined by the American Institute of Certified Public Accountants), and direct interaction with key vendors to assess and address risks.
We have not experienced a cybersecurity threat, including as a result of any previous cybersecurity incidents, that has materially affected or is reasonably likely to materially affect us, including our business strategy, results of operations or financial condition.However, risks from cybersecurity threats, including but not limited to exploitation of vulnerabilities, ransomware, denial of service, supply chain attacks, or other similar threats may materially affect us, including our execution of business strategy, reputation, results of operations and/or financial condition.
Cybersecurity Governance
Our cybersecurity program is managed by a global internal team that addresses potential risks, implements processes to support our cybersecurity program and responds to potential cyber incidents. The team has decades of experience with varied certifications and includes our Director of Cybersecurity who has over 25 years’ experience as an IT professional engaged in network architecture and cybersecurity, and is led by our Vice President, IT, a CPA with 10 years’ experience leading IT, who reports to our Senior Vice President, Chief Financial Officer. The internal team is supported by third party providers to expand coverage, expertise and responsiveness.
Annual risk assessments are performed and incorporated as part of our overall enterprise risk management process, which is overseen by our Board of Directors. As part of this process, the Board of Directors, through the Audit Committee, oversees the data protection and cybersecurity program, which includes reviewing management’s risk assessments and the steps management has taken to monitor or mitigate our cybersecurity risk exposure. Management regularly provides data protection and cybersecurity reports to the Audit Committee and the Board of Directors, which include updates on cybersecurity initiatives, cybersecurity metrics and threat landscape. For more information about the cybersecurity risks we face, see "Risks Related to Information Technology, Cybersecurity and Data Privacy" in Part I - Item 1A - Risk Factors.
Item 2. Properties
| | | Number of Facilities - Owned | Number of Facilities - Owned | Number of Facilities - Owned |
| | |
| Location | | Industrial | | Aerospace | | Other | | Total |
| Location | |
| Location | | | Aerospace | | Industrial | | Other | | Total |
| | |
| Manufacturing: | |
| Manufacturing: | |
| Manufacturing: | |
| North America | |
| North America | |
| North America | | 6 | | 5 | | 0 | | 11 | | 5 | | 4 | | — | | | 9 | | 9 |
| Europe | | 9 | | 0 | | 0 | | 9 | Europe | | 3 | | 8 | | | — | | — | | | 11 | | 11 |
| Asia | | 1 | | 0 | | 0 | | 1 | Asia | | 2 | | 1 | | — | | | 3 | | 3 |
| Central and Latin America | | 2 | | 0 | | 0 | | 2 | Central and Latin America | | — | | | 2 | | 2 | | | — | | — | | | 2 | | 2 |
| | | 18 | | 5 | | 0 | | 23 |
| | 10 | | | | 10 | | 15 | | — | | | 25 |
| Non-Manufacturing: | |
| North America | | 0 | | 0 | | 1* | | 1 |
| Europe | | 2 | | 0 | | 0 | | 2 |
| North America | |
| North America | | | — | | | 1 | | | 1* | | 2 |
| | | 2 | | 0 | | 1 | | 3 |
| | | — | |
| | | — | |
| | | — | | | | 1 | | | 1 | | 2 |
* The Company's Corporate officeoffice.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Facilities - Leased |
| | | | | | | | |
| Location | | Aerospace | | Industrial | | Other | | Total |
| | | | | | | | |
| Manufacturing: | | | | | | | | |
| North America | | 4 | | 2 | | — | | | 6 |
| Europe | | 2 | | 4 | | | — | | | 6 |
| Asia | | 8 | | 4 | | — | | | 12 |
| | | | | | | | |
| | 14 | | 10 | | — | | | 24 |
| Non-Manufacturing: | | | | | | | | |
| North America | | 2 | | 9 | | — | | | 11 |
| Europe | | 2 | | 27 | | — | | | 29 |
| Asia | | — | | | 23 | | | — | | | 23 |
| Central and Latin America | | — | | | 3 | | | — | | | 3 |
| | 4 | | 62 | | — | | | 66 |
|
| | | | | | | | |
| Number of Facilities - Leased |
| | | | | | | | | |
| Location | | Industrial | | Aerospace | | Other | | Total |
| | | | | | | | | |
| Manufacturing: | | | | | | | | |
| North America | | 3 | | 2 | | 0 | | 5 |
| Europe | | 2 | | 0 | | 0 | | 2 |
| Asia | | 5 | | 5 | | 0 | | 10 |
| | | 10 | | 7 | | 0 | | 17 |
| Non-Manufacturing: | | | | | | | | |
| North America | | 8 | | 2 | | 1** | | 11 |
| Europe | | 13 | | 1 | | 0 | | 14 |
| Asia | | 20 | | 0 | | 0 | | 20 |
| Central and Latin America | | 3 | | 0 | | 0 | | 3 |
| | | 44 | | 3 | | 1 | | 48 |
** Industrial Segment headquarters and certain Shared Services groups.
Item 3. Legal Proceedings
We are subject to litigation from time to time in the ordinary course of business and various other suits, proceedings and claims are pending against us and our subsidiaries. While it is not possible to determine the ultimate disposition of each of these proceedings and whether they will be resolved consistent with our beliefs, we expect that the outcome of suchthese proceedings, individually or in the aggregate, will not have a material adverse effect on our consolidated financial conditionposition, cash flows or results of operations.
In November 2016, the Company’s previously disclosed arbitration with Triumph Actuation Systems - Yakima, LLC ("Triumph") was concluded. The Company was awarded $9.2 million, plus interest on the judgment of $1.4 million, which amounts were received on January 3, 2017. The outcome did not have a material impact on the Company's consolidated financial position, liquidity or consolidated results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The Company’s common stock is traded on the New York Stock Exchange under the symbol “B”. The following table sets forth, for the periods indicated, the low and high sales intra-day trading price per share, as reported by the New York Stock Exchange, and dividends declared and paid.
|
| | | | | | | | | | | | |
| | | 2017 |
| | | Low | | High | | Dividends |
| Quarter ended March 31 | | $ | 45.47 |
| | $ | 51.97 |
| | $ | 0.13 |
|
| Quarter ended June 30 | | 49.31 |
| | 60.74 |
| | 0.14 |
|
| Quarter ended September 30 | | 57.70 |
| | 70.84 |
| | 0.14 |
|
| Quarter ended December 31 | | 61.06 |
| | 72.87 |
| | 0.14 |
|
|
| | | | | | | | | | | | |
| | | 2016 |
| | | Low | | High | | Dividends |
| Quarter ended March 31 | | $ | 30.07 |
| | $ | 35.81 |
| | $ | 0.12 |
|
| Quarter ended June 30 | | 31.13 |
| | 37.75 |
| | 0.13 |
|
| Quarter ended September 30 | | 32.55 |
| | 41.86 |
| | 0.13 |
|
| Quarter ended December 31 | | 37.88 |
| | 49.90 |
| | 0.13 |
|
Stockholders
As of February 13, 2018,21, 2024, there were approximately 3,0881,533 holders of record of the Company’s common stock. A significant number of the outstanding shares of common stock which are beneficially owned by individuals or entities are registered in the name of a nominee of The Depository Trust Company, a securities depository for banks and brokerage firms. The Company believes that there are approximately 29,596 beneficial owners of its common stock.
Dividends
Payment of future dividends will depend upon the Company’s financial condition, results of operations and other factors deemed relevant by the Company’s Board of Directors, as well as any limitations resulting from financial covenants under the Company’s credit facilities or debt indentures. See the table above for dividend information for 2017 and 2016.
Securities Authorized for Issuance Under Equity Compensation Plans
For information regarding Securities Authorized for Issuance Under Equity Compensation Plans, see Part III, Item 12 of this Annual Report.
Performance Graph
A stock performance graph based on cumulative total returns (price change plus reinvested dividends) for $100 invested in the Company on December 31, 20122018 is set forth below.
|
| | | | | | | | | | | | |
| | | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 |
| BGI | | $100.00 | | $172.90 | | $169.10 | | $163.68 | | $222.26 | | $299.35 |
| S&P 600 | | $100.00 | | $141.29 | | $149.40 | | $146.40 | | $185.09 | | $209.41 |
| Russell 2000 | | $100.00 | | $138.81 | | $145.59 | | $139.18 | | $168.75 | | $193.42 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
| Barnes Group Inc. | | $100.00 | | $116.95 | | $97.09 | | $90.39 | | $80.61 | | $65.56 |
| S&P 600 | | $100.00 | | $122.74 | | $136.53 | | $173.04 | | $145.10 | | $168.23 |
| Russell 2000 | | $100.00 | | $125.49 | | $150.50 | | $172.75 | | $137.40 | | $160.60 |
| S&P Composite 1500 Industrial Machinery | | $100.00 | | $135.90 | | $156.86 | | $190.21 | | $163.22 | | $209.24 |
The performance graph includes the S&P 600 Small Cap Index, and the Russell 2000 Index, bothand the S&P 1500 Industrial Machinery Sub-Industry Index (the "S&P Machinery Index"), all of which include the Company. The S&P Machinery Index includes peer companies which operate within similar industries as Barnes.
| |
(c) | Issuer Purchases of Equity Securities |
|
| | | | | | | | | | | | | |
| Period | | Total Number of Shares (or Units) Purchased | | Average Price Paid Per Share (or Unit) | | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(2) |
| October 1-31, 2017 | | 304 |
| | $ | 70.75 |
| | — |
| | 4,042,006 |
|
| November 1-30, 2017 | | 106,471 |
| | $ | 64.88 |
| | 106,100 |
| | 3,935,906 |
|
| December 1-31, 2017 | | 171,646 |
| | $ | 64.61 |
| | 164,000 |
| | 3,771,906 |
|
| Total | | 278,421 |
| (1) | $ | 64.72 |
| | 270,100 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number
of Shares (or Units)
Purchased | | Average Price
Paid Per Share
(or Unit) | | Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs | | Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(2) |
| October 1-31, 2023 | | 179 | | | $ | 33.25 | | | — | | | 3,404,000 | |
| November 1-30, 2023 | | 1,073 | | | $ | 22.22 | | | — | | | 3,404,000 | |
| December 1-31, 2023 | | 685 | | | $ | 31.68 | | | — | | | 3,404,000 | |
| Total | | 1,937 | | (1) | $ | 26.58 | | | — | | | |
| |
(1) | Other than 270,100 shares purchased in the fourth quarter of 2017, which were purchased as part of the Company's 2011 Program (defined below), all acquisitions of equity securities during the fourth quarter of 2017 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 October 20, 2011 (the "2011 Program") authorizing repurchase of up to 5.0 million shares of common stock. At December 31, 2015, 1.1 million shares of common stock had not been purchased under the 2011 Program. On February 10, 2016, the Board of Directors of the Company increased the number of shares authorized for repurchase under the 2011 Program by 3.9 million shares of common stock (5.0 million authorized, in total). The 2011 Program permits open market purchases, purchases under a Rule 10b5-1 trading plan and privately negotiated transactions. |
(1)All acquisitions of equity securities during the fourth quarter of 2023 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)At March 31, 2019, 1.5 million shares of common stock had not been purchased under the publicly announced Repurchase Program (the “Program” or "Repurchase Program"). On April 25, 2019, the Board of Directors of the Company increased the number of shares authorized for repurchase under the Program by 3.5 million shares of common stock (5.0 million authorized, in total). The Program permits open market purchases, purchases under a Rule 10b5-1 trading plan and privately negotiated transactions.
Item 6. Selected Financial DataReserved
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 (5)(6) | | 2016 (7) | | 2015 (8) | | 2014 | | 2013 (9)(10) |
Per common share (1) | | | | | | | | | |
| Income from continuing operations | | | | | | | | | |
| Basic | $ | 1.10 |
| | $ | 2.50 |
| | $ | 2.21 |
| | $ | 2.20 |
| | $ | 1.34 |
|
| Diluted | 1.09 |
| | 2.48 |
| | 2.19 |
| | 2.16 |
| | 1.31 |
|
| Net income | | | | | | | | | |
| Basic | 1.10 |
| | 2.50 |
| | 2.21 |
| | 2.16 |
| | 5.02 |
|
| Diluted | 1.09 |
| | 2.48 |
| | 2.19 |
| | 2.12 |
| | 4.92 |
|
| Dividends declared and paid | 0.55 |
| | 0.51 |
| | 0.48 |
| | 0.45 |
| | 0.42 |
|
| Stockholders’ equity (at year-end) | 23.61 |
| | 21.72 |
| | 20.94 |
| | 20.40 |
| | 21.17 |
|
| Stock price (at year-end) | 63.27 |
| | 47.42 |
| | 35.39 |
| | 37.01 |
| | 38.31 |
|
For the year (in thousands) | | | | | | | | | |
| Net sales | $ | 1,436,499 |
| | $ | 1,230,754 |
| | $ | 1,193,975 |
| | $ | 1,262,006 |
| | $ | 1,091,566 |
|
| Operating income | 210,278 |
| | 192,178 |
| | 168,396 |
| | 179,974 |
| | 123,201 |
|
| As a percent of net sales | 14.6 | % | | 15.6 | % | | 14.1 | % | | 14.3 | % | | 11.3 | % |
| Income from continuing operations | $ | 59,415 |
| | $ | 135,601 |
| | $ | 121,380 |
| | $ | 120,541 |
| | $ | 72,321 |
|
| As a percent of net sales | 4.1 | % | | 11.0 | % | | 10.2 | % | | 9.6 | % | | 6.6 | % |
| Net income | $ | 59,415 |
| | $ | 135,601 |
| | $ | 121,380 |
| | $ | 118,370 |
| | $ | 270,527 |
|
| As a percent of net sales | 4.1 | % | | 11.0 | % | | 10.2 | % | | 9.4 | % | | 24.8 | % |
As a percent of average stockholders’ equity (2) | 4.7 | % | | 11.6 | % | | 10.7 | % | | 10.3 | % | | 28.3 | % |
| Depreciation and amortization | $ | 90,150 |
| | $ | 80,154 |
| | $ | 78,242 |
| | $ | 81,395 |
| | $ | 65,052 |
|
| Capital expenditures | 58,712 |
| | 47,577 |
| | 45,982 |
| | 57,365 |
| | 57,304 |
|
| Weighted average common shares outstanding – basic | 54,073 |
| | 54,191 |
| | 55,028 |
| | 54,791 |
| | 53,860 |
|
| Weighted average common shares outstanding – diluted | 54,605 |
| | 54,631 |
| | 55,513 |
| | 55,723 |
| | 54,973 |
|
Year-end financial position (in thousands) | | | | | | | | | |
| Working capital | $ | 452,960 |
| | $ | 306,609 |
| | $ | 359,038 |
| | $ | 323,306 |
| | $ | 276,878 |
|
| Goodwill | 690,223 |
| | 633,436 |
| | 587,992 |
| | 594,949 |
| | 649,697 |
|
| Other intangible assets, net | 507,042 |
| | 522,258 |
| | 528,322 |
| | 554,694 |
| | 534,293 |
|
| Property, plant and equipment, net | 359,298 |
| | 334,489 |
| | 308,856 |
| | 299,435 |
| | 302,558 |
|
| Total assets | 2,365,716 |
| | 2,137,539 |
| | 2,061,866 |
| | 2,073,885 |
| | 2,123,673 |
|
| Long-term debt and notes payable | 532,596 |
| | 500,954 |
| | 509,906 |
| | 504,734 |
| | 547,424 |
|
| Stockholders’ equity | 1,260,321 |
| | 1,168,358 |
| | 1,127,753 |
| | 1,111,793 |
| | 1,141,414 |
|
Debt as a percent of total capitalization (3) | 29.7 | % | | 30.0 | % | | 31.1 | % | | 31.2 | % | | 32.4 | % |
| Statistics | | | | | | | | | |
Employees at year-end (4) | 5,375 |
| | 5,036 |
| | 4,735 |
| | 4,515 |
| | 4,331 |
|
| |
(1) | Income from continuing operations and net income per common share are based on the weighted average common shares outstanding during each year. Stockholders’ equity per common share is calculated based on actual common shares outstanding at the end of each year. |
| |
(2) | Average stockholders' equity is calculated based on the month-end stockholders equity balances between December 31, 2016 and December 31, 2017 (13-month average). |
| |
(3) | Debt includes all interest-bearing debt and total capitalization includes interest-bearing debt and stockholders’ equity. |
| |
(4) | The number of employees at each year-end includes employees of continuing operations and excludes prior employees of discontinued operations. |
| |
(5) | During 2017, the Company completed the acquisition of the assets of the Gammaflux business. The results of Gammaflux, from the acquisition on April 3, 2017, have been included within the Company's Consolidated Financial Statements for the period ended December 31, 2017. |
| |
(6) | During 2017, the Company recorded the effects of the U.S. Tax Reform, resulting in tax expense of $96.7 million, or $1.79 per basic share ($1.77 per diluted share). See Note 13 of the Consolidated Financial Statements. |
| |
(7) | During 2016, the Company completed the acquisition of FOBOHA. The results of FOBOHA, from the acquisition on August 31, 2016, have been included within the Company's Consolidated Financial Statements for the period ended December 31, 2016. |
| |
(8) | During 2015, the Company completed the acquisitions of Thermoplay and Priamus. The results of Thermoplay and Priamus, from their acquisitions on August 7, 2015 and October 1, 2015, respectively, have been included within the Company's Consolidated Financial Statements for the period ended December 31, 2015. |
| |
(9) | During 2013, the Company completed the acquisition of the Männer Business. The results of the Männer Business, from the acquisition on October 31, 2013, have been included within the Company's Consolidated Financial Statements for the period ended December 31, 2013. |
| |
(10) | During 2013, the Company sold the BDNA business within the segment formerly referred to as Distribution. The results of the BDNA business, including any (loss) gain on the sale of business, have been reported through discontinued operations during the respective periods. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
YouThe following discussion should be read the following discussion in conjunction with our consolidated financial statements and related notes in this Annual Report on Form 10-K. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause actual results to differ materially from our expectations. Factors that could cause such differences include those described in the section titled “Risk Factors” and elsewhere in this report. We undertake no obligation to update any of the forward-looking statements.
OVERVIEWManagement's Discussion and Analysis of Financial Condition and Results of Operations for 2021 is included in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission and is incorporated by reference, and should be referred to for information regarding this period.
2017 HighlightsOVERVIEW
Barnes GroupThe Company continued its strategy to evaluate its business portfolio, optimize its product offerings and transform its business during 2023. In August 2023, the Company completed its acquisition of MB Aerospace Holdings Inc., a Delaware corporation ("MB Aerospace"), along with such entity's subsidiaries by acquiring all of the issued and outstanding shares of capital stock of MB Aerospace (the "Company""Transaction"). MB Aerospace is a leading provider of precision aero-engine component manufacture and repair services serving major aerospace and defense engine original equipment manufacturers (“OEMs”), tier 1 suppliers and maintenance, repair and overhaul ("MRO") achievedproviders. This business, which is being integrated into our Aerospace segment, provides significant growth opportunities and enhances the Company’s ability to deliver value-add solutions across the aero-engine value chain. Further, the acquisition of MB Aerospace increases customer diversification within both commercial aerospace and defense platforms and provides the Company with a well-balanced portfolio across aerospace and industrial end markets. See Note 2 for a further description of the acquisition of MB Aerospace.
In January 2024, the Company announced that it has entered into a definitive agreement to sell its Associated Spring and Hänggi businesses to One Equity Partners. The transaction is valued at $175.0 million, inclusive of a $15.0 million promissory note due in 24 months. Expected net cash proceeds will be used to reduce debt incurred from the strategic acquisition of MB Aerospace. See Note 23 of the Consolidated Financial Statements for additional disclosure related to the planned divestiture of these businesses.
The Company recognized sales of $1,436.5$1,450.9 million in 2017,2023, an increase of $205.7$189.0 million, or 16.7%15.0%, from 2016. Within Industrial, the acquisitions of FOBOHA in August 2016 and Gammaflux in April 2017 provided incremental sales of $47.2 million and $9.1 million, respectively, during the 2017 period.2022. Organic sales (net sales excluding both foreign currency translation, acquisition and acquisitiondivestiture impacts) increased by $137.1$64.5 million, or 11.1%5.1%, withalmost entirely driven by an increase of $64.4 million, or 15.0%, at Aerospace, whereas Industrial was organically flat versus the prior year period. The year-over-year increase at Aerospace was driven by volume increases within both the Aerospace OEM and the Aerospace Aftermarket businesses, reflecting continued strength in aerospace end markets. The acquisition of 9.8% and 13.8%MB Aerospace on August 31, 2023 provided incremental sales of $114.5 million within the Aerospace segment during the four months ended December 31, 2023. From an Industrial standpoint, year-over-year organic sales were flat, driven by volume decreases that were offset by favorable pricing initiatives. The weakening of the U.S. dollar against foreign currencies increased net sales within the Industrial segment by approximately $10.1 million. Operating income increased 55.8% from $57.1 million in 2022 to $89.0 million in 2023 and operating margin increased from 4.5% in 2022 to 6.1% in 2023, largely a result of favorable pricing initiatives and procurement actions taken by management, and the absence of the prior period goodwill impairment charge of $68.2 million, partially offset by $45.8 million of pre-tax restructuring and transformation related charges, $13.2 million of acquisition and divestiture transaction costs, $19.2 million of short-term purchase accounting adjustments and $8.2 million of increased amortization costs on other acquired long-term intangible assets related to the acquisition of MB Aerospace. Pre-tax charges related to restructuring activities were $20.6 million during the 2022 period. The profit contribution of higher volumes at Aerospace segments, respectively. Saleswas largely offset by the profit impact of lower volumes at Industrial, combined with unfavorable productivity within Aerospace.
Impact of Macroeconomic Trends and Management Actions
In 2023, several macroeconomic trends continued to present challenges across our businesses, including labor and supply chain constraints, rising interest rates and inflationary pressures, resulting in increased labor and raw material costs. Management has taken several actions to mitigate the impacts of these events and circumstances.
Pricing actions were implemented to recover costs, and management has remained focused on cost control and productivity initiatives to mitigate these impacts. Management also continues to focus on driving core business execution through revenue growth, margin expansion, and new business development. More recently, management attention has been directed towards integrating our existing businesses, consolidating operations and facilities where appropriate, and rationalizing operational costs and investments; all with the goal of improving profitability and return on invested capital. Management is leading a systematic multi-phased initiative to significantly reduce costs and integrate the Company's operations, decreasing complexity and focusing on improved performance across Industrial. More specifically, the Company has announced restructuring programs (see Note 8 of the Consolidated Financial Statements) to further reduce costs primarily within the Industrial segment, were impactedin response to the macroeconomic disruption caused by changes in foreign currency which increased sales by approximately $12.4 millionthe aforementioned items. Management also continues to evaluate the ongoing geopolitical risks, such as the U.S. dollar weakened against foreign currencies.Russia-Ukraine war, China-Taiwan relations and Red Sea freight disruptions, for any potential for impacts on the Company's Consolidated Financial Statements.
Operating income increased 9.4% from $192.2 million in 2016 to $210.3 million in 2017 and operating margin decreased from 15.6% in 2016 to 14.6% in 2017. Operating income was impacted by increased leverage of organic sales growth in both segments, partially offset by lower productivity, resulting primarily from increased costs incurred on certain programsHistorically at Industrial.
The Company focused on profitable sales growth both organically and through acquisition, in addition to productivity improvements, as key strategic objectives in 2017. Management continued its focus on cash flow and working capital management in 2017 and generated $203.9 million in cash flow from operations.
Business Transformation
AcquisitionsBarnes, acquisitions and strategic relationships with our customers have been a key growth driver for the Company and we continue to seek alliances which foster long-term business relationships. ThesePast acquisitions have allowed us to extend into new or adjacent markets, expand our geographic reach, and commercialize new products, processes and services. The Company continually evaluates its business portfolio to optimize product offerings and maximize value.value based on growing our "Top Line". We have significantly transformed our business followingwith our entrance into new markets. Recently, the plastic injection molding market.
The Company has completed a number ofpaused Industrial acquisitions in the past few years. In the second quarter of 2017, the Company completed its acquisition of the assets of the privately held Gammaflux L.P. business ("Gammaflux"), a leading supplier of hot runner temperature and sequential valve gate control systems to the plastics industry. Gammaflux, which is headquartered in Sterling, Virginia and has offices in Illinois and Germany, provides temperature control solutions for injection molding, extrusion, blow molding, thermoforming, and other applications. Its end markets include packaging, electronics, automotive, household products, medical, and tool building. The Company acquired the assets of Gammaflux for an aggregate purchase price of $8.9 million, which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes adjustments under the terms of the Asset Purchase Agreement. In connection with the acquisition, the Company recorded $1.5 million of goodwill and $3.7 million of intangible assets. See Notes 2 and 5 to the Consolidated Financial Statements.
In the third quarter of 2016, the Company, through three of its subsidiaries (collectively, the “Purchaser”), completed its acquisition of the molds business of Adval Tech Holding AG and Adval Tech Holdings (Asia) Pte. Ltd. ("FOBOHA"). FOBOHA is headquartered in Haslach, Germany and currently operates out of two manufacturing facilities located in Germany and China. At the time of acquisition, FOBOHA also operated out of a manufacturing facility located in Switzerland; however, this location was consolidated and closed during 2017. See Note 8 to the Consolidated Financial Statements. FOBOHA specializes in the development and manufacture of complex plastic injection molds for packaging, medical, consumer and automotive applications. The Company acquired FOBOHA for an aggregate cash purchase price of CHF 137.9 million ($140.2 million) which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes adjustments under the terms of the FOBOHA Share Purchase Agreement, including approximately CHF 11.3 million ($11.5 million) related to cash acquired. In connection with the acquisition, the Company recorded $39.8 million of intangible assets and $75.6 million of goodwill. See Notes 2 and 5 to the Consolidated Financial Statements.
In the fourth quarter of 2015, the Company, itself and through two of its subsidiaries, completed the acquisition of privately held Priamus System Technologies AG and two of its subsidiaries (collectively, "Priamus") from Growth Finance AG. Priamus is headquartered in Schaffhausen, Switzerland and has direct sales and service offices in the U.S. and Germany. Priamus is a technology leader in the development of advanced process control systems for the plastic injection molding industry and services many of the world's highest quality plastic injection molders in the medical, automotive, consumer goods, electronics and packaging markets. Priamus has been integrated into our Industrial segment. The Company acquired Priamus for an aggregate cash purchase price of CHF 9.9 million ($10.1 million) which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes adjustments under the terms of the Share Purchase Agreement, including CHF 1.6 million ($1.6 million) related to cash acquired. See Note 2 of the Consolidated Financial Statements.
In the third quarter of 2015, the Company, through one of its subsidiaries, completed the acquisition of the Thermoplay business ("Thermoplay") by acquiring all of the capital stock of privately held HPE S.p.A., the parent company through which Thermoplay operates. Thermoplay’s headquarters and manufacturing facility are located in Pont-Saint-Martin in Aosta, Italy, with technical service capabilities in China, India, France, Germany, United Kingdom, Portugal, and Brazil. Thermoplay, which has been integrated into our Industrial segment, specializes in the design, development, and manufacturing of hot runner solutions for plastic injection molding, primarily in the packaging, automotive, and medical end markets. The Company acquired Thermoplay for an aggregate cash purchase price of €58.1 million ($63.7 million), pursuant to the terms of the Sale and Purchase Agreement ("SPA"), which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes adjustments under the terms of the SPA, including €17.1 million ($18.7 million) related to cash acquired. See Note 2 of the Consolidated Financial Statements.
Management Objectives
Managementit is focused on continuingdriving core business execution and integrating, consolidating and rationalizing its portfolio. Consistent with our strategic objective to scale Aerospace, the Company's transformation by executingCompany closed on the largest acquisition in its profitable growth strategy comprisedhistory with the purchase of MB Aerospace in August 2023. Management in this segment is focused on the full integration of the following elements:
Build a world-class Company focused on high margin, high growthcombined businesses
Leverage and leveraging the Barnes Enterprise System ("BES") as a significant competitive advantage
Expand and protect our core intellectual property to deliver differentiated solutions
Effectively allocate capitalcombined entity to drive top quartile total shareholder returns.growth.
The successful execution of this strategy requires making value enhancing investments in organic growth (new products, processes, systems, services, markets and customers) and strategic acquisitions. Management remains focused on a deeper deployment of BES across the Company to advance Commercial Excellence, Operational Excellence and Financial Excellence. In addition, we remain focused on optimizing two key strategic enablers that will strengthen our competitive position:
Cultivate a culture of innovation and build upon intellectual property to drive growth
Enhance our talent management system to recruit, develop and retain an engaged and empowered workforce.
The combined benefits from growth investment and execution of the strategic enablers is expectedthese initiatives collectively work to generate long-termdrive transformational value creation for the Company's shareholders, customers and employees.all Barnes stakeholders.
Our Business
The Company consists of two operating segments: IndustrialAerospace and Aerospace.Industrial.
Key Performance Indicators
Management evaluates the performance of its reportable segments based on the sales, operating profit, operating margins and cash generation of the respective businesses, which includes net sales, cost of sales, selling and administrative expenses and certain components of other income and other expenses, as well as the allocation of corporate overhead expenses.businesses. Each segment has standard key performance indicators (“KPIs”), a number of which are focused on employee safety-related metrics (total recordable incident rate and lost time incident rate), customer metrics (on-time-delivery and quality), internal effectiveness and productivity/efficiency metrics (sales effectiveness, global sourcing, operational excellence, functional excellence, cost of quality, and days working capital), employee safety-related metrics (total recordable incident ratecapital and lost time incident rate),return on invested capital) and specific KPIs on profitable growth.
Key Industry Data
In both segments, management tracks a variety of economic and industry data as indicators of the health and outlook of a particular sector.
At Industrial, key data for the manufacturing operations include the Institute for Supply Management’s manufacturing
PMI Composite Index (and similar indices for European and Asian-based businesses); the Federal Reserve’s Industrial
Production Index ("the IPI"); IHS-Markit worldwide forecasts for light vehicle production, as well as new model introductions and existing model refreshes; North American medium and heavy duty vehicle production; IC Interconnection Consulting Hotrunners Worldwide Report for Auto, Medical, Personal Care and Packaging industries; and global GDP growth forecasts.
At Aerospace, management of the aftermarketAftermarket business monitors the number of aircraft in the active fleet, the number of planesaircraft temporarily or permanently taken out of service, aircraft utilization rates for the major airlines, engine shop visits, airline profitability, aircraft fuel costs and traffic growth.passenger traffic. The Aerospace OEM business regularly tracks orders, backlog and deliveries for each of the major aircraft manufacturers, as well as engine purchases made for new aircraft. Management also monitors annual appropriations for the U.S. militarydefense market related to purchases of new or used aircraft and engine components.
At Industrial, key data for the manufacturing operations include the Institute for Supply Management’s manufacturing PMI Composite Index (and similar indices for European and Asian-based businesses); the Bureau of Economics Industrial Production Index (the IPI); worldwide forecasts for light vehicle production, as well as new model introductions and existing model refreshes; North American heavy duty vehicle production; interconnection consulting hot runner systems worldwide report for auto, medical, personal care and packaging industries; and global GDP growth forecasts.
RESULTS OF OPERATIONS
Sales
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | 2023 | | 2022 | | $ Change | | % Change | | 2021 |
| Industrial | | $ | 842.8 | | | $ | 832.7 | | | $ | 10.1 | | | 1.2 | % | | $ | 896.5 | |
| Aerospace | | 608.1 | | | 429.2 | | | 178.9 | | | 41.7 | % | | 362.4 | |
| | | | | | | | | | |
| Total | | $ | 1,450.9 | | | $ | 1,261.9 | | | $ | 189.0 | | | 15.0 | % | | $ | 1,258.9 | |
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | 2017 | | 2016 | | $ Change | | % Change | | 2015 |
| Industrial | | $ | 973.9 |
| | $ | 824.2 |
| | $ | 149.7 |
| | 18.2 | % | | $ | 782.3 |
|
| Aerospace | | 462.6 |
| | 406.5 |
| | 56.1 |
| | 13.8 | % | | 411.7 |
|
| Total | | $ | 1,436.5 |
| | $ | 1,230.8 |
| | $ | 205.7 |
| | 16.7 | % | | $ | 1,194.0 |
|
2017 vs. 2016:
The Company reported net sales of $1,436.5$1,450.9 million in 2017,2023, an increase of $205.7$189.0 million, or 16.7%15.0%, from 2016. Acquired2022. Organic sales increased by $64.5 million, almost entirely driven by an increase of $64.4 million at Aerospace, whereas Industrial was organically flat versus the prior year period. The year-over-year increase at Aerospace was driven by volume increases within both the Aerospace OEM and the Aerospace Aftermarket businesses, contributedreflecting continued strength in aerospace end markets. The acquisition of MB Aerospace on August 31, 2023 provided incremental sales of $56.3$114.5 million within the Aerospace segment during the 2017 period. Organicfour months ended December 31, 2023. From an Industrial standpoint, year-over-year organic sales were essentially flat, with year-over-year volume decreases, primarily within Industrial increased by $81.0 million, or 9.8% during 2017, driven primarily by continued strength in our Nitrogen Gas Productsthe Motion Control Solutions and Molding Solutions business units. Aerospace recorded sales of $462.6 million in 2017, a $56.1 million, or 13.8% increase from 2016 as newer, more technologically advanced engine platforms increasedbusinesses, being offset by favorable pricing initiatives. Lower volumes at the original equipment manufacturing business within Aerospace. Sales within the aftermarket businesses also improved throughout 2017.Motion Control Solutions business were driven by softness in the tool and die market, partially offset by favorability within the general industrial market. The impactweakening of foreign currency translation increased sales within Industrial by approximately $12.4 million as the U.S. dollar weakened against foreign currencies. Salescurrencies increased net sales within Aerospace were not impactedthe Industrial segment by changes in foreign currency as these are largely denominated in U.S. dollars. The Company’s internationalapproximately $10.1 million. International sales increased 19.8%by 9.0% year-over-year while domestic sales increased 13.0%, largely a result of Aerospace sales being primarily U.S. based.by 4.8%. Excluding the impact of foreign currency translation on sales, however, the Company's international sales in 20172023 increased 18.0%by 8.2%, inclusive of sales through acquisition, from 2016.2022.
2016 vs. 2015:
The Company reported net sales of $1,230.8 million in 2016, an increase of $36.8 million, or 3.1%, from 2015. Acquired businesses contributed incremental sales of $47.4 million during the 2016 period. Organic sales within Industrial increased by $4.1 million, or 0.5%, during 2016, primarily due to strength in our Molding Solutions businesses, slightly offset by continued softness in North American general industrial end-markets. Aerospace recorded sales of $406.5 million in 2016, a $5.2 million, or 1.3% decrease from 2015. Lower sales within the OEM and spare parts businesses were partially offset by increased sales within the MRO business. The impact of foreign currency translation decreased sales within Industrial by approximately $9.6 million as the U.S. dollar strengthened against foreign currencies. Sales within Aerospace were not impacted by changes in foreign currency as these are largely denominated in U.S. dollars. The Company’s international sales increased 10.4% year-over-year, while domestic sales decreased 4.7%, largely a result of Aerospace sales being primarily U.S.-based. Excluding the impact of foreign currency translation on sales, however, the Company's international sales in 2016 increased 12.0%, inclusive of sales through acquisition, from 2015.
Expenses and Operating Income
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | 2023 | | 2022 | | $ Change | | % Change | | 2021 |
| Cost of sales | | $ | 1,008.8 | | | $ | 840.0 | | | $ | 168.8 | | | 20.1 | % | | $ | 803.9 | |
| % sales | | 69.5 | % | | 66.6 | % | | | | | | 63.9 | % |
Gross profit (1) | | $ | 442.1 | | | $ | 421.9 | | | $ | 20.2 | | | 4.8 | % | | $ | 455.0 | |
| % sales | | 30.5 | % | | 33.4 | % | | | | | | 36.1 | % |
| Selling and administrative expenses | | $ | 353.1 | | | $ | 296.6 | | | $ | 56.5 | | | 19.1 | % | | $ | 305.0 | |
| % sales | | 24.3 | % | | 23.5 | % | | | | | | 24.2 | % |
| Goodwill impairment charge | | $ | — | | | $ | 68.2 | | | $ | (68.2) | | | NM | | $ | — | |
| % sales | | — | % | | 5.4 | % | | | | | | — | % |
| Operating income | | $ | 89.0 | | | $ | 57.1 | | | $ | 31.9 | | | 55.9 | % | | $ | 150.0 | |
| % sales | | 6.1 | % | | 4.5 | % | | | | | | 11.9 | % |
NM - Not meaningful |
| | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | 2017 | | 2016 | | $ Change | | % Change | | 2015 |
| Cost of sales | | $ | 939.3 |
| | $ | 790.3 |
| | $ | 149.0 |
| | 18.9 | % | | $ | 782.8 |
|
| % sales | | 65.4 | % | | 64.2 | % | | | | | | 65.6 | % |
Gross profit (1) | | $ | 497.2 |
| | $ | 440.5 |
| | $ | 56.8 |
| | 12.9 | % | | $ | 411.2 |
|
| % sales | | 34.6 | % | | 35.8 | % | | | | | | 34.4 | % |
| Selling and administrative expenses | | $ | 286.9 |
| | $ | 248.3 |
| | $ | 38.7 |
| | 15.6 | % | | $ | 242.8 |
|
| % sales | | 20.0 | % | | 20.2 | % | | | | | | 20.3 | % |
| Operating income | | $ | 210.3 |
| | $ | 192.2 |
| | $ | 18.1 |
| | 9.4 | % | | $ | 168.4 |
|
| % sales | | 14.6 | % | | 15.6 | % | | | | | | 14.1 | % |
| |
(1) | Sales less cost of sales |
2017 vs. 2016:(1)Sales less cost of sales
Cost of sales in 20172023 increased 18.9%20.1% from 2016, while2022 and gross profit margin decreased from 35.8%33.4% in 2016the 2022 period to 34.6%30.5% in 2017.the 2023 period. Gross margins improveddeclined at Aerospace and declinedremained flat at Industrial. Within Aerospace, higher volumes within the OEM business, in particular, contributed to an increase in gross profit during 2023. Gross profit improved within both segments, driven primarily by organic growth within eachmargin decreased at Aerospace, however, given the unfavorable product mix between the OEM business and Aftermarket businesses, combined with unfavorable productivity. In addition, $8.3 million of inventory step-up short-term purchase accounting adjustments related to the business units. Atacquisition of MB Aerospace impacted gross profit margins. Within Industrial, gross margins decreased during 2017profit remained flat primarily as a result of lower productivity, primarily a resultsales volume within each of additional costs incurred on certain programs at Engineered Components. Incremental costs include expedited freight, increased scrap and coststhe businesses, offset by pricing actions taken by the businesses. As well, $13.4 million of pre-tax charges related to restructuring and transformation related actions (aggregate of $45.8 million, including selling and administrative costs) impacted gross profit across both segments. Pre-tax charges impacting gross profit related to restructuring and workforce reduction actions during 2022 were $3.0 million (aggregate of $20.6 million). Selling and administrative expenses in 2023 increased 19.1% from the transfer2022 period. Sales, however, also increased by 15.0% between the 2023 and 2022 periods. As a percentage of worksales, selling and administrative costs increased from 23.5% in 2022 to other facilities. A lower margin contribution on acquisition24.3% in the 2023 period. The increase in selling and administrative costs as a percentage of sales also had an impact on the overall lower gross margins at Industrial. Gross profit at Industrial increased, however,was primarily driven by the profit impact$12.2 million of organic growth within our Molding Solutions and Nitrogen Gas Products business units, and a pre-tax net benefitacquisition transaction costs, $1.2 million of $0.3divestiture transaction costs, $4.3 million resulting from the second quarter 2017 restructuring actions taken within Industrial, partially offset by the additionalof due diligence costs, at Engineered Components discussed above. Gross profits during both the 2017 and 2016 periods were negatively impacted by $2.3$10.9 million of short-term purchase accounting adjustments related to the acquisition of FOBOHA. WithinMB Aerospace improvement in gross profit relates primarilyand $32.4 million of restructuring and
transformation related charges (aggregate of $45.8 million). Pre-tax charges impacting selling and administrative costs related to organic growth within eachrestructuring and workforce reduction actions during the 2022 period were $17.6 million (aggregate of the businesses, combined with favorable productivity, partially offset by scheduled price deflation and the absence$20.6 million). A goodwill impairment charge of the $1.4$68.2 million gain related to the contract termination arbitration awardAutomation reporting unit impacted operating results during 2022. Excluding the goodwill impairment charge, operating profit and operating margin during the 2022 period were $125.3 million and 9.9%, respectively.
Interest expense
Interest expense in 2016. Increased volumes in the maintenance repair and overhaul and spare parts businesses, in particular, contributed2023 increased $43.5 million to $58.2 million from 2022, primarily a result of bridge loan financing fees of $9.5 million related to the gross margin improvement during 2017. SellingMB Aerospace acquisition (see Notes 2 and administrative expenses in 2017 increased 15.6% from the 2016 period, due primarily8 to corresponding increases in sales volumes, incentive compensation, the amortization of intangible assetsConsolidated Financial Statements), higher average borrowings, also largely related to the acquisition of FOBOHAMB Aerospace, and a pre-tax charge of $0.3 million resulting from the second quarter 2017 restructuring actions taken within Industrial, partially offset by the absence of $3.0 million of costs related to a customer termination dispute and a $1.2 million reduction in transaction costs related to the acquisition of FOBOHA in 2016. As a percentage of sales, selling and administrative costs slightly decreased from 20.2% in the 2016 period to 20.0% in the 2017 period. Operating income in 2017 increased 9.4% to $210.3 million from the 2016 period and operating income margin decreased from 15.6% to 14.6%.
2016 vs. 2015:
Cost of sales in 2016 increased 1.0% from 2015, while gross profit margin increased from 34.4% in 2015 to 35.8% in 2016. Gross margins improved at Industrial and decreased at Aerospace. Gross margin during the comparable 2015 period included a charge of $6.4 million related to a lump-sum pension settlement charge (see Note 11 of the Consolidated Financial Statements). At Industrial, gross profit increased during 2016 primarily as a result of favorable productivity and strength within the Molding Solutions businesses. Gross profit during 2016 was negatively impacted by $2.3 million of short-term purchase accounting adjustments related to the acquisition of FOBOHA, whereas the 2015 period included $0.9 million of short-term purchase accounting adjustments related to the acquisition of the Männer business and $0.9 million of short-term purchase accounting adjustments related to the acquisition of Thermoplay. Within Aerospace, a decline in gross profit relates primarily to lower sales volumes and unfavorable productivity. Selling and administrative expenses in 2016 increased 2.3% from the 2015 period, due in part to $3.0 million of costs related to the contract termination dispute within the Aerospace segment and the incremental operations of the acquired businesses, partially offset by an $0.8 million reduction in short-term purchase accounting adjustments related to acquisitions. During the 2015 period, selling and administrative expenses included $4.2 million of charges related to workforce reductions and severance, and $3.5 million of lump-sum pension settlement charges. Short-term purchase accounting adjustments that impact selling and administrative expenses during 2015 included $0.6 million and $0.3 million related to the acquisitions of Männer and Thermoplay, respectively. As a percentage of sales, selling and administrative costs decreased slightly from 20.3% in the 2015 period to 20.2% in the 2016 period. Operating income in the 2016 period increased 14.1% to $192.2 million from 2015 and operating income margin increased from 14.1% to 15.6%.
Interest expense
2017 vs. 2016:
Interest expense in 2017 increased $2.7 million to $14.6 million from 2016, primarily as a result of higher average interest rates.rates during the respective periods, given the debt restructure capitalization to support the acquisition.
2016 vs. 2015:
Interest expense in 2016 increased $1.2 million to $11.9 million from 2015, primarily as a result of higher average interest rates.
Other expense (income), net
2017 vs. 2016:
Other expense (income), net in 20172023 was $0.0$(2.4) million compared to $(2.3)$4.3 million in 2016. Foreign currency gains of $0.8 million in the 2017 period compared with gains of $1.9 million in the 2016 period. Interest income of $0.8 million in 2017 compared with interest income of $2.3 million during 2016, with the decrease being primarily attributed to the $1.4 million of interest income that resulted from the Triumph arbitration in 2016. See "Part I - Legal Proceedings".
2016 vs. 2015:
2022. Other expense (income), net during the 2023 and 2022 periods includes other components of pension expense of $(9.0) million and $0.1 million, respectively. The decrease in 2016 was $(2.3)pension relates primarily to a current period increase in discount rates, which reduced the amortization of recognized losses within Other Comprehensive Income (see Note 12 to Consolidated Financial Statements). Other expense (income), net also includes foreign currency losses of $5.3 million compared to $(0.2) million in 2015. Foreign currency gains of $1.9 million in the 2016 period compared with gains ofand $0.5 million in the 2015 period. Interest income of $2.3 million in 2016 compared with interest income of $1.0 million during 2015, with the increase being primarily attributed to the $1.4 million of interest income resulting from the Triumph arbitration award. See "Part I - Legal Proceedings".2023 and 2022 periods, respectively.
Income Taxes
U.S. Tax Reform
On December 22, 2017 the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”). The Act makes broad and complex changes to the U.S. Tax Code that affect 2017 and include, but are not limited to, requiring a one-time Transition Tax on certain unrepatriated earnings of foreign subsidiaries of the Company, which is payable over eight years, and exempting foreign dividends paid to the U.S. during the year from taxation if such earnings are included within the Transition Tax.
The Act also establishes new law that will affect 2018 and beyond and includes, but is not limited to, (1) a reduction of the U.S. Corporate income tax rate from 35% to 21%; (2) general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (3) a new limitation on the deduction of interest expense; (4) repeal of the domestic production activity deduction; (5) additional limitations on deduction of compensation for certain executives; (6) a new provision designed to tax global intangible low-taxed income (“GILTI”) which allows for the possibility of utilizing foreign tax credits (“FTCs”) and a deduction up to 50% to offset the income tax liability (subject to certain limitations); (7) the introduction of the base erosion anti-abuse tax which represents a new minimum tax; (8) limitations on utilization of FTCs to reduce U.S. income tax liability; and (9) limitations on net operating losses (“NOLS”) generated after December 31, 2017 to 80% of taxable income.
The SEC issued Staff Accounting Bulletin 118 ("SAB 118") in January 2018, which provides guidance on accounting for the tax effects of the Act. SAB 118 provides a measurement period in which to finalize the accounting under Accounting Standards Codification 740, Income Taxes ("ASC 740"). This measurement period should not extend beyond one year from the Act enactment date. In accordance with SAB 118, we are required to reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that our accounting for certain income tax effects of the Act is incomplete but we are capable of reasonably estimating the effects, we must record a provisional amount in the Consolidated Financial Statements based on this estimate. To the extent we could not reasonably estimate the provisional impacts of the Act, we are required to apply ASC 740 on the basis of tax law in place immediately prior to the enactment of the Act.
As part of our analysis of the impact of the Act, we have recorded discrete tax expense of $99.2 million in the three-month period ended December 31, 2017. This amount primarily consists of net expense related to the deemed repatriation Transition Tax of $86.7 million, combined with the impacts of reduced corporate income tax rates on our deferred tax assets of $4.2 million, state taxation on the earnings reported under the Transition Tax of $1.4 million and foreign income and withholding taxes of $6.9 million related to the repatriation of certain foreign earnings. For reasons discussed further below, we have not completed our accounting for the income tax effects for certain sections of the Act. The amounts recorded are therefore provisional as we were capable of reasonably estimating the effects of certain sections of the Act. The provisional adjustments are as follows:
Deemed Repatriation Transition Tax: The Act taxes certain unrepatriated earnings and profits (“E&P”) of our foreign subsidiaries. In order to calculate the Transition Tax we must determine, along with other information, the amount of our accumulated post 1986 E&P for our foreign subsidiaries, as well as the non-U.S. income tax paid by those subsidiaries on such E&P. We are capable of reasonably estimating the Transition Tax and recorded a provisional Transition Tax liability of $86.7 million. However, we continue to gather additional information which may adjust the computed Transition Tax. Further, certain provisions of the Act are ambiguous as to the details of the computation of the Transition tax requiring us to await further guidance from the U.S. Treasury Department and the Internal Revenue Service.
Reduction of U.S. Federal Corporate tax rate: The Act reduced the U.S. Corporate income tax rate from 35% to 21%, effective January 1, 2018. Our U.S. companies remain in a net deferred tax asset position, and, as a result of the Corporate rate reduction, we have reduced our deferred tax assets by $4.2 million, with a corresponding adjustment to net deferred tax expense for the year ended December 31, 2017. While we were able to make a reasonable estimate on the impact of the reduction in the Corporate income tax rate, it may be affected by other analysis related to the Act, such as the calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary difference.
State Taxation of unrepatriated earnings and profits: As a result of the Transition Tax, the Company will record income as if the earnings had been repatriated. This income may be subject to additional taxation at the state level. We were able to reasonably estimate the state taxation of these earnings and recorded a provisional expense of $1.4 million. While we were able to reasonably estimate the impact of state taxation on the deemed repatriation of deferred foreign income, it may be affected by changes of the computation resulting from the gathering of additional information as well as future guidance provided by the state tax authorities.
Indefinite Reinvestment Assertion: Under accounting standards (ASC 740) a deferred tax liability is not recorded for the excess of the tax basis over the financial reporting (book) basis of an investment in a foreign subsidiary if the indefinite reinvestment criteria is met. On December 31, 2017, the Company’s unremitted foreign earnings were $1,228.2 million. Pursuant to SAB 118, if an entity has completed all or portions of its assessment and has made a decision to repatriate and has the ability to reasonably estimate the effects of that assessment, that entity should record a provisional expense and disclose the status of its efforts. The Company is continuing to evaluate its indefinite reinvestment assertion, but expects to repatriate certain earnings that would be subject to withholding and foreign income tax. For amounts currently expected to be repatriated, the Company recorded a provisional expense of $6.9 million. These amounts are provisional in nature given the uncertainty related to the taxation of the distributions under the Act and the finalization of the Company’s analysis on its indefinite reinvestment assertion.
Valuation Allowances: The Company must assess whether its valuation allowance analysis is affected by various components of the Act, including the deemed mandatory repatriation of foreign income for the Transition Tax, future GILTI inclusions and changes to the NOL and FTC rules. Since, as discussed within this section, the Company has recorded provisional amounts related to certain portions of the Act, any corresponding determination of the need for or change in a valuation allowance would also be provisional.
The Act created a new requirement, effective for 2018, that certain income (i.e. GILTI) earned by Controlled Foreign Corporations (“CFCs”) must be included currently in the gross income of the Company. GILTI represents the excess of the shareholders “net CFC tested income” over the net deemed tangible income return which is defined in the Act as the excess of (1) 10 percent of the aggregate of the U.S. shareholders' pro rata share of the qualified business assets of each CFC over (2) the amount of certain interest expense taken into account in the determination of the net CFC tested income.
Given the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Act and the application of ASC 740. Under U.S. GAAP, we are allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred (the “period cost
method”) or (2) factoring such amounts into our measurement of its deferred taxes (the “deferred method’). Our selection of an accounting method with respect to the new GILTI provisions will depend on our analysis of our global income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact of those inclusions will be. The determination of potential future U.S. inclusions in taxable income related to GILTI depends on our current structure and estimated future results of our foreign subsidiaries, as well as our intent and ability to modify our structure. Due to this uncertainty, we are unable to currently estimate the effect of the GILTI provisions within the Act and its impact on our future financial statements. Therefore, we have not made any adjustments related to potential GILTI tax in our financial statements and have not made a policy decision regarding whether to record deferred taxes on GILTI.
2017 vs. 2016:
The Company’sCompany's effective tax rate was 69.6%51.9% in 20172023, compared with 25.7%64.7% in 2016.2022. The increase in the 2017 effective tax rate is primarily due to taxes recorded as a result of U.S. Tax Reform. Excluding the impact of $99.2 million of discrete tax expense related to the Act, partially offset by a benefit of $2.5 million on the current year repatriation, the effective tax rate would have been 20.2% in 2017. The comparable decrease in the effective tax rate excludingin 2023 was primarily driven by the impactsabsence of the Act, are primarily duegoodwill impairment charge of $68.2 million, incurred in the second quarter of 2022, which is not tax deductible for book purposes. Excluding the goodwill impairment charge, the effective tax rate for 2022 would have been 23.2%. Additional drivers causing an increase in the effective tax rate in 2023, compared to the adjustmenteffective tax rate in 2022 (excluding the goodwill impairment charge), include the establishment of the Swissa valuation reserves, the settlementallowance for disallowance of tax audits and closureinterest expense under Section 163(j) as a result of tax years for various tax jurisdictions and the changeincreased interest expense incurred in the mix ofMB Aerospace transaction, non-deductible transaction costs incurred on the MB Aerospace transaction, and an unfavorable earnings attributable to higher-taxing jurisdictions,mix. This increase is partially offset by the expirationbenefit of tax holidays in certain jurisdictions with significant earnings and the absence of a charge for disallowed expenses for covered employee’s compensation incurred in 2022.
The Aerospace and Industrial segments have a number of multi-year tax holidays. During 2017,holidays in China, Malaysia and Singapore. The tax benefits of the holidays were approximately $15.2 million, $11.5 million and $3.2 million for the years end 2023, 2022 and 2021, respectively. The China holiday was granted in 2021 and provides for a corporate income tax of 15% for the approved businesses. The holiday runs for a three year period which ended December 31, 2023. It is anticipated that the company will re-apply for the holiday in 2024. Aerospace was granted an income tax holiday for operations recently established in Malaysia. This holiday commenced effective November 2020 (retroactively) and remains effective for a period of ten years. The Aerospace business was granted additional tax holidays in Singapore under the Pioneer program in the fourth quarter of 2022. This holiday provides reduced tax rates for certain Aerospace programs manufactured at the Singapore location and will run through December 2025. All of the holidays are subject to the Company repatriatedmeeting certain commitments in the respective jurisdictions.
In October 2021, the Organisation for Economic Co-operation and Development ("OECD") announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a dividend from a portionminimum rate of 15%. Subsequently multiple sets of administrative guidance have been issued. Many non-US tax jurisdictions have either recently enacted legislation to adopt certain components of the current year foreign earningsPillar Two Model Rules beginning in 2024 with the adoption of additional components in later years or announced their plans to enact legislation in future years. We are continuing to evaluate the U.S.impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the amount of $7.3 million, compared to $8.3 million in 2016. Pursuant to the Act, this current year dividend is not taxable in the U.S.non-US tax jurisdictions we operate in.
In 2018,2024, the Company expects the effective tax rate to be between 25% and 26%approximate 46%, an increaseinclusive of the impacts resulting from the 20.2%planned divestiture of our Associated Spring™ and Hänggi™ businesses, a decrease from the rate of 52% in 2017, primarily2023. The decrease is mainly due to the absence of the current year excess tax benefit on stock awards, the settlements of tax audits and the adjustment of the Swiss valuation reserves, combined with the expiration of certain foreign tax holidays,a favorable projected earnings mix in 2024, partially offset by the reductionimpacts of the U.S. tax rate. As discussed above, we are currently evaluating the potential impactplanned divestiture.
2016 vs. 2015:
The Company’s effective tax rate from continuing operations was 25.7% in 2016 compared with 23.2% in 2015. The increase in the 2016 effective tax rate from continuing operations is primarily due to the expiration of certain tax holidays, the absence of the 2015 refund of withholding taxes and the change in the mix of earnings attributable to higher-taxing jurisdictions, partially offset by lower repatriation of a portion of current year foreign earnings to the U.S and the excess tax benefit on stock awards, reflecting the amended guidance related to share-based payments made to employees. See Note 12 of the Consolidated Financial Statements. During 2016, the Company repatriated a dividend from a portion of the current year foreign earnings to the U.S. in the amount of $8.3 million compared to $19.5 million in 2015. The decrease in the dividend decreased tax expense by $3.9 million and decreased the annual effective tax rate by 2.2 percentage points compared to 2015.
See Note 1314 of the Consolidated Financial Statements for a reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate.
Income and Income Per Share
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions, except per share) | | 2023 | | 2022 | | Change | | % Change | | 2021 |
| Net income | | $ | 16.0 | | | $ | 13.5 | | | $ | 2.5 | | | 18.7 | % | | $ | 99.9 | |
| Net income per common share: | | | | | | | | | | |
| Basic | | $ | 0.31 | | | $ | 0.26 | | | $ | 0.05 | | | 19.2 | % | | $ | 1.96 | |
| Diluted | | $ | 0.31 | | | $ | 0.26 | | | $ | 0.05 | | | 19.2 | % | | $ | 1.96 | |
| Weighted average common shares outstanding: | | | | | | | | | | |
| Basic | | 51.1 | | | 51.0 | | | 0.1 | | | 0.2 | % | | 50.9 | |
| Diluted | | 51.2 | | | 51.1 | | | 0.1 | | | 0.2 | % | | 51.1 | |
|
| | | | | | | | | | | | | | | | | | | |
| (in millions, except per share) | | 2017 | | 2016 | | Change | | % Change | | 2015 |
| Net income | | $ | 59.4 |
| | $ | 135.6 |
| | $ | (76.2 | ) | | (56.2 | )% | | $ | 121.4 |
|
| Net income per common share: | | | | | | | | | | |
| Basic | | $ | 1.10 |
| | $ | 2.50 |
| | $ | (1.40 | ) | | (56.0 | )% | | $ | 2.21 |
|
| Diluted | | $ | 1.09 |
| | $ | 2.48 |
| | $ | (1.39 | ) | | (56.0 | )% | | $ | 2.19 |
|
| Weighted average common shares outstanding: | | | | | | | | | | |
| Basic | | 54.1 |
| | 54.2 |
| | (0.1 | ) | | (0.2 | )% | | 55.0 |
|
| Diluted | | 54.6 |
| | 54.6 |
| | — |
| | — | % | | 55.5 |
|
Basic and diluted net income per common share decreasedincreased for 20172023 as compared to 2016, consistent with2022 due to the changeincrease in net income year over year. Basic weighted average common shares outstanding decreased slightly whileand diluted weighted average common shares outstanding increased only slightly due to the issuance of additional shares through the Company's stockholder-approved equity compensation plans. During 2022, 200,000 shares were flat. Share repurchases of 550,994 and 677,100 shares during 2016 and 2017, respectively,purchased as part of the Company's repurchase programpublicly announced Repurchase Program (as defined herein). No shares were largely offsetpurchased by the issuance of shares for employee stock plans.Company under this Program during 2023.
Financial Performance by Business Segment
Aerospace
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | 2023 | | 2022 | | $ Change | | % Change | | 2021 |
| Sales | | $ | 608.1 | | | $ | 429.2 | | | $ | 178.9 | | | 41.7 | % | | $ | 362.4 | |
| Operating profit | | 53.0 | | | 76.2 | | | (23.2) | | | (30.5) | % | | 52.3 | |
| Operating margin | | 8.7 | % | | 17.7 | % | | | | | | 14.4 | % |
Aerospace recorded sales of $608.1 million in 2023, a 41.7% increase from 2022. The year-over-year increase at Aerospace was driven by volume increases within both the Aerospace OEM and the Aerospace Aftermarket businesses, reflecting continued strength in aerospace end markets. The acquisition of MB Aerospace on August 31, 2023 provided incremental sales of $114.5 million during the four months ended December 31, 2023. Excluding MB Aerospace, organic Aerospace sales increased 15.5% and 14.3% within the OEM and Aftermarket businesses, respectively, relative to the 2022 period. The year-over-year increase in organic OEM sales was driven primarily by continued growth within narrow-body airframe production, although wide-body airframe production began to improve during the second half of 2023. Organic sales within the Aftermarket MRO improved during 2023 relative to the comparable period as airline traffic and aircraft utilization have continued to ramp. Sales within the segment are largely denominated in U.S. dollars and therefore were not significantly impacted by changes in foreign currency.
Operating profit at Aerospace decreased 30.5% from 2022 to $53.0 million, largely a result of transaction costs related to the August 2023 acquisition of MB Aerospace. More specifically, operating results were impacted by $19.2 million of short-term purchase accounting adjustments (amortization of customer backlog and inventory step-up), $12.2 million of acquisition transaction costs, $1.6 million of due diligence costs allocated to the segment, $8.2 million of increased amortization costs for other acquired long-term intangible assets and $7.6 million of restructuring and transformation related charges, all related to the acquisition of MB Aerospace. Unfavorable productivity and mix given the volume growth within the OEM business also impacted operating results during 2023. The above items were partially offset by the contribution of higher organic sales volumes, inclusive of pricing, and the profit contribution of MB Aerospace sales. Operating margin decreased from 17.7% in the 2022 period to 8.7% in the 2023 period, primarily a result of the impacts of the items discussed above.
Outlook:
Sales in the Aerospace OEM business are based on the general state of the aerospace market driven by the global economy and are supported by its order backlog through participation in certain strategic commercial and defense-related engine and airframe programs. As noted earlier, the Company completed its acquisition of MB Aerospace during the third quarter of 2023. MB Aerospace represents a strategic fit for Barnes Aerospace, with highly complementary programs, global operations, technical capabilities, and product and service offerings. OEM sales grew in 2023 relative to the comparable 2022 period, as customer aircraft production schedules continue to ramp. The Company expects that the OEM business will see continued strength in demand for its manufactured components as narrow body airframe production remains strong, and wide body airframe production improves. Aerospace management continues to work with customers to evaluate engine and airframe build schedules, giving management the ability to react timely to such changes. Management is working closely with suppliers to align raw material schedules with production requirements.
Management also remains focused on labor and supply chain constraints that continue to impact the business, executing long-term agreements, and expanding our share of production on key programs. Backlog at OEM, including that of the acquired MB Aerospace business, was $1,233.6 million at December 31, 2023, an increase of 64.5% since December 31, 2022, at which time backlog was $750.1 million. Approximately 50% of OEM backlog is expected to be recognized over the next 12 months. The Aerospace OEM business may also be impacted by changes in the content levels on certain platforms, changes in customer sourcing decisions, adjustments to customer inventory levels, labor and commodity availability (including the availability of commodities such as titanium sourced in Russia) and pricing, vendor sourcing capacity and the use of alternate materials. Additional impacts may include the redesign of parts, quantity of parts per engine, cost schedules agreed to under contract with the engine and airframe manufacturers, as well as the pursuit and duration of new programs. Fluctuations in fuel costs, interest rates, and potential changes in regulatory requirements could impact airlines' decisions on maintaining, deferring or canceling new aircraft purchases, in part based on the value associated with new fuel-efficient technologies and targets established by airlines to reduce greenhouse gas emissions.
The Aerospace Aftermarket business continues to demonstrate strong performance as airline traffic and aircraft utilization trends remain healthy. Domestic and international passenger traffic have improved with growth forecasted throughout 2024. Freight-related air traffic remains solid. Sales in the Aerospace Aftermarket business may continue to be impacted by inventory management and changes in customer sourcing, deferred or limited maintenance activity during engine shop visits and the use of surplus (used) material during the engine repair and overhaul process. Management believes that the Aerospace Aftermarket business continues to be competitively positioned based on well-established long-term customer relationships, including maintenance and repair contracts in the MRO business and long-term Revenue Sharing Programs ("RSPs") and Component Repair Programs ("CRPs"). The MRO business may also be impacted by airlines electing to closely manage their aftermarket costs as engine performance and quality improves. Fluctuations in fuel costs, interest rates and potential changes in regulatory requirements and their corresponding impacts on airline profitability and behaviors within the aerospace industry could also impact levels and frequency of aircraft maintenance and overhaul activities, and airlines' decisions on maintaining, deferring or canceling new aircraft purchases, in part based on the economics associated with new fuel-efficient technologies. Challenges experienced by aircraft OEMs to increase the delivery of new aircraft may serve to benefit our aftermarket business as older aircraft fill the need, especially as it relates to narrow-body platforms.
The Company remains focused on proactive cost management and improved productivity to mitigate continued pressure on operating profit. The segment continued to take restructuring actions throughout the year. In September 2023, the Company authorized additional restructuring actions related to the MB Aerospace acquisition. These actions include organizational realignments including elimination of certain roles. Aerospace will continue to explore additional productivity opportunities, including working closely with vendors and customers as it relates to the timing of deliveries and pricing initiatives. Also, management seeks additional opportunities to leverage cost and facility synergies from the integration of our legacy Aerospace business with MB Aerospace. Management also remains focused on growth through strategic investments, acquisitions and new product and process introductions. Driving productivity continues as a key initiative. Operating profit may be impacted by changes in sales volume, mix and pricing, particularly as they relate to the higher profit Aftermarket RSP spare parts business, and investments made in each of its businesses. Operating profits may also be impacted by potential changes in tariffs, trade agreements and trade policies that may affect the cost and/or availability of goods and labor constraints. Costs associated with new product and process introductions, the physical transfer of work to other global regions, additional productivity initiatives and restructuring activities to drive improved operating profit in the longer term, while potentially negatively impacting operating profit in the short-term.
Industrial
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | 2023 | | 2022 | | $ Change | | % Change | | 2021 |
| Sales | | $ | 842.8 | | | $ | 832.7 | | | $ | 10.1 | | | 1.2 | % | | $ | 896.5 | |
| Operating profit | | 36.0 | | | (19.1) | | | 55.1 | | | NM | | 97.7 | |
| Operating margin | | 4.3 | % | | (2.3) | % | | | | | | 10.9 | % |
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | 2017 | | 2016 | | $ Change | | % Change | | 2015 |
| Sales | | $ | 973.9 |
| | $ | 824.2 |
| | $ | 149.7 |
| | 18.2 | % | | $ | 782.3 |
|
| Operating profit | | 127.1 |
| | 129.7 |
| | (2.6 | ) | | (2.0 | )% | | 103.0 |
|
| Operating margin | | 13.0 | % | | 15.7 | % | | | | | | 13.2 | % |
2017 vs. 2016:
Sales at Industrial were $973.9$842.8 million in 2017,2023, an increase of $149.7$10.1 million, or 18.2%1.2%, from 2016. Acquired businesses contributed incremental sales of $56.3 million during the 2017 period.2022. Organic sales increased by $81.0 million, or 9.8%, during 2017, drivenwere essentially flat as compared with the prior period, with year-over-year volume decreases, primarily by continued strength in our Nitrogen Gas Productswithin the Motion Control Solutions and Molding Solutions business units. A continuation ofbusinesses, being offset by favorable demand trends in ourpricing initiatives. Lower volumes were driven by softness within the tool and die transportationmarket, partially offset by favorability within the general industrial and other industrial end-markets have largely contributed topackaging end markets. Softness within China also impacted volumes within the organic growth within these business units.second half of 2023. The impact of foreign currency translation increased sales by approximately $12.4$10.1 million as the U.S. dollar weakened against foreign currencies.
Operating profit in 20172023 at Industrial was $127.1of $36.0 million, a decreaseas compared with an operating loss of 2.0% from 2016. The decrease was driven by lower productivity, primarily$19.1 million in 2022, driven by the increased costs incurred on certain programs within Engineered Components. Incremental costs include expedited freight, increased scrapabsence of the $68.2 million goodwill impairment charge and costsfavorable pricing initiatives and procurement actions taken by management, partially offset by $38.3 million of pre-tax charges related to the transfer of work to other facilities. Employee related costs also increased during the 2017 period, primarily due to incentive compensation at certain Industrial businesses. Industrial's ability to leverage increased sales volumes partially offset this decrease in operating profit. The 2016 period included $3.5restructuring and transformation actions, $2.7 million and $1.2 million of short-term purchase accounting adjustmentsdue diligence and transaction costs, respectively, allocated to the segment, and the profit impact of lower sales volumes. The due diligence and transactions costs were related to business acquisitions, whereasour entry into a definitive agreement to sell our Associated Spring and Hänggi businesses in January 2024 (see Note 23 to the 2017Consolidated Financial Statements). Pre-tax charges related to restructuring and workforce reduction actions during the 2022 period included $2.3were $20.9 million. Pricing actions taken by the Company in response to inflationary pressures and increased global sourcing costs within Industrial provided a recovery of approximately $20 million of short-term purchase accounting adjustments.during 2023. Operating margins decreasedmargin increased from 15.7%(2.3)% in the 20162022 period to 13.0%4.3% in the 20172023 period, primarily as a result of these items. Lower margins at FOBOHAthe items described above. The goodwill impairment charge of $68.2 million decreased Industrial operating margin by 8.2% in 2022. Excluding the goodwill impairment charge, operating profit during 2022 was $49.1 million. The incremental charges related to restructuring and transformation actions in 2023, as noted above, also impacted the 2017 period.2023 operating margins.
Outlook:
InAt Industrial, management isremains focused on generating organic sales growth through additional sales and marketing resources and expanded go-to-market strategies to leverage the introduction of new productsCompany's full product portfolio across customers and servicesglobal industrial end-markets. Our business remains impacted by continuing headwinds including absenteeism, supply chain constraints and China weakness. Order rates declined on a year-over-year basis driven by leveragingweakness in China, while North American and European markets saw modest growth. From a macro environment standpoint, the benefits of the diversified products and industrial end-markets in which its businesses have a global presence. Our ability to generate sales growth is subject to economic conditionsmanufacturing Purchasing Managers' Index ("PMI") ended 2023 below 50 in the global markets served by all of our businesses. For general industrial end-markets, manufacturing Purchasing Managers Indices ("PMIs") above 50 in China, North AmericaUnited States and Europe, are positive signs. Growth in PMI'swhile China was slightly above 50. Management closely monitors the impact of pricing changes and lead times on raw materials and freight, given the continued throughoutongoing pressure of supply chain constraints. As the fourth quarter of 2017. Within China, we have seenCompany plans to divest its Associated Spring and Hanggi businesses that serve the automotive component manufacturing end market, the outlook for global automotive production will not be as meaningful a strengthening in orders that began during the middle of 2016 and that has continued through the fourth quarter of 2017, indicating strength within the transportation markets. Global forecasted production for light vehicles is expected to grow nominally in 2018, with production expected to improve modestly within the North American market.metric moving forward. Within our Molding Solutions businesses, global markets remain healthy. The Molding Solutions businesses exited 2017 with improved growth, and we anticipate favorable demand trends to continuebusiness, orders within the automotive, medical, personal care and packaging hot runnerend markets improved on a year-over-year basis, while transportation and moldmedical orders softened. Sales volumes at certain of our businesses is dependent upon the need for equipment used in plastic injection molding markets, which may be significantly influenced by the demand for plastic products, the capital investment needs of companies in 2018. As noted above, our sales were positively impacted by $12.4 million from fluctuationsthe plastic injection molding and plastics processing industries, changes in foreign currencies.technological advances and changes in laws or regulations such as those related to single-use plastics, product and packaging composition and recycling. Automation orders softened on a year over-year basis. To the extent that the U.S. dollar fluctuates relative to other foreign currencies, our sales may continue to be impacted by foreign currency relative to the prior year periods. The relative impact on operating profit is not expected to be as significant as the impact on sales as most of our businesses have expenses primarily denominated in local currencies, where their revenues reside, however operating margins may be impacted. The Company also remainsManagement is focused on sales growth through acquisitioncustomer engagement, innovation and expanding geographic reach. Strategic investments in new technologies, manufacturing processes and product development are expected to provide incremental benefits over the long term.term, and management continues to evaluate such opportunities.
The Company is focused on the proactive management of costs to increase competitiveness and productivity, and to mitigate the ongoing impacts of the current macroeconomic environments, including the continuing risks of supply chain
constraints and broad-based inflation on operating profit. The Company continues to manage its cost structure to align with the intake of orders and sales given remaining uncertainty within certain end-markets. In July 2022, management commenced a systematic multi-phased restructuring initiative (the "Actions") to significantly reduce costs and integrate the Company's operations, decreasing complexity and focusing on improved performance across Industrial. More specifically, the Company has announced restructuring programs (see Note 9 of the Consolidated Financial Statements) to further reduce costs primarily within the Industrial segment, in response to the macroeconomic disruptions. These actions include organizational realignment including elimination of certain roles across several locations.
During 2023, we formed the Barnes Transformation Office to enable a more agile, responsive organization using standard tools, processes and systems. We are currently executing numerous transformation initiatives that support the acceleration of growth and profitability. We are advancing our manufacturing facility optimization through footprint rationalization with plant closures in Molding Solutions, Motion Control Solutions and several smaller underperforming technology and service centers in the Automation business. Management will continue to explore opportunities for additional cost savings, while working closely with vendors and customers as it relates to the timing of deliveries and pricing initiatives. Operating profit is largely dependent onmay continue to be impacted by changes in sales volumes,volume, mix and pricing, inflation, labor costs, utility cost, and the levels of investments in growth and innovation that are made within each of the businessesIndustrial businesses. Operating profit may also be impacted by enactment of or changes in tariffs, trade agreements and trade policies that may affect the segmentcost, lead times and/or availability of goods, including but not limited to, steel and the Company's ability to effectively perform. Management continues to focus on improving profitability and expanding margins through leveraging organic sales growth, acquisitions, pricing initiatives, global sourcing, productivity and the evaluation of customer programs.
Management does not anticipate increased costs incurred on certain programs within Engineered Components to be as impactful in 2018, with these business challenges being primarily resolved in the first half of 2018. We continue to evaluate market conditions and remain proactive in managing costs.aluminum. Costs associated with new product and process introductions, restructuring and other cost initiatives, and strategic investments and the integration of acquisitions may negatively impact operating profit.
2016 vs. 2015:
Sales at Industrial were $824.2 million in 2016, an increase of $41.9 million, or 5.4%, from 2015. Acquired businesses contributed incremental sales of $47.4 million during the 2016 period. Organic sales increased by $4.1 million, or $0.5%, during 2016, driven primarily by strength in our Molding Solutions businesses, slightly offset by continued softness in North American general industrial end-markets. The impact of foreign currency translation decreased sales by approximately $9.6 million as the U.S. dollar strengthened against foreign currencies.
Operating profit in 2016 at Industrial was $129.7 million, an increase of 26.0% from 2015. The increase was driven by favorable productivity, as the Company continued its focus on manufacturing efficiencies and improved supply chain management across multiple units, and the profit contributions of acquired businesses, partially offset by lower pricing. The 2015 period included $3.6 million of short-term purchase accounting adjustments and transaction costs related to business acquisitions, whereas the acquisition of FOBOHA during the 2016 period resulted in $3.5 million of such costs. The 2015 period also included lump-sum pension settlement charges of $7.5 million that were allocated to the segment and $3.4 million of charges related to certain workforce reductions and restructuring.
Aerospace
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | 2017 | | 2016 | | $ Change | | % Change | | 2015 |
| Sales | | $ | 462.6 |
| | $ | 406.5 |
| | $ | 56.1 |
| | 13.8 | % | | $ | 411.7 |
|
| Operating profit | | 83.2 |
| | 62.5 |
| | 20.7 |
| | 33.2 | % | | 65.4 |
|
| Operating margin | | 18.0 | % | | 15.4 | % | | | | | | 15.9 | % |
2017 vs. 2016:
Aerospace recorded sales of $462.6 million in 2017, a 13.8% increase from 2016. Sales increased within all of the Aerospace businesses. The original equipment manufacturing ("OEM") business continued to transition from the manufacture of components on legacy engine platforms to newer, more technologically advanced platforms. Increased volume generated by ramping programs was partially offset by lower volumes and scheduled price deflation on more mature engine platforms. Sales within the aftermarket maintenance repair and overhaul ("MRO") business also increased during the 2017 period as the Company continued to obtain additional sales volume from new and existing customers, a trend that began during the second half of 2016. Volumes within the spare parts business also increased during the 2017 period. Sales were not impacted by changes in foreign currency as sales within the segment are largely denominated in U.S. dollars.
Operating profit at Aerospace increased 33.2% from 2016 to $83.2 million. The operating profit increase resulted from the increased volumes discussed above, coupled with favorable productivity, resulting from our ability to leverage production volumes, partially offset by scheduled price deflation and an increase in incentive compensation. Operating profit during the 2016 period included a $3.0 million charge related to the contract termination dispute and a $1.4 million benefit from the contract termination arbitration award.
Outlook:
Sales in the Aerospace OEM business are based on the general state of the aerospace market driven by the worldwide economy and are supported by its order backlog through participation in certain strategic commercial and military engine and airframe programs. Over the next several years, the Company expects sustained strength in demand for new engines, driven by a forecasted increase in commercial aircraft production levels. The Company anticipates further shifts in the production mix from legacy engine programs to the continual ramping of several new engine programs. Backlog at OEM was $713.8 million at December 31, 2017, an increase of 14.0% since December 31, 2016, at which time backlog was $626.3 million. The increase in 2017 orders primarily reflects an expanded time horizon on orders for certain engine programs and increased volumes. Approximately 50% of OEM backlog is expected to ship in the next 12 months. The Aerospace OEM business may be impacted by changes in the content levels on certain platforms, changes in customer sourcing decisions, adjustments to customer inventory levels, commodity availability and pricing, the use of alternate materials, changes in production schedules
of specific engine and airframe programs, redesign of parts, quantity of parts per engine, cost schedules agreed to under contract with the engine manufacturers, as well as the pursuit and duration of new programs. Sales in the Aerospace aftermarket business may be impacted by fluctuations in end-market demand, early aircraft retirements, inventory management and changes in customer sourcing, deferred or limited maintenance activity during engine shop visits and the use of surplus (used) material during the engine repair and overhaul process. End markets are expected to grow based on the long term underlying fundamentals of the aerospace industry. Management continues to believe its Aerospace aftermarket business is competitively positioned based on well-established long-term customer relationships, including maintenance and repair contracts in the MRO business and long-term Revenue Sharing Programs ("RSPs") and Component Repair Programs ("CRPs"), expanded capabilities and current capacity levels. The MRO business may be potentially impacted by airlines that closely manage their aftermarket costs as engine performance and quality improves. Fluctuations in fuel costs and their impact on airline profitability and behaviors within the aerospace industry could also impact levels and frequency of aircraft maintenance and overhaul activities, and airlines' decisions on maintaining, deferring or canceling new aircraft purchases, in part based on the economics associated with new fuel efficient technologies.
Management is focused on growing operating profit at Aerospace primarily through leveraging organic sales growth, strategic investments, new product and process introductions, and productivity. Operating profit is expected to be affected by the impact of changes in sales volume, mix and pricing, particularly as they relate to the highly profitable aftermarket RSP spare parts business, and investments made in each of its businesses. Costs associated with new product and process introductions, the physical transfer of work to other global regions, additional productivity initiatives and restructuring activities may also negatively impact operating profit.
2016 vs. 2015:
Aerospace recorded sales of $406.5 million in 2016, a 1.3% decrease from 2015. Lower sales within OEM and spare parts businesses were partially offset by increased sales within the MRO business. During the 2016 period, the segment continued to transition from the manufacture of components on legacy engine platforms to newer, more technologically advanced platforms. Lower volumes on the GE90 engine platform, as well as on other mature engine platforms, were partially offset by increased volume generated by newer programs within the OEM business. A decline in aftermarket spare parts was partially offset by a volume increase in the MRO business. Customer inventory management resulted in lower volumes within the spare parts business. Sales within the MRO business, although soft during the first half of the year, improved during the second half of 2016 as we obtained additional sales volume from existing customers. This business, however, continues to be impacted by airlines continuing to closely manage their aftermarket costs and as engine performance and quality has improved. Sales were not impacted by changes in foreign currency as sales within the segment are largely denominated in U.S. dollars.
Operating profit at Aerospace decreased 4.5% from 2015 to $62.5 million. The operating profit decrease was primarily due to pricing deflation, the profit impact of lower volumes within the highly profitable spare parts business and unfavorable productivity, primarily a result of the transition from legacy engine platforms to newer, more advanced programs. Operating profit included a $1.4 million benefit from a contract termination arbitration award. Charges related to the contract termination dispute approximated $3.0 million and $2.8 million during the 2016 and 2015 periods, respectively. Operating profit in 2015 also included a lump-sum pension settlement charge of $2.4 million that was allocated to the segment and $0.8 million in workforce reduction and restructuring charges.
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 currently maintains sufficient liquidity and will continue to evaluate ways to enhance its liquidity position as it navigates through the macroeconomic trends discussed above.
The Company believes that it'sits 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 20182024 will generate sufficient cash to fund operations. See additional discussion regarding currently available debt facilities below. The Company closely monitorscontinues to invest within its cash generation, usagebusinesses, with its estimate of 2024 capital spending to approximate $70 million.
On June 5, 2023, the Company entered into a Stock Purchase Agreement with MB Aerospace Group Holdings Limited, a Cayman Islands limited company (the "Agreement"). See Note 2 of the Consolidated Financial Statements. In connection with entry into the Agreement, on June 5, 2023, the Company entered into the Second Amendment (the “Second Amendment”) to Note Purchase Agreement (as defined below) and preservation includingAmendment No. 2 ("Amendment No. 2") to the managementrestated senior unsecured revolving credit agreement ("Unsecured Credit Agreement") to facilitate the Transaction, as well as a commitment letter with Bank of working capitalAmerica, N.A. and BofA Securities, Inc. (collectively, the “Commitment Parties”), pursuant to generate cash.
In February 2017,which the Commitment Parties agreed to provide, subject to the satisfaction of customary closing conditions contained therein, a $1,000.0 million backstop senior secured revolving credit facility and a $700.0 million senior secured 364-day bridge loan facility ("Bridge Loan Facility"). The Bridge Loan Facility was only intended to be drawn to the extent that the Company did not obtain alternative financing prior to the closing of the Transaction. The Company expensed fees of $9.5 million in conjunction with the Bridge Loan Facility and $1,000.0 million backstop senior secured revolving credit facility into interest expense on the Consolidated Statements of Income in the year ended December 31, 2023. On August 31, 2023 (the “Acquisition Date”), pursuant to the terms of the Agreement, the Company completed the Transaction for an aggregate purchase price of $728.4 million, subject to customary and specified closing adjustments, as set forth in the Agreement. Concurrently, the Company entered into a new Credit Agreement (the “Credit Agreement”) among the Company and certain of its subsidiaries, entered into the fourth amendment of its fifth amendedissuing banks, lenders and restated revolving credit agreement (the “Amended Credit Agreement”)other parties party thereto, and retained Bank of America, N.A., as the Administrative Agentadministrative agent, as collateral agent and as swingline lender, which provides for the lenders. The Amended Credit Agreement increases thesenior secured financing of $1,650.0 million, consisting of a term loan facility from $750.0(the “Term Loan Facility”) in an aggregate principal amount of $650.0 million, to $850.0with an original issue discount of $4.9 million, and extendsa revolving credit facility (the “Revolving Credit Facility” and, together with the maturity date from September 2018 to February 2022. The Amended Credit Agreement also increases
Term Loan Facility, the existing accordion feature from $250.0 million, allowing the Company to now request additional borrowings“Senior Facilities”) in an aggregate principal amount of up to $350.0$1,000.0 million, including a letter of credit sub-facility of up to $50.0 million. Proceeds of the loans borrowed under the Senior Facilities on the Acquisition Date, net of a 0.75% original issue discount on the Term Loan Facility, were used to fund, in part, the transactions contemplated by the Agreement, including the consummation of the Transaction, the
repayment in full of the Notes, and to pay related fees and expenses. As of the Acquisition Date, the Revolving Credit Facility had outstanding borrowings in an aggregate principal amount of approximately $698.0 million. Proceeds of any loans under the Revolving Credit Facility borrowed after the Acquisition Date will be used for general corporate purposes. The Company paid fees and expenses of $3.1 million in conjunction with executing the Revolving Credit Facility. Such fees have been deferred within Other Assets on the Consolidated Balance Sheets and will be amortized into interest expense on the Consolidated Statements of Income through the maturity of the Credit Agreement with the previously recorded debt issuance cost. The Company incurred $8.3 million of debt issuance costs in conjunction with executing the Term Loan Facility. Such fees have been recorded as a direct deduction from the carrying amount of the Term Loan Facility and will be amortized into interest expense on the Consolidated Statements of Income through the maturity of the Term Loan Facility. Cash used to pay these fees was recorded through financing activities on the Consolidated Statements of Cash Flows. On August 31, 2023, in connection with the Credit Agreement and the closing of the Transaction, the Bridge Loan Facility was terminated.
The Senior Facilities are guaranteed by each of the Company’s wholly owned domestic subsidiaries and are secured by substantially all assets of the Company and of each subsidiary guarantor, in each case subject to certain exceptions.
Borrowings under the Senior Facilities bear interest at a rate per annum equal to, at the Company’s option, either Term SOFR (subject to a 0.00% floor) or an alternate base rate ("ABR"), in each case plus an applicable margin of (i) in the case of borrowings under the Term Loan Facility, 3.00% for Term SOFR loans and 2.00% for ABR loans and (ii) in the case of borrowings under the Revolving Credit Facility, initially, 2.375% for Term SOFR loans and 1.375% for ABR loans. The applicable margin for borrowings under the Revolving Credit Facility varies depending on the Company’s total net leverage ratio. At December 31, 2023, the applicable margin for borrowings under the Revolving Credit Facility was 2.125%. The Company is also required to pay a commitment fee initially equal to 0.35% per annum to the lenders under the Revolving Credit Facility in respect of the unutilized commitments thereunder. The commitment fee under the Revolving Credit Facility varies depending on the Company’s total net leverage ratio. At December 31, 2023, the commitment fee under the Revolving Credit Facility was 0.30%.
The Term Loan Facility matures on the seven-year anniversary of the Acquisition Date and amortizes in equal quarterly installments ($6.5 million annually), starting with the first full fiscal quarter after the Acquisition Date, of 0.25% of the initial principal amount. The Revolving Credit Facility matures on the five-year anniversary of the Acquisition Date. In addition, the Company is required to prepay outstanding loans under the Term Loan Facility, subject to certain exceptions, with up to 50% of the Company’s annual excess cash flow (as defined under the Credit Agreement) in excess of the greater of $50.0 million and 15.0% of Adjusted Consolidated EBITDA (as defined in the Credit Agreement) during the last twelve months ("LTM") as of the applicable time, and with up to 100% of the net cash proceeds of certain recovery events and non-ordinary course asset sales (which percentages vary depending on the Company’s first lien secured net leverage ratio).
The Company may exercisegenerally prepay outstanding loans under the accordion feature upon requestSenior Facilities at any time, without prepayment premium or penalty, subject to customary “breakage” costs with respect to Secured Overnight Financing Rate ("SOFR") loans. Prepayments of the Administrative AgentTerm Loan Facility in connection with certain “repricing events” resulting in a lower yield occurring at any time during the first six months after the Acquisition Date must be accompanied by a 1.00% prepayment premium.
The Revolving Credit Facility requires that the Company maintain a maximum Total Net Leverage Ratio, as longdefined in the Credit Agreement, initially of 5.50 to 1.00 as of the last day of each fiscal quarter for which financials have been (or were required to be) delivered, commencing with the first full fiscal quarter after the Acquisition Date, stepping down to 4.00 to 1.00 over time. The actual ratio, as defined, was 3.64 as of December 31, 2023. For material acquisitions in certain circumstances, such ratio may be increased by up to 0.50 to 1.00. The Revolving Credit Facility also requires that the Company not permit the Interest Coverage Ratio as of the last day of any test period to be less than 3.00 to 1.00. The actual ratio, as defined, was 3.47 as of December 31, 2023. At December 31, 2023, the Company was in compliance with all applicable covenants.
The Senior Facilities contain certain affirmative and negative covenants that limit the ability of the Company, among other things and subject to certain significant exceptions, to incur debt or liens, make investments, enter into certain mergers, consolidations, asset sales and acquisitions, pay dividends and make other restricted payments and enter into transactions with affiliates. The Senior Facilities also contain certain events of default, including relating to a change of control. If an event of default occurs, the lenders under the Senior Facilities will be entitled to take various actions, including the acceleration of amounts due under the Senior Facilities.
In January 2024, the Company announced that it has not occurred orentered into a definitive agreement to sell its Associated Spring and Hänggi businesses to One Equity Partners. The transaction is not continuing. The borrowing availabilityvalued at $175.0 million, inclusive of $850.0a $15.0 million pursuantpromissory note due in 24 months. Expected net cash proceeds will be used to reduce debt incurred from the strategic acquisition of MB Aerospace. See Note 23 of the Consolidated Financial Statements for additional disclosure related to the termsplanned divestiture of these businesses.
In 2022 and 2021, the Company acquired 0.2 million shares and 0.1 million shares of the AmendedCompany's common stock, respectively, under the Repurchase Program at a cost of $6.7 million and $5.2 million, respectively. In 2023, no shares were acquired. Management will continue to evaluate additional repurchases based on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. See "Part II - Item 5 - Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities."
Operating cash flow may be supplemented with external borrowings to meet near-term business expansion needs and the Company's current financial commitments. The Company has assessed its credit facilities in conjunction with the Credit Agreement allowsand currently expects that its bank syndicate, comprised of 10 banks, will continue to support its Revolving Credit Facility, which matures in August 2028. At December 31, 2023, the Company had $357.0 million unused and available for multi-currency borrowing which includes euro, British pound sterling or Swiss franc borrowing, upborrowings under its $1,000.0 million Revolving Credit Facility. The Company intends to $600.0 million. Depending onuse borrowings under its Revolving Credit Facility to support the Company’s consolidated leverage ratio, and atCompany's ongoing growth initiatives. While the electionCompany continues to evaluate potential acquisition targets, it is now more narrowly assessing acquisitions, primarily with Aerospace, as evidenced by the consummation of the Transaction on August 31, 2023. Management remains focused on driving core business execution and financial performance via the planned integration and consolidation actions described above. The Company believes its credit facilities and access to capital markets, coupled with cash generated from operations, are adequate for its anticipated future requirements. See additional discussion above related to the Transaction and the Credit Agreement. The Company maintains communication with its bank syndicate as it continues to monitor its cash requirements.
The Company had no borrowings under the Amended Credit Agreement will bear interestshort-term bank credit lines at either LIBOR plus a margin of between 1.10% and 1.70% or the base rate, as defined in the Amended Credit Agreement, plus a margin of 0.10% to 0.70%.December 31, 2023.
OnIn October 15, 2014, the Company entered into a Note Purchase Agreement (“Note Purchase Agreement”), among the Company and New York Life Insurance Company, New York Life Insurance and Annuity Corporation and New York Life Insurance and Annuity Corporation Institutionally Owned Life Insurance Separate Account, as purchasers, for the issuance of $100.0 million aggregate principal amount of 3.97% senior notes due October 17, 2024 (the “3.97% Senior Notes”“Notes”). The Company completed funding of the transaction and issued the 3.97% Senior Notes on October 17, 2014. The 3.97% Senior Notes arewere senior unsecured obligations of the Company and payspaid interest semi-annually on April 17 and October 17 of each year at an annual rate of 3.97%. The 3.97% Senior Notes will mature on October 17, 2024 unless earlier prepaid in accordance with their terms. Subject to certain conditions, the Company may,could, at its option, prepay all or any part of the 3.97% Senior Notes in an amount equal to 100% of the principal amount of the 3.97% Senior Notes so prepaid, plus any accrued and unpaid interest to the date of prepayment, plus the Make-Whole Amount, as defined in the Note Purchase Agreement, with respect to such principal amount being prepaid. The Note Purchase Agreement contains customary affirmativeNotes, together with accrued and negative covenants that are similar to the covenants required under the Amended Credit Agreement, as discussed below. At Decemberunpaid interest thereon, were repaid on August 31, 2017, the Company was2023 in compliance with all covenants under the Note Purchase Agreement.
The Company's borrowing capacity remains limited by various debt covenants in the Amended Credit Agreement and the Note Purchase Agreement (the "Agreements"). The Agreements require the Company to maintain a ratio of Consolidated Senior Debt, as defined, to Consolidated EBITDA, as defined, of not more than 3.25 times ("Senior Debt Ratio"), a ratio of Consolidated Total Debt, as defined, to Consolidated EBITDA of not more than 3.75 times and a ratio of Consolidated EBITDA to Consolidated Cash Interest Expense, as defined, of not less than 4.25, in each case at the end of each fiscal quarter; provided that the debt to EBITDA ratios are permitted to increase for a period of four fiscal quarters after the closing of certain permitted acquisitions. At December 31, 2017, the Company was in compliance with all covenants under the Agreements. The Company's most restrictive financial covenant is the Senior Debt Ratio which requires the Company to maintain a ratio of Consolidated Senior Debt to Consolidated EBITDA of not more than 3.25 times at December 31, 2017. The actual ratio at December 31, 2017 was 1.70 times.
In 2017, 2016 and 2015, the Company acquired 0.7 million shares, 0.6 million shares and 1.4 million shares of the Company's common stock, respectively, at a cost of $40.8 million, $20.5 million and $52.1 million, respectively.
Operating cash flow may be supplemented with external borrowings to meet near-term business expansion needs and the Company's current financial commitments. The Company has assessed its credit facilities in conjunctionconnection with the Amended Credit Facility and currently expects that its bank syndicate, comprised of 14 banks, will continue to support its Amended Credit Agreement which matures in February 2022. At December 31, 2017, the Company had $428.5 million unused and available for borrowings under its $850.0 million Amended Credit Facility, subject to covenants. At December 31, 2017, additional borrowings of $642.8 million of Total Debt and $486.1 million of Senior Debt would have been allowed under the financial covenants. The Company intends to use borrowings under its Amended Credit Facility to support the Company's ongoing growth initiatives. The Company believes its credit facilities and access to capital markets, coupled with cash generated from operations, are adequate for its anticipated future requirements.Transaction. There was no Make-Whole amount.
The Company had $5.3 million in borrowings under short-term bank credit lines at December 31, 2017.
In 2012, the Company entered into five-year interest rate swap agreements (the "Swaps") transacted with three banks which together converted the interest on the first $100.0 million of the Company's one-month LIBOR-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 1.03% plus the borrowing spread, for the purpose of mitigating its exposure to variable interest rates. The Swaps expired on April 28, 2017. The Company entered into a newan interest rate swap agreement (the "Swap""2017 Swap") that commenced on April 28, 2017, with one bank, and convertswhich converted the interest on the first $100.0 million of the Company's one-month LIBOR-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 1.92% plus the borrowing spread. The 2017 Swap expiresexpired on January 31, 2022. On March 24, 2021, the Company entered into a new interest rate swap agreement (the "2021 Swap") with this same bank that commenced on January 31, 2022 and that converted the interest on $100.0 million of the Company's one-month LIBOR-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 1.17% plus the borrowing spread. Effective April 30, 2022, the Company amended the 2021 Swap (the "Amended 2021 Swap") such that the one-month SOFR-based borrowing rate replaced the one-month LIBOR-based borrowing rate. The Amended 2021 Swap, which will expire on January 30, 2026, converts the interest on $100.0 million of the Company's one-month SOFR-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 1.075% plus the borrowing spread. The execution of the Amended 2021 Swap did not have a material impact on our business, financial condition, results of operations or cash flow.
On July 19, 2023, the Company entered into an interest rate swap agreement (the "Euribor Swap") with one bank that commenced on July 31, 2023, which converts the interest on €150.0 million of the Company's Euribor-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 3.257% plus the borrowing spread. Under the Euribor Swap, €50.0 million will expire on July 31, 2026, with the remaining balance of €100.0 million expiring July 31, 2028. On September 12, 2023, the Company entered into six additional interest rate swap agreements (the "2023 Swaps") with six different banks that commenced on September 29, 2023, which convert the interest on $600.0 million of the Company's one-month SOFR-based
borrowings from a variable rate plus the borrowing spread to a blended fixed rate of 4.321% plus the borrowing spread. Under the 2023 Swaps, $50.0 million will expire on August 31, 2026, $100.0 million will expire on August 31, 2027, $200.0 million will expire on August 31, 2028, $50.0 million will expire on August 31, 2029 and the remaining balance of $200.0 million will expire on August 31, 2030. The execution of the interest rate swap agreements in 2023 did not have a material impact on our business, financial condition, results of operations or cash flow. These interest rate swap agreements (the "Swaps") are accounted for as cash flow hedges. At December 31, 2017,2023, the Company's total borrowings were comprised of approximately 39%67% fixed rate debt and 61%33% variable rate debt. At December 31, 2016,2022, the Company's total borrowings were comprised of approximately 41%34% fixed rate debt and 59%66% variable rate debt.
The funded status of the Company's pension plans is dependent upon many factors, including actual rates of return that impact the fair value of pension assets and changes in discount rates that impact projected benefit obligations. The unfundedpension plans funding status improved from an underfunded status of the pension plans decreased from $77.0$27.4 million at December 31, 20162022 to $43.7a funded status of $0.7 million at December 31, 20172023 as the increase inboth the fair value of the pension plan assets exceeded increase inincreased and the projected benefit obligations ("PBOs"), decreased, following an update ofto certain actuarial assumptions. The Company recorded a $10.7$7.9 million of non-cash after-tax increaseincreases in stockholders equity (through other non-owner changes to equity) to recordwhen recording the current year adjustments for changes in the funded status of its pension and postretirement benefit plans as required under accounting for defined benefit and other postretirement plans. This increase in stockholders equity resulted primarily from favorable variances between expected and actual returns on pension plan assets and the amortization of actuarial losses recorded earlier, partially offset by changes in actuarial assumptions, primarily the decrease in the discount rate. earlier.
In 2017,2023, the Company made $10.0$0.1 million in discretionary contributions to the U.S. qualifiedits U.S Qualified pension plans. The Company expects to contribute approximately $4.6$7.1 million to its various defined benefit pension plans in 2018.2024. No discretionary contributions to the U.S. Qualified pension plans are currently planned in 2018.2024. See Note 11 12of the Consolidated Financial Statements.
As noted above, the U.S. government enacted the Act on December 22, 2017,2017. The Company completed its computation of the Transition Tax as required pursuant to SAB 118 in 2018, resulting in a provisionalfinal net Transition Tax expense of $86.7 million related to the Transition Tax.million. The Company intends to electelected to pay the Transition Tax over the allowed eight yeareight-year period. The installment payments for the Transition Tax are not expected to have a material impact on the liquidity or capital resources of the Company. The Company expects to make the payments through the use of available cash or borrowings under the AmendedRevolving Credit Facility.
At December 31, 2017,2023, the Company held $145.3$89.8 million in cash and cash equivalents, the majority of which was held by foreign subsidiaries. These amounts have no material regulatory or contractual restrictions.restrictions and, on a long-term basis, are expected to primarily fund international investments. The Act has changed the impact of U.S.U.S taxation on foreign distributions. The Company is continuingcontinuously evaluating its evaluationposition regarding the potential repatriation of overseas cash. Currently the Company expects to repatriate certain foreign earnings and has recorded a provisional tax expenseThe evaluation of $6.9 million to account for the estimated withholding and income taxes on the potential repatriation however no final decision has been made in regards to future potential distributions. The evaluation is dependent upon several variables, including foreign taxation of dividends and the impact of withholding tax. The Company repatriated $7.3 million of current year foreign earningsdid not repatriate any overseas cash to the U.S. during 2017.2023.
The Company’s efforts to comply with numerous federal, state and local laws and regulations applicable to its business and products often results in capital expenditures. The Company makes capital expenditures to design and upgrade its aerospace and industrial products to comply with or exceed standards applicable to the industries we serve. The Company’s ongoing HSE compliance program also results in capital expenditures. Regulatory and HSE considerations are a part of significant capital expenditure decisions; however, expenditures during 2023, related solely to regulatory compliance were not material.
Any future acquisitions are expected to be financed through internal cash, borrowings and equity, or a combination thereof. Additionally, weWe may from time to time seek to retire or repurchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, under a Rule 10b5-1 trading plan, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.
Cash Flow
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | 2017 | | 2016 | | $ Change | | % Change | | 2015 |
| Operating activities | | $ | 203.9 |
| | $ | 217.6 |
| | $ | (13.7 | ) | | (6.3 | )% | | $ | 217.5 |
|
| Investing activities | | (68.0 | ) | | (179.5 | ) | | 111.5 |
| | 62.1 | % | | (115.5 | ) |
| Financing activities | | (63.8 | ) | | (53.3 | ) | | (10.4 | ) | | (19.6 | )% | | (59.2 | ) |
| Exchange rate effect | | 6.7 |
| | (2.3 | ) | | 9.0 |
| | NM |
| | (4.9 | ) |
| Increase (decrease) in cash | | $ | 78.8 |
| | $ | (17.5 | ) | | $ | 96.3 |
| | NM |
| | $ | 37.9 |
|
________________________
NM – Not meaningful | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | 2023 | | 2022 | | $ Change | | | | 2021 |
| Operating activities | | $ | 112.4 | | | $ | 75.6 | | | $ | 36.9 | | | | | $ | 167.8 | |
| Investing activities | | (767.5) | | | (36.0) | | | (731.5) | | | | | (29.8) | |
| Financing activities | | 666.6 | | | (64.8) | | | 731.4 | | | | | (114.7) | |
| Exchange rate effect | | (0.5) | | | (5.5) | | | 5.0 | | | | | (2.9) | |
| Increase (decrease) in cash, cash equivalents and restricted cash | | $ | 10.9 | | | $ | (30.8) | | | $ | 41.7 | | | | | $ | 20.4 | |
Operating activities provided $203.9$112.4 million in 20172023 compared to $217.6$75.6 million in 2016.2022. The 2023 period included a use of cash for working capital of $10.9 million compared to a use of cash for working capital of $72.1 million in the 2022 period. Inventory levels increased and used cash of $48.6 million during the 2022 period, largely as a result of supply chain constraints and strategic builds to support customer demands, combined with the impact of inflation. Inventory levels stabilized throughout 2023, however, driving a slight source of cash within the current year period. Growth in receivables used cash of $39.5 million in 2022, compared with a use of $6.1 million in 2023. Operating cash flows in the 20172022 period were positivelynegatively impacted by improved operating resultsoutflows for accrued liabilities, primarily related to incentive compensation, whereas accrued liabilities provided cash of $22.7 million in the current period, partially offset by an increase in cash used for working capital driven by an increase in accounts receivable, reflecting growth in revenue. Net income during the period was impacted by $96.7 million of tax expense related to the enactment of the Act, having no impact to cash outflows during the 2017 period. See Note 13 of the Consolidated Financial Statements. Cash flows in the 2017 and 2016 periods were impacted by outflows of $10.0 million and $15.0 million, respectively, related to discretionary contributions to the U.S. Qualified pension plans.advance payments on contracts.
Investing activities used $68.0$767.5 million in 20172023 and $179.5$36.0 million in 2016.2022. In 2017,2023, investing activities included outflows of $718.8 million used to fund the MB Aerospace acquisition and capital expenditures of $58.7$55.7 million, compared to $47.6$35.1 million of capital expenditures in 2016.2022. The Company expects capital spending in 20182024 to approximate $60$70 million. Capital expenditures relate to both maintenance needs and support of growth initiatives, which include the purchase of equipment to support new products and services, and are expected to be funded primarily through cash
flows from operations. Investing activities in 2017 also included outflows of $8.9 million used to fund the Gammaflux acquisition and $3.0 million related to an Aerospace agreement (which was included in Other Investing activities). In 2016, investing activities also included outflows of $127.1 million used to fund the FOBOHA acquisition, $1.5 million related to the post-acquisition closing adjustment of Thermoplay and $4.1 million related to the Component Repair Programs ("CRPs"). See Note 5 of the Consolidated Financial Statements.
Cash used by financing activities in 20172023 included a net increase in borrowings of $30.7$705.3 million compared to a net decrease of $9.9$11.5 million in 2016.2022. In 2016,the 2023 period, net borrowings were primarily used to fund the MB Aerospace acquisition. In addition, the Company borrowed $100.0paid $11.3 million underof fees in connection with entering into the Amendednew Credit Facility through an international subsidiary. The proceeds were distributedAgreement in connection with the MB Aerospace acquisition. See Note 2 and Note 8 to the Parent Company and subsequently used to pay down U.S. borrowings under the Amended Credit Agreement.Consolidated Financial Statements. Proceeds from the issuance of common stock were $2.4$0.4 million and $4.6$0.5 million in 20172023 and 2016,2022, respectively. In 2017, the Company repurchased 0.7 million shares of the Company's stock at a cost of $40.8 million, compared with the purchase of 0.6 million shares at a cost of $20.5 million in 2016. Total cash used to pay dividends increased slightly to $29.6was $32.4 million in 2017 compared to $27.4 million in 2016, reflecting an increase in dividends paid per share. Withholding taxes paid on stock issuances inboth the 20172023 and 2016 periods were $5.4 million and $4.9 million, respectively.2022 periods. Other financing cash flows during 2017 include $18.22023 included $8.3 million of net cash proceeds compared to $12.3 million of net cash payments related toduring 2022, resulting from the settlement of foreign currency hedges related to intercompany financings, compared to $5.2 million and $10.3 million of netfinancing. Other financing cash proceedsflows in 2016 and 2015, respectively, and $2.52023 also included $2.4 million of payments made in connection with executing the Amended Credit Agreement.
Debt Covenants
As noted above, borrowing capacity is limited by various debt covenants in the Company's debt agreements. Following is a reconciliation of Consolidated EBITDA, a key metric in the debt covenants,that related to the Company's net income (in millions):residual interest in a subsidiary.
|
| | | |
| | 2017 |
| Net income | $ | 59.4 |
|
| Add back: | |
| Interest expense | 14.6 |
|
| Income taxes | 136.3 |
|
| Depreciation and amortization | 90.2 |
|
| Adjustment for non-cash stock based compensation | 11.7 |
|
| Other adjustments | 1.3 |
|
| Consolidated EBITDA, as defined | $ | 313.4 |
|
| | |
| Consolidated Senior Debt, as defined, as of December 31, 2017 | $ | 532.6 |
|
| Ratio of Consolidated Senior Debt to Consolidated EBITDA | 1.70 |
|
| Maximum | 3.25 |
|
| Consolidated Total Debt, as defined, as of December 31, 2017 | $ | 532.6 |
|
| Ratio of Consolidated Total Debt to Consolidated EBITDA | 1.70 |
|
| Maximum | 3.75 |
|
| Consolidated Cash Interest Expense, as defined, as of December 31, 2017 | $ | 14.6 |
|
| Ratio of Consolidated EBITDA to Consolidated Cash Interest Expense | 21.51 |
|
| Minimum | 4.25 |
|
The Amended Credit Agreement allows for certain adjustments within the calculation of the financial covenants. Other adjustments consist of net gains on the sale of assets, due diligence and transaction expenses as permitted under the Amended Credit Agreement and the amortization of the FOBOHA acquisition inventory step-up. The Company's financial covenants are measured as of the end of each fiscal quarter. At December 31, 2017, additional borrowings of $642.8 million of Total Debt and $486.1 million of Senior Debt would have been allowed under the covenants. Senior Debt includes primarily the borrowings under the Amended Credit Facility, the 3.97% Senior Notes and the borrowings under the lines of credit. The Company's unused committed credit facilities at December 31, 2017 were $428.5 million. As noted above, the Company is continuing to analyze the impacts of the Act, however we currently do not believe that any changes proposed by the Act will impact compliance with our debt covenants.
Contractual Obligations and Commitments
At December 31, 2017,2023, the Company had the following contractual obligations and commitments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | Total | | Less than
1 Year | | 1-3
Years | | 3-5
Years | | More than
5 Years |
Long-term debt obligations (1) | | $ | 1,303.4 | | | $ | 10.9 | | | $ | 17.2 | | | $ | 657.8 | | | $ | 617.5 | |
Estimated interest payments under long-term obligations (2) | | 557.9 | | | 98.6 | | | 195.1 | | | 178.0 | | | 86.2 | |
Operating lease obligations (3) | | 61.0 | | | 13.0 | | | 15.7 | | | 9.2 | | | 23.1 | |
Purchase obligations (4) | | 459.3 | | | 366.2 | | | 90.7 | | | 2.4 | | | — | |
Expected pension contributions (5) | | 7.1 | | | 7.1 | | | — | | | — | | | — | |
Expected benefit payments – other postretirement benefit plans (6) | | 17.8 | | | 2.3 | | | 4.2 | | | 3.7 | | | 7.6 | |
Long-term U.S. Tax Reform obligations(7) | | 21.7 | | | — | | | 21.7 | | | — | | | — | |
| | | | | | | | | | |
| Total | | $ | 2,428.3 | | | $ | 498.1 | | | $ | 344.5 | | | $ | 851.1 | | | $ | 734.5 | |
(1)Long-term debt obligations represent the required principal payments under such agreements.
(2)Interest payments under long-term debt obligations have been estimated based on the borrowings outstanding and market interest rates as of December 31, 2023.
|
| | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 Years |
Long-term debt obligations (1) | | $ | 526.9 |
| | $ | 1.3 |
| | $ | 1.5 |
| | $ | 422.6 |
| | $ | 101.6 |
|
Estimated interest payments under long-term obligations (2) | | 78.6 |
| | 15.4 |
| | 30.7 |
| | 21.2 |
| | 11.1 |
|
| Operating lease obligations | | 39.8 |
| | 11.9 |
| | 13.4 |
| | 7.2 |
| | 7.4 |
|
Purchase obligations (3) | | 182.5 |
| | 167.1 |
| | 11.5 |
| | 3.8 |
| | 0.1 |
|
Expected pension contributions (4) | | 4.6 |
| | 4.6 |
| | — |
| | — |
| | — |
|
Expected benefit payments – other postretirement benefit plans (5) | | 27.9 |
| | 3.7 |
| | 6.7 |
| | 5.9 |
| | 11.7 |
|
Long-term U.S. Tax Reform obligations(6) | | 79.8 |
| | — |
| | 13.9 |
| | 13.9 |
| | 52.0 |
|
| Total | | $ | 940.1 |
| | $ | 204.0 |
| | $ | 77.6 |
| | $ | 474.5 |
| | $ | 184.0 |
|
(4)The amounts do not include purchase obligations reflected as current liabilities on the Consolidated Balance Sheets. The purchase obligation amount includes all outstanding purchase orders as of the balance sheet date as well as the minimum contractual obligation or termination penalty under other contracts.
| |
(1) | Long-term debt obligations represent the required principal payments under such agreements. |
| |
(2) | Interest payments under long-term debt obligations have been estimated based on the borrowings outstanding and market interest rates as of December 31, 2017. |
| |
(3) | The amounts do not include purchase obligations reflected as current liabilities on the consolidated balance sheet. The purchase obligation amount includes all outstanding purchase orders as of the balance sheet date as well as the minimum contractual obligation or termination penalty under other contracts. |
| |
(4) | The amount included in “Less Than 1 Year” reflects anticipated contributions to the Company’s various pension plans. Anticipated contributions beyond one year are not determinable. |
| |
(5) | Amounts reflect anticipated benefit payments under the Company’s various other postretirement benefit plans based on current actuarial assumptions. Expected benefit payments do not extend beyond 2027. See Note 11 of the Consolidated Financial Statements. |
| |
(6) | Amounts reflect anticipated long-term payments related to the Tax Cuts and Jobs Act that was enacted on December 22, 2017. Payments are allowed over an eight-year period. See Note 13 of the Consolidated Financial Statements. The amount payable in 2018 is included within accrued liabilities on the Consolidated Balance Sheets. |
(5)The amount included in “Less Than 1 Year” reflects anticipated contributions to the Company’s various pension plans. Anticipated contributions beyond one year are not determinable.
(6)Amounts reflect anticipated benefit payments under the Company’s other postretirement benefit plans based on current actuarial assumptions. Expected benefit payments, as presented above, do not extend beyond 2033. See Note 12 of the Consolidated Financial Statements.
(7)Amounts reflect anticipated long-term payments related to the Tax Cuts and Jobs Act that was enacted on December 22, 2017. Payments are allowed over an eight-year period. See Note 14 of the Consolidated Financial Statements. The amount payable in 2024 is included within accrued liabilities on the Consolidated Balance Sheets.
The above table does not reflect unrecognized tax benefits as the timing of the potential payments of these amounts cannot be determined. See Note 1314 of the Consolidated Financial Statements.
OTHER MATTERS
Inflation
Inflation generally affects the Company through its costs of labor, equipment, raw materials, freight and raw materials. Increases in the costs ofutilities. The Company strives to offset these items have historically been offset by price increases, commodity price escalator provisions, operating improvements, and other cost-saving initiatives. In certain end markets, implementing price increases may be difficult and there is no assurance that the Company will be successful. From time to time, the Company may encounter difficulties in obtaining certain raw materials or components necessary for production due to supply chain constraints and logistical challenges, which may also negatively impact the pricing of materials and components sourced or used by the Company. Through 2023, for example, raw material availability and inflationary pressures have impacted certain of our businesses. See "Part I, Item 1A. Risk Factors.
Critical Accounting Estimates
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 Consolidated Financial Statements. The most significant areas involving management judgments and estimates are described below. Actual results could differ from such estimates.
Inventory Valuation: Inventories are valued at the lower of cost, determined on a first-in, first-out basis, or net realizable value. The primary components of cost included in inventories are raw material, labor and overhead. Provisions are made to reduce excess or obsolete inventories to their estimated net realizable value. Loss provisions, if any, on aerospace contracts are established when estimable. Loss provisions are based on the projected excess of manufacturing costs over the net revenues of the products or group of related products representing orders that are supported under a long term agreement. The process for evaluating the value of excess and obsolete inventory often requires the Company to make subjective judgments and estimates concerning future sales levels, access to applicable markets, quantities and prices at which such inventory will be sold in the normal course of business and estimated costs. Estimates of excess and obsolete inventory may differ from actual results due to changes in market value, channels of distribution, customer preferences and overall economic and market conditions. Accelerating the disposal process or incorrectchanges in estimates ofbased on future sales potential or estimated costs may necessitate future adjustments to these provisions.
Revenue recognition: Revenue is recognized by the Company when control of the product or solution is transferred to the customer. Control is generally transferred when products are shipped or delivered to customers, title is transferred, the significant risks and rewards of ownership have transferred, the Company has rights to payment and rewards of ownership pass to the customer. Customer acceptance may also be a factor in determining whether control of the product has transferred. Although revenue is generally transferred at a point in time, a certain portion of businesses with customized products or contracts in which the Company performs work on customer-owned assets requires the use of an over time recognition model as certain contracts meet one or more of the established criteria pursuant to the accounting standards governing revenue recognition. Also, service revenue is recognized as control transfers, which is concurrent with the services being performed. The estimation of both total revenue and cost at completion includes a number of variables and requires significant judgement. A portion of our Aerospace OEM business as well as a portion of our Molding Solutions business has an estimate at completion process in which management reviews the progress and execution of our performance obligations for significant contracts with revenue recognized under an over time model. Factors considered in these estimates include, but are not limited to, performance under the contract, progress towards completion, identified risks and opportunities, sourcing determinations and related changes in estimates of costs to be incurred. The potential exists that there will be a material change in estimates or assumptions used to
calculate revenue recognized under an over time model and as a result changes to these estimates could have a material adverse effect on our results of operations. Adjustments to net sales, cost of sales and the related impact to operating income are recognized as necessary. Revenue recognized from performance obligations satisfied in previous periods was not material in 2023, 2022 and 2021. See Note 3 of the Consolidated Financial Statements.
Business Acquisitions, Indefinite-Lived Intangible Assets and Goodwill: Assets and liabilities acquired in a business combination are recorded under the acquisition method of accounting at their estimated fair values at the acquisition date.dates of acquisition. At December 31, 2017,2023, the Company had $690.2
$1,183.6 million and $42.8$509.4 million of goodwill and indefinite-livedidentifiable intangible assets related to acquisitions, respectively. Goodwill represents the cost of acquisitions in excess of fair values assigned to the underlying identifiable net assets of acquired companies. businesses. The assignment of fair market value requires significant judgments regarding the estimates and assumptions used to value the acquired assets and liabilities assumed. In determining the fair values of the assets acquired and liabilities assumed in conjunction with the acquisition of MB Aerospace, the Company utilized the cost, income and market approaches from the perspective of a market participant. Identifiable intangible assets acquired with Aerospace MB include customer relationships and developed technology. The fair value of the customer relationship intangible asset was determined as of the acquisition date utilizing the multi-period excess earnings method. This method is based on estimates and judgments relating to expectations for the future after-tax cash flows arising from customer relationships that existed on the acquisition date over their estimated lives, including those related to forecasted revenue growth rates, gross margins and customer attrition rates, all of which are discounted to present value using appropriate discount rates. The fair value of the developed technology intangible asset was determined utilizing the relief from royalty method which is a form of the income approach. Under this method, an after-tax royalty rate based on market royalty rates is applied to forecasted revenue growth rates associated with the developed technology and discounted to present value using appropriate discount rates. See Note 2 and Note 6 of the Consolidated Financial Statements.
Goodwill and indefinite-lived intangible assets deemed to have indefinite lives are not amortized but are subject to impairment testing annually or earlier if an event or change in circumstances indicates that the fair value of a reporting unit may havehas been reduced below its carrying value. Management completes itstheir annual impairment assessments for goodwill and indefinite-lived intangible assets during the second quarter of each year.year as of April 1. The Company usesutilizes the option to first assess qualitative factors to determine whether it is necessary to perform the two-stepStep 1 quantitative goodwill impairment teststest in accordance with the applicable accounting standards.
Under the qualitative goodwill assessment, management considers relevant events and circumstances including but not limited to macroeconomic conditions, industry and market considerations, overall reporting unit performance and events directly affecting a reporting unit. If the Company determines that the two-stepStep 1 quantitative impairment test is required, management estimates the fair value of the reporting unit primarily using the income approach, which reflects management’s cash flow projections, and also evaluates the fair value using the market approach. Inherent in management’s development of cash flow projections are assumptions and estimates, including those related to future earnings andforecasted revenue growth rates, forecasted operating margins and the weighted average cost of capital. The Company compares the fair value of the reporting unit with the carrying value of the reporting unit. If the fair values were to fall below the carrying values, the Company would recognize a non-cash impairment charge to income from operations for the amount by which the carrying amount of any reporting unit exceeds the reporting unit’s fair value, assuming the loss recognized does not exceed the total amount of goodwill for the reporting unit. Based on our annual assessment in the second quarter 2017 assessment,of 2023, the estimated fair value of allthe Automation reporting unit, which represents the 2018 acquisition of Gimatic, exceeded its carrying value, while the estimated fair value of each of the remaining reporting units significantly exceeded their carrying values and therevalues. During the prior year 2022 period, management recorded a non-cash goodwill impairment charge related to the Automation reporting unit as the estimated fair value of the reporting unit declined below its carrying value. There was no goodwill impairment at any reporting units in the 2023 period. Estimating the fair value of individual reporting units also requires that management make continued assumptions and estimates regarding future plans and strategies, in addition to the reporting units.consideration of economic, geopolitical and regulatory conditions. In the event there are future adverse changes in our estimated future cash flows and/or changes in key assumptions, including but not limited to discount rates, revenue growth or margins, and/or terminal growth rates, we may be required to record additional non-cash impairment charges to Automation goodwill. 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. Management’s quantitative assessment during the second quarter of 2017 includedincludes a review of the potential impacts of current and projected market conditions from a market participant’s perspective on reporting units’ projected cash flows, growth rates and cost of capital to assess the likelihood of whether the fair value would be less than the carrying value. ManagementThe Company also performedcompleted its annual impairment testing of its trade names, indefinite-lived intangible assets, duringin the second quarter of 2017. Based on this assessment,2023 and determined that there were no impairments. At December 31, 2023, the goodwill related to the Automation reporting unit was no trade name impairment recognized.179.7 million Euros ($198.8 million).
Aerospace Aftermarket Programs: The Company participates in aftermarket RSPs under which the Company receives an exclusive right to manufacture and supply designated aftermarket parts over the life of the related aircraft engine program to
our customer, General Electric ("GE").GE. As consideration, the Company has paid participation fees, which are recorded as intangible assets. The carrying value of these intangible assets was $185.6$123.4 million at December 31, 2017.2023. The Company records amortization of the related asset as sales dollars are being earned based on a proportional sales dollar method. Specifically, this method amortizes each asset as a reduction to revenue based on the proportion of sales under a program in a given period to the estimated aggregate sales dollars over the life of that program which reflects the pattern in which economic benefits are realized.
The Company entered into Component Repair Programs ("CRPs")also participates in CRPs with GE during 2015, 2014 and 2013. The CRPswhich provide for, among other items, the right to sell certain aftermarket component repair services for CFM56, CF6, CF34 and LM engines directly to other customers over the life of the aircraft engine program as one of a few GE licensed suppliers. In addition, the CRPs extended certain existing contracts under which the Company provides these services directly to GE. Our total investments in CRPs as of December 31, 20172023 equaled $111.8 million, all of which have been paid. At December 31, 2017,2023, the carrying value of the CRPs was $95.3$62.3 million. The Company recorded the CRP payments as an intangible asset which is recognized as a reduction of sales over the remaining life of these engine programs based on the estimated sales over the life of such programs. This method reflects the pattern in which the economic benefits of the CRPs are realized.
The recoverability of each asset is subject to significant estimates about future revenues related to the programs' aftermarket parts and services. The Company evaluates these intangible assets for recoverability and updates amortization rates on an agreement by agreement basis for the RSPs and on an individual asset basis for the CRPs. The assets are reviewed for recoverability periodically including whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Annually, the Company evaluates the remaining life of these assets to determine whether events and circumstances warrant a revision to the remaining periods of amortization. Management updates revenue projections, which includes comparinginclude a comparison of actual experience against projected revenue and industry projections. The potential exists that actual revenues will not meet expectations due to a change in market conditions, including, for example, the replacement of older engines with new, more fuel-efficient engines or the Company's ability to capture additional marketproduction share within the aftermarket business. A shortfall in future revenues may indicate a triggering event requiring a write down or further evaluation of the recoverability of the assets or require the Company to accelerate amortization expense prospectively dependent on the level of the shortfall. The Company has not identified any impairment of these assets.assets, although changes in projected RSP and CRP revenue has impacted amortization rates that will be applied prospectively. See Note 56 of the Consolidated Financial Statements.
Pension and Other Postretirement Benefits: Accounting policies and significant assumptions related to pension and other postretirement benefits are disclosed in Note 1112 of the Consolidated Financial Statements. As discussed further below, the
significant assumptions that impact pension and other postretirement benefits include discount rates, mortality rates and expected long-term rates of return on invested pension assets.
The Company selected the expected long-term rate of return of its U.S. defined benefit plans based on consideration of historical and projected rates of return on the weighted target asset mix of our pension investments. The target mix reflects a 65% equity investment target and a 35% target for fixed income and cash investments (in aggregate). The equity investment of 65% is more heavily weighted on global equity investment targets, rather than U.S. targets. The historical rates of return for the Company's defined benefit plans were calculated based upon compounded average rates of return of published indices. Management selected a long-term expected rate of return on its U.S. pension assets of 7.75%. The long-term rates of return for non-U.S. plans were selected based on actual historical rates of return of published indices that reflect the plans’ target asset allocations.
The discount rate used for the Company’s U.S. pension plans reflects the rate at which the pension benefits could be effectively settled. At December 31, 2017,2023, the Company selected a discount rate of 3.90%5.45% based on a bond matching model for its U.S. pension plans. Market interest rates have slightly decreased in 20172023 as compared with 20162022 and, as a result, the discount rate used to measure pension liabilities decreased from 4.50%5.50% at December 31, 2016.2022. The discount rates for non-U.S. plans were selected based on highly rated long-term bond indices and yield curves that match the duration of the plan’s benefit obligations.
A one-quarter percentage point change in the assumed long-term rate of return on the Company’s U.S. pension plans as of December 31, 20172023 would impact the Company’s 20182024 pre-tax income by approximately $0.9$0.3 million. A one-quarter percentage point decrease in the discount rate on the Company's U.S. pension plans as of December 31, 20172023 would also decrease the Company’s 20182024 pre-tax income by approximately $0.9$8.0 million. The Company reviews these and other assumptions at least annually.
The Company recorded a $10.7$7.9 million of non-cash after-tax increaseincreases in stockholders equity (through other non-owner changes to equity) to recordwhen recording the current year adjustments for changes in the funded status of its pension and postretirement benefit plans as required under accounting for defined benefit and other postretirement plans. This increase in stockholders equity resulted primarily from favorable variances between expected and actual returns on pension plan assets and the amortization of actuarial losses recorded earlier, partially offset by changes in actuarial assumptions, primarily the decrease in the discount rate.losses. During 2017,2023, the fair value of the Company’s pension plan assets increased by $37.5$8.6 million and the projected benefit obligation increaseddecreased by $4.2$19.4 million. The increasedecrease in the projected benefit obligation included payments of benefits to plan participants of $33.6 million partially offset by a $24.0$8.6 million (pre-tax) increase due to actuarial losses resulting primarily from a change in the discount rates used to measure pension liabilities, annual service and interest costs of $6.1$2.6 million and $18.8$19.4 million, respectively $7.2 million of foreign exchange impacts and $2.7 million of transfersalso impacted the decrease in resulting from employees that were hired during the period. These increases were partially offset by a $7.0 million curtailment gain related to the Closure of the FOBOHA facility in Muri, Switzerland (the "Closure", see Note 8 of the Consolidated Financial Statements), settlements of $21.1 million (primarily related to the Closure) and $29.1 million in benefits paid.projected benefit obligation. Changes to other actuarial assumptions in 20172023 did not have a material impact on our stockholders equity or projected benefit obligation. Actual pre-tax gains on total pension plan assets were $62.3$38.3 million compared with an expected pre-tax return on pension assets of $28.1$30.1 million. Also impacting total pension plan assets during the 2017 period were $29.1 million in benefits paid and settlements of $20.9 million, related primarily to the Closure. Pension expenseincome for 20182024 is expected to decreaseincrease from $7.8$6.1 million in 2017,2023, excluding curtailmentscurtailment gains of $0.7 million and settlement gains of $7.2$0.7 million, and $0.1to pension income of $8.0 million, respectively, to $5.8 million.
Income Taxes: Recognition ofalso excluding the impacts of the U.S. Tax Reform required significant estimates and judgments. As noted within “Results of Operations - U.S. Tax Reform”, the SEC issued SAB 118 in January 2018. Pursuant to SAB 118, the Company was capable of reasonably estimating the effects of the Act and therefore has recorded a provisional income tax expense within the Consolidated Financial Statements. See further discussion therein.any potential curtailments or settlements.
Income Taxes:As of December 31, 2017,2023, the Company had recognized $12.2$10.3 million of deferred tax assets, net of valuation reserves. The realization of these benefits is dependent, in part, on the amount and timing of future taxable income in jurisdictions where the deferred tax assets reside. For those jurisdictions where the expirations dateexpiration dates of tax loss carryforwards or the proposed operating results indicate that realization is unlikely, a valuation allowance is provided. Management currently believes that sufficient taxable income should be earned in the future to realize the deferred tax assets, net of valuation allowances recorded,recorded.
The valuation of deferred tax assets requires significant judgment. Management’s assessment that the deferred tax assets will be realized represents its estimate of future results; however, there can be no assurance that such expectations will be met. Changes in management’s assessment of achieving sufficient future taxable income could materially increase the Company’s tax expense and could have a material adverse impact on the Company’s financial condition and the results of operations.
Additionally, the Company is exposed to certain tax contingencies in the ordinary course of business and records those tax liabilities in accordance with the guidance for accounting for uncertain tax positions. For tax positions where the Company believes it is more likely than not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized. For those income tax positions where it is more likely than not that
a tax benefit will not be sustained, no tax benefit is recognized in the financial statements. A change in judgement that results in subsequent recognition, derecognition or change in measurement of a tax position taken in a earlier period will be recognized in the period that the change occurred. We do not anticipate a significant change in our unrecognized tax benefits within the next twelve months. The Company or its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. With a few exceptions, tax years remaining open to examination in significant foreign jurisdictions include tax years 2018 and forward and for the U.S. include tax years 2016 and forward. See Note 1314 of the Consolidated Financial Statements. A one percentage point increase/decrease in our tax rate would have affected our 2023 earnings by $0.3 million. Changes in judgement related to tax positions taken in previous periods was not material in 2023, 2022 and 2021.
AAs noted above, a significant portion of revenue is generated by foreign locations. Current guidance requires the recognition of a tax liability under the assumption that foreign earnings will be repatriated in the future, unless the Company can assert that the earnings are indefinitely reinvested. Management’s annual assessment in determining whether the earnings are indefinitely reinvested is based on an analysis of U.S. cash requirements and working capital requirements of the foreign operations, including capital expenditures, combined with any limitations, such as dividend restrictions or local law limits, which would limit possible repatriation. All remaining earnings are considered indefinitely reinvested as defined per the indefinite reversal criterion within the accounting guidance for income taxes.
In October 2021, the OECD announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%. Subsequently multiple sets of administrative guidance have been issued. Many non-US tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 with the adoption of additional components in later years or announced their plans to enact legislation in future years. We are continuing to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the non-US tax jurisdictions in which we operate.
Stock-Based Compensation:The Company accounts for its stock-based employee compensation plans at fair value on the grant date and recognizes the related cost in its consolidated statement of income in accordance with accounting standards related to share-based payments. The fair values of stock options aregranted under the 2023 Barnes Group Stock and Incentive Award Plan ("2023 Plan") is estimated using the Black-Scholes option-pricing model based on certain assumptions. Compensation expense may be adjusted in future periods based on the achievement of the requisite service condition. The fair values of service and performance basedperformance-based share awards granted under the 2023 Plan are estimateddetermined based on the fair market value of the Company’s stock price on the grant date. Compensation expense is based on fair value and is recorded each period based up on a probability assessment of achieving performance goals. The fair valuesvalue of market basedmarket-based performance share awards areunder the 2023 Plan is estimated on the grant date using the Monte Carlo valuation method. The fair value of the performance-vested stock options granted in July 2022 under the CEO's Stock Option Award was also estimated using the Monte Carlo valuation method.method on the grant date. Compensation expense for awards valued using the Monte Carlo valuation method is fixed at the date of grant and will not be adjusted in future periods. See Note 1213 of the Consolidated Financial Statements.
EBITDA
Earnings before interest expense, income taxes, and depreciation and amortization (“EBITDA”) for 2017 was $300.4 million compared to $274.7 million in 2016. 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. 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. Accordingly, the calculation has limitations depending on its use.
Following is a reconciliation of EBITDA to the Company’s net income (in millions):
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Net income | | $ | 59.4 |
| | $ | 135.6 |
|
| Add back: | | | | |
| Interest expense | | 14.6 |
| | 11.9 |
|
| Income taxes | | 136.3 |
| | 47.0 |
|
| Depreciation and amortization | | 90.2 |
| | 80.2 |
|
| EBITDA | | $ | 300.4 |
| | $ | 274.7 |
|
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential economic loss that may result from adverse changes in the fair value of financial instruments. The Company’s financial results could be impacted by changes in interest rates and foreign currency exchange rates, and commodity price changes. The Company uses financial instruments to hedge its exposure to fluctuations in interest rates and foreign currency exchange rates. The Company does not use derivatives for speculative or trading purposes.
The Company’s long-term debt portfolio consists of fixed-rate and variable-rate instruments and is managed to reduce the overall cost of borrowing while also minimizing the effect of changes in interest rates on near-term earnings. The Company’s primary interest rate risk is derived from its outstanding variable-rate debt obligations. Financial instruments have been used by the Company to hedge its exposures to fluctuations in interest rates.
InOn April 2012,28, 2017, the Company entered into five-year interest rate swap agreements (the "Swaps") transacted with three banks which together converted the interest on the first $100.0 million of borrowings under the Company’s Amended Credit Agreement from a variable rate plus the borrowing spread to a fixed rate of 1.03% plus the borrowing spread for the purpose of mitigating its exposure to variable interest rates. The Swaps expired on April 28, 2017. The Company entered into a newan interest rate swap agreement (the "Swap""2017 Swap") that commenced on April 28, 2017, with one bank and convertswhich converted the interest on the first $100.0 million of the Company's one-month LIBOR-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 1.92% plus the borrowing spread. The 2017 Swap expiresexpired on January 31, 2022. On March 24, 2021, the Company entered into a new interest rate swap agreement (the "2021 Swap") with this same bank that commenced on January 31, 2022 and that converted the interest on the first $100.0 million of the Company's one-month LIBOR-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 1.17% plus the borrowing spread. Effective, April 30, 2022, the Company amended the 2021 Swap (the "Amended 2021 Swap"), such that the one-month SOFR-based borrowing rate replaced the one-month LIBOR-based borrowing rate. The Amended 2021 Swap, which will expire on January 30, 2026, converts the interest on $100.0 million of the Company's one-month SOFR-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 1.075% plus the borrowing spread. The execution of the Amended 2021 Swap did not have a material impact on our business, financial condition, results of operations or cash flow. On July 19, 2023, the Company entered into an interest rate swap agreement (the "Euribor Swap") with one bank that commenced on July 31, 2023, which converts the interest on €150.0 million of the Company's Euribor-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 3.257% plus the borrowing spread. Under the Euribor Swap, €50.0 million will expire on July 31, 2026, with the remaining balance of €100.0 million expiring on July 31, 2028. On September 12, 2023, the Company entered into six additional interest rate swap agreements (the "2023 Swaps") with six different banks that commenced on September 29, 2023, which convert the interest on $600.0 million of the Company's one-month SOFR-based borrowings from a variable rate plus the borrowing spread to a blended fixed rate of 4.321% plus the borrowing spread. Under the 2023 Swaps, $50.0 million will expire on August 31, 2026, $100.0 million will expire on August 31, 2027, $200.0 million will expire on August 31, 2028, $50.0 million will expire on August 31, 2029 and the remaining balance of $200.0 million will expire on August 31, 2030. The execution of the Euribor Swap and the 2023 Swaps did not have a material impact on our business, financial condition, results of operations or cash flow. The result of a hypothetical 100 basis point increase in the interest rate on the average bank borrowings of the Company’s variable-rate debt during 20172023 would have reduced annual pretax profit by $3.0$4.3 million.
At December 31, 2017,2023, the fair value of the Company’s fixed-rate debt was $107.2$11.7 million, compared with its carrying amount of $105.4$12.0 million. The Company estimates that a 100 basis point decrease in market interest rates at December 31, 20172023 would not have increaseda material impact on the fair value of the Company's fixed rate debt to $113.5 million.debt.
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 exposed primarily to financial instruments denominated in currencies other than the functional currency at its international locations. A 10% adverse change in foreign currencies relative to the U.S dollar at December 31, 20172023 would have resulted in a $3.8$2.6 million loss in the fair value of those financial instruments. At December 31, 2017,2023, the Company held $145.3$89.8 million of cash and cash equivalents, the majority of which is held by foreign subsidiaries.
Foreign currency commitments and transaction exposures are managed at the operating units as an integral part of their businesses in accordance with a corporate policy that addresses acceptable levels of foreign currency exposures.
Additionally, to reduce foreign currency exposure, management generally maintains the majority of foreign cash and short-term investments in functional currency and uses forward currency contracts for non-functional currency denominated monetary assets and liabilities and anticipated transactions in an effort to reduce the effect of the volatility of changes in foreign exchange rates on the income statement. Management assesses the strength of currencies in certain countries such as Brazil and Mexico, relative to the U.S. dollar, and may elect during periods of local currency weakness to invest excess cash in U.S. dollar-denominated instruments.
The Company’s exposure to commodity price changes relates to certain manufacturing operations that utilize high-grade steel spring wire, stainless steel, titanium, Inconel, Hastelloys and other specialty metals. The Company attempts to manage its exposure to price increases through its procurement and sales practices. See “Part I - Item 1A - Risk Factors” for additional disclosure related to this market risk.
The results of the Company could be impacted by changes in tariffs, trade agreements or other trade restrictions imposed or agreed to by the U.S. or foreign governments.
Item 8. Financial Statements and Supplementary Data
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
| | | | | Years Ended December 31, | | | Years Ended December 31, |
| | | 2017 | | 2016 | | 2015 | | | 2023 | | 2022 | | 2021 |
| Net sales | | $ | 1,436,499 |
| | $ | 1,230,754 |
| | $ | 1,193,975 |
|
| Cost of sales | | 939,288 |
| | 790,299 |
| | 782,817 |
|
| Selling and administrative expenses | | 286,933 |
| | 248,277 |
| | 242,762 |
|
| | | 1,226,221 |
| | 1,038,576 |
| | 1,025,579 |
|
| Goodwill impairment charge | |
| | 1,361,879 | |
| Operating income | | 210,278 |
| | 192,178 |
| | 168,396 |
|
| Interest expense | | 14,571 |
| | 11,883 |
| | 10,698 |
|
| Other expense (income), net | | 8 |
| | (2,326 | ) | | (248 | ) |
| Income before income taxes | | 195,699 |
| | 182,621 |
| | 157,946 |
|
| Income taxes | | 136,284 |
| | 47,020 |
| | 36,566 |
|
| | Net income | |
| | Net income | |
| | Net income | | $ | 59,415 |
| | $ | 135,601 |
| | $ | 121,380 |
|
| Per common share: | | | | | | |
| Basic | | $ | 1.10 |
| | $ | 2.50 |
| | $ | 2.21 |
|
| Basic | |
| Basic | |
| Diluted | | $ | 1.09 |
| | $ | 2.48 |
| | $ | 2.19 |
|
| Dividends | | $ | 0.55 |
| | $ | 0.51 |
| | $ | 0.48 |
|
| Weighted average common shares outstanding: | | | | | | |
| Basic | | 54,073,407 |
| | 54,191,013 |
| | 55,028,063 |
|
| Basic | |
| Basic | |
| Diluted | | 54,605,298 |
| | 54,631,313 |
| | 55,513,219 |
|
See accompanying notes.
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Dollars in thousands)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Net income | $ | 15,996 | | | $ | 13,479 | | | $ | 99,873 | |
| Other comprehensive income (loss), net of tax | | | | | |
Unrealized (loss) gain on hedging activities, net of tax (1) | (20,445) | | | 5,781 | | | 917 | |
Foreign currency translation adjustments, net of tax (2) | 37,952 | | | (78,110) | | | (60,252) | |
Defined benefit pension and other postretirement benefits, net of tax (3) | 7,864 | | | 3,667 | | | 29,812 | |
| Total other comprehensive income (loss), net of tax | 25,371 | | | (68,662) | | | (29,523) | |
| Total comprehensive income (loss) | $ | 41,367 | | | $ | (55,183) | | | $ | 70,350 | |
| | | | | |
|
| | | | | |
| | | | | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Net income | $ | 59,415 |
| | $ | 135,601 |
| | $ | 121,380 |
|
| Other comprehensive income (loss), net of tax | | | | | |
| Unrealized gain (loss) hedging activities, net of tax (1) | 299 |
| | (342 | ) | | 847 |
|
| Foreign currency translation adjustments, net of tax (2) | 83,404 |
| | (48,367 | ) | | (54,232 | ) |
Defined benefit pension and other postretirement benefits, net of tax (3) | 10,726 |
| | (8,867 | ) | | 9,586 |
|
| Total other comprehensive income (loss), net of tax | 94,429 |
| | (57,576 | ) | | (43,799 | ) |
| Total comprehensive income | $ | 153,844 |
| | $ | 78,025 |
| | $ | 77,581 |
|
(1) Net of tax of $232$(6,700), $(42)$1,825 and $227$334 for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively.
(2) Net of tax of $610, $(833)$0, $0, and $(1,777)$0 for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively.
(3) Net of tax of $4,469, $(4,687)$3,221, $(489) and $3,916$8,916 for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively.
See accompanying notes.
BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)thousands, except per share data)
| | | | | December 31, | | | December 31, |
| | | 2017 | | 2016 | | | 2023 | | 2022 |
| Assets | | | | |
| Current assets | | | | |
| Current assets | |
| Current assets | |
| Cash and cash equivalents | | $ | 145,290 |
| | $ | 66,447 |
|
| Accounts receivable, less allowances (2017 – $5,143; 2016 – $3,992) | | 348,943 |
| | 287,123 |
|
| Cash and cash equivalents | |
| Cash and cash equivalents | |
| Accounts receivable, less allowances (2023 – $7,258; 2022 – $5,222) | |
| Inventories | | 241,962 |
| | 227,759 |
|
| | Prepaid expenses and other current assets | | 32,526 |
| | 27,163 |
|
| Prepaid expenses and other current assets | |
| Prepaid expenses and other current assets | |
| | Total current assets | |
| Total current assets | |
| Total current assets | | 768,721 |
| | 608,492 |
|
| Deferred income taxes | | 12,161 |
| | 25,433 |
|
| Property, plant and equipment, net | | 359,298 |
| | 334,489 |
|
| Goodwill | | 690,223 |
| | 633,436 |
|
| Other intangible assets, net | | 507,042 |
| | 522,258 |
|
| Other assets | | 28,271 |
| | 13,431 |
|
| | Total assets | |
| Total assets | |
| Total assets | | $ | 2,365,716 |
| | $ | 2,137,539 |
|
| Liabilities and Stockholders’ Equity | | | | |
| Current liabilities | | | | |
| Current liabilities | |
| Current liabilities | |
| Notes and overdrafts payable | |
| Notes and overdrafts payable | |
| Notes and overdrafts payable | | $ | 5,669 |
| | $ | 30,825 |
|
| Accounts payable | | 127,521 |
| | 112,024 |
|
| Accrued liabilities | | 181,241 |
| | 156,967 |
|
| Long-term debt – current | | 1,330 |
| | 2,067 |
|
| | Total current liabilities | |
| Total current liabilities | |
| Total current liabilities | | 315,761 |
| | 301,883 |
|
| Long-term debt | | 525,597 |
| | 468,062 |
|
| Accrued retirement benefits | | 89,000 |
| | 109,350 |
|
| Deferred income taxes | | 73,505 |
| | 66,446 |
|
| Long-term tax liability | | 79,770 |
| | — |
|
| Other liabilities | | 21,762 |
| | 23,440 |
|
| Commitments and contingencies (Note 20) | |
| |
|
| | Commitments and contingencies (Note 22) | |
| Commitments and contingencies (Note 22) | |
| Commitments and contingencies (Note 22) | | | |
| Stockholders’ equity | | | | |
| Common stock – par value $0.01 per share | | | | |
| Common stock – par value $0.01 per share | |
| Common stock – par value $0.01 per share | |
| Authorized: 150,000,000 shares | | | | |
| Issued: at par value (2017 – 63,034,240 shares; 2016 – 62,692,403 shares) | | 630 |
| | 627 |
|
| Authorized: 150,000,000 shares | |
| Authorized: 150,000,000 shares | |
| Issued: at par value (2023 – 64,600,635 shares; 2022 – 64,481,493 shares) | |
| Issued: at par value (2023 – 64,600,635 shares; 2022 – 64,481,493 shares) | |
| Issued: at par value (2023 – 64,600,635 shares; 2022 – 64,481,493 shares) | |
| Additional paid-in capital | | 457,365 |
| | 443,235 |
|
| Treasury stock, at cost (2017 – 9,656,369 shares; 2016 – 8,889,947 shares) | | (297,998 | ) | | (251,827 | ) |
| Treasury stock, at cost (2023 – 13,914,076 shares; 2022 – 13,890,802 shares) | |
| Retained earnings | | 1,206,723 |
| | 1,177,151 |
|
| Accumulated other non-owner changes to equity | | (106,399 | ) | | (200,828 | ) |
| Total stockholders’ equity | | 1,260,321 |
| | 1,168,358 |
|
| Total liabilities and stockholders’ equity | | $ | 2,365,716 |
| | $ | 2,137,539 |
|
See accompanying notes.
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| Operating activities: | | | | | | |
| Net income | | $ | 59,415 |
| | $ | 135,601 |
| | $ | 121,380 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| Depreciation and amortization | | 90,150 |
| | 80,154 |
| | 78,242 |
|
| Gain on disposition of property, plant and equipment | | (246 | ) | | (349 | ) | | (1,128 | ) |
| Stock compensation expense | | 12,279 |
| | 11,493 |
| | 9,258 |
|
| Pension lump-sum settlement charge | | — |
| | — |
| | 9,856 |
|
| Effect of U.S. Tax Reform on deferred tax assets | | 4,152 |
| | — |
| | — |
|
| Changes in assets and liabilities, net of the effects of acquisitions: | | | | | | |
| Accounts receivable | | (50,082 | ) | | (23,057 | ) | | 14,027 |
|
| Inventories | | (173 | ) | | 1,989 |
| | (1,190 | ) |
| Prepaid expenses and other current assets | | (4,241 | ) | | 569 |
| | (2,645 | ) |
| Accounts payable | | 12,018 |
| | 11,778 |
| | (2,936 | ) |
| Accrued liabilities | | 14,439 |
| | 15,825 |
| | (14,166 | ) |
| Deferred income taxes | | 3,589 |
| | (2,210 | ) | | 3,121 |
|
| Long-term retirement benefits | | (16,349 | ) | | (15,492 | ) | | 1,081 |
|
| Long-term tax liability | | 79,770 |
| | — |
| | — |
|
| Other | | (801 | ) | | 1,345 |
| | 2,575 |
|
| Net cash provided by operating activities | | 203,920 |
| | 217,646 |
| | 217,475 |
|
| Investing activities: | | | | | | |
| Proceeds from disposition of property, plant and equipment | | 2,594 |
| | 780 |
| | 3,442 |
|
| Capital expenditures | | (58,712 | ) | | (47,577 | ) | | (45,982 | ) |
| Business acquisitions, net of cash acquired | | (8,922 | ) | | (128,613 | ) | | (51,954 | ) |
| Component Repair Program payments | | — |
| | (4,100 | ) | | (21,000 | ) |
| Other | | (3,000 | ) | | — |
| | — |
|
| Net cash used in investing activities | | (68,040 | ) | | (179,510 | ) | | (115,494 | ) |
| Financing activities: | | | | | | |
| Net change in other borrowings | | (25,304 | ) | | 8,375 |
| | 14,680 |
|
| Payments on long-term debt | | (73,161 | ) | | (321,506 | ) | | (171,198 | ) |
| Proceeds from the issuance of long-term debt | | 129,118 |
| | 303,277 |
| | 159,264 |
|
| Proceeds from the issuance of common stock | | 2,408 |
| | 4,611 |
| | 11,425 |
|
| Common stock repurchases | | (40,791 | ) | | (20,520 | ) | | (52,103 | ) |
| Dividends paid | | (29,551 | ) | | (27,435 | ) | | (26,176 | ) |
| Withholding taxes paid on stock issuances | | (5,380 | ) | | (4,885 | ) | | (4,913 | ) |
| Other | | (21,090 | ) | | 4,771 |
| | 9,850 |
|
| Net cash used by financing activities | | (63,751 | ) | | (53,312 | ) | | (59,171 | ) |
| Effect of exchange rate changes on cash flows | | 6,714 |
| | (2,303 | ) | | (4,923 | ) |
| Increase (decrease) in cash and cash equivalents | | 78,843 |
| | (17,479 | ) | | 37,887 |
|
| Cash and cash equivalents at beginning of year | | 66,447 |
| | 83,926 |
| | 46,039 |
|
| Cash and cash equivalents at end of year | | $ | 145,290 |
| | $ | 66,447 |
| | $ | 83,926 |
|
Supplemental Disclosure of Cash Flow Information:
Non-cash investing activities in 2015 included the acquisition of $3,200of intangible assets, and the recognition of the corresponding liabilities, in connection with the Component Repair Programs. | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2023 | | 2022 | | 2021 |
| Operating activities: | | | | | | |
| Net income | | $ | 15,996 | | | $ | 13,479 | | | $ | 99,873 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| Depreciation and amortization | | 115,818 | | | 92,150 | | | 91,085 | |
| | | | | | |
| Gain on disposition of property, plant and equipment | | (1,197) | | | (821) | | | (1,027) | |
| Stock compensation expense | | 10,201 | | | 12,804 | | | 11,470 | |
| | | | | | |
| | | | | | |
| | | | | | |
| Non-cash goodwill impairment charge | | — | | | 68,194 | | | — | |
| Changes in assets and liabilities, net of the effects of acquisitions: | | | | | | |
| Accounts receivable | | (6,073) | | | (39,484) | | | (18,793) | |
| Inventories | | 622 | | | (48,591) | | | (7,350) | |
| Prepaid expenses and other current assets | | 1,321 | | | (9,257) | | | (5,208) | |
| Accounts payable | | (5,493) | | | 15,998 | | | 22,909 | |
| Accrued liabilities | | 22,673 | | | (25,659) | | | (1,630) | |
| Deferred income taxes | | (16,058) | | | 2,645 | | | (19,354) | |
| Long-term retirement benefits | | (17,256) | | | (1,474) | | | 3,423 | |
| Long-term tax liability | | (13,029) | | | (6,948) | | | (6,949) | |
| Other | | 4,890 | | | 2,523 | | | (643) | |
| Net cash provided by operating activities | | 112,415 | | | 75,559 | | | 167,806 | |
| Investing activities: | | | | | | |
| Proceeds from disposition of property, plant and equipment | | 7,921 | | | 1,825 | | | 3,007 | |
| | | | | | |
| | | | | | |
| Capital expenditures | | (55,739) | | | (35,082) | | | (34,117) | |
| Business acquisitions, net of cash acquired | | (718,782) | | | — | | | — | |
| | | | | | |
| | | | | | |
| Other | | (921) | | | (2,729) | | | 1,304 | |
| Net cash used in investing activities | | (767,521) | | | (35,986) | | | (29,806) | |
| Financing activities: | | | | | | |
| Net change in other borrowings | | (257) | | | (1,333) | | | (173) | |
| Payments on long-term debt | | (314,167) | | | (108,415) | | | (115,507) | |
| Proceeds from the issuance of long-term debt | | 1,019,708 | | | 98,285 | | | 48,300 | |
| Payments of debt issuance costs | | (11,341) | | | — | | | — | |
| | | | | | |
| Proceeds from the issuance of common stock | | 353 | | | 513 | | | 1,427 | |
| Common stock repurchases | | — | | | (6,721) | | | (5,229) | |
| Dividends paid | | (32,412) | | | (32,376) | | | (32,402) | |
| Withholding taxes paid on stock issuances | | (908) | | | (1,144) | | | (1,421) | |
| Other | | 5,586 | | | (13,638) | | | (9,661) | |
| Net cash used provided by financing activities | | 666,562 | | | (64,829) | | | (114,666) | |
| Effect of exchange rate changes on cash flows | | (545) | | | (5,525) | | | (2,893) | |
| Increase (decrease) in cash, cash equivalents and restricted cash | | 10,911 | | | (30,781) | | | 20,441 | |
| Cash, cash equivalents and restricted cash at beginning of year | | 81,128 | | | 111,909 | | | 91,468 | |
| Cash, cash equivalents and restricted cash at end of year | | 92,039 | | | 81,128 | | | 111,909 | |
| Less: Restricted cash, included in Prepaid expenses and other current assets | | (2,212) | | | (2,135) | | | (4,524) | |
| Less: Restricted cash, included in Other assets | | — | | | (2,135) | | | (4,525) | |
| Cash and cash equivalents at end of year | | $ | 89,827 | | | $ | 76,858 | | | $ | 102,860 | |
See accompanying notes.
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars and shares in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common
Stock
(Number of
Shares) | | Common
Stock
(Amount) | | Additional
Paid-In
Capital | | Treasury
Stock
(Number of
Shares) | | Treasury
Stock | | Retained
Earnings | | Accumulated
Other
Non-Owner
Changes to
Equity | | Total
Stockholders’
Equity |
| January 1, 2021 | | 64,171 | | | $ | 642 | | | $ | 501,531 | | | 13,530 | | | $ | (516,992) | | | $ | 1,519,811 | | | $ | (122,315) | | | $ | 1,382,677 | |
| Comprehensive income (loss) | | — | | | — | | | — | | | — | | | — | | | 99,873 | | | (29,523) | | | 70,350 | |
| Dividends declared ($0.64 per share) | | — | | | — | | | — | | | — | | | — | | | (32,402) | | | — | | | (32,402) | |
| Residual interest in subsidiary | | — | | | — | | | 2,177 | | | — | | | — | | | — | | | — | | | 2,177 | |
| Common stock repurchases | | — | | | — | | | — | | | 100 | | | (5,229) | | | — | | | — | | | (5,229) | |
| Employee stock plans | | 173 | | | 1 | | | 12,854 | | | 28 | | | (1,421) | | | (241) | | | — | | | 11,193 | |
| December 31, 2021 | | 64,344 | | | 643 | | | 516,562 | | | 13,658 | | | (523,642) | | | 1,587,041 | | | (151,838) | | | 1,428,766 | |
| Comprehensive income (loss) | | — | | | — | | | — | | | — | | | — | | | 13,479 | | | (68,662) | | | (55,183) | |
| Dividends declared ($0.64 per share) | | — | | | — | | | — | | | — | | | — | | | (32,376) | | | — | | | (32,376) | |
| | | | | | | | | | | | | | | | |
| Common stock repurchases | | — | | | — | | | — | | | 200 | | | (6,721) | | | — | | | — | | | (6,721) | |
| Employee stock plans | | 137 | | | 2 | | | 13,229 | | | 33 | | | (1,144) | | | (246) | | | — | | | 11,841 | |
| December 31, 2022 | | 64,481 | | | 645 | | | 529,791 | | | 13,891 | | | (531,507) | | | 1,567,898 | | | (220,500) | | | 1,346,327 | |
| Comprehensive income | | — | | | — | | | — | | | — | | | — | | | 15,996 | | | 25,371 | | | 41,367 | |
| Dividends declared ($0.64 per share) | | — | | | — | | | — | | | — | | | — | | | (32,412) | | | — | | | (32,412) | |
| Residual interest in subsidiary | | — | | | — | | | (2,381) | | | — | | | — | | | — | | | — | | | (2,381) | |
| | | | | | | | | | | | | | | | |
| Employee stock plans | | 119 | | | 1 | | | 10,538 | | | 23 | | | (908) | | | (269) | | | — | | | 9,362 | |
| December 31, 2023 | | 64,600 | | | $ | 646 | | | $ | 537,948 | | | 13,914 | | | $ | (532,415) | | | $ | 1,551,213 | | | $ | (195,129) | | | $ | 1,362,263 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock (Number of Shares) | | Common Stock (Amount) | | Additional Paid-In Capital | | Treasury Stock (Number of Shares) | | Treasury Stock | | Retained Earnings | | Accumulated Other Non-Owner Changes to Equity | | Total Stockholders’ Equity |
| January 1, 2015 | | 61,230 |
| | $ | 612 |
| | $ | 405,525 |
| | 6,729 |
| | $ | (169,405 | ) | | $ | 974,514 |
| | $ | (99,453 | ) | | $ | 1,111,793 |
|
| Comprehensive income | | | | | | | | | | | | 121,380 |
| | (43,799 | ) | | 77,581 |
|
| Dividends paid | | | | | | | | | | | | (26,176 | ) | | | | (26,176 | ) |
| Common stock repurchases | | | | | | | | 1,353 |
| | (52,103 | ) | | | | | | (52,103 | ) |
| Employee stock plans | | 841 |
| | 9 |
| | 22,033 |
| | 125 |
| | (4,913 | ) | | (471 | ) | | | | 16,658 |
|
| December 31, 2015 | | 62,071 |
| | 621 |
| | 427,558 |
| | 8,207 |
| | (226,421 | ) | | 1,069,247 |
| | (143,252 | ) | | 1,127,753 |
|
| Comprehensive income | | | | | | | | | | | | 135,601 |
| | (57,576 | ) | | 78,025 |
|
| Dividends paid | | | | | | | | | | | | (27,435 | ) | | | | (27,435 | ) |
| Common stock repurchases | | | | | | | | 551 |
| | (20,520 | ) | | | | | | (20,520 | ) |
| Cumulative effect of change in accounting guidance (Note 12) | | | | | | | | | | | | 198 |
| | | | 198 |
|
| Employee stock plans | | 621 |
| | 6 |
| | 15,677 |
| | 132 |
| | (4,886 | ) | | (460 | ) | | | | 10,337 |
|
| December 31, 2016 | | 62,692 |
| | 627 |
| | 443,235 |
| | 8,890 |
| | (251,827 | ) | | 1,177,151 |
| | (200,828 | ) | | 1,168,358 |
|
| Comprehensive income | | | | | | | | | | | | 59,415 |
| | 94,429 |
| | 153,844 |
|
| Dividends paid | | | | | | | | | | | | (29,551 | ) | | | | (29,551 | ) |
| Common stock repurchases | | | | | | | | 677 |
| | (40,791 | ) | | | | | | (40,791 | ) |
| Employee stock plans | | 342 |
| | 3 |
| | 14,130 |
| | 89 |
| | (5,380 | ) | | (292 | ) | | | | 8,461 |
|
| December 31, 2017 | | 63,034 |
| | $ | 630 |
| | $ | 457,365 |
| | 9,656 |
| | $ | (297,998 | ) | | $ | 1,206,723 |
| | $ | (106,399 | ) | | $ | 1,260,321 |
|
See accompanying notes.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts included in the notes are stated in thousands except per share data
and the tables in Note 19)21)
1. Summary of Significant Accounting Policies
General: The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Consolidation: The accompanying consolidated financial statements include the accounts of the Company and all of its subsidiaries. Intercompany transactions and account balances have been eliminated.
Revenue recognition: Sales and related costrecognition: The Company accounts for revenue in accordance with Accounting Standard Codification 606, Revenue from Contracts with Customers. Revenue is recognized by the Company when control of sales are recognizedthe product or solution is transferred to the customer. Control is generally transferred when products are shipped or delivered to customers, title is transferred, the significant risks and rewards of ownership have transferred, the Company has transferred, and the risksrights to payment and rewards of ownership pass to the customer, providedcustomer. Customer acceptance may also be a factor in determining whether control of the earnings process is complete andproduct or solution has transferred. Although revenue is measurable. Servicegenerally transferred at a point in time, a certain portion of businesses with customized products or contracts in which the Company performs work on customer-owned assets requires the use of an over time recognition model as certain contracts meet one or more of the established criteria pursuant to the accounting standards governing revenue recognition. Also, service revenue is recognized whenas control transfers, which is concurrent with the related services arebeing performed. In the aerospace manufacturing businesses, the Company recognizes revenue based on the units-of-delivery method in accordance with accounting standards related to accounting for performance of construction-type and certain production-type contracts.See Note 3. Management fees related to the aerospace aftermarketAerospace Aftermarket Revenue Sharing Programs ("RSPs") are satisfied through an agreed upon reduction from the sales price of each of the related spare parts. These fees recognize our customer's necessary performance of engine program support activities, such as spare parts administration, warehousing and inventory management, and customer support, and are not separable from our sale of products, and accordingly, they are reflected as a reduction to sales, rather than as costs incurred, when revenues are recognized.
Cash and cash equivalents: Cash in excess of operating requirements is generally invested in short-term, highly liquid, income-producing investments. All highly liquid investments purchased with an original maturity of three months or less are considered cash equivalents. Cash equivalents are carried at cost which approximates fair value.
Accounts receivable: The Company records accounts receivable based on the net amount expected to be collected. Balances are reviewed regularly and reserves are adjusted when events or circumstances indicate carrying values may not be collectable.
Inventories: Inventories are valued at the lower of cost, determined on a first-in, first-out basis, or net realizable value. Loss provisions, if any, on aerospace contractsThe primary components of cost included in inventories are established when estimable. Loss provisionsraw material, labor and overhead. Provisions are made to reduce excess or obsolete inventories to their estimated net realizable value. The process for evaluating the value of excess and obsolete inventory often requires the Company to make judgments and estimates concerning future sales levels, quantities and prices at which such inventory will be sold in the normal course of business and estimated costs. Accelerating the disposal process or changes in estimates based on the projected excess of manufacturingfuture sales potential or estimated costs over the net revenues of the products or group of related products representing firm orders that are supported under a long term agreement.may necessitate future adjustments to these provisions.
Property, plant and equipment: Property, plant and equipment is statedrecorded at cost. Depreciation is recorded using a straight-line method of depreciation over estimated useful lives, generally ranging from 20 to 50 years for buildings and four to 12 years for machinery and equipment. The straight-line method of depreciation was adopted for all property, plant and equipment placed in service after March 31, 1999. For property, plant and equipment placed into service prior to April 1, 1999, depreciation is calculated using accelerated methods. The Company assesses the impairment of property, plant and equipment subject to depreciation whenever events or changes in circumstances indicate the carrying value may not be recoverable.
Business Combinations: In accordance with the Business Combinations guidance, acquisitions are recorded using the acquisition method of accounting. The Company includes the operating results of acquired entities from their respective dates of acquisition. The Company allocates the purchase consideration to the assets acquired and liabilities assumed in the acquired entity generally based on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of these assets acquired and liabilities assumed in the acquired entity is recorded as goodwill. The primary items that generate goodwill include the increase in global market access and the acquired assembled workforce, neither of which qualify for recognition as an intangible asset. Costs incurred as a result of a business combination other than costs related to the
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
issuance of debt or equity securities are recorded in the period the costs are incurred. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to assets acquired and liabilities assumed with the corresponding offset to goodwill. See Note 2.
Goodwill: Goodwill represents the excess purchase costprice over the fair value of net assets of companies acquired in business combinations. Goodwill is considered an indefinite-lived asset. Goodwill is subject to impairment testing in accordance with accounting standards governing such on an annual basis, in the second quarter, or more frequently if an event or change in circumstances indicates that the fair value of a reporting unit has been reduced below its carrying value. The Company utilizes the option to first assess qualitative factors to determine whether it is necessary to perform the Step 1 quantitative goodwill impairment test in accordance with the applicable accounting standards. Under the qualitative assessment, management considers relevant events and circumstances including but not limited to macroeconomic conditions, industry and market considerations, overall reporting unit performance and events directly affecting a reporting unit. If the Company determines that the Step 1 quantitative impairment test is required, management estimates the fair value of the reporting unit using the income approach. Inherent in management’s development of cash flow projections are assumptions and estimates, including those related to forecasted revenue growth rates, forecasted operating margins, and the weighted average cost of capital. The Company compares the fair value of the reporting unit with the carrying value of the reporting unit. If the fair values were to fall below the carrying values, the Company would recognize a non-cash impairment charge to income from operations for the amount by which the carrying amount of any reporting unit exceeds the reporting unit’s fair value, assuming the loss recognized does not exceed the total amount of goodwill for the reporting unit. Based on our assessment as of April 1, 2023, the assessmentsestimated fair value of the Automation reporting unit, which represents the 2018 acquisition of Gimatic, exceeded its carrying value, while the estimated fair value of each of the remaining reporting units significantly exceeded their carrying values. See disclosure related to Other Intangible Assets below and within Note 6.
The Company also performed an annual assessment as of April 1, 2022, during 2017,the prior year period. The Company evaluated deteriorating macro-economic conditions subsequent to the date of the assessment, including inflationary pressures, rising interest rates, worsening global supply chain constraints and demand outlook, which materialized during the second quarter of 2022, impacting performance and outlook at Automation and resulted in a triggering event. Management revised its cash flow projections and weighted average cost of capital, resulting in a non-cash goodwill impairment charge of $68,194 related to the Automation reporting unit as the estimated fair value of the reporting unit declined below its carrying value. Management evaluated the significant increase in interest rates and further deteriorating macro-economic conditions that materialized during the fourth quarter of 2022, again resulting in a triggering event at Automation. Management performed a Step 1 quantitative assessment as of December 31, 2022 and concluded that there was no additional goodwill impairment.impairment at the business. The goodwill impairment charge was recorded in the three month period ended June 30, 2022.
Leases: Contracts are evaluated at inception to determine whether they contain a lease. Operating lease right-of use assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date for operating leases with an initial term greater than 12 months. The Company recognizes lease expense for minimum lease payments on a straight line basis over the term of the lease. Certain leases provide the option to purchase the leased property and are therefore evaluated for finance lease consideration. The depreciable life of leased assets are limited by the expected term of the lease, unless there is a transfer of title or purchase option and the Company believes it is reasonably certain of exercise. The Company utilizes its incremental borrowing rate by lease term to calculate the present value of our future lease payments if an implicit rate is not specified. See Note 19.
Aerospace Aftermarket Programs: The Company participates in aftermarket RSPs under which the Company receives an exclusive right to manufacture and supply designated aftermarket parts over the life of the related aircraft engine program. As consideration, the Company has paid participation fees, which are recorded as long-lived intangible assets. The Company records amortization of the related intangible asset as sales dollars are being earned based on a proportional sales dollar method. Specifically, this method amortizes each asset as a reduction to revenue based on the proportion of sales under a program in a given period to the estimated aggregate sales dollars over the life of that program. This method reflects the pattern in which the economic benefits of the RSPs are realized.
The Company also entered into Component Repair Programs ("CRPs") that provide for, among other items, the right to sell certain aftermarket component repair services for CFM56, CF6, CF34 and LM engines directly to other customers as one of a few GE licensed suppliers. In addition, the CRPs extended certain existing contracts under which the Company currently
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
provides these services directly to GE. The Company recorded the consideration paid for these rights as an intangible asset that is amortized as a reduction to sales over the remaining life of these engine programs based on the estimated sales over the life of such programs. This method reflects the pattern in which the economic benefits of the CRPs are realized.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The recoverability of each asset is subject to significant estimates about future revenues related to the program’s aftermarket parts and services. The Company evaluates these intangible assets for recoverability and updates amortization rates on an agreement by agreement basis for the RSPs and on an individual asset program basis for the CRPs. The assets are reviewed for recoverability periodically including whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Annually,At least annually, the Company evaluates the remaining useful life of these assets to determine whether events and circumstances warrant a revision to the remaining periods of amortization. Management updates revenue projections, which includes comparing actual experience against projected revenue and industry projections. The potential exists that actual revenues will not meet expectations due to a change in market conditions including, for example, the replacement of older engines with new, more fuel-efficient engines or the Company's ability to maintain market share within the Aerospace Aftermarket business.Products and Services ("Aftermarket") business, which includes maintenance repair and overhaul (“MRO”) services and the manufacture and delivery of aerospace aftermarket spare parts. A shortfall in future revenues may indicate a triggering event requiring a write down or further evaluation of the recoverability of the assets or require the Company to accelerate amortization expense prospectively dependent on the level of the shortfall. The Company has not identified any impairment of these assets.assets, although changes in projected RSP and CRP revenue has impacted amortization rates that will be applied in remaining periods.
Other Intangible Assets: Other intangible assets consist primarily of the Aerospace Aftermarket Programs,programs, as discussed above, customer relationships, tradenames, patents and proprietary technology. These intangible assets, with the exception of certain tradenames, have finite lives and are amortized over the periods in which they provide benefit. The Company assesses the impairment of long-lived assets, including identifiable intangible assets subject to amortization, whenever significant events or significant changes in circumstances indicate the carrying value may not be recoverable. Tradenames with indefinite lives are subject to impairment testing in accordance with accounting standards governing such on an annual basis, in the second quarter, or more frequently if an event or change in circumstances indicates that the fair value of the asset has been reduced below its carrying value. Based on the assessmentassessments performed during 2017,2023, there were no impairments of other intangible assets. See Note 5 of the Consolidated Financial Statements.6.
Derivatives: Accounting standards related to the accounting for derivative instruments and hedging activities require that all derivative instruments be recorded on the balance sheet at fair value. Foreign currency contracts may qualify as fair value hedges of unrecognized firm commitments, cash flow hedges of recognized assets and liabilities or anticipated transactions, or a hedge of a net investment. Changes in the fair market value of derivatives that qualify as fair value hedges or cash flow hedges are recorded directly to earnings or accumulated other non-owner changes to equity, depending on the designation. Amounts recorded to accumulated other non-owner changes to equity are reclassified to earnings in a manner that matches the earnings impact of the hedged transaction. Any ineffective portion, or amounts related to contracts that are not designated as hedges, are recorded directly to earnings. The Company’s policy for classifying cash flows from derivatives is to report the cash flows consistent with the underlying hedged item. See Note 10.
Foreign currency: Assets and liabilities of international operations are translated at year-end rates of exchange; revenues and expenses are translated at average rates of exchange. The resulting translation gains or losses are reflected in accumulated other non-owner changes to equity within stockholders’ equity. Net foreign currency transaction gainslosses of $756, $1,873$5,321, $540 and $505$572 in 2017, 20162023, 2022 and 2015,2021, respectively, were included inrecorded within other expense (income), net in the Consolidated Statements of Income.
Research and Development: Costs are incurred in connection with efforts aimed at discovering and implementing new knowledge that is critical to developing new products, processes or services, significantly improving existing products or services, and developing new applications for existing products and services. Research and development expenses for the creation of new and improved products, processes and services were $14,765, $12,913$13,920, $15,774 and $12,688,$22,928, for the years 2017, 20162023, 2022 and 2015,2021, respectively, and are included in selling and administrative expense.expense.
Pension and Other Postretirement Benefits: The Company accounts for its defined benefit pension plans and other postretirement plans by recognizing the overfunded or underfunded status of the plans, calculated as the difference between plan assets and the projected benefit obligation related to each plan, as an asset or liability on the Consolidated Balance Sheets. Benefit costs associated with the plans primarily include current service costs, interest costs and the amortization of actuarial losses, partially offset by expected returns on plan assets, which are determined based upon actuarial valuations. Settlement and curtailment losses (gains) may also impact benefit costs. The Company regularly reviews actuarial assumptions, including discount rates and the expected return on plan assets, which are updated at the measurement date, December 31st. The impact of differences between actual results and the assumptions are generally accumulated within Other Comprehensive Income and
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
amortized over future periods, which will affect benefit costs recognized in such periods. The Company bifurcates the
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
components of net periodic benefit cost for pension and other postretirement plans. The service cost component of expense requires presentation within other employee compensation costs in operating income, whereas the other components of expense are reported separately outside of operating income. See Note 11 to the Consolidated Financial Statements.12.
Stock-Based Compensation: Stock-based employee compensation plansawards are accounted for based on their fair value on the grant date and the related cost is recognized in the Consolidated Statements of Income in accordance with accounting standards related to share-based payments. The fair values of stock options are estimated using the Black-Scholes option-pricing model based on certain assumptions. The fair values of service and performance based share awards are estimated based on the fair market value of the Company’s stock price on the grant date. The fair values of market based performance share awards and performance-vested stock options are estimated using the Monte Carlo valuation method. See Note 12 of the Consolidated Financial Statements.13.
Income Taxes: Deferred tax assets and liabilities are recognized for future tax effects attributable to temporary differences, operating loss carryforwards and tax credits. The measurement of deferred tax assets and liabilities is determined using tax rates from enacted tax law of the period in which the temporary differences, operating loss carryforwards and tax credits are expected to be realized. The effect of thea change in income tax rates is recognized in the period of the enactment date. The guidance related to accounting for income taxes requires that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is more likely than not that the deferred tax asset will not be realized. The Company is exposed to certain tax contingencies in the ordinary course of business and records those tax liabilities in accordance with the guidance for accounting for uncertain tax positions. The Company has elected to account for tax on Global Intangible Low- Taxed Income (“GILTI”) as a period cost, when incurred. See Note 13 of the Consolidated Financial Statements.14.
Recent Accounting Standards
The Financial Accounting Standards Board ("FASB") establishes changes to accounting principles under U.S. GAAP through the use of Accounting Standards Updates ("ASUs") to the FASB's Accounting Standards Codification. The Company evaluates the applicability and potential impacts of recent ASUs.ASUs on its Consolidated Financial Statements and related disclosures.
Recently Adopted Accounting Standards
In April 2015,December 2019, the FASB amended its guidance related to the presentation of debt issuance costs.income taxes. The amended guidance specifies that debt issuance costs relatedsimplifies the accounting for income taxes, eliminating certain exceptions to notes shall be reportedthe general income tax principles, in an effort to reduce the balance sheet as a direct deduction from the face amountcost and complexity of that note and that amortization of debt issuance costs shall be reported as interest expense.application. The amended guidance iswas effective for annual periods beginning after December 15, 2020, and interim periods within those reporting periods. The guidance requires application on either a prospective, retrospective or modified retrospective basis, contingent on the income tax exception being applied. The Company has adopted this guidance, on a prospective basis, on January 1, 2021 and it did not have a material impact on the Company's Consolidated Financial Statements.
In October 2021, the FASB amended its guidance related to business combinations. The amended guidance requires entities to recognize and measure contract assets and contract liabilities acquired in business combinations on the acquisition date in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers. The new guidance was effective on a prospective basis for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and should be applied retrospectively.2022, with early adoption permitted. The Company adopted this guidance, on a prospective basis, on January 1, 2023 and applied the guidance duringas it relates to the first quarteracquisition of 2016MB Aerospace Holdings, Inc. See Note 2.
In September 2022, the FASB amended its guidance related to supplier finance programs. The amended guidance requires additional disclosures surrounding the use of supplier finance programs to purchase goods or services including disclosing the key terms of the programs, the amount of obligations outstanding at the end of the reporting period, and a roll-forward of those obligations. The new guidance, except the amendment on roll-forward information, was effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendment on roll-forward information is effective for fiscal years beginning after December 15, 2023. The Company adopted this guidance within the Consolidated Financial Statements filed as of March 31, 2023 and it did not have a material impact on itsthe Company's Consolidated Financial Statements.
In July 2015, the FASB amended its guidance relatedStatements, however it did result in additional disclosures pursuant to the measurement of inventory. The amended guidance requires inventory to be measured at the lower of cost and net realizable value and thereby simplifies the prior guidance of measuring inventory at the lower of cost or market. The amended guidance is effective prospectively for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company adopted the guidance during the first quarter of 2017 and it did not have a material impact on its Consolidated Financial Statements.new guidance. See Note 22.
In November 2015, the FASB amended its guidance related to the balance sheet classification of deferred income taxes. The amended guidance removes the requirement to separate and classify deferred income tax liabilities and assets into current and non-current amounts and requires an entity to now classify all deferred tax liabilities and assets as non-current. The amended guidance can be adopted either on a prospective or retrospective basis and is effective for interim and annual periods beginning after December 15, 2016. Early adoption is permitted. The provisions of the amended guidance were adopted on a prospective basis during the first quarter of 2016. The provisions resulted in the classification of $26,639 and $1,290 of current deferred income tax assets and liabilities, respectively, into non-current deferred income tax assets and liabilities on the Consolidated Balance Sheet as of December 31, 2016.
In March 2016, the FASB amended its guidance related to the accounting for certain aspects of share-based payments to employees. The amended guidance requires that all tax effects related to share-based payments are recorded at settlement (or expiration) through the income statement, rather than through equity. Cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows. The amended guidance also allows for an employer to repurchase additional employee shares for tax withholding purposes without requiring liability accounting and clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a financing activity on the Consolidated Statements of Cash Flows. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption was permitted, and the Company elected to early
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
adopt in the third quarter of 2016. See Note 12 of the Consolidated Financial Statements for additional details related to the Company's adoption of this amended guidance.
Recently Issued Accounting Standards
The United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”), announced its intent to phase out the use of LIBOR by December 31, 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, identified the Secured Overnight Financing Rate (“SOFR”) as its preferred benchmark alternative to U.S. dollar LIBOR. Published by the Federal Reserve Bank of New York, SOFR represents a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is calculated based on directly observable U.S. Treasury-backed repurchase transactions. In May 2014,March 2020, in response to this transition, the Financial Accounting Standards Board ("FASB") amended itsFASB issued guidance related to revenue recognition. The amendedthis rate reform, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued by reference rate reform, and addresses operational issues likely to arise in modifying contracts to replace discontinued reference rates with new rates. In January 2021, the FASB issued further clarifying guidance establishes a single comprehensive model for companiesregarding derivatives, as it relates to use in accounting for revenue arising from contracts with customers and will supersede mostthis transition. In December 2022, the FASB extended the expiration of the existing revenue recognition guidance through December 31, 2024. The Company’s Unsecured Credit Agreement (see Note 8) and corresponding USD interest rate Swaps (see Note 10) each mature in February 2026. In March 2021, the Intercontinental Exchange Benchmark Association announced that it will extend the publication of overnight, 1, 3, 6 and 12 month LIBOR rates until June 30, 2023, while ceasing publication of all other LIBOR rates including industry-specific guidance.1 week and 2 month rates. The Company's Unsecured Credit Agreement was further amended guidance clarifies that an entity recognizes revenuein October 2021 and in April 2022 to depictaddress the transferreplacement of promised goods or servicesLIBOR via the LIBOR Transition Agreement and Amendment No. 1, respectively (see Note 8), with SOFR. The Company's corresponding interest rate Swaps were amended in May 2022 to customers in an amount that reflectsaddress the consideration to whichreplacement of LIBOR. In June 2023, the entity expects to be entitled in exchange for those goods or services. In applying the amended guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction priceCompany entered into Amendment No. 2 ("Amendment No. 2") to the contract’s performance obligations; and (5) recognize revenue when (or as)Unsecured Credit Agreement, which also addressed the entity satisfiesoption for the Company to borrow under the terms of SOFR (see Note 8). As a performance obligation. The amended guidance applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. The amended guidance was initially effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2016 for public companies. On July 9, 2015, the FASB approved a deferralresult of the effective date by one yearCompany's contract amendments to December 15, 2017 for annual reporting periods beginning after that date. The FASB also permitted early adoptionaddress the replacement of the standard, but not before the original effective date of December 15, 2016. Entities have the option of using either a full retrospective or modified retrospective approach to the amended guidance.
The Company will adopt the amended guidance using the modified retrospective approach on January 1, 2018 at which time it becomes effective for the Company. In 2015, management developed a project plan and established a cross-functional team to implement the amended guidance. We have completed the review of our customer contracts and have evaluated the impact of the amended guidance on each of our primary revenue streams. While we are finalizing our overall assessment under the amended guidance, we believe that the most significant impact relates to the timing of revenue recognition, presentation and disclosures. We expect that the majority of our businesses will continue to recognize revenue on a "point-in-time basis". We also expect, however, that a portion of our businesses with customized products or customer contracts in which we perform work on a customer-owned asset will require the use of an "over time" recognition model as certain of our contracts meet certain of the criteria established in the amended guidance. We will utilize the cost-to-cost input method to measure progress towards completion for contracts on an over time revenue recognition model.
On January 1, 2018,LIBOR, the Company will recognize the cumulative effect of initially applying the amended guidance as an increase of approximately $4,000 to the opening balance of retained earnings, attributed primarily to the over time recognition of approximately $15,000 of net sales. We dodoes not expect that the ongoinganticipate a material impact to net sales and net income will be material to the Consolidated Statements of Income, however the future impact of the amended guidance is dependent on the mix and nature of specific customer contracts. Under the existing guidance, the Company recognizes customer advances when payment is received. Adoption of the amended guidance will result in the recognition of additional customer advances for which the Company has received an unconditional right to payment. Since the related performance obligations have not been satisfied, however, the Company will recognize these customer advances as trade receivables, with a corresponding contract liability of equal amount. We continue to identify appropriate changes to our business, processes, systems and controls to support recognition and disclosure requirements under the new standard. We are continuing to implement design changes to such business processes, controls and systems to ensure that such changes are effective.financial condition, results of operations or cash flow as a result of this change.
In February 2016,November 2023, the FASB amended its guidance related to lease accounting.segment reporting requirements. The amended guidance requires lesseesserves to recognize a majority of their leases on the balance sheet as a right-to-use asset. Lessees are permitted to make an accounting policy election to not recognize an asset and liability for leases with a term of twelve months or less. Lease expense will be recorded in a manner similar to current accounting. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the guidance to determine the impact it will have on its Consolidated Financial Statements. The Company anticipates the amended guidance will have a material impact on its assets and liabilities due to the addition of right-of-use assets and lease liabilities to the balance sheet; however, it does not expect the amended guidance to have a material impact on its cash flows or results of operations.
In August 2016, the FASB amended its guidance related to the Statement of Cash Flows. The amended guidance clarifies how certain cash receipts and cash payments should be presented on the statement of cash flows, with focus on eight specific areas in which cash flows have, in practice, been presented inconsistently. The guidance is effective for annual periods
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the amended guidance to have a material impact on its cash flows.
In January 2017, the FASB amended its guidance related to goodwill impairment testing. The amended guidance simplifies the subsequent measurement of goodwill, eliminating Step 2 from the goodwill impairment test. Under the amended guidance, companies should perform their annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. Companies would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, assuming the loss recognized does not exceed the total amount of goodwill for the reporting unit.improve segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amended guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The adoption of this amended guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.
In March 2017, the FASB amended its guidance related to the presentation of pension costs. The amended guidance requires the bifurcation of net periodic benefit cost for pension2023, and other postretirement plans. The service cost component of expense will be presented with other employee compensation costs in operating income, consistent with the current guidance. The other components of expense, however, will be reported separately outside of operating income. The guidance is effective for annualinterim periods within fiscal years beginning after December 15, 2017 and interim periods within that reporting period. Early adoption is permitted. The Company is currently evaluating the amended guidance to determine the impact it will have on its Consolidated Financial Statements. The Company does not expect that the adoption of this amended guidance will have a material impact on the Company's Consolidated Financial Statements on an ongoing basis. The Company's retrospective adoption, though, will have an impact on certain classifications in the 2017 Consolidated Statements of Income, primarily due to the pre-tax pension curtailment gain of $7,217 that was recorded in operating income during 2017. See Note 11 of the Consolidated Financial Statements.
In August 2017, the FASB amended its guidance related to hedge accounting. The amended guidance makes more financial and nonfinancial hedging strategies eligible for hedge accounting, amends presentation and disclosure requirements and changes the assessment of effectiveness.2024. The guidance also more closely aligns hedge accounting with management strategies, simplifiesrequires application and increases the transparency of hedging. The amended guidance is effective January 1, 2019, with early adoption permitted in any interim period.on a retrospective basis to all periods presented. The Company is currently evaluating the impact that the guidance may have on the disclosures within its Consolidated Financial Statements.
In February 2018,December 2023, the FASB issuedamended its guidance related to the impacts of the tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”). The guidance permits the reclassification of certain income tax effects ofdisclosure requirements. The amended guidance requires establishes new income tax disclosure requirements including providing greater disaggregation in the Act from Other Comprehensive Income to Retained Earnings (stranded tax effects).rate reconciliation and information on taxes paid. The guidance also requires certain new disclosures. Theamended guidance is effective for annual periods beginning after December 15, 2018, and interim periods within that reporting period.2024. Early adoption is permitted. Entities may adopt the guidance using one of two transition methods; retrospective to each period (or periods) in which the income tax effects of the Act related to the items remaining in Other Comprehensive Income are recognized or at the beginning of the period of adoption. The Company is currently evaluating the impact that the guidance may have on the disclosures within its Consolidated Financial Statements.
2. AcquisitionsAcquisition
The Company has acquired a number of businesses during the past three years. The results of operations of these acquired businesses have been included in the consolidated results from the respective acquisition dates. The purchase prices for these acquisitions have been allocated to tangible and intangible assets and liabilities of the businesses based upon estimates of their respective fair values. Pro forma operating results for the acquisitions are not presented as the results would not be significantly different than historical results.
In the second quarter of 2017,On August 31, 2023 (“Acquisition Date”), the Company completed its acquisition of the assetsMB Aerospace Holdings Inc., a Delaware corporation ("MB Aerospace"), along with such entity's subsidiaries (the "Transaction") by acquiring all of the privately held Gammaflux L.P. business ("Gammaflux"),issued and outstanding shares of capital stock of MB Aerospace. MB Aerospace is a leading supplierprovider of hot runner temperatureprecision aero-engine component manufacture and sequential valve gate control systems to the plastics industry. Gammaflux,repair services serving major aerospace and defense engine original equipment manufacturers (“OEMs”), tier 1 suppliers and maintenance, repair and overhaul ("MRO") providers. This business, which is headquartered in Sterling, Virginiabeing integrated into our Aerospace segment, provides significant growth opportunities and has offices in Illinoisenhances the Company’s ability to deliver value-add solutions across the aero-engine value chain. Further, the acquisition of MB Aerospace increases customer diversification within both commercial aerospace and Germany,defense platforms and provides temperature control solutions for injection molding, extrusion, blow molding, thermoforming,the Company with a well-balanced portfolio across aerospace and other applications. Itsindustrial end markets include packaging, electronics, automotive, household products, medical, and tool building. markets.
The Company acquired the assets of GammafluxMB Aerospace for an aggregate purchase price of $8,866,$728,448, which was financedincludes post-closing adjustments under the terms of the Stock Purchase Agreement ("the Agreement"). The Company paid $718,782, net of $9,825 of cash acquired, in cash, using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes adjustments underCompany’s $1,000,000 Revolving Credit Facility and its $650,000 Term Loan Facility (see Note 8). In connection with the terms of the Asset Purchase Agreement, including $2 related to cash acquired. In connection with the acquisition, the Company recorded $1,535$159 of goodwill and $3,700post-closing adjustments due from the seller within Accounts receivable as of intangible assets. See Note 5 to the Consolidated Financial Statements.December 31, 2023.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
TheDuring the twelve months ended December 31, 2023, the Company incurred $210$23,829 of acquisition-related costs during the year ended December 31, 2017 related to the Gammaflux acquisition.acquisition of MB Aerospace. These costs include $2,071 of due diligence costs and $21,758 of transaction costs to complete the acquisition and have been recognized in the Consolidated Statements of Income as selling and administrative expenses.
The operating results of Gammaflux have been included in the Consolidated Statements of Income for the period ended December 31, 2017 since the date of acquisition. The Company reported $9,081 in net sales for Gammaflux for the year ended December 31, 2017. Gammaflux results have been included within the Industrial segment's operating profit.
In the third quarter of 2016, the Company, through three of its subsidiaries (collectively, the “Purchaser”), completed its acquisition of the molds business of Adval Tech Holding AG and Adval Tech Holdings (Asia) Pte. Ltd. ("FOBOHA"). FOBOHA is headquartered in Haslach, Germany and currently operates out of manufacturing facilities located in Germany and China. When acquired, FOBOHA also operated out of a third manufacturing facility located in Switzerland; however, this operation was consolidated and closed during 2017. See Note 8 to the Consolidated Financial Statements. The Company completed its purchase of the Germany and Switzerland businesses on August 31, 2016. The purchase of the China business required government approval which was granted on September 30, 2016. On October 7, 2016, shares of the China operations were subsequently transferred to the Company upon payment, per the terms of the Share Purchase Agreement for these respective operations ("China SPA"). The Company, pursuant to the terms and conditions within the Share Purchase Agreement ("FOBOHA SPA"), assumed economic control of the China business effective August 31, 2016. Having both economic control and the benefits and risks of ownership during the period from August 31, 2016 through September 30, 2016, the Company included the results of the China business within the consolidated results of operations of the Company during this period.
FOBOHA specializes in the development and manufacture of complex plastic injection molds for packaging, medical, consumer and automotive applications. The Company acquired FOBOHA for an aggregate cash purchase price of CHF 137,918 ($140,203) which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes adjustments under the terms of the FOBOHA SPA, including approximately CHF 11,342 ($11,530) related to cash acquired. In connection with the acquisition, the Company recorded $39,800 of intangible assets and $75,574 of goodwill. See Note 5 to the Consolidated Financial Statements.
The Company incurred $2,193 of acquisition-related costs during the year ended December 31, 2016 related to the FOBOHA acquisition. These costs include due diligence costs and transaction costs to complete the acquisition andrelated costs have been recognized in the Company's Consolidated Statements of Income, of which $14,223 was recognized as selling and administrative expenses.expenses and of which $9,606 primarily relating to the bridge loan facility financing was recognized as Interest expense (see Note 8).
The operating results of FOBOHAMB Aerospace have been included in the Consolidated Statements of Income since the Acquisition Date. The Company reported $114,469 in net sales and an operating loss of $13,884 from MB Aerospace, included within the Aerospace segment's operating profit, inclusive of $19,192 of short-term purchase accounting adjustments related to inventory step-up and backlog intangible amortization and $8,182 of amortization of other intangible assets acquired, for the period endedfrom the Acquisition Date through December 31, 2016 since the date2023.
Estimated Fair Value of acquisition. Assets Acquired and Liabilities Assumed
The Company reported $18,348 in net sales for FOBOHAaccounted for the year ended December 31, 2016. FOBOHA results have been included withinMB Aerospace acquisition as a business combination. The identifiable assets acquired and liabilities assumed are recorded at their preliminary fair values as of the Industrial segment's operating profit.
Acquisition Date, inclusive of subsequent purchase price adjustments, and are consolidated into the Company’s consolidated financial statements. The assignment of fair market value requires significant judgments regarding the estimates and assumptions used to value the acquired assets and liabilities assumed. In determining the fourth quarterfair values of 2015,the assets acquired and liabilities assumed, the Company itselfutilized the cost, income and through twomarket approaches from the perspective of its subsidiaries, completeda market participant. The fair value of the customer relationship intangible asset was determined as of the acquisition date utilizing the multi-period excess earnings method. This method is based on estimates and judgments relating to expectations for the future after-tax cash flows arising from customer relationships that existed on the acquisition date over their estimated lives, including those related to forecasted revenue growth rates, gross margins and customer attrition rates, all of privately held Priamus System Technologies AGwhich are discounted to present value using appropriate discount rates. The fair value of the developed technology intangible asset was determined utilizing the relief from royalty method which is a form of the income approach. Under this method, an after-tax royalty rate based on market royalty rates is applied to forecasted revenue growth rates associated with the developed technology and two of its subsidiaries (collectively, "Priamus") from Growth Finance AG. Priamus, which has approximately 40 employees, is headquartered in Schaffhausen, Switzerland and has direct sales and service officesdiscounted to present value using appropriate discount rates. The Company used third party valuation professionals to aid in the U.S. and Germany. Priamus is a technology leader in the development of advanced process control systems for the plastic injection molding industry and services manydetermination of the world's highest quality plastic injection molders inestimated fair value of certain assets acquired and liabilities assumed.
The following table summarizes the medical, automotive, consumer goods, electronicsestimated fair values for each major class of assets acquired, net of cash acquired, and packaging markets.liabilities assumed at the Acquisition Date, inclusive of subsequent purchase price adjustments:
| | | | | |
| Accounts receivable | $ | 50,715 | |
| Inventories | 77,914 | |
| Prepaid expenses and other current assets | 18,093 | |
| |
| Property, plant and equipment | 80,480 | |
| Goodwill | 320,883 | |
| Other intangible assets | 320,000 | |
| Other Assets | 10,627 | |
| Total Assets Acquired | 878,712 | |
| |
| Accounts payable | (21,826) | |
| Accrued liabilities | (35,701) | |
| Deferred income taxes | (83,480) | |
| Other liabilities | (9,659) | |
| Debt assumed | (9,423) | |
| Total Liabilities Assumed | (160,089) | |
| Net Assets Acquired | $ | 718,623 | |
Goodwill represents the excess of the purchase consideration over the fair value of the underlying acquired net tangible and intangible assets. Goodwill has been allocated to the Company’s Aerospace segment. The Company recorded the estimated fair values of the assets acquired Priamus for an aggregate cashand liabilities assumed of MB Aerospace as of August 31, 2023. The final purchase price of CHF 9,879 ($10,111) which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes adjustments under the terms of the Share Purchase Agreement, including CHF 1,556 ($1,592) related to cash acquired.
In the third quarter of 2015, the Company, through one of its subsidiaries, completed the acquisition of the Thermoplay business ("Thermoplay") by acquiring all of the capital stock of privately held HPE S.p.A., the parent Company through which Thermoplay operates. Thermoplay’s headquarters and manufacturing facility are located in Pont-Saint-Martin in Aosta, Italy, with technical service capabilities in China, India, France, Germany, United Kingdom, Portugal, and Brazil. Thermoplay specializes in the design, development, and manufacturing of hot runner solutions for plastic injection molding, primarily in the packaging, automotive, and medical end markets. The Company acquired Thermoplay for an aggregate cash purchase price of €58,066 ($63,690), pursuant to the terms of the Sale and Purchase Agreement ("SPA"), which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes adjustments under the terms of the SPA, including €17,054 ($18,706) related to cash acquired.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
allocation is subject to the finalization of fair value estimates. Estimates and assumptions used in such valuations are subject to change, which could be significant, within the measurement period up to one year from the acquisition date. The areas of the valuations that are not yet finalized relate to the amounts for property, plant and equipment, leases, income taxes, long term intangible assets and the final amount of residual goodwill. The Company may obtain additional information to assist in determining fair values of net assets acquired at the Acquisition Date during the measurement period. The Company recorded purchase accounting adjustments during the fourth quarter of 2023 and allocated an additional $2,576 to Goodwill. None of the recognized goodwill from the acquisition of MB Aerospace is expected to be deductible for income tax purposes (see Note 6).
The Other intangible assets in the table above consist of backlog, developed technology, and customer relationships, which are amortized over their respective estimated useful lives (see Note 6).
Supplemental Pro Forma Information
The following table reflects the unaudited pro forma operating results of the Company for the twelve months ended December 31, 2023 and 2022, which give effect to the acquisition of MB Aerospace as if it had occurred on January 1, 2022. The pro forma results are based on assumptions that the Company believes are reasonable under the circumstances. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisition been effective January 1, 2022, nor are they intended to be indicative of results that may occur in the future. The underlying pro forma information includes the historical financial results of the Company and MB Aerospace adjusted for certain items including depreciation and amortization expense associated with the assets acquired and the Company’s expense related to financing arrangements, with the related tax effects.
The unaudited pro forma combined condensed financial information has been prepared using the acquisition method of accounting in accordance with Accounting Standards Codification 805, Business Combinations (“ASC 805”).
The pro forma information does not include the effects of any synergies or cost reduction initiatives related to the acquisition.
| | | | | | | | | | | | | | |
| Twelve months ended December 31, |
| 2023 | | 2022 |
| Net sales | $ | 1,664,652 | | | $ | 1,544,888 | |
| Net income (loss) | 21,942 | | | (77,355) | |
The unaudited pro forma combined condensed financial information during the twelve months ended December 31, 2023 were adjusted to include:
a.Depreciation and Amortization - Adjustment of $(4,413) to reflect the adjustment to property, plant, and equipment depreciation and amortization expense from the acquired backlog, developed technology and customer relationships.
b.Transaction Costs - Adjustment of $(14,224) to reflect the elimination of non-recurring transaction costs.
c.Interest Expense - Adjustment of $3,209 to reflect the adjustment to interest expense resulting from interest on the new debt to finance the acquisition of MB Aerospace and the extinguishment of MB Aerospace’s existing debt and the amortization of related debt issuance costs.
d.Inventory Step-Up - Adjustment of $(8,318) to eliminate the inventory fair value adjustment that was recognized in cost of sales.
e.Income Taxes - The estimated tax impacts of the pro forma adjustments have been reflected within the unaudited pro forma condensed combined statement of operations by using a blended foreign, federal and state statutory income tax rate.
The unaudited pro forma combined condensed financial information during the twelve months ended December 31, 2022 were adjusted to include:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
a.Depreciation and Amortization - Adjustment of $21,924 to reflect the adjustment to property, plant, and equipment depreciation and the amortization expense from the acquired backlog, developed technology and customer relationships.
b.Transaction Costs - Adjustment of $14,224 to reflect non-recurring transaction costs.
c.Interest Expense - Adjustment of $26,881 to reflect the adjustment to interest expense resulting from interest on the new debt to finance the acquisition of MB Aerospace and the extinguishment of MB Aerospace’s existing debt and the amortization of related debt issuance costs.
d.Inventory Step-Up - Adjustment of $9,635 to reflect the increase in cost of sales for the impact of the $9,635 fair value adjustment to inventory for the acquired inventory.
e.Income Taxes - The estimated tax impacts of the pro forma adjustments have been reflected within the unaudited pro forma condensed combined statement of operations by using a blended foreign, federal and state statutory income tax rate.
3. Revenue
The Company is a global provider of highly engineered products, differentiated industrial technologies, and innovative solutions, serving a wide range of end markets and customers. Its specialized products and services are used in far-reaching applications in aerospace, healthcare, automation, packaging, mobility, and manufacturing.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following tables present the Company's revenue disaggregated by products and services, geographic regions and end markets, by segment:
| | | | | | | | | | | | | | | | | |
| 2023 |
| Aerospace (A) | | Industrial | | Total Company |
| Product and Services | | | | | |
| | | | | |
| Aerospace OEM | $ | 382,126 | | | $ | — | | | $ | 382,126 | |
| Aerospace Aftermarket | 225,924 | | | — | | | 225,924 | |
| Molding Solutions Products | — | | | 408,691 | | | 408,691 | |
Motion Control Solutions Products (B) | — | | | 372,877 | | | 372,877 | |
| Automation Products | — | | | 61,253 | | | 61,253 | |
| $ | 608,050 | | | $ | 842,821 | | | $ | 1,450,871 | |
| | | | | |
Geographic Regions (C) | | | | | |
| Americas | $ | 430,527 | | | $ | 364,215 | | | 794,742 | |
| Europe | 115,973 | | | 312,402 | | | 428,375 | |
| Asia | 58,419 | | | 157,949 | | | 216,368 | |
| Rest of World | 3,131 | | | 8,255 | | | 11,386 | |
| $ | 608,050 | | | $ | 842,821 | | | $ | 1,450,871 | |
| | | | | |
| End Markets | | | | | |
| Aerospace OEM | $ | 382,126 | | | $ | 14,862 | | | $ | 396,988 | |
| Aerospace Aftermarket | 225,924 | | | — | | | 225,924 | |
| Medical, Personal Care & Packaging | — | | | 201,969 | | | 201,969 | |
| Tool and Die | — | | | 72,914 | | | 72,914 | |
| General Industrial | — | | | 265,313 | | | 265,313 | |
| Automotive Molding Solutions | — | | | 116,692 | | | 116,692 | |
| Automotive Production | — | | | 109,818 | | | 109,818 | |
| Automation | — | | | 61,253 | | | 61,253 | |
| $ | 608,050 | | | $ | 842,821 | | | $ | 1,450,871 | |
(A) The results of MB Aerospace, from the acquisition completed on August 31, 2023, have been included within the Company's revenue disaggregated by products and services, geographic regions and end markets within the Aerospace Segment for the year ended December 31, 2023.
(B) Effective January 1, 2023, the Company combined Industrial's Force & Motion Control and Engineered Components businesses to form a single strategic business unit named Motion Control Solutions. As a result of the combination, Motion Control Solutions Products reflects product revenues that were previously disclosed as Force & Motion Control Products and Engineered Components Products. Prior period amounts have been reclassified to conform to the current year presentation.
(C) Sales by geographic region are based on the location to which the product is shipped and services are delivered.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| | | | | | | | | | | | | | | | | |
| 2022 |
| Aerospace | | Industrial | | Total Company |
| Product and Services | | | | | |
| Aerospace OEM Products | $ | 265,179 | | | $ | — | | | $ | 265,179 | |
| Aerospace Aftermarket | 163,974 | | | — | | | 163,974 | |
| Molding Solutions Products | — | | | 402,598 | | | 402,598 | |
Motion Control Solutions Products(A) | — | | | 370,655 | | | 370,655 | |
| Automation Products | — | | | 59,462 | | | 59,462 | |
| $ | 429,153 | | | $ | 832,715 | | | $ | 1,261,868 | |
| | | | | |
Geographic Regions (B) | | | | | |
| Americas | $ | 307,712 | | | $ | 357,032 | | | $ | 664,744 | |
| Europe | 79,283 | | | 296,856 | | | 376,139 | |
| Asia | 37,348 | | | 172,922 | | | 210,270 | |
| Rest of World | 4,810 | | | 5,905 | | | 10,715 | |
| $ | 429,153 | | | $ | 832,715 | | | $ | 1,261,868 | |
| | | | | |
| End Markets | | | | | |
| Aerospace OEM | $ | 265,179 | | | $ | 12,541 | | | $ | 277,720 | |
| Aerospace Aftermarket | 163,974 | | | — | | | 163,974 | |
| Medical, Personal Care & Packaging | — | | | 186,729 | | | 186,729 | |
| Tool and Die | — | | | 85,947 | | | 85,947 | |
| General Industrial | — | | | 254,681 | | | 254,681 | |
| Automotive Molding Solutions | — | | | 138,978 | | | 138,978 | |
| Automotive Production | — | | | 94,377 | | | 94,377 | |
| Automation | — | | | 59,462 | | | 59,462 | |
| $ | 429,153 | | | $ | 832,715 | | | $ | 1,261,868 | |
(A) Effective January 1, 2023, the Company combined Industrial's Force & Motion Control and Engineered Components businesses to form a single strategic business unit named Motion Control Solutions. As a result of the combination, Motion Control Solutions Products reflects product revenues that were previously disclosed as Force & Motion Control Products and Engineered Components Products. Prior period amounts have been reclassified to conform to the current year presentation.
(B) Sales by geographic region are based on the location to which the product is shipped and services are delivered.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| | | | | | | | | | | | | | | | | |
| 2021 |
| Aerospace | | Industrial | | Total Company |
| Product and Services | | | | | |
| Aerospace OEM Products | $ | 246,850 | | | $ | — | | | $ | 246,850 | |
| Aerospace Aftermarket | 115,513 | | | — | | | 115,513 | |
| Molding Solutions Products | — | | | 458,681 | | | 458,681 | |
Motion Control Solutions Products (A) | — | | | 369,838 | | | 369,838 | |
| Automation Products | — | | | 67,964 | | | 67,964 | |
| $ | 362,363 | | | $ | 896,483 | | | $ | 1,258,846 | |
| | | | | |
Geographic Regions (B) | | | | | |
| Americas | $ | 271,241 | | | $ | 356,518 | | | $ | 627,759 | |
| Europe | 58,237 | | | 335,679 | | | 393,916 | |
| Asia | 29,701 | | | 199,578 | | | 229,279 | |
| Rest of World | 3,184 | | | 4,708 | | | 7,892 | |
| $ | 362,363 | | | $ | 896,483 | | | $ | 1,258,846 | |
| | | | | |
| End Markets | | | | | |
| Aerospace OEM | $ | 246,850 | | | $ | 9,278 | | | $ | 256,128 | |
| Aerospace Aftermarket | 115,513 | | | — | | | 115,513 | |
| Medical, Personal Care & Packaging | — | | | 219,672 | | | 219,672 | |
| Tool and Die | — | | | 95,466 | | | 95,466 | |
| General Industrial | — | | | 255,942 | | | 255,942 | |
| Automotive Molding Solutions | — | | | 150,125 | | | 150,125 | |
| Automotive Production | — | | | 98,036 | | | 98,036 | |
| Automation | — | | | 67,964 | | | 67,964 | |
| $ | 362,363 | | | $ | 896,483 | | | $ | 1,258,846 | |
| | | | | |
(A) Effective January 1, 2023, the Company combined Industrial's Force & Motion Control and Engineered Components businesses to form a single strategic business unit named Motion Control Solutions. As a result of the combination, Motion Control Solutions Products reflects product revenues that were previously disclosed as Force & Motion Control Products and Engineered Components Products. Prior period amounts have been reclassified to conform to the current year presentation.
(B) Sales by geographic region are based on the location to which the product is shipped and services are delivered.
Revenue from products and services transferred to customers at a point in time accounted for approximately 80 percent of revenue for the years ended December 31, 2023, 2022 and 2021. A majority of revenue within the Industrial segment and Aerospace OEM business, along with a portion of revenue within the Aerospace Products and Services business ("Aftermarket") business, is recognized at a point in time, primarily when the product or solution is shipped to the customer.
Revenue from products and services transferred to customers over-time accounted for approximately 20 percent of revenue for the years ended December 31, 2023, 2022 and 2021. The Company recognizes revenue over-time in instances where a contract supports a continual transfer of control to the customer. Substantially all of our revenue in the Aerospace Aftermarket maintenance repair and overhaul business (within Aftermarket Products and Services) and a portion of the revenue for Motion Control Solutions products, Molding Solutions products and Aerospace OEM products is recognized over-time. Within the Molding Solutions and Aerospace Aftermarket businesses, this continual transfer of control to the customer partially results from repair and refurbishment work performed on customer-controlled assets. With other contracts, this continual transfer of control to the customer is supported by clauses in the contract, or governing commercial law of the relevant jurisdiction, where we deliver products that do not have an alternative use and require an enforceable right to payment of costs incurred (plus a reasonable profit) or the Company has a contractual right to complete any work in process and receive full contract price.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Performance Obligations. A performance obligation represents a promise within a contract to provide a distinct good or service to the customer. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Transaction price reflects the amount of consideration to which the Company expects to be entitled in exchange for transferred goods or services. A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized as the performance obligation is satisfied.
The majority of our revenues is from contracts that are less than one year, however certain Aerospace OEM and Molding Solutions business contracts extend beyond one year. In the Industrial segment, customers are typically OEMs or suppliers to OEMs and, in some businesses, distributors. In the Aerospace segment, customers include commercial airlines, OEMs and other aircraft and defense-related parts and service providers.
To determine the proper revenue recognition method for contracts, the Company uses judgment to evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. Contracts within the Aerospace OEM and Industrial Engineered Components businesses typically have contracts that are combined as the customer may issue multiple purchase orders at or near the same point in time under the terms of a long term agreement.
Revenue is recognized in an over-time model based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company utilizes the cost-to-cost measure of progress for over time contracts as we believe this measure best depicts the transfer of control to the customer, which occurs as we incur costs on contracts.
Contract Estimates. Due to the nature of the work performed in completing certain performance obligations, the estimation of both total revenue and cost at completion includes a number of variables and requires significant judgment, as described further below.
Estimating total contract revenue requires judgment as certain contracts contain pricing discount structures, rebates, early payment discounts, or other provisions that can impact transaction price. The Company generally estimates variable consideration utilizing the expected value methodology as multiple inputs are considered and weighed, such as customer history, customer forecast communications, economic outlooks, and industry data. In certain circumstances where a particular outcome is probable, we utilize the most likely amount to which we expect to be entitled. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.
Estimating the total expected costs related to contracts also requires significant judgment. A portion of our Aerospace OEM business as well as a portion of our Molding Solutions Products business has an Estimate at Completion process in which management reviews the progress and execution of our performance obligations for significant contracts with revenue recognized under an over-time model. As part of this process, management reviews information including, but not limited to, performance under the contract, progress towards completion, identified risks and opportunities, sourcing determinations and related changes in estimates of costs to be incurred. These considerations include management's judgment about the ability and cost to achieve technical requirements and other contract requirements. Management makes assumptions and estimates regarding labor efficiency, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g., to estimate increases in wages and prices for materials and related support cost allocations), execution by our subcontractors and overhead cost rates, among other variables.
The Company incurred $2,195generally utilizes the portfolio approach to estimate the amount of revenue to recognize for certain other contracts which require over-time revenue recognition. Such contracts are grouped together either by revenue stream, customer or product. Each portfolio of contracts is grouped together based on having similar characteristics. The portfolio approach is utilized only when the result of the accounting is not expected to be materially different than if applied to individual contracts.
Adjustments to net sales, cost of sales and $574the related impact to operating income are recognized as necessary in the period they become known. Revenue recognized from performance obligations satisfied in previous periods was not material in 2023, 2022 or 2021.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Contract Balances. The timing of revenue recognition, invoicing and cash collections affects accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheets.
Unbilled Receivables (Contract Assets) - Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized when 1) the cost-to-cost method is applied and 2) such revenue exceeds the amount invoiced to the customer. Unbilled receivables are included within Prepaid Expenses and Other Current Assets on the Consolidated Balance Sheets as of December 31, 2023 and 2022.
Customer Advances and Deposits (Contract Liabilities) - The Company may receive a customer advance or deposit, or have an unconditional right to receive a customer advance, prior to revenue being recognized. Certain contracts within the Molding Solutions business, for example, may require such advances. Since the performance obligations related to such advances have not been satisfied, a contract liability is established. An offsetting asset of equal amount is recorded as an account receivable until the advance is collected. Advances and deposits are included within Accrued Liabilities on the Consolidated Balance Sheets until the respective revenue is recognized. Advance payments are not considered a significant financing component as they are generally received less than one year before the customer solution is completed. These assets and liabilities are reported on the Consolidated Balance Sheets on an individual contract basis at the end of each reporting period.
Net contract assets (liabilities) consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 | | $ Change | | % Change |
| Unbilled receivables (contract assets) | $ | 59,652 | | | $ | 42,423 | | | $ | 17,229 | | | 41 | % |
| Contract liabilities | (42,428) | | | (27,857) | | | (14,571) | | | 52 | % |
| Net contract assets | $ | 17,224 | | | $ | 14,566 | | | $ | 2,658 | | | 18 | % |
Contract liabilities balances at December 31, 2023 and December 31, 2022 include $10,032 and $9,593, respectively, of customer advances for which the Company has not yet collected payment, but an unconditional right to collect payment. Accounts receivable, as presented on the Consolidated Balance Sheet, includes corresponding balances at December 31, 2023 and December 31, 2022, respectively.
Changes in the net contract assets balance during the year ended December 31, 20152023 included a $17,229 increase in contract assets, driven primarily by contract progress (i.e. unbilled receivable), partially offset by earlier contract progress being invoiced to the customer. Of this contract asset increase, $14,446 was attributable to MB Aerospace at December 31, 2023. Partially offsetting this increase in net contract assets was a $14,571 increase in contract liabilities, driven primarily by new customer advances and deposits, partially offset by revenue recognized in the current period.
The Company recognized approximately 90% of the revenue related to the Thermoplay and Priamus acquisitions, respectively. These costs include due diligence costs and transaction costs to complete the acquisitions, and have been recognized in the Company's Consolidated Statementscontract liability balance as of Income as selling and administrative expenses.
The operating results of Thermoplay and Priamus have been included in the Consolidated Statements of Income for the period ended December 31, 2015, since the dates of acquisition. The Company reported $13,593 and $2,028 in net sales for Thermoplay and Priamus, respectively, for2022 during the year ended December 31, 2015. Thermoplay2023 and Priamus results have been includedapproximately 90% of the revenue related to the contract liability balance as of December 31, 2021 during the year ended December 31, 2022, primarily representing revenue from the sale of molds and hot runner systems within the Industrial segment's operating profit.Molding Solutions business.
Contract Costs. The Company may incur costs to fulfill a contract. Costs are incurred to develop, design and manufacture tooling to produce a customer’s customized product in conjunction with certain of its contracts, primarily in the Aerospace OEM business. For certain contracts, control related to this tooling remains with the Company. The tooling may be deemed recoverable over the life of the related customer contract (oftentimes a long-term agreement). The Company therefore capitalizes these tooling costs and amortizes them over the shorter of the tooling life or the duration of the long-term agreement. The Company may also incur costs related to the development of product designs (molds or hot runner systems) within its Molding Solutions business. Control of the design may be retained by the Company and deemed recoverable over the contract to build the systems or mold, therefore this design work cost is capitalized and amortized to cost of sales when the related revenue is recognized. Amortization related to these capitalized costs to fulfill a contract were $9,976, $12,518, and $13,446 in the years ended December 31, 2023, 2022 and 2021, respectively. 3.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Capitalized costs, net of amortization, to fulfill a contract balances were as follows:
| | | | | | | | |
| December 31, 2023 | December 31, 2022 |
| Tooling | $ | 4,271 | | $ | 2,728 | |
| Design costs | 2,525 | | 2,887 | |
| | |
| $ | 6,796 | | $ | 5,615 | |
Remaining Performance Obligations. The Company has elected to disclose remaining performance obligations only for contracts with an original duration of greater than one year. Such remaining performance obligations represent the transaction price of firm orders for which work has not yet been performed and, for Aerospace, excludes projections of components and assemblies that Aerospace OEM customers anticipate purchasing in the future under existing programs, which represent orders that are beyond lead time and do not represent performance obligations pursuant to the accounting guidance. As of December 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $526,113. The Company expects to recognize revenue on approximately 75% of the remaining performance obligations over the next 12 months, with the remainder being recognized within 24 months.
4. Inventories
Inventories at December 31 consisted of:
| | | | | 2017 | | 2016 |
| | 2023 | | | | 2023 | | 2022 |
| Finished goods | | $ | 79,649 |
| | $ | 71,100 |
|
| Work-in-process | | 97,276 |
| | 98,246 |
|
| Raw materials and supplies | | 65,037 |
| | 58,413 |
|
| | | $ | 241,962 |
| | $ | 227,759 |
|
| | $ | |
4.5. Property, Plant and Equipment
Property, plant and equipment, net, at December 31 consisted of:
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Land | | $ | 16,594 | | | $ | 18,018 | |
| Buildings | | 198,207 | | | 184,909 | |
| Machinery and equipment | | 816,694 | | | 704,053 | |
| | 1,031,495 | | | 906,980 | |
| Less accumulated depreciation | | (628,798) | | | (586,841) | |
| | $ | 402,697 | | | $ | 320,139 | |
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Land | | $ | 21,723 |
| | $ | 19,952 |
|
| Buildings | | 182,226 |
| | 169,695 |
|
| Machinery and equipment | | 631,392 |
| | 572,540 |
|
| | | 835,341 |
| | 762,187 |
|
| Less accumulated depreciation | | (476,043 | ) | | (427,698 | ) |
| | | $ | 359,298 |
| | $ | 334,489 |
|
Depreciation expense was $48,693, $43,165$52,086, $47,163 and $39,654$47,600 during 2017, 20162023, 2022 and 2015,2021, respectively.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
6. Goodwill and Other Intangible Assets
Goodwill: The following table sets forth the change in the carrying amount of goodwill for each reportable segment and the Company:
| | | | | | | | | | | | | | | | | | | | | |
| Aerospace | | Industrial | | | | | | Total
Company |
| January 1, 2022 | $ | 30,786 | | | $ | 924,584 | | | | | | | $ | 955,370 | |
Impairment charge (see below) | — | | | (68,194) | | | | | | | (68,194) | |
| Foreign currency translation | — | | | (51,704) | | | | | | | (51,704) | |
| December 31, 2022 | 30,786 | | | 804,686 | | | | | | | 835,472 | |
| Acquisition-related | 320,883 | | | — | | | | | | | 320,883 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Foreign currency translation | 683 | | | 26,586 | | | | | | | 27,269 | |
December 31, 2023 (A) | $ | 352,352 | | | $ | 831,272 | | | | | | | $ | 1,183,624 | |
|
| | | | | | | | | | | |
| | Industrial | | Aerospace | | Total Company |
| January 1, 2016 | $ | 557,206 |
| | $ | 30,786 |
| | $ | 587,992 |
|
| Acquisition-related | 73,688 |
| | — |
| | 73,688 |
|
| Foreign currency translation | (28,244 | ) | | — |
| | (28,244 | ) |
| December 31, 2016 | 602,650 |
| | 30,786 |
| | 633,436 |
|
| Acquisition-related | 3,330 |
| | — |
|
| 3,330 |
|
| Foreign currency translation | 53,457 |
| | — |
| | 53,457 |
|
| December 31, 2017 | $ | 659,437 |
| | $ | 30,786 |
| | $ | 690,223 |
|
Of the $690,223The changes recorded at Aerospace include $320,883 of goodwill in 2023 resulting from the acquisition of MB Aerospace in August 2023. See Note 2. The amounts allocated to goodwill reflect the benefits that the Company expects to realize from an increase in global market access and MB Aerospace's assembled workforce. None of the recognized goodwill from the acquisition of MB Aerospace is expected to be deductible for income tax purposes.
During the year ended December 31, 2022, the Company recorded a non-cash goodwill impairment charge of $68,194 related to the Automation reporting unit as the estimated fair value of the reporting unit declined below its carrying value. The Company has continued to evaluate macro-economic conditions through December 31, 2023. Based on our subsequent assessments, there was no additional impairment of goodwill as of December 31, 2023.
Other Intangible Assets: Other intangible assets at December 31 2017, $43,860 representsconsisted of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2023 | | 2022 |
| | | Range of
Life-Years | | Gross
Amount | | Accumulated
Amortization | | Gross
Amount | | Accumulated
Amortization |
| Amortized intangible assets: | | | | | | | | | | |
| Revenue Sharing Programs | | Up to 30 | | $ | 299,500 | | | $ | (176,143) | | | $ | 299,500 | | | $ | (164,162) | |
| Component Repair Programs | | Up to 30 | | 111,839 | | | (49,577) | | | 111,839 | | | (41,880) | |
| Customer relationships | | 10-16 | | 586,189 | | | (180,679) | | | 337,189 | | | (156,442) | |
| Patents and technology | | 4-18 | | 178,433 | | | (100,662) | | | 123,433 | | | (92,875) | |
| Trademarks/trade names | | 10-30 | | 10,949 | | | (10,910) | | | 10,949 | | | (10,772) | |
| Other | | Up to 10 | | 26,334 | | | (14,857) | | | 9,413 | | | (2,966) | |
| | | | 1,213,244 | | | (532,828) | | | 892,323 | | | (469,097) | |
| Unamortized intangible assets: | | | | | | | | | | |
| Trade names | | | | 55,670 | | | — | | | 55,670 | | | — | |
| | | | | | | | | | |
| Foreign currency translation | | | | (29,615) | | | — | | | (36,404) | | | — | |
| Other intangible assets | | | | $ | 1,239,299 | | | $ | (532,828) | | | $ | 911,589 | | | $ | (469,097) | |
In connection with the original tax deductible basis.acquisition of MB Aerospace in August 2023, the Company recorded intangible assets of $320,000 which includes $249,000 of customer relationships, $55,000 of developed technology, and $16,000 of customer backlog included within Other above. The estimated weighted-average useful lives of the acquired assets were 15 years, 18 years and 1 year, respectively.
The Company has entered into a number of Aftermarket RSP and CRP agreements each of which is with our customer, General Electric ("GE"). See Note 1 for a further discussion of these programs. As of December 31, 2023, the Company has made all required payments under the RSP and CRP agreements.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The increase in goodwill in 2016 was due to the acquisition of FOBOHA on August 31, 2016, which is included in the Industrial segment. The amount allocated to goodwill reflects the benefits that the Company expects to realize from synergies created by combining the operations of FOBOHA, future enhancements to technology, geographical expansion and FOBOHA's assembled workforce. None of the recognized goodwill is expected to be deductible for income tax purposes.
Other Intangible Assets: Other intangible assets at December 31 consisted of:
|
| | | | | | | | | | | | | | | | | | |
| | | | | 2017 | | 2016 |
| | | Range of Life-Years | | Gross Amount | | Accumulated Amortization | | Gross Amount | | Accumulated Amortization |
| Amortized intangible assets: | | | | | | | | | | |
| Revenue Sharing Programs | | Up to 30 | | $ | 293,700 |
| | $ | (108,075 | ) | | $ | 293,700 |
| | $ | (95,701 | ) |
| Component Repair Programs | | Up to 30 | | 111,839 |
| | (16,508 | ) | | 111,839 |
| | (10,497 | ) |
| Customer lists/relationships | | 10-16 | | 215,966 |
| | (65,385 | ) | | 215,266 |
| | (53,198 | ) |
| Patents and technology | | 4-14 | | 87,052 |
| | (48,083 | ) | | 84,052 |
| | (37,897 | ) |
| Trademarks/trade names | | 10-30 | | 11,950 |
| | (10,349 | ) | | 11,950 |
| | (9,967 | ) |
| Other | | Up to 15 | | 20,551 |
| | (16,414 | ) | | 20,551 |
| | (16,338 | ) |
| | | | | 741,058 |
| | (264,814 | ) | | 737,358 |
| | (223,598 | ) |
| Unamortized intangible asset: | | | | | | | | | | |
| Trade names | | | | 42,770 |
| | — |
| | 42,770 |
| | — |
|
| | | | | | | | | | | |
| Foreign currency translation | | | | (11,972 | ) | | — |
| | (34,272 | ) | | — |
|
| Other intangible assets | | | | $ | 771,856 |
| | $ | (264,814 | ) | | $ | 745,856 |
| | $ | (223,598 | ) |
The Company entered into Component Repair Programs ("CRPs") with General Electric ("GE") during 2015, 2014 and 2013. The CRPs provide for, among other items, the right to sell certain aftermarket component repair services for CFM56, CF6, CF34 and LM engines directly to other customers over the life of the aircraft engine program as one of a few GE licensed suppliers. In addition, the CRPs extended certain contracts under which the Company provides these services directly to GE. Total investments in CRPs as of December 31, 2017 equaled $111,839, all of which have been paid. The Company recorded the CRP consideration as an intangible asset which is recognized as a reduction of sales over the remaining useful life of these engine programs based on the estimated sales over the life of such programs.
In connection with the acquisition of FOBOHA in August 2016, the Company recorded intangible assets of $39,800, which includes $20,700 of customer relationships, $14,700 of patents and technology and $4,400 of an indefinite life trade name. The weighted-average useful lives of the acquired assets were 16 years and 7 years, respectively.
Amortization of intangible assets for the years ended December 31, 2017, 20162023, 2022 and 20152021 was $41,216, $36,753$63,732, $44,987 and $38,502,$43,485, respectively. Estimated amortization of intangible assets for future periods is as follows: 20182024 - $41,000; 2019$70,000; 2025 - $41,000; 2020$69,000; 2026 - $37,000; 2021$66,000; 2027 - $37,000$64,000 and 20222028 - $36,000.$60,000.
The Company has entered into a number of aftermarket RSP agreements each of which is with GE. See Note 1 of the Consolidated Financial Statements for a further discussion of these Revenue Sharing Programs. As of December 31, 2017, the Company has made all required participation fee payments under the aftermarket RSP agreements.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
6.7. Accrued Liabilities
Accrued liabilities at December 31 consisted of:
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Payroll and other compensation | | $ | 45,764 | | | $ | 32,276 | |
| Contract liabilities (Note 3) | | 42,428 | | | 27,857 | |
| Pension and other postretirement benefits (Note 12) | | 8,124 | | | 10,999 | |
| Accrued income taxes | | 49,138 | | | 29,201 | |
| Lease liability (Note 19) | | 10,894 | | | 10,209 | |
| Business reorganizations (Note 9) | | 10,276 | | | 11,000 | |
| Other | | 54,838 | | | 37,026 | |
| | $ | 221,462 | | | $ | 158,568 | |
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Payroll and other compensation | | $ | 53,857 |
| | $ | 37,560 |
|
| Deferred revenue and customer advances | | 40,472 |
| | 34,812 |
|
| Pension and other postretirement benefits | | 8,294 |
| | 8,261 |
|
| Accrued income taxes | | 26,340 |
| | 26,477 |
|
| Other | | 52,278 |
| | 49,857 |
|
| | | $ | 181,241 |
| | $ | 156,967 |
|
7.8. Debt and Commitments
Long-term debt and notes and overdrafts payable at December 31 consisted of:
| | | | | | | | | | | | | 2023 | | 2022 |
| | | 2017 | | 2016 | | | Carrying
Amount | | Fair
Value | | Carrying
Amount | | Fair
Value |
| | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| Revolving credit agreement | | $ | 421,500 |
| | $ | 424,818 |
| | $ | 363,300 |
| | $ | 364,775 |
|
| Revolving Credit Facility | |
| Term Loan Facility | |
| Unamortized deferred financing costs and original issue discount - Term Loan Facility | |
| 3.97% Senior Notes | | 100,000 |
| | 101,348 |
| | 100,000 |
| | 101,598 |
|
| Borrowings under lines of credit and overdrafts | | 5,669 |
| | 5,669 |
| | 30,825 |
| | 30,825 |
|
| Capital leases | | 4,541 |
| | 4,964 |
| | 5,413 |
| | 5,902 |
|
| Other foreign bank borrowings | | 886 |
| | 897 |
| | 1,416 |
| | 1,428 |
|
| Finance leases | |
| | | 532,596 |
| | 537,696 |
| | 500,954 |
| | 504,528 |
|
| | 1,290,846 | |
| | 1,290,846 | |
| | 1,290,846 | |
| Less current maturities | | (6,999 | ) | | | | (32,892 | ) | | |
| Long-term debt | | $ | 525,597 |
| | | | $ | 468,062 |
| | |
| Long-term debt | |
| Long-term debt | |
The Company’s long-term debt portfolio consists of fixed-rate and variable-rate instruments and is managed to reduce the overall cost of borrowing and to mitigate fluctuations in interest rates. Among other things, interest rate fluctuations impact the market value of the Company’s fixed-rate debt.
InOn February 2017,10, 2021, the Company and certain of its subsidiaries entered into the fourth amendment of its fifthsixth amended and restated senior unsecured revolving credit agreement (the “Amended"Unsecured Credit Agreement”Agreement") and retained Bank of America, N.AN.A. as the Administrative Agent for the lenders. The Amended$1,000,000 Unsecured Credit Agreement increaseswas to mature in February 2026. Borrowings under the facility from $750,000 to $850,000 and extends the maturity date from September 2018 to February 2022. The AmendedUnsecured Credit Agreement also increases the existing accordion feature from $250,000, allowing the Company to now request additional borrowings of up to $350,000. The Company may exercise the accordion feature upon request to the Administrative Agent as long as an event of default has not occurred or is not continuing. The borrowing availability of $850,000, pursuant to the terms of the Amended Credit Agreement, allows for multi-currency borrowing which includes euro, sterling or Swiss franc borrowing, up to $600,000. Depending on the Company’s consolidated leverage ratio, and at the election of the Company, borrowings under the Amended Credit Agreement will bearbore interest at either LIBORthe Eurocurrency rate, as defined in the Unsecured Credit Agreement, plus a margin of between 1.10% and 1.70%1.175% to 1.775% or the base rate, as defined in the AmendedUnsecured Credit Agreement, plus a margin of 0.10%0.175% to 0.70%0.775%, depending on the Company's leverage ratio at the time of the borrowing. Multi-currency borrowings, pursuant to the Unsecured Credit Agreement, bore interest at their respective interbank offered rate (i.e. Euribor) or 0.00% (higher of the two rates) plus a margin of between 1.175% and 1.775%. The Unsecured Credit Agreement required the Company to maintain a Senior Debt Ratio of not more than 3.25 times. In addition, the Unsecured Credit Agreement required the Company to maintain a Total Debt Ratio of not more than 3.75 times for each fiscal quarter. A ratio of Consolidated EBITDA to Consolidated Cash Interest Expense, as defined, of not less than 4.25 times, was also required at the end of each fiscal quarter. The Unsecured Credit Agreement also contemplated the potential replacement of LIBOR (as defined below) with a successor financing rate, pursuant to the intent of the United Kingdom's Financial Conduct Authority to phase out use of
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
LIBOR (see discussion below). The Company paid fees and expenses of $2,542$4,306 in conjunction with executing the AmendedUnsecured Credit Agreement; suchAgreement. Such fees have been deferred within Other Assets on the accompanying Consolidated Balance Sheets and are beingwill be amortized into interest expense on the accompanying Consolidated Statements of Income through its maturity. Cash used to pay these fees has beenwas recorded through other financing activities on the Consolidated Statements of Cash Flows. The Company subsequently amended the Unsecured Credit Agreement on October 11, 2021 (the "LIBOR Transition Amendment"), defining certain applicable multi-currency borrowing rates that could be used as replacement rates for LIBOR, which was expected to be discontinued by reference rate reform. See Note 1.
On April 6, 2022, the Company entered into Amendment No. 1 to the Unsecured Credit Agreement (“Amendment No. 1”), which (i) replaced the LIBOR interest rate for U.S. dollar loans to a term Secured Overnight Financing Rate including a Secured Overnight Financing Rate adjustment (or "SOFR", as defined in the Unsecured Credit Agreement), (ii) added a daily SOFR option for U.S. dollar loans and a term SOFR option for U.S. dollar loans, and (iii) added the ability to borrow foreign swing line loans based on the Euro Short Term Rate ("€STR") (as defined) with the same interest spread as the interest spread for SOFR Loans (as defined) and Alternative Currency Loans (defined as loans denominated in Euro, Sterling, Swiss Francs or Yen). In addition, Amendment No. 1 lowered the interest rate spread on (i) SOFR Loans and Alternative Currency Loans to a range from 0.975% to 1.70%, depending on the leverage ratio (the “Leverage Ratio”) of Consolidated Total Debt (as defined) to Consolidated EBITDA (as defined) as of the end of each fiscal quarter, and (ii) loans based on the Base Rate (as defined), to a range from 0.00% to 0.70%, depending on the Company’s Leverage Ratio as of the end of each fiscal quarter. Amendment No. 1 also lowered the facility fee, which was required to be paid by the Company under the Unsecured Credit Agreement and was calculated on the full amount of the revolving facility, to a range from 0.15% to 0.30%, depending on the Company’s Leverage Ratio at the end of each fiscal quarter. In April 2022, the Company paid fees and expenses of $1,037 in conjunction with executing Amendment No. 1. Such fees have been deferred within Other Assets on the Consolidated Balance Sheets and will be amortized into interest expense on the Consolidated Statements of Income through its maturity. Cash used to pay these fees was recorded through other financing activities on the Consolidated Statements of Cash Flows.
The United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”), announced its intent to phase out the use of LIBOR by December 31, 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, identified SOFR as its preferred benchmark alternative to U.S. dollar LIBOR. Published by the Federal Reserve Bank of New York, SOFR represents a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is calculated based on directly observable U.S. Treasury-backed repurchase transactions. The Company’s Unsecured Credit Agreement and corresponding interest rate swap were tied to LIBOR, with each maturing in February 2026. In March 2021, the ICE Benchmark Association announced that it would extend the publication of overnight, 1, 3, 6 and 12 month LIBOR rates until June 30, 2023, while ceasing publication of all other LIBOR rates including 1 week and 2 month rates. The Company's Unsecured Credit Agreement was further amended in October 2021 and in April 2022 to address the replacement of LIBOR, which, as a result of the Company's contract amendments as discussed above, did not have a material impact on our business, financial condition, results of operations or cash flow.
On June 5, 2023, the Company entered into the Agreement with MB Aerospace Group Holdings Limited, a Cayman Islands limited company. See Note 2. In connection with entry into the Agreement, on June 5, 2023, the Company entered into the Second Amendment (the “Second Amendment”) to Note Purchase Agreement and Amendment No. 2 ("Amendment No. 2") to Unsecured Credit Agreement to facilitate the Transaction, as well as a commitment letter with Bank of America, N.A. and BofA Securities, Inc. (collectively, the “Commitment Parties”), pursuant to which the Commitment Parties agreed to provide, subject to the satisfaction of customary closing conditions contained therein, a $1,000,000 backstop senior secured revolving credit facility and a $700,000 senior secured 364-day bridge loan facility ("Bridge Loan Facility"). The Bridge Loan Facility was only intended to be drawn to the extent that the Company did not obtain alternative financing prior to the closing of the Transaction. The Company recorded fees of $9,500 in conjunction with the Bridge Loan Facility and $1,000,000 backstop senior secured revolving credit facility into interest expense on the Consolidated Statements of Income in the three months ended September 30, 2023. On the Acquisition Date, pursuant to the terms of the Agreement, the Company completed the Transaction for an aggregate purchase price of $728,448, subject to customary and specified closing adjustments, as set forth in the Agreement. Concurrently, the Company entered into a new Credit Agreement (the “Credit Agreement”) among the Company and certain of its subsidiaries, the issuing banks, lenders and other parties party thereto, and Bank of America, N.A., as administrative agent, as collateral agent and as swingline lender, which provides for senior secured financing of $1,650,000, consisting of a term loan facility (the “Term Loan Facility”) in an aggregate principal amount of $650,000, at an original issue discount of $4,875, and a revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Facilities”) in an aggregate principal amount of up to $1,000,000, including a letter of credit sub-facility of up to
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
$50,000. Proceeds of the loans borrowed under the Senior Facilities on the Acquisition Date, net of a 0.75% original issue discount on the Term Loan Facility, were used to fund, in part, the transactions contemplated by the Agreement, including the consummation of the Transaction, the repayment in full of the 3.97% Senior Notes, and to pay related fees and expenses. As of the Acquisition Date, the Revolving Credit Facility had outstanding borrowings in an aggregate principal amount of approximately $698,000. Proceeds of any loans under the Revolving Credit Facility borrowed after the Acquisition Date will be used for general corporate purposes. The Company paid fees and expenses of $3,058 in conjunction with executing the Revolving Credit Facility. Such fees have been deferred within Other Assets on the Consolidated Balance Sheets and will be amortized into interest expense on the Consolidated Statements of Income through the maturity of the Credit Agreement with the previously recorded debt issuance costs. The Company incurred $8,283 of debt issuance costs in conjunction with executing the Term Loan Facility. Such fees have been recorded as a direct deduction from the carrying amount of the Term Loan Facility and will be amortized into interest expense on the Consolidated Statements of Income through the maturity of the Term Loan Facility. Cash used to pay these fees was recorded through financing activities on the Consolidated Statements of Cash Flows. On August 31, 2023, in connection with the Credit Agreement and the closing of the Transaction, the Bridge Loan Facility was terminated.
The Senior Facilities are guaranteed by each of the Company’s wholly owned domestic subsidiaries and are secured by substantially all assets of the Company and of each subsidiary guarantor, in each case subject to certain exceptions.
Borrowings under the Senior Facilities bear interest at a rate per annum equal to, at the Company’s option, either Term SOFR (subject to a 0.00% floor) or an alternate base rate ("ABR"), in each case plus an applicable margin of (i) in the case of borrowings under the Term Loan Facility, 3.00% for Term SOFR loans and 2.00% for ABR loans and (ii) in the case of borrowings under the Revolving Credit Facility, initially, 2.375% for Term SOFR loans and 1.375% for ABR loans. The applicable margin for borrowings under the Revolving Credit Facility varies depending on the Company’s total net leverage ratio. At December 31, 2023, the applicable margin for borrowings under the Revolving Credit Facility was 2.125%. The Company is also required to pay a commitment fee initially equal to 0.35% per annum to the lenders under the Revolving Credit Facility in respect of the unutilized commitments thereunder. The commitment fee under the Revolving Credit Facility varies depending on the Company’s total net leverage ratio. At December 31, 2023, the commitment fee under the Revolving Credit Facility was 0.30%.
The Term Loan Facility matures on the seven-year anniversary of the Acquisition Date (August 31, 2030) and amortizes in equal quarterly installments ($6,500 annually), starting with the first full fiscal quarter after the Acquisition Date, of 0.25% of the initial principal amount. The Revolving Credit Facility matures on the five-year anniversary of the Acquisition Date (August 31, 2028). In addition, the Company is required to prepay outstanding loans under the Term Loan Facility, subject to certain exceptions, with up to 50% of the Company’s annual excess cash flow (as defined under the Credit Agreement) in excess of the greater of $50,000 and 15.0% of Last Twelve Months ("LTM") Adjusted Consolidated EBITDA (as defined in the Credit Agreement) as of the applicable time, and with up to 100% of the net cash proceeds of certain recovery events and non-ordinary course asset sales (which percentages vary depending on the Company’s first lien secured net leverage ratio).
The Company may generally prepay outstanding loans under the Senior Facilities at any time, without prepayment premium or penalty, subject to customary “breakage” costs with respect to Term SOFR loans. Prepayments of the Term Loan Facility in connection with certain “repricing events” resulting in a lower yield occurring at any time during the first six months after the Acquisition Date must be accompanied by a 1.00% prepayment premium.
The Revolving Credit Facility requires that the Company maintain a maximum Total Net Leverage Ratio, as defined in the Credit Agreement, initially of 5.50 to 1.00 as of the last day of each fiscal quarter for which financials have been (or were required to be) delivered, commencing with the first full fiscal quarter after the Acquisition Date, stepping down to 4.00 to 1.00 over time. For material acquisitions in certain circumstances, such ratio may be increased by up to 0.50 to 1.00. The actual ratio, as defined, was 3.64 at December 31, 2023. The Revolving Credit Facility also requires that the Company not permit the Interest Coverage Ratio as of the last day of any test period to be less than 3.00 to 1.00. The actual ratio, as defined, was 3.47 as of December 31, 2023. At December 31, 2023, the Company was in compliance with all applicable covenants.
The Senior Facilities contain certain affirmative and negative covenants that limit the ability of the Company, among other things and subject to certain significant exceptions, to incur debt or liens, make investments, enter into certain mergers, consolidations, asset sales and acquisitions, pay dividends and make other restricted payments and enter into transactions with affiliates. The Senior Facilities also contain certain events of default, including relating to a change of control. If an event of default occurs, the lenders under the Senior Facilities will be entitled to take various actions, including the acceleration of amounts due under the Senior Facilities.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Borrowings and availability under the AmendedRevolving Credit AgreementFacility were $421,500$642,988 and $428,500,$357,012, respectively, at December 31, 20172023. Borrowings and $363,300availability under the Unsecured Credit Facility were $466,672 and $386,700,$533,328, respectively, at December 31, 2016.2022, subject to covenants discussed above. The average interest rate on these borrowings was 2.65%6.76% and 1.86%3.67% on December 31, 20172023 and 2016,2022, respectively. The average interest rate excludes the impact of the Company’s interest swap agreements. See Note 10. Borrowings included Euro-denominated borrowings of 296,500 Euros ($327,988) at December 31, 2023 and 310,700 Euros ($331,672) at December 31, 2022. The fair value of the borrowings is based on observable Level 2 inputs. The borrowings were valued using discounted cash flows based upon the Company's estimated interest costs for similar types of borrowings.
Borrowings under the Term Loan Facility were $648,375 at December 31, 2023. The average interest rate on these borrowings was 8.46% on December 31, 2023. The average interest rate excludes the impact of the Company’s interest swap agreements. See Note 10. The fair value of the borrowings is based on the quoted market price of the borrowings on December 31, 2023, which represents Level 1 observable inputs.
In 2016,addition, the Company borrowed $100,000 underhas approximately $83,000 in uncommitted short-term bank credit lines ("Credit Lines") and overdraft facilities. The Credit Lines are accessed locally and are available primarily within the AmendedU.S., Europe and Asia. The Credit Facility through an international subsidiary. The proceeds were distributedLines are subject to the Parentapplicable borrowing rates within each respective country and vary between jurisdictions (e.g. LIBOR, Euribor, etc.). The Company and subsequently used to pay down U.S.had no borrowings under the Amendedcredit lines at December 31, 2023 and 2022. The Company had borrowed $16 and $8 under the overdraft facilities at December 31, 2023 and 2022, respectively. Repayments under the Credit Agreement.Lines are due within one month after being borrowed. Repayments of the overdrafts are generally due within two days after being borrowed. The carrying amounts of the Credit Lines and overdrafts approximate fair value due to the short maturities of these financial instruments.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In October 2014, the Company entered into a Note Purchase Agreement (“Note Purchase Agreement”), among the Company and New York Life Insurance Company, New York Life Insurance and Annuity Corporation and New York Life Insurance and Annuity Corporation Institutionally Owned Life Insurance Separate Account, as purchasers, for the issuance of $100,000 aggregate principal amount of the 3.97% Senior Notes due October 17, 2024 (the “3.97% Senior Notes”“Notes”).
The 3.97% Senior Notes arewere senior unsecured obligations of the Company and paypaid interest semi-annually on April 17 and October 17 of each year at an annual rate of 3.97%. The 3.97% Senior Notes will mature on October 17, 2024 unless earlier prepaid in accordance with their terms. Subject to certain conditions, the Company may,could, at its option, prepay all or any part of the 3.97% Senior Notes in an amount equal to 100% of the principal amount of the 3.97% Senior Notes so prepaid, plus any accrued and unpaid interest to the date of prepayment, plus the Make-Whole Amount, as defined in the Note Purchase Agreement, with respect to such principal amount being prepaid. The Notes, together with accrued and unpaid interest thereon, were repaid on August 31, 2023 in connection with the Transaction. There was no Make-Whole Amount. The fair value of the 3.97% Senior Notes at December 31, 2022 was determined using the USU.S. Treasury yield and a long-term credit spread for similar types of borrowings, which representrepresented Level 2 observable inputs.
The Company's borrowing capacity remains limited by various debt covenants in the Amended Credit AgreementCompany also has finance leases under which $11,999 and the Note Purchase Agreement (the "Agreements"). The Agreements require the Company to maintain a ratio of Consolidated Senior Debt, as defined, to Consolidated EBITDA, as defined, of not more than 3.25 times ("Senior Debt Ratio"), a ratio of Consolidated Total Debt, as defined, to Consolidated EBITDA of not more than 3.75 times and a ratio of Consolidated EBITDA to Consolidated Cash Interest Expense, as defined, of not less than 4.25 times at the end of each fiscal quarter; provided that these debt to EBITDA ratios are permitted to increase for a period of four fiscal quarters after the closing of certain permitted acquisitions. At December 31, 2017, the Company$4,404 was in compliance with all covenants under the Agreements and continues to monitor its future compliance based on current and future economic conditions.
In addition, the Company has approximately $59,000 in uncommitted short-term bank credit lines ("Credit Lines") and overdraft facilities. Under the Credit Lines, $5,300 was borrowedoutstanding at December 31, 2017 at an average interest rate of 2.33%2023 and $30,700 was borrowed at December 31, 2016 at an average interest rate of 1.96%. The Company had also borrowed $369 and $125 under the overdraft facilities at December 31, 2017 and 2016, respectively. Repayments under the Credit Lines are due within one month after being borrowed. Repayments of the overdrafts are generally due within two days after being borrowed. The carrying amounts of the Credit Lines and overdrafts approximate fair value due to the short maturities of these financial instruments.
The Company has capital leases at the Thermoplay and Männer businesses. The fair value of the capital leases are based on observable Level 2 inputs. These instruments are valued using discounted cash flows based upon the Company's estimated interest costs for similar types of borrowings.
At December 31, 2017 and 2016, the Company also had other foreign bank borrowings of $886 and $1,416,2022, respectively. The fair value of the foreign bank borrowings wasfinance leases is based on observable Level 2 inputs. These instruments were valued using discounted cash flows based upon the Company's estimated interest costs for similar types of borrowings.
Long-term debt and notes payable, excluding the unamortized deferred financing costs and original issue discount related to the Term Loan Facility, as of December 31, 20172023 are payable as follows: $6,999 in 2018, $955 in 2019, $508 in 2020, $601 in 2021, $421,989 in 2022 and $101,544 thereafter. The 3.97% Senior Notes are due$10,884 in 2024, according to their maturity date.$8,785 in 2025, $8,401 in 2026, $7,638 in 2027, $650,157 in 2028 and $617,513 thereafter.
In addition, the Company had outstandingundrawn letters of credit totaling $9,339$5,786 at December 31, 2017.2023.
Interest paid was $13,962, $11,471$59,238, $13,535 and $10,550$15,206 in 2017, 20162023, 2022 and 2015,2021, respectively. Interest capitalized was $415, $324$1,510, $391 and $422$282 in 2017, 20162023, 2022 and 2015,2021, respectively, and is being depreciated over the lives of the related fixed assets.
8.9. Business Reorganizations
In the second quarter of 2017,2021, the Company authorized the closure and consolidationrestructuring actions ("2021 Actions") at a number of two production facilities (the "Closures") includinglocations. The 2021 Actions included a FOBOHA facility located in Muri, Switzerland (60 employees) and an Associated Spring facility (30 employees) into other facilities included within the Industrial segmenttransfer of manufacturing capabilities to leverage existing capacity which is expected to reduce labor and infrastructure costs. The 2021 Actions resulted in pre-tax charges of $2,869, primarily related to employee severance and critical resources.termination benefits, in 2021 and net benefits of $465 and $269 in 2022 and 2023, respectively, have been recorded within Selling and Administrative Expenses in the accompanying Consolidated Statements of Income. The Company recorded a net pre-tax loss of $13 in 2017does not expect to incur any additional costs related to the Closures. This balance includes employee severance charges of $3,796 and other Closure costs of $3,664, primarily related to asset write-downs and costs to transfer work to other
2021 Actions.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
existing facilities, almost fully offsetIn July 2022, Company management commenced a systematic multi-phased initiative to significantly reduce costs and integrate the Company's operations, decreasing complexity and focusing on improved performance across Industrial. More specifically, at this time, the Company announced a restructuring program to further reduce costs within the Industrial segment and, more broadly, transform our businesses in response to macroeconomic disruptions. Additional actions were subsequently announced in October 2022, April 2023 (including Aerospace) and September 2023 (including Aerospace). Management continues to adjust its cost structures to align with market conditions.
The Company authorized restructuring actions (“2022 Actions”) focused on the consolidation of two manufacturing sites and a number of branch offices and changes in infrastructure to eliminate certain roles across a number of locations in the Industrial segment businesses in July and October 2022. Resulting pre-tax charges of $17,986 were recorded in 2022. Of the aggregate, $11,880 related to employee termination costs, primarily employee severance and other termination benefits, which were substantially paid in cash by the end of 2023 and which are recorded within Selling and Administrative Expenses in the accompanying Consolidated Statements of Income. The remaining $6,106 included $3,186 of accelerated depreciation of assets and $1,417 of pension curtailment losses and special termination benefits which are recorded in Cost of sales and Other expense (income), net, respectively, in the accompanying Consolidated Statements of Income.
During 2023, additional pre-tax charges of $10,328, including $3,802 of accelerated depreciation of assets, $7,291 primarily related to site consolidation and transfer of work charges, were recorded within Cost of sales, $1,229 primarily related to employee and other termination benefits and $850 gain on sale of property, plant and equipment, were recorded within Selling and administrative expenses, and $1,144 of pension curtailment and settlement gains of $7,217 and $230, respectively. The Muri Closure was completed as of December 31, 2017, whereas the Closure at the Associated Spring facility is expected to be completedrecorded were included within Other income (expense), net, in the first halfaccompanying Consolidated Statements of 2018. The remaining severanceIncome.
A corresponding liability which is expectedof $538, per below, related to be paid in 2018,the employee termination costs remained and was included within accrued liabilities as of December 31, 2017. Closure2023. The Company does not expect any additional costs are recorded primarily within cost of sales inrelated to the accompanying Consolidated Statements of Income and are reflected in the results of the Industrial segment.2022 actions to be significant.
The following table sets forth the change in the liability for the 2017 employee termination actions:costs related to the 2022 Actions:
| | | | | |
| January 1, 2022 | $ | — | |
| Employee severance and other termination benefits | 11,880 | |
| Payments | (980) | |
| December 31, 2022 | $ | 10,900 | |
| Employee severance and other termination benefits | (357) | |
| Payments | (10,005) | |
| December 31, 2023 | $ | 538 | |
In April 2023, the Company authorized restructuring actions (“April 2023 Actions”) focused on manufacturing footprint optimization, including the consolidation of manufacturing sites and optimization of production. These actions include the geographic transfer of certain programs within both the Industrial and Aerospace segments and changes in infrastructure to drive improvements and efficiencies in business processes, including the elimination of certain roles across several locations. Resulting pre-tax charges of $13,783 were recorded in 2023. Of the aggregate, $10,791 related to employee termination costs, primarily employee severance and other termination benefits, which are expected to be paid in cash by the end of 2025, and $657 primarily related to accelerated rent expenses and consulting fees, which were recorded within Selling and administrative Expenses, in the accompanying Consolidated Statements of Income. The remaining $2,336 primarily related to site consolidation and transfer of work charges, were recorded within Cost of sales, in the accompanying Consolidated Statements of Income. Of the aggregate charges recorded, $13,088 was reflected within the results of the Industrial segment and $695 was reflected within the results of the Aerospace segment.
A corresponding liability of $6,247, per below, related to the employee termination costs remained and was included within accrued liabilities as of December 31, 2023. The Company expects to incur additional costs beyond 2023 of approximately $13,000 related to the April 2023 Actions, which are primarily related to transfer of work charges. Of the aggregate, approximately $10,000 and $3,000 relate to the Aerospace and Industrial segments, respectively. The April 2023 Actions are expected to be completed throughout multiple periods, with completion in 2025.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
|
| | | |
| January 1, 2017 | $ | — |
|
| Employee severance costs | 3,796 |
|
| Payments | (3,099 | ) |
| Foreign currency translation | (48 | ) |
| December 31, 2017 | $ | 649 |
|
| | | | | |
| January 1, 2023 | $ | — | |
| Employee severance and other termination benefits | 10,492 | |
| Payments | (4,245) | |
| December 31, 2023 | $ | 6,247 | |
9.In September 2023, the Company authorized restructuring actions (“September 2023 Actions”) including organizational realignment within a Barnes Industrial business and within Barnes Aerospace following the MB Aerospace acquisition. Resulting pre-tax charges of $7,878 were recorded in 2023 related to employee termination costs, primarily employee severance and other termination benefits, which are expected to be paid in cash by the end of 2025 and which were recorded within Selling and administrative expenses in the accompanying Consolidated Statements of Income. Of the aggregate charges recorded, $5,056 was reflected within the results of the Industrial segment and $2,821 was reflected within the results of the Aerospace segment. A corresponding liability of $2,736, per below, related to the employee termination costs remained and was included within accrued liabilities as of December 31, 2023. The Company does not expect any additional costs related to the September 2023 Actions to be significant.
The following table sets forth the change in the liability for the employee termination benefits related to the September 2023 Actions:
| | | | | |
| January 1, 2023 | $ | — | |
| Employee severance and other termination benefits | 7,878 | |
| Payments | (5,142) | |
| December 31, 2023 | $ | 2,736 | |
10. Derivatives
The Company has manufacturing, service and sales 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.
FinancialDerivative financial instruments have been used by the Company to hedge its exposuresexposure to fluctuations in interest rates. In 2012,On April 28, 2017, the Company entered into five-year interest rate swap agreements (the "Swaps") transacted with three banks which together converted 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 1.03% plus the borrowing spread. The Swaps expired on April 28, 2017. The Company entered into a newan interest rate swap agreement (the "Swap""2017 Swap") that commenced on April 28, 2017, with one bank and convertswhich converted 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 1.92% plus the borrowing spread. The 2017 Swap expiresexpired on January 31, 2022.On March 24, 2021, the Company entered into a new interest rate swap agreement (the "2021 Swap") with this same bank that commenced on January 31, 2022 and that converted 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 1.17% plus the borrowing spread. Effective, April 30, 2022, the Company amended the 2021 Swap (the "Amended 2021 Swap"), such that the one-month SOFR-based borrowing rate replaced the one-month LIBOR-based borrowing rate. The Amended 2021 Swap, which will expire on January 30, 2026, converts the interest rate on the first $100,000 of the Company's one-month SOFR-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 1.075% plus the borrowing spread. The execution of the Amended 2021 Swap did not result in a material impact on our business, financial condition, results of operations or cash flow. On July 19, 2023, the Company entered into an interest rate swap agreement (the "Euribor Swap") with one bank that commenced on July 31, 2023, which converts the interest on €150,000 of the Company's Euribor-based borrowings from a variable rate plus the borrowing spread to a fixed rate of 3.257% plus the borrowing spread. Under the Euribor Swap, €50,000 will expire on July 31, 2026, with the remaining balance of €100,000 expiring on July 31, 2028. On September 12, 2023, the Company entered into six additional interest rate swap agreement (the "2023 Swaps") with six different banks that commenced on September 29, 2023, which convert the interest on $600,000 of the Company's one-month SOFR-based borrowings from a variable rate plus the borrowing spread to a blended fixed rate of 4.321% plus the borrowing spread. Under the 2023 Swaps, $50,000 will expire on August 31, 2026, $100,000 will expire on August 31, 2027, $200,000 will expire on August 31, 2028, $50,000 will expire on August 31, 2029 and the remaining balance of $200,000 will expire on August 31, 2030. The execution of the interest rate swap
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
agreements in 2023 did not have a material impact on our business, financial condition, results of operations or cash flow. These interest rate swap agreements were(the "Swaps") are accounted for as cash flow hedges. The Swap remained in place at December 31, 2017.
The Company also uses derivative 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 Euro, British pound sterling, U.S. dollar, Canadian dollar, Japanese yen, Singapore dollar, Korean won, Swedish kroner,krona, Chinese renminbi, Mexican peso, Hong Kong dollar and Swiss franc. Certain foreign currency derivative instruments are treated as cash flow hedges of forecasted transactions. All foreign exchange contracts are due within two years.
The Company does not use derivatives for speculative or trading purposes or to manage commodity exposures.
The Company records the derivatives at fair value on the Consolidated Balance Sheets within Prepaid Expenses and Other Current Assets, Other Assets, Accrued Liabilities or Other Liabilities depending on their fair value and remaining contractual period. Changes in the fair market value of derivatives that qualifyaccounted for as fair value hedges or cash flow hedges are recorded directly to earnings or accumulated other non-owner changes to equity, depending on the designation. Amounts recorded to accumulated other non-owner changes to equity arecomprehensive income and reclassified to earnings in a manner that matches the earnings impact of the hedged transaction. Any ineffective portion, or amounts relatedReclassifications to earnings for the Swaps are recorded through interest expense and reclassifications to earnings for foreign exchange contracts are recorded through net sales. Changes in the fair market value of the foreign exchange contracts that are not designated as hedges,hedging instruments are recorded directly to earnings.earnings through Other expense (income), net.
The fair values of the Amended 2021 Swap were $5,976 and $8,535 as of December 31, 2023 and December 31, 2022, respectively, and were recorded in Other Assets in the Consolidated Balance Sheets for the periods. The fair values of the Euribor Swap were $(5,485) and $0 as of December 31, 2023 and December 31, 2022, respectively, and were recorded in Other Liabilities in the Consolidated Balance Sheets for the periods. The fair values of the 2023 Swaps were $(19,984) and $0 as of December 31, 2023 and December 31, 2022, respectively, and were recorded in Other Liabilities in the Consolidated Balance Sheets for the periods. The fair values of the Company's other derivatives were not material to the Company's Consolidated Balance Sheets as of December 31, 2023 or December 31, 2022. See Note 11. Other than the activity related to the Amended 2021 Swap, the Euribor Swap and the 2023 Swaps, the activity related to derivatives that have been designated hedging instruments was not material to the Company's Consolidated Financial Statements for the periods ended December 31, 2023, 2022 or 2021. The Company recognized gains (losses) of $8,733, $(12,937) and $(2,494) related to the foreign exchange contracts that are not accounted for as hedging instruments within other expense (income), net, in the Consolidated Statements of Income for the periods ended December 31, 2023,2022 and 2021, respectively. Such gains (losses) were substantially offset by net gains or losses recorded on the underlying hedged asset or liability (the "underlying"). Offsetting net gains or losses on the underlying are also recorded within Other expense (income), net.
The Company's policy for classifying cash flows from derivatives is to report the cash flows consistent with the underlying hedged item. Other financing cash flows during the years ended December 31, 20172023, 2022 and 2016,2021, as presented on the consolidated statementsConsolidatedStatements of cash flows,Cash Flows, include $18,256$(8,319), $12,324 and $766, respectively, of net cash (proceeds) payments and $5,221 of net cash proceeds, respectively, related to the settlement of foreign currency hedges related to intercompany financing.
The following table sets forth the fair value amounts of derivative instruments held by the Company as of December 31.
|
| | | | | | | | | | | | | | | | |
| | | 2017 | | 2016 |
| | | Asset Derivatives | | Liability Derivatives | | Asset Derivatives | | Liability Derivatives |
Derivatives designated as hedging instruments: | | | | | | | | |
| Interest rate contracts | | $ | 654 |
| | $ | — |
| | $ | — |
| | $ | (78 | ) |
| Foreign exchange contracts | | — |
| | (379 | ) | | — |
| | (177 | ) |
| | | 654 |
| | (379 | ) | | — |
| | (255 | ) |
Derivatives not designated as hedging instruments: | | | | | | | | |
| Foreign exchange contracts | | 58 |
| | (29 | ) | | 397 |
| | (1,499 | ) |
| Total derivatives | | $ | 712 |
| | $ | (408 | ) | | $ | 397 |
| | $ | (1,754 | ) |
Asset derivatives related to interest rate contracts and foreign exchange contracts are recorded in other assets and prepaid expenses and other current assets, respectively, in the accompanying consolidated balance sheets. Liability derivatives related to
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 (loss) gain recorded in accumulated other comprehensive income (loss), net of tax, for the years ended December 31, 2017 and 2016 for derivatives held by the Company and designated as hedging instruments.
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Cash flow hedges: | | | | |
| Interest rate contracts | | $ | 460 |
| | $ | 174 |
|
| Foreign exchange contracts | | (161 | ) | | (516 | ) |
| | | $ | 299 |
| | $ | (342 | ) |
Amounts related to the interest rate swaps included within accumulated other comprehensive income (loss) that were reclassified to expense during the years ended December 31, 2017 and 2016 resulted in a fixed rate of interest plus the borrowing spread for the first $100,000 of one-month LIBOR borrowings. The fixed rate of interest was 1.92% for the period covered by the Swap, which matures in January 2022, and 1.03% for the Swaps, which matured in April 2017. Additionally, there were no amounts recognized in income for hedge ineffectiveness during the years ended December 31, 2017 and 2016.
The following table sets forth the net (loss) gains recorded in other expense (income), net in the consolidated statements of income for the years ended December 31, 2017 and 2016 for non-designated derivatives held by the Company. Such amounts were substantially offset by the net (gain) loss recorded on the underlying hedged asset or liability, also recorded in other expense (income), net.
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Foreign exchange contracts | | $ | (16,813 | ) | | $ | 2,297 |
|
10.11. 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.
|
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table provides the assets and liabilities reported at fair value and measured on a recurring basis as of December 31, 20172023 and 2016:2022:
| | | | | | | | | | | | | | | Fair Value Measurements Using |
| | | | | Fair Value Measurements Using | | | Total | | Quoted Prices in
Active Markets for
Identical Assets
(Level 1) | | Significant Other
Observable Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | | | | | | | | |
| December 31, 2017 | | | | | | | | |
| December 31, 2023 | |
| December 31, 2023 | |
| December 31, 2023 | |
| Asset derivatives | |
| Asset derivatives | |
| Asset derivatives | | $ | 712 |
| | $ | — |
| | $ | 712 |
| | $ | — |
|
| Liability derivatives | | (408 | ) | | — |
| | (408 | ) | | — |
|
| Bank acceptances | | 16,092 |
| | — |
| | 16,092 |
| | — |
|
| Rabbi trust assets | | 2,554 |
| | 2,554 |
| | — |
| | — |
|
| | | $ | 18,950 |
| | $ | 2,554 |
| | $ | 16,396 |
| | $ | — |
|
| December 31, 2016 | | | | | | | | |
| | $ | |
| December 31, 2022 | |
| Asset derivatives | |
| Asset derivatives | |
| Asset derivatives | | $ | 397 |
| | $ | — |
| | $ | 397 |
| | $ | — |
|
| Liability derivatives | | (1,754 | ) | | — |
| | (1,754 | ) | | — |
|
| Bank acceptances | | 9,690 |
| | — |
| | 9,690 |
| | — |
|
| Rabbi trust assets | | 2,216 |
| | 2,216 |
| | — |
| | — |
|
| | | $ | 10,549 |
| | $ | 2,216 |
| | $ | 8,333 |
| | $ | — |
|
| | $ | |
The derivative contracts are valued using observable current market information as of the reporting date such as the prevailing LIBOR-basedSOFR-based interest rates and foreign currency spot and forward rates. Bank acceptances represent financial instruments accepted from certain ChineseChina-based customers in lieu of cash paid on receivables, generally range from 3 to 6 months in maturityhave maturities of one year or less and are guaranteed by banks. The carrying amounts of the bank acceptances, which are included within prepaid expenses and other current assets, approximate fair value due to their short maturities. The fair values of rabbi trust assets are based on quoted market prices from various financial exchanges. For disclosures of the fair values of the Company’s pension plan assets, see Note 11 of the Consolidated Financial Statements.12.
11.12. Pension and Other Postretirement Benefits
The accounting standards related to employers’ accounting for defined benefit pension and other postretirement plans requires the Company to recognize the funded status of its defined benefit postretirement plans as assets or liabilities in the accompanying consolidated balance sheets and to recognize changes in the funded status of the plans in comprehensive income.
The Company has various defined contribution plans, the largest of which is its Retirement Savings Plan. Most U.S. salaried and non-union hourly employees are eligible to participate in this plan. See Note 1617 for further discussion of the Retirement Savings Plan. The Company also maintains various other defined contribution plans which cover certain other employees. Company contributions under certain of these plans are based primarily on the performance of the business units and employee compensation. Contribution expense under these other defined contribution plans was $6,644, $5,907$3,030, $4,870 and $5,347$5,475 in 2017, 20162023, 2022 and 2015,2021, respectively.
Defined benefit pension plans in the U.S. cover a majority of the Company’s U.S. employees at the Associated Spring and Nitrogen Gas Products businessesMotion Control Solutions business of Industrial, the Company’s Corporate Office and certain former U.S. employees, including retirees.retirees, and a portion of employees at the Company’s Corporate Office. Employees at certain international businesses within Industrial are also covered by defined benefit pension plans. Plan benefits for salaried and non-union hourly employees are based on years of service and average salary. Plans covering union hourly employees provide benefits based on years of service. In 2012, the Company closed the U.S. salaried defined benefit pension plan (the "U.S. Salaried Plan") to employees hired on or after January 1, 2013, with no impact to the benefits of existing participants. Effective January 1, 2013, the Retirement Savings Plan was amended to provide certain salaried employees hired on or after January 1, 2013 with an additional annual retirement contribution of 4% of eligible earnings, in place of pensionable benefits under the closed U.S. Salaried Plan. The Company funds U.S. pension costs in accordance with the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Non-U.S. defined benefit pension plans cover certain employees of certain international locations in Europe and Canada.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company provides other medical, dental and life insurance postretirement benefits for certain of its retired employees in the U.S. and Canada. It is the Company’s practice to fund these benefits as incurred.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The accompanying balance sheets reflect the funded status of the Company’s defined benefit pension plans at December 31, 20172023 and 2016, respectively.2022. Reconciliations of the obligations and funded status of the plans follow:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2023 | | 2022 |
| | | U.S. | | Non-U.S. | | Total | | U.S. | | Non-U.S. | | Total |
| Benefit obligation, January 1 | | $ | 341,595 | | | $ | 60,711 | | | $ | 402,306 | | | $ | 442,756 | | | $ | 89,460 | | | $ | 532,216 | |
| Service cost | | 1,646 | | | 943 | | | 2,589 | | | 3,869 | | | 1,820 | | | 5,689 | |
| Interest cost | | 17,343 | | | 2,072 | | | 19,415 | | | 13,144 | | | 964 | | | 14,108 | |
| Amendments | | — | | | (2,553) | | | (2,553) | | | 121 | | | — | | | 121 | |
| Actuarial loss (gain) | | 3,615 | | | 4,985 | | | 8,600 | | | (94,516) | | | (23,739) | | | (118,255) | |
| Benefits paid | | (31,097) | | | (2,542) | | | (33,639) | | | (24,882) | | | (2,592) | | | (27,474) | |
| Transfers in | | — | | | 1,989 | | | 1,989 | | | — | | | 2,694 | | | 2,694 | |
| Plan curtailments | | (7,602) | | | (437) | | | (8,039) | | | 708 | | | — | | | 708 | |
| Plan settlements | | — | | | (12,799) | | | (12,799) | | | — | | | (4,527) | | | (4,527) | |
| Special termination benefits | | — | | | — | | | — | | | 395 | | | — | | | 395 | |
| Participant contributions | | — | | | 906 | | | 906 | | | — | | | 1,034 | | | 1,034 | |
| Foreign exchange rate changes | | — | | | 4,101 | | | 4,101 | | | — | | | (4,403) | | | (4,403) | |
| | | | | | | | | | | | |
| Benefit obligation, December 31 | | 325,500 | | | 57,376 | | | 382,876 | | | 341,595 | | | 60,711 | | | 402,306 | |
| Fair value of plan assets, January 1 | | 304,881 | | | 70,039 | | | 374,920 | | | 422,563 | | | 87,366 | | | 509,929 | |
| Actual return on plan assets | | 34,046 | | | 4,207 | | | 38,253 | | | (95,573) | | | (10,275) | | | (105,848) | |
| Company contributions | | 8,605 | | | 1,119 | | | 9,724 | | | 2,773 | | | 1,321 | | | 4,094 | |
| Participant contributions | | — | | | 906 | | | 906 | | | — | | | 1,034 | | | 1,034 | |
| Benefits paid | | (31,097) | | | (2,542) | | | (33,639) | | | (24,882) | | | (2,592) | | | (27,474) | |
| Plan settlements | | — | | | (12,799) | | | (12,799) | | | — | | | (4,527) | | | (4,527) | |
| Transfers in | | — | | | 1,989 | | | 1,989 | | | — | | | 2,694 | | | 2,694 | |
| Foreign exchange rate changes | | — | | | 4,212 | | | 4,212 | | | — | | | (4,982) | | | (4,982) | |
| Fair value of plan assets, December 31 | | 316,435 | | | 67,131 | | | 383,566 | | | 304,881 | | | 70,039 | | | 374,920 | |
| (Underfunded) Overfunded status, December 31 | | $ | (9,065) | | | $ | 9,755 | | | $ | 690 | | | $ | (36,714) | | | $ | 9,328 | | | $ | (27,386) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | 2016 |
| | | U.S. | | Non-U.S. | | Total | | U.S. | | Non-U.S. | | Total |
| Benefit obligation, January 1 | | $ | 389,613 |
| | $ | 104,339 |
| | $ | 493,952 |
| | $ | 385,629 |
| | $ | 75,406 |
| | $ | 461,035 |
|
| Service cost | | 3,931 |
| | 2,124 |
| | 6,055 |
| | 3,892 |
| | 1,503 |
| | 5,395 |
|
| Interest cost | | 17,151 |
| | 1,668 |
| | 18,819 |
| | 17,523 |
| | 1,971 |
| | 19,494 |
|
| Amendments | | 1,233 |
| | 27 |
| | 1,260 |
| | 2,405 |
| | (174 | ) | | 2,231 |
|
| Actuarial loss (gain) | | 28,350 |
| | (4,397 | ) | | 23,953 |
| | 6,661 |
| | 10,814 |
| | 17,475 |
|
| Benefits paid | | (24,909 | ) | | (4,240 | ) | | (29,149 | ) | | (26,497 | ) | | (4,691 | ) | | (31,188 | ) |
| Transfers in | | — |
| | 2,743 |
| | 2,743 |
| | — |
| | 25,968 |
| | 25,968 |
|
| Plan curtailments | | — |
| | (7,030 | ) | | (7,030 | ) | | — |
| | — |
| | — |
|
| Plan settlements | | — |
| | (21,074 | ) | | (21,074 | ) | | — |
| | — |
| | — |
|
| Participant contributions | | — |
| | 1,355 |
| | 1,355 |
| | — |
| | 1,444 |
| | 1,444 |
|
| Foreign exchange rate changes | | — |
| | 7,226 |
| | 7,226 |
| | — |
| | (7,902 | ) | | (7,902 | ) |
| Benefit obligation, December 31 | | 415,369 |
| | 82,741 |
| | 498,110 |
| | 389,613 |
| | 104,339 |
| | 493,952 |
|
| Fair value of plan assets, January 1 | | 331,260 |
| | 85,652 |
| | 416,912 |
| | 326,829 |
| | 68,553 |
| | 395,382 |
|
| Actual return on plan assets | | 56,131 |
| | 6,150 |
| | 62,281 |
| | 13,051 |
| | 7,276 |
| | 20,327 |
|
| Company contributions | | 12,896 |
| | 2,027 |
| | 14,923 |
| | 17,877 |
| | 2,224 |
| | 20,101 |
|
| Participant contributions | | — |
| | 1,355 |
| | 1,355 |
| | — |
| | 1,444 |
| | 1,444 |
|
| Benefits paid | | (24,909 | ) | | (4,240 | ) | | (29,149 | ) | | (26,497 | ) | | (4,691 | ) | | (31,188 | ) |
| Plan settlements | | — |
| | (20,857 | ) | | (20,857 | ) | | — |
| | — |
| | — |
|
| Transfers in | | — |
| | 2,743 |
| | 2,743 |
| | — |
| | 18,320 |
| | 18,320 |
|
| Foreign exchange rate changes | | — |
| | 6,230 |
| | 6,230 |
| | — |
| | (7,474 | ) | | (7,474 | ) |
| Fair value of plan assets, December 31 | | 375,378 |
| | 79,060 |
| | 454,438 |
| | 331,260 |
| | 85,652 |
| | 416,912 |
|
| Underfunded status, December 31 | | $ | (39,991 | ) | | $ | (3,681 | ) | | $ | (43,672 | ) | | $ | (58,353 | ) | | $ | (18,687 | ) | | $ | (77,040 | ) |
In 2017,Benefit obligations decreased in 2023 primarily due to a plan curtailment resulting from the Company authorizedelecting to freeze the closurebenefits associated with one of it's FOBOHA facility locatedits U.S-based defined benefit pension plans in Muri, Switzerland, resultingFebruary 2023 and an increase in the pension curtailmentspayment of benefits to plan participants, partially offset by higher interest costs throughout 2023 and settlements noted above. See Note 8actuarial losses as compared with actuarial gains in the comparable 2022 period, resulting primarily from decreases in the discount rate as of December 31, 2023.
Benefit obligations decreased in 2022 primarily due to actuarial gains, resulting largely from increases in the Consolidated Financial Statements for additional information relateddiscount rate, and the payment of benefits to this Closure.plan participants, partially offset by interest costs.
Projected benefit obligations related to pension plans with benefit obligations in excess of plan assets follow:
| | | | | 2017 | | 2016 | | | 2023 | | 2022 |
| | | U.S. | | Non-U.S. | | Total | | U.S. | | Non-U.S. | | Total | | | U.S. | | Non-U.S. | | Total | | U.S. | | Non-U.S. | | Total |
| Projected benefit obligation | | $ | 311,320 |
| | $ | 40,931 |
| | $ | 352,251 |
| | $ | 389,613 |
| | $ | 61,060 |
| | $ | 450,673 |
|
| Fair value of plan assets | | 267,087 |
| | 26,205 |
| | 293,292 |
| | 331,260 |
| | 39,356 |
| | 370,616 |
|
Information related to pension plans with accumulated benefit obligations in excess of plan assets follows:
| | | | | | | | | | | | | | | | | 2023 | | 2022 |
| | | 2017 | | 2016 | | | U.S. | | Non-U.S. | | Total | | U.S. | | Non-U.S. | | Total |
| | | U.S. | | Non-U.S. | | Total | | U.S. | | Non-U.S. | | Total |
| Projected benefit obligation | | $ | 40,572 |
| | $ | 40,931 |
| | $ | 81,503 |
| | $ | 389,613 |
| | $ | 61,014 |
| | $ | 450,627 |
|
| Accumulated benefit obligation | |
| Accumulated benefit obligation | |
| Accumulated benefit obligation | | 40,090 |
| | 40,877 |
| | 80,967 |
| | 378,431 |
| | 59,568 |
| | 437,999 |
|
| Fair value of plan assets | | 4,797 |
| | 26,205 |
| | 31,002 |
| | 331,260 |
| | 39,356 |
| | 370,616 |
|
The accumulated benefit obligation for all defined benefit pension plans was $485,777$382,769 and $481,241$395,663 at December 31, 20172023 and 2016,2022, respectively.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amounts related to pensions recognized in the accompanying balance sheets consist of:
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| | | | | 2017 | | 2016 | | | 2023 | | 2022 |
| | | U.S. | | Non-U.S. | | Total | | U.S. | | Non-U.S. | | Total | | | U.S. | | Non-U.S. | | Total | | U.S. | | Non-U.S. | | Total |
| Other assets | | $ | 4,242 |
| | $ | 11,045 |
| | $ | 15,287 |
| | $ | — |
| | $ | 3,017 |
| | $ | 3,017 |
|
| Accrued liabilities | | 2,823 |
| | 407 |
| | 3,230 |
| | 2,813 |
| | 367 |
| | 3,180 |
|
| Accrued retirement benefits | | 41,410 |
| | 14,319 |
| | 55,729 |
| | 55,540 |
| | 21,337 |
| | 76,877 |
|
| Accumulated other non-owner changes to equity, net | | (84,990 | ) | | (13,016 | ) | | (98,006 | ) | | (91,530 | ) | | (19,458 | ) | | (110,988 | ) |
Amounts related to pensions recognized in accumulated other non-owner changes to equity, net of tax, at December 31, 20172023 and 2016,2022, respectively, consist of:
| | | | | 2017 | | 2016 | | | 2023 | | 2022 |
| | | U.S. | | Non-U.S. | | Total | | U.S. | | Non-U.S. | | Total | | | U.S. | | Non-U.S. | | Total | | U.S. | | Non-U.S. | | Total |
| Net actuarial loss | | $ | (82,736 | ) | | $ | (13,237 | ) | | $ | (95,973 | ) | | $ | (89,772 | ) | | $ | (19,822 | ) | | $ | (109,594 | ) |
| Prior service costs | | (2,254 | ) | | 221 |
| | (2,033 | ) | | (1,758 | ) | | 364 |
| | (1,394 | ) |
| | | $ | (84,990 | ) | | $ | (13,016 | ) | | $ | (98,006 | ) | | $ | (91,530 | ) | | $ | (19,458 | ) | | $ | (110,988 | ) |
| | $ | |
The accompanying balance sheets reflect the underfunded status of the Company’s other postretirement benefit plans at December 31, 20172023 and 2016.2022. Reconciliations of the obligations and underfunded status of the plans follow:
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Benefit obligation, January 1 | | $ | 21,964 | | | $ | 29,839 | |
| Service cost | | 39 | | | 77 | |
| Interest cost | | 1,122 | | | 808 | |
| | | | |
| Actuarial gain | | (411) | | | (6,375) | |
| Benefits paid | | (2,390) | | | (2,597) | |
| Participant contributions | | 98 | | | 141 | |
| Foreign exchange rate changes | | 19 | | | 71 | |
| Benefit obligation, December 31 | | 20,441 | | | 21,964 | |
| Fair value of plan assets, January 1 | | — | | | — | |
| Company contributions | | 2,292 | | | 2,456 | |
| Participant contributions | | 98 | | | 141 | |
| Benefits paid | | (2,390) | | | (2,597) | |
| Fair value of plan assets, December 31 | | — | | | — | |
| Underfunded status, December 31 | | $ | 20,441 | | | $ | 21,964 | |
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Benefit obligation, January 1 | | $ | 36,853 |
| | $ | 41,706 |
|
| Service cost | | 83 |
| | 122 |
|
| Interest cost | | 1,561 |
| | 1,766 |
|
| Actuarial loss (gain) | | 3,806 |
| | (3,495 | ) |
| Benefits paid | | (7,251 | ) | | (5,621 | ) |
| Participant contributions | | 2,209 |
| | 2,281 |
|
| Foreign exchange rate changes | | 309 |
| | 94 |
|
| Benefit obligation, December 31 | | 37,570 |
| | 36,853 |
|
| Fair value of plan assets, January 1 | | — |
| | — |
|
| Company contributions | | 5,042 |
| | 3,340 |
|
| Participant contributions | | 2,209 |
| | 2,281 |
|
| Benefits paid | | (7,251 | ) | | (5,621 | ) |
| Fair value of plan assets, December 31 | | — |
| | — |
|
| Underfunded status, December 31 | | $ | 37,570 |
| | $ | 36,853 |
|
Benefit obligations decreased in 2023 and 2022 primarily due to the payment of benefits to plan participants, partially offset by interest costs.
Amounts related to other postretirement benefits recognized in the accompanying balance sheets consist of:
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Accrued liabilities | | $ | 2,315 | | | $ | 2,630 | |
| Accrued retirement benefits | | 18,126 | | | 19,334 | |
| Accumulated other non-owner changes to equity, net | | 2,471 | | | 2,261 | |
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Accrued liabilities | | $ | 5,064 |
| | $ | 5,081 |
|
| Accrued retirement benefits | | 32,506 |
| | 31,772 |
|
| Accumulated other non-owner changes to equity, net | | (5,838 | ) | | (3,582 | ) |
Amounts related to other postretirement benefits recognized in accumulated other non-owner changes to equity, net of tax, at December 31, 20172023 and 20162022 consist of:
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Net actuarial gain | | $ | 2,471 | | | $ | 2,269 | |
| Prior service loss | | — | | | (8) | |
| | $ | 2,471 | | | $ | 2,261 | |
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
|
| | | | | | | | |
| | | 2017 | | 2016 |
| Net actuarial loss | | $ | (5,746 | ) | | $ | (3,532 | ) |
| Prior service loss | | (92 | ) | | (50 | ) |
| | | $ | (5,838 | ) | | $ | (3,582 | ) |
The sources of changes in accumulated other non-owner changes to equity, net, during 20172023 were:
| | | | | | | | | | | | | | |
| | Pension | | Other
Postretirement
Benefits |
| Prior service cost | | $ | 2,169 | | | $ | — | |
| Net gain | | 5,022 | | | 310 | |
| Amortization of prior service costs | | 229 | | | 8 | |
| Amortization of actuarial loss (gain) | | 511 | | | (114) | |
| | | | |
| Foreign exchange rate changes | | (277) | | | 6 | |
| | | | |
| | $ | 7,654 | | | $ | 210 | |
|
| | | | | | | | |
| | | Pension | | Other Postretirement Benefits |
| Prior service cost | | $ | (800 | ) | | $ | — |
|
| Net (loss) gain | | 7,787 |
| | (2,392 | ) |
| Amortization of prior service (credits) costs | | 117 |
| | (43 | ) |
| Amortization of actuarial loss | | 7,140 |
| | 170 |
|
| Foreign exchange rate changes | | (1,262 | ) | | 9 |
|
| | | $ | 12,982 |
| | $ | (2,256 | ) |
Weighted-average assumptions used to determine benefit obligations as of December 31, are:
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| U.S. plans: | | | | |
| Discount rate | | 5.45 | % | | 5.50 | % |
| Increase in compensation | | — | % | | 3.05 | % |
| Non-U.S. plans: | | | | |
| Discount rate | | 3.00 | % | | 3.60 | % |
| Increase in compensation | | 2.56 | % | | 2.76 | % |
| Interest crediting rate | | 2.27 | % | | 2.01 | % |
|
| | | | | | |
| | | 2017 | | 2016 |
| U.S. plans: | | | | |
| Discount rate | | 3.90 | % | | 4.50 | % |
| Increase in compensation | | 2.56 | % | | 2.56 | % |
| Non-U.S. plans: | | | | |
| Discount rate | | 1.90 | % | | 1.60 | % |
| Increase in compensation | | 2.17 | % | | 2.29 | % |
The investment strategy of the plans is to generate a consistent total investment return sufficient to pay present and future plan benefits to retirees, while minimizing the long-term cost to the Company. Target allocations for asset categories are used to earn a reasonable rate of return, provide required liquidity and minimize the risk of large losses. Targets may be adjusted, as necessary, to reflect trends and developments within the overall investment environment. The weighted-average target investment allocations by asset category were as follows during 2017:2023: 65% in equity securities and 35% in fixed income securities, including cash.
The fair values of the Company’s pension plan assets at December 31, 2017 and 2016, by asset category are as follows:
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The fair values of the Company’s pension plan assets at December 31, 2023 and 2022 by asset category are as follows:
| | | | | | | Fair Value Measurements Using | | | | | Fair Value Measurements Using |
| Asset Category | | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | Asset Category | | Total | | Quoted Prices in
Active Markets for
Identical Assets
(Level 1) | | Significant Other
Observable Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| December 31, 2017 | | | | | | | | |
| December 31, 2023 | |
| Cash and short-term investments | |
| Cash and short-term investments | |
| Cash and short-term investments | | $ | 10,731 |
| | $ | 10,731 |
| | $ | — |
| | $ | — |
|
| Equity securities: | | | | | | | | |
| U.S. large-cap | |
| U.S. large-cap | |
| U.S. large-cap | | 46,786 |
| | — |
| | 46,786 |
| | — |
|
| U.S. mid-cap | | 15,576 |
| | 15,576 |
| | — |
| | — |
|
| U.S. small-cap | | 16,157 |
| | 16,157 |
| | — |
| | — |
|
| International equities | | 159,803 |
| | — |
| | 159,803 |
| | — |
|
| Global equity | | 51,945 |
| | 51,945 |
| | — |
| | — |
|
| Fixed income securities: | | | | | | | | |
| U.S. bond funds | | 109,033 |
| | — |
| | 109,033 |
| | — |
|
| U.S. bond funds | |
| U.S. bond funds | |
| International bonds | | 41,742 |
| | — |
| | 41,742 |
| | — |
|
| Other | | 2,665 |
| | — |
| | — |
| | 2,665 |
|
| | | $ | 454,438 |
| | $ | 94,409 |
| | $ | 357,364 |
| | $ | 2,665 |
|
| December 31, 2016 | | | | | | | | |
| | $ | |
| December 31, 2022 | |
| Cash and short-term investments | |
| Cash and short-term investments | |
| Cash and short-term investments | | 3,207 |
| | 3,207 |
| | — |
| | — |
|
| Equity securities: | | | | | | | | |
| U.S. large-cap | |
| U.S. large-cap | |
| U.S. large-cap | | 39,162 |
| | — |
| | 39,162 |
| | — |
|
| U.S. mid-cap | | 12,724 |
| | 12,724 |
| | — |
| | — |
|
| U.S. small-cap | | 19,551 |
| | 19,551 |
| | — |
| | — |
|
| International equities | | 135,514 |
| | — |
| | 135,514 |
| | — |
|
| Global equity | | 47,445 |
| | 47,445 |
| | — |
| | — |
|
| Fixed income securities: | | | | | | | | |
| U.S. bond funds | | 103,399 |
| | — |
| | 103,399 |
| | — |
|
| U.S. bond funds | |
| U.S. bond funds | |
| International bonds | | 53,783 |
| | — |
| | 53,783 |
| | — |
|
| Other | | 2,127 |
| | — |
| | — |
| | 2,127 |
|
| | | $ | 416,912 |
| | $ | 82,927 |
| | $ | 331,858 |
| | $ | 2,127 |
|
| | $ | |
The fair values of the Level 1 assets are based on quoted market prices from various financial exchanges. The fair values of the Level 2 assets are based primarily on quoted prices in active markets for similar assets or liabilities. The Level 2 assets are comprised primarily of commingled equity funds and fixed income securities. Commingled equity funds are valued at their net asset values based on quoted market prices of the underlying assets. Fixed income securities are valued using a market approach which considers observable market data for the underlying asset or securities. The Level 3 assets relate to thea defined benefit pension plan atwithin the SynventiveMolding Solutions business. These pension assets are fully insured and have been estimated based on accrued pension rights and actuarial rates. These pension assets are limited to fulfilling the Company's pension obligations.
The Company expects to contribute approximately $4,600$7,143 to the pension plans in 2018.2024. No contributions to the U.S. Qualified pension plans, specifically, are required, and the Company does not currently plan to make any discretionary contributions to such plans in 2018.2024.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following are the estimated future net benefit payments, which include future service, over the next 10 years:
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
|
| | | | | | | | |
| | | Pensions | | Other Postretirement Benefits |
| 2018 | | $ | 29,261 |
| | $ | 3,653 |
|
| 2019 | | 29,243 |
| | 3,485 |
|
| 2020 | | 29,086 |
| | 3,204 |
|
| 2021 | | 29,205 |
| | 3,014 |
|
| 2022 | | 29,378 |
| | 2,848 |
|
| Years 2023-2027 | | 144,074 |
| | 11,722 |
|
| Total | | $ | 290,247 |
| | $ | 27,926 |
|
| | | | | | | | | | | | | | |
| | Pensions | | Other
Postretirement
Benefits |
| 2024 | | $ | 32,143 | | | $ | 2,315 | |
| 2025 | | 32,315 | | | 2,163 | |
| 2026 | | 32,589 | | | 2,018 | |
| 2027 | | 28,431 | | | 1,894 | |
| 2028 | | 28,791 | | | 1,793 | |
| Years 2029-2033 | | 135,554 | | | 7,632 | |
| Total | | $ | 289,823 | | | $ | 17,815 | |
Pension and other postretirement benefit costs consist of the following:
| | | | | Pensions | | Other Postretirement Benefits | | | Pensions | | Other
Postretirement Benefits |
| | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | | | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Service cost | | $ | 6,055 |
| | $ | 5,395 |
| | $ | 5,508 |
| | $ | 83 |
| | $ | 122 |
| | $ | 145 |
|
| Interest cost | | 18,819 |
| | 19,494 |
| | 20,019 |
| | 1,561 |
| | 1,766 |
| | 1,836 |
|
| Expected return on plan assets | | (28,082 | ) | | (30,302 | ) | | (32,404 | ) | | — |
| | — |
| | — |
|
| Amortization of prior service cost (credit) | | 446 |
| | 210 |
| | 305 |
| | (68 | ) | | (373 | ) | | (564 | ) |
| Recognized losses | | 10,557 |
| | 10,791 |
| | 15,004 |
| | 276 |
| | 535 |
| | 1,011 |
|
| Curtailment gain | | (7,217 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Settlement (gain) loss | | (119 | ) | | — |
| | 9,939 |
| | — |
| | — |
| | — |
|
| Amortization of prior service cost | |
| Recognized losses/(gains) | |
| Curtailment (gain)/loss | |
| Settlement (gain)/loss | |
| Special termination benefits | |
| Net periodic benefit cost | | $ | 459 |
| | $ | 5,588 |
| | $ | 18,371 |
| | $ | 1,852 |
| | $ | 2,050 |
| | $ | 2,428 |
|
|
In 2015, the Company announcedThe curtailment gain of $668 and a limited-time program offering (the "Program") to certain eligible, vested, terminated participants ("eligible participants") for a voluntary lump-sum pension payout or reduced annuity option that, if accepted, would settle the Company's pension obligation to them. The Program provided the eligible participants with a limited time opportunitymajority of electing to receive a lump-sum settlement of their remaining pension benefit, or reduced annuity. The resultant pre-tax settlement charge of $9,856 represents accelerated amortization of actuarial losses and is included the settlement gain of $656 in 2023 as well as the curtailment loss above. This settlement charge was reflected within costs of sales$1,158 and sellinga portion of the special termination benefits of $395 in 2022 relate to restructuring and administrative expenses withinworkforce reduction actions that were taken during the periods. See Note 9.
The components of net periodic benefit cost other than service cost are included in Other Expense (Income) on the Consolidated Statements of Income.
The Closure of the Company's FOBOHA facility located in Muri, Switzerland, as discussed above, resulted in a pre-tax curtailment gain of $7,217 during the 2017 period. See Note 8 of the Consolidated Financial Statements.
The estimated net actuarial loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other non-owner changes to equity into net periodic benefit cost in 2018 are $11,222 and $562, respectively. The estimated net actuarial loss and prior service credit for other defined benefit postretirement plans that will be amortized from accumulated other non-owner changes to equity into net periodic benefit cost in 2018 are $641 and $20, respectively.
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 are:
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| | | | | 2017 | | 2016 | | 2015 |
| | 2023 | | | | 2023 | | 2022 | | 2021 |
| U.S. plans: | | | | | | |
| Discount rate | |
| Discount rate | |
| Discount rate | | 4.50 | % | | 4.65 | % | | 4.25 | % | | 5.50 | % | | 2.95 | % | | 2.65 | % |
| Long-term rate of return | | 7.75 | % | | 8.25 | % | | 8.25 | % | Long-term rate of return | | 7.75 | % | | 7.25 | % | | 7.25 | % |
| Increase in compensation | | 2.56 | % | | 3.71 | % | | 3.71 | % | Increase in compensation | | 3.05 | % | | 3.03 | % | | 2.56 | % |
| Non-U.S. plans: | | | | | | |
| Discount rate | | 1.60 | % | | 2.80 | % | | 2.74 | % |
| Discount rate | |
| Discount rate | | | 3.60 | % | | 1.17 | % | | 0.83 | % |
| Long-term rate of return | | 3.59 | % | | 4.73 | % | | 5.00 | % | Long-term rate of return | | 3.99 | % | | 2.33 | % | | 1.96 | % |
| Increase in compensation | | 2.29 | % | | 2.71 | % | | 2.72 | % | Increase in compensation | | 2.76 | % | | 2.77 | % | | 2.75 | % |
| Interest crediting rate | | Interest crediting rate | | 2.01 | % | | 1.34 | % | | 1.34 | % |
The expected long-term rate of return is based on consideration of projected rates of return and the historical rates of return of published indices that reflect the plans’ target asset allocation.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company’s accumulated postretirement benefit obligations, exclusive of pensions, take into account certain cost-sharing provisions. The annual rate of increase in the cost of covered benefits (i.e., health care cost trend rate) is assumed to be 6.86%6.98% and 6.44%7.52% at December 31, 20172023 and 2016,2022, respectively, decreasing gradually to a rate of 4.50%4.00% by December 31, 2038. A one percentage point change in the assumed health care cost trend rate would have the following effects:2046.
|
| | | | | | | | |
| | | One Percentage Point Increase | | One Percentage Point Decrease |
| Effect on postretirement benefit obligation | | $ | 261 |
| | $ | (242 | ) |
| Effect on postretirement benefit cost | | 11 |
| | (10 | ) |
The Company actively contributes to a Swedish pension plan that supplements the Swedish social insurance system. The pension plan guarantees employees a pension based on a percentage of their salary and represents a multi-employer pension plan, however the pension plan was not significant in any year presented. This pension plan is not underfunded.
Contributions related to the individually insignificant multi-employer plans, as disclosure is required pursuant to the applicable accounting standards, are as follows:
|
| | | | | | | | | | | |
| | Contributions by the Company |
| Pension Fund: | 2017 | | 2016 | | 2015 |
| Swedish Pension Plan | 739 |
| | $ | 673 |
| | $ | 343 |
|
| Total Contributions | $ | 739 |
| | $ | 673 |
| | $ | 343 |
|
12.13. Stock-Based Compensation
The Company accounts formeasures the cost of all share-based payments, including stock options, by measuring the payments at fair value on the grant date and recognizing therecognizes this cost in the results of operations. Theoperations, net of expected forfeitures. With the exception of the performance-vested stock options granted in July 2022 under the CEO’s Stock Option Award (“Performance-Vested Stock Options”), the fair valuesvalue of stock options areis estimated on the grant date using the Black-Scholes option-pricing model based on certain assumptions. The fair value of the Performance-Vested Stock Options is estimated on the grant date using the Monte Carlo valuation method. The fair values of serviceservice- and performance basedperformance-based stock awards are estimated based on the fair market value of the Company’s stock price on the grant date. The fair value of market basedmarket-based performance share awards areis estimated on the grant date using the Monte Carlo valuation method. Estimated forfeiture rates are applied to outstanding awards.
Refer to Note 1617 for a description of the Company’s stock-based compensation plans and their general terms. As of December 31, 2017,2023, incentives have been awarded in the form of performance share awards and restricted stock unit awards (collectively, “Rights”) and stock options. The Company has elected to use the straight-line method to recognize compensation costs. Stock options and awards typically vest over a period ranging from six months to five years. Performance-Vested Stock Options cliff-vest in five years, subject to continued service and the achievement of compound annual growth rates (“CAGRs”) in the price of the Company’s common shares above the option exercise price as of the fifth anniversary of the grant date, with 0% vesting at a CAGR of less than 5%, 33.3% vesting at a CAGR of 5%, 66.6% vesting at a CAGR of 7% and 100% vesting at a CAGR of 9% or greater. The maximum term of stock option awards is 10 years. Upon exercise of a stock option or upon vesting of Rights, shares may be issued from treasury shares held by the Company or from authorized shares.
In March 2016, the FASB amended its guidance related to the accounting for certain aspects of share-based payments to employees. The amended guidance requires that all tax effects related to share-based payments are recorded at settlement (or expiration) through the income statement, rather than through equity. Cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows. The amended guidance also allows for an employer to repurchase additional employee shares for tax withholding purposes without requiring liability accountingDuring 2023, 2022 and clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a financing activity on the Consolidated Statements of Cash Flows. The guidance also allows for a policy election to account for forfeitures as they occur, rather than accounting for them on an estimated basis. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted.
The Company elected to early adopt this guidance in the third quarter of 2016. This adoption requires the Company to reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption. The most significant impact of adoption was the recognition of excess tax benefits in the provision for income taxes rather than through equity for all periods in fiscal year 2016. This resulted in the recognition of excess tax benefits in the provision for income taxes of $2,229 for the year ended December 31, 2016. In 2015, the Company recorded $2,667 of excess tax benefits for current year tax deductions in additional paid-in capital, as was required pursuant to the earlier accounting guidance. In connection with the additional amendments within the amended guidance,2021, the Company recognized state tax loss carryforwards in the amount of $198, which impacted retained earnings as of January 1, 2016. The cumulative effect of this change is required to be recorded in retained earnings. The Company elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period.
The presentation requirements for cash flows related to excess tax benefits$10,201, $12,804, and employee taxes paid for withheld shares were applied retrospectively to all periods presented. This resulted in an increase in both net cash provided by operating activities and net cash used by financing activities of $1,402, $2,320, $7,519 and $7,580 for the three, six, nine and twelve month periods ended March 31, June 30, September 30 and December 31, 2015, respectively, and $413 and $524 for the three and six month periods ended March 31 and June 30, 2016, respectively.
During 2017, 2016 and 2015, the Company recognized $12,285, $11,493, and $9,258$11,470, respectively, of stock-based compensation cost and $4,579, $4,284,$1,770, $2,444, and $3,451$2,263, respectively, of related tax benefits in the accompanying consolidated statements of income. Additionally, the Company recognized excess tax benefitsexpense in the tax provision of $2,463$(941), $(1,257) and $2,229$(523) in 20172023, 2022 and 2016,2021, respectively. The Company has realized all available tax benefits related to deductions from excess stock awards exercised or restricted stock unit awards and performance share awardsRights vested. At December 31, 2017,2023, the Company had $12,940$24,795 of unrecognized compensation costs related to unvested awards which are expected to be recognized over a weighted average period of 2.852.51 years.
The following table summarizes information about the Company’s stock option awards during 2017:2023:
| | | | | | | | | | | | | | |
| | Number of
Shares | | Weighted-Average
Exercise
Price |
| Outstanding, January 1, 2023 | | 1,852,603 | | | $ | 37.79 | |
| Granted | | 120,195 | | | 44.94 | |
| Exercised | | — | | | — | |
| Forfeited | | (67,605) | | | 54.23 | |
| Outstanding, December 31, 2023 | | 1,905,193 | | | 37.66 | |
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
|
| | | | | | | |
| | | Number of Shares | | Weighted-Average Exercise Price |
| Outstanding, January 1, 2017 | | 589,160 |
| | $ | 28.67 |
|
| Granted | | 131,416 |
| | 47.80 |
|
| Exercised | | (84,393 | ) | | 23.28 |
|
| Forfeited | | (17,403 | ) | | 39.82 |
|
| Outstanding, December 31, 2017 | | 618,780 |
| | 33.15 |
|
The following table summarizes information about stock options outstanding at December 31, 2017:2023:
|
| | | | | | | | | | | | | | | | |
| | | Options Outstanding | | Options Exercisable |
Range of Exercise Prices | | Number of Shares | | Average Remaining Life (Years) | | Average Exercise Price | | Number of Shares | | Average Exercise Price |
| $11.45 to $15.83 | | 67,130 |
| | 1.5 | | $ | 13.43 |
| | 67,130 |
| | $ | 13.43 |
|
| $20.69 to $26.32 | | 77,955 |
| | 4.2 | | 23.56 |
| | 77,955 |
| | 23.56 |
|
| $26.38 to $30.71 | | 146,828 |
| | 7.5 | | 30.26 |
| | 58,173 |
| | 29.58 |
|
| $34.92 to $37.13 | | 195,005 |
| | 6.9 | | 36.40 |
| | 142,844 |
| | 36.59 |
|
| $38.93 to $63.38 | | 131,862 |
| | 9.0 | | 47.28 |
| | 5,750 |
| | 38.96 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Options Outstanding | | Options Exercisable |
Range of
Exercise
Prices | | Number
of Shares | | Average
Remaining
Life (Years) | | Average
Exercise
Price | | Number
of Shares | | Average
Exercise
Price |
| $30.32 | | 1,183,406 | | | 8.53 | | $ | 30.32 | | | — | | | $ | — | |
| $30.71 to $37.13 | | 128,164 | | | 2.15 | | 32.14 | | | 123,255 | | | 32.09 | |
| $44.94 to $47.04 | | 256,177 | | | 6.25 | | 45.79 | | | 126,718 | | | 46.61 | |
| $51.55 to $59.46 | | 178,663 | | | 4.42 | | 55.87 | | | 166,328 | | | 56.12 | |
| $60.72 to $66.10 | | 158,783 | | | 3.92 | | 63.17 | | | 158,783 | | | 63.17 | |
The Company received cash proceeds from the exercise of stock options of $1,964, $4,184$0, $150 and $11,022$1,083 in 2017, 20162023, 2022 and 2015,2021, respectively. The total intrinsic value (the amount by which the stock price exceedsexceeded the exercise price of the option on the date of exercise) of the stock options exercised during 2017, 20162023, 2022 and 20152021 was $2,887, $4,464$0, $55 and $8,331,$439, respectively.
The weighted-average grant date fair value of stock options (excluding performance-vested stock options) granted in 2017, 20162023, 2022 and 20152021 was $10.31, $7.01$17.64, $15.63, and $8.86,$17.30, respectively. The fair value of each stock option grant on the date of grant was estimated using the Black-Scholes option-pricing model based on the following weighted average assumptions:
| | | | | 2017 | | 2016 | | 2015 |
| | 2023 | | | | 2023 | | 2022 | | 2021 |
| Risk-free interest rate | | 1.90 | % | | 1.20 | % | | 1.58 | % | Risk-free interest rate | | 3.85 | % | | 1.98 | % | | 0.55 | % |
| Expected life (years) | | 5.3 |
| | 5.3 |
| | 5.3 |
| Expected life (years) | | 5.5 | | 5.5 |
| Expected volatility | | 26.1 | % | | 29.1 | % | | 31.1 | % | Expected volatility | | 41.6 | % | | 40.1 | % | | 40.0 | % |
| Expected dividend yield | | 1.82 | % | | 1.94 | % | | 2.06 | % | Expected dividend yield | | 1.20 | % | | 1.22 | % | | 1.23 | % |
The risk-free interest rate is based on the term structure of interest rates at the time of the option grant. The expected life represents an estimate of the period of time that options are expected to remain outstanding. Assumptions of expected volatility of the Company’s common stock and expected dividend yield are estimates of future volatility and dividend yields based on historical trends.
The grant date fair value of the performance-vested stock options granted in 2022 was $8.45 and was estimated using the Monte Carlo valuation method since it includes a market condition. The assumptions used to determine the fair value of the 2022 award include a 3.46% risk-free interest rate and a 34.5% expected volatility rate. Compensation expense for the performance-vested stock options is fixed at the date of grant and will not be adjusted in future periods based upon the achievement of the stock price CAGR performance goal.
The following table summarizes information about stock options outstanding that are expected to vest and stock options outstanding that are exercisable at December 31, 2017:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Options Outstanding, Expected to Vest | | Options Outstanding, Exercisable |
Shares | | Weighted-
Average
Exercise
Price | | Aggregate
Intrinsic
Value | | Weighted-
Average
Remaining
Term (Years) | | Shares | | Weighted-
Average
Exercise
Price | | Aggregate
Intrinsic
Value | | Weighted-
Average
Remaining
Term (Years) |
| 1,836,720 | | | $ | 37.66 | | | $ | 2,845 | | | 7.03 | | 575,084 | | | $ | 50.82 | | | $ | 182 | | | 3.47 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Options Outstanding, Expected to Vest | | Options Outstanding, Exercisable |
| Shares | | Weighted- Average Exercise Price | | Aggregate Intrinsic Value | | Weighted- Average Remaining Term (Years) | | Shares | | Weighted- Average Exercise Price | | Aggregate Intrinsic Value | | Weighted- Average Remaining Term (Years) |
| 598,986 | | $ | 33.15 |
| | $ | 18,041 |
| | 6.58 | | 351,852 |
| | $ | 28.16 |
| | $ | 12,352 |
| | 5.16 |
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes information about the Company’s Rights during 2017:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Service Based Rights | | Service and Performance Based Rights | | Service and Market Based Rights |
| | Number of Units | | Weighted-Average Grant Date Fair Value | | Number of Units | | Weighted-Average Grant Date Fair Value | | Number of Units | | Weighted-Average Grant Date Fair Value |
| Outstanding, January 1, 2023 | | 302,239 | | | $ | 40.62 | | | 140,361 | | | $ | 53.76 | | | 70,204 | | | $ | 93.58 | |
| Granted | | 302,440 | | | 40.53 | | | 87,343 | | | 44.94 | | | 43,682 | | | 76.61 | |
| Forfeited | | (73,535) | | | 42.56 | | | (20,607) | | | 47.07 | | | (10,307) | | | 81.66 | |
| Additional Earned | | — | | | — | | | (46,102) | | | 64.65 | | | (23,072) | | | 111.39 | |
| Issued | | (109,163) | | | 47.92 | | | — | | | — | | | — | | | — | |
| Outstanding, December 31, 2023 | | 421,981 | | | | | 160,995 | | | | | 80,507 | | | |
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Service Based Rights | | Service and Performance Based Rights | | Service and Market Based Rights |
| | | Number of Units | | Weighted-Average Grant Date Fair Value | | Number of Units | | Weighted-Average Grant Date Fair Value | | Number of Units | | Weighted-Average Grant Date Fair Value |
| Outstanding, January 1, 2017 | | 347,304 |
| | $ | 31.86 |
| | 172,042 |
| | $ | 34.74 |
| | 116,746 |
| | $ | 52.24 |
|
| Granted | | 122,696 |
| | 50.30 |
| | 43,506 |
| | 47.69 |
| | 43,506 |
| | 74.20 |
|
| Forfeited | | (14,573 | ) | | 37.77 |
| | (4,660 | ) | | 57.83 |
| | (4,363 | ) | | 43.39 |
|
| Additional Earned | | — |
| | — |
| | 18,370 |
| | 37.00 |
| | 3,946 |
| | 50.45 |
|
| Issued | | (144,903 | ) | | 57.80 |
| | (73,364 | ) | | 37.00 |
| | (31,443 | ) | | 50.45 |
|
| Outstanding, December 31, 2017 | | 310,524 |
| |
|
| | 155,894 |
| |
|
| | 128,392 |
| |
|
|
The Company granted 122,696302,440 restricted stock unit awards and 87,012131,025 performance share awards in 2017.2023. All of the restricted stock unit awards vest upon meeting certain service conditions. "Additional Earned" reflects performance share awards earned above or failed to earn (below) target that have been issued. The performance share awards are part of the long-term Performance Share Award Program (the "Awards Program"), which is designed to assess the long-term Company performance relative to the performance of companies included in the Russell 2000 Index or to pre-established goals. The performance goals are independent of each other and based on equally weighted metrics. For awards granted in 2015,2023, 2022 and 2021, the metrics included the Company's total shareholder return ("TSR"), operating income before depreciation and amortization growth ("EBITDA growth") and return on invested capital ("ROIC"). For awards granted in 2016 and 2017, the metrics included TSR and ROIC. The TSR and EBITDA growth metrics are designed to assess the long-term Company performance relative to the performance of companies included in the Russell 2000 Index over a three yearthree-year period. ROIC is designed to assess the Company’s performance compared to pre-established goals over a three yearthree-year performance period. The participants can earn from zero to 250% of the target award and the award includes a forfeitable right to dividend equivalents, which are not included in the aggregate target award numbers. Compensation expense for the awards is recognized over the three yearthree-year service period based upon the value determined under the intrinsic value method for the Earnings per share growth, EBITDA growth and ROIC portions of the award and the Monte Carlo simulation valuation model for the TSR portion of the award since it contains a market condition. The assumptions used to determine the weighted-average fair values of the market based portion of the 20172023 awards include a 1.40%4.11% risk-free interest rate and a 24.76%43.40% expected volatility rate.
Compensation expense for the TSR portion of the awards is fixed at the date of grant and will not be adjusted in future periods based upon the achievement of the TSR performance goal. Compensation expense for the Earnings per share growth, EBITDA growth and the ROIC portions of the awards is recorded each period based upon a probability assessment of achieving the goals with a final adjustment at the end of the service period based upon the actual achievement of those performance goals.
13.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
14. Income Taxes
The components of Income from continuing operations before income taxes and Income taxes follow:
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Income from continuing operations before income taxes: | | | | | | |
| U.S. | | $ | (61,688) | | | $ | (53,088) | | | $ | (28,832) | |
| International | | 94,952 | | | 91,273 | | | 156,649 | |
| Income from continuing operations before income taxes | | $ | 33,264 | | | $ | 38,185 | | | $ | 127,817 | |
| Income tax provision: | | | | | | |
| Current: | | | | | | |
| U.S. – federal | | $ | 535 | | | $ | 276 | | | $ | 4,733 | |
| U.S. – state | | 972 | | | 778 | | | 1,009 | |
| International | | 21,875 | | | 29,374 | | | 38,609 | |
| | 23,382 | | | 30,428 | | | 44,351 | |
| Deferred: | | | | | | |
| U.S. – federal | | $ | (407) | | | $ | (790) | | | $ | (6,800) | |
| U.S. – state | | (58) | | | (579) | | | (1,051) | |
| International | | (5,649) | | | (4,353) | | | (8,556) | |
| | (6,114) | | | (5,722) | | | (16,407) | |
| Income taxes | | $ | 17,268 | | | $ | 24,706 | | | $ | 27,944 | |
In 2021, the Company had a deferred tax liability for foreign withholding taxes of $185 on $3,501 of undistributed earnings on its international subsidiaries earned before 2017. In 2022, the Company removed the deferred tax liability as any related foreign withholding tax has been paid and all other undistributed earnings have been considered indefinitely reinvested. All remaining earnings are considered indefinitely reinvested as defined per the indefinite reversal criterion within the accounting guidance for income taxes. If the earnings were distributed in the form of dividends, the Company would not be subject to U.S. Tax but could be subject to foreign income and withholding taxes. Determination of the amount of this unrecognized deferred income tax liability is not practicable. The Company did not repatriate any dividends to the U.S. from accumulated foreign earnings in 2023. On December 31, 2023, the Company's unremitted foreign earnings were approximately $1,835,000.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Income from continuing operations before income taxes: | | | | | | |
| U.S. | | $ | 3,082 |
| | $ | 34,129 |
| | $ | 11,525 |
|
| International | | 192,617 |
| | 148,492 |
| | 146,421 |
|
| Income from continuing operations before income taxes | | $ | 195,699 |
| | $ | 182,621 |
| | $ | 157,946 |
|
| Income tax provision: | | | | | | |
| Current: | | | | | | |
| U.S. – federal | | $ | 77,799 |
| | $ | 7,215 |
| | $ | (210 | ) |
| U.S. – state | | 1,762 |
| | 755 |
| | 2,019 |
|
| International | | 48,032 |
| | 41,516 |
| | 32,217 |
|
| | | 127,593 |
| | 49,486 |
| | 34,026 |
|
| Deferred: | | | | | | |
| U.S. – federal | | $ | 9,596 |
| | $ | 6,091 |
| | $ | 7,670 |
|
| U.S. – state | | 819 |
| | 1,060 |
| | (1,137 | ) |
| International | | (1,724 | ) | | (9,617 | ) | | (3,993 | ) |
| | | 8,691 |
| | (2,466 | ) | | 2,540 |
|
| Income taxes | | $ | 136,284 |
| | $ | 47,020 |
| | $ | 36,566 |
|
On December 22, 2017 the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”). The Act reduced the U.S. Corporate income tax rate from 35% to 21%, effective January 1, 2018. As required, the Company re-measured its U.S. deferred tax assets and liabilities as of December 31, 2017, applying the reduced U.S. Corporate income tax rate. As a result, the Company recorded a provisional adjustment of $4,152 to net expense, with a corresponding reduction to the U.S. net deferred asset. The Company was capable of reasonably estimating the impact of the reduction to the U.S. Corporate tax rate on the deferred tax balances, however the estimate may be affected by other aspects of the Act, such as the calculation of deferred foreign income and the state effect of adjustments made to federal temporary differences.
The Act taxes certain unrepatriated earnings and profits (“E&P”) of our foreign subsidiaries. In order to determine the Transition Tax we must determine, along with other information, the amount of our accumulated post 1986 E&P for our foreign subsidiaries, as well as the non U.S. income tax paid by those subsidiaries on such E&P. We were capable of reasonably estimating the Transition Tax and recorded a provisional Transition Tax expense of $86,707. However, we continue to gather information which may adjust the computed Transition Tax. Furthermore, certain provisions of the Act are ambiguous as to the details of the computation of the Transition tax, thereby requiring us to await further guidance from the U.S. Treasury Department and the Internal Revenue Service.
As a result of the Transition Tax the Company will be recording income as if the earnings had been repatriated. This income may be subject to additional taxation at the state level. We were able to make a reasonable estimate of the state taxation of these earnings and recorded a provisional expense of $1,423. While we were able to make a reasonable estimate of the impact of state taxation on the deemed repatriation of deferred foreign income, it may be affected by changes in the computation resulting from the gathering of additional information as well as future guidance provided by the state tax authorities.
U.S. Tax Reform required the mandatory deemed repatriation of certain undistributed earnings of the Company’s international subsidiaries as of December 31, 2017. If the earnings were distributed in the form of cash dividends, the Company would not be subject to additional U.S. income taxes but could be subject to foreign income and withholding taxes. Under accounting standards (ASC 740) a deferred tax liability is not recorded for the excess of the tax basis over the financial reporting (book) basis of an investment in a foreign subsidiary if the indefinite reinvestment criteria is met. On December 31, 2017, the Company's unremitted foreign earnings were $1,228,170. Pursuant to SAB 118, if an entity has completed all or portions of its assessment and has made a decision to repatriate and has the ability to reasonably estimate the effects of that assessment, that entity should record a provisional expense and disclose the status of its efforts. The Company is continuing to evaluate its indefinite assertions related to its foreign earnings, but expects to repatriate certain earnings which would be subject to withholding and foreign income tax. For amounts currently expected to be repatriated, the Company recorded a provisional expense of $6,932. These amounts are provisional in nature given the uncertainty related to the taxation of the distributions under the Act and the finalization of the Company’s analysis on its indefinite reinvestment assertion. During 2017, the
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Company repatriated a dividend from a portion of current year foreign earnings to the U.S. in the amount of $7,250. The dividend was not taxable in the U.S. as the amount was included within the Transition Tax.
Deferred income tax assets and liabilities at December 31 consist of the tax effects of temporary differences related to the following:
| | | | | 2017 | | 2016 | | | 2023 | | 2022 |
| Deferred tax assets: | | | | |
| Pension | | $ | 13,255 |
| | $ | 27,410 |
|
| Pension | |
| Pension | |
| Tax loss carryforwards | | 16,078 |
| | 16,686 |
|
| Inventory valuation | | 10,568 |
| | 15,518 |
|
| Other postretirement/postemployment costs | | 9,440 |
| | 14,071 |
|
| Accrued Compensation | | 5,743 |
| | 10,121 |
|
| Accrued compensation | |
| Goodwill | |
| Lease obligation | |
| Other | | 4,018 |
| | 6,489 |
|
| Valuation allowance | | (10,223 | ) | | (14,957 | ) |
| Total deferred tax assets | | 48,879 |
|
| 75,338 |
|
| Deferred tax liabilities: | |
|
|
|
|
|
| Depreciation and amortization | | (82,422 | ) | | (89,198 | ) |
| Depreciation and amortization | |
| Depreciation and amortization | |
| Goodwill | | (9,440 | ) | | (14,871 | ) |
| Swedish tax incentive | |
| Right of use liability | |
| Other | | (18,361 | ) | | (12,282 | ) |
| Total deferred tax liabilities | | (110,223 | ) | | (116,351 | ) |
| Net deferred tax liabilities | | $ | (61,344 | ) | | $ | (41,013 | ) |
In the first quarter of 2016, the Company prospectively adopted the amended guidance related to the balance sheet classification of deferred income taxes. The amended guidance removed the requirement to separate and classify deferred income tax liabilities and assets into current and non-current amounts and required an entity to now classify all deferred tax liabilities and assets as non-current. The provisions of the amended guidance were adopted on a prospective basis during the first quarter of 2016. Amounts related to deferred taxes in the balance sheets as of December 31, 20172023 and 20162022 are presented as follows:
| | | | | 2017 | | 2016 |
| | 2023 | | | | 2023 | | 2022 |
| Non-current deferred tax assets | | $ | 12,161 |
| | $ | 25,433 |
|
| Non-current deferred tax liabilities | | (73,505 | ) | | (66,446 | ) |
| Net deferred tax liabilities | | $ | (61,344 | ) | | $ | (41,013 | ) |
The standards related to accounting for income taxes require that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is more likely than not that the deferred tax asset will not be realized. Available evidence includes the reversal of existing taxable temporary differences, future taxable income exclusive of temporary differences, taxable income in carryback years and tax planning strategies.
Management believes that sufficient taxable income should be earned in the future to realize the net deferred tax assets principally in the United States. The realization of these assets is dependent in part on the amount and timing of future taxable income in the jurisdictions where deferred tax assets reside. TheAs of December 31, 2023, the Company has gross tax loss carryforwards of $62,285; $3,224$85,716; $47,918 which relates to U.S tax loss carryforwards which have carryforward periods up to 20 years for federal purposes and ranging from one to 20 years for state purposes; $46,255$2,599 of which relates to international tax loss carryforwards with carryforward periods ranging from one to 20 years; and $12,806$35,198 of which relates to international tax loss carryforwards with unlimited carryforward periods. In addition, the Company has tax credit carryforwards of $144$417 with remaining carryforward periods ranging from one year to 5five years. Currently the Company has a valuation allowance of $13,353 and $366 related to loss carryforwards and credit carryforwards, respectively, as it believes it is more likely than not that future income will not be earned to timely utilize certain net operating losses or credit carryforwards which have expiration dates. As the ultimate realization of the remaining net deferred tax assets is dependent upon future taxable income, if such future taxable income is not earned and it becomes necessary to recognize a valuation allowance, it could result in a
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
material increase in the Company’s tax expense which could have a material adverse effect on the Company’s financial condition and results of operations.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In the second quarter of 2021, the Italian tax authorities released tax guidance related to the application of tax basis realignment rules for intangible property ("Realignment") which provides Italian taxpayers with the opportunity to step up the basis of goodwill and intangibles to their fair market value and amortize the step up over 18 years for tax purposes in exchange for paying a 3% tax on the step up, payable over a three years period. The Company opted to elect the Realignment in June 2021 and accordingly recorded a tax payable of $3,008 and a long-term tax payable of $6,016. The Company made its first required installment payment of $3,008 during the third quarter of 2021, reducing the long-term tax payable accordingly. The Company also recorded a deferred tax asset of $83,921 related to the Realignment. Accounting guidance requires that when a deferred tax asset is realigned for tax purposes, a corresponding revaluation reserve also be recorded. Under Italian tax rules, any dividends paid out of this revaluation reserve are subject to tax at a 24% rate. Accordingly, the Company recorded a deferred tax liability of $72,190 related to the potential 24% tax due on any dividends, paid out of the revaluation reserve. The deferred tax asset and liability balances have been presented on a net basis on the Consolidated Balance Sheets. The Company also recorded a one-time $2,707 benefit to the provision related to this election and related accounting. In December 2021, the Italian government increased the amortization period to 50 years but then reversed the period back to 10 years for the intangible component of the step up in 2022; however the change has no impact on the accounting for the transaction as reported above.
In October 2021, the Organisation for Economic Co-operation and Development ("OECD") announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%. Subsequently multiple sets of administrative guidance have been issued. Many non-US tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 with the adoption of additional components in later years or announced their plans to enact legislation in future years. We are continuing to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the non-US tax jurisdictions we operate in.
In August 2022, the U.S. government enacted tax legislation commonly referred to as the Inflation Reduction Act of 2022 (“IRA”) into law. The IRA will impose a 1% excise tax on the fair market value of certain stock repurchased by a public traded company after December 31, 2022 and restored and modified certain tax-related energy incentives. The Company does not anticipate a material impact on our business, financial condition, results of operations or cash flow as a result of this change.
Management is required to assess whether its valuation allowance analysis is affected by various components of the Acttax law including the deemed mandatory repatriation of foreign income for the Transition Tax, future GILTI inclusions, changes to the deductibility of executive compensation and interest expense and changes to the NOL and FTC rules. SinceThe total valuation allowance as of December 31, 2023 was $41,625. Of this balance, $28,513 was recorded for carryforward items from the Company has recorded provisional amountsMB Aerospace acquisition, which primarily relate to disallowed interest and operating losses from this business with the remaining balance primarily consisting of $6,758 for allowances related to certain portions of the Act, any corresponding determination of the needU.S. interest expense that is disallowed under Section 163(j) and $4,047 for or change in a valuation allowance would be provisional.net operating losses.
A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate from continuing operations follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| U.S. federal statutory income tax rate | | 21.0 | % | | 21.0 | % | | 21.0 | % |
| | | | | | |
| Foreign operations taxed at different rates | | 13.9 | | | 0.6 | | | 0.1 | |
| Foreign losses without tax benefit | | 20.7 | | | 7.5 | | | 1.9 | |
| Italian goodwill & intangible realignment | | — | | | — | | | (2.1) | |
| Goodwill impairment | | — | | | 37.5 | | | — | |
| GILTI | | 9.8 | | | 12.0 | | | 2.3 | |
| Capitalized Transaction Costs | | 8.2 | | | — | | | — | |
| Tax holidays | | (45.8) | | | (30.2) | | | (2.5) | |
| Stock awards excess tax expense | | 2.8 | | | 3.3 | | | 0.4 | |
| | | | | | |
| Charge for change in valuation allowances | | 20.4 | | | 9.3 | | | — | |
| Tax Reserves and audits including MAP Approval | | 2.3 | | | 2.8 | | | (1.5) | |
| Adjustment to prior year's tax return | | (3.8) | | | (2.2) | | | 1.0 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Foreign tax rate change | | (0.1) | | | — | | | 0.4 | |
| Other | | 2.5 | | | 3.1 | | | 0.9 | |
| Consolidated effective income tax rate | | 51.9 | % | | 64.7 | % | | 21.9 | % |
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
|
| | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| U.S. federal statutory income tax rate | | 35.0 | % | | 35.0 | % | | 35.0 | % |
| State taxes (net of federal benefit) | | 0.1 |
| | 0.4 |
| | 0.2 |
|
| Transition Tax | | 45.0 |
| | — |
| | — |
|
| U.S. Corporate Tax Rate change | | 2.1 |
| | — |
| | — |
|
| Indefinite Reinvestment Assertion | | 3.5 |
| | — |
| | — |
|
| Foreign operations taxed at different rates | | (11.5 | ) | | (10.9 | ) | | (12.9 | ) |
| Foreign losses without tax benefit | | 1.5 |
| | 0.7 |
| | 1.1 |
|
| Repatriation from current year foreign earnings | | — |
| | 1.6 |
| | 4.3 |
|
| Tax withholding refund | | — |
| | — |
| | (1.9 | ) |
| Tax Holidays | | (0.8 | ) | | (1.2 | ) | | (3.2 | ) |
| Stock awards excess tax benefit | | (1.2 | ) | | (1.2 | ) | | — |
|
| Swiss Legal Entity Reduction | | (3.4 | ) | | — |
| | — |
|
| Audit Settlements | | (2.7 | ) | | — |
| | — |
|
| Other | | 2.0 |
| | 1.3 |
| | 0.6 |
|
| Consolidated effective income tax rate | | 69.6 | % | | 25.7 | % | | 23.2 | % |
Payment of the Transition Tax assessed is required over an eight-year period. The short-term portion of the Transition Tax payable, $6,937,$17,371, has been included within Accrued Liabilities on the Consolidated Balance Sheet as of December 31, 2017.2023. The long-term portion of the assessment, $79,770,$21,714, is included as a Long-term tax liability on the Consolidated Balance Sheet and is payable as follows: $6,937 annually in 2019 through 2022; $13,005 in 2023; $17,341 in 2024 and $21,676 in 2025.
The Aerospace and Industrial Segments were previously awardedsegments have a number of multi-year tax holidays in both Singapore, China and China.Malaysia. Tax benefits of $1,540 ($0.03$15,233 ($0.30 per diluted share), $2,245 ($0.04$11,528 ($0.23 per diluted share) and $5,000 ($0.09$3,219 ($0.06 per diluted share) were realized in 2017, 20162023, 2022 and 2015,2021, respectively. These holidays are subject to the Company meeting certain commitments in the respective jurisdictions. MostAerospace was granted an income tax holiday for operations recently established in Malaysia. This holiday commenced effective November 2020 (retroactively) and remains effective for a period of ten years. The China tax holiday was granted in 2021 and the holiday runs for a three year period which ended December 31, 2023. It is anticipated that the Company will re-apply for the holiday in 2024. The Aerospace business was granted additional tax holidays expired in 2017.Singapore under the Pioneer program in 2022. This holiday provides reduced tax rates for certain Aerospace programs manufactured at the Singapore location and will run through December 2025.
Income taxes paid globally, net of refunds, were $51,548, $40,842$39,916, $49,639, and $31,895$58,324 in 2017, 20162023, 2022 and 2015,2021, respectively.
As of December 31, 2017, 20162023, 2022 and 2015,2021, the total amount of unrecognized tax benefits recorded in the consolidated balance sheet was $9,209, $13,320$10,993, $8,250, and $10,634,$8,671, respectively, which, if recognized, would have reduced the effective tax rate in prior years, with the exception of amounts related to acquisitions. A reconciliation of the unrecognized tax benefits for 2017, 20162023, 2022 and 20152021 follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Balance at January 1 | | $ | 8,250 | | | $ | 8,671 | | | $ | 9,156 | |
| Increase (decrease) in unrecognized tax benefits due to: | | | | | | |
| Tax positions taken during prior periods | | — | | | — | | | — | |
| Tax positions taken during the current period | | 637 | | | 873 | | | 637 | |
| Acquisition | | 2,950 | | | — | | | — | |
| Settlements | | — | | | — | | | (70) | |
| Lapse of the applicable statute of limitations | | (790) | | | (1,171) | | | (1,218) | |
| Foreign currency translation | | (54) | | | (123) | | | 166 | |
| Balance at December 31 | | $ | 10,993 | | | $ | 8,250 | | | $ | 8,671 | |
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Balance at January 1 | | $ | 13,320 |
| | $ | 10,634 |
| | $ | 8,560 |
|
| Increase (decrease) in unrecognized tax benefits due to: | | | | | | |
| Tax positions taken during prior periods | | 1,141 |
| | — |
| | 1,691 |
|
| Tax positions taken during the current period | | 778 |
| | 117 |
| | — |
|
| Acquisition | | — |
| | 2,569 |
| | 598 |
|
| Settlements | | (4,162 | ) | | — |
| | — |
|
| Lapse of the applicable statute of limitations | | (1,868 | ) | | — |
| | (215 | ) |
| Balance at December 31 | | $ | 9,209 |
| | $ | 13,320 |
| | $ | 10,634 |
|
The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The Company recognized interest and penalties as a component of income taxes of $(257)$(388), $(337)$(264), and $616$(93) in the years 2017, 20162023, 2022 and 20152021, respectively. The liability for unrecognized tax benefits includes gross accrued interest and penalties of $1,576, $1,838$2,930, $3,318, and $1,923$3,582 at December 31, 2017, 20162023, 2022 and 2015,2021, respectively.
The Company or its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by various taxing authorities, including the IRS in the U.S. and the taxing authorities in other major jurisdictions including China, Germany, Singapore, Sweden and Switzerland. With a few exceptions, tax years remaining open to examination in significant foreign jurisdictions include tax years 2010 and2018 forward and for the U.S. include tax years 20142016 and forward. The Company has receivedis undergoing a tax audit by the IRS for the 2016, 2017 and 2018 tax year. The Company is under a German tax audit report but notfor the final assessmentSeeger business group for the years 2018 through 2019 and the first month of 2020. Pursuant to the sale and purchase agreement, the Company agreed to certain indemnifications for taxes assessed for audit periods related to the Seeger business. Refer to Note 2. The Company is also under German tax audits for the FOBOHA and Manner business groups for years 2019 and 2020 and under audit in GermanyCanada for tax years 2010 to 2014 and is also under audit in several states for the period 2013 to 2014. 2019 through 2021.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
15. Common Stock
There were no shares of common stock issued from treasury in 2017, 20162023, 2022 or 2015.2021.
In 2017, 20162023, 2022 and 2015,2021, the Company acquired 677,1000 shares, 550,994200,000 shares and 1,352,596100,000 shares, respectively, of the Company’s common stock at a cost of $40,791, $20,520$0, $6,721 and $52,103,$5,229, respectively. These amounts exclude shares reacquired to pay for the related income tax upon issuance of shares in accordance with the terms of the Company’s stockholder-approved equity compensation plans and the equity rights granted under those plans ("Reacquired Shares"). These Reacquired Shares were placed in treasury.
In 2017, 20162023, 2022 and 2015, 341,8372021, 119,142 shares, 621,259137,911 shares and 841,164172,261 shares of common stock, respectively, were issued from authorized shares for the exercise of stock options, various other incentive awards and purchases by the Company's Employee Stock Purchase Plan.
15.16. Preferred Stock
At December 31, 20172023 and 2016,2022, the Company had 3,000,000 shares of preferred stock authorized, none of which were outstanding.
16.17. Stock Plans
Most U.S. salaried and non-union hourly employees are eligible to participate in the Company’s 401(k) plan (the "Retirement Savings Plan"). The Retirement Savings Plan provides for the investment of employer and employee contributions in various investment alternatives including the Company’s common stock, at the employee’s direction. The Company contributes an amount equal to 50% of employee contributions up to 6% of eligible compensation. The Company expenses all contributions made to the Retirement Savings Plan. Effective January 1, 2013, the Retirement Savings Plan was amended to provide certain salaried employees hired on or after January 1, 2013 with an additional annual retirement contribution of 4% of eligible earnings. The Company recognized expense of $4,088, $3,660$6,768, $4,164 and $3,666$3,970 in 2017, 20162023, 2022 and 2015,2021, respectively. As of December 31, 2017,2023, the Retirement Savings Plan held 1,124,360730,464 shares of the Company’s common stock.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company has an Employee Stock Purchase Plan (“ESPP”) under which eligible employees may elect to have up to the lesser of $25 or 10% of base compensation deducted from their payroll checks for the purchase of the Company’s common stock at 95% of the average market value on the date of purchase. The maximum number of shares which may be purchased under the ESPP is 4,550,000. The number of shares purchased under the ESPP was 7,734, 11,8049,979, 11,101 and 11,2467,667 in 2017, 20162023, 2022 and 2015,2021, respectively. The Company received cash proceeds from the purchase of these shares of $444, $427$353, $363 and $403$344 in 2017, 20162023, 2022 and 2015,2021, respectively. As of December 31, 2017, 277,6712023, 222,041 additional shares may be purchased.
The 1991 Barnes Group Stock Incentive Plan (the “1991 Plan”) authorized the granting of incentives to executive officers, directors and key employees in the form of stock options, stock appreciation rights, incentive stock rights and performance unit awards. On May 9, 2014, the 1991 Plan was merged into the 2014 Plan (defined below).
The Barnes Group Inc. Employee Stock and Ownership Program (the “2000 Plan”) was approved on April 12, 2000, and subsequently amended on April 10, 2002 by the Company’s stockholders. The 2000 Plan permitted the granting of incentive stock options, nonqualified stock options, restricted stock awards, performance share or cash unit awards and stock appreciation rights, or any combination of the foregoing, to eligible employees to purchase up to 6,900,000 shares of the Company’s common stock. Such shares were authorized and reserved. On May 9, 2014, the 2000 Plan was merged into the 2014 Plan (defined below).
The Barnes Group Stock and Incentive Award Plan (the “2004 Plan”) was approved on April 14, 2004, and subsequently amended on April 20, 2006 and May 7, 2010 by the Company’s stockholders. The 2004 Plan permits the issuance of incentive awards, stock option grants and stock appreciation rights to eligible participants to purchase up to 5,700,000 shares of common stock. On May 9, 2014, the 2004 Plan was merged into the 2014 Plan (defined below), and the remaining shares available for future grants under the 2004 Plan, as of the merger date, were made available under the 2014 Plan.
The 2014 Barnes Group Stock and Incentive Award Plan (the “2014 Plan”) was approved on May 9, 2014 by the Company's stockholders. The 2014 Plan permits the issuance of incentive awards, stock option grants and stock appreciation rights to eligible participants to purchase up to 6,913,978 shares of common stock. Of this amount as of December 31, 2022, there were 2,223,889 shares available for future grants under the 2014 Plan. On May 5, 2023, the 2014 Plan was merged with and into the 2023 Plan.
The 2023 Barnes Group Stock and Incentive Award Plan (the “2023 Plan”) was approved on May 5, 2023 by the Company's stockholders. The 2023 Plan permits the issuance of incentive awards, stock option grants and stock appreciation rights to eligible participants to purchase up to 4,223,889 shares of common stock. The amount includes shares available for purchase under the 1991, 2000, and 2004 Plans2014 Plan which werewas merged into the 20142023 Plan. The 20142023 Plan allows for stock options and stock appreciation rights to be issued at a ratio of 1:1 and other types of incentive awards at a ratio of 2.84: 1.9:1 from the shares available for future grants. As of December 31, 2017,2023, there were 5,628,9503,717,399 shares available for future grants under the 20142023 Plan, inclusive of Shares Reacquired and shares made available through 20172023 forfeitures. As of December 31, 2017,2023, there were 1,224,2752,548,590 shares of common stock outstanding to be issued upon the exercise of stock options and the vesting of Rights.
Rights under the 20142023 Plan entitle the holder to receive, without payment, one share of the Company’s common stock after the expiration of the vesting period. Certain of these Rights are also subject to the satisfaction of established performance goals. Additionally, holders of certain Rights are credited with dividend equivalents, which are converted into additional Rights, and holders of certain restricted stock units
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
are paid dividend equivalents in cash when dividends are paid to other stockholders. All Rights have a vesting period of up to five years.
During the year ended December 31, 2022, the Company granted a one-time Performance-Vested Stock Option award. Although the Performance-Vested Stock Options were not granted under the 2014 Plan, they will be administered in accordance with the terms and conditions of the 2014 Plan (other than Section 4 thereof). This stock option award was approved on July 14, 2022 by the Compensation and Management Development Committee of the Board of Directors of Barnes without shareholder approval pursuant to New York Stock Exchange Rule 303A.08.
Under the Non-Employee Director Deferred Stock Plan, as amended, each non-employee director who joined the Board of Directors prior to December 15, 2005 was granted the right to receive 12,000 shares of the Company’s common stock upon retirement. In 2017, 20162023, 2022 and 2014, $20, $212021, $16, $18 and $26,$19, respectively, of dividend equivalents were paid in cash related to these shares. CompensationThere was no compensation cost related to this plan was $9, $28 and $16 in 2017, 2016 and 2015, respectively.2023, 2022 or 2021. There are 36,00024,000 shares reserved for issuance under this plan. Each non-employee director who joined the Board of Directors subsequent to December 15, 2005 received restricted stock units under the respective 2004 or 2014 Plans that have a grant date value of $50 that vest three years after the date of grant.
Total maximum shares reserved for issuance under all stock plans aggregated 7,166,8956,512,031 at December 31, 2017.2023.
17.18. Weighted Average Shares Outstanding
Net income per common share is computed in accordance with accounting standards related to earnings per share. Basic earnings per share is calculated using the weighted-average number of common shares outstanding during the year. Share-based payment awards that entitle their holders to receive nonforfeitable dividends before vesting should be considered participating securities and, as such, should be included in the calculation of basic earnings per share. The Company’s restricted stock unit awards which contain nonforfeitable rights to dividends are considered participating securities. Diluted earnings per share reflects the assumed exercise and conversion of all dilutive securities. Shares held by the Retirement Savings Plan are considered outstanding for both basic and diluted earnings per share. There are no significant adjustments to net income for purposes of computing income available to common stockholders for the years ended December 31, 2017, 2016 and 2015.2023, 2022 or 2021. A reconciliation of the weighted-average number of common shares outstanding used in the calculation of basic and diluted earnings per share follows:
| | | | | | | | | | | | | | | | | | | | |
| | | Weighted-Average Common Shares Outstanding |
| | | 2023 | | 2022 | | 2021 |
| Basic | | 51,052,963 | | | 50,962,447 | | | 50,926,374 | |
| Dilutive effect of: | | | | | | |
| Stock options | | 86,658 | | | 20,910 | | | 74,798 | |
| Performance share awards | | 66,267 | | | 100,810 | | | 77,891 | |
| | | | | | |
| | | | | | |
| Diluted | | 51,205,888 | | | 51,084,167 | | | 51,079,063 | |
|
| | | | | | | | | |
| | | Weighted-Average Common Shares Outstanding |
| | | 2017 | | 2016 | | 2015 |
| Basic | | 54,073,407 |
| | 54,191,013 |
| | 55,028,063 |
|
| Dilutive effect of: | | | | | | |
| Stock options | | 258,052 |
| | 166,986 |
| | 206,778 |
|
| Performance share awards | | 273,839 |
| | 273,314 |
| | 278,378 |
|
| Diluted | | 54,605,298 |
| | 54,631,313 |
| | 55,513,219 |
|
The calculation of weighted-average diluted shares outstanding excludes all anti-dilutive shares. During 2017, 20162023, 2022 and 2015,2021, the Company excluded 46,450, 262,3361,089,449, 1,352,548 and 214,032533,177 stock awards, respectively, from the calculation of diluted weighted-average shares outstanding as the stock awards were considered anti-dilutive.
18.19. Leases
The Company maintains leases of certain manufacturing, distribution and assembly facilities, office space, land, machinery and equipment. Leases generally have remaining terms of one year to five years. Leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheets. The Company recognizes lease expense for minimum lease payments on a straight line basis over the term of the lease. Certain leases include options to renew or terminate. Renewal options are exercisable per the discretion of the Company and vary based on the nature of each lease, with renewal periods generally ranging from one year to five years. The term of the lease includes renewal periods only if the Company is reasonably certain that it will exercise the renewal option. When determining if a renewal option is reasonably certain of being exercised, the Company considers several factors, including but not limited to, the cost of moving to another location, the cost of disruption to operations, whether the purpose or location of the leased asset is unique and the contractual terms associated with extending the lease.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Certain leases provide the option to purchase the leased property and are therefore evaluated for finance lease consideration. Right-of-use ("ROU") assets and lease liabilities related to finance leases were not material as of December 31, 2023 and 2022. ROU assets arising from finance leases are included in property, plant and equipment, net, and the corresponding liabilities are included in Long Term Debt - Current and Long-Term Debt on the Consolidated Balance Sheet. The depreciable life of leased assets are limited by the expected term of the lease, unless there is a transfer of title or purchase option and the Company believes it is reasonably certain of exercise.
Lease agreements generally do not contain any material residual value guarantees or materially restrictive covenants and the Company does not sublease to any third parties. The Company does not have any material leases that have been signed but not commenced.
Contracts are evaluated at inception to determine whether they contain a lease, where the Company obtains the right to control an identified asset. The following table sets forth the classification of ROU assets and lease liabilities on the Consolidated Balance Sheets:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Operating Leases | | Classification | | December 31, 2023 | | December 31, 2022 |
| Leased Assets | | | | | | |
| ROU assets | | Other assets | | $ | 46,780 | | | $ | 27,054 | |
| | | | | | |
| Lease Liabilities | | | | | | |
| Current lease liability | | Accrued liabilities | | 10,894 | | | 10,209 | |
| Long-term lease liability | | Other liabilities | | 36,197 | | | 17,128 | |
| | | | $ | 47,091 | | | $ | 27,337 | |
| | | | | | |
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. New operating lease ROU assets represent the lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received. The Company's real estate leases, which are comprised primarily of manufacturing, distribution and assembly facilities, represent a majority of the lease liability. A significant portion of lease payments are fixed, although an immaterial portion of payments are variable in nature. Variable lease payments vary based on changes in facts and circumstances related to the use of the ROU and are recorded as incurred. The Company utilizes its incremental borrowing rate by lease term to calculate the present value of our future lease payments if an implicit rate is not specified. The discount rate is risk-adjusted on a secured basis and is the rate at which the Company would be charged to borrow the amount equal to the lease payments over a similar term.
The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. The Company applies a portfolio approach to effectively account for the operating lease ROU assets and liabilities.
Operating lease costs for the twelve months ended December 31, 2023, 2022 and 2021 were $19,276, $17,099 and $17,687, respectively, and were included within Cost of Sales and Selling and Administrative expenses. Operating lease costs include short-term and variable leases costs, which were not material during the period.
Future minimum lease payments under non-cancellable leases as of December 31, 2023 were as follows:
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| | | | | | | | |
| | |
| | Operating Leases |
| 2024 | | $ | 12,874 | |
| 2025 | | 8,990 | |
| 2026 | | 6,666 | |
| 2027 | | 4,960 | |
| 2028 | | 4,272 | |
| After 2028 | | 23,145 | |
| Total lease payments | | $ | 60,907 | |
| Less: Interest | | 13,816 | |
| Present value of lease payments | | $ | 47,091 | |
| | | | | | | | | | | | | | | | | |
| December 31, |
| Lease Term and Discount Rate | 2023 | | 2022 | | 2021 |
| Weighted-average remaining lease term (years) | | | | | |
| Operating leases | 7.8 | | 5.8 | | 5.8 |
| Weighted-average discount rates | | | | | |
| Operating leases | 5.67 | % | | 3.38 | % | | 3.01 | % |
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| Other Information | | 2023 | | 2022 | | 2021 |
| Cash paid for amounts included in the measurement of lease liabilities | | | | | | |
| Operating cash flows from operating leases | | $ | 14,440 | | | $ | 13,596 | | | $ | 14,586 | |
| Leased assets obtained in exchange for new operating lease liabilities | | $ | 32,353 | | | $ | 11,498 | | | $ | 15,287 | |
| | | | | | |
| | | | | | |
| | | | | | |
20. Changes in Accumulated Other Comprehensive Income by Component
The following tables set forth the changes in accumulated other comprehensive income by component for the years ended December 31, 20172023 and December 31, 2016:
2022:
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gains and Losses on Cash Flow Hedges | | Pension and Other Postretirement Benefit Items | | Foreign Currency Items | | | | Total |
| January 1, 2023 | $ | 5,941 | | | $ | (108,640) | | | $ | (117,801) | | | | | $ | (220,500) | |
| Other comprehensive (loss) income before reclassifications to consolidated statements of income | (16,637) | | | 7,230 | | | 37,952 | | | | | 28,545 | |
| Amounts reclassified from accumulated other comprehensive income to the consolidated statements of income | (3,808) | | | 634 | | | — | | | | | (3,174) | |
| Net current-period other comprehensive (loss) income | (20,445) | | | 7,864 | | | 37,952 | | | | | 25,371 | |
| December 31, 2023 | $ | (14,504) | | | $ | (100,776) | | | $ | (79,849) | | | | | $ | (195,129) | |
| | | | | | | | | |
| | | | | | | | | |
| Gains and Losses on Cash Flow Hedges | | Pension and Other Postretirement Benefit Items | | Foreign Currency Items | | | | Total |
| | | | | | | | | |
| January 1, 2022 | $ | 160 | | | $ | (112,307) | | | $ | (39,691) | | | | | $ | (151,838) | |
| Other comprehensive income (loss) before reclassifications to consolidated statements of income | 6,155 | | | (6,212) | | | (78,110) | | | | | (78,167) | |
| Amounts reclassified from accumulated other comprehensive income to the consolidated statements of income | (374) | | | 9,879 | | | — | | | | | 9,505 | |
| Net current-period other comprehensive income (loss) | 5,781 | | | 3,667 | | | (78,110) | | | | | (68,662) | |
| | | | | | | | | |
| December 31, 2022 | $ | 5,941 | | | $ | (108,640) | | | $ | (117,801) | | | | | $ | (220,500) | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Gains and Losses on Cash Flow Hedges | | Pension and Other Postretirement Benefit Items | | Foreign Currency Items | | Total |
| January 1, 2017 | $ | (227 | ) | | $ | (114,570 | ) | | $ | (86,031 | ) | | $ | (200,828 | ) |
| Other comprehensive (loss) income before reclassifications to consolidated statements of income | (231 | ) | | 3,342 |
| | 83,404 |
| | 86,515 |
|
| Amounts reclassified from accumulated other comprehensive income to the consolidated statements of income | 530 |
| | 7,384 |
| | — |
| | 7,914 |
|
| Net current-period other comprehensive income | 299 |
| | 10,726 |
| | 83,404 |
| | 94,429 |
|
| December 31, 2017 | $ | 72 |
| | $ | (103,844 | ) | | $ | (2,627 | ) | | $ | (106,399 | ) |
| | | | | | | | |
| | Gains and Losses on Cash Flow Hedges | | Pension and Other Postretirement Benefit Items | | Foreign Currency Items | | Total |
| | | | | | | | |
| January 1, 2016 | $ | 115 |
| | $ | (105,703 | ) | | $ | (37,664 | ) | | $ | (143,252 | ) |
| Other comprehensive loss before reclassifications to consolidated statements of income | (739 | ) | | (16,137 | ) | | (48,367 | ) | | (65,243 | ) |
| Amounts reclassified from accumulated other comprehensive income to the consolidated statements of income | 397 |
| | 7,270 |
| | — |
| | 7,667 |
|
| Net current-period other comprehensive loss | (342 | ) | | (8,867 | ) | | (48,367 | ) | | (57,576 | ) |
| December 31, 2016 | $ | (227 | ) | | $ | (114,570 | ) | | $ | (86,031 | ) | | $ | (200,828 | ) |
The following table sets forth the reclassifications out of accumulated other comprehensive income by component for the years ended December 31, 20172023 and December 31, 2016:2022:
| | | | | | | | | | | | | | | | | | | | |
| Details about Accumulated Other Comprehensive Income Components | | Amount Reclassified from Accumulated Other Comprehensive Income | | Affected Line Item in the Consolidated Statements of Income |
| | 2023 | | 2022 | | |
| Gains and losses on cash flow hedges | | | | | | |
| Interest rate contracts | | $ | 5,825 | | | $ | 647 | | | Interest expense |
| Foreign exchange contracts | | (788) | | | (152) | | | Net sales |
| | 5,037 | | | 495 | | | Total before tax |
| | (1,229) | | | (121) | | | Tax expense |
| | 3,808 | | | 374 | | | Net of tax |
| | | | | | |
| Pension and other postretirement benefit items | | | | | | |
| Amortization of prior-service costs | | $ | (364) | | | $ | (423) | | | (A) |
| Amortization of actuarial losses | | (1,497) | | | (12,708) | | | (A) |
| Curtailment gain/(loss) | | 241 | | | (450) | | | (A) |
| Settlement gain | | 656 | | | 605 | | | (A) |
| | (964) | | | (12,976) | | | Total before tax |
| | 330 | | | 3,097 | | | Tax (expense) benefit |
| | (634) | | | (9,879) | | | Net of tax |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total reclassifications in the period | | $ | 3,174 | | | $ | (9,505) | | | |
|
| | | | | | | | | | |
| Details about Accumulated Other Comprehensive Income Components | | Amount Reclassified from Accumulated Other Comprehensive Income | | Affected Line Item in the Consolidated Statements of Income |
| | | 2017 | | 2016 | | |
| Gains and losses on cash flow hedges | | | | | | |
| Interest rate contracts | | $ | (545 | ) | | $ | (557 | ) | | Interest expense |
| Foreign exchange contracts | | (242 | ) | | (61 | ) | | Net sales |
| | | (787 | ) | | (618 | ) | | Total before tax |
| | | 257 |
| | 221 |
| | Tax benefit |
| | | (530 | ) | | (397 | ) | | Net of tax |
| | | | | | | |
| Pension and other postretirement benefit items | | | | | | |
| Amortization of prior-service (cost) credits, net | | $ | (378 | ) | | $ | 163 |
| | (A) |
| Amortization of actuarial losses | | (10,833 | ) | | (11,326 | ) | | (A) |
| Curtailment gain | | 187 |
| | — |
| | (A) |
| Settlement loss | | (142 | ) | | — |
| | (A) |
| | | (11,166 | ) | | (11,163 | ) | | Total before tax |
| | | 3,782 |
| | 3,893 |
| | Tax benefit |
| | | (7,384 | ) | | (7,270 | ) | | Net of tax |
| | | | | | | |
| Total reclassifications in the period | | $ | (7,914 | ) | | $ | (7,667 | ) | | |
11.12.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
21. Information on Business Segments
The Company is organized based upon the nature of its products and services and reports under two global business segments: IndustrialAerospace and Aerospace.Industrial. Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The Company has not aggregated operating segments for purposes of identifying these two reportable segments.
IndustrialAerospace is a global manufacturer of highly-engineered, high-quality precision components, products and systems for critical applications serving a diverse customer base in end-markets such as transportation, industrial equipment, consumer products, packaging, electronics, medical devices, and energy. Focused on innovative custom solutions, Industrial participates in the design phase of components and assemblies whereby customers receive the benefits of application and systems engineering, new product development, testing and evaluation, and the manufacturing of final products. Products are sold primarily through its direct sales force and global distribution channels. Industrial's Molding Solutions businesses design and manufacture customized hot runner systems, advanced mold cavity sensors and process control systems,complex fabricated and precision high cavitation mold assemblies - collectively, the enabling technologies for many complex injection molding applications. Industrial's Nitrogen Gas Products business provides innovative cost effective force and motion solutions for sheet metal forming, heavy duty suspension and other selective niche markets for customers worldwide. Industrial's Engineered Components businesses manufacture and supply precision mechanical products used in transportation and industrial applications, including mechanical springs, high-precision punched and fine-blanked components and retention rings.
Industrial has a diverse customer base with products purchased by durable goods manufacturers located around the world in industries including transportation, consumer products, packaging, farm and mining equipment, telecommunications, medical devices, home appliances and electronics.
Industrial competes with a broad base of large and small companies engaged in the manufacture and sale of custom metal components, products and assemblies, precision molds, and hot runner systems. Industrial competes on the basis of value to customer, quality, service, reliability of supply, engineering and technical capability, geographic reach, product breadth, innovation, design, and price. Industrial has manufacturing, distribution and assembly operations in the United States, Brazil, China, Germany, Italy, Mexico, Singapore, Sweden, Switzerland and the United Kingdom. Industrial also has sales and service operations in the United States, Brazil, Canada, Czech Republic, China/Hong Kong, France, Germany, India, Italy, Japan, Mexico, the Netherlands, Portugal, Singapore, Slovakia, South Africa, South Korea, Spain, Switzerland, Thailand and the United Kingdom.
Aerospace is a global provider of fabricated and precision-machinedmachined components and assemblies for original equipment manufacturer ("OEM") turbine engine, airframeengines, nacelles and industrial gas turbine builders,structures for both commercial and the military.defense-related aircraft. The Aerospace Aftermarket includes the jetbusiness provides aircraft engine component maintenance overhaul and repair business ("MRO") and the spare parts business. MRO includesservices, including services performed under our Component Repair Programs ("CRPs"(“CRPs”) and services, for many of the world'sworld’s major turbine engine manufacturers, commercial airlines and the military.defense market. The Aerospace Aftermarket activities also include the manufacture and delivery of aerospace aftermarket spare parts, business includes ourincluding through revenue sharing programs ("RSPs"(“RSPs”) under which the Company receives an exclusive right to supply designated aftermarket parts over the life of the relatedspecific aircraft engine program.programs.
Aerospace’s OEM business supplements the leading jet engineoffers a comprehensive range of in-house manufacturing solutions and capabilities, including components and assemblies. The applications for these components primarily include engines, airframes and nacelles. Aerospace OEM capabilities and competes with a large number of fabrication and machining companies. CompetitionOur competitive advantage is based mainly on value derived from quality, concurrent engineering and technical capability, product breadth, solutions-providing new product introduction, timeliness, service, price and price.intellectual property. Aerospace’s fabrication and machining operations, with facilities in Arizona, Connecticut, Mexico,Malaysia, Michigan, Ohio, Utah, Poland, the United Kingdom and Singapore, produce critical engine, nacelle and airframe components through technicallytechnologically advanced manufacturing processes.
The Aerospace aftermarketAftermarket business supplements jet engine OEMs’ maintenance, repair and overhaul capabilities, and competes with the service centers of major commercial airlines and other independent service companies for the repair and overhaul of turbine engine components. The manufacture and supply of aerospace aftermarket spare parts, including those related to the RSPs, are dependent upon the reliable and timely delivery of high-quality components. Aerospace’s aftermarketAftermarket facilities, located in Connecticut, Ohio, Singapore and Singapore,Taiwan, specialize in the repair and refurbishment of highly engineered components and assemblies such as cases, rotating life limited parts, rotating air seals, turbine shrouds, vanes and honeycomb air seals. Aerospace Aftermarket's facility in Malaysia is focused on the supply of spare parts.
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company evaluates the performance of its reportable segments based on the operating profit of the respective businesses, which includes net sales, cost of sales, selling and administrative expenses and certain components of other expense (income), net, as well as the allocation of corporate overhead expenses.
Industrial is a global provider of highly-engineered, high-quality precision components, products and systems for critical applications serving a diverse customer base in end-markets such as industrial equipment, automation, personal care, packaging, electronics, mobility and medical devices. Focused on innovative custom solutions, Industrial participates in the design phase of components and assemblies whereby customers receive the benefits of application and systems engineering, new product development, testing and evaluation, and the manufacturing of final products. Products are sold primarily through its direct sales force and global distribution channels. Industrial's Molding Solutions business designs and manufactures customized hot runner systems, advanced mold cavity sensors and process control systems, and precision high cavitation mold assemblies - collectively, the enabling technologies for many complex injection molding applications. The Automation business designs and develops robotic grippers, advanced end-of-arm tooling systems, sensors and other automation components for intelligent robotic handling solutions and industrial automation applications. The Motion Control Solutions business provides innovative cost-effective force and motion control solutions for a wide range of metal forming and other industrial markets and manufactures and supplies precision mechanical products used in mobility and industrial applications, including mechanical springs, and high-precision punched and fine-blanked components. See Note 23 as the Company entered into a Share Purchase and Asset Agreement to sell its Associated Spring™ and Hänggi™ businesses, both within the Motion Control Solutions business, in January 2024.
Industrial competes with a broad base of large and small companies engaged in the manufacture and sale of engineered products, precision molds, hot runner systems, robotic handling solutions and precision components. Industrial competes on the basis of quality, service, reliability of supply, engineering and technical capability, geographic reach, product breadth, innovation, design, timeliness and price. Industrial has a global presence in multiple countries, with manufacturing, distribution
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
and assembly operations in the United States, China, Germany, Italy, Sweden and Switzerland, among others. Industrial also has sales and service operations in the United States, China/Hong Kong, Germany, Italy and Switzerland, among others.
Sales between the business segments and between the geographic areas in which the businesses operate are accounted for on the same basis as sales to unaffiliated customers. Additionally, revenues are attributed to countries based on the location of facilities.
The following table (in millions) sets forth summarized financial information by reportable business segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Aerospace (A) | | | | Industrial | | Other | | Total Company |
| Sales | | | | | | | | | | |
| 2023 | | $ | 608.1 | | | | | $ | 842.8 | | | $ | — | | | $ | 1,450.9 | |
| 2022 | | 429.2 | | | | | 832.7 | | | — | | | 1,261.9 | |
| 2021 | | 362.4 | | | | | 896.5 | | | — | | | 1,258.8 | |
Operating profit (loss)(B) | | | | | | | | | | |
| 2023 | | $ | 53.0 | | | | | $ | 36.0 | | | $ | — | | | $ | 89.0 | |
| 2022 | | 76.2 | | | | | (19.1) | | | — | | | 57.1 | |
| 2021 | | 52.3 | | | | | 97.7 | | | — | | | 150.0 | |
| Assets | | | | | | | | | | |
| 2023 | | $ | 1,465.3 | | | | | $ | 1,685.3 | | | $ | 157.4 | | | $ | 3,308.0 | |
| 2022 | | 590.6 | | | | | 1,680.4 | | | 142.7 | | | 2,413.7 | |
| 2021 | | 583.0 | | | | | 1,827.9 | | | 165.9 | | | 2,576.8 | |
| Depreciation and amortization | | | | | | | | | | |
| 2023 | | $ | 61.6 | | | | | $ | 53.7 | | | $ | 0.5 | | | $ | 115.8 | |
| 2022 | | 37.3 | | | | | 54.1 | | | 0.7 | | | 92.2 | |
| 2021 | | 32.8 | | | | | 57.5 | | | 0.9 | | | 91.1 | |
| Capital expenditures | | | | | | | | | | |
| 2023 | | $ | 32.8 | | | | | $ | 22.4 | | | $ | 0.6 | | | $ | 55.7 | |
| 2022 | | 14.9 | | | | | 19.2 | | | 1.0 | | | 35.1 | |
| 2021 | | 12.7 | | | | | 21.3 | | | 0.2 | | | 34.1 | |
(A) The results of MB Aerospace, from the acquisition on August 31, 2023, have been included within the Company's Consolidated Financial Statements in the Aerospace segment for the period ended December 31, 2023.
|
| | | | | | | | | | | | | | | | |
| | | Industrial | | Aerospace | | Other | | Total Company |
| Sales | | | | | | | | |
| 2017 | | $ | 973.9 |
| | $ | 462.6 |
| | $ | — |
| | $ | 1,436.5 |
|
| 2016 | | 824.2 |
| | 406.5 |
| | — |
| | 1,230.8 |
|
| 2015 | | 782.3 |
| | 411.7 |
| | — |
| | 1,194.0 |
|
| Operating profit | | | | | | | | |
| 2017 | | $ | 127.1 |
| | $ | 83.2 |
| | $ | — |
| | $ | 210.3 |
|
| 2016 | | 129.7 |
| | 62.5 |
| | — |
| | 192.2 |
|
| 2015 | | 103.0 |
| | 65.4 |
| | — |
| | 168.4 |
|
| Assets | | | | | | | | |
| 2017 | | $ | 1,505.4 |
| | $ | 667.1 |
| | $ | 193.3 |
| | $ | 2,365.7 |
|
| 2016 | | 1,356.1 |
| | 647.8 |
| | 133.7 |
| | 2,137.5 |
|
| 2015 | | 1,241.2 |
| | 654.1 |
| | 166.5 |
| | 2,061.9 |
|
| Depreciation and amortization | | | | | | | | |
| 2017 | | $ | 54.8 |
| | $ | 33.6 |
| | $ | 1.7 |
| | $ | 90.2 |
|
| 2016 | | 49.5 |
| | 30.0 |
| | 0.7 |
| | 80.2 |
|
| 2015 | | 46.0 |
| | 30.8 |
| | 1.3 |
| | 78.2 |
|
| Capital expenditures | | | | | | | | |
| 2017 | | $ | 31.0 |
| | $ | 27.5 |
| | $ | 0.2 |
| | $ | 58.7 |
|
| 2016 | | 25.9 |
| | 21.1 |
| | 0.5 |
| | 47.6 |
|
| 2015 | | 28.7 |
| | 17.2 |
| | 0.1 |
| | 46.0 |
|
________________________________________________
Notes:
One customer, General Electric, accounted for 18%21%, 17%16% and 18%17% of the Company’s total revenues in 2017, 20162023, 2022 and 2015,2021, respectively.
“Other” assets include corporate-controlled assets, the majority of which are cash and cash equivalents and deferred tax assets.
A reconciliation of the total reportable segments’ operating profit to income before income taxes follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| Operating profit | | $ | 89.0 | | | $ | 57.1 | | | $ | 150.0 | |
| Interest expense | | 58.2 | | | 14.6 | | | 16.2 | |
| Other expense (income), net | | (2.4) | | | 4.3 | | | 6.0 | |
| Income before income taxes | | $ | 33.3 | | | $ | 38.2 | | | $ | 127.8 | |
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Operating profit | | $ | 210.3 |
| | $ | 192.2 |
| | $ | 168.4 |
|
| Interest expense | | 14.6 |
| | 11.9 |
| | 10.7 |
|
| Other expense (income), net | | — |
| | (2.3 | ) | | (0.2 | ) |
| Income before income taxes | | $ | 195.7 |
| | $ | 182.6 |
| | $ | 157.9 |
|
The following table (in millions) summarizes total net sales of the Company by products and services:
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Engineered Components Products | | $ | 347.9 |
| | $ | 332.6 |
| | $ | 342.2 |
|
| Molding Solutions Products | | 487.3 |
| | 376.6 |
| | 324.6 |
|
| Nitrogen Gas Products | | 138.7 |
| | 115.0 |
| | 115.5 |
|
| Aerospace Original Equipment Manufacturer Products | | 323.4 |
| | 288.4 |
| | 295.7 |
|
| Aerospace Aftermarket Products and Services | | 139.2 |
| | 118.2 |
| | 116.0 |
|
| Total net sales | | $ | 1,436.5 |
| | $ | 1,230.8 |
| | $ | 1,194.0 |
|
The following table (in millions) summarizes total net sales and long-lived assets of the Company by geographic area:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic | | International | | Other | | Total
Company |
| Sales | | | | | | | | |
| 2023 | | | $ | 599.9 | | | $ | 935.1 | | | $ | (84.2) | | | $ | 1,450.9 | |
| 2022 | | 545.2 | | | 806.8 | | | (90.2) | | | 1,261.9 | |
| 2021 | | 516.4 | | | 829.4 | | | (87.0) | | | 1,258.8 | |
| Long-lived assets | | | | | | | | |
| 2023 | | | $ | 557.9 | | | $ | 1,833.1 | | | $ | — | | | $ | 2,391.0 | |
| 2022 | | 360.2 | | | 1,303.2 | | | — | | | 1,663.4 | |
| 2021 | | 380.7 | | | 1,493.9 | | | — | | | 1,874.6 | |
|
| | | | | | | | | | | | | | | | | |
| | | Domestic | | International | | Other | | Total Company |
| Sales | | | | | | | | |
| 2017 |
| | $ | 638.6 |
| | $ | 868.3 |
| | $ | (70.4 | ) | | $ | 1,436.5 |
|
| 2016 |
| | 562.6 |
| | 727.4 |
| | (59.2 | ) | | 1,230.8 |
|
| 2015 |
| | 589.6 |
| | 661.7 |
| | (57.3 | ) | | 1,194.0 |
|
| Long-lived assets | | | | | | | | |
| 2017 |
| | $ | 366.7 |
| | $ | 1,218.1 |
| | $ | — |
| | $ | 1,584.8 |
|
| 2016 |
| | 368.2 |
| | 1,135.5 |
| | — |
| | 1,503.6 |
|
| 2015 |
| | 379.2 |
| | 1,069.9 |
| | — |
| | 1,449.1 |
|
_________________________________________________
Notes:
Germany, with sales of $301.7$225.8 million, $238.3$204.3 million and $210.5$243.1 million in 2017, 20162023, 2022 and 2015,2021, respectively, representsand Singapore, with sales of $183.3 million, $144.9 million and $136.8 million in 2023, 2022 and 2021, respectively, represent the only international countrycountries with revenues in excess of 10% of the Company's total revenues.
“Other”revenues in those years. “Other” revenues represent the elimination of intercompanyinter-company sales between geographic locations, of which approximately 78%66%, 82%78% and 82%78% were sales from international locations to domestic locations in 2017, 20162023, 2022 and 2015,2021, respectively.
Germany, with long-lived assets of $514.0$405.8 million, $449.9$388.2 million and $362.7$428.9 million as of December 31, 2017, 20162023, 2022 and 2015,2021, respectively, Singapore, with long-lived assets of $237.6 million, $238.3$196.7 million and $246.4$201.6 million as of December 31, 2017, 20162022 and 2015,2021, respectively, and Switzerland,Italy, with long-lived assets of $160.0$303.9 million, $169.3$300.4 million and $167.0$398.2 million as of December 31, 2017, 20162023, 2022 and 2015,2021, respectively and Taiwan, with long-lived assets of $321.6 million as of December 31, 2023, represent the only international countries with long-lived assets that exceeded 10% of the Company's total long-lived assets in those years.
20.22. Commitments and Contingencies
Leases
The Company has various noncancellable operating leases for buildings, office space and equipment. Rent expense was $15,325, $12,939 and $11,166 for 2017, 2016 and 2015, respectively. Minimum rental commitments under noncancellable leases in years 2018 through 2022 are $11,926, $7,760, $5,613, $4,890 and $2,265, respectively, and $7,372 thereafter. The rental expense and minimum rental commitments of leases with step rent provisions are recognized on a straight-line basis over the lease term.
Product Warranties
The Company provides product warranties in connection with the sale of certain products. From time to time, the Company is subject to customer claims with respect to product warranties. The Company accrues its estimated exposure for warranty claims at the time of sale based upon the length of the warranty period, historical experience and other related information known to the Company. Liabilities related to product warranties and extended warranties were not material as of December 31, 20172023 or 2016.2022.
In July 2021, a customer asserted breach of contract and contractual warranty claims regarding a part manufactured by the Company. While the Company disputes the asserted claims, the Company and the customer are in discussions seeking to resolve the matter. No litigation or other proceeding has been initiated. While it is currently not possible to determine the ultimate outcome of this matter, the Company intends to vigorously defend its position and believes that the ultimate resolution will not have a material adverse effect on the Company’s consolidated financial position or liquidity, but could be material to the consolidated results of operations of any one period.
Litigation
The Company is subject to litigation from time to time in the ordinary course of business and various other suits, proceedings and claims are pending involving the Company and its subsidiaries. The Company records a loss contingency liability when a loss is considered probable and the amount can be reasonably estimated. While it is not possible to determine the ultimate disposition of each of these proceedings and whether they will be resolved consistent with the Company's beliefs, the Company expects that the outcome of such proceedings, individually or in the aggregate, will not have a material adverse effect on financial condition or results of operations.
Supplier Finance Programs
The Company participates in a Supplier Finance Program (the "Program") under which it agrees to pay a third-party finance provider the stated amount of confirmed invoices from participating suppliers based on the original invoice due date. Suppliers, at their sole discretion, may elect to finance confirmed invoices prior to their scheduled due date at a discounted price with the Company's third-party finance provider. Outstanding obligations related to the Program were not material as of December 31, 2023 and 2022. These obligations were recorded within Accounts Payable on the Consolidated Balance Sheets. The Company does not have any assets nor any other forms of guarantees pledged as security to the third-party finance provider as part of the Program.
23. Subsequent Event
On January 11, 2024, the Company entered into a Share Purchase and Asset Agreement ("SPA") with one Equity Partners to sell its Associated Spring™ and Hänggi™ businesses for $175,000, inclusive of a $15,000 promissory note due in 24 months, subject to certain adjustments. These businesses operate within the Motion Control Solutions business. Expected net cash proceeds will be used to reduce debt incurred from the strategic acquisition of MB Aerospace.
Report of Independent Registered Public Accounting Firm
To theBoard of Directors and Stockholders of Barnes Group Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Barnes Group Inc.and its subsidiaries(the “Company”) as of December 31, 20172023and 2016,2022,and the related consolidated statements of income, of comprehensive (loss) income, of changes in stockholders’ equity and of cash flowsfor each of the three years in the period ended December 31, 2017,2023, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 20172023 appearing under Item 15(a)(2)15(c) (collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidatedfinancial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 2023and 20162022, and the results of their itsoperations and their itscash flows for each of the three years in the period ended December 31, 20172023in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.
Change in Accounting Principle
As discussed in Note 12 to the consolidated financial statements, the Company changed the manner in which it accounts for share based compensation in 2016.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management'sManagement’s Report on Internal Control over Financial Reporting.Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidatedfinancial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded MB Aerospace Holdings Inc. (“MB Aerospace”) from its assessment of internal control over financial reporting as of December 31, 2023 because it was acquired by the Company in a purchase business combination during 2023. We have also excluded MB Aerospace from our audit of internal control over financial reporting. MB Aerospace is a wholly-owned subsidiary whose total assets and total net sales excluded from management’s assessment and our audit of internal control over financial reporting represent 7% and 8%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2023.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill Impairment Assessment - Automation Reporting Unit
As described in Notes 1 and 6 to the consolidated financial statements, the Company’s consolidated goodwill balance was $1,183.6 million as of December 31, 2023, of which, as disclosed by management, $198.8 million is related to the Automation reporting unit. Goodwill is subject to impairment testing on an annual basis, in the second quarter, or more frequently if an event or change in circumstances indicates that the fair value of a reporting unit has been reduced below its carrying value. Management utilizes the option to first assess qualitative factors to determine whether it is necessary to perform the Step 1 quantitative goodwill impairment test. If management determines that the Step 1 quantitative impairment test is required, management estimates the fair value of the reporting unit using the income approach. Inherent in management’s development of cash flow projections are assumptions and estimates, including those related to forecasted revenue growth rates, forecasted operating margins, and the weighted average cost of capital.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Automation reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the Automation reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to forecasted revenue growth rates, forecasted operating margins, and the weighted average cost of capital; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Automation reporting unit. These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the Automation reporting unit; (ii) evaluating the appropriateness of the income approach used by management; (iii) testing the completeness and accuracy of underlying data used in the income approach; and (iv) evaluating the reasonableness of the significant assumptions used by management related to forecasted revenue growth rates, forecasted operating margins, and the weighted average cost of capital. Evaluating management’s assumptions related to forecasted revenue growth rates and forecasted operating margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the Automation reporting unit; (ii) the consistency with external market and industry data; and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the income approach and (ii) the reasonableness of the weighted average cost of capital assumption.
Acquisition of MB Aerospace Holdings Inc. - Valuation of Customer Relationships and Developed Technology
As described in Notes 2 and 6 to the consolidated financial statements, on August 31, 2023, the Company completed its acquisition of MB Aerospace for an aggregate purchase price of $728.4 million. Management recorded intangible assets of $320 million, which includes $249 million of customer relationships and $55 million of developed technology. Fair value was determined by management utilizing the multi-period excess earnings method for customer relationships and the relief from royalty method for developed technology. Management’s cash flow projections for the intangible assets acquired included estimates and judgments related to forecasted revenue growth rates, gross margins, customer attrition rate, and discount rates for customer relationships and forecasted revenue growth rates, royalty rate, and discount rates for developed technology.
|
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/s/ PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
|
February 20, 2018 |
The principal considerations for our determination that performing procedures relating to the valuation of customer relationships and developed technology acquired in the acquisition of MB Aerospace is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the customer relationships and developed technology acquired; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to forecasted revenue growth rates, gross margins, customer attrition rate, and discount rates for customer relationships and forecasted revenue growth rates, royalty rate, and discount rates for developed technology; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the customer relationships and developed technology acquired. These procedures also included, among others (i) reading the purchase agreement; (ii) testing management’s process for developing the fair value estimate of the customer relationships and developed technology acquired; (iii) evaluating the appropriateness of the multi-period excess earnings and relief from royalty methods used by management; (iv) testing the completeness and accuracy of underlying data used in the multi-period excess earnings and relief from royalty methods; and (v) evaluating the reasonableness of the significant assumptions used by management related to forecasted revenue growth rates, gross margins, customer attrition rate, and discount rates for customer relationships and forecasted revenue growth rates, royalty rate, and discount rates for developed technology. Evaluating management’s assumptions related to forecasted revenue growth rates and gross margins for customer relationships and forecasted revenue growth rates for developed technology involved considering (i) the current and past performance of the MB Aerospace business; (ii) the consistency with external market and industry data; and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the multi-period excess earnings and relief from royalty methods and (ii) the reasonableness of the customer attrition rate and discount rates assumptions for customer relationships and the royalty rate and discount rates assumptions for developed technology.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 26, 2024
We have served as the Company’s auditor since 1994.
QUARTERLY DATA (UNAUDITED)
(Dollars in millions, except per share data)
|
| | | | | | | | | | | | | | | | | | | | |
| | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter(2) | | Full Year(2) |
| 2017 | | | | | | | | | | |
| Net sales | | $ | 341.8 |
| | $ | 364.5 |
| | $ | 357.2 |
| | $ | 373.0 |
| | $ | 1,436.5 |
|
Gross profit (1) | | 122.0 |
|
| 128.0 |
|
| 121.1 |
|
| 126.1 |
| | 497.2 |
|
| Operating income | | 55.7 |
|
| 57.1 |
|
| 47.8 |
|
| 49.6 |
| | 210.3 |
|
| Net income | | 38.3 |
|
| 45.0 |
|
| 35.3 |
|
| (59.2 | ) | | 59.4 |
|
| Per common share: | |
|
|
|
|
|
|
| | |
| Basic | | 0.71 |
|
| 0.83 |
|
| 0.65 |
|
| (1.10 | ) | | 1.10 |
|
| Diluted | | 0.70 |
|
| 0.82 |
|
| 0.65 |
|
| (1.10 | ) | | 1.09 |
|
| Dividends | | 0.13 |
|
| 0.14 |
|
| 0.14 |
|
| 0.14 |
| | 0.55 |
|
| Market prices (high - low) | | $51.97-45.47 |
|
| $60.74-49.31 |
|
| $70.84-57.70 |
|
| $72.87-61.06 |
| | $72.87-45.47 |
|
| 2016 | | | | | | | | | | |
| Net sales | | $ | 288.3 |
| | $ | 306.7 |
| | $ | 311.6 |
| | $ | 324.2 |
| | $ | 1,230.8 |
|
Gross profit (1) | | 102.1 |
| | 109.5 |
| | 113.0 |
| | 115.9 |
| | 440.5 |
|
| Operating income | | 41.5 |
| | 47.5 |
| | 51.8 |
| | 51.4 |
| | 192.2 |
|
| Net income | | 28.8 |
| | 33.2 |
| | 36.8 |
| | 36.7 |
| | 135.6 |
|
| Per common share: | | | | | | | | | | |
| Basic | | 0.53 |
| | 0.61 |
| | 0.68 |
| | 0.68 |
| | 2.50 |
|
| Diluted | | 0.53 |
| | 0.61 |
| | 0.67 |
| | 0.67 |
| | 2.48 |
|
| Dividends | | 0.12 |
| | 0.13 |
| | 0.13 |
| | 0.13 |
| | 0.51 |
|
| Market prices (high - low) | | $35.81-30.07 |
| | $37.75-31.13 |
| | $41.86-32.55 |
| | $49.90-37.88 |
| | $49.90-30.07 |
|
________________________ | |
(1) | Sales less cost of sales. |
| |
(2) | During the fourth quarter of 2017, the Company recorded the effects of the U.S. Tax Reform, resulting in tax expense of $96.7 million, or $1.79 per basic share ($1.79 per diluted share). During the full-year 2017 period, the effects of the U.S. Tax Reform were $1.79 and $1.77 per basic and per diluted share, respectively. See Note 13 of the Consolidated Financial Statements. |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Management, including the Company'sCompany’s President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company'sCompany’s disclosure controls and procedures as of the end of the period covered by this report. BasedWe completed the acquisition of MB Aerospace on August 31, 2023. In accordance with applicable SEC guidance, the scope of our assessment of the effectiveness of disclosure controls and procedures does not include MB Aerospace as it was not practical to do so given the date of acquisition. MB Aerospace's total assets excluded from the scope of our assessment represent approximately 7% of the related consolidated assets as of December 31, 2023. MB Aerospace's total net sales excluded from the scope of our assessment represent approximately 8% of consolidated total net sales for twelve months ended December 31, 2023. Based upon, and as of the date of, ourthat evaluation, the President and Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, and designed to provide reasonable assurance that the information required to be disclosed in the reports the Company files and submits under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, is (i) recorded, processed, summarized and reported as and when required and (ii) is accumulated and communicated to the Company'sCompany’s management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). We completed the acquisition of MB Aerospace on August 31, 2023. In accordance with applicable SEC guidance, the scope of our assessment of the effectiveness of internal control over financial reporting does not include MB Aerospace as it was not practical to do so given the date of acquisition. MB Aerospace's total assets excluded from the scope of our assessment represent approximately 7% of the related consolidated assets as of December 31, 2023. MB Aerospace's total net sales excluded from the scope of our assessment represent approximately 8% of consolidated total net sales for twelve months ended December 31, 2023. Under the supervision and with the participation of management, including the principal executive officerPresident and principal financial officer,Chief Executive Officer and Chief Financial Officer, the Company conducted an assessment of the effectiveness of its internal control over financial reporting based on the framework in the “Internal Control - Integrated Framework 2013” issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment under this framework, management concluded that the Company’s internal control over financial reporting was effective, in all material respects, as of December 31, 2017.2023.
PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2017,2023, which appears on page 72within Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There has been no change to our internal control over financial reporting during the Company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information with respect to our directors, and corporate governance and other information required by this Item 10 may be found in the “Governance” and "Stock Ownership"“Stock Ownership” sections of our definitive proxy statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on May 4, 20183, 2024 (the “Proxy Statement”). Such information is incorporated herein by reference.
EXECUTIVE OFFICERS
The Company’s executive officers as of the date of this Annual Report are as follows:
| | | | | | | | |
| | |
| Name | | |
Executive Officer | Position | Age as of December 31, 20172023 |
| | |
PatrickThomas J. DempseyHook | President and Chief Executive Officer | 5361 |
| | |
Michael A. BeckDawn N. Edwards | Senior Vice President, Barnes Group Inc., and President, Barnes AerospaceHuman Resources | 5755 |
| | |
| Lukas Hovorka | Senior Vice President, Corporate Development | 51 |
| Peter A. Gutermann | |
| Jay B. Knoll | Senior Vice President, General Counsel and Secretary | 5860 |
| | |
Dawn N. EdwardsIan M. Reason | Senior Vice President, Human Resources | 49 |
| | |
Scott A. Mayo | Senior Vice President, Barnes, Group Inc., and President, Barnes IndustrialAerospace | 5059 |
| | |
Christopher J. Stephens, Jr.Julie K. Streich | Senior Vice President, Finance and Chief Financial Officer | 53 |
Each officer holds office until his or her successor is appointed and qualified or otherwise as provided in the Company’s Amended and Restated By-Laws. No family relationships exist among the executive officers of the Company. Except for Messrs. Beck, Gutermann and Mayo, each ofOf the Company’s executive officers, hasMs. Edwards and Mr. Hovorka have been employed by the Company or its subsidiaries in an executive or managerial capacity for at least the past five years. There are no arrangements or understandings with any other person under which any executive officer was selected as an officer.
Mr. DempseyHook was appointed President and Chief Executive Officer effective March 1, 2013.July 14, 2022 and has been a member of the Barnes Board of Directors since 2016. From February 2012 until such appointment, he2021 to July 2022, Mr. Hook served as Senior Vice President and Chief Operating Officer. From October 2008 until February 2012, he served as Vice President, Barnes GroupExecutive Officer of SaniSure, Inc. and President, Logistics and Manufacturing Services. Prior to that, he held a series of roles of increasing responsibility since joining the Company in October 2000. In October 2007, he was appointed Vice President, Barnes Group Inc. and President, Barnes Distribution. In November 2004, he was promoted to Vice President, Barnes Group Inc. and President, Barnes Aerospace. Mr. Dempsey is currentlyas a director of Nucor Corporation, having been appointed as ofSaniSure, Inc. from December 1, 2016.
Mr. Beck was appointed Senior Vice President, Barnes Group Inc. and President, Barnes Aerospace effective March 1, 2016. Mr. Beck came2019 to Barnes Group with over 27 years of global aerospace experience.July 2022. Prior to joining Barnes Group, Mr. Beck was the Senior Vice President & General Manager, Fuel and Motion Control, a $1B division of Eaton’s Aerospace Group. Prior to this,that, he was the Chief Executive Officer of GKN’s Aerospace Engine Systems business, where he led the due diligence, business synergies and integration of a significant acquisition.Q Holding Company from September 2017 to January 2021. Prior to that, he was the President and Chief Executive Officer of GKN’s global Propulsion Systems and Special Products business.Integer (formerly, Greatbatch) from August 2006 to May 2017, after having served as its Chief Operating Officer from September 2004 to August 2006. Earlier in his career, Mr. Beck was the Chief Operating OfficerHook held various positions of increasing responsibility with CTI Molecular Imaging, General Electric Medical Systems, Van Owen Group Acquisition Company, and Site Executive for GKN’s St. Louis, Missouri business.Duracell, Inc. Mr. Hook is currently a director of NeuroNexus Inc.
Ms. Edwards was appointed Senior Vice President, Human Resources effective August 2009. From December 2008 until August 2009, she served as Vice President of Human Resources - Global Operations. From September 1998 until December 2008, Ms. Edwards served as Group Director, Human Resources for Barnes Aerospace, Associated Spring and Barnes Industrial. Ms. Edwards joined the Company in September 1998.
Mr. GutermannHovorka was appointed Senior Vice President, Corporate Development effective March 1, 2021. He joined the Company in 2008 as Director, Corporate Development, and served as the Company's Vice President, Corporate Development prior to his current appointment. Prior to joining the Company, Mr. Hovorka held the position of Director/Vice President, Corporate Development with ITOCHU International Inc. and, before that, held roles with both Robertson Stephens and Goldman Sachs.
Mr. Knoll was appointed Senior Vice President, General Counsel and Secretary effective December 11, 2017. BeforeJanuary 1, 2023. Mr. Knoll came to Barnes with over 15 years of General Counsel experience with global, diversified industrial and technology companies. Prior to joining the Company, Mr. GutermannKnoll served in roles of increasing responsibility for Rogers Corporation since 2014, most recently as CorporateSenior Vice President, Chief Ethics & Compliance Officer for United Technologies Corporation. Prior to that, Mr. Gutermann held a variety of positions with increasing responsibility
within United Technologies Corporation including Vice President &Corporate Development, General Counsel UTC Propulsion/Aerospace Systems; Vice President & General Counsel, Pratt & Whitney; Associate General Counsel, UTC Corporate; Deputy General Counsel, Otis Elevator Company; and Executive Assistant to the UTC Chairman and Chief ExecutiveSustainability Officer. Mr. Gutermann began his career as a Litigation Associate with the law firm
Mr. MayoReason was appointed Senior Vice President, Barnes Group Inc. and President, Barnes IndustrialAerospace effective March 17, 2014. BeforeMay 2, 2022. Prior to joining the Company, from 2012 to 2014, Mr. MayoReason served as President, Mechanical Solutions, Interiors & Structures with the Triumph Group, a $1.8B aviation and industrial company. Prior to joining the Triumph Group in 2016, Mr. Reason held positions of increasing responsibility at BAE Systems from 2004 to 2016 including Vice President, F-35 Customer Engagement and U.S. General Manager, Power Sector, Flow Control, a division of Flowserve Corporation. From 2010 to 2012, he served asManager; and Vice President, and General Manager, General Industries Sector, Flow Control Division. From 2009 to 2010, he served as Vice President, Marketing for the Flow Control Division. Prior to that, from 2002 to 2008, Mr. Mayo held a series of roles including General Manager, Flow Control Division China based in Shanghai, China; Director, Marketing, Flow Control Division, based in Raleigh, NC; Director and General Manager, Aftermarket, Raleigh, NC; and Director, Strategic Planning and Business Development also based in Raleigh, NC.& Strategy.
Mr. StephensMs. Streich was appointed Senior Vice President, Finance and Chief Financial Officer Barnes Group Inc. effective January 2009.May 3, 2021. Prior to joining the Company, Mr. Stephens held key leadershipMs. Streich served in various roles at Honeywell International, servingCentrica PLC from 2012 through 2020. Ms. Streich served as President of the Consumer Products Group from 2007 to 2008, andCentrica PLC’s Senior Vice President, Head of Finance Operations from 2019 to 2020, as Vice President, Group Head of Global Planning and Analytics from 2017 to 2019, and as Chief Financial Officer of Honeywell Transportation Systemsits Direct Energy Home business from 20032016 to 2007.2017. Prior to Honeywell, hejoining Centrica in 2012, Ms. Streich held roles withfinance positions of increasing responsibility at The Boeing Company, serving as Vice Presidentwith Pentair Process Technologies, Irwin Financial Corporation, Eagle Materials, MeadWestvaco, and General Manager, Boeing Electron Dynamic Devices; Vice President, Business Operations, Boeing Space and Communications; and Vice President and Chief Financial Officer, Boeing Satellite Systems.Menasha Corporation.
Items 11-14.
The information called for by Items 11-14 is incorporated by reference to the "Governance," "Stock Ownership," "Executive Compensation," "Director Compensation in 2017,2023," "Securities Authorized for Issuance Under Equity Compensation Plans," "Related Person Transactions," and "Principal Accountant Fees and Services" sections in our Proxy Statement.
PART IV
Item 15. Exhibits, Financial Statement Schedule
| | | | | | | | |
| | |
| (a)(1) | | |
(a)(1) | | The following Financial Statements and Supplementary Data of the Company are set forth herein under Item 8 of this Annual Report: |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| (a)(2) | | See Financial Statement Schedule under Item 15(c). |
| |
| (a)(3) | | See Item 15(b) below. |
| |
| (b) | | The Exhibits required by Item 601 of Regulation S-K are filed as Exhibits to this Annual Report and indexed at pages 84 through 88within the Exhibit Index of this Annual Report, which index is incorporated herein by reference. |
| |
| (c) | | Financial Statement Schedule. |
Item 16. Form 10-K Summary
None.None
Schedule II—Valuation and Qualifying Accounts
Years Ended December 31, 2017, 20162023, 2022 and 20152021
(In thousands)
|
| | | |
| Allowances for Doubtful Accounts: | |
| Balance January 1, 2015 | $ | 3,873 |
|
| Provision charged to income | 1,248 |
|
| Doubtful accounts written off | (404 | ) |
Other adjustments(1) | (632 | ) |
| Balance December 31, 2015 | 4,085 |
|
| Provision charged to income | 863 |
|
| Doubtful accounts written off | (910 | ) |
Other adjustments(1) | (46 | ) |
| Balance December 31, 2016 | 3,992 |
|
| Provision charged to income | 1,512 |
|
| Doubtful accounts written off | (297 | ) |
Other adjustments(1) | (64 | ) |
| Balance December 31, 2017 | $ | 5,143 |
|
| | | | | |
| Allowances for Credit Losses: | |
| Balance January 1, 2021 | $ | 6,348 | |
| Provision charged to income | (11) | |
| Doubtful accounts written off | (562) | |
Other adjustments(1) | (150) | |
| Balance December 31, 2021 | 5,625 | |
| Provision charged to income | 131 | |
| Doubtful accounts written off | (178) | |
| |
Other adjustments(1) | (356) | |
| Balance December 31, 2022 | 5,222 | |
| Provision charged to income | 2,114 | |
| Doubtful accounts written off | (462) | |
Other adjustments(1) | 384 | |
| Balance December 31, 2023 | $ | 7,258 | |
________________
| |
(1) | These amounts are comprised primarily of foreign currency translation and other reclassifications. |
(1)These amounts are comprised primarily of foreign currency translation and other reclassifications.
ScheduleSchedule II—Valuation and Qualifying AccountsAccounts
Years Ended December 31, 2017, 20162023, 2022 and 20152021
(In thousands)
|
| | | |
| | |
| Valuation Allowance on Deferred Tax Assets: | |
| Balance January 1, 2015 | $ | 15,856 |
|
| Additions charged to income tax expense | 1,043 |
|
| Reductions charged to other comprehensive income | (59 | ) |
| Reductions credited to income tax expense | (1,216 | ) |
| Changes due to foreign currency translation | (2,204 | ) |
Acquisitions(1)
| 981 |
|
| Balance December 31, 2015 | 14,401 |
|
| Additions charged to income tax expense | 759 |
|
| Reductions charged to other comprehensive income | (17 | ) |
Reductions credited to income tax expense(2) | (5,638 | ) |
| Changes due to foreign currency translation | (133 | ) |
Acquisition(3) | 5,585 |
|
| Balance December 31, 2016 | 14,957 |
|
| Additions charged to income tax expense | 1,161 |
|
| Reductions charged to other comprehensive income | (123 | ) |
Reductions credited to income tax expense(4) | (6,773 | ) |
| Changes due to foreign currency translation | 1,001 |
|
| Balance December 31, 2017 | $ | 10,223 |
|
| | | | | |
| |
| Valuation Allowance on Deferred Tax Assets: | |
| Balance January 1, 2021 | $ | 3,757 | |
| Additions charged to income tax expense | 346 | |
| Reductions charged to other comprehensive income | (15) | |
| Reductions credited to income tax expense | (241) | |
| Changes due to foreign currency translation | 22 | |
| |
| Balance December 31, 2021 | 3,869 | |
| Additions charged to income tax expense | 2,763 | |
| Reductions charged to other comprehensive income | (41) | |
| Reductions credited to income tax expense | (59) | |
| Changes due to foreign currency translation | (76) | |
| Balance December 31, 2022 | 6,456 | |
| Additions charged to income tax expense | 6,685 | |
Acquisitions (1) | 28,513 | |
| Reductions charged to other comprehensive income | 51 | |
| Reductions credited to income tax expense | (109) | |
| Changes due to foreign currency translation | 29 | |
| Balance December 31, 2023 | $ | 41,625 | |
________________
| |
(1) | The increase in 2015 reflects the valuation allowances recorded at the Thermoplay and Priamus businesses which were acquired in the third and fourth quarters of 2015, respectively. |
| |
(2) | The reductions in 2016 relate primarily to net operating losses that were fully valued. These net operating losses have subsequently expired during 2016 (lapse of applicable carry forward periods) and the corresponding valuation allowance was reduced accordingly. |
| |
(3) | The increase in 2016 reflects the valuation allowance recorded at the FOBOHA business, which was acquired in the third quarter of 2016. |
| |
(4) | The reductions in 2017 relate to the release of valuation allowances associated with net operating losses as a result of the Swiss legal entity reduction. |
(1) The increase in 2023 reflects the valuation allowance recorded at the MB Aerospace business, which was acquired in the third quarter of 2023.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | | | | |
| | | | | |
| | | Date: | February 26, 2024 |
| | | | | |
| | | | | |
| | | Date: | February 20, 2018 |
| | | |
| | | BARNES GROUP INC. |
| | | | |
| | | By | | | | /S/ THOMAS J. HOOK |
| | | | | | | By | | /S/ PATRICKThomas J. DEMPSEY Hook |
| | | | | | | | | Patrick J. Dempsey |
| | | | | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of the above date by the following persons on behalf of the Company in the capacities indicated.
| | |
|
| /S/ THOMAS J. HOOK |
| Thomas J. Hook |
|
/S/ PATRICK J. DEMPSEY |
Patrick J. Dempsey |
| President and Chief Executive Officer |
| (Principal Executive Officer), and Director |
|
|
| /S/ JULIE K. STREICH |
/S/ CHRISTOPHER J. STEPHENS, JR.Julie K. Streich |
Christopher J. Stephens, Jr. |
| Senior Vice President, Finance and |
| Chief Financial Officer |
| (Principal Financial Officer) |
|
|
| /S/ MARIAN ACKER |
| Marian Acker |
| Vice President, Controller |
| (Principal Accounting Officer) |
|
|
| | |
| /S/ THOMAS O. BARNES |
| Thomas O. Barnes |
| Director |
|
| /S/ ELIJAH K. BARNES |
| Elijah K. Barnes |
| Director |
|
| /S/ JAKKI L. HAUSSLER |
/S/ GARY G. BENANAVJakki L. Haussler |
Gary G. BenanavDirector |
| Director
| /S/ RICHARD J. HIPPLE |
| Richard J. Hipple |
/S/ THOMAS J. HOOKDirector |
| Thomas J. Hook
| /S/ DAPHNE E. JONES |
DirectorDaphne E. Jones |
| Director |
|
| /S/ NEAL J. KEATING |
| Neal J. Keating |
| Director |
|
| /S/ MYLLE H. MANGUM |
| Mylle H. Mangum |
| Director |
| | |
|
| /S/ HANS-PETER MÄNNER |
| Hans-Peter Männer |
| Director |
|
|
|
/S/ HASSELL H. MCCLELLAN |
Hassell H. McClellan |
Director |
|
/S/ WILLIAM J. MORGAN |
William J. Morgan |
Director |
|
| /S/ ANTHONY V. NICOLOSI |
| Anthony V. Nicolosi |
| Director |
|
| /S/ JOANNA L. SOHOVICH |
| JoAnna L. Sohovich |
| Director |
|
/S/ RICHARD J. HIPPLE |
Richard J. Hipple |
Director |
EXHIBIT INDEX
Barnes Group Inc.
Annual Report on Form 10-K
for the Year ended December 31, 2017
| | | | | | | | |
| | |
| Exhibit No. | Description | Reference |
| | |
2.1* | AssetSale and Purchase Agreement, dated February 22, 2013as of September 19, 2018, between Barnes GTE S.r.l., the Company and MSC Industrial Direct Co.AGIC Gripper (Netherlands) B.V., Inc.HDX S.À.R.L., Asia-Germany Industry 4.0 Promotion Cross-Border Fund I L.P., Xenon Private Equity V Limited Partnership and certain other sellers named therein. | Incorporated by reference to Exhibit 2.1 to the Company’s report on Form 10-Q for the quarter ended March 31, 2013. |
| | |
2.2*
| Share Purchase and Assignment Agreement dated September 30, 2013 among the Company, two of its subsidiaries, Otto Männer Holding AG (the "Seller"), and the three shareholders of Seller. | Incorporated by reference to Exhibit 2.1 to Form 8-K filed by the Company on October 4, 2013.September 24, 2018.
|
| 2.2 | Stock Purchase Agreement, dated as of June 5, 2023, by and among MB Aerospace Group Holdings Limited, MB Aerospace Holdings Inc., and Barnes Group Inc. | |
| 3.1 | Restated Certificate of Incorporation; Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock; Certificate of Change of Location of registered office and of registered agent, dated December 13, 2002; Certificate of Merger of domestic limited liability company into a domestic company, dated May 19, 2004; Certificate of Amendment of Restated Certificate of Incorporation, dated April 20, 2006; and Certificate of Amendment of Restated Certificate of Incorporation, dated as of May 3, 2013. | |
| 3.2 | | |
3.2 | Amended and Restated By-Laws.By-Laws as of July 28, 2016. | |
| 4.1 | Description of Securities. | |
| 10.1 | (i) Fifth Amended and Restated Senior Unsecured Revolving Credit Agreement, dated September 27, 2011. | |
| | |
| (ii) Amendment No. 2 and Joinder to Credit Agreement dated as of September 27, 2013 (amending Fifth Amended and Restated Senior Unsecured Revolving Credit Agreement, dated as of September 27, 2011). | |
| | |
| (iii) Amendment No. 3 to Credit Agreement dated as of October 15, 2014. | |
| | |
| (iv) Amendment No. 4 to Credit Agreement dated as of February 2, 2017. |
|
| (v) Amendment No. 5 to Credit Agreement dated as of October 19, 2018.
| |
| | | | | | | | |
| (vi) Amendment No. 6 to Credit Agreement dated as of October 8, 2020. | |
| 10.2(vii) Sixth Amended and Restated Senior Unsecured Revolving Credit Agreement, dated as of February 10, 2021. | |
| (viii) LIBOR Transition Amendment, dated as of October 11, 2021. | |
| (ix) Amendment No. 1 to Sixth Amended and Restated Senior Unsecured Revolving Credit Agreement, dated as of April 6, 2022. | |
| (x) Amendment No. 2 to Credit Agreement, dated as of June 5, 2023, by and among Barnes Group Inc., certain subsidiaries thereto, the lenders and other parties signatory thereto and Bank of America, N.A., as administrative agent. | |
| (xi) Amendment No. 3 to Credit Agreement, dated as of June 22, 2023, by and among Barnes Group Inc., certain subsidiaries thereto, the lenders and other parties signatory thereto and Bank of America, N.A., as administrative agent. | |
| 10.2 | (i) Note Purchase Agreement, dated as of October 15, 2014, among the Company and New York Life Insurance Company, New York Life Insurance and Annuity Corporation and New York Life Insurance and Annuity Corporation Institutionally Owned Life Insurance Separate Account (BOLI 30C). | |
| (ii) First Amendment to Note Purchase Agreement, dated as of October 8, 2020. | |
| (iii) Second Amendment to Note Purchase Agreement, dated as of June 5, 2023, between Barnes Group Inc. and the noteholders thereto. | |
| 10.3 | (i) Credit Agreement, dated as of August 31, 2023, among Barnes, Barnes Group Switzerland GmbH, a limited liability company (Gesellschaft mit beschränkter Haftung) organized under the laws of Switzerland, Barnes Group Acquisition GmbH, a limited liability company (Gesellschaft mit beschränkter Haftung) incorporated under the laws of Germany, Bank of America, N.A., as Administrative Agent, as Collateral Agent and as Swingline Lender, and each Issuing Bank and Lender party thereto from time to time. | |
| | Filed with this report. |
10.310.4**
| (i) Barnes Group Inc. Management Incentive Compensation Plan, amended October 22, 2008.December 28, 2018. |
|
| | |
| 9, 2022. | Filed with this report.
|
| | |
10.4**
| Barnes Group Inc. Performance-Linked Bonus Plan for Selected Executive Officers, as amended February 8, 2011. |
2022.
|
| | | | | | | | |
10.510.5***
| (i) Offer Letter, dated as of June 18, 2022, by and between Barnes Group Inc. and Thomas J. Hook. | |
| (ii) Employee Non-Disclosure, Non-Competition, Non-Solicitation and Patrick Dempsey,Non-Disparagement Agreement, dated February 22, 2013.as of June 18, 2022, by and between Barnes Group Inc. and Thomas J. Hook. | |
| (iii) Barnes Group Inc. Inducement Stock Option Award Summary of Grant and Inducement Stock Option Award Agreement dated July 14, 2022. | |
10.6** | Offer Letter to Julie K. Streich, dated April 20, 2021. | |
10.7** | Offer Letter to Ian Reason, dated March 17, 2022. | |
|
10.8** | | |
Exhibit No. | Description | Reference |
| | |
| (ii) Amendment to Offer Letter to Patrick Dempsey, dated January 6, 2015. | Incorporated by reference to Exhibit 10.6(ii) to the Company’s report on Form 10-K for the year ended December 31, 2014. |
| | |
| (iii) Employee Non-Disclosure, Non-Competition, Non-Solicitation and Non-Disparagement Agreement between the Company and Patrick J. Dempsey, dated February 27, 2013. | Incorporated by reference to Exhibit 10.4 to the Company's report on Form 10-Q for the quarter ended March 31, 2013. |
| | |
10.6**
| (i) Amendment to Offer Letter to Christopher J. Stephens, Jr., dated June 7, 2013. | Incorporated by reference to Exhibit 10.2 to the Company's report on Form 10-Q for the quarter ended June 30, 2013. |
| | |
| (ii) Amendment to Amended Offer Letter to Christopher J. Stephens, Jr.,Lukas Hovorka, dated February 12, 2014. | Incorporated by reference to Exhibit 10.6(ii) to the Company’s report on Form 10-K for the year ended December 31, 2013. |
| | |
10.7**
2021. | Offer Letter to Scott A. Mayo, dated January 28, 2014.
| Incorporated by reference to Exhibit 10.2 to the Company's report on Form 10-Q for the quarter ended March 31, 2014.2021. |
| 10.9** | | |
10.8**
| Offer Letter to James P. Berklas, Jr.,Jay B. Knoll, dated June 5, 2015.November 17, 2022. | |
| 10.10** | (i) Transition and Retirement Agreement, dated as of September 7, 2023, by and between Barnes Group Inc. and Marian Acker. | |
| | | Filed with this report. |
10.910.11**
| |
|
| | |
| (ii) First Amendment to the Barnes Group Inc. Retirement Benefit Equalization Plan dated December 12, 2014. | |
| | |
10.1010.12**
| (i) Barnes Group Inc. Supplemental Senior Officer Retirement Plan, as amended and restated effective January 1, 2009. |
2008.
|
| | |
| (ii) Amendment to the Barnes Group Inc. Supplemental Senior Officer Retirement Plan dated December 30, 2009.Plan. |
2009.
|
| | |
| (iii) Second Amendment to the Barnes Group Inc. Supplemental Senior Officer Retirement Plan dated December 12, 2014. | |
| | |
10.1110.13**
| (i) Amended and Restated Supplemental Executive Retirement Plan effective April 1, 2012. |
|
| | | | | | | | |
| (ii) Amendment 2013-1 to the Barnes Group Inc. Supplemental Executive Retirement Plan dated July 23, 2013. | |
| | |
| (iii) Amendment 2014-1 to the Barnes Group Inc. Supplemental Executive Retirement Plan dated December 12, 2014. | |
| | |
10.1210.14**
| Barnes Group Inc. Senior Executive Enhanced Life Insurance Program, as amended and restated effective April 1, 2011. |
|
| | |
10.1310.15**
| Barnes Group Inc. Enhanced Life Insurance Program, as amended and restated effective April 1, 2011. |
|
10.1410.16**
| Barnes Group Inc. Executive Group Term Life Insurance Program effective April 1, 2011. |
|
| | |
|
| | |
Exhibit No. | Description | Reference |
| | |
10.1510.17**
| Form of Barnes Group Inc. Executive Officer Severance Agreement, as amended March 31, 2010. |
|
| | |
10.1610.18**
| Form of Barnes Group Inc. Executive Officer Severance Agreement, effective February 19, 2014. | |
| 10.19** | | |
10.17**
| Barnes Group Inc. Executive Separation Pay Plan,plan, as amended and restated effective JanuaryAugust 1, 2012.2023. |
September 30, 2023.
|
| | |
10.1810.20**
| (i) Trust Agreement between the Company and Fidelity Management Trust Company (Barnes Group 2009 Deferred Compensation Plan) dated September 1, 2009. |
|
| | |
| (ii) Amended and Restated Barnes Group 2009 Deferred Compensation Plan effective as of April 1, 2012. |
|
| | |
| (iii) First Amendment to the Barnes Group 2009 Deferred Compensation Plan dated December 12, 2014. | |
| | |
10.1910.21**
| Barnes Group Inc. Non-Employee Director Deferred Stock Plan, as amended and restated December 31, 2008. |
|
| | |
10.2010.22**
| Barnes Group Inc. Directors’ Deferred Compensation Plan, as amended and restated December 31, 2008. |
|
| | |
10.21**
| Form of Amended and Restated Contingent Dividend Equivalent Rights Agreement for Officers.(i) Amendment #1 to Directors’ Deferred Compensation Plan, effective May 5, 2023. |
June 30, 2023.
|
| | | | | | | | |
10.2210.23**
| Barnes Group Inc. Trust Agreement for Specified Plans. |
|
| | |
10.2310.24**
| Form of Incentive Compensation Reimbursement Agreement between the Company and certain Officers. |
|
| | |
10.2410.25**
| Form of Indemnification Agreement between the Company and its Officers and Directors. |
|
| | |
10.2510.26**
| (i) Barnes Group Inc. Stock and Incentive Award Plan, as amended December 31, 2008. | Incorporated by reference to Exhibit 10.25 (i) to the Company’s report on Form 10-K for the year ended December 31, 2016.
|
| | |
| (ii) Barnes Group Inc. Stock and Incentive Award Plan, as amended March 15, 2010. |
|
| | |
| (iii)(ii) Exercise of Authority Relating to the Stock and Incentive Award Plan, dated March 3, 2009. |
|
| | |
| (iv)(iii) Amendment 2010-1 approved on December 9, 2010 to the Barnes Group Inc. Stock and Incentive Award Plan as amended March 15, 2010. |
|
| | |
10.2610.27**
| 2014 Barnes Group Inc. Stock and Incentive Award Plan. | |
| | |
|
| | |
Exhibit No. | Description | Reference |
| | |
10.2710.28**
| Form of2023 Barnes Group Inc. Stock and Incentive Award Plan Restricted Stock Unit Summary of Grant and Restricted Stock Unit Agreement for Directors dated February 8, 2012 (for non-management directors).Plan. |
Schedule 14A filed on March 24, 2023.
|
| | |
10.2810.29**
| Form of Barnes Group Inc. Stock and Incentive Award Plan Restricted Stock Unit Summary of Grant and Restricted Stock Unit Agreement for Directors dated May 9, 2014 (for non-management directors). | Incorporated by reference to Exhibit 10.2 to the Company’s report on Form 10-Q for the quarter ended June 30, 2014. |
| | |
10.29**
| Form of Barnes Group Inc. Stock and Incentive Award Plan Restricted Stock Unit Summary of Grant and Restricted Stock Unit Agreement for Directors dated February 9, 2016 (for non-management directors). | Incorporated by reference to Exhibit 10.29 to the Company’s report on Form 10-K for the year ended December 31, 2016.
|
| | |
10.30**
| Form of Non-Qualified Stock Option Agreement for employees grade 21 and up. | Incorporated by reference to Exhibit 10.30 to the Company’s report on Form 10-K for the year ended December 31, 2016.
|
| | |
10.31**
| Form of Barnes Group Inc. Stock and Incentive Award Plan Stock Option Summary of Grant and Stock Option Agreement for employeesEmployees in gradeGrade 21 and up dated as of February 8, 2011. |
|
| | |
10.3210.30**
| Form of Barnes Group Inc. Stock and Incentive Award Plan Stock Option Summary of Grant and Stock Option Agreement for Employees in Grade 21 and up dated May 9, 2014. | |
| | |
10.3310.31**
| Form of Barnes Group Inc. Stock and Incentive Award Plan Stock Option Summary of Grant and Stock Option Agreement for Employees in Grade 21 and up dated February 9, 2016. |
2015.
|
| | |
10.3410.32**
| Form of Barnes Group Inc. Stock and Incentive Award Plan Restricted Stock Unit Summary of Grant and Restricted Stock Unit Agreement for employees grade 21 and up dated as of February 8, 2011. | Incorporated by reference to Exhibit 10.34 to the Company’s report on Form 10-K for the year ended December 31, 2016.
|
| | |
10.35**
| Form of Barnes Group Inc. Stock and Incentive Award Plan Restricted Stock Unit Summary of Grant for Employees and Restricted Stock Unit Agreement dated February 8, 2012. | Incorporated by reference to Exhibit 10.35 to the Company’s report on Form 10-K for the year ended December 31, 2016.
|
| | |
10.36**
| Form of Barnes Group Inc. Stock and Incentive Award Plan Restricted Stock Unit Summary of Grant for Employees and Restricted Stock Unit Agreement dated May 9, 2014. | Incorporated by reference to Exhibit 10.3 to the Company’s report on Form 10-Q for the quarter ended June 30, 2014. |
| | |
10.37**
| Form of Barnes Group Inc. Stock and Incentive Award Plan Restricted Stock Unit Summary of Grant for Employees and Restricted Stock Unit Agreement dated February 9, 2016. |
|
10.33** | Form of Barnes Group Inc. Stock and Incentive Award Plan Performance Share Award Summary of Grant and Performance Share Award Agreement for Officers and Other Individuals as Designated by the Compensation and Management Development Committee dated as of February 13, 2020. | |
| | | | | | | | |
10.3810.34**
| Form of Barnes Group Inc. Stock and Incentive Award Plan Performance Share Award Summary of Grant and Performance Share Award Agreement for Officers and Other Individuals as Designated by the Compensation and Management Development Committee dated as of February 11, 2014.2021. |
2021.
|
| 10.35** | | |
10.39**
| Form of Barnes Group Inc. Stock and Incentive Award Plan Performance Share AwardStock Option Summary of Grant and Performance Share AwardStock Option Agreement for OfficersEmployees in Grade 21 and Other Individualsup, dated as Designated by the Compensation and Management Development Committee dated July 21, 2014.of May 5, 2023. | |
May 9, 2023.
|
| 10.36** | | |
Exhibit No. | Description | Reference |
| | |
10.40**
| Form of Barnes Group Inc. Stock and Incentive Award Plan Performance Share Award Summary of Grant and Performance Share Award Agreement for Officers and Other Individuals as Designated by the Compensation and Management Development Committee, dated as of February 11, 2015.May 5, 2023. | |
| 10.37** | | |
10.41**
| (i) Form of Barnes Group Inc. Stock and Incentive Award Plan Performance Share AwardRestricted Stock Unit Summary of Grant and Performance Share AwardRestricted Stock Unit Agreement for Officers and Other Individuals as Designated by the Compensation and Management Development CommitteeEmployees, dated as of FebruaryMay 5, 2023. | |
| 10.38** | Form of Barnes Group Inc. Stock and Incentive Award Plan Restricted Stock Unit Summary of Grant and Restricted Stock Unit Agreement for Directors, dated as of May 5, 2023. | |
10.39** | Performance-Linked Bonus Plan for Selected Executive Officers approved by Shareholders on May 6, 2016. |
|
| | |
| 21 |
| Filed with this report.
|
| | |
10.42**
| Performance-Linked Bonus Plan for Selected Executive Officers dated as of May 6, 2016.23 | Incorporated by reference to Exhibit 10.42 to the Company’s report on Form 10-K for the year ended December 31, 2016.
|
| | |
10.43 | Offer Letter to Michael A. Beck, dated January 28, 2016.
| Incorporated by reference to Exhibit 10.1 to the Company’s report on Form 10-Q for the quarter ended March 31, 2016
|
| | |
10.44 | | Filed with this report.
|
| | |
21 | | Filed with this report. |
| | |
23 | | Filed with this report. |
| | |
| 31.1 | | Filed with this report. |
| | |
| 31.2 | | Filed with this report. |
| | |
| 32 | | Furnished with this report. |
| 97 | | |
101.INS | XBRL Instance Document. | Filed with this report. |
| 101.INS | XBRL Instance Document. | Filed with this report. |
| 101.SCH | XBRL Taxonomy Extension Schema Document. | Filed with this report. |
| 101.CAL | | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | Filed with this report. |
| 101.DEF | | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | Filed with this report. |
| 101.LAB | | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | Filed with this report. |
| 101.PRE | | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | Filed with this report. |
_________________________
* The Company hereby agrees to provide the Commission upon request copies of any omitted exhibits or schedules to this exhibit required by Item 601(b)(2) of Regulation S-K.
** Management contract or compensatory plan or arrangement.
The Company agrees to furnish to the Commission, upon request, a copy of each instrument with respect to which there are outstanding issues of unregistered long-term debt of the Company and its subsidiaries, the authorized principal amount of which does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis.
