Corporate Office
123 Main Street
Bristol, CT 06010-6376
USA
BGInc.com
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Barnes Group Inc.
Annual Report 2015
ABOUT THE COMPANY
BOARD OF DIRECTORS
OFFICERS
CORPORATE INFORMATION
Thomas O. Barnes
Chairman of the Board,
Barnes Group Inc.
Patrick J. Dempsey
President and Chief Executive
Officer
Gary G. Benanav
Marian Acker
Former Chairman and Chief
Vice President, Controller
Executive Officer, New York Life
International, LLC
Michael A. Beck
Transfer Agent and Registrar
Computershare
P.O. Box 30170,
College Station, TX 77842-3170
Phone: 1-800-801-9519
(Continental U.S. only)
Phone: 1-201-680-6578
(Outside U.S.)
Former Vice Chairman, New York
Senior Vice President,
For the hearing impaired: 1-800-231-5469
Life Insurance Company, LLC
Barnes Group Inc. and President,
(Continental U.S. only)
William S. Bristow, Jr.
President, W.S. Bristow &
Associates, Inc.
Patrick J. Dempsey
President and Chief Executive
Officer, Barnes Group Inc.
Francis J. Kramer
Actual
President and CEO and Chairman of
% of ‘15
the Board, II-VI Incorporated
Sales
Mylle H. Magnum
Barnes Aerospace
James P. Berklas, Jr.
Senior Vice President, General
Counsel and Secretary
Dawn N. Edwards
Senior Vice President,
Human Resources
Lukas Hovorka
Vice President, Corporate
Development
1-201-680-6610 (Outside U.S.)
www.computershare.com/investor
Use the above address, phone numbers and
Internet address for information about the
following services:
Direct Deposit of Dividends, Stockholders
Inquiries, Change of Name or Address,
Consolidations, Lost Certificates, Replacement.
Direct Stock Purchase Plan/
Dividend Reinvestment
Initial purchases of Barnes Group common
stock can be made through the Direct Stock
Purchase Plan. Dividends on Barnes Group
Enterprises, LLC
Vice President, Tax and Treasury
common stock may be automatically invested
Scott A. Mayo
Senior Vice President,
Barnes Group Inc. and President,
Barnes Industrial
in additional shares.
Stock Exchange
New York Stock Exchange
Stock Trading Symbol: B
William J. Morgan
Senior Vice President, Finance and
Accounting Firm
Former Partner, KPMG LLP
Chief Financial Officer
PricewaterhouseCoopers LLP
Christopher J. Stephens, Jr.
Independent Registered Public
Hassell H. McClellan
Former Associate Professor of
Finance and Policy, Boston
College’s Wallace E. Carroll
School of Management
JoAnna L. Sohovich
Chief Executive Officer, The
Chamberlain Group, Inc.
185 Asylum Street, Hartford, CT 06103
Communications
For press releases and other information about
the Company, go to our Internet address at
www.BGInc.com or contact:
William E. Pitts (Investor Relations)/
Monique B. Marchetti (Stockholder Relations)
Barnes Group Inc.
123 Main Street
Bristol, CT 06010-6376 USA
Phone: 1-860-583-7070
WELCOME, SHAREHOLDERS.
Founded in 1857, Barnes Group Inc. (NYSE:B) is an international industrial and aerospace manufacturer
and service provider, serving a wide range of end markets and customers. The highly engineered products,
differentiated industrial technologies, and innovative solutions delivered by Barnes Group are used in far-reaching
applications that provide transportation, manufacturing, healthcare products, and technology to the world.
Chief Executive Officer, IBT
Michael V. Kennedy
BARNES GROUP INC. SERVES IN TWO GLOBAL BUSINESS SEGMENTS:
INDUSTRIAL
SEGMENT
Actual
% of ‘15
Sales
INDUSTRIAL
SEGMENT
AEROSPACE
SEGMENT
ENGINEERED
COMPONENTS
MOLDING
SOLUTIONS
NITROGEN
GAS PRODUCTS
OEM
AFTERMARKET
AEROSPACE
SEGMENT
The Barnes Group Inc. Annual Meeting of Stockholders will be held at 11:00 a.m., Friday, May 6, 2016, at the DoubleTree by
ANNUAL MEETING
Hilton Hotel, Bristol, Connecticut.
2
2015 ANNUAL REPORT
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Actual
% of ‘15
Sales
PERCENTAGE OF SALES
Actual
% of ‘15
Sales
INDUSTRIAL
SEGMENT
Molding Solutions
Engineered Components
INDUSTRIAL
SEGMENT
Nitrogen Gas Products
27%
29%
9%
AEROSPACE
SEGMENT
Original Equipment
Manufacturing (OEM)
Aftermarket: Maintenance
Repair and Overhaul (MRO)
Aftermarket: Spare Parts
(RSP Programs)
25%
6%
4%
FINANCIAL HIGHLIGHTS
Net Sales
(Continuing Operations, $ in Millions)
AEROSPACE
SEGMENT
Adjusted EPS (1)
(Continuing Operations)
$1,262
$1,194
$2.34
$2.38
$1,092
$929
$1.83
$1.52
2012
2013
2014
2015
2012
2013
2014
2015
Adj. Operating Margins (1)
(Continuing Operations)
Adj. Free Cash Flow (1)
($ in Millions)
$164
15.8%
15.4%
12.9%
12.2%
$117
$99
$83
2012
2013
2014
2015
2013
2012
Cash Conversion:
104% 110%
2014
2015
99%
128%
(1) References to adjusted operating margin, adjusted EPS and adjusted free cash flow for 2012, 2013, 2014 and 2015 are non-GAAP measures. For a reconciliation to
the appropriate GAAP measure, see the GAAP reconciliation on pages 7 and 8.
3
2015 ANNUAL REPORT
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2015 REVENUE BREAKDOWN
TOTAL REVENUE
$1,194M
TOTAL REVENUE
$1,194M
35%
AEROSPACE
$412M
65%
INDUSTRIAL
$782M
35%
AEROSPACE
$412M
65%
INDUSTRIAL
SEGMENT
INDUSTRIAL
$782M
ENGINEERED
COMPONENTS
44%
MOLDING
SOLUTIONS
41%
NITROGEN
GAS PRODUCTS
15%
AEROSPACE
SEGMENT
AEROSPACE
SEGMENT
AFTERMARKET
SPARES
AFTERMARKET
SPARES
11%
11%
AFTERMARKET
MRO
17%
AFTERMARKET
MRO
17%
OEM
72%
OEM
72%
END MARKETS
GEOGRAPHY
AEROSPACE
AFTERMARKET
10%
AEROSPACE
OEM
25%
MEDICAL &
PERSONAL
CARE
8%
AUTO
PRODUCTION
19%
AUTO
MOLDING
SOLUTIONS
14%
ASIA
17%
AMERICAS
56%
TOOL
& DIE
10%
GENERAL
INDUSTRIAL
14%
(Excludes Thermoplay and Priamus)
EUROPE
27%
4
2015 ANNUAL REPORT
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LETTER TO OUR
SHAREHOLDERS
During 2015, we made substantial progress executing
on our vison and strategy, transforming Barnes Group
into a global provider of highly-engineered products and
differentiated industrial technologies. We enhanced our
business portfolio through strategic acquisitions and drove
our operational excellence initiatives deeper into the
organization.
From a performance perspective, 2015 was a tale of “two
halves.” We began the year with strong organic growth
and operating performance momentum; however, slowing
occurred as global industrial markets became tepid in the
second half. Given the weakening environment during the
latter part of the year, we took proactive cost management
actions across our businesses.
FINANCIAL PERFORMANCE
For 2015, total sales were down 5% compared to a year
ago, as unfavorable foreign exchange impacted sales by 5%,
offset in part by a positive 1% contribution from acquisitions.
Organic sales declined 1%. On an adjusted basis, income
from continuing operations was $2.38 per diluted share,
up 2% from $2.34 a year ago. Adjusted operating margin
improved by 40 basis points, to 15.8%.
Although adjusted operating margins and income per
share exceeded last year’s solid performance, we were
disappointed in not delivering results closer to our
expectations. Nonetheless, we are convinced we have taken
the necessary actions to better position ourselves for 2016,
doing so with a very strong backlog in support of our plans.
CAPITAL DEPLOYMENT & STRATEGIC ACQUISITIONS
Disciplined investment in our businesses continued with $46
million in capital expenditures for 2015, about half of which
were targeted at growth programs across both segments. In
Aerospace, we made investments to secure our position on
new aircraft engine platforms, while Industrial investments
were made in support of innovative projects to bring
new products to the marketplace. In addition, we spent
approximately $13 million in research and development
directed at developing new products, processes, and
services to drive organic growth.
During the year, we supplemented our portfolio of
differentiated industrial technologies with two international
acquisitions in the plastic injection molding space for a net
investment of $52 million.
In the third quarter, we purchased Thermoplay of Pont-Saint-
Martin, Italy, which specializes in the design, development,
and manufacturing of hot runner solutions, primarily serving
the packaging, automotive, and medical end markets. We
appreciate the complimentary end-markets Thermoplay
provides and see the acquisition as a nice gateway to
expanding our hot-runner applications in packaging.
In the fourth quarter, we closed on our acquisition
of Priamus System Technologies of Schaffhausen,
Switzerland, a technology leader in the development
of advanced process control systems for the plastic
injection molding industry. Priamus’ innovative suite of
sensor and process control systems, together with our
portfolio of plastic injection molding solutions, represent
a powerful combination, enabling us to offer a unique set
of exceptional capabilities and expand the possibilities in
injection molding.
At Aerospace, we continued to invest in component repair
programs to better position us to leverage our capabilities
and global reach in the aftermarket. While this year’s
investment was relatively modest, we did gain access to a
new engine family and additional end-markets.
We’re excited about the ongoing portfolio transformation,
and will continue to look for other opportunities to
further advance our strategy of building a higher level of
intellectual property-based capabilities.
In addition, we returned $78 million of capital to
shareholders through dividends and share repurchases.
Barnes Group has been paying dividends on a continuing
basis since 1934, and we consider dividends an integral
component for returning capital to our shareholders.
In 2016, we expect to supplement dividends with
opportunistic repurchase of our shares.
As we exit 2015, we do so with a strong balance sheet
and an expectation of continued solid cash generation,
which allows us to pursue additional growth investments
in the upcoming year. We remain committed to being
responsible stewards of shareholder capital, and look to
maintain organic and acquisitive investment, as well as
provide for appropriate return of capital to shareholders.
5
2015 ANNUAL REPORT
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GROWTH DRIVERS
Reaching new heights of performance requires us to simplify
our manufacturing operations, increase process efficiencies,
and speed innovation and new product development. During
2015, we made significant progress on three important
operational initiatives.
First is the Barnes Enterprise System,
where we’ve made tremendous
inroads advancing the organization to
the next level of maturity. Major
foundational work was put in place
establishing common processes to
identify and leverage the five major
focus areas of productivity: Sales Effectiveness, Technology,
Operational Excellence, Global Sourcing, and Functional
Excellence. Corporate-wide targets have been established
for each, and we expect to drive visible results in 2016 with
the goal of expanding operating margins.
Second, we institutionalized systems and processes allowing
us to measure our performance with respect to creating
a culture of innovation. We implemented an “Innovation
Portfolio Management Process” with phase gates, enhancing
focus and prioritization to cultivate a robust innovation
pipeline. This is a broad initiative to drive new products and
services and to sustain vitality within the business. We are
very excited about this initiative, as it is expected to drive
much of the future growth of Barnes Group.
And third, we’ve placed a heightened focus on developing
our people and their capabilities with the establishment
of an enhanced Talent Management System. A key to our
future success will be the recruiting, training, retention, and
building of our bench strength of talented people.
In further support of our transformation we have streamlined
Industrial operations, establishing both the Engineered
Components and Molding Solutions strategic business units
(SBUs) during the year. The new Engineered Components
SBU is comprised of Associated Spring, Seeger-Orbis,
Heinz Hänggi, and Associated Spring Raymond. These
four businesses have similar automotive and industrial
end markets, with complimentary precision engineered
processes, product portfolios, global footprint, quality, and
supply-chain needs.
For our plastic injection molding end-markets, our new
Molding Solutions SBU is comprised of Männer, Synventive,
Thermoplay, and Priamus. Molding Solutions will leverage
the combined resources of these four businesses to
accelerate profitable sales growth, drive innovation, and
increase productivity.
6
2015 ANNUAL REPORT
Aligning our businesses as such is expected to further
enhance operational excellence by enabling better
coordination of regional capabilities and expertise,
leverage global customer relationships, improve
customer service, and create functional synergies in sales,
marketing, research and development, supply chain,
quality, and global manufacturing.
All of these actions, when combined with a
well-positioned balance sheet, have set us up nicely for
the upcoming year.
OUR FUTURE IS BRIGHT
We are proud of the accomplishments and transformation
achieved over the last several years and look to deliver
solid performance in 2016 despite a low-growth industrial
environment and what is expected to be a transitional
year for our aerospace business. While the future business
setting and global economy can be difficult to predict,
we are confident that our strategy will produce long-term
profitable growth, and that the talented and dedicated
team at Barnes Group will continue to deliver results in a
manner consistent with our corporate values.
Our culture emphasizes the importance of being a
good corporate citizen. We look to be a leader in the
communities in which we operate, which is why we
encourage philanthropy, compassion and change through
the involvement of our employees and through our
Barnes Group Foundation whose goal is the support
of education, the arts, civic and youth activities, and
health-related charities.
Lastly, on behalf of our Board of Directors and our 4,700
employees from around the world, we wish to extend our
sincerest appreciation to our customers, suppliers, and
shareholders for their continued confidence and trust in
Barnes Group.
Thomas O. Barnes
Chairman of the Board
Patrick J. Dempsey
President and
Chief Executive Officer
(1) References to adjusted results for 2015 are non-GAAP measures.
For a reconciliation to the appropriate GAAP measure, see the GAAP
reconciliation on pages 7 and 8.
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Barnes Group Inc.
Non-GAAP Financial Measure Reconciliation
(Dollars in thousands, except per share data)
(Unaudited)
CONSOLIDATED RESULTS
Operating Income (GAAP)
Synventive short-term purchase accounting adjustments
Männer short-term purchase accounting adjustments
Thermoplay short-term purchase accounting adjustments
Acquisition transaction costs
Restructuring/reduction in force charges
Contract termination dispute charge
Pension lump-sum settlement charge
CEO transition costs
Twelve months ended December 31,
2015
2014
2013
2012 (1)
$
168,396
$
179,974
$
123,201
$
107,131
-
1,481
1,167
970
4,222
2,788
9,856
-
-
8,504
-
-
6,020
-
-
-
-
5,456
-
1,823
-
-
-
10,492
4,987
-
-
912
-
-
-
-
Operating Income as adjusted (Non-GAAP) (2)
$
188,880
$
194,498
$
140,972
$
113,030
Operating Margin (GAAP)
Operating Margin as adjusted (Non-GAAP) (2)
14.1%
15.8%
14.3%
15.4%
11.3%
12.9%
11.5%
12.2%
Diluted Income from Continuing Operations per Share (GAAP)
$
2.19
$
2.16
$
1.31
$
1.44
Synventive short-term purchase accounting adjustments
Männer short-term purchase accounting adjustments
Thermoplay short-term purchase accounting adjustments
Acquisition transaction costs
Restructuring/reduction in force charges
Contract termination dispute charge
Pension lump-sum settlement charge
Tax benefit recognized for refund of withholding taxes
CEO transition costs
April 2013 tax court decision
-
0.02
0.01
0.02
0.05
0.03
0.11
(0.05)
-
-
-
0.11
-
-
0.07
-
-
-
-
-
-
0.07
-
0.03
-
-
-
-
0.12
0.30
0.07
-
-
0.01
-
-
-
-
-
-
Diluted Income from Continuing Operations per Share as
adjusted (Non-GAAP) (2)
$
2.38
$
2.34
$
1.83
$
1.52
Notes:
(1) Results for 2012 have been adjusted on a retrospective basis to reflect the impact of the BDNA discontinued operations.
(2) The Company has excluded the following from its historical "as adjusted" financial measurements:
2015
1) Short-term purchase accounting adjustments related to its Männer and Thermoplay acquisitions, 2) transaction costs related to its Thermoplay and Priamus
acquisitions, 3) restructuring and workforce reduction charges, 4) certain charges recorded in the Aerospace segment in the third quarter of 2015 related to a
contract termination dispute following a customer sourcing decision, 5) pension lump-sum settlement charge recorded in 2015 and 6) a tax benefit recognized
in the third quarter of 2015 related to a refund of withholding taxes that were previously paid and included in tax expense in prior years.
2014
1) Short-term purchase accounting adjustments related to its Männer acquisition and 2) restructuring charges related to the closure of production operations at
its Associated Spring facility located in Saline, Michigan.
2013
1) Short-term purchase accounting adjustments related to its Männer acquisition, 2) transaction costs related to its Männer acquisition, 3) CEO transition costs
associated with the modification of outstanding equity awards and 4) the tax charge associated with the April 2013 tax court decision.
2012
1) Short-term purchase accounting adjustments related to its Synventive acquisition and 2) transaction costs related to its Synventive acquisition.
Management believes that these adjustments provide the Company and its investors with an indication of our baseline performance excluding items that are
not considered to be reflective of our ongoing results. Management does not intend results excluding the adjustments to represent results as defined by GAAP,
and the reader should not consider it as an alternative measurement calculated in accordance with GAAP, or as an indicator of the Company's performance.
Accordingly, the measurements have limitations depending on their use.
7
2015 ANNUAL REPORT
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Barnes Group Inc.
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
(Dollars in thousands)
(Unaudited)
Free cash flow:
Twelve months ended December 31,
2015
2014
2013
2012
Net cash provided by operating activities
$
209,895
$
186,898
$
10,090
$
136,377
Capital expenditures
Free cash flow(1)
(45,982)
(57,365)
(57,304)
(37,787)
$
163,913
$
129,533
$
(47,214)
$
98,590
Free cash flow to net income cash conversion ratio (as adjusted):
Free cash flow (from above)
$
163,913
$
129,533
$
(47,214)
$
98,590
Income tax payments related to the gain on the sale of BDNA
Income tax reduction related to the gain on the sale of BDNA
Free cash flow (as adjusted)(2)
Net income
Gain on the sale of BDNA, net of tax
Pension lump-sum settlement charge, net of tax
Net income (as adjusted)(2)
-
-
163,913
121,380
-
6,182
-
(12,608)
116,925
118,370
-
-
130,004
-
82,790
270,527
(195,317)
-
-
-
98,590
95,249
-
-
$
127,562
$
118,370
$
75,210
$
95,249
Free cash flow to net income cash conversion ratio (as adjusted)(2)
128%
99%
110%
104%
Notes:
(1) The Company defines free cash flow as net cash provided by operating activities less capital expenditures. The Company believes that the free cash flow metric
is useful to investors and management as a measure of cash generated by business operations that can be used to invest in future growth, pay dividends, repurchase
stock and reduce debt. This metric can also be used to evaluate the Company's ability to generate cash flow from business operations and the impact that this cash
flow has on the Company's liquidity.
(2) For the purpose of calculating the cash conversion ratio, the Company has excluded the following:
2015
Pension lump-sum settlement charge, net of tax, from net income.
2014
The utilization of the year-end 2013 income tax receivable (related to the gain on the sale of BDNA) to offset the 2014 payments from free cash flow.
2013
The income tax payments related to the gain on the sale of BDNA made during 2013 from free cash flow and the gain on the sale of BDNA from net income.
8
2015 ANNUAL REPORT
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2015
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 1-4801
BARNES GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware
(State of incorporation)
123 Main Street, Bristol, Connecticut
(Address of Principal Executive Office)
06-0247840
(I.R.S. Employer Identification No.)
06010
(Zip Code)
(860) 583-7070
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 Par Value
Name of each exchange on which registered
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 È No ‘
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 È
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and
(2) has been subject to such filing requirements for the past 90 days. Yes È 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 È 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, or a smaller
reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer È
Non-accelerated filer ‘
Accelerated filer ‘
Smaller reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È
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, 2015 was approximately $2,009,804,702 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 53,900,397 shares of common stock as of February 18, 2016.
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 May 6, 2016 are incorporated by reference into Part III.
[THIS PAGE INTENTIONALLY LEFT BLANK]
Barnes Group Inc.
Index to Form 10-K
Year Ended December 31, 2015
Business
Part I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
FORWARD-LOOKING STATEMENTS
Page
1
3
12
12
13
13
14
16
17
35
36
70
70
71
72
73
73
73
73
74
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,” 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 include, among others: difficulty
maintaining relationships with employees, including unionized employees, customers, distributors, suppliers,
business partners or governmental entities; 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
intellectual property rights; introduction or development of new products or transfer of work; higher risks in
international operations and markets; the impact of intense competition; acts of terrorism, cybersecurity attacks
or intrusions that could adversely impact our businesses; uncertainties relating to conditions in financial markets;
currency fluctuations and foreign currency exposure; future financial performance of the industries or customers
that we serve; 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; changes in raw material
or product prices and availability; integration of acquired businesses; restructuring costs or savings; the
continuing impact of prior acquisitions and divestitures; and any other 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 outcome of pending and future
legal, governmental, or regulatory proceedings and contingencies and uninsured claims; future repurchases of
common stock; future levels of indebtedness; and numerous other matters of a global, regional or national scale,
including those of a political, economic, business, competitive, environmental, regulatory and public health
nature; and other risks and uncertainties described in this Annual Report. The Company assumes no obligation to
update its forward-looking statements.
Item 1. Business
BARNES GROUP INC. (1)
PART I
Founded in 1857, Barnes Group Inc. (the “Company”) is an international industrial and aerospace manufacturer and
service provider, serving a wide range of end markets and customers. The highly engineered products, differentiated
industrial technologies, and innovative solutions delivered by Barnes Group are used in far-reaching applications that provide
transportation, manufacturing, healthcare products, and technology to the world. Barnes Group’s approximately 4,700 skilled
and dedicated employees around the globe are committed to achieving consistent and sustainable profitable growth.
Structure
The Company operates under two global business segments: Industrial and Aerospace. The Industrial segment includes
the Molding Solutions, Engineered Components and Nitrogen Gas Products business units. The Aerospace segment includes
the original equipment manufacturer (“OEM”) business and the aftermarket business, which includes maintenance overhaul
and repair (“MRO”) services and the manufacture and delivery of aerospace aftermarket spare parts.
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 has approximately 40
employees, 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 is being 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 is being integrated into the Industrial Segment, within our Molding Solutions business
unit. See Note 2 of the Consolidated Financial Statements.
In the fourth quarter of 2013, the Company and two of its subsidiaries (collectively with the Company, the “Purchaser”)
completed the acquisition of Otto Männer Gmbh (the “Männer Business”). The Männer Business serves as a leader in the
development and manufacture of high precision and high cavitation molds, valve gate hot runner systems, and system
solutions for the medical/ pharmaceutical, packaging, and personal care/health care industries. The Männer Business includes
manufacturing locations in Germany, Switzerland and the United States, and sales and service offices in Europe, the United
States, Hong Kong/China and Japan. See Note 2 of the Consolidated Financial Statements.
INDUSTRIAL
Industrial is a global manufacturer of highly-engineered, high-quality precision parts, 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 plastic injection molding applications. 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 retaining
(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.
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rings. Engineered Components is equipped to produce virtually every type of highly engineered precision spring, from fine
hairsprings for electronics and instruments to large heavy-duty springs for machinery. Industrial’s Nitrogen Gas Products
business manufactures nitrogen gas springs and manifold systems used to precisely control stamping presses.
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 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 and Switzerland. Industrial also has sales and service operations in the United States, Brazil,
Canada, China/Hong Kong, France, Germany, India, Italy, Japan, Mexico, the Netherlands, Portugal, Singapore, Slovakia,
South Korea, Spain, Switzerland, Thailand and the United Kingdom. Sales by Industrial to its three largest customers
accounted for approximately 10% of its sales in 2015.
AEROSPACE
Aerospace is a global provider of complex fabricated and precision machined components and assemblies for original
equipment manufacturer (“OEM”) turbine engine, airframe and industrial gas turbine builders, and the military. The
Aerospace aftermarket business provides jet engine component maintenance overhaul and repair (“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. The Aerospace aftermarket activities also include the
manufacture and delivery of aerospace aftermarket spare parts, including the revenue sharing programs (“RSPs”) under
which the Company receives an exclusive right to supply designated aftermarket parts over the life of the related aircraft
engine programs.
Aerospace’s OEM business supplements the leading jet engine OEM capabilities and competes with a large number of
fabrication and machining companies. Competition is based mainly on quality, engineering and technical capability, product
breadth, new product introduction, timeliness, service and price. Aerospace’s fabrication and machining operations, with
facilities in Arizona, Connecticut, Michigan, Ohio, Utah and Singapore, produce critical engine and airframe components
through technically advanced manufacturing processes.
The Aerospace aftermarket 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
aftermarket facilities, located in Connecticut, Ohio and Singapore, 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. Sales by Aerospace to its two largest customers, General Electric and Roll-Royce, accounted for
approximately 51% and 11% of its sales in 2015, respectively. Sales to its next two largest customers in 2015 collectively
accounted for approximately 13% of its total sales.
FINANCIAL INFORMATION
The backlog of the Company’s orders believed to be firm at the end of 2015 was $764 million as compared with $729
million at the end of 2014. Of the 2015 year-end backlog, $571 million was attributable to Aerospace and $193 million was
attributable to Industrial. Approximately 52% of the Company’s year-end backlog is scheduled to be shipped during 2016.
The remainder of the Company’s backlog is scheduled to be shipped after 2016.
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 an analysis of our revenue from sales to external customers, operating profit and assets by business
segment, as well as revenues from sales to external customers and long-lived assets by geographic area, see Note 20 of the
Consolidated Financial Statements. For a discussion of risks attendant to the global nature of our operations and assets, see
Item 1A. Risk Factors.
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
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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, the availability of certain raw materials used by us or in products sold by us may be
negatively impacted.
RESEARCH AND DEVELOPMENT
We conduct research and development activities 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 with 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. Investments 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 $13 million, $16 million and $15 million in 2015, 2014 and 2013, respectively,
on research and development activities.
PATENTS AND TRADEMARKS
Patents and other proprietary rights are critical to certain of our business units, however the Company also holds certain
trade secrets and unpatented know-how. We are party 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 patents and trademarks) both domestically and
internationally. Risk factors associated with our intellectual property are discussed in Item 1A. Risk Factors.
EXECUTIVE OFFICERS OF THE COMPANY
For information regarding the Executive Officers of the Company, see Part III, Item 10 of this Annual Report.
ENVIRONMENTAL
Compliance with federal, state, and local laws, as well as those of other countries, which have been enacted or adopted
regulating the discharge of materials into the environment or otherwise relating to the protection of the environment has not had
a material effect, and is not expected to have a material effect, upon our capital expenditures, earnings, or competitive position.
AVAILABLE INFORMATION
Our Internet address is www.BGInc.com. 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, 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. 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 could be materially adversely affected by any of the following
risks. Please note that additional risks not presently known to us may also materially impact our business and operations.
RISKS RELATED TO OUR BUSINESS
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 2015, our net sales to
General Electric and its subsidiaries accounted for 18% of our total sales and approximately 51% of Aerospace’s net sales.
Aerospace’s second largest customer, Rolls-Royce, accounted for 11% of total Aerospace net sales in 2015. Approximately 13%
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of Aerospace’s sales in 2015 were to its next two largest customers. Approximately 10% of Industrial’s sales in 2015 were to its
three 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), 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 nature of our business exposes us to foreign currency fluctuations that may affect our future revenues,
debt levels and profitability. We have manufacturing facilities and technical service, 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, Euro, Japanese yen, Korean won,
Mexican peso, Singapore dollar, Swedish krona, Swiss franc and Thai baht. 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
fluctuations; however, these transactions may not be adequate or effective to protect us from the exposure for which they are
purchased. We have not engaged in any speculative hedging activities. Currency fluctuations may adversely impact our
revenues and profitability in the future.
Our operations depend on our 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 and technical service, and sales
centers both within and outside the U.S. The international scope of our business subjects us to increased risks and
uncertainties such as threats of war, terrorism and instability of governments; and economic, regulatory and legal systems in
countries in which we or our customers conduct business.
Some of our facilities are located in areas that may be affected by natural disasters, including earthquakes or tsunamis,
which could cause significant damage and disruption to the operations of those facilities 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, financial condition, results of operations and cash flows.
Although we have obtained property damage and business interruption insurance, a major catastrophe such as an earthquake,
hurricane, flood, tsunami or other natural disaster at any of our sites, or significant labor strikes, work stoppages, political unrest, or
any of the events described above, in any of the areas where we 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. 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 subject us to additional financial and regulatory risks. We have
operations and assets in various parts of the world. In addition, we sell or 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 and
regulations in the U.S. and other countries in which we operate, and associated risks, including: U.S. imposed embargoes of
sales to specific countries; foreign import controls (which may be arbitrarily imposed or enforced); import regulations and
duties; export regulations (which require us to comply with stringent licensing regimes); reporting requirements regarding the
use of “conflict” minerals mined from certain countries; anti-dumping regulations; price and currency controls; exchange rate
fluctuations; dividend remittance restrictions; expropriation of assets; war, civil uprisings and riots; government instability;
government contracting requirements including cost accounting standards, including 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. We have experienced inadvertent violations of some of these regulations, including export regulations, safety and
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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, any significant violations of these or
other regulations in the future could result in civil or criminal sanctions, and the loss of export or other licenses which could have a
material adverse effect on our business. We are subject to federal and 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. We may also be subject to unanticipated
income taxes, excise 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, particularly into the U.S., 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.
Any disruption or failure in the operation of our information systems, including from conversions or integrations of
information technology or reporting systems, could have a material adverse effect on our business, financial condition,
results of operations and cash flows. Our information technology (IT) systems are an integral part of our business. We depend
upon our IT systems to help process orders, manage inventory and collect accounts receivable. Our IT systems also allow us to
purchase, sell and ship products efficiently and on a timely basis, to maintain cost-effective operations, and to help provide
superior service to our customers. We are currently in the process of implementing enterprise resource planning (ERP) platforms
across certain of our businesses, and we expect that we will need to continue to improve and further integrate our IT systems, 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, 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. The secure maintenance and transmission of this information is critical to our
business operations. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by
hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and
the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of
information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and
regulatory penalties, disrupt our operations, and damage our reputation, which could adversely affect our business, revenues and
competitive position.
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, 2015, we had consolidated debt obligations of $509.9 million, representing
approximately 31% 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 may be adversely affected as a result of increases in interest rates. At December 31,
2015, we and our subsidiaries had approximately $509.9 million aggregate principal amount of consolidated debt obligations
outstanding, of which approximately 59% had interest rates that float with the market (not hedged against interest rate
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fluctuations). A 100 basis point increase in the interest rate on the floating rate debt in effect at December 31, 2015 would
result in an approximate $3.0 million annualized increase in interest expense.
Changes in the availability or price of materials, products and energy resources could adversely affect our costs
and profitability. We may be adversely affected by 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 price 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.
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, 2015, our inventories totaled $208.6 million. Inventories are valued at the lower of cost or market 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. The Company’s inventories include certain parts related to specific engines
within the aftermarket repair and overhaul business. The demand for these parts and our ability to utilize these parts depends
on the frequency and scope of repair and maintenance of aircraft engines and our ability to effectively access that market, and
a decline in demand could require us to write off a portion of our inventory. 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, 2015, our goodwill totaled $588.0 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 sooner if
triggering events warrant. 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 a non-cash charge to operating results
for goodwill impairment. The recognition of an 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”.
We may not realize all of the sales expected from our existing backlog or anticipated orders. At December 31,
2015, we had $763.8 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 new and existing programs. Such projections are included in
our backlog when they are supported by a contract. 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 cancelled or rescheduled due to fluctuations in our customers’ business needs or purchasing budgets.
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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 generally 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 aftermarket businesses. We participate in
aftermarket 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. As consideration, we pay participation fees, which are recorded as
intangible assets and are recognized as a reduction of sales over the estimated useful life of the related engine programs
which range up to 30 years. Our total investments in participation fees under our Revenue Sharing Programs (RSPs) as of
December 31, 2015 equaled $293.7 million, all of which have been paid. At December 31, 2015, the remaining unamortized
balance of these participation fees was $209.1 million.
We entered into Component Repair Programs (“CRPs”), also with General Electric, during the fourth quarter of 2013
(“CRP 1”), the second quarter of 2014 (“CRP 2”) and the fourth quarter of 2015 (“CRP 3” and, collectively with CRP 1 and
CRP 2, the “CRPs”). 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 as one of a few GE licensed suppliers. In addition, the CRPs
extend certain existing contracts under which the Company currently provides these services directly to GE.
We agreed to pay $26.6 million as consideration for the rights related to CRP 1. Of this balance, we paid $16.6 million
in the fourth quarter of 2013 and $9.1 million in the fourth quarter of 2014. The remaining payment of $0.9 million has been
included within accrued liabilities in the Consolidated Financial Statements. We agreed to pay $80.0 million as consideration
for the rights related to CRP 2. We paid $41.0 million in the second quarter of 2014, $20.0 million in the fourth quarter of
2014 and $19.0 million in the second quarter of 2015. We agreed to pay $5.2 million as consideration for the rights related to
CRP 3. Of this balance, we paid $2.0 million in the fourth quarter of 2015. The remaining payment of $3.2 million is due by
December 31, 2016 and has also been included within accrued liabilities in the Consolidated Financial Statements. We
recorded the CRP payments as an intangible asset which is 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 capture additional 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, future growth and profitability
could be impacted by the amortization of the participation fees and licenses, and the expiration of the international tax
incentives on these programs.
We face risks of cost overruns 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 may be adversely affected by increases in the cost of labor, materials, fuel, outside processing,
7
overhead and other factors, including manufacturing inefficiencies. Increased production costs may result 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 officers and other capable 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 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. Additionally, insurance coverage may not be available in the future at a cost acceptable to us. Any material
liability not covered by insurance or for which third-party indemnification is not available for the full amount of the loss 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 costs of 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, 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.
Our business, financial condition, results of operations and cash flows could be adversely impacted by strikes or
work stoppages. Approximately 15% of our U.S. employees are covered by collective bargaining agreements and more than
36% of our non-U.S. employees are covered by collective bargaining agreements or statutory trade union agreements. The
Company is currently in the process of negotiating a collective bargaining agreement (“CBA”) with certain unionized
employees at the Bristol, Connecticut and Corry, Pennsylvania facilities, which are part of the Associated Spring business
unit, and which covers approximately 240 employees. The current CBA expired on November 30, 2014, and we continue to
negotiate a successor agreement. In addition, we have annual negotiations in Brazil and Mexico and, collectively, these
negotiations cover approximately 300 employees in those two countries. We also completed negotiations in 2015 resulting in
wage increases with two of our German locations, a Singapore location, and our Sweden location, which collectively cover
approximately 676 employees. Although we believe that our relations with our employees are good, we cannot assure you that
we will be successful in negotiating new collective bargaining agreements 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
8
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 accounting guidance and taxation requirements 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. For example, the Financial Accounting Standards Board
issued a new accounting standard for revenue recognition in May 2014—Accounting Standards Update (ASU) 2014-09,
“Revenue from Contracts with Customers (Topic 606)”. Although we are currently in the process of evaluating the impact of
ASU 2014-09 on our consolidated financial statements, it will likely change the way we account for certain of our sales
transactions. Adoption of the standard could have a significant impact on our financial statements and may retroactively affect
the accounting treatment of transactions completed before adoption. In addition, 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 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. Accordingly, we must exercise judgment in determining our worldwide provision for income taxes, interest
and penalties-while noting that, future events could change management’s assessment of these amounts.
RISKS RELATED TO THE INDUSTRIES IN WHICH WE OPERATE
We operate in highly competitive markets. We may not be able to compete effectively with our competitors, and
competitive pressures could adversely affect our business, financial condition and results of operations. 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. 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
competitors 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 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 from whom components
and systems are purchased. If consolidation of our existing competitors 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 of consolidation by our competitors or customers.
Original equipment manufacturers in the aerospace and transportation industries have significant pricing
leverage over suppliers and may be able to achieve price reductions over time. Additionally, we may not be successful
in our efforts 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 and
9
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.
Environmental regulations impose costs and regulatory requirements on our operations. Environmental
compliance may be more costly than we expect, and we may be subject to material environmental-based claims in the
future. Our past and present business operations and past and present ownership and operations of real property and the use,
sale, storage and handling of chemicals and hazardous products subject us to extensive and changing U.S. federal, state and
local environmental laws and regulations, as well as those of other countries, pertaining to the discharge of materials into the
environment, enforcement, disposition of wastes (including hazardous wastes), the use, shipping, labeling, and storage of
chemicals and hazardous 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.
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. We may be subject 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 prior to our purchase, and to claims alleging personal injury.
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
10
will achieve. Additionally, we may face increased or unexpected costs associated with new product introduction including the use
of additional resources such as personnel. 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 restructuring actions could have long-term adverse effects on our business. From time to time, we have implemented
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. 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 technology 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; and our ability to avoid labor disruption
in connection with these activities. In addition, delays in implementing planned restructuring activities or other productivity
improvements may diminish the expected operational or financial benefits.
Our acquisition and other strategic initiatives may not be successful. We have made a number of acquisitions in the past,
including most recently the acquisitions of the Thermoplay and Priamus 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. We may not be able to
identify and successfully negotiate suitable acquisitions, obtain financing for future acquisitions on satisfactory terms, 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 include
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 business may not be as expected and there can be no assurance 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 operations 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,
11
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.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Location
Manufacturing:
North America
Europe
Asia
Central and Latin America
Non-Manufacturing:
North America
Europe
*
The Company’s Corporate office
Location
Manufacturing:
North America
Europe
Asia
Non-Manufacturing:
North America
Europe
Asia
Central and Latin America
Number of Facilities – Owned
Industrial Aerospace
Other
Total
6
8
1
2
17
0
2
2
5
0
0
0
5
0
0
0
0
0
0
0
0
1*
0
1
11
8
1
2
22
1
2
3
Number of Facilities – Leased
Industrial Aerospace
Other
Total
2
2
3
7
8
13
21
4
46
2
0
4
6
2
1
0
0
3
0
0
0
0
1**
0
0
0
1
4
2
7
13
11
14
21
4
50
**
Industrial segment headquarters and certain Shared Services groups.
12
Item 3. Legal Proceedings
On April 16, 2013, the United States Tax Court rendered an unfavorable decision in the matter Barnes Group Inc. and
Subsidiaries v. Commissioner of Internal Revenue (“Tax Court Decision”). The Tax Court rejected the Company’s
objections and imposed penalties. The case involved IRS proposed adjustments of approximately $16.5 million, plus a 20%
penalty and interest for the tax years 1998, 2000 and 2001.
The case arose out of an Internal Revenue Service (“IRS”) audit for the tax years 2000 through 2002. The adjustment
relates to the federal taxation of foreign income of certain foreign subsidiaries. The Company filed an administrative protest
of these adjustments. In the third quarter of 2009, the Company was informed that its protest was denied and a tax assessment
was received from the Appeals Office of the IRS. Subsequently, in November 2009, the Company filed a petition against the
IRS in the United States Tax Court, contesting the tax assessment. A trial was held and all briefs were filed in 2012. In April
2013 the Tax Court Decision was then issued rendering an unfavorable decision against the Company and imposing
penalties. As a result of the unfavorable Tax Court Decision, the Company recorded an additional tax charge during 2013 for
$16.4 million.
In November 2013, the Company made a cash payment of approximately $12.7 million related to tax, interest and
penalties and utilized a portion of its net operating losses. The Company also submitted a notice of appeal of the Tax Court
Decision to the United States Court of Appeals for the Second Circuit. The Company filed its opening brief with the United
States Court of Appeals for the Second Circuit on February 13, 2014 and presented its oral arguments on October 1, 2014.
On November 5, 2014, the Second Circuit upheld the Tax Court Decision. Following the decision by the Second Circuit
Court of Appeals, the Company had 60 days in which to file with U.S. Supreme court a petition for review. The Company
has not filed a petition for review and therefore the judgment of the Second Circuit Court of Appeals is final.
In connection with the IRS audit, the Company filed protective claims related to the withholding taxes paid as a
component of the transaction with certain subsidiaries. These filings allowed the Company to preserve the right to claim
certain protection should the IRS prevail in its assessment. Upon expiration of the period to file a petition for review to the
U.S. Supreme Court, the Company acted on protective claims and filed for the refund of the withholding taxes. In the third
quarter of 2015, the Company received refunds of $3.0 million related to the withholding taxes and recorded a corresponding
tax benefit.
During the third quarter of 2015 the Company recorded a $2.8 million charge related to a contract termination dispute
following the decision of a customer, Triumph Actuation Systems – Yakima, LLC (“Triumph”), to re-source work. The
Company has approximately $8.0 million of net assets, in connection with this dispute, recorded on the Consolidated Balance
Sheet as of December 31, 2015. The Company has assessed recoverability of costs and damages provided by the relevant
contracts and, during the fourth quarter of 2015, filed an arbitration demand before the American Arbitration Association for
recovery of these costs and damages for approximately $15.0 million. Also during the fourth quarter, Triumph responded
with a counterclaim of a similar amount, alleging various breaches and seeking damages, which the Company views as
unsubstantiated. An arbitrator has been appointed and a hearing is currently scheduled for May 2016. 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.
In addition, 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 such proceedings, individually or in the aggregate, will not have a material adverse effect on our financial
condition or results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
13
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
PART II
Securities
(a) 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.
Quarter ended March 31
Quarter ended June 30
Quarter ended September 30
Quarter ended December 31
Quarter ended March 31
Quarter ended June 30
Quarter ended September 30
Quarter ended December 31
Stockholders
2015
Low
High
Dividends
$33.75
38.75
35.33
33.00
$41.00
41.74
41.78
39.74
2014
$0.12
0.12
0.12
0.12
Low
High
Dividends
$35.34
36.27
30.35
29.47
$40.92
40.01
39.07
37.88
$0.11
0.11
0.11
0.12
As of February 12, 2016, there were approximately 3,457 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 11,766 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 2015 and 2014.
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.
14
Performance Graph
A stock performance graph based on cumulative total returns (price change plus reinvested dividends) for $100 invested
in Barnes Group, Inc. (“BGI”) on December 31, 2010 is set forth below.
$200
$180
$160
$140
$120
$100
$80
118.35
100.99
95.81
2011
2010
189.60
175.47
162.33
193.86
165.96
154.76
183.52
171.96
155.17
117.46
112.12
111.49
2012
2013
2014
2015
BGI
S&P 600
Russell 2000
BGI
S&P 600
Russell 2000
2010
2011
2012
2013
2014
2015
$100.00
$100.00
$100.00
$118.35
$100.99
$ 95.81
$112.12
$117.46
$111.49
$193.86
$165.96
$154.76
$189.60
$175.47
$162.33
$183.52
$171.96
$155.17
The performance graph does not include a published industry or line-of-business index or peer group of similar issuers
because the Company is in multiple lines of business and does not believe a meaningful published index or peer group can be
reasonably identified. Accordingly, as permitted by SEC rules, the graph includes the S&P 600 Small Cap Index and the
Russell 2000 Index, which are comprised of issuers with generally similar market capitalizations to that of the Company.
(c)
Issuer Purchases of Equity Securities
Period
October 1-31, 2015
November 1-30, 2015
December 1-31, 2015
Total
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)
67,771
982,372
284
1,050,427(1)
$35.36
$38.30
$38.07
$38.11
67,668
982,372
—
1,050,040
2,058,285
1,075,913
1,075,913
(1) Other than 1,050,040 shares purchased in the fourth quarter of 2015, which were purchased as part of the Company’s 2011 Program (defined
below), all acquisitions of equity securities during the fourth quarter of 2015 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.
15
Item 6. Selected Financial Data
Per common share (1)
Income from continuing operations
Basic
Diluted
Net income
Basic
Diluted
Dividends declared and paid
Stockholders’ equity (at year-end)
Stock price (at year-end)
For the year (in thousands)
Net sales
Operating income
As a percent of net sales
Income from continuing operations
As a percent of net sales
Net income
As a percent of net sales
As a percent of average stockholders’ equity (2)
Depreciation and amortization
Capital expenditures
Weighted average common shares outstanding – basic
Weighted average common shares outstanding – diluted
Year-end financial position (in thousands)
Working capital
Goodwill
Other intangible assets, net
Property, plant and equipment, net
Total assets
Long-term debt and notes payable
Stockholders’ equity
Debt as a percent of total capitalization (3)
Statistics
Employees at year-end (4)
2015 (5)
2014
2013 (6)(8)
2012 (7) (8)
2011 (8)
$
$
2.21
2.19
$
2.20
2.16
$
1.34
1.31
$
1.46
1.44
2.21
2.19
0.48
20.94
35.39
2.16
2.12
0.45
20.40
37.01
5.02
4.92
0.42
21.17
38.31
1.74
1.72
0.40
14.76
22.46
1.36
1.34
1.17
1.16
0.34
13.29
24.11
$1,193,975
168,396
$1,262,006
179,974
$1,091,566
123,201
$ 928,780
107,131
$ 865,078
101,579
14.1%
14.3%
11.3%
$ 121,380
$ 120,541
$
72,321
10.2%
9.6%
6.6%
$ 121,380
$ 118,370
$ 270,527
10.2%
10.7%
9.4%
10.3%
24.8%
28.3%
$
$
78,242
45,982
55,028
55,513
$
81,395
57,365
54,791
55,723
65,052
57,304
53,860
54,973
$
$
$
$
$
$
11.5%
79,830
8.6%
95,249
10.3%
12.6%
57,360
37,787
54,626
55,224
11.7%
74,955
8.7%
64,715
7.5%
8.4%
58,904
37,082
55,215
55,932
$ 359,038
587,992
528,322
308,856
2,061,866
509,906
1,127,753
$ 323,306
594,949
554,694
299,435
2,073,885
504,734
1,111,793
$ 276,878
649,697
534,293
302,558
2,123,673
547,424
1,141,414
$ 418,645
579,905
383,972
233,097
1,868,596
646,613
800,118
$ 332,316
366,104
272,092
210,784
1,440,365
346,052
722,400
31.1%
31.2%
32.4%
44.7%
32.4%
4,735
4,515
4,331
3,795
3,019
(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, 2014 and December 31, 2015
(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 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.
(6) 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.
(7) During 2012, the Company completed the acquisition of Synventive. The results of Synventive, from the acquisition on August 27, 2012, have been
included within the Company’s Consolidated Financial Statements for the period ended December 31, 2012.
(8) During 2013, the Company sold the BDNA business within the segment formerly referred to as Distribution. During 2011, the Company sold the
Barnes Distribution Europe (“BDE”) business within the segment formerly referred to as Logistics and Manufacturing Services. The results of the
BDNA and the BDE businesses, including any (loss) gain on the sale of businesses, have been reported through discontinued operations during the
respective periods.
16
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should 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.
OVERVIEW
2015 Highlights
Barnes Group Inc. (the “Company”) achieved sales of $1,194.0 million in 2015, a decrease of $68.0 million, or 5.4%,
from 2014. In Industrial, the acquisitions of Thermoplay on August 7, 2015 and Priamus on October 1, 2015 provided sales
of $13.6 million and $2.0 million, respectively, during 2015. Organic sales (net sales excluding both foreign currency and
acquisition impacts) decreased by $14.8 million, or 1.2%, with a decline of 6.4% within the Aerospace segment being
partially offset by an increase of 1.6% within the Industrial segment. Sales in the Industrial segment were impacted by
changes in foreign currency which decreased sales by approximately $68.8 million as the U.S. dollar strengthened against
foreign currencies.
Operating income decreased 6.4% from $180.0 million in 2014 to $168.4 million in 2015 and operating margin declined
from 14.3% in 2014 to 14.1% in 2015. Operating income was impacted by decreased organic sales in the Aerospace OEM
manufacturing business, $2.2 million of short-term purchase accounting adjustments and transaction costs resulting from the
acquisitions of Thermoplay and Priamus, a $2.8 million charge related to a contract termination dispute following an
Aerospace OEM customer’s decision to re-source work, a $9.9 million lump-sum pension settlement charge, $4.2 million of
charges related to certain workforce reductions and restructuring charges, lower productivity and the unfavorable impact of
foreign exchange within the Industrial segment. Operating profit benefited from increased organic sales at Industrial and
within the spare parts business at Aerospace, and lower employee related costs, primarily incentive compensation, partially
offset by higher pension costs. Operating income during 2015 and 2014 included $1.5 million and $8.5 million of short-term
purchase accounting adjustments, respectively, related to the acquisition of the Männer business. Charges of $6.0 million
during the 2014 period related to the closure of production operations at the Associated Spring facility located in Saline,
Michigan (the “Closure”).
The Company focused on profitable sales growth both organically and through acquisition, in addition to productivity
improvements, as key strategic objectives in 2015. Management continued its focus on cash flow and working capital
management in 2015 and generated $209.9 million in cash flow from operations.
Business Transformation
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. These 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. We have
significantly transformed our business over the past few years with our entrance into the plastic injection molding market.
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, which has approximately 40 employees, 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 is being integrated into our
Industrial segment. The Company acquired Priamus for an aggregate cash purchase price of CHF 9.8 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, and is subject to post closing adjustments under the terms of the Share Purchase Agreement. 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
17
Thermoplay operates (“HPE”). 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 is being 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”). The Company paid €56.7 million ($62.2 million) in cash, using
cash on hand and borrowings under the Company’s revolving credit facility and recorded a liability of €1.4 million ($1.5
million) related to the estimated post closing adjustments. 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.
In the fourth quarter of 2013, the Company and two of its subsidiaries (collectively with the Company, the “Purchaser”)
completed the acquisition of the Männer Business (defined below) pursuant to the terms of the Share Purchase and
Assignment Agreement dated September 30, 2013 (“Share Purchase Agreement”) among the Purchaser, Otto Männer
Holding AG, a German company based in Bahlingen, Germany (the “Seller”), and the three shareholders of the Seller (the
“Männer Business”). The Männer Business is a leader in the development and manufacture of high precision molds, valve
gate hot runner systems, and system solutions for the medical/pharmaceutical, packaging, and personal care/health care
industries. The Männer Business includes manufacturing locations in Germany, Switzerland and the United States, and sales
and service offices in Europe, the United States, Hong Kong/China and Japan. Pursuant to the terms of the Share Purchase
Agreement, the Company acquired all the shares of capital stock of the Männer Business for an aggregate purchase price of
€280.7 million ($380.7 million). The acquisition has been integrated into the Industrial segment. See Note 2 of the
Consolidated Financial Statements.
In the second quarter of 2013, the Company completed the sale of its Barnes Distribution North America business
(“BDNA”) to MSC Industrial Direct Co., Inc. (“MSC”) pursuant to the terms of the Asset Purchase Agreement dated
February 22, 2013 (the “APA”) between the Company and MSC. The total cash consideration received for BDNA was
$537.8 million, net of transaction costs and closing adjustments paid. See Note 3 of the Consolidated Financial Statements.
Management Objectives
Management focused on three key initiatives during 2015: productivity, innovation and global talent management,
which, in combination, are expected to generate long-term value for the Company’s stockholders and our customers. The
Company’s strategies for growth include both organic growth from new products, processes, services, markets and
customers, and growth from acquisitions. The Company’s strategies for profitability include employee engagement and
empowerment to drive productivity and process initiatives, such as the application of new technologies, automation and
innovation, intensified focus on intellectual property as a core differentiator. A key component of the Company’s culture is
the Barnes Enterprise System (BES), the Company’s operating system which drives alignment and fosters continuous
improvement, collaboration and innovation throughout the global organization.
Our Business
The Company consists of two operating segments: Industrial and Aerospace. In both of these businesses, the Company
is among the leaders in the market niches served.
Key Performance Indicators
Management evaluates the performance of its reportable segments based on the sales, operating profit and operating
margins 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. Each segment has
standard key performance indicators (“KPIs”), a number of which are focused on customer metrics (on-time-delivery and
quality), internal effectiveness and efficiency metrics (sales per employee, productivity, cost of quality, days working capital
and controllable expenses), employee safety-related metrics (total recordable incident rate and lost time incident rate), 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 of a particular
sector.
18
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”); the Global Insight global medical and measuring equipment index; the production of light
vehicles, both in the U.S. and globally; worldwide light vehicle new model introductions and existing model refreshes; North
American medium and heavy duty vehicle production; and global GDP growth forecasts.
At Aerospace, management of the aftermarket business monitors the number of aircraft in the active fleet, the number of
planes 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. The Aerospace OEM business regularly tracks orders 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. military related to purchases of new or used aircraft and engine components.
RESULTS OF OPERATIONS
Sales
($ in millions)
Industrial
Aerospace
Total
2015 vs. 2014:
2015
2014
$ Change % Change
2013
$ 782.3
411.7
$ 822.1
440.0
$(39.8)
(28.3)
(4.8)% $ 687.6
404.0
(6.4)%
$1,194.0
$1,262.0
$(68.0)
(5.4)% $1,091.6
The Company reported net sales of $1,194.0 million in 2015, a decrease of $68.0 million, or 5.4%, from 2014. The
acquisitions of Thermoplay on August 7, 2015 and Priamus on October 1, 2015 provided sales of $13.6 million and $2.0
million, respectively, during the 2015 period. Organic sales within Industrial increased by $13.5 million, or 1.6%, during
2015, primarily due to favorable end-markets served by our tool and die and plastics businesses during the first half of 2015.
A softening within our transportation and general industrial end-markets during the second half of 2015 tempered a
substantial portion of the organic growth in the first half of the year. Aerospace recorded sales of $411.7 million in 2015, a
$28.3 million, or 6.4% decrease from 2014. Lower sales within the OEM and MRO businesses were partially offset by
increased sales within the spare parts business. The spare parts business benefited from increased demand as a result of
higher aircraft utilization and customer restocking of inventory, whereas the MRO business continued to be impacted by
deferred maintenance on certain platforms. The timing of customer deliveries and execution, which was partially impacted
by new product introduction challenges, in addition to the impact of a contract termination dispute, directly impacted lower
sales within the OEM business during the second half of 2015. The impact of foreign currency translation decreased sales
within Industrial by approximately $68.8 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 decreased 2.4% year-over-year, while domestic sales decreased 4.7%. Excluding the impact of
foreign currency translation on sales, however, the Company’s international sales in 2015 increased 7.8%, inclusive of sales
through acquisition, from 2014.
2014 vs. 2013:
The Company reported net sales of $1,262.0 million in 2014, an increase of $170.4 million, or 15.6%, from 2013. The
Männer Business, acquired on October 31, 2013, provided sales of $113.7 million during the January through October 2014
period. In Aerospace, sales increased as a result of growth in the OEM manufacturing and the aftermarket MRO business,
partially offset by declines within the aftermarket spare parts business. Organic sales increased by $64.1 million, or 5.9%.
Organic growth within the Industrial segment benefited from favorable light vehicle and tool and die end-markets, whereas
Aerospace growth within the OEM business resulted from continued strength in demand for new engines, driven by
increased commercial aircraft production. The strengthening of the U.S. dollar against foreign currencies as compared to
2013 decreased net sales by $7.3 million in 2014. The Company’s international sales increased 29.3% year-over-year,
primarily due to the acquisition of the Männer Business, while domestic sales increased 4.3%. Excluding the impact of
foreign currency translation on sales, the Company’s international sales in 2014 increased 30.7% from 2013.
19
Expenses and Operating Income
($ in millions)
Cost of sales
% sales
Gross profit (1)
% sales
Selling and administrative expenses
% sales
Operating income
% sales
(1) Sales less cost of sales
2015 vs. 2014:
2015
2014
$ Change % Change
2013
$782.8
$829.6
$(46.8)
(5.6)% $738.2
65.6% 65.7%
67.6%
$411.2
$432.4
$(21.2)
(4.9)% $353.4
34.4% 34.3%
32.4%
$242.8
$252.4
$ (9.6)
(3.8)% $230.2
20.3% 20.0%
21.1%
$168.4
$180.0
$(11.6)
(6.4)% $123.2
14.1% 14.3%
11.3%
Cost of sales in 2015 decreased 5.6% from 2014, while gross profit margin increased slightly from 34.3% in 2014 to
34.4% in 2015. Gross margins remained flat at Industrial and improved slightly at Aerospace, however a higher percentage
of sales were driven by the Industrial segment in 2015. The gross profit decrease during 2015 includes a charge of $6.4
million related to a lump-sum pension settlement (see Note 12 of the Consolidated Financial Statements). At Industrial, gross
profit during 2014 was partially offset by $4.5 million of short-term purchase accounting adjustments related to the
acquisition of the Männer business and restructuring charges of $5.4 million related to the closure of the Saline facility,
which was completed in 2014. During 2015, short term purchase accounting adjustments of $0.9 million and $0.9 million
were related to the acquisitions of the Männer business and Thermoplay, respectively. Within Aerospace, gross profit
declined as a result lower sales within OEM, partially offset by increased profits within the spare parts business, and a $2.8
million charge related to a contract termination dispute following a customer decision to re-source. Selling and
administrative expenses decreased 3.8% from 2014 due primarily to foreign exchange translation and a $3.4 million
reduction in the short-term purchase accounting adjustments related to the acquisition of the Männer business. Lower
employee related expenses, primarily from incentive compensation, reduced selling and administrative expenses during the
2015 period. The 2014 period also included $0.6 million of charges related to the Closure of the Saline facility. These
expense reductions during 2015 were partially offset by $4.2 million of charges related to workforce reductions and
severance, $3.5 million of lump-sum pension settlement charges and $0.3 million of short-term purchase accounting
adjustments related to the acquisition of Thermoplay. As a percentage of sales, selling and administrative costs increased
from 20.0% in 2014 to 20.3% in 2015. Operating margin was 14.1% in 2015 compared to 14.3% in 2014.
2014 vs. 2013:
Cost of sales in 2014 increased 12.4% from 2013, while gross profit margin increased from 32.4% in 2013 to 34.3% in
2014. Gross margins improved at Industrial and at Aerospace. Cost of sales in 2013 included a third quarter $8.6 million pre-
tax inventory valuation charge related to a specific family of spare parts within the repair and overhaul business at
Aerospace. The acquisition of the Männer Business also resulted in a higher percentage of sales being driven by Industrial
during 2014. Gross profit benefits from the Männer Business in 2014 were partially offset by $4.5 million of short-term
purchase accounting adjustments related to the acquisition of the Männer Business and charges of $5.4 million related to the
Closure of the Saline operations. During 2013, gross profit was partially offset by $3.6 million in short-term purchase
accounting adjustments related the Männer Business. Selling and administrative expenses increased 9.6% from 2013 due
primarily to the incremental operations of the Männer business, $4.0 million of short-term purchase accounting adjustments
related to the acquisition of the Männer Business and $0.6 million of charges related to the closure of the Saline operations.
During 2013, selling and administrative expenses also included $3.7 million in short-term purchase accounting adjustments
and transaction costs related to the Männer Business and CEO transition costs of $10.5 million. As a percentage of sales,
selling and administrative costs decreased from 21.1% in 2013 to 20.0% in 2014. Operating margin was 14.3% in 2014
compared to 11.3% in 2013.
20
Interest expense
2015 vs. 2014:
Interest expense in 2015 decreased $0.7 million to $10.7 million from 2014, primarily as a result of lower average
borrowings, partially offset by higher average borrowing rates resulting from the 3.97% Senior Notes that were issued under
the Note Purchase Agreement executed on October 15, 2014. See Liquidity and Capital Resources within Item 7.
2014 vs. 2013:
Interest expense in 2014 decreased $1.7 million to $11.4 million from 2013, primarily a result of lower average
borrowing rates, partially offset by higher average borrowings under the Amended Credit Facility, as defined below.
Other (income) expense, net
2015 vs. 2014:
Other (income) expense, net in 2015 was $(0.2) million compared to $2.1 million in 2014. Foreign currency gains of
$0.5 million in the 2015 period compared with foreign currency losses of $1.5 million in the 2014 period.
2014 vs. 2013:
Other expense (income), net in 2014 was $2.1 million compared to $2.5 million in 2013.
Income Taxes
2015 vs. 2014:
The Company’s effective tax rate from continuing operations was 23.2% in 2015 compared with 27.6% in 2014. The
decrease in 2015 is primarily due to a tax refund of withholding taxes, the granting of an extended tax holiday in China as
well as a change in the mix of earnings in lower tax jurisdictions offset by an increase in the repatriation of a portion of
current year foreign earnings to the U.S. During 2015, the Company repatriated a dividend from a portion of the current year
foreign earnings to the U.S. in the amount of $19.5 million compared to $12.5 million in 2014. The increase in the dividend
increased tax expense by $2.4 million and increased the annual effective tax rate by 1.5 percentage points compared to 2014.
In 2016, the Company expects the effective tax rate from continuing operations to increase to between 27% and 29% in
part due to the expiration of certain foreign tax holidays as well as the absence of a tax benefit for withholding tax refunds
recognized in 2015.
2014 vs. 2013:
The Company’s effective tax rate from continuing operations was 27.6% in 2014 compared with 32.8% in 2013 which
includes the impact of $16.4 million of tax expense related to the April 16, 2013 U.S. Court Decision (Note 14 of the
Consolidated Financial Statements and below). Excluding the impact of the U.S. Tax Court Decision, the Company’s
effective tax rate from continuing operations for 2013 was 17.5%. The remaining increase in the 2014 effective tax rate from
continuing operations is primarily due to a change in the mix of earnings attributable to higher-taxing jurisdictions
(principally in the U.S. and Germany) or jurisdictions where losses cannot be benefited in 2014, the expiration of certain
international tax holidays and the increase in the repatriation of a portion of current year foreign earnings to the U.S. During
2014, the Company repatriated a dividend from a portion of the current year foreign earnings to the U.S. in the amount of
$12.5 million compared to $5.0 million in 2013. This increase in the dividend increased tax expense by $3.2 million and
increased the annual effective tax rate by 1.9 percentage points compared to 2013.
See Note 14 of the Consolidated Financial Statements for a reconciliation of the U.S. federal statutory income tax rate to
the consolidated effective income tax rate.
On April 16, 2013, the United States Tax Court rendered an unfavorable decision in the matter Barnes Group Inc. and
Subsidiaries v. Commissioner of Internal Revenue (“Tax Court Decision”). The Tax Court rejected the Company’s
objections and imposed penalties. The case involved IRS proposed adjustments of approximately $16.5 million, plus a 20%
penalty and interest for the tax years 1998, 2000 and 2001.
21
The case arose out of an Internal Revenue Service (“IRS”) audit for the tax years 2000 through 2002 (the “IRS Audit”).
The adjustment relates to the federal taxation of foreign income of certain foreign subsidiaries. The Company filed an
administrative protest of these adjustments. In the third quarter of 2009, the Company was informed that its protest was
denied and a tax assessment was received from the Appeals Office of the IRS. Subsequently, in November 2009, the
Company filed a petition against the IRS in the United States Tax Court, contesting the tax assessment. A trial was held and
all briefs were filed in 2012. In April 2013 the Tax Court Decision was then issued rendering an unfavorable decision against
the Company and imposing penalties. As a result of the unfavorable Tax Court Decision, the Company recorded an
additional tax charge during 2013 for $16.4 million.
In November 2013, the Company made a cash payment of approximately $12.7 million related to tax, interest and
penalties and utilized a portion of its net operating losses. The Company also submitted a notice of appeal of the Tax Court
Decision to the United States Court of Appeals for the Second Circuit. The Company filed its opening brief with the United
States Court of Appeals for the Second Circuit on February 13, 2014 and presented its oral arguments on October 1, 2014.
On November 5, 2014, the Second Circuit Court of Appeals upheld the Tax Court decision. Following the decision by
the Second Circuit Court of Appeals, the Company had 60 days in which to file with the U.S. Supreme Court a petition for
review. The Company has not filed a petition for review and therefore the judgment of the Second Circuit Court of Appeals
is final.
In connection with the IRS Audit, the Company filed protective claims related to withholding taxes paid as a component
of the transactions with certain subsidiaries. These filings allowed the Company to preserve the right to claim certain
protection should the IRS prevail in its assessment. Upon the expiration of the period to file a petition for review to the U.S.
Supreme Court, the Company acted on the protective claims and filed for the refund of the withholding taxes. In the third
quarter of 2015, the Company received refunds of $3.0 million related to the withholding taxes and recorded a corresponding
tax benefit.
Discontinued Operations
In April 2013, the Company completed the sale of BDNA to MSC pursuant to the terms of the APA between the
Company and MSC. The total cash consideration received for BDNA was $537.8 million, net of transaction costs and closing
adjustments paid. The net after-tax proceeds were $419.1 million after consideration of certain post closing adjustments,
transaction costs and income taxes. In 2013, the Company recorded a net after-tax gain of $195.3 million on the sale of
BDNA, net of transaction-related costs of $9.7 million, whereas pre-tax income from the discontinued operations at BDNA
was $6.3 million.
The results of BDNA have been segregated and presented as discontinued operations. See Note 3 of the Consolidated
Financial Statements.
22
Income and Income Per Share
(in millions, except per share)
Income from continuing operations
(Loss) income from discontinued operations, net of income taxes
Net income
Per common share:
Basic:
2015
2014
Change % Change
2013
$121.4
—
$120.5
(2.2)
$ 0.8
2.2
0.7% $ 72.3
198.2
NM
$121.4
$118.4
$ 3.0
2.5% $270.5
Income from continuing operations
(Loss) income from discontinued operations, net of income taxes
$ 2.21
$ 2.20
— (0.04)
$0.01
0.04
0.5% $ 1.34
3.68
NM
Net income
Diluted:
$ 2.21
$ 2.16
$0.05
2.3% $ 5.02
Income from continuing operations
(Loss) income from discontinued operations, net of income taxes
$ 2.19
$ 2.16
— (0.04)
$0.03
0.04
1.4% $ 1.31
3.61
NM
Net income
$ 2.19
$ 2.12
$0.07
3.3% $ 4.92
Weighted average common shares outstanding:
Basic
Diluted
NM – Not Meaningful
55.0
55.5
54.8
55.7
0.2
(0.2)
0.4%
(0.4)%
53.9
55.0
In 2015, basic and diluted income from continuing operations per common share increased 0.5% and 1.4%, respectively.
The increases were directly attributable to the increase in income from continuing operations year over year. Basic weighted
average common shares outstanding increased due to the issuance of additional shares for employee stock plans. The impact
of these issuances was partially offset by the repurchase of 1,352,596 shares during 2015 as part of the Company’s
repurchase program. Diluted weighted average common shares outstanding decreased slightly due to a decrease in potentially
issuable shares, driven by the redemption of the 3.375% Convertible Notes during 2014 partially offset by the increase in
basic weighted average common shares outstanding.
Financial Performance by Business Segment
Industrial
($ in millions)
Sales
Operating profit
Operating margin
2015 vs. 2014:
2015
2014
$ Change % Change
2013
$822.1
108.4
$782.3
103.0
13.2% 13.2%
$(39.8)
(5.4)
(4.8)% $687.6
71.9
(5.0)%
10.5%
Sales at Industrial were $782.3 million in 2015, a decrease of $39.8 million, or 4.8%, from 2014. The acquisitions of
Thermoplay on August 7, 2015 and Priamus on October 1, 2015 provided sales of $13.6 million and $2.0 million,
respectively, during the 2015 period. Organic sales increased by $13.5 million, or 1.6%, during 2015, primarily due to
favorable end-markets served by our tool and die and plastics businesses during the first half of 2015. A softening within our
transportation and general industrial end-markets during the second half of 2015 tempered a substantial portion of organic
growth in the first half. The impact of foreign currency translation decreased sales by approximately $68.8 million as the
U.S. dollar strengthened against foreign currencies.
Operating profit in 2015 at Industrial was $103.0 million, a decrease of 5.0% from 2014. Operating profit benefited
primarily from the profit contribution of increased organic sales within our end markets during the first half of 2015, more
than offset by lower productivity and the unfavorable impact of foreign exchange during the full year. The 2015 period also
included lump-sum pension settlement charges of $7.5 million that were allocated to the segment, short-term purchase
adjustments and transaction costs resulting from the acquisitions of Thermoplay and Priamus of $1.9 million and $0.2 million,
23
respectively, and $3.4 million of charges related to certain workforce reductions and restructuring. Lower sales volumes
during the second half of 2015 tapered the benefit of growth in organic sales during the first half of the year. The 2014 period
included $8.5 million of short-term purchase accounting adjustments related to the acquisition of the Männer Business,
whereas the 2015 period included $1.5 million of such adjustments. The 2014 period also included $6.0 million of pre-tax
restructuring charges related to the closure of production operations at the facility in Saline, Michigan.
Outlook:
In the Industrial manufacturing businesses, management is focused on generating organic sales growth through the
introduction of new products and by leveraging 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 conditions in the global
markets served by all of our businesses. The Company is continuing to see softness in certain global industrial markets as
indicated by declining Purchasing Managers Indexes (PMIs) in North America and China. In our light vehicle markets,
production levels in North America and Europe are growing, while China’s automotive build forecast, while growing, is
decelerating. As noted above, our sales were negatively impacted by fluctuations in foreign currencies during 2015 of $68.8
million. A significant portion of businesses within the Industrial segment are domiciled in Europe. To the extent that the U.S.
dollar strengthens as compared with the Euro and other foreign currencies, our sales may continue to be unfavorably
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 the European businesses have expenses primarily denominated in local currencies,
where their revenues reside. The Company also remains focused on sales growth through acquisition and expanding
geographic reach. Strategic investments in new technologies, manufacturing processes and product development are expected
to provide incremental benefits over the long term. The Company is currently in the process of negotiating a collective
bargaining agreement (“CBA”) with certain unionized employees at the Bristol, CT and Corry, PA facilities, which are
located within the Associated Spring business unit. The current CBA expired on November 30, 2014, and we continue to
negotiate to reach a successor agreement.
Operating profit is largely dependent on the sales volumes and mix of the businesses in the segment. Management
continues to focus on improving profitability and expanding margins through leveraging organic sales growth, acquisitions,
pricing initiatives, and productivity and process improvements. The Company continues to actively manage costs during
these periods of market softening. Workforce reductions and facility consolidations, combined with other productivity
initiatives, are expected to contribute favorably in 2016. We continue to evaluate market conditions and remain pro-active in
managing costs if markets further soften. Costs associated with new product and process introductions, plant consolidations,
strategic investments and the integration of acquisitions may negatively impact operating profit.
2014 vs. 2013:
Sales at Industrial were $822.1 million in 2014, an increase of 19.6% from 2013. The Männer Business, acquired on
October 31, 2013, provided sales of $113.7 million during the January through October 2014 period, and segment organic
sales increased by $28.1 million, or 4.1%, during 2014. Organic growth resulted from favorable light vehicle and tool and die
end-markets and strengthening within the geographic markets into which the Company sells. The impact of foreign currency
translation decreased sales by approximately $7.3 million as the U.S. dollar strengthened against foreign currencies.
Operating profit in 2014 at Industrial was $108.4 million, an increase of 50.7% from 2013. Operating profit benefited
from the profit contributions of the acquired Männer Business and increased organic sales, and was partially offset by
charges of $6.0 million related to the closure of the Saline operations and $8.5 million of short-term purchase accounting
adjustments related to the acquisition of the Männer Business. During 2013, operating profits were partially offset by $7.3
million in short-term purchase accounting adjustments and transaction costs related the Männer Business and CEO transition
costs of $6.6 million that were allocated to the segment during the year.
24
Aerospace
($ in millions)
Sales
Operating profit
Operating margin
2015 vs. 2014:
2015
2014
$ Change % Change
2013
$411.7
65.4
15.9% 16.3%
$440.0
71.6
$(28.3)
(6.2)
(6.4)% $404.0
51.3
(8.6)%
12.7%
Aerospace recorded sales of $411.7 million in 2015, a 6.4% decrease from 2014. Lower sales within the OEM and
MRO businesses were partially offset by increased sales within the spare parts business. The spare parts business benefited
from increased demand as a result of higher aircraft utilization and customer restocking of inventory, whereas the MRO
business continued to be impacted by deferred maintenance on certain platforms. The timing of customer deliveries and
execution, which was partially impacted by new product introduction challenges, in addition to the impact of a contract
termination dispute, directly impacted lower sales within the OEM business during the second half of 2015. 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 8.6% from 2014 to $65.4 million. The operating profit decrease was primarily
due to the profit impact of lower sales within the OEM and MRO businesses, lump-sum pension settlement charges of $2.4
million that were allocated to the segment, $0.8 million in workforce reduction and restructuring charges, a $2.8 million
charge that resulted from a contract termination dispute following a customer decision to re-source work and lower
productivity. Partially offsetting these items were the higher profit impact of increased sales within the spare parts business
and lower employee related costs, primarily incentive compensation, partially offset by higher pension costs.
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 continued strength in demand for new engines, driven
by increased commercial aircraft production. Backlog at OEM was $563.9 million at December 31, 2015, an increase of
8.7% since December 31, 2014, at which time backlog was $518.6 million. Approximately 50% of this backlog at
December 31, 2015 is expected to be shipped over the next 12 months, with a greater mix of our backlog reflecting new
engine programs. 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, our
ability to expand operations within lower cost regions, changes in production schedules of specific engine and airframe
programs, as well as the pursuit of new programs. Sales levels in the Aerospace aftermarket business may be impacted by
fluctuations in end-market demand, 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.
Fluctuations in fuel costs and their impact on airline profitability and behaviors within the aerospace industry 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. The Company
does not expect that fluctuations in fuel costs will have a significant impact in the near term on the OEM business, however
may impact the MRO business.
Management is focused on growing operating profit at Aerospace primarily through leveraging organic sales growth,
strategic investments, productivity initiatives, new product and process introductions and continued cost management.
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. During
the fourth quarter of 2015, the Company has responded to the challenging economic environment affecting certain of our
Aerospace businesses. As noted above, workforce reductions and restructure charges primarily related to a plant
consolidation were recorded following reduced aftermarket volumes and the impact of the OEM customers re-sourcing
decision. These actions supporting our productivity initiatives are expected to favorably impact 2016. We continue to
evaluate market conditions and remain pro-active in managing costs if markets further soften. Costs associated with new
product and process introductions, the physical transfer of work to lower cost manufacturing regions and additional
restructuring activities may negatively impact operating profit.
25
2014 vs. 2013:
Aerospace recorded sales of $440.0 million in 2014, a 8.9% increase from 2013. A sales increase in the OEM business
and the aftermarket MRO business was partially offset by slightly lower sales in the aftermarket spare parts business.
Increased sales within the OEM business reflected continued strength in demand for new engines, driven by increased
aircraft production. Sales in the MRO business benefited primarily from the CRPs that were executed in December 2013 and
June 2014.
Operating profit at Aerospace increased 39.6% from 2013 to $71.6 million. Operating profit benefited from increased
sales in the OEM business and increased sales in the MRO business, primarily due to the profit impact of the CRPs. These
benefits were partially offset by an increase in employee related costs, primarily due to incentive compensation. Operating
profit in 2013 also included a $8.6 million pre-tax inventory valuation charge related to a specific family of spare parts
within the MRO business and CEO transition costs of $3.9 million allocated to the segment.
LIQUIDITY AND CAPITAL RESOURCES
Management assesses the Company’s liquidity in terms of its overall ability to generate cash to fund its operating and
investing activities. Of particular importance in the management of liquidity are cash flows generated from operating
activities, capital expenditure levels, dividends, capital stock transactions, effective utilization of surplus cash positions
overseas and adequate lines of credit.
The Company’s ability to generate cash from operations in excess of its internal operating needs is one of its financial
strengths. Management continues to focus on cash flow and working capital management, and anticipates that operating
activities in 2016 will generate sufficient cash to fund operations. The Company closely monitors its cash generation, usage
and preservation including the management of working capital to generate cash.
On 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 (BOLI 30C), 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”). The Company completed funding of the transaction and issued the 3.97% Senior Notes on October 17, 2014. The
3.97% Senior Notes are senior unsecured obligations of the Company and will pay 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, 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
affirmative and negative covenants that are similar to the covenants required under the Amended Credit Agreement, as
discussed below. At December 31, 2015, the Company was in compliance with all covenants under the Note Purchase
Agreement.
During the second quarter of 2014, the 3.375% Convertible Notes (the “3.375% Notes”) were eligible for conversion
due to meeting their conversion price eligibility requirement. On June 16, 2014, $0.2 million of the 3.375% Notes (par value)
were surrendered for conversion. On June 24, 2014, the Company exercised its right to redeem the remaining $55.4 million
principal amount of the 3.375% Notes, effective July 31, 2014. The Company elected to pay cash to holders of the 3.375%
Notes surrendered for conversion, including the value of any residual shares of common stock that might be payable to the
holders electing to convert their 3.375% Notes into an equivalent share value. Under the terms of the indenture, the
conversion value was measured based upon a 20-day valuation period of the Company’s stock price. The Company used
borrowings under its Amended Credit Facility to finance the redemption and conversion of the 3.375% Notes. The remaining
3.375% Notes were rendered for conversion during the third quarter of 2014 and the Company paid $70.5 million in cash to
the holders, which included a premium of $14.9 million.
In September 2013, the Company entered into a second amendment to its fifth amended and restated revolving credit
agreement (the “Amended Credit Agreement”) and retained Bank of America, N.A. as the administrative agent for the lenders.
The $750.0 million Amended Credit Agreement matures in September 2018 with an option to extend the maturity date for an
additional year, subject to certain conditions. The Amended Credit Agreement adds a new foreign subsidiary borrower in
Germany, Barnes Group Acquisition GmbH, and includes an accordion feature to increase the borrowing availability of the
Company to $1,000.0 million. 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 continuing. The borrowing availability of $750.0 million, pursuant to the terms
of the Amended Credit Agreement, allows for Euro-denominated borrowings equivalent to $500.0 million. Borrowings
26
under the Amended Credit Agreement bear interest at LIBOR plus a spread ranging from 1.10% to 1.70% depending on the
Company’s leverage ratio at prior quarter end.
The Company’s borrowing capacity may be 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 in the Agreements, to Consolidated EBITDA, as defined, of not more than 3.25 times at the end of each fiscal
quarter (“Senior Debt Ratio”), a ratio of Consolidated Total Debt, as defined, to Consolidated EBITDA of not more than 4.00
times at the end of each fiscal quarter, 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. The Agreements also provide that in connection with certain
permitted acquisitions with aggregate consideration in excess of $150.0 million, the Consolidated Senior Debt to EBITDA ratio
and the Consolidated Total Debt to EBITDA ratio are permitted to increase to 3.50 times and 4.25 times, respectively, for a
period of the four fiscal quarters ending after the closing of the acquisition. At December 31, 2015, 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, 2015. The actual ratio at December 31, 2015 was 1.85 times.
In 2015, 2014 and 2013, the Company acquired 1.4 million shares, 0.2 million shares and 2.4 million shares of the
Company’s common stock, respectively, at a cost of $52.1 million, $8.4 million and $68.6 million, respectively.
In August 2015, the Company completed the acquisition of Thermoplay, a permitted transaction pursuant to the terms of
the Amended Credit Agreement. The Company acquired all of the capital stock of HPE for an aggregate purchase price of
€58.1 million ($63.7 million), consisting of €56.7 million ($62.2 million) in cash, which was paid using cash on hand of
€28.7 million ($31.5 million) and borrowings of €28.0 million ($30.7 million) under the Company’s revolving credit facility,
and a €1.4 million ($1.5 million) estimated liability to the seller. At December 31, 2015, the Company had repaid all
€28.0 million of the borrowings under the revolving credit facility.
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 Amended
Credit Facility and currently expects that its bank syndicate, comprised of 17 banks, will continue to support its Amended Credit
Agreement which matures in September 2018. At December 31, 2015, the Company had $370.3 million unused and available
for borrowings under its $750.0 million Amended Credit Facility, subject to covenants in the Company’s debt agreements. At
December 31, 2015, additional borrowings of $595.0 million of Total Debt and $387.8 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.
The Company had $22.5 million in borrowings under short-term bank credit lines at December 31, 2015.
In 2012, the Company entered into five-year interest rate swap agreements transacted with three banks which together
convert the interest on the first $100.0 million of borrowings under the Company’s 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. At December 31, 2015, the Company’s total borrowings were comprised of approximately 41% fixed
rate debt and 59% variable rate debt compared to 40% fixed rate debt and 60% variable rate debt as of December 31, 2014.
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 unfunded
status of the pension plans increased from $60.7 million at December 31, 2014 to $65.7 million at December 31, 2015 as the
reduction in the fair value of the pension plan assets exceeded the decrease in the projected benefit obligations (“PBOs”),
following an update of certain actuarial assumptions. The Company recorded a $9.6 million non-cash after-tax increase in
stockholders’ equity (through other non-owner changes to equity) during 2015 that included the amortization of actuarial
losses, including the accelerated amortization of actuarial losses related to the pre-tax $9.9 million lump sum pension
settlement (described below), changes in actuarial assumptions and current year adjustments for changes in the funded status
of its pension and postretirement benefit plans as required under the applicable accounting standards for defined benefit
pension and other postretirement plans. In 2015, the Company made $4.5 million in contributions to its various defined
benefit pension plans. The Company expects to contribute approximately $19.4 million to its various defined benefit pension
plans in 2016, including $15.0 million of discretionary contributions to the U.S. Qualified pension plans. See Note 12 of the
Consolidated Financial Statements.
27
In September 2015, the Company announced 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
(the “payout”) that, if accepted, would settle the Company’s pension obligation to them. The Program provides the eligible
participants with a limited time opportunity of electing to receive a lump-sum settlement of their remaining pension benefit,
or reduced annuity. The eligible participants notified the Company by November 20, 2015, the required deadline, to confirm
whether they would opt for a lump-sum payout or reduced annuity. The scheduled payments of $28.0 million were made in
December 2015. The payouts were funded by the assets of the Company’s pension plan and therefore the Program did not
require significant cash outflows by the Company. The resultant pre-tax settlement charge of $9.9 million reflects the
accelerated amortization of actuarial losses and was recorded within costs of sales and selling and administrative expenses
within the Consolidated Statements of Income.
At December 31, 2015, the Company held $83.9 million in cash and cash equivalents, the majority of which was held by
foreign subsidiaries. These amounts have no material regulatory or contractual restrictions and are expected to primarily fund
international investments. The Company repatriated $19.5 million of current year foreign earnings to the U.S. during 2015.
Any future acquisitions are expected to be financed through internal cash, borrowings and equity, or a combination
thereof. Additionally, we may from time to time seek to retire or repurchase our outstanding debt through cash purchases
and/or exchanges for equity securities, in open market purchases, under a Rule 10b5-1 trading plan, privately negotiated
transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity
requirements, contractual restrictions and other factors.
Cash Flow
($ in millions)
Operating activities
Investing activities
Financing activities
Exchange rate effect
Increase (decrease) in cash
NM – Not meaningful
2015
2014
$ Change % Change
2013
$ 209.9
(115.5)
(51.6)
(4.9)
$ 186.9
(124.2)
(83.5)
(3.9)
$23.0
8.8
32.0
(1.0)
12.3% $ 10.1
7.0%
157.4
38.2% (182.8)
(0.2)
(25.5)%
$ 37.9
$ (24.8)
$62.7
NM $ (15.5)
Operating activities provided $209.9 million in 2015 compared to $186.9 million in 2014. Operating cash flows in the
2015 period were positively impacted by improved operating performance and the absence of the use of cash for working
capital seen in the 2014 period, which was driven by sales growth that resulted in an increase in receivables in 2014. The
improvements in the 2015 period were partially offset by a reduction in accrued liabilities related primarily to employee
incentive compensation.
Investing activities used $115.5 million in cash in 2015 and $124.2 million in 2014. Investing activities in 2015 include
a cash outflow of $52.0 million required to fund the Thermoplay and Priamus acquisitions and capital expenditures of $46.0
million, compared to $57.4 million in 2014. Investing activities in 2015 and 2014 also include cash outflows of $21.0 million
and $70.1 million, respectively, related to the Component Repair Programs (“CRPs”). See Note 6 of the Consolidated
Financial Statements. The Company expects capital spending in 2016 to approximate $50 million. Capital expenditures relate
to both maintenance needs and support of growth initiatives, which include the purchase of equipment and facilities to
support new products and services, and will be funded primarily through cash flows from operations.
Cash used by financing activities in 2015 included a net increase in borrowings of $2.7 million compared to a net decrease
of $32.0 million in 2014. Financing activities in the 2014 period include the redemption of the convertible debt which is
reflected within payments on long-term debt ($55.6 million par value) and premium paid on convertible debt redemption ($14.9
million) which were financed through borrowings under the Amended Credit Facility. Financing activities in the 2014 period
also include the payment of an assumed liability to the seller in connection with the acquisition of the Männer Business.
Proceeds from the issuance of common stock remained flat at $11.4 million and $11.5 million in 2015 and 2014, respectively.
Stock repurchases of 1.4 million shares during the 2015 period cost $52.1 million whereas 0.2 million shares were purchased in
2014 at a cost of $8.4 million. Total cash used to pay dividends increased to $26.2 million in 2015 compared to $24.5 million in
2014, primarily due to a dividend rate increase. Cash used by financing activities in the 2015 and 2014 periods was partially
offset by $2.7 million and $4.9 million, respectively, in excess tax benefits recorded for current year tax deductions related to
28
employee stock plan activity. Other financing cash flows during 2015 include $10.3 million of net cash proceeds from the
settlement of foreign currency hedges related to intercompany financings.
Debt Covenants
Borrowing capacity is limited by various debt covenants in the Company’s debt agreements. As of December 31, 2015,
the most restrictive financial covenant is included within the Amended Credit Agreement and the Note Purchase Agreement
and requires the Company to maintain a maximum ratio of Consolidated Senior Debt, as defined, to Consolidated EBITDA,
as defined, of not more than 3.25 times for the four fiscal quarters then ending. The Agreements also contain other financial
covenants that require the maintenance of a certain other debt ratio, Consolidated Total Debt, as defined, to Consolidated
EBITDA of not more than 4.00 times and a certain interest coverage ratio, Consolidated EBITDA to Consolidated Cash
Interest Expense, as defined, of at least 4.25 times, at December 31, 2015. The Agreements also provide that in connection
with certain permitted acquisitions with aggregate consideration in excess of $150.0 million, the Consolidated Senior Debt to
EBITDA ratio and the Consolidated Total Debt to EBITDA ratio are permitted to increase to 3.50 times and 4.25 times,
respectively, for a period of the four fiscal quarters ending after the closing of the acquisition. Following is a reconciliation of
Consolidated EBITDA to the Company’s net income (in millions):
Net income
Add back:
Interest expense
Income taxes
Depreciation and amortization
Adjustment for non-cash stock based compensation
Adjustment for acquired businesses
Workforce reduction and restructuring charges
Pension lump-sum settlement charge
Other adjustments
Consolidated EBITDA, as defined
Consolidated Senior Debt, as defined, as of December 31, 2015
Ratio of Consolidated Senior Debt to Consolidated EBITDA
Maximum
Consolidated Total Debt, as defined, as of December 31, 2015
Ratio of Consolidated Total Debt to Consolidated EBITDA
Maximum
Consolidated Cash Interest Expense, as defined, as of December 31, 2015
Ratio of Consolidated EBITDA to Consolidated Cash Interest Expense
Minimum
2015
$121.4
10.7
36.6
78.2
9.1
4.6
4.5
9.9
1.3
$276.2
$509.9
1.85
3.25
$509.9
1.85
4.00
$ 11.4
24.31
4.25
The Amended Credit Agreement allows for certain adjustments within the calculation of the financial covenants. The
adjustment for acquired businesses reflects the unaudited pre-acquisition operations of Thermoplay and Priamus for the
periods from January 1, 2015 through August 6, 2015 and from January 1, 2015 through September 30, 2015, respectively.
The workforce reduction and restructuring charges include charges recorded during 2015 related to workforce reductions and
the closure of the Saline facility. The pension lump-sum settlement charge represents the accelerated amortization of
actuarial pension losses. See Note 12 of the Consolidated Financial Statements. Other adjustments consist of net gains on the
sale of assets, the amortization of the Thermoplay acquisition inventory step-up and due diligence and transaction expenses
as permitted under the Amended Credit Agreement. The Company’s financial covenants are measured as of the end of each
fiscal quarter. At December 31, 2015, additional borrowings of $595.0 million of Total Debt and $387.8 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, 2015 were $370.3 million.
29
Contractual Obligations and Commitments
At December 31, 2015, the Company had the following contractual obligations and commitments:
($ in millions)
Long-term debt obligations (1)
Estimated interest payments under long-term obligations (2)
Operating lease obligations
Purchase obligations (3)
Expected pension contributions (4)
Expected benefit payments – other postretirement benefit plans (5)
Total
Less than
1 Year
1-3
Years
3-5
Years
More than
5 Years
$509.9 $ 24.2 $382.1 $ 1.2
8.2
18.3
4.5
7.9
6.3
2.5
— —
7.2
7.5
51.9
29.5
122.6
19.4
33.3
10.0
7.6
113.3
19.4
4.5
$102.4
15.3
9.5
0.6
—
14.2
Total
$766.7 $179.0 $422.0 $23.6
$142.0
(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, 2015.
(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) The amounts reflect anticipated future benefit payments under the Company’s various other postretirement benefit plans based on current actuarial
assumptions. Expected benefit payments do not extend beyond 2025. See Note 12 of the Consolidated Financial Statements.
The above table does not reflect unrecognized tax benefits as the timing of the potential payments of these amounts cannot be determined. See Note 14
of the Consolidated Financial Statements.
OTHER MATTERS
Inflation
Inflation generally affects the Company through its costs of labor, equipment and raw materials. Increases in the costs of
these items have historically been offset by price increases, commodity price escalator provisions, operating improvements,
and other cost-saving initiatives.
Critical Accounting Policies
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 market.
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 under contract or purchase order. The Company
carries a certain amount of inventory which includes certain parts related to specific engines within the Aftermarket MRO
business. 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. Accelerating the disposal process or incorrect estimates
of future sales potential may necessitate future adjustments to these provisions.
Business Acquisitions, Indefinite-Lived Intangible Assets and Goodwill: Assets and liabilities acquired in a business
combination are recorded at their estimated fair values at the acquisition date. At December 31, 2015, the Company had $588.0
million and $38.4 million of goodwill and indefinite-lived intangible assets, respectively. Goodwill represents the cost of
acquisitions in excess of fair values assigned to the underlying net assets of acquired companies. Goodwill and 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 have been reduced below its carrying value. Management
30
completes its annual impairment assessments for goodwill and indefinite-lived intangible assets during the second quarter of
each year. The Company uses the option to first assess qualitative factors to determine whether it is necessary to perform the
two-step quantitative impairment tests in accordance with 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 unit performance and events directly
affecting a unit. If the Company determines that the two-step 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 and growth and the weighted average cost of
capital. Based on the second quarter 2015 assessment, the estimated fair value of all reporting units significantly exceeded
their carrying values. There was no goodwill impairment at any reporting units through June 30, 2015. 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 2015 included 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. While management expects future operating
improvements at certain reporting units to result from improving end-market conditions, new product introductions and
further market penetration, there can be no assurance that such expectations will be met or that the fair value of the reporting
units will continue to exceed their carrying values. If the fair values were to fall below the carrying values, a non-cash
impairment charge to income from operations could result. Management also performed its annual impairment testing of its
trade names, indefinite-lived intangible assets, during the second quarter of 2015. Based on this assessment, there was no
trade name impairment recognized.
Aerospace Aftermarket Programs: The Company participates in aftermarket RSPs under which the Company
receives an exclusive right to 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 intangible assets. The carrying value of these
intangible assets was $209.1 million at December 31, 2015. 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”) with General Electric (“GE”) during the fourth quarter
of 2013 (“CRP 1”), the second quarter of 2014 (“CRP 2”) and the fourth quarter of 2015 (“CRP 3”). 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 as one of a few GE licensed suppliers. In addition, the CRPs extend certain existing contracts under
which the Company currently provides these services directly to GE. The Company agreed to pay $26.6 million, $80.0 million
and $5.2 million as consideration for the rights related CRP1, CRP 2 and CRP 3, respectively. The Company recorded the CRP
payments as an intangible asset which is recognized as a reduction of sales over the remaining useful life of these engine
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 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 capture additional market
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. See
Note 6 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 12 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.
31
The following table provides a breakout of the current targeted mix of investments, by asset classification, along with
the historical rates of return for each asset class and the long-term projected rates of return for the U.S. plans.
Asset class
U.S. large cap growth equity
U.S. large cap value equity
U.S. mid cap equity
U.S. small cap – growth equity
U.S. small cap – value equity
Global equity
International Developed market equity
Emerging market equity
Fixed income – long government credit
Fixed income – long credit
Cash
Weighted average
Annual Return %
Target
Asset
Mix %
Historical (1)
Long-
Term
Projection
6
5
4
2
2
13
20
13
15
15
5
9.9
10.5
11.9
8.4
11.0
7.5
5.3
10.3
8.4
8.2
3.5
8.6
8.2
8.2
8.5
9.1
9.1
9.3
9.7
12.4
5.6
5.9
3.0
8.25
(1) Historical returns based on the life of the respective index, or approximately 30 years.
The historical rates of return for the Company’s defined benefit plans were calculated based upon compounded average
rates of return of published indices. In 2014, the Company approved a change in the targeted mix of assets. The revised target
mix reflects a 65% equity investment target and a 35% target for fixed income and cash investments (in aggregate). This
represents a strategic investment shift from a 75% equity investment target and 25% target for fixed income and cash
investments (in aggregate). Within the equity investment of 65%, the Company shifted more heavily from U.S. equity
investment targets to global equity investment targets. Based on the historical and projected rates of return of the revised
target asset mix, management selected a long-term expected rate of return on its U.S. pension assets of 8.25%. The long-term
rates of return for non-U.S. plans were selected based on actual historical rates of return of published indices that were used
to measure the plans’ target asset allocations. Historical rates were then discounted to consider fluctuations in the historical
rates as well as potential changes in the investment environment.
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, 2015, the Company selected a discount rate of 4.65% based on a bond matching model
for its U.S. pension plans. Market interest rates have increased in 2015 as compared with 2014 and, as a result, the discount
rate used to measure pension liabilities increased from 4.25% at December 31, 2014. 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, 2015 would impact the Company’s 2016 pre-tax income by approximately $1.0 million. A one-quarter
percentage point decrease in the discount rate on the Company’s U.S. pension plans as of December 31, 2015 would decrease
the Company’s 2016 pre-tax income by approximately $1.1 million. The Company reviews these and other assumptions at
least annually.
The Company recorded a $9.6 million non-cash after-tax increase in stockholders equity (through other non-owner
changes to equity) to record 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 the amortization of actuarial losses, including the accelerated amortization of actuarial losses
related to the lump sum pension settlement and changes in actuarial assumptions, combined with unfavorable variances
between expected and actual returns on pension plan assets. During 2015, the fair value of the Company’s pension plan
assets decreased by $57.3 million and the projected benefit obligation decreased $52.3 million. The change in the projected
benefit obligation included a $18.9 million (pre-tax) decrease due to actuarial gains resulting primarily from a change in the
discount rates used to measure pension liabilities and $56.7 million in benefits paid, partially offset by annual interest cost of
$20.0 million. Benefit payments of $28.0 million were made under the Program (as discussed above), driving the increase in
payments from $27.4 million in 2014 to $56.7 million in 2015. Changes to other actuarial assumptions in 2015 did not have a
material impact on our stockholders equity or projected benefit obligation. Actual pre-tax losses on total pension plan assets
were $3.8 million compared with an expected pre-tax return on pension assets of $32.4 million. Pension expense for 2016 is
32
expected to decrease from $18.4 million in 2015, of which $9.9 million relates to settlements, to $4.9 million in 2016, due in
part to higher discount rates.
Income Taxes: As of December 31, 2015, the Company had recognized $26.0 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
the jurisdictions where deferred tax assets reside. For those jurisdictions where the expiration date of tax loss carryforwards
or the proposed operating results indicate that realization is not likely, a valuation allowance is provided. Management
believes that sufficient taxable income should be earned in the future to realize deferred income tax assets, net of valuation
allowances 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 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 has been recognized in the financial statements. See Note 14 of
the Consolidated Financial Statements.
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 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 value of market based performance
share awards are estimated using the Monte Carlo valuation method. See Note 13 of the Consolidated Financial Statements.
Recent Accounting Changes
In May 2014, the Financial Accounting Standards Board (“FASB”) amended its guidance related to revenue
recognition. The amended guidance establishes a single comprehensive model for companies to use in accounting for
revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance,
including industry-specific guidance. The amended guidance clarifies that an entity recognizes revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which 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 price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies 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.
Early adoption is not permitted. On July 9, 2015, the FASB approved a deferral of the effective date by one year to
December 15, 2017 for annual reporting periods beginning after that date. The FASB also proposed permitting early adoption
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 is evaluating this guidance and has
not determined the impact that it may have on its financial statements nor decided upon the method of adoption.
In April 2015, the FASB amended its guidance related to the presentation of debt issuance costs. The amended guidance
specifies that debt issuance costs related to notes shall be reported in the balance sheet as a direct deduction from the face
amount of that note and that amortization of debt issuance costs shall be reported as interest expense. The amended guidance
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and should be
applied retrospectively. The Company has evaluated the guidance and believes it will not have a material impact on its
Consolidated Financial Statements.
In July 2015, the FASB amended its guidance related to the measurement of inventory. The amended guidance requires
inventory to be measured at the lower of cost or net realizable value and thereby simplifies the current guidance of measuring
inventory at the lower of cost or market. The amended guidance is effective prospectively for fiscal years, and interim periods
33
within those fiscal years, beginning after December 15, 2016. The Company is currently evaluating the guidance and does
not anticipate a material impact on its Consolidated Financial Statements.
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 Company plans to classify its non-current
deferred income tax assets and liabilities to current deferred income tax assets and liabilities on the Consolidated Statement
Balance Sheets at the date of adoption.
EBITDA
Earnings before interest expense, income taxes, and depreciation and amortization (“EBITDA”) for 2015 was $246.9
million compared to $257.4 million in 2014. 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):
Net income
Add back:
Interest expense
Income taxes
Depreciation and amortization
EBITDA
2015
2014
$121.4
$118.4
10.7
36.6
78.2
11.4
46.3
81.4
$246.9
$257.4
34
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. In April 2012, the Company entered
into five-year interest rate swap agreements transacted with three banks which together convert 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.
At December 31, 2015, the result of a hypothetical 100 basis point increase in the average cost of the Company’s variable-
rate debt would have reduced annual pretax profit by $2.9 million.
At December 31, 2015, the fair value of the Company’s fixed-rate debt was $110.4 million, compared with its carrying
amount of $107.5 million. The Company estimates that a 100 basis point decrease in market interest rates at December 31,
2015 would have increased the fair value of the Company’s fixed rate debt to $118.1 million.
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, 2015 would have resulted in a $2.4 million loss in the fair
value of those financial instruments. At December 31, 2015, the Company held $83.9 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. At
December 31, 2015, the Company did not hedge its foreign currency net investment 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. In historically weaker currency countries, such as Brazil and Mexico,
management assesses the strength of these currencies 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.
35
Item 8. Financial Statements and Supplementary Data
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Net sales
Cost of sales
Selling and administrative expenses
Operating income
Interest expense
Other (income) expense, net
Income from continuing operations before income taxes
Income taxes
Income from continuing operations
(Loss) income from discontinued operations, net of income taxes of $0, $315
and $120,750, respectively (Note 3)
Net income
Per common share:
Basic:
Income from continuing operations
(Loss) income from discontinued operations, net of income taxes
Net income
Diluted:
Income from continuing operations
(Loss) income from discontinued operations, net of income taxes
Net income
Dividends
Weighted average common shares outstanding:
Basic
Diluted
See accompanying notes.
Years Ended December 31,
2015
2014
2013
$ 1,193,975
782,817
242,762
$ 1,262,006
829,648
252,384
$ 1,091,566
738,170
230,195
1,025,579
1,082,032
168,396
10,698
(248)
157,946
36,566
121,380
179,974
11,392
2,082
166,500
45,959
120,541
968,365
123,201
13,090
2,537
107,574
35,253
72,321
—
(2,171)
198,206
$
121,380
$
118,370
$
270,527
$
$
$
$
$
2.21
—
2.21
2.19
—
2.19
0.48
$
$
$
$
$
2.20
(0.04)
2.16
2.16
(0.04)
2.12
0.45
$
$
$
$
$
1.34
3.68
5.02
1.31
3.61
4.92
0.42
55,028,063
55,513,219
54,791,030
55,723,267
53,860,308
54,973,344
36
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Years Ended December 31,
2014
2015
2013
Net income
Other comprehensive (loss) income, net of tax
Unrealized gain (loss) on hedging activities, net of tax (1)
Foreign currency translation adjustments, net of tax (2)
Defined benefit pension and other postretirement benefits, net
of tax (3)
Total other comprehensive (loss) income, net of tax
Total comprehensive income (loss)
$121,380
$ 118,370
$270,527
847
(54,232)
(213)
(83,168)
(87)
19,615
9,586
(42,016)
(43,799)
(125,397)
73,168
92,696
$ 77,581
$
(7,027) $363,223
(1) Net of tax of $227, $(45) and $272 for the years ended December 31, 2015, 2014 and 2013, respectively.
(2) Net of tax of $(1,777), $(3,292) and $439 for the years ended December 31, 2015, 2014 and 2013, respectively.
(3) Net of tax of $3,916, $(24,799) and $43,109 for the years ended December 31, 2015, 2014 and 2013, respectively.
See accompanying notes.
37
BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Assets
Current assets
Cash and cash equivalents
Accounts receivable, less allowances (2015 – $4,085; 2014 – $3,873)
Inventories
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Deferred income taxes
Property, plant and equipment, net
Goodwill
Other intangible assets, net
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities
Notes and overdrafts payable
Accounts payable
Accrued liabilities
Long-term debt – current
Total current liabilities
Long-term debt
Accrued retirement benefits
Deferred income taxes
Other liabilities
Commitments and contingencies (Note 21)
Stockholders’ equity
Common stock – par value $0.01 per share
Authorized: 150,000,000 shares
Issued: at par value (2015 – 62,071,144 shares; 2014 – 61,229,980 shares)
Additional paid-in capital
Treasury stock, at cost (2015 – 8,206,683 shares; 2014 – 6,729,438 shares)
Retained earnings
Accumulated other non-owner changes to equity
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes.
December 31,
2015
2014
$
83,926
261,757
208,611
24,825
32,469
611,588
1,139
308,856
587,992
528,322
23,969
$
46,039
275,890
212,044
31,849
22,574
588,396
10,061
299,435
594,949
554,694
26,350
$2,061,866
$2,073,885
$
22,680
97,035
131,320
1,515
252,550
485,711
112,888
62,364
20,600
$
8,028
94,803
161,397
862
265,090
495,844
115,057
70,147
15,954
621
427,558
(226,421)
1,069,247
(143,252)
612
405,525
(169,405)
974,514
(99,453)
1,127,753
1,111,793
$2,061,866
$2,073,885
38
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of convertible debt discount
(Gain) loss on disposition of property, plant and equipment
Stock compensation expense
Withholding taxes paid on stock issuances
Loss (gain) on the sale of businesses
Pension lump-sum settlement charge
Changes in assets and liabilities, net of the effects of acquisitions/divestitures:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable
Accrued liabilities
Deferred income taxes
Long-term retirement benefits
Other
Net cash provided by operating activities
Investing activities:
Proceeds from disposition of property, plant and equipment
(Payments for) proceeds from the sale of businesses
Change in restricted cash
Capital expenditures
Business acquisitions, net of cash acquired
Component Repair Program payments
Other
Net cash (used) provided by investing activities
Financing activities:
Net change in other borrowings
Payments on long-term debt
Proceeds from the issuance of long-term debt
Payment of assumed liability to Otto Männer Holding AG
Premium paid on convertible debt redemption
Proceeds from the issuance of common stock
Common stock repurchases
Dividends paid
Excess tax benefit on stock awards
Other
Net cash used by financing activities
Effect of exchange rate changes on cash flows
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental Disclosure of Cash Flow Information:
Years Ended December 31,
2015
2014
2013
$ 121,380
$ 118,370
$ 270,527
78,242
—
(1,128)
9,258
(4,913)
—
9,856
14,027
(1,190)
(2,645)
(2,936)
(16,833)
3,121
1,081
2,575
81,395
731
143
7,603
(4,367)
1,586
—
(21,367)
(10,092)
(7,137)
8,123
24,402
(9,841)
(7,584)
4,933
209,895
186,898
65,052
2,391
(887)
18,128
(2,090)
(313,708)
—
(23,764)
2,079
(2,172)
2,384
(9,891)
3,412
(642)
(729)
10,090
3,442
—
—
(45,982)
(51,954)
(21,000)
—
849
(1,181)
4,886
(57,365)
—
(70,100)
(1,338)
1,767
538,942
—
(57,304)
(307,264)
(16,639)
(2,058)
(115,494)
(124,249)
157,444
14,680
(171,198)
159,264
—
—
11,425
(52,103)
(26,176)
2,667
9,850
(51,591)
(4,923)
37,887
46,039
7,009
(332,336)
293,291
(19,796)
(14,868)
11,460
(8,389)
(24,464)
4,888
(338)
(83,543)
(3,923)
(24,817)
70,856
(2,753)
(555,195)
450,253
—
—
13,491
(68,608)
(22,422)
3,899
(1,472)
(182,807)
(227)
(15,500)
86,356
$ 83,926
$ 46,039
$ 70,856
Non-cash investing activities in 2015, 2014 and 2013 included the acquisition of $3,200, $19,000 and $10,000,
respectively, of intangible assets, and the recognition of the corresponding liabilities, in connection with the Component
Repair Programs. Non-cash financing activities in 2013 included the issuance of 1,032,493 treasury shares ($36,695) in
connection with the acquisition of the Männer Business.
See accompanying notes.
39
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)
59,202
$592
$332,588
5,000
Treasury
Stock
Retained
Earnings
$ (99,756) $ 633,446
270,527
(22,422)
1,104
60,306
11
603
22,890
34,869
2,351
(1,032)
70
(68,608)
13,805
(2,090)
390,347
6,389
(156,649)
(382)
881,169
118,370
(24,464)
221
(8,389)
(8,666)
23,844
119
(4,367)
(561)
405,525
6,729
(169,405)
924
61,230
9
612
Accumulated
Other
Non-Owner
Changes to
Equity
Total
Stockholders’
Equity
92,696
$ (66,752) $ 800,118
363,223
(22,422)
(68,608)
36,695
32,408
25,944
(125,397)
1,141,414
(7,027)
(24,464)
(8,389)
(8,666)
18,925
1,111,793
77,581
(26,176)
(52,103)
16,658
(99,453)
(43,799)
974,514
121,380
(26,176)
(471)
January 1, 2013
Comprehensive income
Dividends paid
Common stock repurchases
Männer Acquisition
Employee stock plans
December 31, 2013
Comprehensive income
Dividends paid
Common stock repurchases
Convertible debt
redemption, net of tax
Employee stock plans
December 31, 2014
Comprehensive income
Dividends paid
Common stock repurchases
Employee stock plans
December 31, 2015
62,071
$621
$427,558
$(226,421) $1,069,247
$(143,252) $1,127,753
841
9
22,033
(52,103)
(4,913)
1,353
125
8,207
See accompanying notes.
40
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 20)
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.
In the second quarter of 2013, the Company completed the sale of its Barnes Distribution North America business
(“BDNA”) to MSC Industrial Direct Co., Inc. (“MSC”). The results of these operations are segregated and presented as
discontinued operations in the Consolidated Financial Statements. See Note 3 of the Consolidated Financial Statements.
Revenue recognition: Sales and related cost of sales are recognized when products are shipped or delivered to
customers depending upon when title and risk of loss have passed. Service revenue is recognized when the related services
are 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. Management fees related to the aerospace 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.
Operating expenses: The Company includes manufacturing labor, material, manufacturing overhead and costs of its
distribution network within cost of sales. Other costs, including selling personnel costs and commissions, and other general
and administrative costs of the Company are included within selling and administrative expenses. Depreciation and
amortization expense is allocated between cost of sales and selling and administrative expenses.
Cash and cash equivalents: Cash in excess of operating requirements is 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.
Inventories: Inventories are valued at the lower of cost, determined on a first-in, first-out basis, or market. 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 under contract or purchase order.
Property, plant and equipment: Property, plant and equipment is stated at cost. Depreciation is recorded over
estimated useful lives, ranging from 20 to 50 years for buildings, three to five years for computer equipment, four to 12 years
for machinery and equipment and 12 to 17 years for furnaces and boilers. 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.
Goodwill: Goodwill represents the excess purchase cost 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.
Based on the assessments performed during 2015, there was no goodwill impairment.
Aerospace Aftermarket Programs: The Company participates in aftermarket RSPs under which the Company receives
an exclusive right to 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
41
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
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 extend certain existing contracts under which the Company currently
provides these services directly to GE. The Company has recorded the consideration for these rights as an intangible asset
that will be amortized as a reduction to sales over the remaining life of these engine programs. This method reflects the
pattern in which the economic benefits of the RSPs and the CRPs are realized.
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 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 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 capture additional market
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.
Other Intangible Assets: Other intangible assets consist primarily of the Aerospace Aftermarket Programs, as
discussed above, customer relationships, tradenames, patents and proprietary technology. These intangible assets, with the
exception of 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,
intangible assets 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 a reporting unit has been reduced below its carrying value. Based on the assessment performed during 2015,
there were no impairments of other intangible assets. See Note 6 of the Consolidated Financial Statements.
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.
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. A net foreign currency transaction gain of $505
in 2015, a loss of $1,466 in 2014 and a gain of $945 in 2013 were included in other (income) expense, 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 and services were $12,688, $15,782 and $14,707, for the years 2015, 2014 and 2013,
respectively, and are included in selling, general and administrative expense.
42
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2. Acquisitions
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.
In October 2013, the Company completed the acquisition of the Männer Business, a German company based in
Bahlingen, Germany. The Männer Business is a leader in the development and manufacture of high precision molds, valve
gate hot runner systems, and system solutions for the medical/pharmaceutical, packaging, and personal care/health care
industries. The Männer Business, which has been integrated into the Industrial segment, includes manufacturing locations in
Germany, Switzerland and the United States, and sales and service offices in Europe, the United States, Hong Kong/China
and Japan. The Company acquired all the shares of capital stock of the Männer Business for an aggregate purchase price of
€280,742 ($380,673) which was paid through a combination of €253,242 in cash ($343,978) and 1,032,493 shares of the
Company’s common stock (valued at €27,500 pursuant to the Share Purchase Agreement and $36,695 based upon market
value at close). The purchase price includes certain adjustments under the terms of the Share Purchase Agreement, including
approximately €27,030 related to cash acquired ($36,714).
The Company incurred $3,642 of acquisition-related costs during the year ended December 31, 2013 related to the
acquisition of the Männer business. These costs include due diligence costs and transaction costs to complete the acquisition,
and have been recognized in the Company’s Consolidated Statements of Income as selling and administrative expenses.
The operating results of the Männer Business have been included in the Consolidated Statements of Income for the
period ended December 31, 2013, since the October 31, 2013 date of acquisition. The Company reported $18,894 in net sales
and an operating loss of $2,817 from the Männer Business, included within the Industrial segment’s operating profit,
inclusive of $7,279 of short-term purchase accounting adjustments and transaction costs, for the year ended December 31,
2013.
The following table reflects the unaudited pro forma operating results of the Company for the year ended December 31,
2013, which give effect to the acquisition of the Männer Business as if it had occurred on January 1, 2012. 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 on
January 1, 2012, 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 the acquired business 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 pro forma information does not include the effects of any synergies
or cost reduction initiatives related to the acquisition.
Net sales
Income from continuing operations
Net income
Per common share:
Basic:
Income from continuing operations
Net income
Diluted:
Income from continuing operations
Net income
(Unaudited Pro Forma)
2013
$1,191,109
92,343
$ 290,549
$
$
$
$
1.69
5.31
1.65
5.20
For the Männer Business, pro forma earnings during the year ended December 31, 2013 were adjusted to exclude non-
recurring items including acquisition-related costs and expenses related to fair value adjustments to inventory and acquired
backlog.
43
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, which has approximately 40 employees, 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 is being integrated into our
Industrial segment. The Company acquired Priamus for an aggregate cash purchase price of CHF 9,831 ($10,062) 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, and is
subject to post closing adjustments under the terms of the Share Purchase Agreement.
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 is being 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 €58,066 ($63,690), pursuant to the
terms of the Sale and Purchase Agreement (“SPA”). The Company paid €56,700 ($62,191) in cash, using cash on hand and
borrowings under the Company’s revolving credit facility and recorded a liability of €1,366 ($1,499) related to the estimated
post closing adjustments. The purchase price includes adjustments under the terms of the SPA, including €17,054 ($18,706)
related to cash acquired.
The Company incurred $2,195 and $574 of acquisition-related costs during the year ended December 31, 2015 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 Statements of Income as selling and
administrative expenses. Pro forma operating results for the 2015 acquisitions are not presented since the results would not
be significantly different than historical results.
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 August 7, 2015 and the October 1, 2015 dates of acquisition, respectively. The
Company reported $13,593 and $2,028 in net sales for Thermoplay and Priamus, respectively, for the year ended
December 31, 2015.
3. Discontinued Operations
In April 2013, the Company completed the sale of BDNA to MSC pursuant to the terms of the Asset Purchase
Agreement between the Company and MSC. The total cash consideration received for BDNA was $537,761, net of
transaction costs and closing adjustments paid. The net after-tax proceeds were $419,136 after consideration of certain post
closing adjustments, transaction costs and income taxes.
The below amounts relate primarily to the sale of BDNA and were derived from historical financial information. The
amounts have been segregated from continuing operations and reported as discontinued operations within the consolidated
financial statements. In 2014, the Company recorded a net after-tax loss on the sale of businesses of $1,987 resulting
primarily from a 2014 reduction to the proceeds related to the sale of the Barnes Distribution Europe business in 2011
(€1,250). In 2013, the Company recorded a net after-tax gain of $195,317 on the sale of BDNA, net of transaction-related
costs of $9,749, whereas pre-tax income from the discontinued operations at BDNA was $6,345.
44
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Net sales
(Loss) income before income taxes
Income tax (benefit) expense
(Loss) income from operations of discontinued businesses, net of income taxes
(Loss) gain on transaction
Income tax expense on sale
(Loss) gain on the sale of businesses, net of income taxes
(Loss) income from discontinued operations, net of income taxes
4. Inventories
Inventories at December 31 consisted of:
Finished goods
Work-in-process
Raw materials and supplies
5. Property, Plant and Equipment
Property, plant and equipment at December 31 consisted of:
Land
Buildings
Machinery and equipment
Less accumulated depreciation
2014
2013
$
— $ 93,173
(270)
(86)
(184)
(1,586)
401
(1,987)
5,248
2,359
2,889
313,708
118,391
195,317
$ (2,171) $198,206
2015
2014
$ 76,836
77,061
54,714
$ 83,905
79,563
48,576
$208,611
$212,044
2015
2014
$ 19,153
156,294
539,360
$ 19,422
145,142
507,661
714,807
(405,951)
672,225
(372,790)
$ 308,856 $ 299,435
Depreciation expense was $39,654, $41,875 and $34,419 during 2015, 2014 and 2013, respectively.
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:
January 1, 2014
Foreign currency translation
December 31, 2014
Goodwill acquired
Foreign currency translation
December 31, 2015
Industrial
Aerospace
Total
Company
$618,911
(54,748)
$30,786
—
$649,697
(54,748)
564,163
22,798
(29,755)
30,786
—
—
594,949
22,798
(29,755)
$557,206
$30,786
$587,992
Of the $587,992 of goodwill at December 31, 2015, $43,860 represents the original tax deductible basis.
The goodwill acquired at Industrial includes $20,521 related to the purchase of Thermoplay in August 2015 and $2,277
related to the purchase of Priamus in October 2015 (aggregate of $22,798). The amounts allocated to goodwill reflect the
45
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
benefits that the Company expects to realize from geographical expansion, new end-market applications within the plastics
market, future enhancements to technology and assembled workforce. None of the recognized goodwill is expected to be
deductible for income tax purposes. Final purchase price allocations are subject to post-closing adjustments pursuant to the
respective purchase agreements.
Other Intangible Assets: Other intangible assets at December 31 consisted of:
Amortized intangible assets:
Revenue Sharing Programs
Component Repair Program
Customer lists/relationships
Patents and technology
Trademarks/trade names
Other
Unamortized intangible asset:
Trade names
Foreign currency translation
Other intangible assets
2015
2014
Range of
Life-Years
Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
Up to 30
Up to 30
10-16
6-14
10-30
Up to 15
$293,700
111,839
194,566
69,352
11,950
20,551
$ (84,629) $293,700
106,639
183,406
62,972
11,950
19,292
(6,054)
(41,786)
(29,551)
(9,412)
(15,413)
$ (72,958)
(1,941)
(30,731)
(22,356)
(8,552)
(14,806)
701,958
(186,845)
677,959
(151,344)
38,370
(25,161)
—
—
36,900
(8,821)
—
—
$715,167
$(186,845) $706,038
$(151,344)
The Company entered into Component Repair Programs (“CRPs”) with General Electric (“GE”) during the fourth
quarter of 2013 (“CRP 1”), the second quarter of 2014 (“CRP 2”) and the fourth quarter of 2015 (“CRP 3”). 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 as one of a few GE licensed suppliers. In addition, the CRPs extend certain existing
contracts under which the Company currently provides these services directly to GE.
The Company agreed to pay $26,639 as consideration for the rights related to CRP 1. Of this balance, the Company paid
$16,639 in the fourth quarter of 2013 and $9,100 in the fourth quarter of 2014. The remaining payment of $900 has been
included within accrued liabilities in the Consolidated Financial Statements. The Company agreed to pay $80,000 as
consideration for the rights related to CRP 2. The Company paid $41,000 in the second quarter of 2014, $20,000 in the fourth
quarter of 2014 and $19,000 in the second quarter of 2015. The Company agreed to pay $5,200 as consideration for the rights
related to CRP 3. Of this balance, the Company paid $2,000 in the fourth quarter of 2015 and the remaining payment of
$3,200 is due by December 31, 2016 and has been included within accrued liabilities. The Company recorded the CRP
payments as an intangible asset which is recognized as a reduction of sales over the remaining useful life of these engine
programs.
In connection with the acquisition of Thermoplay in August 2015, the Company recorded intangible assets of $14,770,
which includes $9,860 of customer relationships, $3,180 of patents and technology, $1,470 of an indefinite life Thermoplay
trade name and $260 of customer backlog. The weighted-average useful lives of the acquired assets were 13 years, 6 years
and less than one year, respectively.
In connection with the acquisition of Priamus in October 2015, the Company recorded intangible assets of $4,500,
which includes $3,200 of patents and technology and $1,300 of customer relationships. The weighted-average useful lives of
the acquired assets were 6 years and 14 years, respectively.
Amortization of intangible assets for the years ended December 31, 2015, 2014 and 2013 was $38,502, $37,125 and
$27,973, respectively. Estimated amortization of intangible assets for future periods is as follows: 2016 – $35,000; 2017 –
$35,000; 2018 – $36,000; 2019 – $35,000 and 2020 – $32,000.
46
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company has entered into a number of aftermarket RSP agreements each of which is with General Electric. See
Note 1 of the Consolidated Financial Statements for a further discussion of these Revenue Sharing Programs. As of
December 31, 2015, the Company has made all required participation fee payments under the aftermarket RSP agreements.
7. Accrued Liabilities
Accrued liabilities at December 31 consisted of:
Payroll and other compensation
Deferred revenue
CRP Accrual
Pension and other postretirement benefits
Accrued income taxes
Other
8. Debt and Commitments
Long-term debt and notes and overdrafts payable at December 31 consisted of:
2015
2014
$ 27,186
16,453
4,100
8,444
25,682
49,455
$ 41,948
25,344
19,900
8,233
21,755
44,217
$131,320
$161,397
Revolving credit agreement
3.97% Senior Notes
Borrowings under lines of credit and overdrafts
Capital leases
Other foreign bank borrowings
Less current maturities
Long-term debt
2015
2014
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
375,188
102,484
22,680
7,503
410
508,265
379,700
100,000
22,680
7,105
421
509,906
(24,195)
$485,711
394,917
102,859
8,028
3,479
—
509,283
393,518
100,000
8,028
3,188
—
504,734
(8,890)
$495,844
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.
In September 2013, the Company entered into a second amendment to its fifth amended and restated revolving credit
agreement (the “Amended Credit Agreement”) and retained Bank of America, N.A. as the Administrative Agent for the
lenders. The $750,000 Amended Credit Agreement matures in September 2018 with an option to extend the maturity date for
an additional year, subject to certain conditions. The Amended Credit Agreement adds a new foreign subsidiary borrower in
Germany, Barnes Group Acquisition GmbH, and includes an accordion feature to increase the borrowing availability of the
Company to $1,000,000. 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 continuing. The borrowing availability of $750,000, pursuant to the terms of the
Amended Credit Agreement, allows for Euro-denominated borrowings equivalent to $500,000. Borrowings under the
Amended Credit Agreement bear interest at LIBOR plus a spread ranging from 1.10% to 1.70% depending on the
Company’s leverage ratio at prior quarter end. The Company paid fees and expenses of $1,261 in conjunction with executing
the second amendment in 2013. Such fees were deferred and are being amortized into interest expense on the accompanying
Consolidated Statements of Income through September 2018.
Borrowings and availability under the Amended Credit Agreement were $379,700 and $370,300, respectively, at
December 31, 2015 and $393,518 and $356,482, respectively, at December 31, 2014. The average interest rate on these
borrowings was 1.50% and 1.33% on December 31, 2015 and 2014, respectively. Borrowings included Euro-denominated
borrowings of €30,945 ($37,618) at December 31, 2014. There were no Euro-denominated borrowings at December 31,
2015. 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.
47
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
On 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 (BOLI 30C), as purchasers, for
the issuance of $100,000 aggregate principal amount of 3.97% Senior Notes due October 17, 2024 (the “3.97% Senior
Notes”). The Company completed funding of the transaction and issued the 3.97% Notes on October 17, 2014.
The 3.97% Senior Notes are senior unsecured obligations of the Company and will pay 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, 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 fair value of the 3.97% Senior Notes
was determined using the US Treasury yield and a long-term credit spread for similar types of borrowings, that represent
Level 2 observable inputs.
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 contain customary affirmative and negative covenants,
including, among others, limitations on indebtedness, liens, investments, restricted payments, dispositions and business
activities. 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 at the end of each fiscal quarter, provided that such ratio may increase to
3.50 times following the consummation of certain acquisitions. In addition, the Agreements require the Company to maintain
(i) a ratio of Consolidated Total Debt, as defined, to Consolidated EBITDA of not more than 4.00 times at the end of each
fiscal quarter, provided that such ratio may increase to 4.25 times following the consummation of certain acquisitions and
(ii) 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. At December 31, 2015, the Company 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 $56,000 in uncommitted short-term bank credit lines (“Credit Lines”) and
overdraft facilities. Under the Credit Lines, $22,500 was borrowed at December 31, 2015 at an average interest rate of 1.56%
and $7,550 was borrowed at December 31, 2014 at an average interest rate of 1.23%. The Company had also borrowed $180
and $478 under the overdraft facilities at December 31, 2015 and 2014, 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 within the Thermoplay Business that was acquired on August 7, 2015 and the Männer
Business that was acquired on October 31, 2013. 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, 2015, the Company also had other foreign bank borrowings of $421. The fair value of the foreign bank
borrowings was 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 are payable as follows: $24,195 in 2016, $1,551 in 2017, $380,551 in 2018, $732 in
2019, $465 in 2020 and $102,412 thereafter. The 3.97% Notes are due in 2024 according to their maturity date.
In addition, the Company had outstanding letters of credit totaling $8,689 at December 31, 2015.
Interest paid was $10,550, $10,471 and $11,636 in 2015, 2014 and 2013, respectively. Interest capitalized was $422,
$359 and $247 in 2015, 2014 and 2013, respectively, and is being depreciated over the lives of the related fixed assets.
During the second quarter of 2014, the 3.375% Senior Subordinated Convertible Notes (“Notes”) were eligible for
conversion due to meeting the conversion price eligibility requirement and on March 20, 2014, the Company formally notified
the note holders that they were entitled to convert the Notes. On June 16, 2014, $224 (par value) of the Notes were surrendered
for conversion. On June 24, 2014, the Company exercised its right to redeem the remaining $55,412 principal amount of the
Notes, effective July 31, 2014. Of the total $55,412 principal amount, $7 of these Notes were redeemed with accrued interest
48
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
through the redemption date. The remaining $55,405 of these Notes were surrendered for conversion. The Company elected
to pay cash to holders of the Notes surrendered for conversion, including the value of any residual shares of common stock
that were payable to the holders electing to convert their notes into an equivalent share value, resulting in a total cash
payment of $70,497 including a premium on conversion of $14,868 (reducing the equity component by $9,326, net of tax of
$5,542). As a result of this transaction, the Company recaptured $23,565 of previously deducted contingent convertible debt
interest which resulted in an $8,784 reduction in short-term deferred tax liabilities and a corresponding increase in current
taxes payable included within accrued liabilities. The Company used borrowings under its Amended Credit Facility to
finance the conversion of the Notes. The fair value of the Notes was previously determined using quoted market prices that
represent Level 2 observable inputs. As of December 31, 2015 and 2014 there were no balances reflected on the balance
sheet related to the Company’s convertible notes.
The following table sets forth the components of interest expense for the Notes for the years ended December 31, 2014
and 2013. The effective interest rate on the liability component of the Notes was 8.00% (life of the Notes).
Interest expense – 3.375% coupon
Interest expense – 3.375% debt discount amortization
9. Business Reorganization
2014
2013
$1,046
731
$1,878
2,391
$1,777
$4,269
The Company authorized the closure of production operations (“Saline operations”) at its Associated Spring facility
located in Saline, Michigan (the “Closure”) during the first quarter of 2014. The Saline operations, which included
approximately 50 employees, primarily manufactured certain automotive engine valve springs, a highly commoditized
product. Based on changing market dynamics and increased customer demands for commodity pricing, several customers
advised the Company of their intent to transition these specific springs to other suppliers, which led to the decision of the
Closure. The Closure occurred during the second quarter of 2014, however certain other facility Closure costs, including the
transfer of machinery and equipment, continued during the remainder of 2014. The Company recorded restructuring and
related costs of $6,020 during 2014. This included $2,182 of employee termination costs, primarily employee severance
expense and defined benefit pension and other postretirement plan (the “Plans”) costs related to the accelerated recognition
of actuarial losses and special termination benefits, and $3,838 of other facility costs, primarily related to asset write-downs
and depreciation on assets utilized through the Closure. See Note 12 for costs associated with the Plans that were impacted
by the Closure. The Closure was completed as of December 31, 2014. Closure costs were recorded primarily within Cost of
Sales in the accompanying Consolidated Statements of Income and are reflected in the results of the Industrial segment.
10. Derivatives
The Company has manufacturing 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.
Financial instruments have been used by the Company to hedge its exposures to fluctuations in interest rates. In April
2012, the Company entered into five-year interest rate swap agreements transacted with three banks which together convert
the interest on the first $100,000 of the Company’s one-month LIBOR-based borrowings from a variable rate plus the
borrowing spread to a fixed rate of 1.03% plus the borrowing spread. These interest rate swap agreements were accounted for
as cash flow hedges and remained in place at December 31, 2015.
The Company uses financial instruments to hedge its exposures to fluctuations in foreign currency exchange rates. The
Company has various contracts outstanding which primarily hedge recognized assets or liabilities and anticipated
transactions in various currencies including the Euro, British pound sterling, U.S. dollar, Canadian dollar, Japanese yen,
Chinese renminbi, Singapore dollar, Korean won, Swedish kroner 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.
49
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 year ended December 31, 2015, as presented on the
consolidated statements of cash flows, include $10,309 of net cash proceeds from 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.
Derivatives designated as hedging
instruments:
Interest rate contracts
Foreign exchange contracts
Derivatives not designated as
hedging instruments:
Foreign exchange contracts
Total derivatives
2015
2014
Asset
Derivatives
Liability
Derivatives
Asset
Derivatives
Liability
Derivatives
$
$
— $
484
484
(357) $
—
(357)
— $
—
—
(295)
(652)
(947)
215
699
(101)
$
(458) $
460
460
(699)
$
(1,646)
Asset derivatives are recorded in prepaid expenses and other current assets in the accompanying consolidated balance
sheets. Liability derivatives related to interest rate contracts and foreign exchange contracts are recorded in other liabilities
and accrued liabilities, respectively, in the accompanying consolidated balance sheets.
The following table sets forth the gain (loss) recorded in accumulated other comprehensive income (loss), net of tax, for
the years ended December 31, 2015 and 2014 for derivatives held by the Company and designated as hedging instruments.
Cash flow hedges:
Interest rate contracts
Foreign exchange contracts
2015
2014
$
$
(39) $
886
847
$
48
(261)
(213)
Amounts included within accumulated other comprehensive income (loss) that were reclassified to expense during the
year ended December 31, 2015 and 2014 related to the interest rate swaps resulted in a fixed rate of interest of 1.03% plus the
borrowing spread for the first $100,000 of one-month LIBOR borrowings. Additionally, there were no amounts recognized in
income for hedge ineffectiveness during the years ended December 31, 2015 and 2014.
The following table sets forth the net gains (losses) recorded in other (income) expense, net in the consolidated
statements of income for the years ended December 31, 2015 and 2014 for non-designated derivatives held by the Company.
Such gains (losses) were substantially offset by (losses) gains recorded on the underlying hedged asset or liability.
Foreign exchange contracts
11. Fair Value Measurements
2015
2014
$
8,215
$
(810)
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.
50
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Level 3 Unobservable inputs for the asset or liability.
The following table provides the assets and liabilities reported at fair value and measured on a recurring basis as of
December 31, 2015 and 2014:
December 31, 2015
Asset derivatives
Liability derivatives
Bank acceptances
Rabbi trust assets
December 31, 2014
Asset derivatives
Liability derivatives
Bank acceptances
Rabbi trust assets
Fair Value Measurements Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$ —
—
—
2,159
$ 2,159
$ —
—
—
2,092
$ 2,092
$
699
(458)
10,823
—
$ 11,064
$
460
(1,646)
10,785
—
$ 9,599
$ —
—
—
—
$ —
$ —
—
—
—
$ —
Total
$
699
(458)
10,823
2,159
$13,223
$
460
(1,646)
10,785
2,092
$11,691
The derivative contracts are valued using observable current market information as of the reporting date such as the
prevailing LIBOR-based interest rates and foreign currency spot and forward rates. Bank acceptances represent financial
instruments accepted from certain Chinese customers in lieu of cash paid on receivables, generally range from 3 to 6 months
in maturity and are guaranteed by banks. The carrying amounts of the bank acceptances, which are included within 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 12 of the Consolidated Financial Statements.
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 17 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 these plans are based primarily on the performance of the business units and
employee compensation. Contribution expense under these other defined contribution plans was $5,347, $5,213 and $4,780
in 2015, 2014 and 2013, 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 businesses of Industrial, the Company’s Corporate Office and certain former U.S. employees,
including retirees. 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.
51
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.
The accompanying balance sheets reflect the funded status of the Company’s defined benefit pension plans at
December 31, 2015 and 2014, respectively. Reconciliations of the obligations and funded status of the plans follow:
Benefit obligation, January 1
Service cost
Interest cost
Amendments
Actuarial (gain) loss
Benefits paid
Transfers in
Plan curtailments
Plan settlements
Special termination benefit
Participant contributions
Foreign exchange rate changes
Benefit obligation, December 31
Fair value of plan assets, January 1
Actual return on plan assets
Company contributions
Participant contributions
Benefits paid
Plan settlements
Transfers in
Foreign exchange rate changes
2015
2014
U.S.
Non-U.S.
Total
U.S.
Non-U.S.
Total
$433,079
4,160
17,967
—
(16,622)
(52,490)
—
(465)
—
—
—
—
$80,305
1,348
2,052
(463)
(2,288)
(4,244)
3,951
—
(375)
—
368
(5,248)
$513,384
5,508
20,019
(463)
(18,910)
(56,734)
3,951
(465)
(375)
—
368
(5,248)
$374,740
3,549
19,129
—
58,906
(23,960)
—
—
—
715
—
—
$78,982
997
2,897
—
9,728
(3,405)
1,929
—
(4,949)
—
906
(6,780)
$453,722
4,546
22,026
—
68,634
(27,365)
1,929
—
(4,949)
715
906
(6,780)
385,629
75,406
461,035
433,079
80,305
513,384
380,937
(5,045)
3,427
—
(52,490)
—
—
—
71,750
1,264
1,100
368
(4,244)
(376)
3,434
(4,743)
452,687
(3,781)
4,527
368
(56,734)
(376)
3,434
(4,743)
379,059
20,436
5,402
—
(23,960)
—
—
—
74,519
6,349
2,219
906
(3,405)
(4,949)
1,929
(5,818)
453,578
26,785
7,621
906
(27,365)
(4,949)
1,929
(5,818)
Fair value of plan assets, December 31
326,829
68,553
395,382
380,937
71,750
452,687
Funded/(underfunded) status, December 31
$ (58,800) $ (6,853) $ (65,653) $ (52,142) $ (8,555) $ (60,697)
In September 2015, the Company announced 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
(the “payout”) that, if accepted, would settle the Company’s pension obligation to them. The Program provides the eligible
participants with a limited time opportunity of electing to receive a lump-sum settlement of their remaining pension benefit,
or reduced annuity. The eligible participants notified the Company by November 20, 2015, the required deadline, to confirm
whether they would opt for a lump-sum payout or reduced annuity. The scheduled payments of $27,986 were made in
December 2015, and are included within the “Benefits Paid” of $52,490 above. The payouts were funded by the assets of the
Company’s pension plan and therefore the Program did not require significant cash outflows by the Company. The resultant
pre-tax settlement charge of $9,856 represents accelerated amortization of actuarial losses and was reflected within costs of
sales and selling and administrative expenses within the Consolidated Statements of Income.
Projected benefit obligations related to pension plans with benefit obligations in excess of plan assets follow:
Projected benefit obligation
Fair value of plan assets
2015
2014
U.S.
Non-U.S.
Total
U.S.
Non-U.S.
Total
$271,459
204,270
$31,613
20,199
$303,072
224,469
$297,067
234,305
$29,971
17,660
$327,038
251,965
52
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Information related to pension plans with accumulated benefit obligations in excess of plan assets follows:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2015
2014
U.S.
Non-U.S.
Total
U.S.
Non-U.S.
Total
$271,459
262,172
204,270
$30,560
26,998
19,256
$302,019
289,170
223,526
$297,067
286,217
234,305
$23,496
20,446
12,552
$320,563
306,663
246,857
The accumulated benefit obligation for all defined benefit pension plans was $447,591 and $497,453 at December 31,
2015 and 2014, respectively.
Amounts related to pensions recognized in the accompanying balance sheets consist of:
2015
2014
U.S.
Non-U.S.
Total
U.S.
Non-U.S.
Total
Other assets
Accrued liabilities
Accrued retirement benefits
Accumulated other non-owner changes to equity, net
$ 8,389
2,806
64,383
(83,014)
$ 4,561
379
11,035
(16,812)
$ 12,950
3,185
75,418
(99,826)
$ 10,620
2,810
59,952
(86,925)
$ 3,882
376
12,061
(20,689)
$ 14,502
3,186
72,013
(107,614)
Amounts related to pensions recognized in accumulated other non-owner changes to equity, net of tax, at December 31,
2015 and 2014, respectively, consist of:
2015
2014
U.S.
Non-U.S.
Total
U.S.
Non-U.S.
Total
Net actuarial loss
Prior service costs
$(82,643) $(16,999) $(99,642) $(86,399) $(20,406) $(106,805)
(809)
(371)
(283)
(184)
(526)
187
The accompanying balance sheets reflect the underfunded status of the Company’s other postretirement benefit plans at
December 31, 2015 and 2014. Reconciliations of the obligations and underfunded status of the plans follow:
$(83,014) $(16,812) $(99,826) $(86,925) $(20,689) $(107,614)
Benefit obligation, January 1
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Curtailment gain
Participant contributions
Foreign exchange rate changes
Benefit obligation, December 31
Fair value of plan assets, January 1
Company contributions
Participant contributions
Benefits paid
Fair value of plan assets, December 31
Underfunded status, December 31
53
$
2015
2014
$
46,814
145
1,836
(2,521)
(6,970)
—
2,486
(84)
41,706
—
4,484
2,486
(6,970)
—
46,243
139
2,179
3,049
(7,568)
—
2,833
(61)
46,814
—
4,735
2,833
(7,568)
—
$
41,706
$
46,814
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amounts related to other postretirement benefits recognized in the accompanying balance sheets consist of:
Accrued liabilities
Accrued retirement benefits
Accumulated other non-owner changes to equity, net
2015
2014
$
$
5,259
36,447
(5,877)
5,047
41,767
(7,675)
Amounts related to other postretirement benefits recognized in accumulated other non-owner changes to equity, net of
tax, at December 31, 2015 and 2014 consist of:
Net actuarial loss
Prior service credits
2015
2014
$
$
(6,061) $
184
(8,212)
537
(5,877) $
(7,675)
The sources of changes in accumulated other non-owner changes to equity, net, during 2015 were:
Prior service cost
Net (loss) gain
Amortization of prior service costs (credits)
Amortization of actuarial loss
Foreign exchange rate changes
$
Pension
379
(10,493)
213
16,007
1,682
Weighted-average assumptions used to determine benefit obligations at December 31, are:
$
7,788
$
Other
Postretirement
Benefits
$
—
1,557
(354)
627
(32)
1,798
U.S. plans:
Discount rate
Increase in compensation
Non-U.S. plans:
Discount rate
Increase in compensation
2015
2014
4.65%
3.71%
2.80%
2.71%
4.25%
3.73%
2.74%
2.72%
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 2014: 70% in equity securities, 20% in fixed income
securities, 5% in real estate and 5% in other investments, including cash. During the fourth quarter of 2014, the Company
approved a strategic shift that resulted in a change in the targeted mix of assets. The revised target mix reflects the following
investment allocations by asset category: 65% in equity securities, 30% in fixed income securities and 5% in other
investments, including cash.
54
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The fair values of the Company’s pension plan assets at December 31, 2015 and 2014, by asset category are as follows:
Asset Category
December 31, 2015
Cash and short-term investments
Equity securities:
U.S. large-cap
U.S. mid-cap
U.S. small-cap
International equities
Global equity
Fixed income securities:
U.S. bond funds
International bonds
Real estate securities
Other
December 31, 2014
Cash and short-term investments
Equity securities:
U.S. large-cap
U.S. mid-cap
U.S. small-cap
International equities
Fixed income securities:
U.S. bond funds
International bonds
Real estate securities
Other
Fair Value Measurements Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$ 18,795
$ 18,795
$ —
$ —
67,274
38,790
38,248
91,563
17,928
84,645
36,282
—
1,857
28,190
38,790
38,248
—
17,928
—
—
—
—
39,084
—
—
91,563
—
84,645
36,282
—
—
—
—
—
—
—
—
—
—
1,857
$395,382
$141,951
$251,574
$1,857
10,805
10,805
—
137,051
48,614
47,972
71,451
79,810
35,949
18,915
2,120
65,484
48,614
47,972
—
—
—
—
—
71,567
—
—
71,451
79,810
35,949
18,915
—
—
—
—
—
—
—
—
—
2,120
$452,687
$172,875
$277,692
$2,120
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 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
the defined benefit pension plan at the Synventive 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 $19,398 to the pension plans in 2016, including $15,000 of
discretionary contributions to the U.S. Qualified pension plans.
55
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:
2015
2016
2017
2018
2019
Years 2020-2024
Total
$
Pensions
29,147
29,071
28,980
29,290
29,051
145,470
Other
Postretirement
Benefits
$
4,467
3,933
3,540
3,687
3,468
14,242
$
291,009
$
33,337
Pension and other postretirement benefit expenses consist of the following:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost (credit)
Recognized losses
Curtailment loss (gain)
Settlement loss
Special termination benefits
2015
$ 5,508
20,019
(32,404)
305
15,004
—
9,939
—
Pensions
2014
$ 4,546
22,026
(34,232)
648
8,617
219
871
715
Other
Postretirement Benefits
2013
2015
2014
2013
$ 145
$ 6,181
1,836
20,112
(33,144) —
752
16,365
199
637
1,016
(564)
1,011
—
—
—
$ 139
2,179
—
(871)
1,017
4
—
—
$
233
2,061
—
(1,006)
1,004
(3,081)
—
—
Net periodic benefit cost
$ 18,371
$ 3,410
$ 12,118
$2,428
$2,468
$ (789)
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 2016 are $10,218 and $207, 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 2016 are $704 and $(373), respectively.
Weighted-average assumptions used to determine net benefit expense for years ended December 31, are:
U.S. plans:
Discount rate
Long-term rate of return
Increase in compensation
Non-U.S. plans:
Discount rate
Long-term rate of return
Increase in compensation
2015
2014
2013
4.25% 5.20% 4.25%
8.25% 9.00% 9.00%
3.71% 3.72% 3.71%
2.74% 3.93% 3.73%
5.00% 5.07% 5.33%
2.72% 2.76% 2.69%
The expected long-term rate of return is based on projected rates of return and the historical rates of return of published
indices that are used to measure the plans’ target asset allocation. The historical rates are then discounted to consider
fluctuations in the historical rates as well as potential changes in the investment environment.
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
56
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
6.65% and 6.88% at December 31, 2015 and 2014, respectively, decreasing gradually to a rate of 4.50% by December 31,
2029. A one percentage point change in the assumed health care cost trend rate would have the following effects:
Effect on postretirement benefit obligation
Effect on postretirement benefit cost
One Percentage
Point Increase
One Percentage
Point Decrease
$391
17
$(360)
(15)
The Company previously contributed to a multi-employer defined benefit pension plan under the terms of a collective
bargaining agreement. This multi-employer plan provides pension benefits to certain former union-represented employees of
the Edison, New Jersey facility at BDNA. The Company determined that a withdrawal from this multi-employer plan,
following its entry into a definitive agreement to sell BDNA in February 2013, was probable. The Company estimated its
assessment of a withdrawal liability, on a pre-tax discounted basis, and recorded a liability of $2,788 during the first quarter
of 2013. The expense was recorded within discontinued operations. The Company completed the sale of BDNA and ceased
making contributions into the multi-employer plan during the second quarter of 2013. The Company settled the withdrawal
liability in the fourth quarter of 2013, with the agreed-upon settlement payment being made in January 2014.
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:
Pension Fund:
Teamsters Local 641 Pension Fund (Edison, New Jersey)
Swedish Pension Plan (ITP2)
Total Contributions
Contributions
by the
Company
2015
2014
2013
$ — $ — $
343
343
$
379
379
$
$
23
414
437
The Company also contributed to a multi-employer other postretirement benefit plan under the terms of the collective
bargaining agreement at the former Edison, New Jersey facility. This postretirement benefit plan was also settled in 2013 in
conjunction with the defined benefit pension plan. This health and welfare postretirement plan provides medical,
prescription, optical and other benefits to certain former union-represented active employees and retirees. Company
contributions to the postretirement plan were $0, $0 and $40 in 2015, 2014 and 2013, respectively, as contributions ceased in
2013. There have been no significant changes that affect the comparability of 2015, 2014 or 2013 contributions, however
contributions to the postretirement benefit plan ceased during the second quarter of 2013 following the sale of BDNA.
13. Stock-Based Compensation
The Company accounts for the cost of all share-based payments, including stock options, by measuring the payments at
fair value on the grant date and recognizing the cost in the results of operations. 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 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 based performance share awards are estimated using the Monte Carlo valuation method. Estimated forfeiture
rates are applied to outstanding awards. The Company records the cash flows resulting from tax deductions in excess of
compensation for those options and other stock awards, if any, as financing cash flows. The Company has elected the
shortcut method as described in the related accounting literature for determining the available pool of windfall tax benefits
upon adoption. The Company accounts for the utilization of windfall tax benefits using the tax law ordering approach.
Refer to Note 17 for a description of the Company’s stock-based compensation plans and their general terms. As of
December 31, 2015, 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 vest over a period ranging from six months to five years. 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.
57
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In February of 2013, the Board of Directors of the Company approved a Transition and Resignation Agreement (the
“Agreement”) for its former Chief Executive Officer (“Former CEO”) in connection with his resignation from the CEO role
and his assumption of a Vice Chairman role. The Agreement provided that, in exchange for the Former CEO’s delivery of an
effective release of claims, his adherence to certain restrictive covenants, and the successful provision of transition services,
including with regard to certain equity grants, the successful sale of the BDNA business, the Former CEO’s outstanding
equity awards were modified to increase the post-termination exercise period for stock options until the earlier of ten years
from the date of grant or five years from the retirement date and made non-forfeitable all outstanding stock options, restricted
stock unit awards and performance share unit awards that remained unvested on the day of his agreed to resignation date
from the Company. The original vesting dates of the equity awards serve as the delivery dates and the performance metrics
continue to apply to the performance share unit awards. The Company recorded $10,492 of stock compensation expense in
the first quarter of 2013 as a result of the modifications.
During 2015, 2014 and 2013, the Company recognized $9,258, $7,603, and $18,128 respectively, of stock-based
compensation cost and $3,451, $2,834, and $6,757 respectively, of related tax benefits in the accompanying consolidated
statements of income. Stock compensation cost in 2013 includes the $10,492 related to the modification of awards for the
Former CEO. In addition, the Company has recorded $2,667, $4,888 and $3,899 of excess tax benefits for current year tax
deductions in additional paid-in capital in 2015, 2014 and 2013, respectively. The Company has realized all available tax
benefits related to deductions from excess stock awards exercised or issued in earlier periods. At December 31, 2015, the
Company had $12,875 of unrecognized compensation costs related to unvested awards which are expected to be recognized
over a weighted average period of 2.07 years.
The following table summarizes information about the Company’s stock option awards during 2015:
Outstanding, January 1, 2015
Granted
Exercised
Forfeited
Outstanding, December 31, 2015
Number of
Shares
1,013,224
131,852
(491,638)
(9,366)
Weighted-
Average
Exercise
Price
$22.72
36.49
22.42
32.89
644,072
25.63
The following table summarizes information about stock options outstanding at December 31, 2015:
Range of
Exercise
Prices
$11.45 to $20.69
$22.34 to $26.59
$33.45 to $36.31
$37.13 to $38.96
Number
of Shares
241,854
191,116
121,800
89,302
Options Outstanding
Average
Remaining
Life (Years)
4.17
4.72
8.99
8.28
Average
Exercise
Price
$16.41
25.00
36.26
37.43
Options Exercisable
Number
of Shares
241,854
143,153
2,000
26,726
Average
Exercise
Price
$16.41
25.14
33.45
37.26
The Company received cash proceeds from the exercise of stock options of $11,022, $11,024 and $13,034 in 2015, 2014
and 2013, respectively. The total intrinsic value (the amount by which the stock price exceeds the exercise price of the option
on the date of exercise) of the stock options exercised during 2015, 2014 and 2013 was $8,331, $11,178 and $14,022,
respectively.
The weighted-average grant date fair value of stock options granted in 2015, 2014 and 2013 was $8.86, $12.14 and
$8.77, 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:
Risk-free interest rate
Expected life (years)
Expected volatility
Expected dividend yield
58
2015
2014
2013
1.58% 1.68% 0.96%
5.3
5.3
31.1% 42.6% 48.9%
2.06% 2.24% 2.38%
5.3
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 following table summarizes information about stock options outstanding that are expected to vest and stock options
outstanding that are exercisable at December 31, 2015:
Options Outstanding, Expected to Vest
Options Outstanding, Exercisable
Weighted-
Average
Exercise
Price
$25.63
Aggregate
Intrinsic
Value
$6,400
Weighted-
Average
Remaining
Term (Years)
5.81
Weighted-
Average
Exercise Price
Aggregate
Intrinsic Value
Weighted-
Average
Remaining
Term (Years)
$20.86
$6,063
4.61
Shares
413,733
Shares
626,523
The following table summarizes information about the Company’s Rights during 2015:
Outstanding, January 1, 2015
Granted
Forfeited
Additional Earned
Issued
Outstanding, December 31, 2015
Service Based Rights
Service and Performance
Based Rights
Service and Market Based
Rights
Weighted-
Average Grant
Date Fair
Value
$26.76
36.39
30.86
—
27.96
Weighted-
Average Grant
Date Fair
Value
$28.11
36.48
39.64
25.37
25.37
Weighted-
Average Grant
Date Fair
Value
$41.82
54.54
49.48
32.06
32.06
Number
of Units
113,531
30,986
(3,171)
(2,057)
(32,076)
107,213
Number
of Units
227,064
61,973
(6,342)
36,965
(105,234)
214,426
Number
of Units
429,206
186,996
(13,526)
—
(200,970)
401,706
The Company granted 186,996 restricted stock unit awards and 92,959 performance share awards in 2015. All of the
restricted stock unit awards vest upon meeting certain service conditions. “Additional Earned” reflects performance share
awards earned above 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 three equally weighted metrics. Prior to 2015, the metrics included the Company’s
total shareholder return (“TSR”), basic or diluted earnings per share growth and operating income before depreciation and
amortization growth. For awards granted in 2015, return on invested capital (the “ROIC metric”) replaced the earnings per
share metric. The total shareholder return (“TSR”), operating income before depreciation and amortization growth, and basic
or diluted earnings per share 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 year period. The return on invested capital metrics
(the “ROIC metric”), is designed to assess the Company’s performance compared to pre-established goals over a three 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 year service period based upon the value determined under the intrinsic value method for
the basic or diluted earnings per share growth, operating income before depreciation and amortization 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 weighted-average assumptions used to determine the weighted-average fair values of the market based
portion of the 2015 awards include a 1.01% risk-free interest rate and a 24.9% 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 basic or diluted earnings
per share growth or the return on invested capital, and the operating income before depreciation and amortization growth
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.
59
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:
Income from continuing operations before income taxes:
U.S.
International
Income from continuing operations before income taxes
Income tax provision:
Current:
U.S. – federal
U.S. – state
International
Deferred:
U.S. – federal
U.S. – state
International
Income taxes
2015
2014
2013
$ 11,525
146,421
$ 33,070
133,430
$ 10,343
97,231
$157,946
$166,500
$107,574
$
(210) $ 22,673
2,019
1,236
32,217
35,954
34,026
59,863
$
8,356
539
16,933
25,828
7,670
(1,137)
(3,993)
(6,737)
1,279
(8,446)
13,792
(110)
(4,257)
2,540
(13,904)
9,425
$ 36,566
$ 45,959
$ 35,253
Deferred income tax assets and liabilities at December 31 consist of the tax effects of temporary differences related to
the following:
Allowance for doubtful accounts
Depreciation and amortization
Inventory valuation
Other postretirement/postemployment costs
Tax loss carryforwards
Pension
Accrued compensation
Goodwill
Swedish tax incentive
Unrealized foreign currency gain
Other
Valuation allowance
Current deferred income taxes
Non-current deferred income taxes
Assets
Liabilities
2015
2014
2015
2014
$
662
(1,610)
15,911
2,978
13,412
1,663
2,975
—
—
—
4,374
40,365
(14,401)
$
494
(19,338)
17,072
17,549
13,977
21,968
15,418
(13,772)
—
—
4,398
57,766
(15,856)
$
129
78,786
1,843
(12,774)
(1,919)
(22,946)
(7,267)
14,545
4,647
1,350
7,513
$
86
59,271
1,981
(247)
(56)
(1,005)
—
57
4,255
1,999
5,763
63,907
—
72,104
—
$ 25,964
$ 41,910
$ 63,907 $72,104
$ 24,825
1,139
$ 31,849
10,061
$ 1,543
62,364
$ 1,957
70,147
$ 25,964
$ 41,910
$ 63,907 $72,104
Net current deferred tax liabilities are recorded in accrued liabilities on the consolidated Balance Sheet.
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.
60
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. The Company has tax loss carryforwards of $57,560;
$1,756 of which relates to state tax loss carryforwards and $145 which relates to federal loss carryforward acquired in the
Priamus deal and not limited by Section 382; $47,462 of which relates to international tax loss carryforwards with
carryforward periods ranging from one to 15 years; and $8,197 of which relates to international tax loss carryforwards with
unlimited carryforward periods. In addition, the Company has tax credit carryforwards of $242 with remaining carryforward
periods ranging from one year to 5 years. 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 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.
The Company has not recognized a deferred income liability on $959,857 of undistributed earnings of its international
subsidiaries, since such earnings are considered to be reinvested indefinitely 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 be subject, in certain cases, to both U.S. income taxes and foreign income and withholding taxes. Determination of the
amount of this unrecognized deferred income tax liability is not practicable. During 2015, the Company repatriated a
dividend from a portion of current year foreign earnings to the U.S. in the amount of $19,500. As a result of the dividend, tax
expense increased by $6,821 and the 2015 annual consolidated effective income tax rate increased by 4.3 percentage points.
A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate from
continuing operations follows:
2015
2014
2013
U.S. federal statutory income tax rate
State taxes (net of federal benefit)
Foreign losses without tax benefit
U.S. Tax Court Decision
Foreign operations taxed at lower rates
Repatriation from current year foreign earnings
Tax withholding refund
Tax Holiday’s
Other
Consolidated effective income tax rate
35.0% 35.0% 35.0%
0.2
0.5
1.1
1.1
—
—
(12.9)
(9.9)
4.3
2.6
(1.9) —
(3.2)
0.6
0.3
0.8
15.3
(14.4)
1.1
—
(6.2)
0.9
(2.7)
1.0
23.2% 27.6% 32.8%
The Aerospace and Industrial Segments were previously awarded a number of multi-year tax holidays in both Singapore
and China. Tax benefits of $5,000 ($0.09 per diluted share), $4,513 ($0.08 per diluted share) and $6,746 ($0.12 per diluted
share) were realized in 2015, 2014 and 2013, respectively. These holidays are subject to the Company meeting certain
commitments in the respective jurisdictions. The significant tax holidays are due to expire in 2016 and 2017.
Income taxes paid globally, net of refunds, were $31,895, $33,146 and $158,092 in 2015, 2014 and 2013, respectively.
As of December 31, 2015, 2014 and 2013, the total amount of unrecognized tax benefits recorded in the consolidated
balance sheet was $10,634, $8,560 and $8,027, 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
2015, 2014 and 2013 follows:
61
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Balance at January 1
Increase (decrease) in unrecognized tax benefits due to:
Tax positions taken during prior periods
Tax positions taken during the current period
Acquisition
Settlements with taxing authorities
Lapse of the applicable statute of limitations
Balance at December 31
2015
2014
2013
$ 8,560
$8,027
$ 9,321
1,691
533
—
—
598
—
—
—
(215) —
9,944
3,350
556
(15,144)
—
$10,634
$8,560
$ 8,027
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 $616, $0, and $9,614 in the years 2015, 2014,
and 2013 respectively. The liability for unrecognized tax benefits include gross accrued interest and penalties of $1,923,
$1,031 and $1,031 at December 31, 2015, 2014 and 2013, 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 and forward and for the U.S. include tax years 2012 and forward. The Company is under audit in the
U.S. for tax year 2013 as well as several state audits for the period 2011 through 2013. No other matters are ongoing.
15. Common Stock
In 2013, 1,032,493 shares of common stock were issued from treasury and used to fund the acquisition of the Männer
business. There were no shares of common stock issued from treasury in 2015 or 2014.
In 2015, 2014 and 2013, the Company acquired 1,352,596 shares, 220,794 shares and 2,350,697 shares, respectively, of
the Company’s common stock at a cost of $52,103, $8,389 and $68,608, 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 2015, 2014 and 2013, 841,164 shares, 923,852 shares and 1,104,099 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.
16. Preferred Stock
At December 31, 2015 and 2014, the Company had 3,000,000 shares of preferred stock authorized, none of which were
outstanding.
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 $3,666, $3,278 and $2,815 in 2015, 2014 and 2013, respectively. As of
December 31, 2015, the Retirement Savings Plan held 1,566,536 shares of the Company’s common stock.
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 11,246, 12,770 and 14,979 in 2015, 2014
62
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
and 2013, respectively. The Company received cash proceeds from the purchase of these shares of $403, $436 and $457 in
2015, 2014 and 2013, respectively. As of December 31, 2015, 297,209 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. The amount includes shares available for
purchase under the 1991, 2000, and 2004 Plans which were merged into the 2014 Plan. The 2014 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 from the
shares available for future grants. As of December 31, 2015, there were 6,767,432 shares available for future grants under the
2014 Plan, inclusive of Shares Reacquired and shares made available through 2015 forfeitures. As of December 31, 2015, there
were 1,401,926 shares of common stock outstanding to be issued upon the exercise of stock options and the vesting of Rights.
Rights under the 2014 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 are paid dividend equivalents in cash when dividends are paid
to other stockholders. All Rights have a vesting period of up to five years.
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 2015, 2014 and 2013, $26, $28 and $30, respectively, of dividend equivalents were paid in cash related to
these shares. Compensation cost related to this plan was $16, $16 and $16 in 2015, 2014 and 2013, respectively. There are
52,800 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 value of
$50 that vest three years after the date of grant.
Total maximum shares reserved for issuance under all stock plans aggregated 8,519,367 at December 31, 2015.
18. Weighted Average Shares Outstanding
Income from continuing operations and 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 income from continuing operations and net income for purposes of computing income available to
common stockholders for the years ended December 31, 2015, 2014 and 2013. A reconciliation of the weighted-average number
of common shares outstanding used in the calculation of basic and diluted earnings per share follows:
63
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Basic
Dilutive effect of:
Stock options
Performance share awards
Convertible senior subordinated debt
Non-Employee Director Deferred Stock Plan
Diluted
Weighted-Average Common Shares Outstanding
2015
2014
2013
55,028,063
54,791,030
53,860,308
206,778
278,378
—
—
355,595
319,704
245,230
11,708
575,202
280,488
209,321
48,025
55,513,219
55,723,267
54,973,344
The calculation of weighted-average diluted shares outstanding excludes all anti-dilutive shares. During 2015, 2014 and
2013, the Company excluded 214,032, 89,924 and 133,162 stock awards, respectively, from the calculation of diluted
weighted-average shares outstanding as the stock awards were considered anti-dilutive.
On June 16, 2014, $224 (par value) of the 3.375% Convertible Senior Subordinated Notes due in March 2027 (the
“3.375% Convertible Notes”) were surrendered for conversion. On June 24, 2014, the Company exercised its right to redeem
the remaining $55,412 principal amount of the Notes, effective July 31, 2014, and elected to pay cash to holders of the Notes
surrendered for conversion, including the value of any residual shares of common stock that were payable to the holders
electing to convert their notes into an equivalent share value. Accordingly, the potential shares issuable for the 3.375%
Convertible Notes were included in diluted average common shares outstanding for the period prior to the June 24, 2014
notification date. Under the net share settlement method, there were 245,230 and 209,321 potential shares issuable under the
Notes that were considered dilutive in 2014 and 2013, respectively.
19. 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, 2015 and December 31, 2014:
January 1, 2015
Other comprehensive loss before reclassifications to consolidated
statements of income
Amounts reclassified from accumulated other comprehensive income
to the consolidated statements of income
Net current-period other comprehensive income (loss)
December 31, 2015
January 1, 2014
Other comprehensive loss before reclassifications to consolidated
statements of income
Amounts reclassified from accumulated other comprehensive income
to the consolidated statements of income
Net current-period other comprehensive loss
December 31, 2014
Gains and
Losses on Cash
Flow Hedges
Pension and
Other
Postretirement
Benefit Items
Foreign
Currency
Items
Total
$ (732)
$(115,289)
$ 16,568
$ (99,453)
(70)
(6,921)
(54,232)
(61,223)
917
847
115
$
16,507
—
17,424
9,586
(54,232)
(43,799)
$(105,703)
$(37,664) $(143,252)
Gains and
Losses on Cash
Flow Hedges
Pension and
Other
Postretirement
Benefit Items
Foreign
Currency
Items
Total
$ (519)
$ (73,273)
$ 99,736
$ 25,944
(1,074)
(49,144)
(83,168)
(133,386)
861
(213)
7,128
—
7,989
(42,016)
(83,168)
(125,397)
$ (732)
$(115,289)
$ 16,568 $ (99,453)
64
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table sets forth the reclassifications out of accumulated other comprehensive income by component for
the years ended December 31, 2015 and December 31, 2014:
Details about Accumulated Other Comprehensive Income Components
Gains and losses on cash flow hedges
Interest rate contracts
Foreign exchange contracts
Pension and other postretirement benefit items
Amortization of prior-service credits, net
Amortization of actuarial losses
Curtailment loss
Settlement loss
Total reclassifications in the period
Amount Reclassified
from Accumulated
Other
Comprehensive
Income
2015
2014
Affected Line Item in
the Consolidated
Statements of Income
$
(853) $
(490)
Interest expense
(886)
(391) Net sales
(1,343)
426
(1,277) Total before tax
416
Tax benefit
(917)
(861) Net of tax
$
259
(16,015)
—
(9,939)
(25,695)
9,188
$
223
(9,634)
(223)
(871)
(A)
(A)
(A)
(A)
(10,505) Total before tax
3,377
Tax benefit
(16,507)
(7,128) Net of tax
$(17,424) $ (7,989)
(A) These accumulated other comprehensive income components are included within the computation of net periodic pension cost. See Note 12.
20. Information on Business Segments
Industrial 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, and
precision high cavitation mold assemblies—collectively, the enabling technologies for many complex injection molding
applications. 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 that position parts on a shaft or other axis. Engineered Components is equipped to produce
virtually every type of precision engineered spring, from fine hairsprings for electronics and instruments to large heavy-duty
springs for machinery. Industrial’s Nitrogen Gas Products business manufactures nitrogen gas springs and manifold systems
used to precisely control stamping presses.
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 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 and Switzerland. Industrial also has sales and service operations in the United States, Brazil,
65
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Canada, China/Hong Kong, France, Germany, India, Italy, Japan, Mexico, the Netherlands, Portugal, Singapore, Slovakia,
South Korea, Spain, Switzerland, Thailand and the United Kingdom.
Aerospace is a global provider of fabricated and precision-machined components and assemblies for original equipment
manufacturer (“OEM”) turbine engine, airframe and industrial gas turbine builders, and the military. The Aerospace
aftermarket business provides jet engine component maintenance overhaul and repair (“MRO”) services, including our
Component Repair Programs (“CRPs”), for many of the world’s major turbine engine manufacturers, commercial airlines
and the military. The Aerospace aftermarket activities also include the manufacture and delivery of aerospace aftermarket
spare parts, including the revenue sharing programs (“RSPs”) under which the Company receives an exclusive right to
supply designated aftermarket parts over the life of the related aircraft engine program.
Aerospace’s OEM business supplements the leading jet engine OEM capabilities and competes with a large number of
fabrication and machining companies. Competition is based mainly on quality, engineering and technical capability, product
breadth, new product introduction, timeliness, service and price. Aerospace’s fabrication and machining operations, with
facilities in Arizona, Connecticut, Michigan, Ohio, Utah and Singapore, produce critical engine and airframe components
through technically advanced manufacturing processes.
The Aerospace aftermarket 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
aftermarket facilities, located in Connecticut, Ohio and Singapore, 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.
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
(income) expense, net, as well as the allocation of corporate overhead expenses.
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 tables (dollars shown in millions) set forth information about the Company’s operations by its reportable
business segments and by geographic area.
66
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Operations by Reportable Business Segment
Sales
Operating profit
Assets
Depreciation and amortization
Capital expenditures
Industrial
Aerospace
Other
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
$
$
782.3
822.1
687.6
103.0
108.4
71.9
$ 1,241.2
1,282.0
1,410.4
$
$
46.0
54.7
38.4
28.7
36.1
31.3
$
$
$
$
$
411.7
440.0
404.0
65.4
71.6
51.3
654.1
655.0
567.1
30.8
24.9
23.2
17.2
20.9
23.8
$ —
—
—
$ —
—
—
$
$
$
166.5
136.9
146.2
1.3
1.8
3.5
0.1
0.4
2.2
Total
Company
$ 1,194.0
1,262.0
1,091.6
$
168.4
180.0
123.2
$ 2,061.9
2,073.9
2,123.7
$
$
78.2
81.4
65.1
46.0
57.4
57.3
Notes:
One customer, General Electric, accounted for 18%, 19% and 21% of the Company’s total revenues in 2015, 2014 and 2013, respectively.
“Other” assets include corporate-controlled assets, the majority of which are cash and deferred tax assets.
A reconciliation of the total reportable segments’ operating profit to income from continuing operations before income
taxes follows:
Operating profit
Interest expense
Other (income) expense, net
Income from continuing operations before income taxes
Operations by Geographic Area
Sales
Long-lived assets
2015
2014
2013
$
$
$
168.4
10.7
(0.2)
$
180.0
11.4
2.1
157.9
$
166.5
$
123.2
13.1
2.5
107.6
Domestic
International
Other
Total
Company
$
$
2015
2014
2013
2015
2014
2013
$
$
589.6
618.9
593.3
379.2
380.6
330.2
$
$
661.7
677.6
524.1
1,069.9
1,094.9
1,214.0
(57.3) $
(34.5)
(25.9)
— $
—
—
1,194.0
1,262.0
1,091.6
1,449.1
1,475.4
1,544.2
67
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Notes:
Germany, with sales of $210.5 million, $249.9 million and $140.8 million in 2015, 2014 and 2013, respectively, represents the only international country
with revenues in excess of 10% of the Company’s total revenues.
“Other” revenues represent the elimination of intercompany sales between geographic locations, of which approximately 82% were sales from international
locations to domestic locations.
Germany, with long-lived assets of $362.7 million, $410.0 million and $477.3 million in 2015, 2014 and 2013, respectively, Singapore, with long-lived
assets of $246.4 million, $255.3 million and $255.3 million in 2015, 2014 and 2013, respectively, Switzerland, with long-lived assets of $167.0 million,
$165.7 million and $193.8 million in 2015, 2014 and 2013, respectively and China with long-lived assets of $151.7 million and $156.4 million in 2014 and
2013, respectively, represent the only international countries that exceeded 10% of the Company’s total long-lived assets in those years.
21. Commitments and Contingencies
Leases
The Company has various noncancellable operating leases for buildings, office space and equipment. Rent expense was
$11,166, $12,745 and $11,398 for 2015, 2014 and 2013, respectively. Minimum rental commitments under noncancellable
leases in years 2016 through 2020 are $7,619, $4,445, $3,419, $2,315 and $2,216, respectively, and $9,469 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. Product warranty liabilities were not material as
of December 31, 2015 or 2014.
Contract Matters
During the third quarter of 2015 the Company recorded a $2,788 charge related to a contract termination dispute
following the decision of a customer, Triumph Actuation Systems—Yakima, LLC (“Triumph”), to re-source work. The
Company has approximately $8,000 of net assets, in connection with this dispute, recorded on the Consolidated Balance
Sheet as of December 31, 2015. The Company has assessed recoverability of costs and damages provided by the relevant
contracts and, during the fourth quarter of 2015, filed an arbitration demand before the American Arbitration Association for
recovery of these costs and damages for approximately $15,000. Also during the fourth quarter, Triumph responded with a
counterclaim of a similar amount, alleging various breaches and seeking damages, which the Company views as
unsubstantiated. An arbitrator has been appointed and a hearing is currently scheduled for May 2016. 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.
22. Accounting Changes
In September 2015, the FASB amended its guidance related to the accounting for measurement period adjustments. The
amended guidance eliminates the requirement to restate prior period financial statements for measurement period
adjustments resulting from a business combination. The amended guidance is effective prospectively for interim and annual
periods beginning after December 15, 2015. Early adoption is permitted. The Company elected to adopt the amended
guidance in the third quarter of 2015 and it had no impact on the Consolidated Financial Statements during this period.
68
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Barnes Group Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of
comprehensive income, of changes in stockholders’ equity and of cash flows present fairly, in all material respects, the
financial position of Barnes Group Inc. and its subsidiaries (the “Company”) at December 31, 2015 and 2014, and the results
of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with
accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement
schedule listed in the accompanying index appearing under item 15(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015,
based on criteria established in Internal Control—Integrated Framework 2013 issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial
statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal
Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. 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.
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.
/s/ PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
February 24, 2016
69
QUARTERLY DATA (UNAUDITED)
(Dollars in millions, except per share data)
2015
Net sales
Gross profit (1)
Operating income
Income from continuing operations
Net income
Per common share:
Income from continuing operations:
Basic
Diluted
Net income:
Basic
Diluted
Dividends
Market prices (high - low)
2014
Net sales
Gross profit (1)
Operating income
Income from continuing operations
Net income
Per common share:
Income from continuing operations:
Basic
Diluted
Net income:
Basic
Diluted
Dividends
Market prices (high - low)
(1) Sales less cost of sales.
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Full
Year
$
300.6
102.2
43.9
29.1
29.1
$
314.9
110.8
50.6
34.2
34.2
$
291.4
100.3
43.7
33.7
33.7
$
287.0
97.8
30.1
24.4
24.4
1,194.0
411.2
168.4
121.4
121.4
$
0.53
0.52
$
0.62
0.61
$
0.61
0.61
$
0.45
0.44
2.21
2.19
$
$
0.53
0.52
0.12
$41.00-33.75
0.62
0.61
0.12
$41.74-38.75
0.61
0.61
0.12
$41.78-35.33
0.45
0.44
0.12
$39.74-33.00
2.21
2.19
0.48
$41.78-33.00
$
$
$
312.1
97.5
35.1
22.8
22.8
$
322.1
110.4
45.4
30.2
30.2
$
317.7
111.2
50.9
34.3
33.9
$
310.2
113.2
48.6
33.3
31.5
1,262.0
432.4
180.0
120.5
118.4
$
0.42
0.41
$
0.55
0.54
$
0.63
0.62
$
0.60
0.60
2.20
2.16
0.42
0.41
0.11
$40.92-35.34
0.55
0.54
0.11
$40.01-36.27
0.62
0.61
0.11
$39.07-30.35
0.57
0.57
0.12
$37.88-29.47
2.16
2.12
0.45
$40.92-29.47
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’s President and Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of
the period covered by this report. Based upon, and as of the date of, our 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 information required to be disclosed in the reports the Company files and
submits under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported as and
when required and (ii) is accumulated and communicated to the Company’s management, including our President and Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
70
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). Under the supervision and with the participation of management, including
the principal executive officer and principal 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 as of
December 31, 2015.
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, 2015, which appears on page 69 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.
71
PART III
Item 10. Directors, Executive Officers and Corporate Governance
DIRECTORS
Information with respect to our directors and nominees may be found under the caption “Election of Directors” of the
Company’s proxy statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be
held on May 6, 2016 (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:
Executive Officer
Position
Patrick J. Dempsey
President and Chief Executive Officer
Richard R. Barnhart
Senior Vice President, Barnes Group Inc., and President, Barnes Aerospace
James P. Berklas, Jr.
Senior Vice President, General Counsel and Secretary
Dawn N. Edwards
Senior Vice President, Human Resources
Scott A. Mayo
Senior Vice President, Barnes Group Inc., and President, Barnes Industrial
Christopher J. Stephens, Jr.
Senior Vice President, Finance and Chief Financial Officer
Age as of
December 31,
2015
51
55
44
47
48
51
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, except Mr. Barnhart who, on November 3, 2015, gave notice of his intention to retire as
Senior Vice President, Barnes Group Inc. and President, Barnes Aerospace at the end of June 2016. No family relationships
exist among the executive officers of the Company. Except for Mr. Berklas and Mr. Mayo, each of the Company’s executive
officers has been employed by the Company or its subsidiaries in an executive or managerial capacity for at least the past
five years.
Mr. Dempsey was appointed President and Chief Executive Officer effective March 1, 2013. From February 2012 until
such appointment, he served as Senior Vice President and Chief Operating Officer. From October 2008 until February 2012,
he served as Vice President, Barnes Group 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. Barnhart was appointed Senior Vice President, Barnes Group Inc., and President, Barnes Aerospace effective
August 1, 2013. From February 2012 until such appointment, he served as Vice President, Aerospace and President, Barnes
Aerospace. Prior to that, from October 2010 to February 2012, Mr. Barnhart served as Vice President, Finance, Logistics &
Manufacturing Services. Prior to that, he held a series of roles of increasing responsibility since joining the Company in April
2005 including President, Barnes Distribution Europe; Vice President & General Manager, Barnes Aerospace OEM; and
Vice President & General Manager, Windsor Airmotive Division.
Mr. Berklas was appointed Senior Vice President, General Counsel and Secretary effective August 1, 2015. Before
joining the Company, from 2008 to 2015, Mr. Berklas served as Senior Vice President, Associate General Counsel, Chief
Compliance Officer and Associate Corporate Secretary, Herbalife Ltd., a global nutrition company. Prior to that, from 2005
to 2008, Mr. Berklas served as General Counsel and Corporate Secretary for Marietta Corporation, a personal care products
company. From 2006 to 2008, he also served as the Senior Vice President and Hotel Division Manager for Marietta’s hotel
product division.
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
72
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. Mayo was appointed Senior Vice President, Barnes Group Inc. and President, Barnes Industrial effective March 17,
2014. Before joining the Company, from 2012 to 2014, Mr. Mayo served as Vice President and General Manager, Power
Sector, Flow Control, a division of Flowserve Corporation. From 2010 to 2012, he served as 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.
Mr. Stephens was appointed Senior Vice President, Finance and Chief Financial Officer, Barnes Group Inc. effective
January 2009. Prior to joining the Company, Mr. Stephens held key leadership roles at Honeywell International, serving as
President of the Consumer Products Group from 2007 to 2008, and Vice President and Chief Financial Officer of Honeywell
Transportation Systems from 2003 to 2007. Prior to that, he held roles with increasing responsibility at The Boeing
Company, serving as Vice President 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.
AUDIT COMMITTEE
Ms. Sohovich and Messrs. Bristow, McClellan and Morgan are the members of the Company’s Audit Committee which
is a separately designated standing committee of the Board of Directors of the Company established in accordance with
Section 3(a)(58)(A) of the Exchange Act.
The Company’s Board of Directors has determined that Mr. Morgan, who qualifies as an independent director under the
New York Stock Exchange corporate governance listing standards and the Company’s Corporate Governance Guidelines, is
an “audit committee financial expert,” as such term is defined by the SEC.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information in the Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance”
is incorporated herein by reference.
CODE OF ETHICS
We have adopted a Code of Business Ethics and Conduct (the “Code of Ethics”) which is applicable to all employees,
including our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer and any persons performing
similar functions. The Code of Ethics is available on our website at www.BGInc.com. We will promptly disclose any
material waivers of or substantive amendments to the Executive Code of Ethics on our website or in a report on Form 8-K.
Item 11. Executive Compensation
The information in the Proxy Statement under the captions “Executive Compensation” and “Director Compensation in
2015” is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information in the Proxy Statement under “Securities Authorized for Issuance Under Equity Compensation Plans”,
“Security Ownership of Certain Beneficial Owners” and “Security Ownership of Directors and Executive Officers” is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information in the Proxy Statement under “Related Person Transactions” and “Governance – Director
Independence” is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information in the Proxy Statement under “Principal Accountant Fees and Services” is incorporated herein by
reference.
73
Item 15. Exhibits, Financial Statement Schedule
PART IV
(a)(1)
The following Financial Statements and Supplementary Data of the Company are set forth herein under
Item 8 of this Annual Report:
Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2015, 2014
and 2013
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
(a)(2)
See Financial Statement Schedule under Item 15(c).
(a)(3)
See Item 15(b) below.
(b)
(c)
The Exhibits required by Item 601 of Regulation S-K are filed as Exhibits to this Annual Report and indexed
at pages 79 through 83 of this Annual Report, which index is incorporated herein by reference.
Financial Statement Schedule.
74
Schedule II—Valuation and Qualifying Accounts
Years Ended December 31, 2015, 2014 and 2013
(In thousands)
Allowances for Doubtful Accounts:
Balance January 1, 2013
Provision charged to income
Doubtful accounts written off (net)
Other adjustments (1)
Balance December 31, 2013
Provision charged to income
Doubtful accounts written off (net)
Other adjustments (1)
Balance December 31, 2014
Provision charged to income
Doubtful accounts written off (net)
Other adjustments (1)
Balance December 31, 2015
$2,858
1,726
(532)
(614)
3,438
1,523
(493)
(595)
3,873
1,248
(404)
(632)
$4,085
(1) These amounts are comprised primarily of foreign currency translation and other reclassifications. The reduction in 2013 includes $0.8 million of
reserves recorded at BDNA which was sold in the second quarter of 2013.
75
Schedule II—Valuation and Qualifying Accounts
Years Ended December 31, 2015, 2014 and 2013
(In thousands)
Valuation Allowance on Deferred Tax Assets:
Balance January 1, 2013
Additions charged to income tax expense
Additions charged to other comprehensive income
Reductions credited to income tax expense
Changes due to foreign currency translation
Divestiture (1)
Balance December 31, 2013
Additions charged to income tax expense
Additions charged to other comprehensive income
Reductions credited to income tax expense
Changes due to foreign currency translation
Balance December 31, 2014
Additions charged to income tax expense
Reductions charged to other comprehensive income
Reductions credited to income tax expense
Changes due to foreign currency translation
Acquisition (2)
Balance December 31, 2015
$24,936
473
(547)
(1,412)
(849)
(3,728)
18,873
1,049
(30)
(2,303)
(1,733)
15,856
1,043
(59)
(1,216)
(2,204)
981
$14,401
(1) The reduction in 2013 reflects the valuation allowance adjustment to Discontinued Operations as it relates to the sale of BDNA
(2) The increase in 2015 reflects the valuation allowance recorded at the Thermoplay and Priamus businesses which were acquired in the third and fourth
quarters of 2015, respectively.
76
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.
SIGNATURES
Date: February 24, 2016
BARNES GROUP INC.
By
/S/ PATRICK J. DEMPSEY
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/ PATRICK J. DEMPSEY
Patrick J. Dempsey
President and Chief Executive Officer
(Principal Executive Officer), and Director
/S/ CHRISTOPHER J. STEPHENS, JR.
Christopher J. Stephens, Jr.
Senior Vice President, Finance
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/ GARY G. BENANAV
Gary G. Benanav
Director
/S/ WILLIAM S. BRISTOW, JR.
William S. Bristow, Jr.
Director
/S/ FRANCIS J. KRAMER
Francis J. Kramer
Director
/S/ MYLLE H. MANGUM
Mylle H. Mangum
Director
77
/S/ HASSELL H. MCCLELLAN
Hassell H. McClellan
Director
/S/ WILLIAM J. MORGAN
William J. Morgan
Director
/S/ JOANNA L. SOHOVICH
JoAnna L. Sohovich
Director
78
EXHIBIT INDEX
Barnes Group Inc.
Annual Report on Form 10-K
for the Year ended December 31, 2015
Exhibit No.
Description
Reference
2.1*
2.2*
3.1
Asset Purchase Agreement dated February 22, 2013
between the Company and MSC Industrial Direct
Co., Inc.
Incorporated by reference to Exhibit 2.1 to the
Company’s report on Form 10-Q for the quarter
ended March 31, 2013.
Incorporated by reference to Exhibit 2.1 to Form 8-K
filed by the Company on October 4, 2013.
Incorporated by reference to Exhibit 3.1 to the
Company’s report on Form 10-Q for the quarter
ended June 30, 2013.
Share Purchase and Assignment Agreement dated
September 30, 2013 among the Company, two of its
subsidiaries, Otto Ma¨nner Holding AG (the “Seller”),
and the three shareholders of Seller.
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
Amended and Restated By-Laws.
Incorporated by reference to Exhibit 3.1 to Form 8-K
filed by the Company on February 11, 2016.
10.1
(i) Fifth Amended and Restated Senior Unsecured
Revolving Credit Agreement, dated September 27,
2011.
Incorporated by reference to Exhibit 4.1 to the
Company’s report on Form 10-Q for the quarter
ended June 30, 2013.
(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.
10.2
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).
10.3**
Barnes Group Inc. Management Incentive
Compensation Plan, amended October 22, 2008.
10.4**
Barnes Group Inc. Performance-Linked Bonus Plan
for Selected Executive Officers, as amended
February 8, 2011.
10.5**
(i) Offer Letter between the Company and Patrick
Dempsey, dated February 22, 2013.
Incorporated by reference to Exhibit 4.1 to the
Company’s report on Form 10-Q for the quarter
ended September 30, 2013.
Incorporated by reference to Exhibit 10.1(iii) to the
Company’s report on Form 10-K for the year ended
December 31, 2014.
Incorporated by reference to Exhibit 10.1 to Form
8-K filed by the Company on October 17, 2014.
Incorporated by reference to Exhibit 10.1 to the
Company’s report on Form 10-K for the year ended
December 31, 2008.
Incorporated by reference to Annex 1 to the
Company’s definitive proxy statement filed with the
Securities and Exchange Commission on April 5,
2011.
Incorporated by reference to Exhibit 10.3 to the
Company’s report on Form 10-Q for the quarter
ended March 31, 2013.
79
Exhibit No.
Description
Reference
(ii) Amendment to Offer Letter to Patrick Dempsey,
dated January 6, 2015.
(iii) Employee Non-Disclosure, Non-Competition,
Non-Solicitation and Non-Disparagement Agreement
between the Company and Patrick J. Dempsey, dated
February 27, 2013.
10.6**
(i) Amendment to Offer Letter to Christopher J.
Stephens, Jr., dated June 7, 2013.
(ii) Amendment to Amended Offer Letter to
Christopher J. Stephens, Jr., dated February 12, 2014.
10.7**
Offer Letter to Scott A. Mayo, dated January 28,
2014.
10.8**
Offer Letter to James P. Berklas, Jr., dated June 5,
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.
Incorporated by reference to Exhibit 10.4 to the
Company’s report on Form 10-Q for the quarter
ended March 31, 2013.
Incorporated by reference to Exhibit 10.2 to the
Company’s report on Form 10-Q for the quarter
ended June 30, 2013.
Incorporated by reference to Exhibit 10.6(ii) to the
Company’s report on Form 10-K for the year ended
December 31, 2013.
Incorporated by reference to Exhibit 10.2 to the
Company’s report on Form 10-Q for the quarter
ended March 31, 2014.
Incorporated by reference to Exhibit 10.1 to the
Company’s report on Form 10-Q for the quarter
ended September 30, 2015.
10.9**
(i) Barnes Group Inc. Retirement Benefit
Equalization Plan, as amended and restated effective
January 1, 2013.
Incorporated by reference to Exhibit 10.39(ii) to the
Company’s report on Form 10-K for the year ended
December 31, 2012.
(ii) First Amendment to the Barnes Group Inc.
Retirement Benefit Equalization Plan dated
December 12, 2014.
Incorporated by reference to Exhibit 10.9(ii) to the
Company’s report on Form 10-K for the year ended
December 31, 2014.
10.10**
(i) Barnes Group Inc. Supplemental Senior Officer
Retirement Plan, as amended and restated effective
January 1, 2009.
Incorporated by reference to Exhibit 10.3 to the
Company’s report on Form 10-K for the year ended
December 31, 2008.
(ii) Amendment to the Barnes Group Inc.
Supplemental Senior Officer Retirement Plan dated
December 30, 2009.
Incorporated by reference to Exhibit 10.3(ii) to the
Company’s report on Form 10-K for the year ended
December 31, 2009.
(iii) Second Amendment to the Barnes Group Inc.
Supplemental Senior Officer Retirement Plan dated
December 12, 2014.
Incorporated by reference to Exhibit 10.10(iii) to the
Company’s report on Form 10-K for the year ended
December 31, 2014.
10.11**
(i) Amended and Restated Supplemental Executive
Retirement Plan effective April 1, 2012.
Incorporated by reference to Exhibit 10.6(ii) to the
Company’s report on Form 10-K for the year ended
December 31, 2011.
(ii) Amendment 2013-1 to the Barnes Group Inc.
Supplemental Executive Retirement Plan dated July
23, 2013.
Incorporated by reference to Exhibit 10.3 to the
Company’s report on Form 10-Q for the quarter
ended June 30, 2013.
(iii) Amendment 2014-1 to the Barnes Group Inc.
Supplemental Executive Retirement Plan dated
December 12, 2014.
Incorporated by reference to Exhibit 10.11(iii) to the
Company’s report on Form 10-K for the year ended
December 31, 2014.
10.12**
Barnes Group Inc. Senior Executive Enhanced Life
Insurance Program, as amended and restated effective
April 1, 2011.
Incorporated by reference to Exhibit 10.1 to the
Company’s report on Form 10-Q for the quarter
ended June 30, 2011.
10.13**
Barnes Group Inc. Enhanced Life Insurance Program,
as amended and restated effective April 1, 2011.
Incorporated by reference to Exhibit 10.6 to the
Company’s report on Form 10-Q for the quarter
ended March 30, 2011.
10.14**
Barnes Group Inc. Executive Group Term Life
Insurance Program effective April 1, 2011.
Incorporated by reference to Exhibit 10.1 to
Form 8-K filed by the Company on June 19, 2012.
80
Exhibit No.
10.15**
Form of Barnes Group Inc. Executive Officer
Severance Agreement, as amended March 31, 2010.
Description
Reference
10.16**
Form of Barnes Group Inc. Executive Officer
Severance Agreement, effective February 19, 2014.
10.17**
Barnes Group Inc. Executive Separation Pay Plan, as
amended and restated effective January 1, 2012.
10.18**
(i) Trust Agreement between the Company and
Fidelity Management Trust Company (Barnes Group
2009 Deferred Compensation Plan) dated
September 1, 2009.
Incorporated by reference to Exhibit 10.20 to the
Company’s Form 10-K for the year ended
December 31, 2010.
Incorporated by reference to Exhibit 10.1 to the
Company’s report on Form 10-Q for the quarter
ended March 31, 2014.
Incorporated by reference to Exhibit 10.11(ii) to the
Company’s report on Form 10-K for the year ended
December 31, 2011.
Incorporated by reference to Exhibit 10.2 to the
Company’s Form 10-Q for the quarter ended
September 30, 2009.
(ii) Amended and Restated Barnes Group 2009
Deferred Compensation Plan effective as of April 1,
2012.
Incorporated by reference to Exhibit 10.12(iv) to the
Company’s report on Form 10-K for the year ended
December 31, 2011.
(iii) First Amendment to the Barnes Group 2009
Deferred Compensation Plan dated December 12,
2014.
Incorporated by reference to Exhibit 10.18(iii) to the
Company’s report on Form 10-K for the year ended
December 31, 2014.
10.19**
Barnes Group Inc. Non-Employee Director Deferred
Stock Plan, as amended and restated December 31,
2008.
Incorporated by reference to Exhibit 10.5 to the
Company’s report on Form 10-K for the year ended
December 31, 2008.
10.20**
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.
10.22**
Barnes Group Inc. Trust Agreement for Specified
Plans.
Incorporated by reference to Exhibit 10.6 to the
Company’s report on Form 10-K for the year ended
December 31, 2008.
Incorporated by reference to Exhibit 10.29 to the
Company’s Form 10-K for the year ended
December 31, 2008.
Incorporated by reference to Exhibit 10.3 to the
Company’s Form 10-Q for the quarter ended June 30,
2010.
10.23**
Form of Incentive Compensation Reimbursement
Agreement between the Company and certain
Officers.
Incorporated by reference to Exhibit 10.19 to the
Company’s Form 10-K for the year ended
December 31, 2010.
10.24**
Form of Indemnification Agreement between the
Company and its Officers and Directors.
10.25**
(i) Barnes Group Inc. Stock and Incentive Award
Plan, as amended December 31, 2008.
(ii) Barnes Group Inc. Stock and Incentive Award
Plan, as amended March 15, 2010.
(iii) Exercise of Authority Relating to the Stock and
Incentive Award Plan, dated March 3, 2009.
Incorporated by reference to Exhibit 10.2 to the
Company’s Form 10-Q for the quarter ended June 30,
2010.
Incorporated by reference to Exhibit 10.15 to the
Company’s report on Form 10-K for the year ended
December 31, 2008.
Incorporated by reference to Annex 1 to the
Company’s definitive Proxy Statement filed with the
Securities and Exchange Commission on April 5,
2010.
Incorporated by reference to Exhibit 10.1 to the
Company’s report on Form 10-Q for the quarter
ended March 31, 2009.
(iv) Amendment 2010-1 approved on December 9,
2010 to the Barnes Group Inc. Stock and Incentive
Award Plan as amended March 15, 2010.
Incorporated by reference to Exhibit 10.15 to the
Company’s Form 10-K for the year ended
December 31, 2010.
10.26**
2014 Barnes Group Inc. Stock and Incentive Award
Plan.
Incorporated by reference to Annex A to the
Company’s definitive proxy statement filed with the
Securities and Exchange Commission on March 25,
2014.
81
Exhibit No.
Description
Reference
10.27** 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 8, 2012 (for non-management
directors).
10.28** 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 10.38 to the
Company’s report on Form 10-K for the year ended
December 31, 2011.
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
Filed with this report.
Award Plan Restricted Stock Unit Summary of Grant
and Restricted Stock Unit Agreement for Directors
dated February 9, 2016 (for non-management
directors).
10.30** Form of Non-Qualified Stock Option Agreement for
employees grade 21 and up.
10.31** 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 as of February 8, 2011.
10.32** 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.
Incorporated by reference to Exhibit 10.25 to the
Company’s Form 10-K for the year ended December
31, 2008.
Incorporated by reference to Exhibit 10.1 to the
Company’s report on Form 10-Q for the quarter
ended March 31, 2011.
Incorporated by reference to Exhibit 10.4 to the
Company’s report on Form 10-Q for the quarter
ended June 30, 2014.
10.33** Form of Barnes Group Inc. Stock and Incentive
Filed with this report.
Award Plan Stock Option Summary of Grant and
Stock Option Agreement for Employees in Grade 21
and up dated February 9, 2016.
10.34** 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.
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.
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 10.1 to the
Company’s report on Form 10-Q for the quarter
ended March 31, 2011.
Incorporated by reference to Exhibit 10.37 to the
Company’s report on Form 10-K for the year ended
December 31, 2011.
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
Filed with this report.
Award Plan Restricted Stock Unit Summary of Grant
for Employees and Restricted Stock Unit Agreement
dated February 9, 2016.
10.38** 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 8, 2012.
10.39** 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.
82
Incorporated by reference to Exhibit 10.36 to the
Company’s report on Form 10-K for the year ended
December 31, 2011.
Incorporated by reference to Exhibit 10.36 to the
Company’s report on Form 10-K for the year ended
December 31, 2013.
Exhibit No.
10.40**
10.41**
10.42**
21
23
31.1
31.2
32
Description
Reference
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 July 21, 2014.
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.
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 9, 2016.
List of Subsidiaries.
Consent of Independent Registered Public
Accounting Firm.
Incorporated by reference to Exhibit 10.5 to the
Company’s report on Form 10-Q for the quarter
ended June 30, 2014.
Incorporated by reference to Exhibit 10.40 to the
Company’s report on Form 10-K for the year ended
December 31, 2014.
Filed with this report.
Filed with this report.
Filed with this report.
Certification pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Filed with this report.
Certification pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Filed with this report.
Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
Furnished with this report.
101.INS
XBRL Instance Document.
Filed with this report.
101.SCH
XBRL Taxonomy Extension Schema Document.
Filed with this report.
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Taxonomy Extension Calculation Linkbase
Document.
Filed with this report.
XBRL Taxonomy Extension Definition Linkbase
Document.
Filed with this report.
XBRL Taxonomy Extension Label Linkbase
Document.
Filed with this report.
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.
83
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EXHIBIT 21
BARNES GROUP INC.
CONSOLIDATED SUBSIDIARIES
as of December 31, 2015
Name
Jurisdiction of Incorporation
Associated Spring Asia Pte. Ltd.
Associated Spring do Brasil Ltda.
Associated Spring Mexico, S.A.
Associated Spring Raymond GmbH
Associated Spring Raymond (Shanghai) Co., Ltd.
Associated Spring (Tianjin) Company, Ltd.
Barnes Financing Delaware LLC
Barnes Group Acquisition GmbH
Barnes Group (Bermuda) Limited
Barnes Group Canada Corp.
Barnes Group (Delaware) LLC
Barnes Group Finance Company (Bermuda) Limited
Barnes Group Finance Company (Delaware)
Barnes Group (Germany) GmbH
Barnes Group Holding LLC
Barnes Group Luxembourg (No. 1) S.à r.l.
Barnes Group Luxembourg (No. 2) S.á r.l.
Barnes Group Spain, S.R.L.
Barnes Group Switzerland GmbH
Barnes Group (Thailand) Ltd.
Barnes Group (U.K.) Limited
Barnes Industrial Group India Private Limited
Barnes Korea Ltd.
Heinz Hänggi GmbH, Stanztechnik
HPE S.p.A.
Manner Hong Kong Limited
männer Japan Co. Ltd.
Manner USA, Inc.
Otto Männer GmbH
Otto Männer Immobilien GmbH
Otto Männer Innovation GmbH
Otto Männer Präzisionsformenbau AG, Schweiz
Priamus System Technologies AG
Priamus System Technologies GmbH
Singapore
Brazil
Mexico
Germany
China
China
Delaware
Germany
Bermuda
Canada
Delaware
Bermuda
Delaware
Germany
Delaware
Luxembourg
Luxembourg
Spain
Switzerland
Thailand
United Kingdom
India
Korea
Switzerland
Italy
Hong Kong
Japan
Georgia
Germany
Germany
Germany
Switzerland
Switzerland
Germany
Name
Jurisdiction of Incorporation
Priamus System Technologies LLC
Raymond Distribution-Mexico, S.A. de C.V.
Ressorts SPEC SAS
Schmidl Werkzeug-und Vorrichtungsbau GmbH & Co. KG
Seeger-Orbis GmbH & Co. OHG
Strömsholmen AB
Synventive Acquisition BV
Synventive Acquisition GmbH
Synventive Acquisition Inc.
Synventive Acquisition UK Ltd.
Synventive Acquisition Unlimited
Synventive BV
Synventive Fertigungstechnik GmbH
Synventive Holding BV
Synventive Holding GmbH
Synventive Holding Limited
Synventive Holding SAS
Synventive Molding Solutions BV
Synventive Molding Solutions Canada, Inc.
Synventive Molding Solutions Co., Ltd.
Synventive Molding Solutions GmbH
Synventive Molding Solutions, Inc.
Synventive Molding Solutions JBJ Private Limited
Synventive Molding Solutions K.K.
Synventive Molding Solutions LDA
Synventive Molding Solutions Limited
Synventive Molding Solutions LLC
Synventive Molding Solutions Ltda
Synventive Molding Solutions Pte Ltd.
Synventive Molding Solutions SAS
Synventive Molding Solutions SL
Synventive Molding Solutions S.R.L.
Synventive Molding Solutions s.r.o.
Synventive Molding Solutions (Suzhou) Co., Ltd.
Synventive Parent Inc.
The Wallace Barnes Company
Thermoplay Brasil Sistemas de Injecao Ltda
Thermoplay Deutschland GmbH
Thermoplay France S.a.r.l.
Thermoplay India Private Limited
Thermoplay Hot Runner Systems (Beijing) Co. Ltd
Ohio
Mexico
France
Germany
Germany
Sweden
The Netherlands
Germany
Delaware
United Kingdom
United Kingdom
The Netherlands
Germany
The Netherlands
Germany
United Kingdom
France
The Netherlands
Canada
Hong Kong
Germany
Delaware
India
Japan
Portugal
United Kingdom
Delaware
Brazil
Singapore
France
Spain
Italy
Czech Republic
China
Delaware
Connecticut
Brazil
Germany
France
India
China
Name
Jurisdiction of Incorporation
Thermoplay Portugal Unipessoal Lda
Thermoplay S.p.A.
Thermoplay U.K. Ltd.
Windsor Airmotive Asia Pte. Ltd.
Portugal
Italy
United Kingdom
Singapore
The foregoing does not constitute a complete list of all subsidiaries of the registrant. The subsidiaries that
have been omitted do not, if considered in the aggregate as a single subsidiary, constitute a “Significant
Subsidiary” as defined by the Securities and Exchange Commission.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8
(Nos. 333-205952, 333-196013, 333-166975, 333-179643, 333-150741, and 333-133597) of Barnes Group Inc.
of our report dated February 24, 2016 relating to the financial statements, financial statement schedule and the
effectiveness of internal control over financial reporting, which appears in this Form 10-K.
EXHIBIT 23
/s/
PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
February 24, 2016
WELCOME, SHAREHOLDERS.
Founded in 1857, Barnes Group Inc. (NYSE:B) is an international industrial and aerospace manufacturer
and service provider, serving a wide range of end markets and customers. The highly engineered products,
differentiated industrial technologies, and innovative solutions delivered by Barnes Group are used in far-reaching
applications that provide transportation, manufacturing, healthcare products, and technology to the world.
BARNES GROUP INC. SERVES IN TWO GLOBAL BUSINESS SEGMENTS:
% of ‘15
INDUSTRIAL
SEGMENT
Actual
Sales
INDUSTRIAL
SEGMENT
AEROSPACE
SEGMENT
ENGINEERED
COMPONENTS
MOLDING
SOLUTIONS
NITROGEN
GAS PRODUCTS
OEM
AFTERMARKET
ABOUT THE COMPANY
BOARD OF DIRECTORS
OFFICERS
CORPORATE INFORMATION
Thomas O. Barnes
Chairman of the Board,
Barnes Group Inc.
Gary G. Benanav
Former Chairman and Chief
Executive Officer, New York Life
International, LLC
Former Vice Chairman, New York
Life Insurance Company, LLC
William S. Bristow, Jr.
President, W.S. Bristow &
Associates, Inc.
Patrick J. Dempsey
President and Chief Executive
Officer, Barnes Group Inc.
Francis J. Kramer
Actual
President and CEO and Chairman of
% of ‘15
the Board, II-VI Incorporated
Sales
Mylle H. Magnum
Chief Executive Officer, IBT
Enterprises, LLC
Hassell H. McClellan
Former Associate Professor of
Finance and Policy, Boston
College’s Wallace E. Carroll
School of Management
William J. Morgan
Former Partner, KPMG LLP
JoAnna L. Sohovich
Chief Executive Officer, The
Chamberlain Group, Inc.
Patrick J. Dempsey
President and Chief Executive
Officer
Marian Acker
Vice President, Controller
Michael A. Beck
Senior Vice President,
Barnes Group Inc. and President,
Barnes Aerospace
James P. Berklas, Jr.
Senior Vice President, General
Counsel and Secretary
Dawn N. Edwards
Senior Vice President,
Human Resources
Lukas Hovorka
Vice President, Corporate
Development
Michael V. Kennedy
Vice President, Tax and Treasury
Scott A. Mayo
Senior Vice President,
Barnes Group Inc. and President,
Barnes Industrial
Christopher J. Stephens, Jr.
Senior Vice President, Finance and
Chief Financial Officer
Transfer Agent and Registrar
Computershare
P.O. Box 30170,
College Station, TX 77842-3170
Phone: 1-800-801-9519
(Continental U.S. only)
Phone: 1-201-680-6578
(Outside U.S.)
For the hearing impaired: 1-800-231-5469
(Continental U.S. only)
1-201-680-6610 (Outside U.S.)
www.computershare.com/investor
Use the above address, phone numbers and
Internet address for information about the
following services:
Direct Deposit of Dividends, Stockholders
Inquiries, Change of Name or Address,
Consolidations, Lost Certificates, Replacement.
Direct Stock Purchase Plan/
Dividend Reinvestment
Initial purchases of Barnes Group common
stock can be made through the Direct Stock
Purchase Plan. Dividends on Barnes Group
common stock may be automatically invested
in additional shares.
Stock Exchange
New York Stock Exchange
Stock Trading Symbol: B
Independent Registered Public
Accounting Firm
PricewaterhouseCoopers LLP
185 Asylum Street, Hartford, CT 06103
Communications
For press releases and other information about
the Company, go to our Internet address at
www.BGInc.com or contact:
William E. Pitts (Investor Relations)/
Monique B. Marchetti (Stockholder Relations)
Barnes Group Inc.
123 Main Street
Bristol, CT 06010-6376 USA
Phone: 1-860-583-7070
AEROSPACE
SEGMENT
ANNUAL MEETING
The Barnes Group Inc. Annual Meeting of Stockholders will be held at 11:00 a.m., Friday, May 6, 2016, at the DoubleTree by
Hilton Hotel, Bristol, Connecticut.
2
2015 ANNUAL REPORT
94280_AnnualReport Cover.indd 2
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Corporate Office
123 Main Street
Bristol, CT 06010-6376
USA
BGInc.com
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Barnes Group Inc.
Annual Report 2015