Inspiring Performance Through Innovation
A N N U A L R E P O R T 2 0 1 6
1
Founded in 1857, Barnes Group Inc. (NYSE:B) is a global 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,
Actual
% of ‘15
Sales
manufacturing, healthcare products, and technology to the world.
Barnes Group Inc. Operates in Two Global Business Segments:
INDUSTRIAL
SEGMENT
Actual
% of ‘15
Sales
INDUSTRIAL
SEGMENT
AEROSPACE
SEGMENT
MOLDING
SOLUTIONS
NITROGEN
GAS PRODUCTS
ENGINEERED
COMPONENTS
OEM
AFTERMARKET
AEROSPACE
SEGMENT
2
Businesses at a Glance
Molding Solutions
Molding Solutions’ comprehensive portfolio of advanced technologies
and value-added services delivers premium tool-based solutions where
demanding specifications are required by global customers in the plastic
injection molding industry across a broad spectrum of applications, including
quality hot runners, complex molds, sensor technologies, and control systems.
Nitrogen Gas Products
A global provider of force and motion control, Nitrogen Gas Products
is a leader in next generation solutions which enable customers to
overcome challenges in the metal forming, heavy duty suspension, and
industrial markets.
The Safer Choice
Engineered Components
Engineered Components provides a comprehensive range of
manufacturing capabilities inclusive of retaining and snap rings, precision
micro-stamped/fine-blanked solutions, high performance precision
components, engineered struts, and assemblies for industrial applications
in end markets such as aerospace, transportation, and medical.
Aerospace
Barnes Aerospace provides superior manufacturing solutions and
comprehensive component overhaul and repair services to the world’s
major turbine manufacturers, commercial airlines, and the military.
3
Actual
% of ‘15
Sales
Percentage of Sales
Industrial Segment
Molding Solutions
Engineered Components
Nitrogen Gas Products
INDUSTRIAL
SEGMENT
2016 Financial Highlights
INDUSTRIAL
SEGMENT
Actual
% of ‘15
Sales
AEROSPACE
SEGMENT
31%
27%
9%
Aerospace Segment
Original Equipment
Manufacturing (OEM)
Aftermarket: Maintenance,
Repair and Overhaul (MRO)
and Spare Parts
23%
10%
Net Sales
(Continuing Operations, $ in Millions)
Adjusted EPS (1)
(Continuing Operations)
AEROSPACE
$1,092
SEGMENT
$1,262
$1,231
$1,194
$2.53
$2.34
$2.38
$1.83
‘13
‘14
‘15
‘16
‘13
‘14
‘15
‘16
Adjusted Operating Margins (1)
(Continuing Operations)
Adjusted Free Cash Flow (1)
($ in Millions)
15.4%
15.8%
16.0%
12.9%
$172
$170
$126
$89
‘13
‘14
‘15
‘16
‘13
‘14
‘15
‘16
Cash Conversion:
118%
107%
134%
125%
4
(1) References to adjusted results are non-GAAP measures. For a reconciliation
to the appropriate GAAP measure, see the GAAP reconciliation on page 8.
Revenue Breakdown
Total Revenue
Industrial
$824M
67%
33%
Aerospace
$407M
Industrial
Aerospace
Molding
Solutions
Nitrogen Gas
Products
14%
Engineered
Components
46%
40%
OEM
71%
29%
Aftermarket
End Markets
Aerospace OEM
Aerospace Aftermarket
23%
10%
Medical, Personal
Care & Packaging
Tool & Die
9%
10%
19%
Auto Production
14%
15%
General Industrial
Auto Molding Solutions
Net Sales by Geographic Region
Americas
51%
32%
Europe
17%
Asia
5
Letter to Our Shareholders
Sound Strategy & Solid Execution
Deliver Financial Results
During 2016, Barnes Group significantly advanced along our journey to position
the Company as a leading global provider of engineered products and innovative
solutions. We endeavor to leverage the remarkable 160 year history of Barnes
Group as a high precision manufacturer, and use that knowledge and experience
as the foundation upon which to build truly differentiated industrial technologies.
We have demonstrated, and will continue to demonstrate, our ability to reinvent
the Company as technologies, end-markets, and customers’ needs change. Our
ability to adapt our business as a provider of advanced technologies, with a clear
emphasis on intellectual property, is a core differentiator for Barnes Group.
Financial Performance & Cash Generation
For 2016, sales grew to $1,231 million, an increase of 3% over 2015. Adjusted
operating income (1) grew 4% to $197.3 million, while adjusted operating margin
reached 16.0%, up 20 basis points from the previous year. Adjusted diluted
earnings per share (1) increased 6% to $2.53 versus $2.38 a year ago.
Our cash generation and cash conversion remained strong as full year cash
provided by operating activities was $218 million, inclusive of a discretionary
$15 million pension plan contribution made during the year. Free cash flow, our
operating cash flow less capital expenditures, was $170 million and our free cash
flow to net income cash conversion ratio was a very solid 125%.
We increased our quarterly cash dividend rate by 8% during the year, reflective of
our improving financial performance and good cash generation, and we are proud
to have paid a cash dividend to stockholders on a continuous basis since 1934.
Strategic Acquisitions & Capital Deployment
In recent years, we’ve done a nice job of transforming Barnes Group’s business
portfolio to one with a greater mix of differentiated technologies through organic
capital investments and strategic acquisitions. During 2016 we spent $48 million in
capital expenditures, about half of which were targeted towards growth programs,
and invested $129 million in acquisitions.
In August we acquired FOBOHA, a market leading supplier of highly automated
cube mold systems for packaging, medical, consumer, and automotive applications,
which is highly complementary to Barnes Group’s Molding Solutions business.
FOBOHA’s leading cube mold technology and in-mold automation, combined with
Männer’s high precision molds and hot runners, offer our customers an advanced
technology platform providing process reliability and exceptional output quality.
The combined capabilities in engineering,
manufacturing, and validation will deliver
best-in-class molding solutions and
enable the realization of large projects in
short timeframes.
In addition, we returned $48 million
of capital to our shareholders through
dividends and share repurchases. We
exit 2016 with strengthened operations
and a continued focus on productivity
improvement and cash generation.
6
Positioning the Company for Continued Success
In order to continue our transformation, we have aligned the organization behind three
strategic enablers – the Barnes Enterprise System, Innovation, and Talent Management.
Each is instrumental in helping us strengthen our competitive advantage in the market,
facilitate our long-term growth and success, and support the Company’s continued
evolution. The goal of these enablers is to create value for our key stakeholders – our
shareholders, customers, employees, and community.
With the Barnes Enterprise System, or BES, we strengthen our business by driving
scalable and repeatable processes and improving our operating performance, which
is clearly visible in the margin improvement we’ve produced. Many of our operational
sites and functional departments have attained higher levels of BES maturity as
validated by our objective, internal scorecard. This scorecard measures performance
on Sales Effectiveness, Technology and Innovation, Global Sourcing, Operational
Excellence, and Functional Excellence – the key focus areas of our BES initiative.
With Innovation, we look to commercialize our pipeline of new products and services
as we introduce advanced technologies to support growth. We have formalized
internal innovation metrics to measure progress across the enterprise, and we have
worked with a leading university to identify opportunities to improve speed to market
and foster improved collaboration across all of our businesses. Certainly, Innovation is
at the heart of our strategy and will be a crucial factor in our ability to adapt and secure
our long-term success.
To achieve our growth targets, we must also develop the skills and drive engagement
of our people through an integrated Talent Management System. We have
redesigned and enhanced our global talent identification, review, and succession
planning processes; all in an effort to develop the next generation of leaders for the
Company. Additionally, we have implemented many tools to assist our employees in
advancing their own career goals. Our continued success is dependent upon the 5,000
Barnes Group employees across the globe, and we are thankful for their hard work,
dedication, and contributions.
A Positive Outlook
We are pleased with the financial performance delivered and the considerable progress
made on positioning Barnes Group to perform well as we move forward. We’re driving
improved operating margins and delivering strong cash generation. We’ve transformed
the business portfolio significantly and fully expect to seek additional opportunities
that advance our intellectual property-based capabilities. Our actions have served to
strengthen our Company and we look to following a solid 2016 with an even better
2017, meeting our customer and shareholder commitments along the way in a manner
consistent with our corporate values.
Lastly, we wish to thank our shareholders, customers, and suppliers 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 2016 are non-GAAP measures. For a reconciliation
to the appropriate GAAP measure, see the GAAP reconciliation on page 8.
7
Barnes Group Inc.
Non-GAAP Financial Measure Reconciliation
(Dollars in thousands, except per share data)
(Unaudited)
CONSOLIDATED RESULTS
Operating Income (GAAP)
Männer short-term purchase accounting adjustments
Thermoplay short-term purchase accounting adjustments
FOBOHA short-term purchase accounting adjustments
Acquisition transaction costs
Restructuring/reduction in force charges
Contract termination dispute charge
Contract termination arbitration award
Pension lump-sum settlement charge
CEO transition costs
Twelve months ended December 31,
2016
2015
2014
2013
$
192,178
$
168,396
$
179,974
$
123,201
-
-
2,316
1,164
-
3,005
(1,371)
-
-
1,481
1,167
-
970
4,222
2,788
-
9,856
-
8,504
5,456
-
-
-
6,020
-
-
-
-
-
-
1,823
-
-
-
-
10,492
Operating Income as adjusted (Non-GAAP) (1)
$
197,292
$
188,880
$
194,498
$
140,972
Operating Margin (GAAP)
Operating Margin as adjusted (Non-GAAP) (1)
15.6%
16.0%
14.1%
15.8%
14.3%
15.4%
11.3%
12.9%
Diluted Income from Continuing Operations per Share (GAAP)
$
2.48
$
2.19
$
2.16
$
1.31
Männer short-term purchase accounting adjustments
Thermoplay short-term purchase accounting adjustments
FOBOHA short-term purchase accounting adjustments
Acquisition transaction costs
Restructuring/reduction in force charges
Contract termination dispute charge
Contract termination arbitration award
Pension lump-sum settlement charge
Tax benefit recognized for refund of withholding taxes
CEO transition costs
April 2013 tax court decision
-
-
0.03
0.02
-
0.03
(0.03)
-
-
-
-
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
Diluted Income from Continuing Operations per Share as adjusted
(Non-GAAP) (1)
$
2.53
$
2.38
$
2.34
$
1.83
Free cash flow:
Net cash provided by operating activities (1)
Capital expenditures
Free cash flow(2)
Free cash flow to net income cash conversion ratio (as adjusted):
Twelve months ended December 31,
2016
2015
2014
2013
$
217,646
$
217,475
$
196,153
$
16,079
(47,577)
(45,982)
(57,365)
(57,304)
$
170,069
$
171,493
$
138,788
$
(41,225)
Free cash flow (from above)
$
170,069
$
171,493
$
138,788
$
(41,225)
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)(3)
-
-
-
-
170,069
171,493
-
(12,608)
126,180
Net income
Gain on the sale of BDNA, net of tax
Pension lump-sum settlement charge, net of tax
Net income (as adjusted)(3)
135,601
121,380
118,370
-
-
-
6,182
-
-
$
135,601
$
127,562
$
118,370
$
75,210
130,004
-
88,779
270,527
(195,317)
-
Free cash flow to net income cash conversion ratio (as adjusted)(3)
125%
134%
107%
118%
8
Notes:
(1) The Company has excluded the following from its
historical “as adjusted” financial measurements:
2016
1) Transaction costs related to its FOBOHA acquisition, 2)
short-term purchase accounting adjustments related to
its FOBOHA acquisition, 3) charges related to the contract
termination dispute and 4) operating income related
to the contract termination arbitration award and the
non-operating interest income awarded.
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.
The tax effect of these items was calculated based on the
respective tax jurisdiction of each item. 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.
Notes:
(1) The Company has reclassified 2013 to 2015 Net cash
provided by operating activities to reflect new accounting
guidance related to certain aspects of share-based
payments to employees.
(2) 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.
(3) 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.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
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
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
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
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
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
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
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, 2016 was approximately $1,661,081,242 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 53,823,313 shares of common stock as of February 16, 2017.
No
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 5, 2017 are incorporated by reference into Part III.
Barnes Group Inc.
Index to Form 10-K
Year Ended December 31, 2016
Part I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. Mine Safety Disclosures
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.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Items
11-14.
Incorporated by Reference to Definitive Proxy Statement
Part IV
Item 15. Exhibits, Financial Statement Schedules
Item 16.
Form 10-K Summary
FORWARD-LOOKING STATEMENTS
Page
1
4
12
12
14
14
15
17
18
36
37
72
72
73
74
75
75
76
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 global 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 a global 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 5,000 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
the Molding Solutions, Nitrogen Gas Products and Engineered Components business units. The Aerospace segment includes the
original equipment manufacturer (“OEM”) business and the aftermarket business, which includes maintenance repair and
overhaul (“MRO”) services and the manufacture and delivery of aerospace aftermarket spare parts.
In the third quarter of 2016, the Company, through three of its subsidiaries (collectively, the “Purchaser”), completed its
acquisition of the molds business of Adval Tech Holding AG and Adval Tech Holdings (Asia) Pte. Ltd. ("FOBOHA").
FOBOHA is headquartered in Haslach, Germany and operates out of three manufacturing facilities located in Germany,
Switzerland and China. The Company completed its purchase of the Germany and Switzerland businesses on August 31, 2016.
The purchase of the China business required government approval which was granted on September 30, 2016. FOBOHA
specializes in the development and manufacture of complex plastic injection molds for packaging, medical, consumer and
automotive applications. The Company acquired FOBOHA for an aggregate cash purchase price of CHF 136.3 million ($138.6
million) which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase
price includes preliminary adjustments under the terms of the Share Purchase Agreement ("SPA"), including approximately
CHF 11.3 million ($11.5 million) related to cash acquired, and is subject to post closing adjustments under the terms of the
SPA. In connection with the acquisition, the Company recorded $39.8 million of intangible assets and $73.7 million of
goodwill. FOBOHA is being integrated into the Industrial Segment, within our Molding Solutions business unit. See Note 2 and
Note 5 to the Consolidated Financial Statements.
In the fourth quarter of 2015, the Company completed the acquisition of privately held Priamus System Technologies AG
and two of its subsidiaries (collectively, "Priamus") from Growth Finance AG. Priamus, which 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.
_________
(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.
1
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 and
cube mold assemblies - collectively, the enabling technologies for many complex plastic injection molding applications.
Industrial’s Nitrogen Gas Products business manufactures nitrogen gas springs and manifold systems used to precisely control
stamping presses. 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 rings. Engineered Components is equipped to produce many types of highly engineered precision
springs, from fine hairsprings for electronics and instruments to large heavy-duty springs for machinery.
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, Czech
Republic, China/Hong Kong, France, Germany, India, Italy, Japan, Mexico, the Netherlands, Portugal, Singapore, Slovakia,
South Africa, South Korea, Spain, Switzerland, Thailand and the United Kingdom. Sales by Industrial to its three largest
customers accounted for approximately 11% of its sales in 2016.
AEROSPACE
Aerospace is a global provider of complex fabricated and precision machined components and assemblies for OEM
turbine engine, airframe and industrial gas turbine builders, and the military. The Aerospace aftermarket business provides jet
engine component MRO services, including services performed under our Component Repair Programs (“CRPs”), for many of
the world’s major turbine engine manufacturers, commercial airlines and the military. 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 technologically 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 three largest customers, General Electric, Rolls-Royce and United Technologies Corporation,
accounted for approximately 51%, 13% and 11% of its sales in 2016, respectively. Sales to its next four largest customers in
2016 collectively accounted for approximately 10% of its total sales.
FINANCIAL INFORMATION
The backlog of the Company’s orders believed to be firm at the end of 2016 was $886 million as compared with $764
million at the end of 2015. Of the 2016 year-end backlog, $636 million was attributable to Aerospace and $250 million was
attributable to Industrial. Approximately 65% of the Company's year-end backlog is scheduled to be shipped during 2017. The
remainder of the Company’s backlog is scheduled to be shipped after 2017.
2
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 19 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
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, $13 million and $16 million in 2016, 2015 and 2014, 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.
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.
3
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.
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 2016, our net sales to
General Electric and its subsidiaries accounted for 17% of our total sales and approximately 51% of Aerospace's net sales.
Aerospace's second and third largest customers, Rolls-Royce and United Technologies Corporation and its subsidiaries,
accounted for 13% and 11%, respectively, of Aerospace net sales in 2016. Approximately 10% of Aerospace's sales in 2016
were to its next four largest customers. Approximately 11% of Industrial's sales in 2016 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, technical service, and sales centers
both within and outside the U.S. The global scope of our business subjects us to increased risks and uncertainties such as threats
4
of war, terrorism and instability of governments; and economic, regulatory and legal systems in countries in which we or our
customers conduct business.
Customer, supplier and our facilities are located in areas that may be affected by natural disasters, including earthquakes,
windstorms and floods, 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, windstorm, flood 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
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, make payments 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
5
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, 2016, we had consolidated debt obligations of $501.0 million, representing
approximately 30% 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,
2016, we and our subsidiaries had $501.0 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 fluctuations). A 100
basis point increase in the interest rate on the floating rate debt in effect at December 31, 2016 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
6
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, 2016, our inventories totaled $227.8 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. 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, 2016, our goodwill totaled $633.4 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, 2016,
we had $885.5 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 long term agreement. Our customers may have the right under certain circumstances or with certain
penalties or consequences to terminate, reduce or defer firm orders that we have in backlog. If our customers terminate, reduce
or defer firm orders, we may be protected from certain costs and losses, but our sales will nevertheless be adversely affected.
Although we strive to maintain ongoing relationships with our customers, there is an ongoing risk that orders may be canceled
or rescheduled due to fluctuations in our customers’ business needs or purchasing budgets.
Also, our realization of sales from new and existing programs is inherently subject to a number of important risks and
uncertainties, including whether our customers execute the launch of product programs on time, or at all, the number of units
that our customers actually produce, the timing of production and manufacturing insourcing decisions made by our customers.
In addition, until firm orders are placed, our customers may have the right to discontinue a program or replace us with another
supplier at any time without penalty. Our failure to realize sales from new and existing programs could have a material adverse
effect on our net sales, results of operations and cash flows.
We may not recover all of our up-front costs related to new or existing programs. New programs may require
significant up-front investments for capital equipment, engineering, inventory, design and tooling. As OEMs in the
transportation and aerospace industries have looked to suppliers to bear increasing responsibility for the design, engineering
and manufacture of systems and components, they have increasingly shifted the financial risk associated with those
responsibilities to the suppliers as well. This trend may continue and is most evident in the area of engineering cost
reimbursement. We cannot assure you that we will have adequate funds to make such up-front investments or to recover such
costs from our customers as part of our product pricing. In the event that we are unable to make such investments, or to recover
them through sales or direct reimbursement from our customers, our profitability, liquidity and cash flows may be adversely
affected. In addition, we incur costs and make capital expenditures for new program awards based upon certain estimates of
production volumes and production complexity. While we attempt to recover such costs and capital expenditures by
appropriately pricing our products, the prices of our products are based in part upon planned production volumes. If the actual
production is significantly less than planned or significantly more complex than anticipated, we may be unable to recover such
costs. In addition, because a significant portion of our overall costs is fixed, declines in our customers’ production levels can
adversely affect the level of our reported profits even if our up-front investments are recovered.
We may not realize all of the intangible assets related to the Aerospace aftermarket businesses. We participate in
aftermarket Revenue Sharing Programs ("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 life of
the related engine programs which range up to 30 years. Our total investments in participation fees under our RSPs as of
7
December 31, 2016 equaled $293.7 million, all of which have been paid. At December 31, 2016, the remaining unamortized
balance of these participation fees was $198.0 million.
We entered into Component Repair Programs ("CRPs"), also 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" 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, $9.1 million in the fourth quarter of 2014 and $0.9 million in the first quarter of 2016. 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. We paid $2.0 million in the fourth quarter of 2015 and $3.2 million was paid in
December 2016. 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 maintain market share within the
aftermarket business. A shortfall in future revenues may result in the failure to realize the net amount of the investments, which
could adversely affect our financial condition and results of operations. In addition, profitability could be impacted by the
amortization of the participation fees and licenses, and the expiration of the international tax incentives on these programs. See
“Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical
Accounting Policies”.
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,
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.
8
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 16% of our U.S. employees are covered by collective bargaining agreements and more than
37% of our non-U.S. employees are covered by collective bargaining agreements or statutory trade union agreements. The
Company has a national collective bargaining agreement (“CBA”) with certain unionized employees at the Bristol, Connecticut
and Corry, Pennsylvania facilities of the Associated Spring business unit, covering approximately 250 employees. The current
CBA will expire in August 2017, at which time we will negotiate a successor agreement. The local collective bargaining
agreement for the Milwaukee, Wisconsin facility of the Associated Spring business unit will expire on June 30, 2017, at which
time we will 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. In 2016, we also completed negotiations
resulting in wage increases at four locations in our Industrial segment and one location in our Aerospace segment, collectively
covering a total of approximately 900 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 condition, results of
operations or cash flows. Similarly, a protracted strike or work stoppage at any of our major customers, suppliers or other
vendors could materially adversely affect our business.
Changes in taxation requirements could affect our financial results. Our products are subject to import and excise
duties and/or sales or value-added taxes in many jurisdictions in which we operate. Increases in indirect taxes could affect our
products’ affordability and therefore reduce our sales. We are also subject to income tax in numerous jurisdictions in which we
generate revenues. Changes in tax laws, tax rates or tax rulings may have a significant adverse impact on our effective tax rate.
Among other things, our tax liabilities are affected by the mix of pretax income or loss among the tax jurisdictions in which we
operate and the 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. Potential tax reform discussed by the new U.S. administration, such as reducing the corporate income tax rate
or changing the repatriation and taxation of foreign earnings, may impact income tax expenses, deferred tax assets in the U.S.
and tax liability balances.
Changes in accounting guidance could affect our financial results. New accounting guidance that may become
applicable to us from time to time, or changes in the interpretations of existing guidance, could have a significant effect on our
reported results for the affected periods. 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 is expected to change the way we account for certain of our sales transactions and reported
backlog. Adoption of the standard could have a material impact on our financial statements and may retroactively affect the
accounting treatment of transactions completed before adoption. See “Part II - Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations - Other Matters” for additional disclosure related to the Company's planned
adoption of Topic 606.
9
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
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
10
business could be adversely affected. New or more stringent governmental regulations may be adopted, or industry oversight
heightened, in the future, and we may incur significant expenses to comply with any new regulations or any heightened
industry oversight.
Fluctuations in jet fuel and other energy prices may impact our operating results. Fuel costs constitute a significant
portion of operating expenses for companies in the aerospace industry. Fluctuations in fuel costs could impact levels and
frequency of aircraft maintenance and overhaul activities, and airlines' decisions on maintaining, deferring or canceling new
aircraft purchases, in part based on the value associated with new fuel efficient technologies. Widespread disruption to oil
production, refinery operations and pipeline capacity in certain areas of the U.S. can impact the price of jet fuel significantly.
Conflicts in the Middle East, an important source of oil for the U.S. and other countries where we do business, cause prices for
fuel to be volatile. Because we and many of our customers are in the aerospace industry, these fluctuations could have a
material adverse effect on our financial condition or results of operations.
Our products and services may be rendered obsolete by new products, technologies and processes. Our
manufacturing operations focus on highly engineered components which require extensive engineering and research and
development time. Our competitive advantage may be adversely impacted if we cannot continue to introduce new products
ahead of our competition, or if our products are rendered obsolete by other products or by new, different technologies and
processes. The success of our new products will depend on a number of factors, including innovation, customer acceptance, the
efficiency of our suppliers in providing materials and component parts, and the performance and quality of our products relative
to those of our competitors. We cannot predict the level of market acceptance or the amount of market share our new products
will achieve. Additionally, we may face increased or unexpected costs associated with new product introduction including the
use of additional resources such as personnel. 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 acquisition of the FOBOHA business, 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
11
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,
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.
Number of Facilities - Owned
Industrial
Aerospace
Other
Total
6
9
1
2
18
0
2
2
5
0
0
0
5
0
0
0
0
0
0
0
0
1*
0
1
11
9
1
2
23
1
2
3
12
Location
Manufacturing:
North America
Europe
Asia
Non-Manufacturing:
North America
Europe
Asia
Central and Latin America
Number of Facilities - Leased
Industrial
Aerospace
Other
Total
2
3
5
10
8
13
22
4
47
2
0
5
7
2
1
0
0
3
0
0
0
0
1**
0
0
0
1
4
3
10
17
11
14
22
4
51
** Industrial segment headquarters and certain Shared Services groups.
13
Item 3. Legal Proceedings
In November 2016, the Company’s previously disclosed arbitration with Triumph Actuation Systems - Yakima, LLC
("Triumph") was concluded. The Company was awarded $9.2 million, plus interest on the judgment of $1.4 million, which
amounts were received on January 3, 2017. The outcome did not have a material impact on the Company's consolidated
financial position, liquidity or consolidated results of operations.
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.
14
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
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
$
$
Low
30.07
31.13
32.55
37.88
Low
33.75
38.75
35.33
33.00
$
$
2016
High
35.81
37.75
41.86
49.90
2015
High
41.00
41.74
41.78
39.74
Dividends
0.12
$
0.13
0.13
0.13
Dividends
0.12
$
0.12
0.12
0.12
As of February 14, 2017, there were approximately 3,239 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 18,774 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 2016 and 2015.
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.
15
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, 2011 is set forth below.
BGI
S&P 600
Russell 2000
2011
$100.00
$100.00
$100.00
2012
$94.74
$116.30
$116.37
2013
$163.80
$164.33
$161.53
2014
$160.20
$173.75
$169.43
2015
$155.06
$170.27
$161.96
2016
$210.56
$215.26
$196.38
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, 2016
November 1-30, 2016
December 1-31, 2016
Total
Total Number
of Shares (or Units)
Purchased
Average Price
Paid Per Share
(or Unit)
100
124,792
—
124,892 (1)
$
$
$
$
40.55
38.95
—
38.95
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
—
124,792
—
124,792
Maximum Number of
Shares (or Units) that
May Yet Be Purchased
Under the Plans or
Programs
(2)
4,573,798
4,449,006
4,449,006
(1) Other than 124,792 shares purchased in the fourth quarter of 2016, which were purchased as part of the Company's 2011 Program (defined below),
all acquisitions of equity securities during the fourth quarter of 2016 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.
16
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
2016 (5)
2015 (6)
2014
2013 (7)(9)
2012 (8)(9)
$
$
2.50
2.48
$
2.21
2.19
$
2.20
2.16
$
1.34
1.31
1.46
1.44
2.50
2.48
0.51
21.72
47.42
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
$1,230,754
192,178
$ 1,193,975
$ 1,262,006
$ 1,091,566
$ 928,780
168,396
179,974
123,201
107,131
15.6%
14.1%
14.3%
11.3%
11.5%
$ 135,601
$ 121,380
$ 120,541
$ 72,321
$ 79,830
11.0%
10.2%
9.6%
6.6%
8.6%
$ 135,601
$ 121,380
$ 118,370
$ 270,527
$ 95,249
As a percent of net sales
As a percent of average stockholders’ equity (2)
11.0%
11.6%
10.2%
10.7%
9.4%
10.3%
24.8%
28.3%
10.3%
12.6%
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
$ 80,154
$ 78,242
$ 81,395
$ 65,052
$ 57,360
47,577
54,191
54,631
45,982
55,028
55,513
57,365
54,791
55,723
57,304
53,860
54,973
37,787
54,626
55,224
$ 306,609
$ 359,038
$ 323,306
$ 276,878
$ 418,645
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)
633,436
522,258
334,489
2,137,539
500,954
587,992
528,322
308,856
594,949
554,694
299,435
649,697
534,293
302,558
579,905
383,972
233,097
2,061,866
2,073,885
2,123,673
1,868,596
509,906
504,734
547,424
1,168,358
1,127,753
1,111,793
1,141,414
646,613
800,118
30.0%
31.1%
31.2%
32.4%
44.7%
5,036
4,735
4,515
4,331
3,795
(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, 2015 and December 31, 2016 (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 2016, the Company completed the acquisition of FOBOHA. The results of FOBOHA, from the acquisition on August 31, 2016, have been included
within the Company's Consolidated Financial Statements for the period ended December 31, 2016.
(6) 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.
(7) 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.
(8) 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.
(9) During 2013, the Company sold the BDNA business within the segment formerly referred to as Distribution. The results of the BDNA business, including any
(loss) gain on the sale of business, have been reported through discontinued operations during the respective periods.
17
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
2016 Highlights
Barnes Group Inc. (the "Company") achieved sales of $1,230.8 million in 2016, an increase of $36.8 million, or 3.1%,
from 2015. Acquired businesses contributed incremental sales of $47.4 million during 2016. Organic sales (net sales excluding
both foreign currency and acquisition impacts) decreased by $1.1 million, or 0.1%, with an increase of 0.5% and a decrease of
1.3% within the Industrial and Aerospace segments, respectively. Sales in the Industrial segment were impacted by changes in
foreign currency which decreased sales by approximately $9.6 million as the U.S. dollar strengthened against foreign
currencies.
Operating income increased 14.1% from $168.4 million in 2015 to $192.2 million in 2016 and operating margin
increased from 14.1% in 2015 to 15.6% in 2016. Operating income was impacted by improved productivity within Industrial
and the profit contributions of the incremental sales generated at our recently acquired businesses, partially offset by
unfavorable pricing within both segments. Operating income during 2016 and 2015 included $2.3 million and $2.6 million of
short-term purchase accounting adjustments, respectively, related to recent business acquisitions. Operating income in 2015
included a $9.9 million lump-sum pension settlement charge and $4.2 million of charges related to certain workforce reductions
and restructuring charges.
The Company focused on profitable sales growth both organically and through acquisition, in addition to productivity
improvements, as key strategic objectives in 2016. Management continued its focus on cash flow and working capital
management in 2016 and generated $217.6 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 following our entrance into the plastic injection molding market.
In the third quarter of 2016, the Company, through three of its subsidiaries (collectively, the “Purchaser”), completed its
acquisition of the molds business of Adval Tech Holding AG and Adval Tech Holdings (Asia) Pte. Ltd. ("FOBOHA").
FOBOHA is headquartered in Haslach, Germany and operates out of three manufacturing facilities located in Germany,
Switzerland and China. The Company completed its purchase of the Germany and Switzerland businesses on August 31, 2016.
The purchase of the China business required government approval which was granted on September 30, 2016. FOBOHA
specializes in the development and manufacture of complex plastic injection molds for packaging, medical, consumer and
automotive applications. The Company acquired FOBOHA for an aggregate cash purchase price of CHF 136.3 million ($138.6
million) which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase
price includes preliminary adjustments under the terms of the Share Purchase Agreement ("SPA"), including approximately
CHF 11.3 million ($11.5 million) related to cash acquired, and is subject to post closing adjustments under the terms of the
SPA. In connection with the acquisition, the Company recorded $39.8 million of intangible assets and $73.7 million of
goodwill. See Note 2 and Note 5 to the Consolidated Financial Statements.
In the fourth quarter of 2015, the Company, itself and through two of its subsidiaries, completed the acquisition of
privately held Priamus System Technologies AG and two of its subsidiaries (collectively, "Priamus") from Growth Finance AG.
Priamus, 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 has been integrated into our Industrial
18
segment. The Company acquired Priamus for an aggregate cash purchase price of CHF 9.9 million ($10.1 million) which was
financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes
adjustments under the terms of the Share Purchase Agreement, including CHF 1.6 million ($1.6 million) related to cash
acquired. See Note 2 of the Consolidated Financial Statements.
In the third quarter of 2015, the Company, through one of its subsidiaries, completed the acquisition of the Thermoplay
business ("Thermoplay") by acquiring all of the capital stock of privately held HPE S.p.A., the parent company through which
Thermoplay operates ("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 has been integrated into our Industrial segment, specializes in the design, development, and manufacturing
of hot runner solutions for plastic injection molding, primarily in the packaging, automotive, and medical end markets. The
Company acquired Thermoplay for an aggregate cash purchase price of €58.1 million ($63.7 million), pursuant to the terms of
the Sale and Purchase Agreement ("SPA"), which was financed using cash on hand and borrowings under the Company's
revolving credit facility. The purchase price includes adjustments under the terms of the SPA, including €17.1 million ($18.7
million) related to cash acquired. See Note 2 of the Consolidated Financial Statements.
Management Objectives
Management focused on three key strategic enablers during 2016: deployment of the Barnes Enterprise System,
accelerating innovation and maturing the talent management system, 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, systems, 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.
Key Performance Indicators
Management evaluates the performance of its reportable segments based on the sales, operating profit, operating margins
and cash generation of the respective businesses, which includes net sales, cost of sales, selling and administrative expenses and
certain components of other income and other expenses, as well as the allocation of corporate overhead expenses. 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 productivity/efficiency metrics (sales effectiveness, global sourcing, operational excellence,
functional excellence, sales per employee, cost of quality, and days working capital), 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.
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.
19
RESULTS OF OPERATIONS
Sales
($ in millions)
Industrial
Aerospace
Total
2016 vs. 2015:
2016
2015
$ Change
% Change
2014
$
$
824.2
406.5
1,230.8
$
$
782.3
411.7
1,194.0
$
$
41.9
(5.2)
36.8
5.4 % $
(1.3)%
822.1
440.0
3.1 % $
1,262.0
The Company reported net sales of $1,230.8 million in 2016, an increase of $36.8 million, or 3.1%, from 2015. Acquired
businesses contributed incremental sales of $47.4 million during the 2016 period. Organic sales within Industrial increased by
$4.1 million, or 0.5%, during 2016, primarily due to strength in our Molding Solutions businesses, slightly offset by continued
softness in North American general industrial end-markets. Aerospace recorded sales of $406.5 million in 2016, a $5.2 million,
or 1.3% decrease from 2015. Lower sales within the OEM and spare parts businesses were partially offset by increased sales
within the MRO business. The impact of foreign currency translation decreased sales within Industrial by approximately $9.6
million as the U.S. dollar strengthened against foreign currencies. Sales within Aerospace were not impacted by changes in
foreign currency as these are largely denominated in U.S. dollars. The Company’s international sales increased 10.4% year-
over-year, while domestic sales decreased 4.7%, largely a result Aerospace sales being primarily U.S.-based. Excluding the
impact of foreign currency translation on sales, however, the Company's international sales in 2016 increased 12.0%, inclusive
of sales through acquisition, from 2015.
2015 vs. 2014:
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
$68.8 million as the U.S. dollar strengthened against foreign currencies. Sales within Aerospace were not impacted by changes
in foreign currency as these are largely denominated in U.S. dollars. The Company’s international sales decreased 2.4% year-
over-year, while domestic sales decreased 4.7%. Excluding the impact of foreign currency translation on sales, however, the
Company's international sales in 2015 increased 7.8%, inclusive of sales through acquisition, from 2014.
20
Expenses and Operating Income
($ in millions)
Cost of sales
% sales
Gross profit (1)
% sales
Selling and administrative expenses
% sales
Operating income
% sales
(1) Sales less cost of sales
2016 vs. 2015:
2016
2015
$ Change
% Change
2014
$
$
$
$
$
$
$
$
790.3
64.2%
440.5
35.8%
248.3
20.2%
192.2
15.6%
$
$
$
$
782.8
65.6%
411.2
34.4%
242.8
20.3%
168.4
14.1%
7.5
29.3
5.5
23.8
1.0% $
7.1% $
2.3% $
14.1% $
829.6
65.7%
432.4
34.3%
252.4
20.0%
180.0
14.3%
Cost of sales in 2016 increased 1.0% from 2015, while gross profit margin increased from 34.4% in 2015 to 35.8% in
2016. Gross margins improved at Industrial and decreased at Aerospace. Gross margin during the comparable 2015 period
included a charge of $6.4 million related to a lump-sum pension settlement charge (see Note 11 of the Consolidated Financial
Statements). At Industrial, gross profit increased during 2016 primarily as a result of favorable productivity and strength within
the Molding Solutions businesses. Gross profit during 2016 was negatively impacted by $2.3 million of short-term purchase
accounting adjustments related to the acquisition of FOBOHA, whereas the 2015 period included $0.9 million of short-term
purchase accounting adjustments related to the acquisition of the Männer business and $0.9 million of short-term purchase
accounting adjustments related to the acquisition of Thermoplay. Within Aerospace, a decline in gross profit relates primarily to
lower sales volumes and unfavorable productivity. Selling and administrative expenses in 2016 increased 2.3% from the 2015
period, due in part to $3.0 million of costs related to the contract termination dispute within the Aerospace segment and the
incremental operations of the acquired businesses, partially offset by an $0.8 million reduction in short-term purchase
accounting adjustments related to acquisitions. During the 2015 period, selling and administrative expenses included $4.2
million of charges related to workforce reductions and severance, and $3.5 million of lump-sum pension settlement charges.
Short-term purchase accounting adjustments that impact selling and administrative expenses during 2015 included $0.6 million
and $0.3 million related to the acquisitions of Männer and Thermoplay, respectively. As a percentage of sales, selling and
administrative costs decreased slightly from 20.3% in the 2015 period to 20.2% in the 2016 period. Operating income in the
2016 period increased 14.1% to $192.2 million from 2015 and operating income margin increased from 14.1% to 15.6%.
2015 vs. 2014:
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 11 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.
21
Interest expense
2016 vs. 2015:
Interest expense in 2016 increased $1.2 million to $11.9 million from 2015, primarily as a result of higher average interest
rates.
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.
Other expense (income), net
2016 vs. 2015:
Other expense (income), net in 2016 was $(2.3) million compared to $(0.2) million in 2015. Foreign currency gains of
$1.9 million in the 2016 period compared with gains of $0.5 million in the 2015 period. Interest income of $2.3 million in 2016
compared with interest income of $1.0 million during 2015, with the increase being primarily attributed to the $1.4 million of
interest income resulting from the Triumph arbitration award. See Note 20 of the Consolidated Financial Statements.
2015 vs. 2014:
Other expense (income), 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.
Income Taxes
2016 vs. 2015:
The Company’s effective tax rate from continuing operations was 25.7% in 2016 compared with 23.2% in 2015. The
increase in the 2016 effective tax rate from continuing operations is primarily due to the expiration of certain tax holidays, the
absence of the 2015 refund of withholding taxes and the change in the mix of earnings attributable to higher-taxing
jurisdictions, partially offset by lower repatriation of a portion of current year foreign earnings to the U.S and the excess tax
benefit on stock awards, reflecting the amended guidance related to share-based payments made to employees. See Note 21 of
the Consolidated Financial Statements. During 2016, the Company repatriated a dividend from a portion of the current year
foreign earnings to the U.S. in the amount of $8.3 million compared to $19.5 million in 2015. The decrease in the dividend
decreased tax expense by $3.9 million and decreased the annual effective tax rate by 2.2 percentage points compared to 2015.
In 2017, the Company expects the effective tax rate from continuing operations to increase to between 27% and 28%
primarily due to the absence of any excess tax benefit on stock awards and the expiration of certain foreign tax holidays.
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.
See Note 13 of the Consolidated Financial Statements for a reconciliation of the U.S. federal statutory income tax rate to
the consolidated effective income tax rate.
22
Income and Income Per Share
(in millions, except per share)
Income from continuing operations
Loss from discontinued operations, net of
income taxes
Net income
Per common share:
Basic:
Income from continuing operations
Loss from discontinued operations,
net of income taxes
Net income
Diluted:
Income from continuing operations
Loss from discontinued operations,
net of income taxes
Net income
Weighted average common shares
outstanding:
Basic
Diluted
2016
2015
Change
% Change
2014
$
$
$
$
$
$
135.6
$
121.4
$
—
—
135.6
$
121.4
$
2.50
$
2.21
$
$
$
—
2.50
2.48
—
$
$
—
2.21
2.19
—
2.48
$
2.19
$
14.2
—
14.2
0.29
—
0.29
0.29
—
0.29
11.7 % $
120.5
11.7 % $
(2.2)
118.4
13.1 % $
2.20
13.1 % $
(0.04)
2.16
13.2 % $
2.16
13.2 % $
(0.04)
2.12
54.8
55.7
54.2
54.6
55.0
55.5
(0.8)
(0.9)
(1.5)%
(1.6)%
Basic and diluted income from continuing operations per common share increased for 2016 as compared to 2015,
consistent with the changes in income from continuing operations year over year. Basic and diluted weighted average common
shares outstanding decreased due to the repurchase of 1,352,596 and 550,994 shares during 2015 and 2016, respectively, as part
of the Company's repurchase program. The impact of the repurchased shares was partially offset by the issuance of shares for
employee stock plans.
Financial Performance by Business Segment
Industrial
($ in millions)
Sales
Operating profit
Operating margin
2016 vs. 2015:
2016
2015
$ Change
% Change
2014
$
$
824.2
129.7
15.7%
$
782.3
103.0
13.2%
41.9
26.7
5.4% $
26.0%
822.1
108.4
13.2%
Sales at Industrial were $824.2 million in 2016, an increase of $41.9 million, or 5.4%, from 2015. Acquired businesses
contributed incremental sales of $47.4 million during the 2016 period. Organic sales increased by $4.1 million, or 0.5%, during
2016, driven primarily by strength in our Molding Solutions businesses, slightly offset by continued softness in North American
general industrial end-markets. The impact of foreign currency translation decreased sales by approximately $9.6 million as the
U.S. dollar strengthened against foreign currencies.
Operating profit in 2016 at Industrial was $129.7 million, an increase of 26.0% from 2015. The increase was driven by
favorable productivity, as the Company continued its focus on manufacturing efficiencies and improved supply chain
management across multiple units, and the profit contributions of acquired businesses, partially offset by lower pricing. The
2015 period included $3.6 million of short-term purchase accounting adjustments and transaction costs related to business
acquisitions, whereas the acquisition of FOBOHA during the 2016 period resulted in $3.5 million of such costs. The 2015
period also included lump-sum pension settlement charges of $7.5 million that were allocated to the segment and $3.4 million
of charges related to certain workforce reductions and restructuring.
23
Outlook:
In Industrial, 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. For
general industrial end-markets, manufacturing Purchasing Managers Indexes ("PMIs") above 50 in North America and Europe
are positive signs. China, although relatively stable during the first half of 2016, demonstrated strength during the second half
of the year. Within China, we have seen a strengthening in orders that began during the second quarter and continued
throughout the remainder of 2016, indicating strength within the transportation markets. Global forecasted production for light
vehicles is expected to grow nominally in 2017, however production is expected to remain stable within the markets in which
the Company operates. Within our Molding Solution businesses, North American and European markets remain healthy, while
demand in Asia is more modest. For the Molding Solutions businesses in 2017, we anticipate favorable demand trends to
continue within the medical and personal care hot runner markets and the packaging and medical mold markets. As noted
above, our sales were negatively impacted by fluctuations in foreign currencies during 2016 of $9.6 million. To the extent that
the U.S. dollar remains strong as compared with the 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 most of our 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.
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, global sourcing and productivity. Workforce reductions and facility consolidations initiated in 2015,
combined with other productivity initiatives during 2016, contributed favorably throughout the year. We continue to evaluate
market conditions and remain proactive in managing costs. Costs associated with new product and process introductions,
productivity or restructuring initiatives, strategic investments and the integration of acquisitions may negatively impact
operating profit.
2015 vs. 2014:
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, 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 $6.0 million of pre-tax restructuring charges related
to the closure of production operations at the facility in Saline, Michigan.
24
Aerospace
($ in millions)
Sales
Operating profit
Operating margin
2016 vs. 2015:
2016
2015
$ Change
% Change
2014
$
$
406.5
62.5
15.4%
$
411.7
65.4
15.9%
(5.2)
(2.9)
(1.3)% $
(4.5)%
440.0
71.6
16.3%
Aerospace recorded sales of $406.5 million in 2016, a 1.3% decrease from 2015. Lower sales within the original
equipment manufacturing ("OEM") and spare parts businesses were partially offset by increased sales within the aftermarket
maintenance repair and overhaul ("MRO") business. During the 2016 period, the segment continued to transition from the
manufacture of components on legacy engine platforms to newer, more technologically advanced platforms. Lower volumes on
the GE90 engine platform, as well as on other mature engine platforms, were partially offset by increased volume generated by
newer programs within the OEM business. A decline in aftermarket spare parts was partially offset by a volume increase in the
MRO business. Customer inventory management resulted in lower volumes within the spare parts business. Sales within the
MRO business, although soft during the first half of the year, improved during the second half of 2016 as we obtained
additional sales volume from existing customers. This business, however, continues to be impacted by airlines continuing to
closely manage their aftermarket costs and as engine performance and quality has improved. Sales were not impacted by
changes in foreign currency as sales within the segment are largely denominated in U.S. dollars.
Operating profit at Aerospace decreased 4.5% from 2015 to $62.5 million. The operating profit decrease was primarily
due to pricing deflation, the profit impact of lower volumes within the highly profitable spare parts business and unfavorable
productivity, primarily a result of the transition from legacy engine platforms to newer, more advanced programs. Operating
profit included a $1.4 million benefit from the contract termination arbitration award. Charges related to the contract
termination dispute approximated $3.0 million and $2.8 million during the 2016 and 2015 periods, respectively. Operating
profit in 2015 also included a lump-sum pension settlement charge of $2.4 million that was allocated to the segment and $0.8
million in workforce reduction and restructuring charges.
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 strength in demand for new engines, driven by an
expected increase in commercial aircraft production levels. The Company sees 2016 as having been a transition year for the
Aerospace OEM business as it moves from declining production on some of its legacy engine programs onto the ramping of
several new engine programs. Backlog at OEM was $626.3 million at December 31, 2016, an increase of 11.1% since
December 31, 2015, at which time backlog was $563.9 million. Approximately 50% of OEM backlog is expected to ship in the
next 12 months. The Aerospace OEM business may be impacted by changes in the content levels on certain platforms, changes
in customer sourcing decisions, adjustments to customer inventory levels, commodity availability and pricing, changes in
production schedules of specific engine and airframe programs, redesign of parts, quantity of parts per engine, cost schedules
agreed to under contract with the engine manufacturers, as well as the pursuit and duration of new programs. Sales in the
Aerospace aftermarket business may be impacted by fluctuations in end-market demand, 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.
Management is focused on growing operating profit at Aerospace primarily through leveraging organic sales growth,
strategic investments, new product and process introductions, and productivity. Operating profit is expected to be affected by
the impact of changes in sales volume, mix and pricing, particularly as they relate to the highly profitable aftermarket RSP
25
spare parts business, and investments made in each of its businesses. During 2015, the Company responded to the challenging
economic environment affecting certain of our Aerospace businesses. Workforce reductions and restructure charges were
recorded following reduced aftermarket volumes and the impact of a customer's in-sourcing decision. Taking these actions
supported our productivity initiatives and have begun to favorably impact segment results during 2016. Costs associated with
new product and process introductions, the initial physical transfer of work to lower cost manufacturing regions, additional
productivity initiatives and restructuring activities may also negatively impact operating profit.
2015 vs. 2014:
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.
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 2017 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 pays 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, 2016, 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
26
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. 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 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. In October 2014, the Company entered into a third
amendment to its fifth amended and restated revolving credit agreement, which allowed for the issuance of the Note Purchase
Agreement.
The Company's borrowing capacity was 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, 2016, 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, 2016. The actual ratio at December 31, 2016 was 1.69 times.
In February 2017, the Company entered into the fourth amendment of its fifth amended and restated revolving credit
agreement (the “the Fourth Amendment”) and retained Bank of America, N.A as the Administrative Agent for the lenders. The
Fourth Amendment increases the facility to $850.0 million and extends the maturity date to February 2022. The Fourth
Amendment also increases the existing accordion feature, allowing the Company to request additional borrowings of up to
$350.0 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 not continuing. The borrowing availability of $850.0 million, pursuant to the terms of the
Fourth Amendment, allow for multi-currency borrowing which includes euro, sterling or Swiss franc borrowing, up to $600.0
million. Depending on the Company’s consolidated leverage ratio, and at the election of the Company, borrowings under the
Fourth Amendment will bear interest at either LIBOR plus a margin of between 1.10% and 1.70% or the base rate plus a margin
of 0.10% to 0.70%. The Fourth Amendment generally requires the Company to maintain a ratio of Consolidated Senior Debt, as
defined, to Consolidated EBITDA of not more than 3.25 times, a ratio of Consolidated Total Debt, as defined, to Consolidated
EBITDA, as defined, of not more than 3.75 times, and a ratio of Consolidated EBITDA to Consolidated Cash Interest Expense,
as defined, of not less than 4.25 times, in each case at the end of each fiscal quarter; provided that these debt to EBITDA ratios
are permitted to increase for a period of four fiscal quarters after the closing of certain permitted acquisitions.
In 2016, 2015 and 2014, the Company acquired 0.6 million shares, 1.4 million shares and 0.2 million shares of the
Company's common stock, respectively, at a cost of $20.5 million, $52.1 million and $8.4 million, respectively.
In the third quarter of 2016, the Company, through three of its subsidiaries (collectively, the “Purchaser”), completed its
acquisition of the molds business of Adval Tech Holding AG and Adval Tech Holdings (Asia) Pte. Ltd. ("FOBOHA")
(collectively, the “Sellers”). See Note 2 of the Consolidated Financial Statements. The Company acquired FOBOHA for an
aggregate cash purchase price of CHF 136.3 million ($138.6 million) which was financed using cash on hand and borrowings
under the Company's revolving credit facility. The purchase price includes preliminary adjustments under the terms of the Sale
and Purchase Agreement ("SPA"), including approximately CHF 11.3 million ($11.5 million) related to cash acquired, and is
subject to post closing adjustments under the terms of the SPA The aggregate purchase was paid using cash on hand of $68.5
million and borrowings of $70.1 million under the Company's revolving credit facility. At December 31, 2016, the Company
had repaid $62.0 million of the borrowings under the revolving credit facility using cash generated from its foreign operations.
In July 2016, the Company entered into forward contract agreements (CHF 133.0 million in aggregate) to reduce the exposure
to foreign currency exchange rates on the purchase price. These forward contract agreements were subsequently settled in
August 2016 and did not have a significant impact on the Consolidated Statements of Income.
27
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 Fourth
Amendment of the Amended Credit Facility and currently expects that its bank syndicate, comprised of 14 banks, will continue
to support its Amended Credit Agreement which matures in February 2022. At December 31, 2016, the Company had $386.7
million unused and available for borrowings under its then existing $750.0 million Amended Credit Facility, subject to
covenants in the Company's debt agreements. At December 31, 2016, additional borrowings of $683.2 million of Total Debt
and $461.2 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 $30.7 million in borrowings under short-term bank credit lines at December 31, 2016.
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, 2016 and December 31, 2015, the Company's total borrowings were comprised of 41% fixed
rate debt and 59% variable rate debt.
The funded status of the Company's pension plans is dependent upon many factors, including actual rates of return that
impact the fair value of pension assets and changes in discount rates that impact projected benefit obligations. The unfunded
status of the pension plans increased from $65.7 million at December 31, 2015 to $77.0 million at December 31, 2016 as the
increase in the projected benefit obligations ("PBOs") exceeded the increase in the fair value of the pension plan assets,
following an update of certain actuarial assumptions. The Company recorded a $8.9 million non-cash after-tax decrease 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 decrease in stockholders equity resulted primarily from changes in actuarial assumptions, primarily
the discount rate, and unfavorable variances between expected and actual returns on pension plan assets, offset by the
amortization of actuarial losses recorded earlier. In 2016, as planned, the Company made $15.0 million in discretionary
contributions to the U.S. qualified pension plans. The Company expects to contribute approximately $4.9 million to its various
defined benefit pension plans in 2017. No discretionary contributions to the U.S. Qualified pension plans in 2017 are currently
planned. See Note 11 of the Consolidated Financial Statements.
At December 31, 2016, the Company held $66.4 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 $8.3 million of current year foreign earnings to the U.S. during 2016.
Any future acquisitions are expected to be financed through internal cash, borrowings and equity, or a combination
thereof. Additionally, we may from time to time seek to retire or repurchase our outstanding debt through cash purchases and/
or exchanges for equity securities, in open market purchases, under a Rule 10b5-1 trading plan, privately negotiated
transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity
requirements, contractual restrictions and other factors.
Cash Flow
($ in millions)
Operating activities
Investing activities
Financing activities
Exchange rate effect
(Decrease) increase in cash
________________________
NM – Not meaningful
2016
2015
$ Change
% Change
2014
$
$
$
217.6
(179.5)
(53.3)
(2.3)
(17.5) $
217.5
(115.5)
(59.2)
(4.9)
37.9
$
$
0.2
(64.0)
5.9
2.6
(55.4)
0.1 % $
(55.4)%
9.9 %
53.2 %
NM $
196.2
(124.2)
(92.8)
(3.9)
(24.8)
Operating activities provided $217.6 million in 2016 compared to $217.5 million in 2015. Operating cash flows in the
2016 period were positively impacted by improved operating performance as well as a reduction in outflows of accrued
liabilities, including employee incentive compensation payments. Cash inflows in the 2016 period were partially offset by an
28
outflow of $15.0 million related to discretionary contributions to the U.S. Qualified pension plans and were negatively
impacted by an increase in receivables resulting from sales growth which generated a use of cash in 2016.
Investing activities used $179.5 million in cash in 2016 and $115.5 million in 2015. Investing activities in 2016 include a
cash outflow of $127.1 million used to fund the FOBOHA acquisition compared to $52.0 million used to fund the Thermoplay
and Priamus acquistions in 2015. Investing activities in 2016 also include a payment of $1.5 million related to the post-
acquisition closing adjustment of Thermoplay. Payments related to the Component Repair Programs ("CRPs") were $4.1
million in 2016 compared to $21.0 million in 2015. See Note 5 of the Consolidated Financial Statements. Capital expenditures
were $47.6 million in 2016 compared to $46.0 million in 2015. The Company expects capital spending in 2017 to approximate
$55 million. Capital expenditures relate to both maintenance needs and support of growth initiatives, which include the
purchase of equipment to support new products and services, and will be funded primarily through cash flows from operations.
Cash used by financing activities in 2016 included a net decrease in borrowings of $9.9 million compared to a net
increase of $2.7 million in 2015. In 2016, the Company borrowed $100.0 million under the Amended Credit Facility through
an international subsidiary. The proceeds were distributed to the Parent Company and subsequently used to pay down U.S.
borrowings under the Amended Credit Agreement. Proceeds from the issuance of common stock were $4.6 million and $11.4
million in 2016 and 2015, respectively. In 2016, the Company repurchased 0.6 million shares of the Company's stock at a cost
of $20.5 million, compared with the purchase of 1.4 million shares at a cost of $52.1 million in 2015. Total cash used to pay
dividends increased slightly to $27.4 million in 2016 compared to $26.2 million in 2015. Withholding taxes paid on stock
issuances in the 2016 and 2015 periods were $4.9 million and $4.9 million, respectively. Other financing cash flows during
2016 and 2015 include $5.2 million and $10.3 million, respectively, 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, 2016,
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, 2016. 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):
29
Net income
Add back:
Interest expense
Income taxes
Depreciation and amortization
Adjustment for non-cash stock based compensation
Adjustment for acquired businesses
Amortization of FOBOHA acquisition inventory step-up
Other adjustments
Consolidated EBITDA, as defined
Consolidated Senior Debt, as defined, as of December 31, 2016
Ratio of Consolidated Senior Debt to Consolidated EBITDA
Maximum
Consolidated Total Debt, as defined, as of December 31, 2016
Ratio of Consolidated Total Debt to Consolidated EBITDA
Maximum
Consolidated Cash Interest Expense, as defined, as of December 31, 2016
Ratio of Consolidated EBITDA to Consolidated Cash Interest Expense
Minimum
2016
135.6
$
11.9
47.0
80.2
11.1
7.4
2.3
0.6
296.0
501.0
1.69
3.25
501.0
1.69
4.00
13.1
22.55
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 FOBOHA for the period from January 1,
2016 through August 31, 2016. Other adjustments consist primarily of net gains on the sale of assets 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, 2016, additional borrowings of $683.2 million of Total Debt and $461.2
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, 2016 were $386.7 million.
Contractual Obligations and Commitments
At December 31, 2016, the Company had the following contractual obligations and commitments:
($ 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
Total
Less than
1 Year
1-3
Years
3-5
Years
More than
5 Years
$
470.1
$
2.1
$
365.3
$
1.0
$
101.8
43.8
33.5
139.9
4.9
29.8
11.0
7.9
128.0
4.9
4.0
13.3
10.6
9.0
—
6.5
8.2
7.2
2.5
—
6.4
$
722.0
$
157.9
$
404.7
$
25.2
$
11.3
7.8
0.4
—
12.9
134.2
(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, 2016.
(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.
30
(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 2026. See Note 11 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 13 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 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, 2016, the Company had $633.4
million and $42.8 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
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 2016 assessment, the estimated fair value of all reporting units significantly exceeded their
carrying values and there was no goodwill impairment at any of the reporting units. 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
2016 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 2016. Based on this assessment, there was no trade name impairment recognized.
31
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 $198.0 million at December 31, 2016. 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 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 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 5 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 11 of the Consolidated Financial Statements. As discussed further below, the
significant assumptions that impact pension and other postretirement benefits include discount rates, mortality rates and
expected long-term rates of return on invested pension assets.
The 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
________________________
(1) Historical returns based on the life of the respective index, or approximately 30 years.
32
Target
Asset
Mix %
Annual Return %
Historical
(1)
Long-
Term
Projection
6
5
4
2
2
13
20
13
15
15
5
9.8
10.3
11.7
8.1
11.1
8.5
4.2
9.4
8.3
8.2
3.2
8.4
8.1
8.1
8.4
9.2
9.2
8.0
9.4
12.1
3.8
4.2
2.6
7.75
The historical rates of return for the Company's defined benefit plans were calculated based upon compounded average
rates of return of published indices. The target mix reflects a 65% equity investment target and a 35% target for fixed income
and cash investments (in aggregate). The equity investment of 65% is more heavily on global equity investment targets, rather
than U.S. targets. Based on the historical and projected rates of return of the weighted target asset mix, management selected a
long-term expected rate of return on its U.S. pension assets of 7.75%. The long-term rates of return for non-U.S. plans were
selected based on actual historical rates of return of published indices that 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, 2016, the Company selected a discount rate of 4.50% based on a bond matching model for
its U.S. pension plans. Market interest rates have decreased in 2016 as compared with 2015 and, as a result, the discount rate
used to measure pension liabilities decreased from 4.65% at December 31, 2015. 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, 2016 would impact the Company’s 2017 pre-tax income by approximately $0.8 million. A one-quarter
percentage point decrease in the discount rate on the Company's U.S. pension plans as of December 31, 2016 would decrease
the Company’s 2017 pre-tax income by approximately $1.1 million. The Company reviews these and other assumptions at least
annually.
The Company recorded a $8.9 million non-cash after-tax decrease 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 decrease in stockholders
equity resulted primarily from changes in actuarial assumptions, primarily the discount rate, and unfavorable variances between
expected and actual returns on pension plan assets, offset by the amortization of actuarial losses recorded earlier. During 2016,
the fair value of the Company’s pension plan assets increased by $21.5 million and the projected benefit obligation increased by
$32.9 million. The change in the projected benefit obligation included a $17.5 million (pre-tax) increase due to actuarial losses
resulting primarily from a change in the discount rates used to measure pension liabilities, an annual interest cost of $19.5
million and a liability transfer of $26.0 million related to the acquisition of FOBOHA on August 31, 2016. These increases were
partially offset by $31.2 million in benefits paid. Changes to other actuarial assumptions in 2016 did not have a material impact
on our stockholders equity or projected benefit obligation. Actual pre-tax gains on total pension plan assets were $20.3 million
compared with an expected pre-tax return on pension assets of $30.3 million. Pension expense for 2017 is expected to increase
from $5.6 million in 2016 to $7.7 million in 2017.
Income Taxes: As of December 31, 2016, the Company had recognized $25.4 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 unlikely, a valuation allowance is provided. Management currently
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 13 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 values of market based performance share awards are
estimated using the Monte Carlo valuation method. See Note 12 of the Consolidated Financial Statements.
33
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 currently anticipates adopting the amended guidance using the modified
retrospective approach. We currently plan to adopt the amended guidance on January 1, 2018 at which time it becomes effective
for the Company.
In 2015, we developed a project plan and established a cross-functional team to implement the amended guidance. We are
currently reviewing our contracts and evaluating the impact of the amended guidance on each of our primary revenue streams.
We expect to complete our evaluation of contracts in the first half of 2017. While we are continuing to assess all potential
impacts of the amended guidance, we currently believe that the most significant impact relates to the timing of revenue
recognition. We expect that a substantial portion of our businesses will continue to recognize revenue on a "point-in-time
basis". We also expect, however, that a portion of our businesses with customized products will require the use of an "over
time" recognition model as certain of our contracts may meet one or more of the mandatory criteria established in the amended
guidance. In addition, we are in the process of identifying appropriate changes to our business processes, systems and controls
to support recognition and disclosure requirements under the new standard. We expect to design any changes to such business
processes, controls and systems by the middle of 2017 and implement the changes over the remainder of 2017.
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 and 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
within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company does not anticipate a
material impact on its Consolidated Financial Statements.
In February 2016, the FASB amended its guidance related to lease accounting. The amended guidance requires lessees to
recognize a majority of its leases on the balance sheet as a right-to-use asset. Lessees are permitted to make an accounting
policy election to not recognize an asset and liability for leases with a term of twelve months or less. Lease expense will be
recorded in a manner similar to current accounting. The guidance is effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the
guidance to determine the impact it will have on its Consolidated Financial Statements. The Company anticipates the amended
guidance will have a material impact on its assets and liabilities due to the addition of right-of-use assets and lease liabilities to
the balance sheet; however, it does not expect the amended guidance to have a material impact on its cash flows or results of
operations.
In August 2016, the FASB amended its guidance related to the Statement of Cash Flows. The amended guidance clarifies
how certain cash receipts and cash payments should be presented on the statement of cash flows, with focus on eight specific
areas in which cash flows have, in practice, been presented inconsistently. The guidance is effective for annual periods
beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted. The Company is
currently evaluating the guidance to determine the impact it will have on its Consolidated Financial Statements.
EBITDA
Earnings before interest expense, income taxes, and depreciation and amortization (“EBITDA”) for 2016 was $274.7
million compared to $246.9 million in 2015. 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
34
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
2016
2015
$
135.6
$
121.4
11.9
47.0
80.2
10.7
36.6
78.2
$
274.7
$
246.9
35
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. The result of a hypothetical 100 basis
point increase in the interest rate on the average bank borrowings of the Company’s variable-rate debt during 2016 would have
reduced annual pretax profit by $3.0 million.
At December 31, 2016, the fair value of the Company’s fixed-rate debt was $108.9 million, compared with its carrying
amount of $106.8 million. The Company estimates that a 100 basis point decrease in market interest rates at December 31, 2016
would have increased the fair value of the Company's fixed rate debt to $116.1 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, 2016 would have resulted in a $1.4 million loss in the fair value of those
financial instruments. At December 31, 2016, the Company held $66.4 million of cash and cash equivalents, the majority of
which is held by foreign subsidiaries.
Foreign currency commitments and transaction exposures are managed at the operating units as an integral part of their
businesses in accordance with a corporate policy that addresses acceptable levels of foreign currency exposures.
Additionally, to reduce foreign currency exposure, management generally maintains the majority of foreign cash and
short-term investments in functional currency and uses forward currency contracts for non-functional currency denominated
monetary assets and liabilities and anticipated transactions in an effort to reduce the effect of the volatility of changes in foreign
exchange rates on the income statement. 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.
36
Item 8. Financial Statements and Supplementary Data
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Years Ended December 31,
2015
2014
$
1,193,975
$
1,262,006
2016
1,230,754
790,299
248,277
782,817
242,762
1,038,576
1,025,579
192,178
11,883
(2,326)
182,621
47,020
135,601
168,396
10,698
(248)
157,946
36,566
121,380
829,648
252,384
1,082,032
179,974
11,392
2,082
166,500
45,959
120,541
—
—
135,601
$
121,380
$
(2,171)
118,370
2.50
—
2.50
2.48
—
2.48
0.51
$
$
$
$
$
2.21
—
2.21
2.19
—
2.19
0.48
$
$
$
$
$
2.20
(0.04)
2.16
2.16
(0.04)
2.12
0.45
54,191,013
54,631,313
55,028,063
55,513,219
54,791,030
55,723,267
Net sales
Cost of sales
Selling and administrative expenses
Operating income
Interest expense
Other expense (income), net
Income from continuing operations before income taxes
Income taxes
Income from continuing operations
Loss from discontinued operations, net of income taxes of $0, $0 and
$315, respectively
Net income
Per common share:
Basic:
Income from continuing operations
Loss from discontinued operations, net of income taxes
Net income
Diluted:
Income from continuing operations
Loss from discontinued operations, net of income taxes
Net income
Dividends
Weighted average common shares outstanding:
Basic
Diluted
$
$
$
$
$
$
$
See accompanying notes.
37
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Net income
Other comprehensive loss, net of tax
Unrealized (loss) gain 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, net of tax
Total comprehensive income (loss)
Years Ended December 31,
2016
$ 135,601
2015
2014
$ 121,380
$ 118,370
(342)
(48,367)
847
(54,232)
(213)
(83,168)
(8,867)
(57,576)
$ 78,025
9,586
(43,799)
$ 77,581
(42,016)
(125,397)
$ (7,027)
(1) Net of tax of $(42), $227 and $(45) for the years ended December 31, 2016, 2015 and 2014, respectively.
(2) Net of tax of $(833), $(1,777) and $(3,292) for the years ended December 31, 2016, 2015 and 2014, respectively.
(3) Net of tax of $(4,687), $3,916 and $(24,799) for the years ended December 31, 2016, 2015 and 2014, respectively.
See accompanying notes.
38
BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Assets
Current assets
Cash and cash equivalents
Accounts receivable, less allowances (2016 – $3,992; 2015 – $4,085)
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 20)
Stockholders’ equity
Common stock – par value $0.01 per share
Authorized: 150,000,000 shares
Issued: at par value (2016 – 62,692,403 shares; 2015 – 62,071,144 shares)
Additional paid-in capital
Treasury stock, at cost (2016 – 8,889,947 shares; 2015 – 8,206,683 shares)
Retained earnings
Accumulated other non-owner changes to equity
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes.
39
December 31,
2016
2015
$
$
$
66,447
287,123
227,759
—
27,163
608,492
25,433
334,489
633,436
522,258
13,431
2,137,539
30,825
112,024
156,967
2,067
301,883
468,062
109,350
66,446
23,440
83,926
261,757
208,611
24,825
32,469
611,588
1,139
308,856
587,992
528,322
23,969
2,061,866
22,680
97,035
131,320
1,515
252,550
485,711
112,888
62,364
20,600
627
443,235
(251,827)
1,177,151
(200,828)
1,168,358
2,137,539
$
621
427,558
(226,421)
1,069,247
(143,252)
1,127,753
2,061,866
$
$
$
$
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
Loss on the sale of businesses
Pension lump-sum settlement charge
Changes in assets and liabilities, net of the effects of acquisitions:
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 the sale of businesses
Change in restricted cash
Capital expenditures
Business acquisitions, net of cash acquired
Component Repair Program payments
Other
Net cash used in 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
Withholding taxes paid on stock issuances
Other
Net cash used by financing activities
Effect of exchange rate changes on cash flows
(Decrease) increase 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,
2016
2015
2014
$
135,601
$
121,380
$
118,370
80,154
—
(349)
11,493
—
—
(23,057)
1,989
569
11,778
15,825
(2,210)
(15,492)
1,345
217,646
780
—
—
(47,577)
(128,613)
(4,100)
—
(179,510)
8,375
(321,506)
303,277
—
—
4,611
(20,520)
(27,435)
(4,885)
4,771
(53,312)
(2,303)
(17,479)
83,926
66,447
$
78,242
—
(1,128)
9,258
—
9,856
14,027
(1,190)
(2,645)
(2,936)
(14,166)
3,121
1,081
2,575
217,475
3,442
—
—
(45,982)
(51,954)
(21,000)
—
(115,494)
14,680
(171,198)
159,264
—
—
11,425
(52,103)
(26,176)
(4,913)
9,850
(59,171)
(4,923)
37,887
46,039
83,926
$
81,395
731
143
7,603
1,586
—
(21,367)
(10,092)
(7,137)
8,123
29,290
(9,841)
(7,584)
4,933
196,153
849
(1,181)
4,886
(57,365)
—
(70,100)
(1,338)
(124,249)
7,009
(332,336)
293,291
(19,796)
(14,868)
11,460
(8,389)
(24,464)
(4,367)
(338)
(92,798)
(3,923)
(24,817)
70,856
46,039
$
Non-cash investing activities in 2015 and 2014 included the acquisition of $3,200 and $19,000, respectively, of intangible assets,
and the recognition of the corresponding liabilities, in connection with the Component Repair Programs.
See accompanying notes.
40
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars and shares in thousands)
Common
Stock
(Number of
Shares)
Common
Stock
(Amount)
Additional
Paid-In
Capital
Treasury
Stock
(Number of
Shares)
Treasury
Stock
Retained
Earnings
Accumulated
Other
Non-Owner
Changes to
Equity
Total
Stockholders’
Equity
60,306
$
603
$
390,347
6,389
$ (156,649) $
881,169
$
25,944
$
1,141,414
924
61,230
841
62,071
9
612
9
621
(8,666)
23,844
405,525
22,033
427,558
221
—
119
(8,389)
—
(4,367)
6,729
(169,405)
1,353
125
8,207
(52,103)
(4,913)
(226,421)
551
(20,520)
621
6
15,677
132
(4,886)
118,370
(24,464)
(125,397)
(99,453)
(43,799)
(143,252)
(57,576)
(561)
974,514
121,380
(26,176)
(471)
1,069,247
135,601
(27,435)
198
(460)
(7,027)
(24,464)
(8,389)
(8,666)
18,925
1,111,793
77,581
(26,176)
(52,103)
16,658
1,127,753
78,025
(27,435)
(20,520)
198
10,337
January 1, 2014
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
Comprehensive income
Dividends paid
Common stock repurchases
Cumulative effect of change in
accounting guidance (Note 12)
Employee stock plans
December 31, 2016
62,692
$
627
$
443,235
8,890
$ (251,827) $ 1,177,151
$
(200,828) $
1,168,358
See accompanying notes.
41
BARNES GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts included in the notes are stated in thousands except per share data
and the tables in Note 19)
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. Certain reclassifications
have been made to prior year amounts.
Consolidation: The accompanying consolidated financial statements include the accounts of the Company and all of its
subsidiaries. Intercompany transactions and account balances have been eliminated.
Revenue recognition: Sales and related 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, generally ranging from 20 to 50 years for buildings, three to five years for computer equipment and four to 12
years for machinery and equipment. The straight-line method of depreciation was adopted for all property, plant and equipment
placed in service after March 31, 1999. For property, plant and equipment placed into service prior to April 1, 1999,
depreciation is calculated using accelerated methods. The Company assesses the impairment of property, plant and equipment
subject to depreciation whenever events or changes in circumstances indicate the carrying value may not be recoverable.
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 2016, 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
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.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
The Company also entered into Component Repair Programs ("CRPs") that provide for, among other items, the right to
sell certain aftermarket component repair services for CFM56, CF6, CF34 and LM engines directly to other customers as one
of a few GE licensed suppliers. In addition, the CRPs extended certain existing contracts under which the Company currently
provides these services directly to GE. The Company recorded the consideration for these rights as an intangible asset that is
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 program basis for the CRPs. The assets are
reviewed for recoverability periodically including whenever events or changes in circumstances indicate that their carrying
amount may not be recoverable. Annually, the Company evaluates the remaining useful life of these assets to determine
whether events and circumstances warrant a revision to the remaining periods of amortization. Management updates revenue
projections, which includes comparing actual experience against projected revenue and industry projections. The potential
exists that actual revenues will not meet expectations due to a change in market conditions including, for example, the
replacement of older engines with new, more fuel-efficient engines or the Company's ability to maintain market share within
the 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
certain tradenames, have finite lives and are amortized over the periods in which they provide benefit. The Company assesses
the impairment of long-lived assets, including identifiable intangible assets subject to amortization, whenever significant events
or significant changes in circumstances indicate the carrying value may not be recoverable. Tradenames with indefinite lives
are subject to impairment testing in accordance with accounting standards governing such on an annual basis, in the second
quarter, or more frequently if an event or change in circumstances indicates that the fair value of the asset has been reduced
below its carrying value. Based on the assessment performed during 2016, there were no impairments of other intangible assets.
See Note 5 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. Net foreign currency transaction gains of $1,873 and $505 in
2016 and 2015 , respectively, and a loss of $1,466 in 2014, were included in other expense (income), net in the Consolidated
Statements of Income.
Research and Development: Costs are incurred in connection with efforts aimed at discovering and implementing new
knowledge that is critical to developing new products, processes or services, significantly improving existing products or
services, and developing new applications for existing products and services. Research and development expenses for the
creation of new and improved products and services were $12,913, $12,688 and $15,782, for the years 2016, 2015 and 2014,
respectively, and are included in selling and administrative expense.
2. Acquisitions
The Company has acquired a number of businesses during the past two 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
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
acquisitions have been allocated to tangible and intangible assets and liabilities of the businesses based upon estimates of their
respective fair values.
In the third quarter of 2016, the Company, through three of its subsidiaries (collectively, the “Purchaser”), completed
its acquisition of the molds business of Adval Tech Holding AG and Adval Tech Holdings (Asia) Pte. Ltd. ("FOBOHA").
FOBOHA is headquartered in Haslach, Germany and operates out of three manufacturing facilities located in Germany,
Switzerland and China. The Company completed its purchase of the Germany and Switzerland businesses on August 31, 2016.
The purchase of the China business required government approval which was granted on September 30, 2016. On October 7,
2016, shares of the China operations were subsequently transferred to the Company upon payment, per the terms of the Share
Purchase Agreement for these respective operations ("China SPA"). The Company, pursuant to the terms and conditions within
the Share Purchase Agreement ("FOBOHA SPA"), assumed economic control of the China business effective August 31, 2016.
Having both economic control and the benefits and risks of ownership during the period from August 31, 2016 through
September 30, 2016, the Company included the results of the China business within the consolidated results of operations of the
Company during this period.
FOBOHA specializes in the development and manufacture of complex plastic injection molds for packaging, medical,
consumer and automotive applications. The Company acquired FOBOHA for an aggregate cash purchase price of CHF 136,337
($138,596) which was financed using cash on hand and borrowings under the Company's revolving credit facility. The purchase
price includes preliminary adjustments under the terms of the FOBOHA SPA, including approximately CHF 11,342 ($11,530)
related to cash acquired and is subject to post closing adjustments under the terms of the FOBOHA SPA. In connection with the
acquisition, the Company recorded $39,800 of intangible assets and $73,688 of goodwill. See Note 5 to the Consolidated
Financial Statements.
The Company incurred $2,193 of acquisition-related costs during the year ended December 31, 2016 related to the
FOBOHA acquisition. These costs include due diligence costs and transaction costs to complete the acquisition and have been
recognized in the Company's Consolidated Statements of Income as selling and administrative expenses. Pro forma operating
results for the FOBOHA acquisition are not presented as the results would not be significantly different than historical results.
The operating results of FOBOHA have been included in the Consolidated Statements of Income for the period ended
December 31, 2016 since the date of acquisition. The Company reported $18,348 in net sales for FOBOHA for the year ended
December 31, 2016. FOBOHA results have been included within the Industrial segment's operating profit.
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 9,879 ($10,111) which was financed
using cash on hand and borrowings under the Company's revolving credit facility. The purchase price includes adjustments
under the terms of the Share Purchase Agreement, including CHF 1,556 ($1,592) related to cash acquired.
In the third quarter of 2015, the Company, through one of its subsidiaries, completed the acquisition of the Thermoplay
business ("Thermoplay") by acquiring all of the capital stock of privately held HPE S.p.A., the parent Company through which
Thermoplay operates. Thermoplay’s headquarters and manufacturing facility are located in Pont-Saint-Martin in Aosta, Italy,
with technical service capabilities in China, India, France, Germany, United Kingdom, Portugal, and Brazil. Thermoplay, 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"), which was financed using cash on hand and borrowings under the Company's revolving credit facility. The
purchase price includes adjustments under the terms of the SPA, including €17,054 ($18,706) related to cash acquired.
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
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
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. Inventories
Inventories at December 31 consisted of:
Finished goods
Work-in-process
Raw materials and supplies
4. Property, Plant and Equipment
Property, plant and equipment at December 31 consisted of:
Land
Buildings
Machinery and equipment
Less accumulated depreciation
2016
2015
$
$
$
$
71,100
98,246
58,413
227,759
2016
19,952
169,695
572,540
762,187
(427,698)
334,489
$
$
$
$
76,836
77,061
54,714
208,611
2015
19,153
156,294
539,360
714,807
(405,951)
308,856
Depreciation expense was $43,165, $39,654 and $41,875 during 2016, 2015 and 2014, respectively.
5. Goodwill and Other Intangible Assets
Goodwill: The following table sets forth the change in the carrying amount of goodwill for each reportable segment and
the Company:
January 1, 2015
Acquisition-related
Foreign currency translation
December 31, 2015
Acquisition-related
Foreign currency translation
December 31, 2016
Industrial
$ 564,163
22,798
(29,755)
557,206
73,688
(28,244)
$ 602,650
$
$
Aerospace
Total
Company
30,786
—
—
30,786
—
—
30,786
$
$
594,949
22,798
(29,755)
587,992
73,688
(28,244)
633,436
Of the $633,436 of goodwill at December 31, 2016, $43,860 represents the original tax deductible basis.
The increase in goodwill of $73,688 during 2016 is due to the acquisition of FOBOHA on August 31, 2016, which is
included in the Industrial segment. The amount allocated to goodwill reflects the benefits that the Company expects to realize
from synergies created by combining the operations of FOBOHA, future enhancements to technology, geographical expansion
and FOBOHA's assembled workforce. None of the recognized goodwill is expected to be deductible for income tax purposes.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
The final purchase price is subject to post-closing adjustments, therefore goodwill acquired may require adjustment
accordingly.
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
Range of
Life-Years
Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
2016
2015
Up to 30
Up to 30
10-16
4-14
10-30
Up to 15
$
293,700
$
(95,701) $
293,700
$
(84,629)
111,839
215,266
84,052
11,950
20,551
737,358
42,770
(34,272)
745,856
$
(10,497)
(53,198)
(37,897)
(9,967)
(16,338)
(223,598)
—
—
$
(223,598) $
111,839
194,566
69,352
11,950
20,551
701,958
(6,054)
(41,786)
(29,551)
(9,412)
(15,413)
(186,845)
38,370
—
(25,161)
715,167
$
—
(186,845)
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, $9,100 in the fourth quarter of 2014 and $900 in the first quarter of 2016. 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. The Company paid $2,000 in the fourth quarter of 2015 and $3,200 in the fourth
quarter of 2016. The Company recorded the CRP consideration as an intangible asset which is recognized as a reduction of
sales over the remaining useful life of these engine programs.
In connection with the acquisition of FOBOHA in August 2016, the Company recorded intangible assets of $39,800,
which includes $20,700 of customer relationships, $14,700 of patents and technology and $4,400 of an indefinite life trade
name. The weighted-average useful lives of the acquired assets were 16 years and 7 years, respectively.
Amortization of intangible assets for the years ended December 31, 2016, 2015 and 2014 was $36,753, $38,502 and
$37,125, respectively. Estimated amortization of intangible assets for future periods is as follows: 2017 - $39,000; 2018 -
$40,000; 2019 - $39,000; 2020 - $36,000 and 2021 - $36,000.
The Company has entered into a number of aftermarket RSP agreements each of which is with GE. See Note 1 of the
Consolidated Financial Statements for a further discussion of these Revenue Sharing Programs. As of December 31, 2016, the
Company has made all required participation fee payments under the aftermarket RSP agreements.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
6. Accrued Liabilities
Accrued liabilities at December 31 consisted of:
Payroll and other compensation
Deferred revenue and customer advances
CRP Accrual
Pension and other postretirement benefits
Accrued income taxes
Other
7. Debt and Commitments
2016
2015
$
$
37,560
34,812
—
8,261
26,477
49,857
156,967
$
$
27,186
16,453
4,100
8,444
25,682
49,455
131,320
Long-term debt and notes and overdrafts payable at December 31 consisted of:
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
2016
2015
Carrying
Amount
363,300
100,000
30,825
5,413
1,416
500,954
(32,892)
468,062
$
Fair
Value
364,775
101,598
30,825
5,902
1,428
504,528
Carrying
Amount
379,700
100,000
22,680
7,105
421
509,906
(24,195)
485,711
$
Fair
Value
375,188
102,484
22,680
7,503
410
508,265
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. 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 over the
term of the Agreement.
Borrowings and availability under the Amended Credit Agreement were $363,300 and $386,700, respectively, at
December 31, 2016 and $379,700 and $370,300, respectively, at December 31, 2015. The average interest rate on these
borrowings was 1.86% and 1.50% on December 31, 2016 and 2015, respectively. 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. In 2016, the Company borrowed $100,000 under the Amended Credit Facility
through an international subsidiary. The proceeds were distributed to the Parent Company and subsequently used to pay down
U.S. borrowings under the Amended Credit Agreement.
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
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
Insurance and Annuity Corporation Institutionally Owned Life Insurance Separate Account, 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 Company also entered into a third
amendment to its fifth amended and restated revolving credit agreement during October 2014, which allowed for the issuance
of the Note Purchase Agreement.
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, 2016, 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 February 2017, the Company entered into the fourth amendment of its fifth amended and restated revolving credit
agreement (the “the Fourth Amendment”) and retained Bank of America, N.A as the Administrative Agent for the lenders. The
Fourth Amendment increases the facility to $850,000 and extends the maturity date to February 2022. The Fourth Amendment
also increases the existing accordion feature, allowing the Company to request additional borrowings of up to $350,000. The
Company may exercise the accordion feature upon request to the Administrative Agent as long as an event of default has not
occurred or is not continuing. The borrowing availability of $850,000, pursuant to the terms of the Fourth Amendment, allow
for multi- currency borrowing which includes euro, sterling or Swiss franc borrowing, up to $600,000. Depending on the
Company’s consolidated leverage ratio, and at the election of the Company, borrowings under the Fourth Amendment will bear
interest at either LIBOR plus a margin of between 1.10% and 1.70% or the base rate plus a margin of 0.10% to 0.70%. The
Fourth Amendment generally requires the Company to maintain a ratio of Consolidated Senior Debt, as defined, to
Consolidated EBITDA of not more than 3.25 times, a ratio of Consolidated Total Debt, as defined, to Consolidated EBITDA, as
defined, of not more than 3.75 times, and a ratio of Consolidated EBITDA to Consolidated Cash Interest Expense, as defined,
of not less than 4.25 times, in each case at the end of each fiscal quarter; provided that these debt to EBITDA ratios are
permitted to increase for a period of four fiscal quarters after the closing of certain permitted acquisitions.
In addition, the Company has approximately $55,000 in uncommitted short-term bank credit lines ("Credit Lines") and
overdraft facilities. Under the Credit Lines, $30,700 was borrowed at December 31, 2016 at an average interest rate of 1.96%
and $22,500 was borrowed at December 31, 2015 at an average interest rate of 1.56%. The Company had also borrowed $125
and $180 under the overdraft facilities at December 31, 2016 and 2015, respectively. Repayments under the Credit Lines are
due within one month after being borrowed. Repayments of the overdrafts are generally due within two days after being
borrowed. The carrying amounts of the Credit Lines and overdrafts approximate fair value due to the short maturities of these
financial instruments.
The Company has capital leases at the Thermoplay and Männer businesses. The fair value of the capital leases are based
on observable Level 2 inputs. These instruments are valued using discounted cash flows based upon the Company's estimated
interest costs for similar types of borrowings.
At December 31, 2016 and 2015, the Company also had other foreign bank borrowings of $1,416 and $421, respectively.
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.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
Long-term debt and notes payable as of December 31, 2016 are payable, based on the then current Agreement, as
follows: $32,892 in 2017, $364,467 in 2018, $838 in 2019, $445 in 2020, $528 in 2021 and $101,784 thereafter. The 3.97%
Senior Notes are due in 2024 according to their maturity date. Based on the execution of the Fourth Amendment, $363,300 of
the $364,467 due in 2018 will require payment in 2022, consistent with the extension of the maturity date of this Amendment.
In addition, the Company had outstanding letters of credit totaling $7,320 at December 31, 2016.
Interest paid was $11,471, $10,550 and $10,471 in 2016, 2015 and 2014, respectively. Interest capitalized was $324,
$422 and $359 in 2016, 2015 and 2014, 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
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, 2016 and 2015 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 year ended December 31, 2014.
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
8. Business Reorganization
2014
1,046
731
1,777
$
$
In 2014, the Company authorized the closure of production operations ("Saline operations") at its Associated Spring
facility located in Saline, Michigan (the "Closure"). 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 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 11 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.
9. 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.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
Financial instruments have been used by the Company to hedge its exposures to fluctuations in interest rates. In 2012, the
Company entered into five-year interest rate swap agreements transacted with three banks which together convert the interest
on the first $100,000 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, 2016.
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, Mexican peso 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. 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. Other financing cash flows during the years ended December 31, 2016 and 2015, as presented on the
consolidated statements of cash flows, include $5,221 and $10,309, respectively, 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
2016
2015
Asset
Derivatives
Liability
Derivatives
Asset
Derivatives
Liability
Derivatives
$
$
— $
—
—
(78) $
(177)
(255)
— $
484
484
397
397
$
(1,499)
(1,754) $
215
699
$
(357)
—
(357)
(101)
(458)
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 (loss) gain recorded in accumulated other comprehensive income (loss), net of tax, for
the years ended December 31, 2016 and 2015 for derivatives held by the Company and designated as hedging instruments.
Cash flow hedges:
Interest rate contracts
Foreign exchange contracts
2016
2015
$
$
$
174
(516)
(342) $
(39)
886
847
Amounts included within accumulated other comprehensive income (loss) that were reclassified to expense during the
year ended December 31, 2016 and 2015 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, 2016 and 2015.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
The following table sets forth the net gains recorded in other expense (income), net in the consolidated statements of
income for the years ended December 31, 2016 and 2015 for non-designated derivatives held by the Company. Such gains were
substantially offset by losses recorded on the underlying hedged asset or liability.
Foreign exchange contracts
10. Fair Value Measurements
2016
2015
$
2,297
$
8,215
The provisions of the accounting standard for fair value define fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard
classifies the inputs used to measure fair value into the following hierarchy:
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices
for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted
prices that are observable for the asset or liability.
Level 3
Unobservable inputs for the asset or liability.
The following table provides the assets and liabilities reported at fair value and measured on a recurring basis as of
December 31, 2016 and 2015:
December 31, 2016
Asset derivatives
Liability derivatives
Bank acceptances
Rabbi trust assets
December 31, 2015
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)
Total
$
$
$
$
397
(1,754)
9,690
2,216
10,549
699
(458)
10,823
2,159
13,223
$
$
$
$
— $
—
—
2,216
2,216
$
— $
—
—
2,159
2,159
$
397
(1,754)
9,690
—
8,333
699
(458)
10,823
—
11,064
$
$
$
$
—
—
—
—
—
—
—
—
—
—
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 11 of
the Consolidated Financial Statements.
11. 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.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
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 16 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 $5,907, $5,347 and $5,213 in
2016, 2015 and 2014, 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.
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, 2016 and 2015, respectively. Reconciliations of the obligations and funded status of the plans follow:
Benefit obligation, January 1
$
385,629
$
75,406
$
461,035
$
433,079
$
80,305
$
513,384
2016
2015
U.S.
Non-U.S.
Total
U.S.
Non-U.S.
Total
Service cost
Interest cost
Amendments
Actuarial loss (gain)
Benefits paid
Transfers in
Plan curtailments
Plan settlements
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
Fair value of plan assets, December 31
Underfunded status, December 31
3,892
17,523
2,405
6,661
(26,497)
—
—
—
—
—
389,613
326,829
13,051
17,877
—
1,503
1,971
(174)
10,814
(4,691)
25,968
—
—
1,444
(7,902)
104,339
68,553
7,276
2,224
1,444
5,395
19,494
2,231
17,475
(31,188)
25,968
—
—
1,444
(7,902)
493,952
395,382
20,327
20,101
1,444
4,160
17,967
—
(16,622)
(52,490)
—
(465)
—
—
—
385,629
380,937
(5,045)
3,427
—
(26,497)
(4,691)
(31,188)
(52,490)
—
—
—
331,260
—
18,320
(7,474)
85,652
$
(58,353) $
(18,687) $
—
18,320
(7,474)
416,912
(77,040) $
—
—
—
326,829
1,348
2,052
(463)
(2,288)
(4,244)
3,951
—
(375)
368
(5,248)
75,406
71,750
1,264
1,100
368
(4,244)
(376)
3,434
(4,743)
68,553
5,508
20,019
(463)
(18,910)
(56,734)
3,951
(465)
(375)
368
(5,248)
461,035
452,687
(3,781)
4,527
368
(56,734)
(376)
3,434
(4,743)
395,382
(58,800) $
(6,853) $
(65,653)
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 provided 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 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
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
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
U.S.
$ 389,613
331,260
2016
Non-U.S.
$
61,060
39,356
Total
$ 450,673
370,616
U.S.
$ 271,459
204,270
2015
Non-U.S.
$
31,613
20,199
Total
$ 303,072
224,469
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
U.S.
$ 389,613
378,431
331,260
2016
Non-U.S.
$
61,014
59,568
39,356
Total
$ 450,627
437,999
370,616
U.S.
$ 271,459
262,172
204,270
2015
Non-U.S.
$
30,560
26,998
19,256
Total
$ 302,019
289,170
223,526
The accumulated benefit obligation for all defined benefit pension plans was $481,241 and $447,591 at December 31,
2016 and 2015, respectively.
Amounts related to pensions recognized in the accompanying balance sheets consist of:
Other assets
Accrued liabilities
Accrued retirement benefits
Accumulated other non-owner changes
to equity, net
2016
U.S.
Non-U.S.
3,017
— $
$
Total
U.S.
Non-U.S.
Total
2015
$
3,017
$
8,389
$
4,561
$
2,813
55,540
367
21,337
3,180
76,877
2,806
64,383
379
11,035
12,950
3,185
75,418
(91,530)
(19,458)
(110,988)
(83,014)
(16,812)
(99,826)
Amounts related to pensions recognized in accumulated other non-owner changes to equity, net of tax, at December 31,
2016 and 2015, respectively, consist of:
2016
2015
U.S.
Non-U.S.
Total
U.S.
Non-U.S.
Total
Net actuarial loss
Prior service costs
$ (89,772) $ (19,822) $ (109,594) $ (82,643) $ (16,999) $ (99,642)
(184)
$ (91,530) $ (19,458) $ (110,988) $ (83,014) $ (16,812) $ (99,826)
(1,394)
(1,758)
(371)
364
187
The accompanying balance sheets reflect the underfunded status of the Company’s other postretirement benefit plans at
December 31, 2016 and 2015. Reconciliations of the obligations and underfunded status of the plans follow:
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
2016
2015
Benefit obligation, January 1
Service cost
Interest cost
Actuarial gain
Benefits paid
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
$
$
41,706
122
1,766
(3,495)
(5,621)
2,281
94
36,853
—
3,340
2,281
(5,621)
—
36,853
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
$
2016
5,081
31,772
(3,582)
$
$
$
46,814
145
1,836
(2,521)
(6,970)
2,486
(84)
41,706
—
4,484
2,486
(6,970)
—
41,706
2015
5,259
36,447
(5,877)
Amounts related to other postretirement benefits recognized in accumulated other non-owner changes to equity, net of
tax, at December 31, 2016 and 2015 consist of:
Net actuarial loss
Prior service credits
2016
2015
$
$
(3,532) $
(50)
(3,582) $
(6,061)
184
(5,877)
The sources of changes in accumulated other non-owner changes to equity, net, during 2016 were:
Prior service cost
Net (loss) gain
Amortization of prior service costs (credits)
Amortization of actuarial loss
Foreign exchange rate changes
Weighted-average assumptions used to determine benefit obligations at December 31, are:
Pension
Other
Postretirement
Benefits
$
$
(1,334) $
(18,378)
142
7,030
1,378
(11,162) $
—
2,194
(234)
332
3
2,295
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
U.S. plans:
Discount rate
Increase in compensation
Non-U.S. plans:
Discount rate
Increase in compensation
2016
2015
4.50%
2.56%
1.60%
2.29%
4.65%
3.71%
2.80%
2.71%
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 2016: 65% in equity securities, 30% in fixed income securities
and 5% in other investments, including cash.
The fair values of the Company’s pension plan assets at December 31, 2016 and 2015, by asset category are as follows:
Asset Category
December 31, 2016
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
Other
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
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
$
3,207
$
3,207
$
— $
39,162
12,724
19,551
135,514
47,445
103,399
53,783
2,127
416,912
18,795
67,274
38,790
38,248
91,563
17,928
$
—
12,724
19,551
—
47,445
—
—
—
82,927
18,795
28,190
38,790
38,248
—
17,928
$
39,162
—
—
135,514
—
103,399
53,783
—
331,858
—
39,084
—
—
91,563
$
84,645
36,282
1,857
395,382
$
—
—
—
141,951
$
84,645
36,282
—
251,574
$
$
$
—
—
—
—
—
—
—
—
2,127
2,127
—
—
—
—
—
—
—
1,857
1,857
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
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
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 $4,935 to the pension plans in 2017.
The following are the estimated future net benefit payments, which include future service, over the next 10 years:
2017
2018
2019
2020
2021
Years 2022-2026
Total
Pensions
Other
Postretirement
Benefits
$
$
28,703
28,577
28,878
28,810
28,994
144,566
288,528
$
$
3,983
3,352
3,176
3,294
3,095
12,906
29,806
Pension and other postretirement benefit expenses consist of the following:
2016
Pensions
2015
Other
Postretirement Benefits
2014
2016
2015
2014
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
Net periodic benefit cost
$
5,395
$
5,508
$
4,546
$
122
$
145
$
19,494
(30,302)
210
10,791
—
—
—
20,019
(32,404)
22,026
(34,232)
305
15,004
—
9,939
—
648
8,617
219
871
715
1,766
—
(373)
535
—
—
—
1,836
—
(564)
1,011
—
—
—
139
2,179
—
(871)
1,017
4
—
—
$
5,588
$
18,371
$
3,410
$
2,050
$
2,428
$
2,468
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 2017 are $9,997 and $441, 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 2017 are $276 and $(68), 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
2016
2015
2014
4.65%
8.25%
3.71%
2.80%
4.73%
2.71%
4.25%
8.25%
3.71%
2.74%
5.00%
2.72%
5.20%
9.00%
3.72%
3.93%
5.07%
2.76%
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
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
6.44% and 6.65% at December 31, 2016 and 2015, 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
319
$
14
One Percentage
Point Decrease
(295)
$
(13)
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:
Swedish Pension Plan (ITP2)
Total Contributions
12. Stock-Based Compensation
Contributions by the Company
2016
673
$
$ 673
2015
$ 343
$ 343
2014
$
$
379
379
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.
Refer to Note 16 for a description of the Company’s stock-based compensation plans and their general terms. As of
December 31, 2016, incentives have been awarded in the form of performance share awards and restricted stock unit awards
(collectively, “Rights”) and stock options. The Company has elected to use the straight-line method to recognize compensation
costs. Stock options and awards typically vest over a period ranging from six months to five years. The maximum term of stock
option awards is 10 years. Upon exercise of a stock option or upon vesting of Rights, shares may be issued from treasury shares
held by the Company or from authorized shares.
In March 2016, the FASB amended its guidance related to the accounting for certain aspects of share-based payments to
employees. The amended guidance requires that all tax effects related to share-based payments are recorded at settlement (or
expiration) through the income statement, rather than through equity. Cash flows related to excess tax benefits will no longer be
separately classified as a financing activity apart from other income tax cash flows. The amended guidance also allows for an
employer to repurchase additional employee shares for tax withholding purposes without requiring liability accounting and
clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a
financing activity on the Consolidated Statements of Cash Flows. The guidance also allows for a policy election to account for
forfeitures as they occur, rather than accounting for them on an estimated basis. The guidance is effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted.
The Company elected to early adopt this guidance in the third quarter of 2016. This adoption requires the Company to
reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption.
The most significant impact of adoption was the recognition of excess tax benefits in the provision for income taxes rather than
through equity for all periods in fiscal year 2016. This resulted in the recognition of excess tax benefits in the provision for
income taxes of $2,229 for the year ended December 31, 2016. In 2015 and 2014, the Company recorded $2,667 and $4,888,
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
respectively, of excess tax benefits for current year tax deductions in additional paid-in capital, as was required pursuant to the
earlier accounting guidance. In connection with the additional amendments within the amended guidance, the Company
recognized state tax loss carryforwards in the amount of $198, which impacted retained earnings as of January 1, 2016. The
cumulative effect of this change is required to be recorded in retained earnings. The Company elected to continue to estimate
forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period.
The presentation requirements for cash flows related to excess tax benefits and employee taxes paid for withheld
shares were applied retrospectively to all periods presented. This resulted in an increase in both net cash provided by operating
activities and net cash used by financing activities of $1,402, $2,320, $7,519 and $7,580 for the three, six, nine and twelve
month periods ended March 31, June 30, September 30 and December 31, 2015, respectively, and $413 and $524 for the three
and six month periods ended March 31 and June 30, 2016, respectively.
During 2016, 2015 and 2014, the Company recognized $11,493, $9,258, and $7,603 respectively, of stock-based
compensation cost and $4,284, $3,451, and $2,834 respectively, of related tax benefits in the accompanying consolidated
statements of income. The Company has realized all available tax benefits related to deductions from excess stock awards
exercised or issued in earlier periods. At December 31, 2016, the Company had $12,519 of unrecognized compensation costs
related to unvested awards which are expected to be recognized over a weighted average period of 2.01 years.
The following table summarizes information about the Company’s stock option awards during 2016:
Outstanding, January 1, 2016
Granted
Exercised
Forfeited
Outstanding, December 31, 2016
Number of
Shares
Weighted-Average
Exercise
Price
$
644,072
167,105
(203,517)
(18,500)
589,160
25.63
31.34
20.56
36.22
28.67
The following table summarizes information about stock options outstanding at December 31, 2016:
Range of
Exercise
Prices
$11.45 to $15.83
$20.69 to $24.24
$26.32 to $30.71
$33.45 to $38.96
Number
of Shares
87,690
76,584
214,312
210,574
Options Outstanding
Average
Remaining
Life (Years)
Average
Exercise
Price
Options Exercisable
Number
of Shares
Average
Exercise
Price
$
2.58
5.10
7.49
7.91
13.48
22.65
29.27
36.57
$
87,690
76,584
72,312
82,350
13.48
22.65
26.43
36.83
The Company received cash proceeds from the exercise of stock options of $4,184, $11,022 and $11,024 in 2016, 2015
and 2014, 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 2016, 2015 and 2014 was $4,464, $8,331 and $11,178,
respectively.
The weighted-average grant date fair value of stock options granted in 2016, 2015 and 2014 was $7.01, $8.86 and $12.14,
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
2016
2015
2014
1.20%
5.3
29.1%
1.94%
1.58%
5.3
31.1%
2.06%
1.68%
5.3
42.6%
2.24%
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
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
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, 2016:
Options Outstanding, Expected to Vest
Options Outstanding, Exercisable
Weighted-
Average
Exercise
Price
Aggregate
Intrinsic
Value
Weighted-
Average
Remaining
Term (Years)
Shares
Weighted-
Average
Exercise
Price
Aggregate
Intrinsic
Value
Weighted-
Average
Remaining
Term (Years)
$
28.67
$
10,667
6.60
318,936
$
24.65
$
7,263
4.85
Shares
568,820
The following table summarizes information about the Company’s Rights during 2016:
Service Based Rights
Service and Performance
Based Rights
Service and Market Based
Rights
Number of
Units
Weighted-
Average
Grant Date
Fair Value
Number of
Units
Weighted-
Average
Grant Date
Fair Value
Number of
Units
Weighted-
Average
Grant Date
Fair Value
Outstanding, January 1, 2016
401,706
$
Granted
Forfeited
Additional Earned
Issued
Outstanding, December 31, 2016
154,903
(16,138)
—
(193,167)
347,304
30.51
32.22
34.23
—
34.53
214,426
$
62,070
(6,333)
35,653
(133,774)
172,042
31.29
31.32
37.61
24.55
24.55
107,213
$
62,069
(3,476)
29,937
(78,997)
116,746
48.37
48.84
31.46
24.18
24.18
The Company granted 154,903 restricted stock unit awards and 124,139 performance share awards in 2016. 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 through 2015 and two equally weighted metrics in
2016. Prior to 2015, the metrics included the Company's total shareholder return ("TSR"), basic or diluted earnings per share
growth ("EPS Growth") and operating income before depreciation and amortization growth. For awards granted in 2015, the
metrics included TSR, operating income before depreciation and amortization growth and return on invested capital ("ROIC").
For awards granted in 2016, the metrics included only TSR and ROIC. The TSR, operating income before depreciation and
amortization growth, and EPS 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. ROIC 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 2016 awards include a 0.83% risk-free interest
rate and a 22.9% 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
13. 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
2016
2015
2014
$
$
$
$
$
34,129
148,492
182,621
7,215
755
41,516
49,486
6,091
1,060
(9,617)
(2,466)
47,020
$
$
$
$
$
11,525
146,421
157,946
$
$
33,070
133,430
166,500
(210) $
2,019
32,217
34,026
7,670
(1,137)
(3,993)
2,540
36,566
$
$
22,673
1,236
35,954
59,863
(6,737)
1,279
(8,446)
(13,904)
45,959
Deferred income tax assets and liabilities at December 31 consist of the tax effects of temporary differences related to the
following:
Deferred tax assets:
Pension
Tax loss carryforwards
Inventory valuation
Other postretirement/postemployment costs
Accrued Compensation
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
Goodwill
Other
Total deferred tax liabilities
Net deferred tax liabilities
2016
2015
$
27,410
16,686
15,518
14,071
10,121
6,489
(14,957)
75,338
25,331
15,330
15,938
15,753
10,242
5,880
(14,401)
74,073
(89,198)
(14,871)
(12,282)
(116,351)
(41,013) $
(81,158)
(14,545)
(16,313)
(112,016)
(37,943)
$
$
In the first quarter of 2016, the Company prospectively adopted the amended guidance related to the balance sheet
classification of deferred income taxes. The amended guidance removed the requirement to separate and classify deferred
income tax liabilities and assets into current and non-current amounts and required an entity to now classify all deferred tax
liabilities and assets as non-current. The provisions of the amended guidance were adopted on a prospective basis during the
first quarter of 2016. Amounts related to deferred taxes in the balance sheets as of December 31, 2016 and 2015 are presented
as follows:
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
Current deferred tax assets
Non-current deferred tax assets
Current deferred tax liabilities (included in accrued liabilities)
Non-current deferred tax liabilities
Net deferred tax liabilities
2016
2015
— $
25,433
—
(66,446)
(41,013) $
24,825
1,139
(1,543)
(62,364)
(37,943)
$
$
The standards related to accounting for income taxes require that deferred tax assets be reduced by a valuation allowance
if, based on all available evidence, it is more likely than not that the deferred tax asset will not be realized. Available evidence
includes the reversal of existing taxable temporary differences, future taxable income exclusive of temporary differences,
taxable income in carryback years and tax planning strategies.
Management believes that sufficient taxable income should be earned in the future to realize the net deferred tax assets
principally in the United States. The realization of these assets is dependent in part on the amount and timing of future taxable
income in the jurisdictions where deferred tax assets reside. The Company has tax loss carryforwards of $68,752; $2,757 which
relates to U.S tax loss carryforwards which have carryforward periods up to 18 years for federal purposes and ranging from one
to 20 years for state purposes; $55,882 of which relates to international tax loss carryforwards with carryforward periods
ranging from one to 20 years; and $10,113 of which relates to international tax loss carryforwards with unlimited carryforward
periods. In addition, the Company has tax credit carryforwards of $154 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 for U.S. taxes on $1,081,352 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 2016, the Company
repatriated a dividend from a portion of current year foreign earnings to the U.S. in the amount of $8,328. As a result of the
dividend, tax expense increased by $2,890 and the 2016 annual consolidated effective income tax rate increased by 1.6
percentage points.
A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate from
continuing operations follows:
U.S. federal statutory income tax rate
State taxes (net of federal benefit)
Foreign losses without tax benefit
Foreign operations taxed at lower rates
Repatriation from current year foreign earnings
Tax withholding refund
Tax Holidays
Stock awards excess tax benefit
Other
Consolidated effective income tax rate
2016
2015
2014
35.0%
0.4
0.7
(10.9)
1.6
—
(1.2)
(1.2)
1.3
25.7%
35.0%
0.2
1.1
(12.9)
4.3
(1.9)
(3.2)
—
0.6
23.2%
35.0%
0.5
1.1
(9.9)
2.6
—
(2.7)
—
1.0
27.6%
The Aerospace and Industrial Segments were previously awarded a number of multi-year tax holidays in both
Singapore and China. Tax benefits of $2,245 ($0.04 per diluted share), $5,000 ($0.09 per diluted share) and $4,513 ($0.08
per diluted share) were realized in 2016, 2015 and 2014, respectively. These holidays are subject to the Company meeting
certain commitments in the respective jurisdictions. The significant tax holidays are due to expire in 2017.
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
Income taxes paid globally, net of refunds, were $40,842, $31,895 and $33,146 in 2016, 2015 and 2014, respectively.
As of December 31, 2016, 2015 and 2014, the total amount of unrecognized tax benefits recorded in the consolidated
balance sheet was $13,320, $10,634 and $8,560, 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 2016,
2015 and 2014 follows:
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
Lapse of the applicable statute of limitations
Balance at December 31
2016
2015
2014
$
10,634
$
8,560
$
8,027
—
117
2,569
—
13,320
$
1,691
—
598
(215)
10,634
$
$
533
—
—
—
8,560
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 $(337), $616, and $0 in the years 2016, 2015,
and 2014 respectively. The liability for unrecognized tax benefits include gross accrued interest and penalties of $1,838,
$1,923 and $1,031 at December 31, 2016, 2015 and 2014, 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 2014 and forward. The Company is under audit in Germany for tax
years 2010 to 2014 and is also under audit in several U.S. states for the period 2011 through 2013.
14. Common Stock
There were no shares of common stock issued from treasury in 2016, 2015 or 2014.
In 2016, 2015 and 2014, the Company acquired 550,994 shares, 1,352,596 shares and 220,794 shares, respectively, of the
Company’s common stock at a cost of $20,520, $52,103 and $8,389, 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 2016, 2015 and 2014, 621,259 shares, 841,164 shares and 923,852 shares of common stock, respectively, were issued
from authorized shares for the exercise of stock options, various other incentive awards and purchases by the Company's
Employee Stock Purchase Plan.
15. Preferred Stock
At December 31, 2016 and 2015, the Company had 3,000,000 shares of preferred stock authorized, none of which were
outstanding.
16. 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
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
eligible earnings. The Company recognized expense of $3,660, $3,666 and $3,278 in 2016, 2015 and 2014, respectively. As of
December 31, 2016, the Retirement Savings Plan held 1,226,034 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 11,804, 11,246 and 12,770 in 2016, 2015
and 2014, respectively. The Company received cash proceeds from the purchase of these shares of $427, $403 and $436 in
2016, 2015 and 2014, respectively. As of December 31, 2016, 285,399 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, 2016, there were 6,108,925 shares available for future grants under the
2014 Plan, inclusive of Shares Reacquired and shares made available through 2016 forfeitures. As of December 31, 2016, there
were 1,256,599 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 2016, 2015 and 2014, $21, $26 and $28, respectively, of dividend equivalents were paid in cash related to these
shares. Compensation cost related to this plan was $28, $16 and $16 in 2016, 2015 and 2014, respectively. There are 38,400
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 7,689,323 at December 31, 2016.
17. 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
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
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, 2016, 2015 and 2014. A reconciliation of the weighted-average
number of common shares outstanding used in the calculation of basic and diluted earnings per share follows:
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
2016
54,191,013
2015
55,028,063
2014
54,791,030
166,986
273,314
—
—
54,631,313
206,778
278,378
—
—
55,513,219
355,595
319,704
245,230
11,708
55,723,267
The calculation of weighted-average diluted shares outstanding excludes all anti-dilutive shares. During 2016, 2015 and
2014, the Company excluded 262,336, 214,032 and 89,924 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 potential shares issuable under the Notes that
were considered dilutive in 2014, respectively.
18. 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, 2016 and December 31, 2015:
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
Gains and Losses
on Cash Flow
Hedges
Pension and Other
Postretirement
Benefit Items
Foreign
Currency Items
January 1, 2016
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, 2016
$
$
115
$
(105,703) $
(37,664) $
Total
(143,252)
(739)
(16,137)
(48,367)
(65,243)
397
(342)
(227) $
7,270
(8,867)
(114,570) $
—
(48,367)
(86,031) $
7,667
(57,576)
(200,828)
Gains and Losses
on Cash Flow
Hedges
Pension and Other
Postretirement
Benefit Items
Foreign
Currency Items
Total
January 1, 2015
$
(732) $
(115,289) $
16,568
$
(99,453)
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
$
(70)
(6,921)
(54,232)
(61,223)
917
847
115
$
16,507
—
17,424
9,586
(105,703) $
(54,232)
(37,664) $
(43,799)
(143,252)
The following table sets forth the reclassifications out of accumulated other comprehensive income by component for the years
ended December 31, 2016 and December 31, 2015:
Details about Accumulated Other Comprehensive Income
Components
Amount Reclassified from Accumulated Other
Comprehensive Income
Affected Line Item in the
Consolidated Statements
of Income
2016
2015
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
Settlement loss
$
$
$
$
(557)
(61)
(618)
221
(397)
163
(11,326)
—
(11,163)
3,893
(7,270)
Interest expense
(853)
(490) Net sales
(1,343) Total before tax
426 Tax benefit
(917) Net of tax
(A)
(A)
259
(16,015)
(9,939)
(A)
(25,695) Total before tax
9,188 Tax benefit
(16,507) Net of tax
Total reclassifications in the period
$
(7,667)
$
(17,424)
(A) These accumulated other comprehensive income components are included within the computation of net periodic pension cost. See Note 11.
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
19. 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 and cube mold assemblies - collectively, the enabling technologies for many complex injection molding
applications. Industrial’s Nitrogen Gas Products business manufactures nitrogen gas springs and manifold systems used to
precisely control stamping presses. 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 many types of precision engineered springs, from fine hairsprings for electronics and instruments to large
heavy-duty springs for machinery.
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,
Canada, Czech Republic, China/Hong Kong, France, Germany, India, Italy, Japan, Mexico, the Netherlands, Portugal,
Singapore, Slovakia, South Africa, South Korea, Spain, Switzerland, Thailand and the United Kingdom.
Aerospace is a global provider of fabricated and precision-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 repair and overhaul (“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 expense
(income), net, as well as the allocation of corporate overhead expenses.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
Sales between the business segments and between the geographic areas in which the businesses operate are accounted for
on the same basis as sales to unaffiliated customers. Additionally, revenues are attributed to countries based on the location of
facilities.
The following table (in millions) sets forth summarized financial information by reportable business segment:
Sales
Operating profit
Assets
Depreciation and amortization
Capital expenditures
Industrial
Aerospace
Other
Total Company
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
$
$
824.2
782.3
822.1
129.7
103.0
108.4
$ 1,356.1
1,241.2
1,282.0
$
$
49.5
46.0
54.7
25.9
28.7
36.1
$
$
$
$
$
$
$
$
$
$
406.5
411.7
440.0
62.5
65.4
71.6
647.8
654.1
655.0
30.0
30.8
24.9
21.1
17.2
20.9
— $
—
—
— $
—
—
$
$
$
133.7
166.5
136.9
0.7
1.3
1.8
0.5
0.1
0.4
1,230.8
1,194.0
1,262.0
192.2
168.4
180.0
2,137.5
2,061.9
2,073.9
80.2
78.2
81.4
47.6
46.0
57.4
_________________________
Notes:
One customer, General Electric, accounted for 17%, 18% and 19% of the Company’s total revenues in 2016, 2015 and 2014, 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 (in millions):
Operating profit
Interest expense
Other expense (income), net
Income from continuing operations before income taxes
2016
2015
2014
$
$
192.2
11.9
(2.3)
182.6
$
$
168.4
10.7
(0.2)
157.9
$
$
The following table (in millions) summarizes total net sales of the Company by products and services:
Engineered Components Products
Molding Solutions Products
Nitrogen Gas Products
Aerospace Original Equipment Manufacturing Products
Aerospace Aftermarket Products and Services
Total net sales
2016
2015
2014
$
332.6
$
342.2
$
376.6
115.0
288.4
118.2
324.6
115.5
295.7
116.0
$
1,230.8
$
1,194.0
$
1,262.0
The following table (in millions) summarizes total net sales of the Company by geographic area:
67
180.0
11.4
2.1
166.5
373.1
322.7
126.2
329.6
110.4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
Sales
Long-lived assets
Domestic
International
Other
Total
Company
$
$
2016
2015
2014
2016
2015
2014
$
$
562.6
589.6
618.9
368.2
379.2
380.6
$
$
727.4
661.7
677.6
1,135.5
1,069.9
1,094.9
(59.2) $
(57.3)
(34.5)
— $
—
—
1,230.8
1,194.0
1,262.0
1,503.6
1,449.1
1,475.4
_________________________
Notes:
Germany, with sales of $238.3 million, $210.5 million and $249.9 million in 2016, 2015 and 2014, 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 $449.9 million, $362.7 million and $410.0 million in 2016, 2015 and 2014, respectively, Singapore, with long-lived assets
of $238.3 million, $246.4 million and $255.3 million in 2016, 2015 and 2014, respectively, Switzerland, with long-lived assets of $169.3 million, $167.0
million and $165.7 million in 2016, 2015 and 2014, respectively and China with long-lived assets of $151.7 million in 2014, represent the only international
countries that exceeded 10% of the Company's total long-lived assets in those years.
20. Commitments and Contingencies
Leases
The Company has various noncancellable operating leases for buildings, office space and equipment. Rent expense was
$12,939, $11,166 and $12,745 for 2016, 2015 and 2014, respectively. Minimum rental commitments under noncancellable
leases in years 2017 through 2021 are $7,882, $6,321, $4,271, $3,740 and $3,430, respectively, and $7,811 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. Liabilities related to product warranties and
extended warranties were not material as of December 31, 2016 or 2015.
Contract Matters
In November 2016, the Company’s previously disclosed arbitration with Triumph Actuation Systems - Yakima, LLC
("Triumph") was concluded. The Company was awarded $9,212, plus interest on the judgment of $1,415, which amounts were
received on January 3, 2017. The outcome did not have a material impact on the Company's consolidated financial position,
liquidity or consolidated results of operations.
21. Accounting Changes
In March 2016, the FASB amended its guidance related to the accounting for certain aspects of share-based payments to
employees. The amended guidance requires that all tax effects related to share-based payments are recorded at settlement (or
expiration) through the income statement, rather than through equity. Cash flows related to excess tax benefits will no longer be
separately classified as a financing activity apart from other income tax cash flows. The amended guidance also allows for an
employer to repurchase additional employee shares for tax withholding purposes without requiring liability accounting and
clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a
financing activity on the Consolidated Statements of Cash Flows. The guidance is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2016. Early adoption is permitted, and the Company elected to early
adopt in the third quarter of 2016. See Note 12 of the Consolidated Financial Statements for additional details related to the
Company's adoption of this amended guidance.
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BARNES GROUP INC.
In November 2015, the FASB amended its guidance related to the balance sheet classification of deferred income taxes.
The amended guidance removes the requirement to separate and classify deferred income tax liabilities and assets into current
and non-current amounts and requires an entity to now classify all deferred tax liabilities and assets as non-current. The
amended guidance can be adopted either on a prospective or retrospective basis and is effective for interim and annual periods
beginning after December 15, 2016. Early adoption is permitted. The provisions of the amended guidance were adopted on a
prospective basis during the first quarter of 2016. The provisions resulted in the classification of $26,639 and $1,290 of current
deferred income tax assets and liabilities, respectively, into non-current deferred income tax assets and liabilities on the
Consolidated Balance Sheet as of December 31, 2016.
In 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 adopted the guidance during the first quarter of 2016 and it did not have a material
impact on its Consolidated Financial Statements.
22. Subsequent Event
On February 2, 2017, the Company entered into the fourth amendment of its fifth amended and restated revolving
credit agreement (the “the Fourth Amendment”) and retained Bank of America, N.A as the Administrative Agent for the lenders.
The Fourth Amendment increases the facility to $850,000 and extends the maturity date to February 2022. The Fourth
Amendment also increases the existing accordion feature, allowing the Company to request additional borrowings of up to
$350,000. The Company may exercise the accordion feature upon request to the Administrative Agent as long as an event of
default has not occurred or is not continuing. The borrowing availability of $850,000, pursuant to the terms of the Fourth
Amendment, allow for multi- currency borrowing which includes euro, sterling or Swiss franc borrowing, up to
$600,000. Depending on the Company’s consolidated leverage ratio, and at the election of the Company, borrowings under the
Fourth Amendment will bear interest at either LIBOR plus a margin of between 1.10% and 1.70% or the base rate plus a margin
of 0.10% to 0.70%. See Footnote 7 of the Consolidated Financial Statements.
69
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, 2016 and 2015, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2016 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, 2016, 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.
As discussed in Note 12 and Note 21 to the consolidated financial statements, the Company changed the manner in which
it accounts for share based compensation due to the adoption of ASU 2016-09, Improvements to Employee Share Based
Payment Accounting in 2016. As discussed in Note 13 and Note 21 to the consolidated financial statements, the Company
changed the manner in which it accounts for the classification of deferred taxes due to the adoption of ASU 2015-17, Balance
Sheet Classification of Deferred Taxes in 2016.
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.
70
As described in Management's Report on Internal Control over Financial Reporting appearing under item 9A,
management has excluded FOBOHA from its assessment of internal control over financial reporting as of December 31, 2016
because it was acquired by the Company in a purchase business combination during 2016. We have also excluded FOBOHA
from our audit of internal control over financial reporting. FOBOHA is a wholly-owned subsidiary whose total assets and total
net sales represent 3% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year
ended December 31, 2016.
/s/ PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
February 21, 2017
71
QUARTERLY DATA (UNAUDITED)
(Dollars in millions, except per share data)
2016
Net sales
Gross profit (1)
Operating income
Net income
Per common share:
Basic
Diluted
Dividends
Market prices (high - low)
2015
Net sales
Gross profit (1)
Operating income
Net income
Per common share:
Basic
Diluted
Dividends
Market prices (high - low)
________________________
(1) Sales less cost of sales.
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Full
Year
$
$
288.3
102.1
41.5
28.8
$
306.7
109.5
47.5
33.2
$
311.6
113.0
51.8
36.8
$
324.2
115.9
51.4
36.7
1,230.8
440.5
192.2
135.6
0.53
0.53
0.12
$35.81-30.07
0.61
0.61
0.13
$37.75-31.13
0.68
0.67
0.13
$41.86-32.55
0.68
0.67
0.13
$49.90-37.88
2.50
2.48
0.51
$49.90-30.07
$
$
300.6
102.2
43.9
29.1
$
314.9
110.8
50.6
34.2
$
291.4
100.3
43.7
33.7
$
287.0
97.8
30.1
24.4
1,194.0
411.2
168.4
121.4
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
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. We completed the acquisition of FOBOHA on August 31, 2016 and it represented approximately
3% and 1% of our total assets and total net sales, respectively, as of and for the year ended December 31, 2016. In accordance
with applicable SEC guidance, the scope of our assessment of the effectiveness of disclosure controls and procedures does not
include FOBOHA as it was not practical to do so given the date of acquisition. 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.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rule 13a-15(f). We completed the acquisition of FOBOHA on August 31, 2016 and it
represented approximately 3% and 1% of our total assets and total net sales, respectively, as of and for the year ended
December 31, 2016. In accordance with applicable SEC guidance, the scope of our assessment of the effectiveness of internal
control over financial reporting does not include FOBOHA as it was not practical to do so given the date of acquisition. Under
72
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, 2016.
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, 2016, which appears on page 70 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.
73
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information with respect to our directors and corporate governance may be found in the “Governance” and "Stock
Ownership" sections of our definitive proxy statement to be delivered to stockholders in connection with the Annual
Meeting of Stockholders to be held on May 5, 2017 (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
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
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, 2016
52
56
45
48
49
52
Each officer holds office until his or her successor is appointed and qualified or otherwise as provided in the
Company’s Amended and Restated By-Laws. No family relationships exist among the executive officers of the
Company. Except for Messrs. Beck, Berklas and 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. Dempsey is currently a
director of Nucor Corporation, having been appointed as of December 1, 2016.
Mr. Beck was appointed Senior Vice President, Barnes Group Inc. and President, Barnes Aerospace effective
March 1, 2016. Mr. Beck came to Barnes Group with over 27 years of global aerospace experience. Prior to joining
Barnes Group, Mr. Beck was the Senior Vice President & General Manager, Fuel and Motion Control, a $1B division of
Eaton’s Aerospace Group. Prior to this, he was the Chief Executive Officer of GKN’s Aerospace Engine Systems
business, where he led the due diligence, business synergies and integration of a significant acquisition. Prior to that, he
was the President and Chief Executive Officer of GKN’s global Propulsion Systems and Special Products business.
Earlier in his career, Mr. Beck was the Chief Operating Officer and Site Executive for GKN’s St. Louis, Missouri
business.
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 in a variety of positions at the global nutrition company,
Herbalife Ltd, most recently as Senior Vice President, Associate General Counsel, Chief Compliance Officer and
Associate Corporate Secretary. 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 General 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
74
until December 2008, Ms. Edwards served as Group Director, Human Resources for Barnes Aerospace, Associated
Spring and Barnes Industrial. Ms. Edwards joined the Company in September 1998.
Mr. 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 Honeywell, 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.
Items 11-14.
The information called for by Items 11-14 is incorporated by reference to the "Governance," "Stock Ownership,"
"Executive Compensation," "Director Compensation in 2016," "Securities Authorized for Issuance Under Equity Compensation
Plans," "Related Person Transactions," and "Principal Accountant Fees and Services" sections in our Proxy Statement.
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, 2016, 2015 and 2014
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2016, 2015
and 2014
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
See Financial Statement Schedule under Item 15(c).
See Item 15(b) below.
The Exhibits required by Item 601 of Regulation S-K are filed as Exhibits to this Annual Report and indexed
at pages 81 through 85 of this Annual Report, which index is incorporated herein by reference.
Financial Statement Schedule.
(a)(2)
(a)(3)
(b)
(c)
75
Item 16. Form 10-K Summary
None.
Schedule II—Valuation and Qualifying Accounts
Years Ended December 31, 2016, 2015 and 2014
(In thousands)
Allowances for Doubtful Accounts:
Balance January 1, 2014
Provision charged to income
Doubtful accounts written off
Other adjustments(1)
Balance December 31, 2014
Provision charged to income
Doubtful accounts written off
Other adjustments(1)
Balance December 31, 2015
Provision charged to income
Doubtful accounts written off
Other adjustments(1)
Balance December 31, 2016
________________
(1) These amounts are comprised primarily of foreign currency translation and other reclassifications.
$
$
3,438
1,523
(493)
(595)
3,873
1,248
(404)
(632)
4,085
863
(910)
(46)
3,992
76
Schedule II—Valuation and Qualifying Accounts
Years Ended December 31, 2016, 2015 and 2014
(In thousands)
Valuation Allowance on Deferred Tax Assets:
Balance January 1, 2014
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
Acquisitions(1)
Balance December 31, 2015
Additions charged to income tax expense
Reductions charged to other comprehensive income
Reductions credited to income tax expense(2)
Changes due to foreign currency translation
Acquisition(3)
Balance December 31, 2016
________________
$
$
18,873
1,049
(30)
(2,303)
(1,733)
15,856
1,043
(59)
(1,216)
(2,204)
981
14,401
759
(17)
(5,638)
(133)
5,585
14,957
(1) The increase in 2015 reflects the valuation allowances recorded at the Thermoplay and Priamus businesses which were acquired in the third and
fourth quarters of 2015, respectively.
(2) The reductions in 2016 relate primarily to net operating losses that were fully valued. These net operating losses have subsequently expired during
2016 (lapse of applicable carry forward periods) and the corresponding valuation allowance was reduced accordingly.
(3) The increase in 2016 reflects the valuation allowance recorded at the FOBOHA business, which was acquired in the third quarter of 2016.
77
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 21, 2017
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.
78
/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/ ELIJAH K. BARNES
Elijah K. Barnes
Director
/S/ GARY G. BENANAV
Gary G. Benanav
Director
/S/ THOMAS J. HOOK
Thomas J. Hook
Director
/S/ MYLLE H. MANGUM
Mylle H. Mangum
Director
/S/ HANS-PETER MÄNNER
Hans-Peter Männer
Director
79
/S/ HASSELL H. MCCLELLAN
Hassell H. McClellan
Director
/S/ WILLIAM J. MORGAN
William J. Morgan
Director
/S/ JOANNA L. SOHOVICH
JoAnna L. Sohovich
Director
80
EXHIBIT INDEX
Barnes Group Inc.
Annual Report on Form 10-K
for the Year ended December 31, 2016
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.
Share Purchase and Assignment Agreement dated
September 30, 2013 among the Company, two of its
subsidiaries, Otto Männer Holding AG (the "Seller"), and
the three shareholders of Seller.
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.
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.
3.2
Amended and Restated By-Laws.
10.1
(i) Fifth Amended and Restated Senior Unsecured
Revolving Credit Agreement, dated September 27, 2011.
(ii) Amendment No. 2 and Joinder to Credit Agreement
dated as of September 27, 2013 (amending Fifth
Amended and Restated Senior Unsecured Revolving
Credit Agreement, dated as of September 27, 2011).
(iii) Amendment No. 3 to Credit Agreement dated as of
October 15, 2014.
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).
Incorporated by reference to Exhibit 3.1 to Form 8-K
filed by the Company on February 11, 2016.
Incorporated by reference to Exhibit 4.1 to the
Company’s report on Form 10-Q for the quarter ended
June 30, 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.
Barnes Group Inc. Management Incentive Compensation
Plan, amended October 22, 2008.
Filed with this report.
Barnes Group Inc. Performance-Linked Bonus Plan for
Selected Executive Officers, as amended February 8,
2011.
Filed with this report.
(i) Offer Letter between the Company and Patrick
Dempsey, dated February 22, 2013.
Incorporated by reference to Exhibit 10.3 to the
Company's report on Form 10-Q for the quarter ended
March 31, 2013.
81
10.2
10.3**
10.4**
10.5**
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.
10.7**
10.8**
10.9**
(ii) Amendment to Amended Offer Letter to Christopher J.
Stephens, Jr., dated February 12, 2014.
Offer Letter to Scott A. Mayo, dated January 28, 2014.
Offer Letter to James P. Berklas, Jr., dated June 5, 2015.
(i) Barnes Group Inc. Retirement Benefit Equalization
Plan, as amended and restated effective January 1, 2013.
(ii) First Amendment to the Barnes Group Inc. Retirement
Benefit Equalization Plan dated December 12, 2014.
Incorporated by reference to Exhibit 10.6(ii) to the
Company’s report on Form 10-K for the year ended
December 31, 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.
Incorporated by reference to Exhibit 10.39(ii) to the
Company’s report on Form 10-K for the year ended
December 31, 2012.
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.
Filed with this report.
(ii) Amendment to the Barnes Group Inc. Supplemental
Senior Officer Retirement Plan dated December 30, 2009.
Filed with this report.
(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.
Filed with this report.
(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**
10.13**
10.14**
Barnes Group Inc. Senior Executive Enhanced Life
Insurance Program, as amended and restated effective
April 1, 2011.
Filed with this report.
Barnes Group Inc. Enhanced Life Insurance Program, as
amended and restated effective April 1, 2011.
Filed with this report.
Barnes Group Inc. Executive Group Term Life Insurance
Program effective April 1, 2011.
Filed with this report.
82
Exhibit No.
10.15**
10.16**
10.17**
10.18**
10.19**
10.20**
10.21**
10.22**
10.23**
10.24**
10.25**
Description
Reference
Form of Barnes Group Inc. Executive Officer Severance
Agreement, as amended March 31, 2010.
Filed with this report.
Form of Barnes Group Inc. Executive Officer Severance
Agreement, effective February 19, 2014.
Incorporated by reference to Exhibit 10.1 to the
Company's report on Form 10-Q for the quarter ended
March 31, 2014.
Barnes Group Inc. Executive Separation Pay Plan, as
amended and restated effective January 1, 2012.
Filed with this report.
(i) Trust Agreement between the Company and Fidelity
Management Trust Company (Barnes Group 2009
Deferred Compensation Plan) dated September 1, 2009.
Filed with this report.
(ii) Amended and Restated Barnes Group 2009 Deferred
Compensation Plan effective as of April 1, 2012.
Filed with this report.
(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.
Barnes Group Inc. Non-Employee Director Deferred
Stock Plan, as amended and restated December 31, 2008.
Filed with this report.
Barnes Group Inc. Directors’ Deferred Compensation
Plan, as amended and restated December 31, 2008.
Filed with this report.
Form of Amended and Restated Contingent Dividend
Equivalent Rights Agreement for Officers.
Filed with this report.
Barnes Group Inc. Trust Agreement for Specified Plans.
Filed with this report.
Form of Incentive Compensation Reimbursement
Agreement between the Company and certain Officers.
Filed with this report.
Form of Indemnification Agreement between the
Company and its Officers and Directors.
Filed with this report.
(i) Barnes Group Inc. Stock and Incentive Award Plan, as
amended December 31, 2008.
Filed with this report.
(ii) Barnes Group Inc. Stock and Incentive Award Plan, as
amended March 15, 2010.
Filed with this report.
(iii) Exercise of Authority Relating to the Stock and
Incentive Award Plan, dated March 3, 2009.
Filed with this report.
(iv) Amendment 2010-1 approved on December 9, 2010
to the Barnes Group Inc. Stock and Incentive Award Plan
as amended March 15, 2010.
Filed with this report.
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.
83
Exhibit No.
10.27**
10.28**
10.29**
10.30**
10.31**
10.32**
10.33**
10.34**
10.35**
10.36**
10.37**
10.38**
Description
Reference
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).
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).
Form of Barnes Group Inc. Stock and Incentive Award
Plan Restricted Stock Unit Summary of Grant and
Restricted Stock Unit Agreement for Directors dated
February 9, 2016 (for non-management directors).
Filed with this report.
Incorporated by reference to Exhibit 10.2 to the
Company’s report on Form 10-Q for the quarter ended
June 30, 2014.
Filed with this report.
Form of Non-Qualified Stock Option Agreement for
employees grade 21 and up.
Filed with this report.
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.
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.
Form of Barnes Group Inc. Stock and Incentive Award
Plan Stock Option Summary of Grant and Stock Option
Agreement for Employees in Grade 21 and up dated
February 9, 2016.
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.
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.
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.
Form of Barnes Group Inc. Stock and Incentive Award
Plan Restricted Stock Unit Summary of Grant for
Employees and Restricted Stock Unit Agreement dated
February 9, 2016.
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.
Filed with this report.
Incorporated by reference to Exhibit 10.4 to the
Company’s report on Form 10-Q for the quarter ended
June 30, 2014.
Filed with this report.
Filed with this report.
Filed with this report.
Incorporated by reference to Exhibit 10.3 to the
Company’s report on Form 10-Q for the quarter ended
June 30, 2014.
Filed with this report.
Incorporated by reference to Exhibit 10.36 to the
Company’s report on Form 10-K for the year ended
December 31, 2013.
84
Exhibit No.
10.39**
10.40**
10.41**
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.
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.
Incorporated by reference to Exhibit 10.42 to the
Company’s report on Form 10-K for the year ended
December 31, 2015.
10.42**
Performance-Linked Bonus Plan for Selected Executive
Officers dated as of May 6, 2016.
Filed with this report.
21
23
31.1
31.2
32
List of Subsidiaries.
Filed with this report.
Consent of Independent Registered Public Accounting
Firm.
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 XBRL Taxonomy Extension Calculation Linkbase
Filed with this report.
Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase
Filed with this report.
Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
Filed with this report.
101.PRE XBRL Taxonomy Extension Presentation Linkbase
Filed with this report.
Document.
_________________________
* 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.
85
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
Elijah K. Barnes
Principal, Avison Young
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
Gary G. Benanav
Former Chairman and Chief
Executive Officer, New York Life
International, LLC
Former Vice Chairman, New York
Life Insurance Company, LLC
Patrick J. Dempsey
President and Chief Executive
Officer, Barnes Group Inc.
Thomas J. Hook
President and Chief Executive
Officer, Integer
Mylle H. Mangum
Chief Executive Officer, IBT
Enterprises, LLC
Hans-Peter Männer
Managing Director, Proventus
Verwaltungs-GmbH
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.
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)
Barnes Group Inc.
123 Main Street
Bristol, CT 06010-6376 USA
Phone: 1-860-583-7070
ANNUAL MEETING
The Barnes Group Inc. Annual Meeting of Stockholders will be held at 11:00 a.m., Friday, May 5, 2017, at the DoubleTree by
Hilton Hotel, Bristol, Connecticut.
Corporate Office
123 Main Street
Bristol, CT 06010-6376
USA
BGInc.com
9