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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM l0-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2003
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For transition period from
--------------------
to
--------------------
Commission File Number 1-4801
BARNES GROUP INC.
(a Delaware Corporation)
I.R.S. Employer Identification No. 06-0247840
123 Main Street, Bristol, Connecticut 06010
Telephone Number (860) 583-7070
Number of common shares outstanding at
November 11, 2003 22,757,697
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the exchange Act). Yes X No
--- ---
-1-
BARNES GROUP INC.
FORM 10-Q INDEX
For the Quarterly period ended September 30, 2003
DESCRIPTION PAGES
- ----------- -----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Income
for the three months and nine months ended
September 30, 2003 and 2002 3
Consolidated Balance Sheets as
of September 30, 2003 and December 31, 2002 4-5
Consolidated Statements of Cash Flows
for the nine months ended September 30,
2003 and 2002 6-7
Notes to Consolidated Financial
Statements 8-17
Report of Independent Accountants 18
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 19-25
ITEM 3. Quantitative and Qualitative Disclosure
About Market Risk 26
ITEM 4. Controls and Procedures 26
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 26
Signatures 27
Exhibit Index 28
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
--------------------- ---------------------
2003 2002 2003 2002
-------- -------- -------- --------
Net sales $222,160 $196,799 $670,481 $600,420
Cost of sales 143,651 134,524 432,193 407,028
Selling and admin-
istrative expenses 64,470 52,256 195,054 158,054
-------- -------- -------- --------
208,121 186,780 627,247 565,082
-------- -------- -------- --------
Operating income 14,039 10,019 43,234 35,338
Other income 613 2,156 2,293 3,357
Interest expense 3,961 3,877 12,206 10,895
Other expenses 13 167 990 378
-------- -------- -------- --------
Income before income
taxes 10,678 8,131 32,331 27,422
Income taxes 1,725 1,215 6,272 5,073
-------- -------- -------- --------
Net income $ 8,953 $ 6,916 $ 26,059 $ 22,349
======== ======== ======== ========
Per common share:
Net income
Basic $ 0.40 $ 0.37 $ 1.24 $ 1.20
Diluted 0.38 0.36 1.21 1.17
Dividends 0.20 0.20 0.60 0.60
Average common shares
outstanding
Basic 22,561,901 18,839,580 21,038,719 18,697,265
Diluted 23,257,839 19,150,751 21,531,951 19,156,896
See accompanying notes.
-3-
BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
ASSETS September 30, December 31,
2003 2002
------------- ------------
Current assets
Cash and cash equivalents $ 63,253 $ 28,355
Accounts receivable, less allowances
(2003-$3,460; 2002-$2,891) 128,282 97,533
Inventories
Finished goods 74,214 58,244
Work-in-process 19,091 16,993
Raw materials and supplies 12,399 13,572
-------- --------
105,704 88,809
Deferred income taxes 18,145 16,024
Prepaid expenses 10,681 7,916
-------- --------
Total current assets 326,065 238,637
Deferred income taxes 21,966 22,610
Property, plant and equipment 444,727 429,312
Less accumulated depreciation 292,335 269,872
-------- --------
152,392 159,440
Goodwill 220,092 164,594
Other intangible assets 45,692 16,702
Other assets 54,246 50,547
-------- --------
Total assets $820,453 $652,530
======== ========
See accompanying notes.
-4-
BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY September 30, December 31,
2003 2002
------------- ------------
Current liabilities
Notes payable $ 20,000 $ ---
Accounts payable 93,265 63,389
Accrued liabilities 81,860 61,853
Long-term debt - current 6,794 6,837
-------- --------
Total current liabilities 201,919 132,079
Long-term debt 216,229 214,125
Accrued retirement benefits 87,947 87,162
Other liabilities 12,263 10,944
Contingencies (Note 11)
Stockholders' equity
Common stock-par value $0.01 per share
Authorized: 60,000,000 shares
Issued 2003: 24,419,694 shares
Issued 2002: 22,037,769 shares 244 220
Additional paid-in capital 99,081 53,511
Treasury stock at cost,
2003-1,772,050 shares
2002-3,081,718 shares (37,962) (61,847)
Retained earnings 267,773 255,147
Accumulated other non-owner changes
to equity (27,041) (38,811)
-------- --------
Total stockholders' equity 302,095 208,220
-------- --------
Total liabilities and stockholders'
equity $820,453 $652,530
======== ========
See accompanying notes.
-5-
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2003 and 2002
(Dollars in thousands)
(Unaudited)
2003 2002
-------- --------
Operating activities:
Net income $ 26,059 $ 22,349
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 25,710 25,073
Gain on disposition of property,
plant and equipment (925) (129)
Changes in assets and liabilities:
Accounts receivable (13,677) (9,264)
Inventories (379) 9,433
Prepaid expenses (1,995) (280)
Accounts payable 6,522 (6,756)
Accrued liabilities 1,656 714
Deferred income taxes (860) (1,271)
Long-term pension asset (1,668) (4,980)
Other 5,294 720
-------- --------
Net cash provided by operating activities 45,737 35,609
Investing activities:
Proceeds from disposition of property, plant
and equipment 3,024 1,936
Capital expenditures (11,356) (14,581)
Business acquisitions, net of cash acquired (61,127) (31,466)
Other (903) (651)
-------- --------
Net cash used by investing activities (70,362) (44,762)
Financing activities:
Payments on long-term debt (42,882) (40,968)
Proceeds from the issuance of long-term debt 56,000 50,000
Net change in other borrowings 8,124 (3,249)
Proceeds from the issuance of common stock 49,369 3,353
Common stock repurchases (206) (1,147)
Dividends paid (13,014) (11,233)
Proceeds from sale of swaps --- 4,702
Other (1,917) (748)
-------- --------
Net cash provided by financing activities 55,474 710
Effect of exchange rate changes on cash flows 4,049 (1,502)
-------- --------
Increase (decrease) in cash and cash equivalents 34,898 (9,945)
Cash and cash equivalents at beginning of period 28,355 48,868
-------- --------
Cash and cash equivalents at end of period $ 63,253 $ 38,923
======== ========
See accompanying notes.
-6-
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2003 and 2002
(Dollars in thousands)
(Unaudited)
Supplemental Disclosure of Cash Flow Information:
Non-cash financing and investing activities include the 2003 issuance of $16.5
million of treasury stock in connection with the Kar acquisition, the 2003
acquisition of a $17.5 million intangible asset and the recognition of a
corresponding obligation, and in 2002, the issuance of $3.0 million of
treasury stock and the recognition of a $2.0 million obligation in connection
with the Spectrum Plastics acquisition.
See accompanying notes.
-7-
Notes to Consolidated Financial Statements (Unaudited):
1. Summary of Significant Accounting Policies
------------------------------------------
The accompanying unaudited consolidated balance sheet and consolidated
statements of income and cash flows have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. The consolidated financial statements do not include all
information and footnotes required by generally accepted accounting
principles for complete financial statements. The balance sheet as of
December 31, 2002 has been derived from the Company's 2002 financial
statements. For additional information, please refer to the consolidated
financial statements and footnotes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002. In the opinion
of management, all adjustments, including normal recurring accruals
considered necessary for a fair presentation, have been included.
Operating results for the nine-month period ended September 30, 2003 are
not necessarily indicative of the results that may be expected for the
year ending December 31, 2003. Certain reclassifications have been made
to prior year amounts to conform to the current year presentation.
Stock-Based Compensation
------------------------
The Company accounts for stock-based employee compensation under the
recognition and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation,"
to stock-based employee compensation.
-8-
(Dollars in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
------------------ ----------------
2003 2002 2003 2002
---- ---- ---- ----
Net income, as reported $ 8,953 $ 6,916 $26,059 $22,349
Add: Stock-based employee
compensation expense included in
reported net income, net of
related tax effects 531 444 1,422 1,207
Deduct: Stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects (1,649) (1,698) (4,460) (4,531)
------- ------- ------- -------
Pro forma net income $ 7,835 $ 5,662 $23,021 $19,025
======= ======= ======= =======
Earnings per share:
Basic - as reported $ 0.40 $ 0.37 $ 1.24 $ 1.20
Basic - pro forma 0.35 0.30 1.09 1.02
Diluted - as reported 0.38 0.36 1.21 1.17
Diluted - pro forma 0.34 0.30 1.07 0.99
The fair value of each stock option grant on the date of grant has been
estimated using the Black-Scholes option-pricing model. Weighted average
assumptions used for the 2003 and 2002 grants were as follows:
Three months ended Nine months ended
September 30, September 30,
------------------ ----------------
2003 2002 2003 2002
---- ---- ---- ----
Risk-free interest rate 1.97% 2.16% 2.12% 3.80%
Expected life (years) 2.0 2.0 3.1 4.1
Expected volatility 30.00% 35.00% 33.00% 35.00%
Expected dividend yield 3.00% 3.51% 3.41% 3.51%
The weighted average grant date fair values of options granted were $3.77
and $3.52 for the three months ended September 30, 2003 and 2002,
respectively, and $3.93 and $5.46 for the nine months ended September 30,
2003 and 2002, respectively.
-9-
2. Net Income Per Common Share
---------------------------
For the purpose of computing diluted earnings per share, the weighted
average number of shares outstanding was increased by 695,938 and
311,171 for the three-month periods ended September 30, 2003 and 2002,
respectively, and 493,232 and 459,631 for the nine-month periods ended
September 30, 2003 and 2002, respectively, for the potential dilutive
effects of stock-based incentive plans. As of September 30, 2003, there
were 3,764,410 options for shares of common stock outstanding of which
3,472,183 were considered dilutive. There were no adjustments to net
income for the purposes of computing income available to common
stockholders for those periods.
3. Acquisitions
------------
On February 6, 2003, the Company acquired Kar Products, LLC and certain
assets of a related company, A.& H. Bolt & Nut Company Ltd., (Kar) which
is a leading full-service distributor of maintenance, repair and
operating (MRO) supplies to industrial, construction, transportation and
other markets. The acquisition expands both the geographic scope and
product line reach of the Barnes Distribution segment. Kar has a
diversified customer base that operates in all 50 states of the U.S.,
Puerto Rico, and Canada, further enhancing Barnes Distribution's
leadership position within the MRO market and international presence.
The results of operations of Kar have been included in the consolidated
financial statements since the purchase date. The purchase price of
$78.5 million, excluding transaction costs, was financed through a
combination of $4.0 million of cash, $56.0 million of debt and $18.5
million of Barnes Group common stock (923,506 shares based upon an
average market value preceding the acquisition date). In July 2003, the
purchase price of Kar was reduced by $2.4 million, the result of final
closing balance sheet adjustments. The purchase price adjustment was
comprised of reimbursement to the Company of $0.4 million of cash and
$2.0 million of Barnes Group common stock (100,000 shares). This
purchase price adjustment was recorded in the third quarter, 2003
consolidated balance sheet as a reduction in the amount of goodwill
attributed to the acquisition.
-10-
The Company obtained third-party valuations of certain assets acquired
with Kar. The purchase price of $78.5 less the purchase price
adjustment of $2.4 million and including transaction costs of $1.5
million, was $77.6 million. The following table summarizes the estimate
of fair values of the assets acquired and liabilities assumed at the
date of acquisition (in thousands):
Current assets $ 27,708
Property, plant and equipment 2,987
Intangibles and other assets 12,495
Goodwill 55,448
--------
Total assets acquired 98,638
--------
Current liabilities (19,073)
Other liabilities (1,941)
--------
Total liabilities assumed (21,014)
--------
Net assets acquired $ 77,624
========
The following table reflects the pro forma operating results of the
Company for the three months and nine months ended September 30, 2002,
which give effect to the acquisition of Kar as if it had occurred on
January 1, 2002. The pro forma results are based on assumptions that the
Company believes are reasonable under the circumstances. The pro forma
results are not necessarily indicative of the operating results that
would have occurred if the acquisition had been effective January 1,
2002, nor are they intended to be indicative of results that may occur
in the future. The pro forma information does not include the effect of
synergies and cost reduction initiatives related to the acquisition. The
underlying pro forma information includes the historical financial
results of the Company and Kar adjusted for the amortization expense
associated with the assets acquired, the Company's financing
arrangements and certain purchase accounting adjustments. Pro forma
results have not been presented for 2003, because the results would not
be significantly different than historical results.
(Dollars in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
2002 2002
---- ----
Net sales $ 228,016 $ 694,393
Income before income taxes 10,096 32,360
Net income 8,095 25,312
Per common share:
Basic $ 0.41 $ 1.30
Diluted 0.41 1.27
-11-
4. 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 (BGI) for the nine-
month period ended September 30, 2003:
(Dollars in thousands)
Associated Barnes Barnes Total
Spring Aerospace Distribution BGI
---------- --------- ------------ --------
January 1, 2003 $ 76,377 $ 30,900 $ 57,317 $164,594
Goodwill acquired 78 (114) 55,448 55,412
Foreign currency
translation --- --- 86 86
-------- -------- -------- --------
September 30, 2003 $ 76,455 $ 30,786 $112,851 $220,092
======== ======== ======== ========
Goodwill acquired of $55.4 million relates to the acquisition of Kar in
February 2003. This amount may be adjusted upon finalization of the
purchase price allocation.
Other Intangible Assets:
The following table sets forth the carrying amount of acquired
intangibles assets at:
(Dollars in thousands)
September 30, December 31,
2003 2002
------------- ------------
Amortized intangible assets:
Revenue/risk sharing program $17,500 $ ---
Customer lists/relationships 11,500 ---
Patents, trademarks/trade names 10,606 9,806
Foreign currency translation and other 1,739 1,281
------- -------
Total gross carrying amount 41,345 11,087
Less: accumulated amortization (2,177) (909)
------- -------
39,168 10,178
Unamortized intangible pension asset 6,524 6,524
------- -------
Other intangible assets $45,692 $16,702
======= =======
Other intangible assets subject to amortization, other than the
revenue/risk sharing program (RSP), are being amortized over their
estimated useful lives ranging up to 30 years.
In September 2003, the Company agreed to participate in an RSP with a
major aerospace customer whereby the Company will be the sole supplier
of certain spare parts to the customer. As consideration, the Company
will pay a participation fee of $17.5 million which will be paid in two
installments. The Company has recorded this $17.5 million fee as a long-
lived intangible asset which will be recognized as a reduction to sales
-12-
over the life of the program. Amortization for 2004 is estimated to be
approximately $0.3 million.
In connection with the acquisition of Kar, the Company recorded
intangible assets including $11.5 million related to customer
lists/relationships and $0.8 million related to trademarks and trade
names. Amortization expense in 2003 will be approximately $1.2 million.
5. Business Reorganization
-----------------------
In connection with the acquisition of the assets of Curtis Industries,
Inc. in May 2000, the Company recorded certain integration costs. The
Company recorded total costs of $6.4 million related primarily to lease
consolidation costs, facility closure costs and reductions in personnel.
As of September 30, 2003, an accrual of approximately $1.2 million
remained, related to future lease payments, which will continue through
the remaining lives of the leases.
During the fourth quarter of 2001, the Company recorded pretax charges
of $4.8 million, primarily for Associated Spring, related to actions
aimed at reducing the Company's infrastructure including the closure of
an Associated Spring plant in Texas. As of September 30, 2003, the
remaining balance of $0.1 million related to post-closure holding costs
for the Texas plant, which is now closed and being held for sale.
In connection with the Kar acquisition in February 2003, the Company has
recorded certain integration costs. The integration plan includes
combining the headquarters functions and consolidating warehousing and
distribution networks. As a result, the Company recorded total costs of
$7.6 million. The Company recorded an accrual of $6.4 million that
related primarily to lease consolidation costs, facility closure costs
and reductions primarily in administrative and warehouse personnel.
During the nine months ended September 30, 2003, $2.2 million of the
accrual was utilized primarily for lease and employee severance
payments. As of September 30, 2003, the remaining balance of $4.2
million related primarily to future lease and employee severance
payments. The Company anticipates recording additional integration costs
in 2003 when additional distribution consolidation plans are finalized
in late 2003. Costs of $6.3 million associated with the acquired
business are reflected as assumed liabilities in the allocation of the
purchase price to net assets acquired. The remaining accrued integration
costs of $0.1 million are reflected as expenses in the third quarter of
2003. Additional charges associated with the integration totaling $1.2
million were recorded to expense as the liabilities were incurred during
the nine months ended September 30, 2003.
6. Debt
----
In conjunction with the Kar acquisition, the Company amended its
revolving credit agreement, pursuant to which the maximum ratio of Total
Debt to EBITDA, as defined in the revolving credit agreement, was
increased to 3.25 times for the first three quarters of 2003 and will
decline to 3.00 times at December 31, 2003. The actual ratio at
September 30, 2003 was 2.59. At September 30, 2003, the Company
-13-
classified $40.0 million of borrowings under its revolving credit
agreement as long-term debt. The Company has both the intent and the
ability through its revolving credit agreement to refinance this amount
on a long-term basis.
The Company's debt agreements contain financial covenants that require
the maintenance of interest coverage and leverage ratios, and minimum
levels of net worth. The agreements also place certain restrictions on
indebtedness, capital expenditures and investments by the Company and
its subsidiaries. Such covenants and restrictions determine the amount
of borrowings, dividends or treasury stock purchases the Company can
make under such agreements.
Under the most restrictive borrowing capacity covenant in any agreement,
$60.8 million of additional capacity was available at September 30,
2003. The debt agreements also require that the Company maintain a
minimum level of net worth. Under the most restrictive covenant this
minimum level limits the reduction in net worth (i.e. dividends and the
acquisition of Company stock) from September 30, 2003 levels by $92.0
million.
7. Common Stock Issuance
---------------------
On May 21, 2003, the Company issued 2,381,925 shares of its common stock
as a result of a follow-on public offering at $19.00 per share. Net
proceeds to Barnes Group of approximately $42.2 million (net of expenses
incurred) were used to pay down a portion of the indebtedness incurred
in connection with the Kar acquisition. The offering also included
823,506 shares sold by an existing stockholder, GC-Sun Holdings II, L.P.
Barnes Group did not receive any of the proceeds from the sale of the
shares owned by GC-Sun Holdings.
8. Comprehensive Income
--------------------
Comprehensive income includes all changes in equity during a period
except those resulting from the investments by, and distributions to,
stockholders. For the Company, comprehensive income includes net income,
and other non-owner changes to equity, which are comprised of foreign
currency translation adjustments, deferred gains and losses related to
certain derivative instruments and any minimum pension liability
adjustments.
-14-
Statement of Comprehensive Income
(Dollars in thousands)
Three months ended Nine months ended
September 30, September 30,
------------------ ----------------
2003 2002 2003 2002
---- ---- ---- ----
Net income $8,953 $6,916 $26,059 $22,349
Unrealized gains/(losses) on
hedging activities 565 (51) 215 (1,378)
Foreign currency
translation (138) (5,098) 11,555 (692)
Minimum pension liability
adjustments --- --- --- ---
------ ------ ------- -------
Comprehensive income $9,380 $1,767 $37,829 $20,279
====== ====== ======= =======
9. Income Taxes
------------
A reconciliation of the U.S. federal statutory income tax rate to the
consolidated effective income tax rate follows:
Nine months ended Twelve months ended
September 30, December 31,
2003 2002
---------------- -------------------
U.S. federal statutory
income tax rate 35.0% 35.0%
State taxes (net of federal benefit) 0.2 0.9
Foreign losses without tax benefit 1.7 3.6
Foreign operations taxed at
lower rates (13.3) (16.0)
NASCO equity income (0.8) (0.4)
Export sales benefit (1.1) (1.3)
ESOP dividend (2.5) (5.8)
Other 0.2 2.0
---- ----
Consolidated effective income tax rate 19.4% 18.0%
==== ====
-15-
10. Information on Business Segments
--------------------------------
The following tables set forth information about the Company's
operations by its three reportable business segments:
(Dollars in thousands)
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
2003 2002 2003 2002
---- ---- ---- ----
Sales
Associated Spring $ 81,142 $ 80,873 $252,770 $244,479
Barnes Aerospace 39,418 45,753 122,363 142,550
Barnes Distribution 103,820 71,990 302,321 219,123
Intersegment sales (2,220) (1,817) (6,973) (5,732)
-------- -------- -------- --------
Total sales $222,160 $196,799 $670,481 $600,420
======== ======== ======== ========
Operating profit
Associated Spring $ 4,867 $ 6,472 $ 21,633 $ 21,250
Barnes Aerospace 1,969 1,446 7,302 7,333
Barnes Distribution 7,405 2,408 15,523 7,786
-------- -------- -------- --------
Total operating profit 14,241 10,326 44,458 36,369
Interest income 412 292 1,068 545
Interest expense (3,961) (3,877) (12,206) (10,895)
Other income (expense) (14) 1,390 (989) 1,403
-------- -------- -------- --------
Income before income taxes $ 10,678 $ 8,131 $ 32,331 $ 27,422
======== ======== ======== ========
The Kar acquisition added approximately $98.6 million of assets to the
Barnes Distribution segment assets.
The revenue/risk sharing program agreement entered into in September 2003
added $17.5 million of intangible assets to the Barnes Aerospace segment
assets.
11. Contingencies
-------------
Retirement Savings Plan:
The Company guarantees a minimum rate of return on certain pre-April
2001 assets of its 401(k) Retirement Savings Plan (the Plan). This
guarantee will become a liability for the Company if, and to the extent
that, the value of the related Company stock does not cover the
guaranteed asset value when an employee who had invested in the Barnes
Group stock investment election or vested in the Company match, which is
paid in Barnes Group stock, withdraws from the Plan.
Effective October 10, 2003, the Plan was modified so that participants
will no longer be required to invest pre-April 1, 2001 employee
contributions in the Barnes Group Stock Fund. In addition, the Plan was
-16-
modified so that the Company match, after vesting, may also be invested
in any of the Plan's investment options. These assets may now be
invested in any of the Plan's investment options, including the Barnes
Group Stock Fund. Since the employee is no longer restricted to
investing in Company stock and has the flexibility of multiple
investment options, the minimum guaranteed rate of return on the Barnes
Group Stock Fund was eliminated effective with the October 10, 2003 Plan
modification. The payment of any remaining guaranteed liability as of
October 10, 2003 will be made to participants and is expected to affect
a minimal number of participants. The closing price of the Company's
stock on September 30 and October 10, 2003 was $25.96 and $27.79,
respectively, resulting in an estimated guarantee payment of $30
thousand.
Restrictions on Stock Consideration for Spectrum Plastics:
The sole stockholder of Spectrum Plastics received 119,048 shares of the
Company's common stock as partial consideration for Spectrum Plastics in
April 2002. For the one-year period following the required holding
period under the Federal securities laws, which holding period ended
April 29, 2003, the sole stockholder agreed not to sell the Company
shares received in the acquisition at a price below $25.20 per share
without the consent of the Company. In the event he sold any of the
shares during this period with the consent of the Company or during the
one month following this period, the Company would be obligated to pay
to him an amount equal to the difference between $25.20 per share and
the lesser price at which he sold such shares. The sole stockholder sold
such shares in the third quarter of 2003 at a price that exceeded
$25.20.
Product Warranties:
The Company provides product warranties in connection with the sale of
products. Product warranty liabilities were not significant as of
September 30, 2003.
------------------------
With respect to the unaudited consolidated financial information of
Barnes Group Inc. for the three-month and nine-month periods ended
September 30, 2003 and 2002, PricewaterhouseCoopers LLP reported that
they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate
report dated October 15, 2003 appearing herein, states that they did not
audit and they do not express an opinion on that unaudited consolidated
financial information. Accordingly, the degree of reliance on their
report on such information should be restricted in light of the limited
nature of the review procedures applied. PricewaterhouseCoopers LLP is
not subject to the liability provisions of Section 11 of the Securities
Act of 1933 (the Act) for their report on the unaudited consolidated
financial information because that report is not a "report" or a "part"
of the registration statement prepared or certified by
PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of
the Act.
-17-
Report of Independent Accountants
To the Board of Directors and Stockholders of
Barnes Group Inc.:
We have reviewed the accompanying consolidated balance sheet of Barnes
Group Inc. and its subsidiaries as of September 30, 2003, and the
related consolidated statements of income for each of the three-month
and nine-month periods ended September 30, 2003 and 2002 and the
consolidated statements of cash flows for the nine-month periods ended
September 30, 2003 and 2002. This interim financial information is the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally accepted in
the United States of America, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated interim financial
information for it to be in conformity with accounting principles
generally accepted in the United States of America.
We previously audited in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet
as of December 31, 2002, and the related consolidated statements of
income, of stockholders' equity and of cash flows for the year then
ended (not presented herein), and in our report dated January 31, 2003
(except for Note 3, which is as of February 6, 2003) we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 2002 is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has
been derived.
/s/PricewaterhouseCoopers LLP
Hartford, CT
October 15, 2003
-18-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
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 Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002. The
most significant areas involving management judgments and estimates are
described in Management's Discussion and Analysis in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002. New significant
areas are discussed below. Actual results could differ from those estimates.
Revenue/Risk Sharing Program
----------------------------
The Company participates in a revenue/risk sharing program, which required an
up-front cash investment of $17.5 million. The cost of participation is
subject to recovery through a long-term contract to supply specified spare
parts over the life of the program. The up-front investment was capitalized at
September 30, 2003. It will be recognized as a reduction to net sales over the
estimated life of the program. The recoverability of this asset is based on
the projected number of spare parts to be sold over the estimated life of the
program.
Acquisitions
------------
On February 6, 2003, the Company acquired Kar Products, LLC and certain assets
of a related company, A.& H. Bolt & Nut Company Ltd., (Kar) a leading full-
service distributor of maintenance repair and operating (MRO) supplies to
industrial, construction, transportation and other markets. The acquisition
expands both the geographic scope and product line of the Barnes Distribution
segment. Kar has a diversified customer base that operates in all 50 states of
the U.S., Puerto Rico, and Canada, further enhancing Barnes Distribution's
leadership position within the MRO market and international presence. The
results of operations of Kar have been included in the consolidated financial
statements since the purchase date. The consideration for the acquisition of
$78.5 million was financed through a combination of $4.0 million cash, $56.0
million of debt and $18.5 million (923,506 shares) of Barnes Group common
stock. In July 2003, the purchase price of Kar was reduced by $2.4 million,
the result of final closing balance sheet adjustments. The purchase price
adjustment included reimbursement to the Company of $0.4 million cash and $2.0
million (100,000 shares) of Barnes Group common stock. The purchase price
adjustment was recorded in the third quarter consolidated balance sheet as a
reduction in the amount of goodwill attributed to the acquisition.
Related to the Kar acquisition, management has approved and committed to
certain integration activities aimed at achieving a number of post-acquisition
cost savings and other synergies through headquarters and infrastructure
consolidation. This integration plan includes combining the headquarters
functions and consolidating warehousing and distribution networks. As a
result, the Company recorded total costs of $7.6 million. The Company
-19-
recorded an accrual of $6.4 million related primarily to lease consolidation
costs, facility closure costs and reductions in personnel. Costs of $6.3
million associated with the acquired business are reflected as assumed
liabilities in the allocation of the purchase price to net assets acquired.
Integration costs of $1.3 million are reflected as expenses during the nine
months ended September 30, 2003.
Results of Operations
---------------------
The following table sets forth, as a percentage of sales, the Company's
consolidated statement of income data for the three months and nine months
ended September 30, 2003 and 2002:
Three months ended Nine months ended
September 30, September 30,
------------------ ----------------
2003 2002 2003 2002
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 64.7 68.4 64.5 67.8
----- ----- ----- -----
Gross profit 35.3 31.6 35.5 32.2
Selling and
administrative expenses 29.0 26.5 29.1 26.3
----- ----- ----- -----
Operating income 6.3 5.1 6.4 5.9
Other income 0.3 1.1 0.3 0.6
Interest expense 1.8 2.0 1.8 1.8
Other expense 0.0 0.1 0.1 0.1
Income taxes 0.8 0.6 0.9 0.9
----- ----- ----- -----
Net income 4.0% 3.5% 3.9% 3.7%
===== ===== ===== =====
Net sales for the third quarter 2003 were $222.2 million, up 12.9% from $196.8
million in the third quarter last year. The sales increase reflected the
Company's acquisition of Kar, which contributed $30.8 million to Barnes
Distribution. This growth was partially offset by a 13.8% decline in sales at
Barnes Aerospace. The Company's sales for the first nine months of 2003 were
$670.5 million, up 11.7% from $600.4 million in 2002. This sales increase
included $81.0 million in sales from the Kar acquisition.
Third quarter 2003 operating income was $14.0 million compared to $10.0
million in the third quarter of 2002. The increase reflects higher profit at
Barnes Distribution and Barnes Aerospace and lower profit in Associated
Spring. The Company-wide operating income margin was 6.3% compared with 5.1% a
year ago. This increase was driven, for the most part, by a higher gross
profit margin, which improved 3.7 percentage points. This increase in gross
profit margin reflects higher gross profit margins at Barnes Distribution and
Barnes Aerospace, combined with a shift in the overall sales mix to the higher
margin distribution business. This shift was caused primarily by the
additional sales contributed by Kar. Selling and administrative expenses
increased as a percentage of sales compared to last year's third quarter. This
was also driven by the higher proportion of sales in the distribution
business, which has a higher selling expense component. Also impacting
-20-
operating expenses were higher personnel costs, including severance, pension
and other postretirement benefit costs. Year-to-date 2003 operating income was
$43.2 million compared to $35.3 million in 2002.
Segment Review - Sales and Operating Profit
-------------------------------------------
Associated Spring's sales for the 2003 third quarter and year to date were
$81.1 million and $252.8 million, respectively, up slightly compared to $80.9
million and $244.5 million a year ago. The increase reflected higher sales of
nitrogen gas springs and products for industrial markets combined with the
positive impact on sales from the strengthening of foreign currency against
the U.S. dollar. For the year to date period, the 2002 acquisitions of Seeger-
Orbis and Spectrum Plastics contributed $13.7 million in incremental sales to
Associated Spring. These increases were essentially offset by a decline in
sales related to the North America light vehicle market. In the third quarter,
sales of products destined for light vehicles were down 4% percent, which is
slightly less than the 5% percent fall off in light vehicle production in
North America. The third quarter and year to date operating profit for the
segment was $4.9 million and $21.6 million, respectively, compared with $6.5
million and $21.3 million for the same period a year ago. Operating profit in
the third quarter was positively impacted by the benefits of last year's
closure of Associated Spring's Texas facility. This was more than offset by
certain incrementally higher personnel costs, including pension and severance
totaling approximately $1.0 million, and a $0.5 million reduction in the
carrying value of the Texas facility, which is currently held for sale. Light
vehicle production in the fourth quarter of 2003 is expected to be slightly
lower than 2002; however, the impact on Associated Spring will ultimately
depend upon both the actual production rate and the production mix. The end
markets for other products are expected to be stable with continued growth
expected for nitrogen gas spring products.
Barnes Aerospace's third quarter and year to date 2003 sales were $39.4
million and $122.4 million; respectively, down 13.8% and 14.2% compared with
$45.8 million and $142.6 million in the comparable periods in 2002, reflecting
the continued challenging commercial aerospace marketplace. The third quarter
and year to date operating profit was $2.0 million and $7.3 million,
respectively, compared with $1.4 million and $7.3 million in 2002. Operating
profit margin for the third quarter and first nine months was 5.0% and 6.0%,
respectively, up from 3.2% and 5.1% in the third quarter and year to date of
last year. The improvement in margin is a result of headcount reductions and
other productivity actions taken throughout Barnes Aerospace in 2002 aimed at
positioning the business for a period of lower commercial aerospace volume.
Orders recorded during the third quarter of 2003 were $51.7 million, the
strongest since the third quarter of 2001, resulting in order backlog at
September 30, 2003 of $149.3 million, compared with $151.8 million at year-end
2002. Orders for the military were $18.1 million, or 35% of the orders
received in the third quarter, including $9.8 million in direct military
orders. Barnes Aerospace also received approximately $10.3 million in orders
related to a large commercial engine program that will enter service in early
2004. Orders related to overhaul and repair began to ramp up late in the third
quarter as commercial aircraft returned to active service generating an
increase in demand for overhaul and repair of jet engines.
-21-
Barnes Distribution's sales in the third quarter and year to date of 2003 were
$103.8 million and $302.3 million, respectively, up 44.2% and 38.0% from $72.0
million and $219.1 million in the comparable periods in 2002. Kar, which the
Company purchased on February 6, 2003, contributed $30.8 million of sales in
the third quarter and $81.0 million for the first nine months of 2003.
Excluding Kar, sales at Barnes Distribution were essentially flat reflecting
the impact of continued weakness in the industrial economy. Growth
initiatives, including national and regional customer development efforts, e-
commerce platforms and new Tier 2 relationships together contributed nearly
$6.0 million in sales in the third quarter, up from $1.8 million in the
comparable period last year. Operating profit for the third quarter and year
to date 2003 was $7.4 million and $15.5 million, respectively, up
significantly from $2.4 million and $7.8 million for the comparable periods in
2002. The improvement in operating results was driven primarily by incremental
operating profit contributed by Kar as well as gross margin improvement.
Included in the third quarter operating profit is an incremental gain of $0.9
million from the sale of distribution centers, which was essentially offset by
approximately $0.8 million of incremental severance expense. In addition,
Barnes Distribution operating profit included other one-time costs associated
with the integration, which were $0.4 million in the third quarter and $1.2
for the year to date period. The outlook for markets served by Barnes
Distribution remains uncertain for the remainder of 2003 because of the
continued uncertainty in the industrial economy; however, management
anticipates that operating profit will continue to be positively impacted in
2004 by the contribution to profit from Kar sales as well as from the
synergistic cost savings resulting from integrating Kar into Barnes
Distribution. For the fourth quarter of 2003, cost benefits of the synergies
are expected to be offset in part by additional expenses related to
consolidation efforts.
Other Income/Expense
--------------------
Other income decreased $1.1 million for the first nine months of 2003.
Included in other income in 2002 are foreign exchange gains of approximately
$1.8 million. This compares to foreign exchange losses of approximately $0.6
million in 2003 which have been included in other expense. These transaction
losses related primarily to exposures on U.S. dollar-denominated financial
instruments at the Company's international locations (primarily Brazil). This
decrease was partially offset by higher interest income due to higher interest
rates in Brazil and increased short-term investments in Canada.
Interest expense increased in 2003 as a result of higher borrowings related
primarily to the Kar acquisition, and a reduction in the amount of debt
subject to interest rate swaps.
Income Taxes
------------
The Company's effective tax rate for the first nine months of 2003 was 19.4%,
compared with 18.5% for the comparable year-to-date period in 2002 and 18.0%
for the full year 2002. The higher rate is primarily due to the absence in
2003 of an additional deduction which was taken during 2002 for the Company's
Retirement Savings Plan dividends. The additional 2002 dividend deduction
resulted from a retroactive election in 2002 for the 2001 dividend
distribution, pursuant to an amendment to the Plan.
-22-
Net Income and Net Income Per Share
-----------------------------------
Consolidated net income for the third quarter of 2003 was $9.0 million, an
increase of 30% over 2002. Basic and diluted earnings per share for the third
quarter of 2003 were $.40 and $.38, respectively, up 8% and 6%, respectively
over 2002.
Consolidated net income for the first nine months of 2003 was $26.1 million an
increase of 17% over 2002. Basic and diluted earnings per share for the first
nine months of 2003 were $1.24 and $1.21, up 3% over 2002.
An increase in both basic and diluted average outstanding shares impacted the
increase in earnings per share when compared to the increase in net income in
both the first nine months and third quarter. This results from the issuances
of 2.4 million shares of Company Common Stock in a May 21, 2003 follow-on
public offering and of 0.8 million Company shares in the acquisition of Kar.
Total outstanding shares at September 30, 2003 were 22,647,644. Absent any
significant repurchases of the Company's common stock, basic average
outstanding shares for 2004 will exceed 22.6 million.
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 bank 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 optimization and anticipates that operating
activities in 2003 will provide sufficient cash to take advantage of
opportunities for organic business expansion and to meet the Company's current
financial commitments.
Operating activities are a principal source of cash flow for the Company. Net
cash provided by operating activities in the first nine months of 2003 was
$45.7 million, compared to $35.6 million in the first three quarters of 2002.
The improvement in operating cash flow in the first nine months of 2003
resulted from improved operating results.
Net cash used by investing activities in the first nine months of 2003 was
$70.4 million compared with $44.8 million in the comparable 2002 period. The
significant increase in this year's investing activities was due to the
acquisition of Kar in February 2003. Investing activity in 2002 included the
acquisitions of Seeger-Orbis and Spectrum Plastics. In 2003, capital
expenditures were down compared to the 2002 level, on reduced capital spending
by Barnes Aerospace and the international segment of Barnes Distribution.
Net cash provided by financing activities was $55.5 million in the first three
quarters of 2003 compared to $0.7 million in the comparable 2002 period.
Proceeds from additional borrowings in 2003 under the revolving credit
agreement were used to fund the Kar acquisition and certain operating cash
flow requirements in the United States. The Company's public offering of its
-23-
common stock provided net proceeds of approximately $42.2 million (net of
expenses incurred) that were used to reduce borrowings under its revolving
credit facility. Cash generation outside the U.S. resulted in an increase in
cash and cash equivalents. The first installment of $15 million for the
revenue/risk sharing program will be funded in December 2003 from cash held by
the Company outside of the United States. Management anticipates that
acquisitions will continue to be financed through a mix of internal cash,
borrowing and equity.
The Company maintains bank-borrowing facilities to supplement internal cash
generation. At September 30, 2003, the Company had a $150.0 million borrowing
facility under a revolving credit agreement that matures on June 14, 2005, of
which $58.0 million was borrowed at an interest rate of 3.12%. Additionally,
the Company had $15.0 million in uncommitted short-term bank credit lines, of
which $2.0 million was in use at September 30, 2003.
Borrowing capacity is limited by various debt covenants. The most restrictive
covenant requires the Company to maintain a ratio of Total Debt to EBITDA, as
defined in the revolving credit agreement, of not more than 3.25 times at
September 30, 2003. The covenant will decline to 3.00 times at December 31,
2003. The actual ratio at September 30, 2003 was 2.59 times and would have
allowed additional borrowings of $60.8 million. The Company believes its
credit facilities, coupled with cash generated from operations, are adequate
for its anticipated future requirements.
EBITDA
------
Earnings before interest, taxes, depreciation and amortization (EBITDA) for
the first nine months of 2003 were $70.2 million compared to $63.4 million in
the first nine months of 2002. EBITDA is a measurement not calculated in
accordance with generally accepted accounting principles (GAAP). The Company
defines EBITDA as net income plus income taxes, interest expense and
depreciation and amortization. The Company does not intend EBITDA to represent
cash flows from operations as defined by GAAP, and the reader should not
consider it as an alternative to net income, net cash provided by operating
activities or any other items calculated in accordance with GAAP, or as an
indicator of the Company's operating performance. The Company's definition of
EBITDA may not be comparable with EBITDA as defined by other companies. The
Company believes EBITDA is commonly used by financial analysts and others in
the industries in which the Company operates and, thus, provides useful
information to investors.
Following is a reconciliation of EBITDA to the Company's net income:
(Dollars in thousands)
Nine months ended September 30, 2003 2002
------- -------
Net income $26,059 $22,349
Add back:
Income taxes 6,272 5,073
Depreciation & amortization 25,710 25,073
Interest expense 12,206 10,895
------- -------
EBITDA $70,247 $63,390
======= =======
-24-
Recent Accounting Pronouncements
--------------------------------
During 2003, Statement of Financial Accounting Standards (SFAS) No. 143
"Accounting for Asset Retirement Obligations," SFAS No. 149 "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities," SFAS No. 150
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" and the disclosure requirements of Interpretation No.
46 (FIN 46), "Consolidation of Variable Interest Entities," became effective
for the Company. The adoption of these statements did not have a material
effect on the Company's financial position, results of operations or cash
flows.
Forward-Looking Statements
--------------------------
This quarterly report may contain certain forward-looking statements as
defined in the Private Securities Litigation and Reform Act of 1995. These
forward-looking statements are subject to risks and uncertainties that may
cause actual results to differ materially from those contained in the
statements. Investors are encouraged to consider these risks and uncertainties
as described within the Company's periodic filings with the Securities and
Exchange Commission. These risks and uncertainties include but are not limited
to, the following: the ability of the Company to integrate newly acquired
businesses and to realize acquisition synergies on schedule; changes in market
demand for the types of products and services produced and sold by the
Company; the Company's success in identifying, and attracting customers in,
new markets; the Company's ability to develop new and enhanced products, to
meet customers needs on time; the effectiveness of the Company's marketing and
sales programs; increased competitive activities including pricing,
advertising and promotions that could adversely affect customer demand for the
Company's products; changes in economic, political and public health
conditions, worldwide and in the locations where the Company does business;
interest and foreign exchange rate fluctuations; and changes in laws and
regulations.
-25-
Item 3. Quantitative and Qualitative Disclosure About Market Risk
There has been no significant change in the Company's exposure to market
risk during the first nine months of 2003. For discussion of the Company's
exposure to market risk, refer to the Company's Annual Report on Form 10-K
for the year ended December 31, 2002.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Management, including the
Company's President and Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures as of the end of the period covered by this
report. Based upon, and as of the date of, that evaluation, the President and
Chief Executive Officer and Chief Financial Officer concluded that the
disclosure controls and procedures were effective, in all material respects,
to ensure that information required to be disclosed in the reports the Company
files and submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported as and when required.
Part II.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 15 Letter regarding unaudited interim financial
information.
Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Exhibit 31.2 Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32 Certification Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Form 8-K
A report on Form 8-K regarding financial results of operations for the second
quarter and six months ended June 30, 2003 was filed with the Commission on
July 17, 2003.
-26-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Barnes Group Inc.
(Registrant)
Date November 14, 2003 By /s/ William C. Denninger
--------------- -------------------------------
William C. Denninger
Senior Vice President, Finance
and Chief Financial Officer
(the principal financial officer)
Date November 14, 2003 By /s/ Francis C. Boyle, Jr.
--------------- -------------------------------
Francis C. Boyle, Jr.
Vice President, Controller
(the principal accounting officer)
-27-
EXHIBIT INDEX
BARNES GROUP INC.
Quarterly Report on Form 10-Q
For Quarter ended September 30, 2003
------------------------------------
Exhibit No. Description Reference
- ---------- ----------- ---------
15 Letter regarding unaudited interim Filed with this report.
financial information.
31.1 Certification Pursuant to Filed with this report.
Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification Pursuant to Filed with this report.
Section 302 of the Sarbanes-Oxley Act
of 2002.
32 Certification Pursuant to 18 U.S.C. Furnished with this
Section 1350 as Adopted Pursuant to report.
Section 906 of the Sarbanes-Oxley Act
of 2002.
-28-
Exhibit 15
November 14, 2003
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated October 15, 2003 on our review of interim
financial information of Barnes Group Inc. (the "Company") for the three- and
nine-month periods ended September 30, 2003 and 2002 included in the Company's
quarterly report on Form 10-Q for the quarter ended September 30, 2003 is
incorporated by reference in its Registration Statements on Form S-3 (No. 333-
104242), and Form S-8 (Nos. 2-56437, 2-91285, 33-20932, 33-30229, 33-91758,
33-27339, 333-41398, 333-88518 and 333-57658).
Very truly yours,
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
Exhibit 31.1
CERTIFICATION
I, Edmund M. Carpenter, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period ended
September 30, 2003 of Barnes Group Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c)Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5.The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a)All significant deficiencies in the design and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: November 14, 2003
/s/ Edmund M. Carpenter
-----------------------
Edmund M. Carpenter
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, William C. Denninger, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period ended
September 30, 2003 of Barnes Group Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c)Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies in the design and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: November 14, 2003
/s/ William C. Denninger
------------------------
William C. Denninger
Chief Financial Officer
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Barnes Group Inc. (the "Company")
on Form 10-Q for the period ending September 30, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), each of
the undersigned certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
1) the Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ Edmund M. Carpenter /s/ William C. Denninger
- ----------------------- ------------------------
Edmund M. Carpenter William C. Denninger
President and Chief Chief Financial
Executive Officer Officer
November 14, 2003 November 14, 2003
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature
that appears in typed form within the electronic version of this written
statement required by Section 906, has been provided to Barnes Group Inc. and
will be retained by Barnes Group Inc. and furnished to the Securities and
Exchange Commission or its staff upon request.