Barnes (B) - 2020 Q1 - Quarterly Report

Part I. FINANCIAL INFORMATION This section provides the unaudited financial statements and management's discussion and analysis for the first quarter, along with market risk disclosures and controls Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Barnes Group Inc. for the quarterly period ended March 31, 2020. It includes the Consolidated Statements of Income, Comprehensive Income, Balance Sheets, and Cash Flows, along with detailed Notes to the Financial Statements. Key events include the divestiture of the Seeger business, which impacted financial results and cash flows Consolidated Statements of Income This section presents the unaudited consolidated statements of income for the three months ended March 31, 2020 and 2019 Consolidated Statements of Income (Three Months Ended March 31) | Metric | 2020 (in millions) | 2019 (in millions) | | :--- | :--- | :--- | | Net sales | $330.7M | $376.7M | | Operating income | $49.3M | $50.6M | | Income before income taxes | $43.4M | $43.7M | | Net income | $29.7M | $34.0M | | Diluted EPS | $0.58 | $0.65 | Consolidated Statements of Comprehensive Income This section presents the unaudited consolidated statements of comprehensive income for the three months ended March 31, 2020 and 2019 Consolidated Statements of Comprehensive Income (Three Months Ended March 31) | Metric | 2020 (in millions) | 2019 (in millions) | | :--- | :--- | :--- | | Net income | $29.7M | $34.0M | | Total other comprehensive loss, net of tax | $(34.2)M | $(8.2)M | | Total comprehensive (loss) income | $(4.5)M | $25.8M | Consolidated Balance Sheets This section presents the unaudited consolidated balance sheets as of March 31, 2020, and December 31, 2019 Consolidated Balance Sheets Highlights | Metric | March 31, 2020 (in millions) | December 31, 2019 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $112.8M | $93.8M | | Total current assets | $756.6M | $764.4M | | Total assets | $2667.6M | $2738.3M | | Total current liabilities | $351.6M | $342.9M | | Long-term debt | $783.4M | $825.0M | | Total stockholders' equity | $1245.0M | $1270.5M | Consolidated Statements of Cash Flows This section presents the unaudited consolidated statements of cash flows for the three months ended March 31, 2020 and 2019 Consolidated Statements of Cash Flows (Three Months Ended March 31) | Metric | 2020 (in millions) | 2019 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $47.2M | $53.1M | | Net cash provided (used) in investing activities | $18.5M | $(13.4)M | | Net cash used in financing activities | $(43.6)M | $(37.0)M | | Increase in cash and cash equivalents | $19.0M | $2.8M | Notes to Consolidated Financial Statements This section provides detailed explanations of the accounting policies and financial data presented in the statements. Key notes cover the divestiture of the Seeger business, revenue recognition details, segment performance, debt structure, and derivative instruments - On February 1, 2020, the company completed the sale of its Seeger business for gross proceeds of 39.6 million Euros ($43.7 million), resulting in net cash proceeds of $36.9 million. This led to divestiture charges of $2.4 million and tax charges of $4.2 million in Q1 2020[16][17] - Revenue from goods and services transferred over time accounted for approximately 15% of revenue in Q1 2020, an increase from 10% in Q1 2019. The remaining performance obligations for contracts longer than one year stood at $207.3 million as of March 31, 2020[33][45] - The company's effective tax rate for Q1 2020 was 31.5%, a significant increase from 22.3% in Q1 2019, primarily due to tax expenses related to the Seeger divestiture[79] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results for Q1 2020, highlighting a 12.2% decrease in net sales to $330.7 million, driven by an 8.3% organic sales decline and the Seeger divestiture. The COVID-19 pandemic began to negatively impact demand late in the quarter. Despite lower sales, operating margin improved to 14.9% from 13.4%. The report details performance by the Industrial and Aerospace segments, liquidity position, and actions taken in response to the pandemic, such as cost reductions and suspension of share repurchases Q1 2020 vs Q1 2019 Performance | Metric | Q1 2020 | Q1 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $330.7M | $376.7M | $(46.0)M | (12.2)% | | Operating Income | $49.3M | $50.6M | $(1.3)M | (2.6)% | | Operating Margin | 14.9% | 13.4% | +1.5 p.p. | - | | Net Income | $29.7M | $34.0M | $(4.3)M | (12.5)% | - The COVID-19 pandemic began to negatively impact sales late in the first quarter, with growing pressure on automotive and aerospace end markets. In response, the company has implemented temporary compensation reductions, employee furloughs, and suspended share repurchase activity[104][105][110] - The company maintains a strong liquidity position with $112.8 million in cash and $320.9 million of undrawn borrowing capacity under its credit facility as of March 31, 2020. The company was in compliance with all debt covenants[105][137] Financial Performance by Business Segment The Industrial segment's sales fell 17.9% to $199.1 million, hit by softness in automotive markets, the Seeger divestiture, and COVID-19 impacts, though operating margin slightly improved to 9.0%. The Aerospace segment saw a smaller sales decline of 2.0% to $131.6 million, as aftermarket growth partially offset an OEM decline related to the 737 MAX suspension. Aerospace operating margin increased significantly to 23.9% from 21.7% due to a favorable sales mix Industrial Segment Performance (Q1 2020 vs Q1 2019) | Metric | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | Sales | $199.1M | $242.5M | (17.9)% | | Operating Profit | $17.9M | $21.5M | (16.6)% | | Operating Margin | 9.0% | 8.9% | +0.1 p.p. | Aerospace Segment Performance (Q1 2020 vs Q1 2019) | Metric | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | Sales | $131.6M | $134.2M | (2.0)% | | Operating Profit | $31.4M | $29.1M | 7.7% | | Operating Margin | 23.9% | 21.7% | +2.2 p.p. | - Aerospace OEM backlog decreased 12.2% from year-end 2019 to $703.1 million at March 31, 2020, largely due to changes in GE's production schedules for aircraft engines[127] Liquidity and Capital Resources The company generated $47.2 million in cash from operations in Q1 2020, down from $53.1 million in Q1 2019. Investing activities provided $18.5 million, primarily from the Seeger divestiture. Financing activities used $43.6 million, including $15.6 million for share repurchases and $8.1 million for dividends. The company ended the quarter with $112.8 million in cash and was in full compliance with its debt covenants, with a Senior Debt to EBITDA ratio of 2.39 times against a maximum of 3.25 times Cash Flow Summary (Q1 2020 vs Q1 2019) | Activity (in millions) | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Operating Cash Flow | $47.2M | $53.1M | | Investing Cash Flow | $18.5M | $(13.4)M | | Financing Cash Flow | $(43.6)M | $(37.0)M | | Increase in Cash | $19.0M | $2.8M | - The company repurchased 0.4 million shares for $15.6 million in Q1 2020 but has since suspended share repurchase activity due to the COVID-19 pandemic[136] - The company's borrowing capacity under its credit facility was limited by covenants to $294.2 million at March 31, 2020, despite having $320.9 million unused on the facility[148] Quantitative and Qualitative Disclosures About Market Risk This section refers the reader to the company's Annual Report on Form 10-K for the year ended December 31, 2019, for a full discussion of its exposure to market risk - For a detailed discussion of the Company's exposure to market risk, readers are directed to the 2019 Annual Report on Form 10-K[154] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2020. There were no material changes to the company's internal control over financial reporting during the first quarter of 2020 - The President and CEO, along with the CFO, concluded that the company's disclosure controls and procedures were effective as of the end of Q1 2020[155] - No changes in internal control over financial reporting occurred during Q1 2020 that have materially affected, or are reasonably likely to materially affect, these controls[156] Part II. OTHER INFORMATION This section covers legal proceedings, updated risk factors, equity security sales, and a list of exhibits Legal Proceedings The company is subject to various legal proceedings in the ordinary course of business. Management does not expect the outcome of these proceedings, individually or in aggregate, to have a material adverse effect on the company's financial position, cash flows, or results of operations - The company states that pending litigation is not expected to have a material adverse effect on its financial condition or results of operations[158] Risk Factors This section introduces a material change to the company's risk factors, specifically addressing the significant negative impact of the COVID-19 pandemic. The risks highlighted include disruptions to the global economy and supply chains, adverse effects on customer demand (particularly in the air travel and aviation industries), and the potential for the pandemic to heighten other existing business risks - A new material risk factor has been added regarding the COVID-19 pandemic, which has negatively impacted the global economy, supply chains, and financial markets[159][160] - The pandemic poses specific risks to the Aerospace business due to severe disruptions in the air travel and aviation industries, which could materially affect results, especially given the reliance on major customers like General Electric[161] Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2020, the company repurchased 396,000 shares as part of its publicly announced repurchase program at an average price of $39.27 per share. As of March 31, 2020, 3,704,000 shares remained authorized for repurchase under the program Issuer Purchases of Equity Securities (Q1 2020) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | Jan 2020 | 938 | $64.64 | — | | Feb 2020 | 223 | $65.07 | — | | Mar 2020 | 396,192 | $39.27 | 396,000 | | Total | 397,353 | $39.35 | 396,000 | - As of March 31, 2020, 3,704,000 shares may yet be purchased under the company's publicly announced repurchase program[166][167] Exhibits This section lists the exhibits filed with the Form 10-Q report. These include an offer letter, forms of award agreements, a letter regarding unaudited interim financial information, certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act, and XBRL data files - Exhibits filed with the report include executive compensation documents, Sarbanes-Oxley certifications (Sections 302 and 906), and XBRL interactive data files[169][172]