Barnes (B) - 2020 Q2 - Quarterly Report

Part I. FINANCIAL INFORMATION Financial Statements (Unaudited) The company's financial performance was significantly impacted by the COVID-19 pandemic, leading to substantial declines in net sales and net income for Q2 2020, alongside balance sheet shifts and strategic divestiture actions Consolidated Statements of Income Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $235,537 | $371,669 | $566,207 | $748,360 | | Operating income | $10,115 | $56,957 | $59,429 | $107,607 | | Net income | $567 | $37,616 | $30,300 | $71,608 | | Diluted EPS | $0.01 | $0.73 | $0.59 | $1.38 | Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $74,238 | $93,805 | | Total current assets | $665,522 | $764,390 | | Goodwill | $934,001 | $933,022 | | Total assets | $2,588,496 | $2,738,335 | | Long-term debt | $711,357 | $825,017 | | Total liabilities | $1,330,790 | $1,467,807 | | Total stockholders' equity | $1,257,706 | $1,270,528 | Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $123,077 | $108,155 | | Net cash provided (used) in investing activities | $10,688 | $(25,261) | | Net cash used in financing activities | $(151,610) | $(88,774) | | Decrease in cash and cash equivalents | $(19,567) | $(5,849) | - The company completed the sale of its Seeger business on February 1, 2020, yielding net cash proceeds of $36.9 million after transaction costs. The sale resulted in tax charges of $4.2 million and divestiture charges of $2.4 million in Q1 2020[15] - In response to the COVID-19 pandemic, the company initiated restructuring and workforce reduction actions, recording a pre-tax charge of $18.2 million in Q2 2020. These actions are expected to reduce the global workforce by approximately 8%[99] - Annual impairment testing for goodwill and indefinite-lived intangible assets was performed in the second quarter of 2020, and no impairments were found[55][57] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the significant 36.6% decline in Q2 2020 net sales to the COVID-19 pandemic, which caused a 32.1% drop in organic sales, impacting both Industrial and Aerospace segments Results of Operations Net sales for Q2 2020 fell 36.6% to $235.5 million, with organic sales down 32.1%, driven by pandemic-related disruptions across global end markets Q2 2020 vs Q2 2019 Sales by Segment (in millions) | Segment | Q2 2020 Sales | Q2 2019 Sales | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Industrial | $165.0 | $233.4 | $(68.4) | (29.3)% | | Aerospace | $70.5 | $138.3 | $(67.8) | (49.0)% | | Total | $235.5 | $371.7 | $(136.1) | (36.6)% | - The Industrial segment experienced an operating loss of $0.3 million in Q2 2020, a significant drop from a $27.4 million profit in Q2 2019, driven by lower organic sales and $15.8 million in restructuring charges[128] - The Aerospace segment's operating profit decreased 64.7% to $10.4 million in Q2 2020. OEM backlog fell 30.7% since year-end 2019 to $555.2 million, reflecting production cuts at major customers like Boeing and Airbus[133][134] Liquidity and Capital Resources The company maintains a solid liquidity position with $74.2 million in cash and access to its credit facility, while suspending share repurchases to preserve cash amidst the pandemic - Cash from operations was $123.1 million for the first half of 2020, an increase from $108.2 million in the prior year period, primarily due to better working capital management[155] - The company suspended its share repurchase program in Q2 2020 to preserve liquidity due to the COVID-19 pandemic. 0.4 million shares were repurchased in Q1 2020 for $15.6 million[145] Debt Covenant Compliance as of June 30, 2020 | Covenant | Actual Ratio | Maximum/Minimum Allowed | | :--- | :--- | :--- | | Ratio of Consolidated Senior Debt to Consolidated EBITDA | 2.38x | 3.25x (Max) | | Ratio of Consolidated Total Debt to Consolidated EBITDA | 2.38x | 3.75x (Max) | | Ratio of Consolidated EBITDA to Consolidated Cash Interest Expense | 16.43x | 4.25x (Min) | Critical Accounting Policies The company's critical accounting policies include the annual impairment testing of goodwill and indefinite-lived intangible assets, with no impairments found in the Q2 2020 assessment - Management completed its annual goodwill impairment test in Q2 2020. While the fair value of the Automation reporting unit (Gimatic acquisition) exceeded its carrying value, the margin was less significant than for other units. No impairment was recorded[163] Quantitative and Qualitative Disclosures About Market Risk The report refers 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 discussion of the Company's exposure to market risk, readers are referred to the Annual Report on Form 10-K for the year ended December 31, 2019[169] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of the end of the quarter - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020[170] - No changes in internal control over financial reporting occurred during Q2 2020 that materially affected, or are reasonably likely to materially affect, internal controls[171] Part II. OTHER INFORMATION Legal Proceedings The company is subject to various legal proceedings in the ordinary course of business but does not expect the outcomes to have a material adverse effect on its financial position, cash flows, or results of operations - The company is involved in litigation from time to time but does not anticipate any material adverse effect from the outcome of current proceedings[173] Risk Factors A material risk factor has been added concerning the COVID-19 pandemic, which has negatively impacted the global economy and the company's operations and financial performance, particularly in the air travel and aviation industries - The company has identified the COVID-19 pandemic as a new material risk factor, citing its adverse impact on the global economy, supply chains, and financial markets[175][176] - The pandemic has had a material impact on the air travel and aviation industries, affecting major customers like General Electric and posing a significant risk to the Aerospace business's results[177] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any shares under its publicly announced repurchase program during Q2 2020, suspending it to preserve liquidity amid the COVID-19 pandemic - The Board of Directors authorized a total of 5.0 million shares for repurchase under the program. As of June 30, 2020, approximately 3.7 million shares may yet be purchased[182][183] - No shares were repurchased as part of the publicly announced plan in the second quarter (April-June 2020). Share repurchase activity was suspended due to the COVID-19 pandemic[145][182] Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications (Sarbanes-Oxley Act Sections 302 and 906), a letter regarding unaudited interim financial information, and XBRL data files