Barnes (US:B)2024-10-29 18:57Part I. FINANCIAL INFORMATION Item 1. Financial Statements The company reported a Q3 2024 net loss, an improvement, but a nine-month net loss of $47.0 million, impacted by goodwill impairment Condensed Consolidated Statements of (Loss) Income Highlights | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $387,794 | $360,988 | $1,200,664 | $1,035,329 | | Operating income | $41,821 | $9,990 | $79,390 | $59,283 | | Net (loss) income | $(2,144) | $(21,730) | $(47,017) | $8,780 | | Diluted (loss) income per share | $(0.04) | $(0.43) | $(0.92) | $0.17 | Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $80,675 | $89,827 | | Total current assets | $866,731 | $906,720 | | Goodwill | $1,081,960 | $1,183,624 | | Total assets | $3,075,032 | $3,308,014 | | Long-term debt | $1,135,162 | $1,279,962 | | Total liabilities | $1,770,546 | $1,945,751 | | Total stockholders' equity | $1,304,486 | $1,362,263 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $49,750 | $70,973 | | Net cash provided (used) by investing activities | $119,429 | $(750,118) | | Net cash (used) provided by financing activities | $(177,954) | $692,392 | | (Decrease) increase in cash | $(11,365) | $11,057 | Note 3. Acquisition On August 31, 2023, the company acquired MB Aerospace for $728.4 million, recognizing $328.4 million in goodwill and $320.0 million in other intangible assets - Completed the acquisition of MB Aerospace on August 31, 2023, for a total purchase price of $728.4 million, enhancing capabilities in the aero-engine value chain1617 - The acquisition added $328.4 million in goodwill, allocated to the Aerospace segment, and $320.0 million in intangible assets, primarily customer relationships, backlog, and developed technology2325 Note 4. Divestiture The company sold its Associated Spring™ and Hänggi™ businesses for $173.4 million, generating $160.9 million net cash used for debt reduction - On April 4, 2024, the company sold its Associated Spring™ and Hänggi™ businesses for $175 million, subject to adjustments2834 - The divestiture yielded net cash proceeds of $160.9 million, used for debt reduction, and resulted in a pre-tax operating gain of $5.4 million ($3.9 million net gain)34 Note 5. Revenue Q3 2024 total revenue was $387.8 million, with Aerospace contributing $231.9 million, and nine-month total revenue reached $1.2 billion Revenue by Segment (in thousands) | Segment | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Aerospace | $231,934 | $156,090 | $671,262 | $395,362 | | Industrial | $155,860 | $204,898 | $529,402 | $639,967 | | Total | $387,794 | $360,988 | $1,200,664 | $1,035,329 | - As of September 30, 2024, remaining performance obligations for contracts over one year totaled $632.4 million, with approximately 70% expected to be recognized in the next 12 months5556 Note 9. Goodwill and Other Intangible Assets A $53.7 million goodwill impairment charge was recorded for the Automation unit, and goodwill decreased to $1.08 billion due to divestiture - A non-cash goodwill impairment charge of $53.7 million was recorded for the Automation reporting unit during the second quarter of 202467 - The impairment was due to lower projections, reflecting reduced growth trends in the automation market and broader industrial manufacturing uncertainty67 - Goodwill was also reduced by $58.9 million due to the divestiture of the Associated Spring™ and Hänggi™ businesses6566 Note 18. Business Reorganizations The company authorized new Q3 2024 restructuring actions for the Industrial segment, incurring $2.4 million in employee termination costs - In Q3 2024, the company authorized new restructuring actions for the Industrial segment, recording $2.4 million in pre-tax charges for employee termination costs136 - In Q2 2024, restructuring actions resulted in pre-tax charges of $3.2 million for organizational changes within both the Aerospace and Industrial segments133 Note 19. Subsequent Events The company entered a definitive merger agreement to be acquired by Apollo affiliates for $47.50 per share, with closing expected by Q1 2025 - On October 6, 2024, the company entered into an agreement to be acquired by affiliates of Apollo Global Management for $47.50 per share in cash138139 - The merger is expected to close by the end of Q1 2025, pending customary closing conditions including shareholder and regulatory approvals140 - In October 2024, new restructuring actions were authorized for both Aerospace and Industrial segments, with expected pre-tax charges of approximately $7.0 million and $13.0 million, respectively, to optimize the manufacturing footprint141142 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Q3 2024 net sales grew 7.4% to $387.8 million, driven by Aerospace, while the Industrial segment declined due to divestitures, with operating margin improving significantly Results of Operations Q3 2024 net sales increased 7.4% to $387.8 million, with gross profit margin improving to 33.1% and operating income surging to $41.8 million Net Sales by Segment (in millions) | Segment | Q3 2024 | Q3 2023 | % Change | YTD 2024 | YTD 2023 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Aerospace | $231.9 | $156.1 | 48.6% | $671.3 | $395.4 | 69.8% | | Industrial | $155.9 | $204.9 | (23.9)% | $529.4 | $640.0 | (17.3)% | | Total | $387.8 | $361.0 | 7.4% | $1,200.7 | $1,035.3 | 16.0% | - Q3 2024 operating margin increased to 10.8% from 2.8% in Q3 2023, primarily due to the absence of $7.8 million in acquisition transaction costs and lower restructuring charges144152 - For the nine months ended Sep 30, 2024, operating income was impacted by a $53.7 million goodwill impairment charge in the Automation reporting unit and a $5.4 million pre-tax gain from the sale of businesses153 Financial Performance by Business Segment Aerospace Q3 sales surged 48.6% to $231.9 million, while Industrial sales fell 23.9% due to divestitures, though its operating profit slightly increased - Aerospace Q3 sales increased 48.6% YoY, with organic sales up 9.0%, and the MB Aerospace acquisition contributed $61.1 million in incremental sales161205 - Industrial Q3 sales decreased 23.9% YoY, primarily due to a $51.8 million reduction from the sale of the Associated Spring™ and Hänggi™ businesses, with organic sales growing 0.6%169205 - The Industrial segment's nine-month operating result was a loss of $16.4 million, compared to a profit of $20.3 million in the prior year, mainly due to the $53.7 million goodwill impairment charge170 Liquidity and Capital Resources The company held $80.7 million in cash and had $434.2 million available under its credit facility, with operating cash flow at $49.8 million - The company had $80.7 million in cash and cash equivalents and $434.2 million available for borrowing under its Revolving Credit Facility as of September 30, 2024189193 - Net cash provided by operating activities decreased to $49.8 million in the first nine months of 2024 from $71.0 million in the prior year period194 - The company received $160.9 million in net proceeds from the sale of its Associated Spring™ and Hänggi™ businesses, which was used to repay debt187195 Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the company's market risk exposure during the first nine months of 2024 - There have been no material changes to the company's market risk exposure during the first nine months of 2024210 Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2024, with no material changes to internal controls - The company's disclosure controls and procedures were deemed effective as of the end of the reporting period211 - No material changes to internal control over financial reporting occurred during the third quarter of 2024212 Part II. OTHER INFORMATION Item 1. Legal Proceedings The company expects pending litigation in the ordinary course of business will not materially affect its financial position or results - The company does not expect pending litigation to have a material adverse effect on its financial condition or results213 Item 1A. Risk Factors New material risks relate to the proposed merger with Apollo, including business disruption, management distraction, and the possibility of non-completion - New risk factors have been introduced related to the proposed merger with affiliates of Apollo Global Management, entered into on October 6, 2024216217 - Key risks include business disruption, diversion of management attention, challenges in retaining key personnel and maintaining customer/supplier relationships during the pendency of the merger217 - There is a risk that the merger may not be completed if closing conditions, such as shareholder or regulatory approvals, are not met, which could negatively affect the company's stock price and operations220221222 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company acquired 32,192 shares of its equity securities in Q3 2024, not under a repurchase program, but for equity compensation tax withholding - The company did not repurchase any shares under its publicly announced repurchase program during Q3 2024. The 32,192 shares acquired were related to employee equity compensation plans for tax withholding purposes225